e8vkza
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): November 14, 2006 (November 7, 2006)
DCP MIDSTREAM PARTNERS, LP
(Exact name of registrant as specified in its charter)
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Delaware
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001-32678
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03-0567133 |
(State or other jurisdiction of
incorporation)
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(Commission
File Number)
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(IRS Employer
Identification No.) |
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370
17th Street, Suite 2775 |
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Denver, Colorado
(Address of principal executive offices)
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80202
(Zip Code) |
Registrants telephone number, including area code: (303) 633-2900
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
TABLE OF CONTENTS
This Amendment No. 1 to the Current Report on Form 8-K is filed as an amendment
(Amendment No. 1) to the Current Report on Form 8-K (File No. 001-32678) filed by DCP Midstream
Partners, LP (DCP) under Items 1.01, 2.01, 3.02, 5.03, 7.01 and 9.01 on November 7, 2006 (the Initial
8-K). The information included in Items 1.01, 2.01, 3.02, 5.03,
7.01 and 9.01 of the Initial 8-K is
incorporated herein by reference. Amendment No. 1 is being filed to include the financial
information required under Item 9.01 that was omitted from the Initial 8-K.
Item 9.01 Financial Statements and Exhibits.
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(a) |
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Financial statements of businesses acquired.
Audited combined financial statements of The Wholesale
Propane Logistics Business as of December 31, 2005, and for
the year then ended, and unaudited combined financial
statements of the Wholesale Propane Logistics Business as
of June 30, 2006, and for the six months ended June 30,
2006 and 2005, are attached hereto as Exhibit 99.3, and are
incorporated herein by reference. |
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(b) |
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Pro forma financial information.
The unaudited pro forma condensed consolidated financial
statements of DCP as of June 30, 2006, and for the six
months ended June 30, 2006, and for the years ended
December 31, 2005, 2004 and 2003, are attached hereto as
Exhibit 99.4, and are incorporated herein by reference. |
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(c) |
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Not applicable. |
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(d) |
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Exhibits. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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DCP Midstream Partners, LP |
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By:
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DCP Midstream GP, LP |
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its General Partner |
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By:
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DCP Midstream GP, LLC |
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its General Partner |
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Date: November 14, 2006 |
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/s/ Thomas E. Long |
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Name: Thomas E. Long |
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Title: Vice President and Chief Financial Officer |
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EXHIBIT INDEX
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Exhibit Number |
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Description |
+ Exhibit 3.1
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Second Amended and Restated Limited Partnership Agreement of DCP Midstream Partners, LP (incorporated by
reference to Exhibit 3.1 to DCP Midstream Partners, LPs Form 8-K filed with the SEC
on November 7, 2006). |
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+ Exhibit 10.1
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Contribution Agreement, dated October 9, 2006, between DCP LP Holdings, LP and DCP Midstream Partners, LP
(incorporated by reference to Exhibit 10.1 to DCP Midstream Partners, LPs Current Report on Form 8-K
filed with the SEC on October 13, 2006). |
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+ Exhibit 10.2
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Second Amendment to Omnibus Agreement, dated October 31, 2006, among Duke Energy Field Services, LLC, DCP
Midstream Partners, LP, DCP Midstream GP, LP, DCP Midstream GP, LLC, and DCP Midstream Operating, LP
(incorporated by reference to Exhibit 10.2 to DCP Midstream Partners, LPs Form 8-K
filed with the SEC November 7, 2006). |
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+ Exhibit 99.1
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Joint Press Release of DCP Midstream Partners, LP and Duke Energy Field Services dated October 10, 2006
(incorporated by reference to Exhibit 99.1 to DCP Midstream Partners, LPs Current Report on Form 8-K filed with the SEC on October 13, 2006). |
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+ Exhibit 99.2
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Press Release of DCP Midstream Partners, LP dated November 1, 2006 (incorporated by reference to Exhibit
99.1 to DCP Midstream Partners, LPs Current Report on Form 8-K filed with the SEC on
November 7, 2006). |
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Exhibit 99.3
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Audited and unaudited historical combined financial statements of the Wholesale Propane Logistics Business. |
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Exhibit 99.4
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Unaudited pro forma condensed consolidated financial statements of DCP Midstream Partners, LP. |
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Incorporated by reference. |
exv99w3
EXHIBIT 99.3
INDEPENDENT AUDITORS REPORT
To the Board of Directors of
Duke Energy Field Services, LLC
Denver, Colorado
We have
audited the accompanying combined balance sheet of the Wholesale Propane Logistics
Business (the Company) as of December 31, 2005, and the related statements of operations, changes
in net parent equity, and cash flows for the year then ended. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial
position of the Company at December 31, 2005, and the results of its operations and its cash flows
for the year then ended in conformity with accounting principles generally accepted in the United
States of America.
The accompanying combined financial statements have been prepared from the separate records
maintained by Duke Energy Field Services, LLC and may not necessarily be indicative of the
conditions that would have existed or the results of operations if the Company had been operated as
an unaffiliated entity. Portions of certain expenses represent allocations made from, and are
applicable to, Duke Energy Field Services, LLC as a whole.
/s/ Deloitte & Touche LLP
Denver, Colorado
November 14, 2006
1
THE WHOLESALE PROPANE LOGISTICS BUSINESS
COMBINED BALANCE SHEETS
($ in millions)
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June 30, |
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December 31, |
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2006 |
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2005 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Accounts receivable, net of allowance for doubtful accounts of $0.1
(unaudited) and $0.2, respectively |
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$ |
13.5 |
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$ |
40.2 |
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Inventories |
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29.3 |
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41.6 |
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Unrealized gains on non-trading derivative and hedging transactions affiliate |
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0.1 |
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0.1 |
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Total current assets |
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42.9 |
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81.9 |
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Property, plant and equipment, net |
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15.6 |
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9.8 |
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Goodwill |
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29.3 |
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29.3 |
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Intangible assets, net |
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0.9 |
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1.1 |
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Investment in unconsolidated affiliate |
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0.2 |
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0.2 |
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Other non-current assets |
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0.3 |
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0.3 |
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Total assets |
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$ |
89.2 |
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$ |
122.6 |
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LIABILITIES AND NET PARENT EQUITY |
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Current liabilities: |
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Accounts payable: |
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Trade |
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$ |
24.8 |
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$ |
50.9 |
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Affiliates |
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0.8 |
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0.4 |
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Unrealized losses on non-trading derivative and hedging transactions affiliate |
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0.7 |
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0.3 |
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Other |
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1.9 |
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1.3 |
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Total current liabilities |
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28.2 |
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52.9 |
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Long-term liabilities |
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0.2 |
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0.1 |
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Total liabilities |
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28.4 |
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53.0 |
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Commitments and contingencies |
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Net parent equity |
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60.8 |
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69.6 |
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Total liabilities and net parent equity |
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$ |
89.2 |
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$ |
122.6 |
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See accompanying notes to combined financial statements.
2
THE WHOLESALE PROPANE LOGISTICS BUSINESS
COMBINED STATEMENTS OF OPERATIONS
($ in millions)
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Six Months Ended |
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Year Ended |
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June 30, |
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December 31, |
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2006 |
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2005 |
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2005 |
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(unaudited) |
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Operating revenues: |
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Sales of propane |
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$ |
205.3 |
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$ |
187.2 |
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$ |
356.8 |
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Sales of propane to affiliates |
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5.7 |
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1.7 |
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3.0 |
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Transportation |
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0.1 |
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0.2 |
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(Losses) gains from non-trading derivative activity affiliate |
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(0.5 |
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0.1 |
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(0.2 |
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Total operating revenues |
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210.5 |
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189.1 |
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359.8 |
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Operating costs and expenses: |
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Purchases of propane |
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168.1 |
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155.1 |
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288.1 |
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Purchases of propane from affiliates |
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34.0 |
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20.5 |
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49.9 |
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Operating and maintenance expense |
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4.2 |
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4.2 |
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8.2 |
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Depreciation and amortization expense |
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0.5 |
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0.5 |
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1.0 |
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General and administrative expense |
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0.6 |
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0.4 |
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1.1 |
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General and administrative expenseaffiliates |
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1.0 |
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0.7 |
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1.7 |
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Total operating costs and expenses |
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208.4 |
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181.4 |
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350.0 |
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Operating income and income before income taxes |
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2.1 |
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7.7 |
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9.8 |
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Income tax expense |
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3.2 |
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3.3 |
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Net income |
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$ |
2.1 |
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$ |
4.5 |
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$ |
6.5 |
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See accompanying notes to combined financial statements.
3
THE WHOLESALE PROPANE LOGISTICS BUSINESS
COMBINED STATEMENTS OF CHANGES IN NET PARENT EQUITY
($ in millions)
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Balance, December 31, 2004 |
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$ |
61.0 |
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Net change in parent advances |
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2.1 |
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Net income |
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6.5 |
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Balance, December 31, 2005 |
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69.6 |
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Net change in parent advances (unaudited) |
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(10.9 |
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Net income (unaudited) |
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2.1 |
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Balance, June 30, 2006 (unaudited) |
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$ |
60.8 |
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See accompanying notes to combined financial statements.
4
THE WHOLESALE PROPANE LOGISTICS BUSINESS
COMBINED STATEMENTS OF CASH FLOWS
($ in millions)
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Six Months Ended |
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Year Ended |
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June 30, |
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December 31, |
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2006 |
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2005 |
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2005 |
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(unaudited) |
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OPERATING ACTIVITIES: |
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Net income |
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$ |
2.1 |
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$ |
4.5 |
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$ |
6.5 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization expense |
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0.5 |
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0.5 |
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1.0 |
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Deferred income taxes |
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(0.1 |
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(0.5 |
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Other, net |
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(0.1 |
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(0.1 |
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Change in operating assets and liabilities which provided (used) cash: |
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Accounts receivable |
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26.7 |
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20.7 |
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(9.9 |
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Net unrealized losses on non-trading derivative and hedging transactions |
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0.4 |
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0.2 |
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0.4 |
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Inventories |
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12.3 |
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4.6 |
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(20.9 |
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Accounts payable |
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(25.7 |
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(10.7 |
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27.5 |
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Income taxes payable |
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2.9 |
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(3.2 |
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Other current liabilities |
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(0.1 |
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(0.6 |
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(0.1 |
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Net cash provided by operating activities |
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16.1 |
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21.9 |
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0.8 |
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NET CASH USED IN INVESTING ACTIVITIES Capital expenditures |
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(5.2 |
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(2.9 |
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NET CASH
(USED IN) PROVIDED BY FINANCING ACTIVITIES Net change in advances
from parent |
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(10.9 |
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(21.9 |
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2.1 |
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Net change in cash |
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Cash, beginning of period |
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Cash, end of period |
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$ |
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$ |
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$ |
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Supplemental cash flow information: |
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Cash paid for income taxes |
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$ |
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$ |
0.3 |
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$ |
2.6 |
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See accompanying notes to combined financial statements.
5
THE WHOLESALE PROPANE LOGISTICS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. General and Summary of Significant Accounting Policies
The Wholesale Propane Logistics Business, or the Business, we, our, or us, is engaged in the
business of transporting, storing and selling propane through various propane terminals. Our
operations consist of six owned propane rail terminals, one leased propane marine terminal, and
access to several open-access propane pipeline terminals. In addition, we are constructing a
propane pipeline terminal expected to be completed by the end of 2006. We also own or have access
to propane storage and transportation.
These combined financial statements and related notes present the financial position, results
of operations and cash flows, and changes in net parent equity of the Wholesale Propane Logistics
Business held by Duke Energy Field Services, LLC and its subsidiaries, or DEFS. The Business was
contributed by DEFS to DCP Midstream Partners, LP, or DCP, on November 1, 2006. DEFS owned a 42%
interest, including 100% of the general partner interest, in DCP prior to this contribution.
Historically, the assets, liabilities and operations of the Business were owned and operated by
DEFS. As part of the closing of the acquisition, the assets, liabilities and operations of the
Business will reside in the legal entity Gas Supply Resources LLC, or GSRLLC. DCP will acquire
GSRLLCs membership interests from DEFS for approximately $5.7 million in DCP limited partner units
and approximately $67.4 million in cash, subject to standard closing conditions. DEFS also
purchased 4,088 general partner equivalent units for $0.1 million in order to maintain its 2%
general partner interest. Subsequent to our acquisition by DCP, DEFS will direct our business
operations through DEFS ownership of DCPs general partner interest. The Business is not expected
to have any employees. DEFS and its affiliates employees will be responsible for conducting our
business and operating our assets.
The combined financial statements include the accounts of the Business and have been prepared
in accordance with accounting principles generally accepted in the United States of America, or
GAAP. All significant intercompany balances and transactions within the Business have been
eliminated. The combined financial statements of the Business have been prepared from the separate
records maintained by DEFS and may not necessarily be indicative of the conditions that would have
existed, or the results of operations, if the Business had been operated as an unaffiliated entity.
Because a direct ownership relationship did not exist among all the various assets comprising the
Business, DEFS net investment in the Business is shown as net parent equity, in lieu of owners
equity, in the combined financial statements. Transactions between the Business and other DEFS
operations have been identified in the combined financial statements
as transactions between
affiliates. In the opinion of management, all adjustments have been reflected that are necessary
for a fair presentation of the combined financial statements. DEFS is owned by Duke Energy
Corporation and ConocoPhillips.
The combined statements of operations, cash flows and changes in net parent equity for the six
months ended June 30, 2006 and 2005, and the combined balance sheet as of June 30, 2006, are
unaudited. These unaudited interim combined financial statements have been prepared in accordance
with GAAP. In the opinion of management, the unaudited interim combined financial statements have
been prepared on the same basis as the audited combined financial statements, and include all
adjustments necessary to present fairly the financial position, and the results of operations and
cash flows, for the respective interim periods. Interim financial results are not necessarily
indicative of the results to be expected for an annual period.
Use of Estimates Conformity with GAAP requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and notes. Although these estimates
are based on managements best available knowledge of current and expected future events, actual
results could be different from those estimates.
Inventories Inventories consist of propane. Inventories are valued at the lower of weighted
average cost or market. Transportation costs are included in inventory on the combined balance
sheets.
Accounting for Risk Management and Hedging Activities and Financial Instruments Each
derivative not qualifying for the normal purchases and normal sales exception under Statement of
Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative Instruments and
Hedging Activities, or SFAS 133, as amended, is recorded on a gross basis in the combined balance
sheets at its fair value as unrealized gains or unrealized losses on non-trading derivative and
hedging transactions. Derivative assets and liabilities remain classified in our combined balance
sheets as unrealized gains or unrealized losses on non-trading derivative and hedging transactions
at fair value until the contractual settlement period occurs.
All derivative activity reflected in the combined financial statements was transacted by DEFS.
Management designates each energy commodity derivative as either trading or non-trading. Certain
non-trading derivatives are further designated as either a hedge of a forecasted transaction or
future cash flow (cash flow hedge), a hedge of a recognized asset, liability or firm commitment
(fair value hedge), or normal purchases or normal sales, while certain non-trading derivatives,
which are related to asset-based activity, are
6
designated as non-trading derivative activity. For the periods presented, we did not have any
trading activity, cash flow hedge activity or fair value hedge activity, however, we did have
normal purchases and normal sales activity and non-trading derivative activity included in these
combined financial statements. For each derivative, the accounting method and presentation of gains
and losses or revenue and expense in the combined statements of operations are as follows:
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Classification of Contract |
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Accounting Method |
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Presentation of Gains & Losses or Revenue & Expense |
Non-Trading Derivatives: |
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Non-Trading Derivative Activity
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Mark-to-market (a)
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|
Net basis in losses
and gains from
non-trading
derivative
activityaffiliate |
|
|
|
|
|
Normal Purchases or Normal Sales
|
|
Accrual method (b)
|
|
Gross basis upon
settlement in the
corresponding
statement of
operations category
based on purchase
or sale |
|
|
|
(a) |
|
Mark-to-market An accounting method whereby the change in the fair value of the asset or
liability is recognized in the results of operations in losses and gains from non-trading
derivative activityaffiliate during the current period. |
|
(b) |
|
Accrual method An accounting method whereby there is no recognition in the results of
operations for changes in fair value of a contract until the service is provided or the
associated delivery period occurs. |
Valuation When available, quoted market prices or prices obtained through external sources
are used to determine a contracts fair value. For contracts with a delivery location or duration
for which quoted market prices are not available, fair value is determined based on pricing models
developed primarily from historical and expected correlations with quoted market prices.
Values are adjusted to reflect the credit risk inherent in the transaction as well as the
potential impact of liquidating open positions in an orderly manner over a reasonable time period
under current conditions. Changes in market prices and management estimates directly affect the
estimated fair value of these contracts. Accordingly, it is reasonably possible that such estimates
may change in the near term.
Property, Plant and Equipment Property, plant and equipment are recorded at historical cost.
Depreciation is computed using the straight-line method over the estimated useful lives of the
assets. The costs of maintenance and repairs, which are not significant improvements, are expensed
when incurred. Expenditures to extend the useful lives of the assets are capitalized.
We have adopted SFAS No. 143, Accounting for Asset Retirement Obligations, or SFAS 143, and
Financial Accounting Standards Board, or FASB, Interpretation No. 47, Accounting for Conditional
Asset Retirement Obligations, or FIN 47, which address financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the associated asset
retirement costs. The standard and interpretation apply to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction, development and/or
normal use of the asset. SFAS 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred, if a reasonable estimate
of fair value can be made. The fair value of the liability is added to the carrying amount of the
associated asset. This additional carrying amount is then depreciated over the life of the asset.
The liability increases due to the passage of time based on the time value of money until the
obligation is settled. FIN 47 requires the recognition of a liability of a conditional asset
retirement obligation as soon as the fair value of the liability can be reasonably estimated. A
conditional asset retirement obligation is defined as an unconditional legal obligation to perform
an asset retirement activity in which the timing and/or method of settlement are conditional on a
future event that may or may not be within the control of the entity.
Impairment of Long-Lived Assets Management periodically evaluates whether the carrying value
of long-lived assets has been impaired when circumstances indicate the carrying value of those
assets may not be recoverable. This evaluation is based on undiscounted cash flow projections. The
carrying amount is not recoverable if it exceeds the undiscounted sum of cash flows expected to
result from the use and eventual disposition of the asset. Management considers various factors
when determining if these assets should be evaluated for impairment, including but not limited to:
|
|
|
significant adverse change in legal factors or in the business climate; |
|
|
|
|
a current-period operating or cash flow loss combined with a history of operating or cash
flow losses or a projection or forecast that demonstrates continuing losses associated with
the use of a long-lived asset; |
|
|
|
|
an accumulation of costs significantly in excess of the amount originally expected for
the acquisition or construction of a long-lived asset; |
|
|
|
|
significant adverse changes in the extent or manner in which an asset is used or in its physical condition; |
7
|
|
|
a significant change in the market value of an asset; or |
|
|
|
|
a current expectation that, more likely than not, an asset will be sold or otherwise
disposed of before the end of its estimated useful life. |
If the carrying value is not recoverable, the impairment loss is measured as the excess of the
assets carrying value over its fair value. Management assesses the fair value of long-lived assets
using commonly accepted techniques, and may use more than one method, including, but not limited
to, recent third party comparable sales, internally developed discounted cash flow analysis and
analysis from outside advisors. Significant changes in market conditions resulting from events such
as the condition of an asset or a change in managements intent to utilize the asset would
generally require management to reassess the cash flows related to the long-lived assets.
Commodity Purchase Contracts Commodity purchase contracts are included on the accompanying
combined balance sheets as intangibles assets, and are amortized on a straight-line basis over the
term of the contract, which is four years.
Goodwill Goodwill is the cost of an acquisition less the fair value of the net assets of the
acquired business. The goodwill on the combined balance sheets was recognized by DEFS in May 2001
when DEFS acquired certain assets which are now included in the Wholesale Propane Logistics
Business, and was allocated based on fair value to the Wholesale Propane Logistics Business in order to present
historical information about the assets to be acquired by DCP. We evaluate goodwill for impairment
annually in the third quarter, and whenever events or changes in circumstances indicate it is more
likely than not that the fair value of a reporting unit is less than its carrying amount.
Impairment testing of goodwill consists of a two-step process. The first step involves a comparison
of the fair value of the reporting unit, to which goodwill has been allocated, with its carrying
amount. If the carrying amount of the reporting unit exceeds its fair value, the second step of the
process involves a comparison of the fair value and carrying value of the goodwill of that
reporting unit. If the carrying value of the goodwill of a reporting unit exceeds the fair value of
that goodwill, an impairment loss is recognized in an amount equal to the excess.
Equity Method Investment Our investment in a 50% owned affiliate is accounted for using the
equity method, because we have the ability to exercise significant influence.
Impairment of Equity Method Investment We evaluate our equity method investment for
impairment when events or changes in circumstances indicate, in managements judgment, that the
carrying value of such investment may have experienced an other-than-temporary decline in value.
When evidence of loss in value has occurred, management compares the estimated fair value of the
investment to the carrying value of the investment to determine whether any impairment has
occurred. Management assesses the fair value of its equity method investment using commonly
accepted techniques, and may use more than one method, including, but not limited to, recent third
party comparable sales, internally developed discounted cash flow analysis and analysis from
outside advisors. If the estimated fair value is less than the carrying value and management
considers the decline in value to be other than temporary, the excess of the carrying value over
the estimated fair value is recognized in the financial statements as impairment.
Revenue Recognition Operating revenues primarily include sales of propane. Operating revenues
also include propane transportation fees and non-trading derivative activity.
Revenues associated with sales of propane are recognized when title passes to the customer,
which is when the risk of ownership passes to the purchaser and physical delivery occurs. Revenues
associated with transportation fees are recognized as the services are provided.
We recognize revenues for non-trading derivative activity net in the combined statements of
operations as losses and gains from non-trading derivative activityaffiliate, in accordance with
EITF Issue No. 02-3, Issues Involved in Accounting for Derivative Contracts Held for Trading
Purposes and Contracts Involved in Energy Trading and Risk Management Activities. These activities
include mark-to-market gains and losses on energy derivative contracts and the financial or
physical settlement of energy derivative contracts.
We generally report revenues gross in the combined statements of operations, in accordance
with EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. We act
as the principal in these transactions, take title to the product, and incur the risks and rewards
of ownership.
Income Taxes We changed our tax structure, effective December 7, 2005, such that we became a
pass-through entity for United States income tax purposes. Prior to December 7, 2005, our assets
were considered taxable for United States income tax purposes. We follow the asset and liability
method of accounting for income taxes. Under the asset and liability method, deferred
8
income taxes are recognized for the tax consequences of temporary differences between the
financial statement carrying amounts and the tax basis of the assets and liabilities.
2. New Accounting Standards
SFAS No. 157 Fair Value Measurements, or SFAS 157 In September 2006, the FASB issued SFAS
157, which provides guidance for using fair value to measure assets and liabilities. The standard
also responds to investors requests for more information about (1) the extent to which companies
measure assets and liabilities at fair value, (2) the information used to measure fair value and
(3) the effect that fair value measurements have on earnings. SFAS 157 will apply whenever another
standard requires (or permits) assets or liabilities to be measured at fair value. SFAS 157 does
not expand the use of fair value to any new circumstances. SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. We do not currently expect SFAS 157 to have a material impact on our combined
results of operations, cash flows or financial position.
SFAS No. 153 Exchanges of Nonmonetary Assetsan amendment of APB Opinion No. 29, or SFAS 153
In December of 2004, the FASB issued SFAS 153, which amends APB Opinion No. 29 (APB 29) by
eliminating the exception to the fair-value principle for exchanges of similar productive assets,
which were accounted for under APB 29 based on the book value of the asset surrendered with no gain
or loss recognition. SFAS 153 also eliminates APB 29s concept of culmination of an earnings
process. The amendment requires that an exchange of nonmonetary assets be accounted for at fair
value if the exchange has commercial substance and fair value is determinable within reasonable
limits. Commercial substance is assessed by comparing the entitys expected cash flows immediately
before and after the exchange. If the difference is significant, the transaction is considered to
have commercial substance and should be recognized at fair value. SFAS 153 is effective for
nonmonetary transactions occurring in fiscal periods beginning after June 15, 2005. The adoption of
SFAS 153 did not have a material impact on our combined results of operations, cash flows or
financial position.
FIN No. 47 Accounting for Conditional Asset Retirement Obligations, or FIN 47 In March
2005, the FASB issued FIN 47, which clarifies the accounting for conditional asset retirement
obligations as used in SFAS No. 143 (SFAS 143) Accounting for Asset Retirement Obligations. A
conditional asset retirement obligation is an unconditional legal obligation to perform an asset
retirement activity in which the timing and (or) method of settlement are conditional on a future
event that may or may not be within the control of the entity. Therefore, an entity is required to
recognize a liability for the fair value of a conditional asset retirement obligation under SFAS
143 if the fair value of the liability can be reasonably estimated. FIN 47 permits, but does not
require, restatement of interim financial information. The provisions of FIN 47 are effective for
reporting periods ending after December 15, 2005. The adoption of FIN 47 did not have a material
impact on our combined results of operations, cash flows or financial position.
EITF Issue No. 04-13, Accounting for Purchases and Sales of Inventory with the Same
Counterparty, or EITF 04-13 In September 2005, the FASB ratified the EITFs consensus on Issue
04-13, which requires an entity to treat sales and purchases of inventory between the entity and
the same counterparty as one transaction for purposes of applying APB Opinion No. 29, Accounting
for Nonmonetary Transactions, when such transactions are entered into in contemplation of each
other. When such transactions are legally contingent on each other, they are considered to have
been entered into in contemplation of each other. The EITF also agreed on other factors that should
be considered in determining whether transactions have been entered into in contemplation of each
other. EITF 04-13 is to be applied to new arrangements that we enter into in reporting periods
beginning after March 15, 2006. Applicable transactions in the accompanying combined financial
statements have been presented on a net basis.
3. Agreements and Transactions with Affiliates
The employees supporting our operations are employees of DEFS. Costs incurred by DEFS on our
behalf for salaries and benefits of operating personnel, as well as capital expenditures,
maintenance and repair costs, and taxes have been directly allocated to us. DEFS also provides
centralized corporate functions on our behalf, including legal, accounting, cash management,
insurance administration and claims processing, risk management, health, safety and environmental,
information technology, human resources, credit, payroll, internal audit, taxes and engineering.
DEFS records the accrued liabilities and prepaid expenses for most general and administrative
expenses in its financial statements, including liabilities related to payroll, short and long-term
incentive plans, employee retirement and medical plans, paid time off, audit, tax, insurance and
other service fees. Our share of those costs has been allocated based on our proportionate net
investment (consisting of property, plant and equipment, net, equity method investment, intangibles
and goodwill) compared to DEFS net investment. In managements estimation, the allocation
methodologies used are reasonable and result in an allocation to us of our costs of doing business
borne by DEFS.
9
All derivative activity reflected in the combined financial statements was transacted by DEFS
and its subsidiaries, and allocated to the Business. As such, all amounts classified in the
combined balance sheets as unrealized gains or losses on non-trading derivative and hedging
transactions, and in the combined statements of operations as losses and gains from non-trading
derivative activity, are transactions with affiliate.
We participate in DEFS cash management program. As a result, we have no cash balances on the
combined balance sheets and all of our cash management activity was performed by DEFS on our
behalf, including collection of receivables, payment of payables, and the settlement of sales and
purchases transactions with DEFS, which were recorded as parent advances and are included in net
parent equity on the accompanying combined balance sheets.
We currently, and anticipate continuing to, purchase and sell propane to DEFS in the ordinary
course of business. DEFS was a significant customer during the six months ended June 30, 2006 and
2005, and the year ended December 31, 2005.
We had an operating lease with an affiliate during the year ended December 31, 2005. Operating
lease expense related to this lease was $0.7 million during the six months ended June 30, 2005
(unaudited) and the year ended December 31, 2005.
The
following table summarizes the transactions with DEFS, Duke Energy Corporation and ConocoPhillips for the six
months ended June 30, 2006 and 2005, and the year ended December 31, 2005, as described above ($ in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Year Ended |
|
|
June 30, |
|
December 31, |
|
|
2006 |
|
2005 |
|
2005 |
|
|
(unaudited) |
|
(unaudited) |
|
|
|
|
Duke Energy Field Services: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales of propane |
|
$ |
5.7 |
|
|
$ |
1.7 |
|
|
$ |
3.0 |
|
Purchases of propane |
|
$ |
31.6 |
|
|
$ |
20.5 |
|
|
$ |
48.3 |
|
(Losses) gains from non-trading derivative activity |
|
$ |
(0.5 |
) |
|
$ |
0.1 |
|
|
$ |
(0.2 |
) |
General and administrative expense |
|
$ |
1.0 |
|
|
$ |
0.7 |
|
|
$ |
1.7 |
|
Duke Energy Corporation: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of propane |
|
$ |
1.9 |
|
|
$ |
|
|
|
$ |
1.6 |
|
ConocoPhillips: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of propane |
|
$ |
0.5 |
|
|
$ |
|
|
|
$ |
|
|
We had accounts payable with affiliates as follows as of June 30, 2006 and December 31, 2005
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2006 |
|
2005 |
|
|
(unaudited) |
|
|
|
|
Duke Energy Corporation: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
0.8 |
|
|
$ |
0.4 |
|
10
4. Property, Plant and Equipment
A summary of property, plant and equipment by classification is as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciable |
|
|
June 30, |
|
|
December 31, |
|
|
|
Life |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
Terminals |
|
25 30 Years |
|
$ |
8.3 |
|
|
$ |
8.2 |
|
General plant |
|
3 5 Years |
|
|
0.9 |
|
|
|
0.9 |
|
Construction work in progress |
|
|
|
|
|
|
8.8 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
|
|
|
|
18.0 |
|
|
|
12.0 |
|
Accumulated depreciation |
|
|
|
|
|
|
(2.4 |
) |
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
|
|
|
$ |
15.6 |
|
|
$ |
9.8 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $0.2 million for the six months ended June 30, 2006 and 2005
(unaudited), and $0.4 million for the year ended December 31, 2005.
At June 30, 2006, we had non-cancelable purchase obligations of $5.2 million (unaudited) for a
capital project expected to be completed in 2006. We had no non-cancelable purchase obligations at
December 31, 2005.
Asset Retirement Obligations Asset retirement obligations relate primarily to the retirement
of various propane terminals, obligations related to right-of-way easement agreements and
contractual leases for land use. Accretion expense for the six months ended June 30, 2006 and 2005
(unaudited) and the year ended December 31, 2005 was not significant.
The asset retirement obligation is adjusted each quarter for any liabilities incurred or
settled during the period, accretion expense and any revisions made to the estimated cash flows.
The asset retirement obligation, included in long-term liabilities in the combined balance
sheets, was $0.2 million as of June 30, 2006 (unaudited) and $0.1 million as of December 31, 2005.
5. Goodwill and Intangible Assets
There were no changes in the $29.3 million carrying amount of goodwill during the six months
ended June 30, 2006 or the year ended December 31, 2005. Our annual goodwill impairment test
indicated that our reporting units fair value exceeded its carrying or book value. Accordingly, no
impairment of goodwill is indicated.
The gross carrying amount and accumulated amortization of commodity purchases contracts and
other intangible assets are included in the accompanying combined balance sheets as intangible
assets, and are as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(unaudited) |
|
|
|
|
|
Gross carrying amount |
|
$ |
8.5 |
|
|
$ |
8.5 |
|
Accumulated amortization |
|
|
(7.6 |
) |
|
|
(7.4 |
) |
|
|
|
|
|
|
|
Commodity purchases contracts and other intangible assets, net |
|
$ |
0.9 |
|
|
$ |
1.1 |
|
|
|
|
|
|
|
|
Our customer has notified us that they intend to exercise their early termination right prior
to the end of the contract term. Accordingly, we are not amortizing the estimated termination fee
of $0.5 million, which is included in the $1.1 million as of December 31, 2005 above.
During the six months ended June 30, 2006 and 2005, and the year ended December 31, 2005, we
recorded amortization expense associated with intangible assets of $0.3 million (unaudited), and
$0.6 million, respectively. The remaining amortization period for the remaining contract is three
years.
11
Estimated amortization for these assets as of December 31, 2005 is as follows:
|
|
|
|
|
|
|
Estimated Amortization |
|
|
|
($ in millions) |
|
2006 |
|
$ |
0.3 |
|
2007 |
|
|
0.2 |
|
2008 |
|
|
0.1 |
|
|
|
|
|
Total |
|
$ |
0.6 |
|
|
|
|
|
6. Investment in Unconsolidated Affiliate
Our 50% equity interest in an entity that owns a propane rail terminal amounted to $0.2
million as of June 30, 2006 (unaudited) and $0.2 million as of December 31, 2005.
The following summarizes financial information of the entity ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(unaudited) |
|
Statements of operations: |
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
0.1 |
|
|
$ |
0.1 |
|
Operating expenses |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Balance sheet: |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
0.1 |
|
|
$ |
0.1 |
|
Non-current assets |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
Net assets |
|
$ |
0.4 |
|
|
$ |
0.4 |
|
|
|
|
|
|
|
|
7. Income Taxes
For interim reporting purposes, we based our effective tax rate on the estimated annual
effective tax rate. Income tax expense totaled $3.2 million for the six months ended June 30, 2005
(unaudited), resulting in an effective tax rate of 41.6%. There was no income tax expense for the
six months ended June 30, 2006, due to the change in our tax structure, which resulted in our
assets changing from taxable to non-taxable for United States income tax purposes on December 7,
2005.
Income tax expense consisted of the following for the year ended December 31, 2005 ($ in
millions):
|
|
|
|
|
Current: |
|
|
|
|
Federal |
|
$ |
3.0 |
|
State |
|
|
0.8 |
|
Deferred: |
|
|
|
|
Federal |
|
|
(0.4 |
) |
State |
|
|
(0.1 |
) |
|
|
|
|
Total income tax expense |
|
$ |
3.3 |
|
|
|
|
|
A reconciliation of the actual income tax expense and the amount computed by applying the
federal statutory rate of 35% to the income before income taxes is as follows ($ in millions):
|
|
|
|
|
Federal income tax at statutory rate |
|
$ |
3.4 |
|
State income taxes, net of federal benefit |
|
|
0.6 |
|
Change in tax structure |
|
|
(0.5 |
) |
Other |
|
|
(0.2 |
) |
|
|
|
|
Total income tax expense |
|
$ |
3.3 |
|
|
|
|
|
The change in tax structure resulted in the reversal of our net deferred tax liabilities in
the year ended December 31, 2005. Accordingly, we had no deferred tax balances as of June 30, 2006
or December 31, 2005.
12
8. Risk Management and Hedging Activities, Credit Risk and Financial Instruments
Commodity price risk Our business is generally designed to establish stable margins by
entering into supply arrangements that specify prices based on established floating price indices
and by entering into sales agreements that provide for floating prices that are tied to our
variable supply costs plus a margin. To the extent that we carry propane inventories or our sales
and supply arrangements are not aligned we are exposed to market variables and commodity price
risk. The amount and type of price risk is dependent on the mechanisms and locations for purchases,
sales, transportation and storage of propane.
Credit risk We sell primarily to propane retailers. The majority of our propane sales are
made at market-based prices. This concentration of credit risk may affect our overall credit risk
in that these customers may be similarly affected by changes in economic, regulatory or other
factors. Where exposed to credit risk, management analyzes the counterparties financial condition
prior to entering into an agreement, establishes credit limits and monitors the appropriateness of
these limits on an ongoing basis. We operate under DEFS corporate credit policy. DEFS corporate
credit policy prescribes the use of master collateral agreements to mitigate credit exposure.
Collateral agreements provide for a counterparty to post cash or letters of credit for exposure in
excess of the established threshold. The threshold amount represents an open credit limit,
determined in accordance with DEFS credit policy. The collateral agreements also provide that the
inability to post collateral is sufficient cause to terminate a contract and liquidate all
positions. In addition, our standard propane sales contracts contain adequate assurance provisions
which allow us to suspend deliveries, cancel agreements or continue deliveries to the buyer after
the buyer provides security for payment in a form satisfactory to us.
Commodity Non-Trading Derivative Activity The marketing of energy related products and
services exposes us to the fluctuations in the market values of exchanged instruments. To the
extent that we offer fixed price propane to our customers, we manage this fixed price risk by
entering into hedging arrangements, sometimes using non-trading derivative instruments, which
generally allow us to swap this fixed price risk to market index prices that are matched to our
market index supply costs. In addition, we may on occasion use derivative instruments to manage the
value of our propane inventories.
9. Estimated Fair Value of Financial Instruments
We have determined fair value amounts using available market information and appropriate
valuation methodologies. However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that we could realize in a current market exchange. The use
of different market assumptions and/or estimation methods may have a material effect on the
estimated fair value amounts.
The fair value of accounts receivable and accounts payable are equal to their carrying amounts
because of the short term nature of these instruments or the stated rates approximating market
rates.
The fair value of the non-trading derivative and hedging transactions is recorded on the
combined balance sheet. The fair value is determined by multiplying the difference between the
quoted termination prices for commodity contract prices by the quantities under contract. The fair
value of the non-trading derivative and hedging transactions are equal to their carrying amounts.
10. Commitments and Contingencies
Litigation We are not a party to any significant legal proceedings but, from time to time,
are a party to various administrative and regulatory proceedings that have arisen in the ordinary
course of our business. Management currently believes that the ultimate resolution of the foregoing
matters, taken as a whole, and after consideration of amounts accrued, insurance coverage or other
indemnification arrangements, will not have a material adverse effect upon our future financial
position, operations and cash flows.
Insurance In 2005, DEFS carried insurance coverage, which included our assets and
operations, with an affiliate of Duke Energy. Beginning in 2006, DEFS elected to carry property and
excess liability insurance coverage with an affiliate of Duke Energy and an affiliate of
ConocoPhillips. DEFS provides remaining insurance coverage with a third party insurer. DEFS
insurance coverage includes (1) commercial general public liability insurance for liabilities
arising to third parties for bodily injury and property damage resulting from operations, (2)
workers compensation liability coverage to required statutory limits, (3) automobile liability
insurance for all owned, non-owned and hired vehicles covering liabilities to third parties for
bodily injury and property damage, (4) excess liability insurance above the established primary
limits for commercial general liability and automobile liability insurance, and (5) property
insurance covering the replacement value of all real and personal property damage, including
damages arising from boiler and machinery breakdowns, windstorms, earthquake, flood damage and
business interruption/extra expense. All coverages are subject to certain limits and deductibles,
the terms and conditions of which are common for companies with similar types of operations.
13
A portion of the insurance costs described above are allocated by DEFS to us through the
allocation methodology described in Note 3.
Environmental The operation of facilities for transporting or storing propane is subject to
stringent and complex laws and regulations pertaining to health, safety and the environment. As an
owner or operator of these facilities, we must comply with United States laws and regulations at
the federal, state and local levels that relate to air and water quality, hazardous and solid waste
management and disposal, and other environmental matters. The cost of planning, designing,
constructing and operating facilities must incorporate compliance with environmental laws and
regulations and safety standards. Failure to comply with these laws and regulations may trigger a
variety of administrative, civil and potentially criminal enforcement measures, including citizen
suits, which can include the assessment of monetary penalties, the imposition of remedial
requirements, and the issuance of injunctions or restrictions on operation. Management believes
that, based on currently known information, compliance with these laws and regulations will not
have a material adverse effect on our combined results of operations, financial position or cash
flows.
Other Commitments and Contingencies We utilize assets under operating leases in several
areas of our operations. Combined rental expense under operating leases, including leases with no
continuing commitment, amounted to $4.7 million and $4.5 million for the six months ended June 30,
2006 and 2005, respectively (unaudited), and $9.0 million for the year ended December 31, 2005.
Rental expense for leases with escalation clauses is recognized on a straight line basis over the
initial lease term.
Minimum rental payments under our various operating leases in the year indicated are as
follows at December 31, 2005 ($ in millions):
|
|
|
|
|
2006 |
|
$ |
8.5 |
|
2007 |
|
|
6.9 |
|
2008 |
|
|
6.2 |
|
2009 |
|
|
4.5 |
|
2010 |
|
|
4.3 |
|
Thereafter |
|
|
14.2 |
|
|
|
|
|
Total minimum rental payments |
|
$ |
44.6 |
|
|
|
|
|
14
exv99w4
Exhibit 99.4
UNAUDITED DCP MIDSTREAM PARTNERS, LP PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The unaudited pro forma condensed consolidated financial statements present the impact on our
financial position and results of operations of our acquisition of 100% of the Wholesale Propane
Logistics Business from Duke Energy Field Services LLC (DEFS). We paid aggregate consideration
consisting of approximately $67.4 million in cash and the issuance of 200,312 Class C units. DEFS
also purchased 4,088 general partner equivalent units for $0.1 million in order to maintain its 2%
general partner interest. The pro forma financial statements as of June 30, 2006, and for the six
months ended June 30, 2006, and for the years ended December 31, 2005, 2004 and 2003, have been
prepared based on certain pro forma adjustments to our historical consolidated financial statements
set forth in our Annual Report on Form 10-K for the year ended December 31, 2005, and our Quarterly
Report on Form 10-Q for the quarter ended June 30, 2006, as filed with the Securities and Exchange
Commission, and are qualified in their entirety by reference to such historical consolidated
financial statements and related notes contained in those reports. The unaudited pro forma
condensed consolidated financial statements should be read in conjunction with the accompanying
notes and with the historical consolidated financial statements and related notes thereto.
The unaudited pro forma condensed consolidated balance sheet as of June 30, 2006, has been
prepared as if this transaction had occurred on that date. The unaudited pro forma condensed
consolidated statements of operations for the six months ended June 30, 2006 and 2005, and for the
years ended December 31, 2005, 2004 and 2003, have been prepared as if this transaction had
occurred on January 1, 2003. Since this is a transaction between entities under common control, the
pro forma financial statements are combined on an as if pooling basis. Accordingly, the historic
cost of the acquired assets and liabilities are carried forward.
The pro forma adjustments are based upon currently available information and certain estimates
and assumptions; therefore, actual adjustments will differ from the pro forma adjustments.
Management believes, however, that the assumptions provide a reasonable basis for presenting the
significant effects of the transaction as contemplated, and that the pro forma adjustments give
appropriate effect to those assumptions and are properly applied in the unaudited pro forma
condensed consolidated financial statements.
The unaudited pro forma condensed consolidated financial statements may not be indicative of
the results that actually would have occurred if we had owned 100% of the Wholesale Propane
Logistics Business during the periods presented.
1
DCP MIDSTREAM PARTNERS, LP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2006
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DCP |
|
|
|
DCP |
|
|
The Wholesale |
|
|
|
|
|
|
Midstream |
|
|
|
Midstream |
|
|
Propane |
|
|
Pro Forma |
|
|
Partners, LP |
|
|
|
Partners, LP |
|
|
Business |
|
|
Adjustments |
|
|
Pro Forma |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
20.3 |
|
|
$ |
|
|
|
$ |
(67.4 |
)(a) |
|
$ |
20.4 |
|
|
|
|
|
|
|
|
|
|
|
|
67.4 |
(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
(c) |
|
|
|
|
Short-term investments |
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
2.8 |
|
Accounts receivable |
|
|
35.8 |
|
|
|
13.5 |
|
|
|
(13.5 |
)(d) |
|
|
35.8 |
|
Inventories |
|
|
|
|
|
|
29.3 |
|
|
|
|
|
|
|
29.3 |
|
Unrealized gains on non-trading derivative and hedging transactions |
|
|
2.4 |
|
|
|
0.1 |
|
|
|
|
|
|
|
2.5 |
|
Other |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
61.4 |
|
|
|
42.9 |
|
|
|
(13.4 |
) |
|
|
90.9 |
|
Restricted investments |
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
Property, plant and equipment, net |
|
|
169.9 |
|
|
|
15.6 |
|
|
|
|
|
|
|
185.5 |
|
Intangible assets, net |
|
|
2.1 |
|
|
|
0.9 |
|
|
|
|
|
|
|
3.0 |
|
Goodwill |
|
|
|
|
|
|
29.3 |
|
|
|
|
|
|
|
29.3 |
|
Equity method investments |
|
|
5.4 |
|
|
|
0.2 |
|
|
|
|
|
|
|
5.6 |
|
Unrealized gains on non-trading derivative and hedging transactions |
|
|
5.5 |
|
|
|
|
|
|
|
|
|
|
|
5.5 |
|
Other non-current assets |
|
|
0.8 |
|
|
|
0.3 |
|
|
|
|
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
345.1 |
|
|
$ |
89.2 |
|
|
$ |
(13.4 |
) |
|
$ |
420.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS EQUITY/NET PARENT EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
29.5 |
|
|
$ |
25.6 |
|
|
$ |
|
|
|
$ |
55.1 |
|
Unrealized losses on non-trading derivative and hedging transactions |
|
|
3.4 |
|
|
|
0.7 |
|
|
|
|
|
|
|
4.1 |
|
Accrued interest payable |
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
0.6 |
|
Other |
|
|
6.4 |
|
|
|
1.9 |
|
|
|
|
|
|
|
8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
39.9 |
|
|
|
28.2 |
|
|
|
|
|
|
|
68.1 |
|
Long-term debt |
|
|
190.0 |
|
|
|
|
|
|
|
67.4 |
(b) |
|
|
257.4 |
|
Unrealized losses on non-trading derivative and hedging transactions |
|
|
7.8 |
|
|
|
|
|
|
|
|
|
|
|
7.8 |
|
Other long-term liabilities |
|
|
0.8 |
|
|
|
0.2 |
|
|
|
|
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
238.5 |
|
|
|
28.4 |
|
|
|
67.4 |
|
|
|
334.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners equity/net parent equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net parent equity |
|
|
|
|
|
|
60.8 |
|
|
|
(13.5 |
)(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47.3 |
)(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common unitholders |
|
|
219.3 |
|
|
|
|
|
|
|
|
|
|
|
219.3 |
|
Class C unitholders |
|
|
|
|
|
|
|
|
|
|
5.7 |
(e) |
|
|
(20.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
(25.8 |
)(a) |
|
|
|
|
Subordinated unitholders |
|
|
(104.3 |
) |
|
|
|
|
|
|
|
|
|
|
(104.3 |
) |
General partner interest |
|
|
(5.3 |
) |
|
|
|
|
|
|
0.1 |
(c) |
|
|
(5.2 |
) |
Accumulated other comprehensive (loss) income |
|
|
(3.1 |
) |
|
|
|
|
|
|
|
|
|
|
(3.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners equity/net parent equity |
|
|
106.6 |
|
|
|
60.8 |
|
|
|
(80.8 |
) |
|
|
86.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners equity/net parent equity |
|
$ |
345.1 |
|
|
$ |
89.2 |
|
|
$ |
(13.4 |
) |
|
$ |
420.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
2
DCP MIDSTREAM PARTNERS, LP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2006
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DCP |
|
|
|
DCP |
|
|
The Wholesale |
|
|
|
|
|
|
Midstream |
|
|
|
Midstream |
|
|
Propane |
|
|
Pro Forma |
|
|
Partners, LP |
|
|
|
Partners, LP |
|
|
Business |
|
|
Adjustments |
|
|
Pro Forma |
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate |
|
$ |
201.6 |
|
|
$ |
211.0 |
|
|
$ |
|
|
|
$ |
412.6 |
|
Transportation and processing services |
|
|
13.4 |
|
|
|
|
|
|
|
|
|
|
|
13.4 |
|
Losses from non-trading derivative activity |
|
|
|
|
|
|
(0.5 |
) |
|
|
|
|
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
215.0 |
|
|
|
210.5 |
|
|
|
|
|
|
|
425.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of natural gas and NGLs |
|
|
177.8 |
|
|
|
202.1 |
|
|
|
|
|
|
|
379.9 |
|
Operating and maintenance expense |
|
|
7.3 |
|
|
|
4.2 |
|
|
|
|
|
|
|
11.5 |
|
Depreciation and amortization expense |
|
|
5.9 |
|
|
|
0.5 |
|
|
|
|
|
|
|
6.4 |
|
General and administrative expense |
|
|
7.7 |
|
|
|
1.6 |
|
|
|
|
|
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses |
|
|
198.7 |
|
|
|
208.4 |
|
|
|
|
|
|
|
407.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
16.3 |
|
|
|
2.1 |
|
|
|
|
|
|
|
18.4 |
|
Earnings from equity method investment |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
Interest income |
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
3.0 |
|
Interest expense |
|
|
(5.2 |
) |
|
|
|
|
|
|
(2.0 |
)(f) |
|
|
(7.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
14.2 |
|
|
|
2.1 |
|
|
|
(2.0 |
) |
|
|
14.3 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partner interest in net income |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to limited partners |
|
$ |
13.9 |
|
|
$ |
2.1 |
|
|
$ |
(2.0 |
) |
|
$ |
14.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per limited partner unitbasic and diluted |
|
$ |
0.79 |
|
|
|
|
|
|
|
|
|
|
$ |
0.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average limited partners units
outstandingbasic and diluted |
|
|
17.5 |
|
|
|
|
|
|
|
0.2 |
|
|
|
17.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
3
DCP MIDSTREAM PARTNERS, LP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2005
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DCP |
|
|
|
DCP |
|
|
The Wholesale |
|
|
|
|
|
|
Midstream |
|
|
|
Midstream |
|
|
Propane |
|
|
Pro Forma |
|
|
Partners, LP |
|
|
|
Partners, LP |
|
|
Business |
|
|
Adjustments |
|
|
Pro Forma |
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate |
|
$ |
762.3 |
|
|
$ |
359.8 |
|
|
$ |
|
|
|
$ |
1,122.1 |
|
Transportation and processing services |
|
|
22.9 |
|
|
|
0.2 |
|
|
|
|
|
|
|
23.1 |
|
Losses from non-trading derivative activity |
|
|
(0.7 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
784.5 |
|
|
|
359.8 |
|
|
|
|
|
|
|
1,144.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of natural gas and NGLs |
|
|
709.3 |
|
|
|
338.0 |
|
|
|
|
|
|
|
1,047.3 |
|
Operating and maintenance expense |
|
|
14.2 |
|
|
|
8.2 |
|
|
|
|
|
|
|
22.4 |
|
Depreciation and amortization expense |
|
|
11.7 |
|
|
|
1.0 |
|
|
|
|
|
|
|
12.7 |
|
General and administrative expense |
|
|
11.4 |
|
|
|
2.8 |
|
|
|
|
|
|
|
14.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses |
|
|
746.6 |
|
|
|
350.0 |
|
|
|
|
|
|
|
1,096.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
37.9 |
|
|
|
9.8 |
|
|
|
|
|
|
|
47.7 |
|
Earnings from equity method investment |
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
Interest income |
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
Interest expense |
|
|
(0.8 |
) |
|
|
|
|
|
|
(3.9 |
)(f) |
|
|
(4.7 |
) |
Income tax expense |
|
|
|
|
|
|
(3.3 |
) |
|
|
|
|
|
|
(3.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
38.0 |
|
|
|
6.5 |
|
|
|
(3.9 |
) |
|
|
40.6 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss attributable to DCP Midstream Partners Predecessor |
|
|
(33.3 |
) |
|
|
(5.7 |
) |
|
|
3.4 |
|
|
|
(35.6 |
) |
General partner interest in net income |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocable to limited partners |
|
$ |
4.6 |
|
|
$ |
0.8 |
|
|
$ |
(0.5 |
) |
|
$ |
4.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per limited partner unitbasic and diluted |
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average limited partners units outstandingbasic and diluted |
|
|
17.5 |
|
|
|
|
|
|
|
0.2 |
|
|
|
17.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
4
DCP MIDSTREAM PARTNERS, LP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DCP |
|
|
|
DCP |
|
|
The Wholesale |
|
|
|
|
|
|
Midstream |
|
|
|
Midstream |
|
|
Propane |
|
|
Pro Forma |
|
|
Partners, LP |
|
|
|
Partners, LP |
|
|
Business |
|
|
Adjustments |
|
|
Pro Forma |
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate |
|
$ |
489.7 |
|
|
$ |
325.7 |
|
|
$ |
|
|
|
$ |
815.4 |
|
Transportation and processing services |
|
|
19.9 |
|
|
|
0.6 |
|
|
|
|
|
|
|
20.5 |
|
Losses from non-trading derivative activity |
|
|
(0.1 |
) |
|
|
(1.8 |
) |
|
|
|
|
|
|
(1.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
509.5 |
|
|
|
324.5 |
|
|
|
|
|
|
|
834.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of natural gas and NGLs |
|
|
452.6 |
|
|
|
308.0 |
|
|
|
|
|
|
|
760.6 |
|
Operating and maintenance expense |
|
|
13.6 |
|
|
|
6.2 |
|
|
|
|
|
|
|
19.8 |
|
Depreciation and amortization expense |
|
|
12.6 |
|
|
|
2.1 |
|
|
|
|
|
|
|
14.7 |
|
General and administrative expense |
|
|
6.5 |
|
|
|
2.2 |
|
|
|
|
|
|
|
8.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses |
|
|
485.3 |
|
|
|
318.5 |
|
|
|
|
|
|
|
803.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
24.2 |
|
|
|
6.0 |
|
|
|
|
|
|
|
30.2 |
|
Earnings from equity method investment |
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
0.6 |
|
Impairment of equity method investment |
|
|
(4.4 |
) |
|
|
|
|
|
|
|
|
|
|
(4.4 |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
(3.9 |
)(f) |
|
|
(3.9 |
) |
Income tax expense |
|
|
|
|
|
|
(2.5 |
) |
|
|
|
|
|
|
(2.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
20.4 |
|
|
|
3.5 |
|
|
|
(3.9 |
) |
|
|
20.0 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss attributable to DCP
Midstream Partners Predecessor |
|
|
(20.4 |
) |
|
|
(3.5 |
) |
|
|
3.9 |
|
|
|
(20.0 |
) |
General partner interest in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to limited partners |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
5
DCP MIDSTREAM PARTNERS, LP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DCP |
|
|
|
DCP |
|
|
The Wholesale |
|
|
|
|
|
|
Midstream |
|
|
|
Midstream |
|
|
Propane |
|
|
Pro Forma |
|
|
Partners, LP |
|
|
|
Partners, LP |
|
|
Business |
|
|
Adjustments |
|
|
Pro Forma |
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate |
|
$ |
454.0 |
|
|
$ |
289.8 |
|
|
$ |
|
|
|
$ |
743.8 |
|
Transportation and processing services |
|
|
18.6 |
|
|
|
0.7 |
|
|
|
|
|
|
|
19.3 |
|
Gains from non-trading derivative activity |
|
|
2.5 |
|
|
|
0.1 |
|
|
|
|
|
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
475.1 |
|
|
|
290.6 |
|
|
|
|
|
|
|
765.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of natural gas and NGLs |
|
|
430.6 |
|
|
|
275.5 |
|
|
|
|
|
|
|
706.1 |
|
Operating and maintenance expense |
|
|
15.0 |
|
|
|
3.3 |
|
|
|
|
|
|
|
18.3 |
|
Depreciation and amortization expense |
|
|
12.8 |
|
|
|
2.7 |
|
|
|
|
|
|
|
15.5 |
|
General and administrative expense |
|
|
7.1 |
|
|
|
2.4 |
|
|
|
|
|
|
|
9.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses |
|
|
465.5 |
|
|
|
283.9 |
|
|
|
|
|
|
|
749.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
9.6 |
|
|
|
6.7 |
|
|
|
|
|
|
|
16.3 |
|
Earnings from equity method investment |
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
(3.9 |
)(f) |
|
|
(3.9 |
) |
Income tax expense |
|
|
|
|
|
|
(3.6 |
) |
|
|
|
|
|
|
(3.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
10.0 |
|
|
|
3.1 |
|
|
|
(3.9 |
) |
|
|
9.2 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss attributable to DCP Midstream Partners Predecessor |
|
|
(10.0 |
) |
|
|
(3.1 |
) |
|
|
3.9 |
|
|
|
(9.2 |
) |
General partner interest in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to limited partners |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
6
NOTES TO UNAUDITED DCP MIDSTREAM PARTNERS, LP
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation the Wholesale Propane Logistics Business
Unless the context clearly indicates otherwise, references in this report to we, our, us
or like terms refer to DCP Midstream Partners, LP, or DCP. The historical financial information is
derived from our historical consolidated financial statements. The pro forma adjustments have been
prepared as if we acquired the interest in the Wholesale Propane Logistics Business on June 30,
2006 for the balance sheet and on January 1, 2003 for the statements of operations. Since this is a
transaction between entities under common control, the pro forma financial statements are combined
on an as if pooling basis. Accordingly, the historic cost of the acquired assets and liabilities
are carried forward.
The pro forma condensed consolidated financial statements reflect the following transactions:
|
|
|
the borrowing of $67.4 million under our existing credit facility to finance the acquisition; |
|
|
|
|
the acquisition of 100% of the Wholesale Propane Logistics Business from Duke
Energy Field Services LLC, or DEFS, and the distribution to DEFS of the aggregate
consideration consisting of approximately $67.4 million in cash and the issuance of 200,312
Class C units; |
|
|
|
|
the purchase of 4,088 general partner equivalent units for $0.1 million by DEFS in order to
maintain its 2% general partner interest; |
|
|
|
|
the allocation of adjusted net parent equity in the Wholesale Propane Logistics Business to
Class C limited partner equity and general partner equity; and |
|
|
|
|
the retention of accounts receivable by DEFS. |
The Class C units have the same liquidation preference, rights to cash distributions and
voting rights as the common units. The Class C units will automatically convert to common units
once the Class C units represent less than 1% of the total outstanding limited partner units. After
two years, if the Class C units are not converted into common units, either automatically or by
common unitholder approval, they will receive 115% of the distribution amount for common units.
As a result of this transaction, DCPs omnibus services agreement with DEFS increased by $2.0
million annually for incremental general and administrative expenses. Additionally, DCP anticipates
paying approximately $3.9 million to complete construction of a propane terminal that was included
in this transaction.
Note 2. Pro Forma Adjustments and Assumptions
|
(a) |
|
Reflects the acquisition from DEFS of 100% of the
Wholesale Propane Logistics Business and related distribution to DEFS
of the aggregate consideration for the interest in the Wholesale
Propane Logistics Business. This acquisition will be recorded at the
Wholesale Propane Logistics Businesss historical cost as it is
considered a transaction between entities under common control. The
consideration was allocated as follows, subject to standard closing
conditions ($ in millions): |
|
|
|
|
|
Cash consideration for operating assets |
|
$ |
57.1 |
|
Cash consideration for propane terminal under construction |
|
|
10.3 |
|
Class C units |
|
|
5.7 |
|
|
|
|
|
Aggregate consideration |
|
|
73.1 |
|
Net assets of the Wholesale Propane Logistics Business |
|
|
(60.8 |
) |
Accounts receivable retained by DEFS |
|
|
13.5 |
|
|
|
|
|
Net parent equity adjusted for excess consideration |
|
$ |
25.8 |
|
|
|
|
|
|
|
|
The adjusted net parent equity was allocated to the Class C
units. The Class C unit value above was based on the average
market value of DCPs common units for the ten days prior to the
announcement of this transaction. |
|
|
(b) |
|
Proceeds of $67.4 million to us from our existing credit facility |
7
NOTES TO UNAUDITED DCP MIDSTREAM PARTNERS, LP
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
(c) |
|
Sale of 4,088 of our general partner equivalent units to DEFS for $0.1 million in order for
DEFS to maintain its 2% general partner interest |
|
|
(d) |
|
Historical cost of the Wholesale Propane Logistics Business assets that were not acquired by us |
|
|
(e) |
|
Issuance of 200,312 of our Class C units to DEFS |
|
|
(f) |
|
Interest expense associated with the incremental debt for the acquisition described in (b)
above, at a weighted average annual interest rate of 5.8%. The effect of a 0.125% variance in
annual interest rates on pro forma interest expense would have been approximately $0.1
million. |
Note 3. Pro Forma Net Income Per Limited Partner Unit
Our net income is allocated to the general partner and the limited partners, including the
holders of the subordinated units, in accordance with their respective ownership percentages, after
giving effect to incentive distributions paid to the general partner.
EITF Issue No. 03-6, Participating Securities and the Two-Class Method Under FASB Statement
No. 128, or EITF 03-6, addresses the computation of earnings per share by entities that have
issued securities other than common stock that contractually entitle the holder to participate in
dividends and earnings of the entity when, and if, it declares dividends on its common stock.
EITF 03-6 requires that securities that meet the definition of a participating security be
considered for inclusion in the computation of basic earnings per unit using the two-class method.
Under the two-class method, earnings per unit is calculated as if all of the earnings for the
period were distributed under the terms of the partnership agreement, regardless of whether the
general partner has discretion over the amount of distributions to be made in any particular
period, whether those earnings would actually be distributed during a particular period from an
economic or practical perspective, or whether the general partner has other legal or contractual
limitations on its ability to pay distributions that would prevent it from distributing all of the
earnings for a particular period.
EITF 03-6 does not impact our overall net income or other financial results; however, in
periods in which aggregate net income exceeds the First Target Distribution level, it will have the
impact of reducing net income per limited partner unit. This result occurs as a larger portion of
our aggregate earnings, as if distributed, is allocated to the incentive distribution rights of the
general partner, even though we make distributions on the basis of available cash and not earnings.
In periods in which our aggregate net income per unit does not exceed the First Target Distribution
level, EITF 03-6 does not have any impact on our calculation of earnings per limited partner unit.
During the year ended December 31, 2005, our aggregate net income per unit exceeded the Second
Target Distribution level, and as a result we allocated $1.3 million in additional earnings to the
general partner in accordance with EITF 03-6. During the six months ended June 30, 2006, our
aggregate net income per unit was less than the First Target Distribution level and EITF 03-6 did
not impact earnings per unit.
Basic and diluted net income per limited partner unit is calculated by dividing limited
partners interest in pro forma net income, less pro forma general partner incentive distributions
under EITF 03-6, by the weighted average number of outstanding limited partner units during the
period, assuming each of the following were outstanding since January 1, 2005:
|
|
|
10,357,143 common units and 7,142,857 subordinated units issued in
connection with our December 2005 initial public offering; and |
|
|
|
|
200,312 Class C common units issued in connection with this transaction. |
Basic and diluted pro forma net income per unit is equivalent as there are no dilutive units.
8