ACQUISITIONS

Year ended December 31, 2017

On July 17, 2017, we acquired Houston Fuel Oil Terminal Company (“HFOTCO”), one of the largest oil terminals in the U.S., for a purchase price paid, or to be paid, in two payments. This acquisition establishes our position in the premier energy market, the Houston Ship Channel, and provides a strategic platform to refinery-facing growth. The first payment consisted of $297.8 million in cash funded from our revolving credit facility, the issuance of approximately 12.4 million shares of our Class A common stock and the assumption of existing HFOTCO debt of approximately $766 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 Second Payment is reflected on the balance sheet as the present value of cash flows based on a weighted average of the expected timing of payment under various scenarios and using an 8% discount rate. The acquisition date fair value of the common shares issued is approximately $330 million, based on $26.68 per common share market price at issuance.

We have recorded the purchase price allocation as follows (in thousands):



Assets acquired
Cash	$	3,583
Accounts receivable	11,101
Other current assets	5,277
Property, plant and equipment	1,327,168
Intangible assets subject to amortization
Customer contracts	1,000
Customer relationships	260,000
Non-compete agreement	30,000
Goodwill	257,302
Other noncurrent assets	72,392
Total assets acquired	$	1,967,823



Consideration
Cash	$	297,822
Common shares	330,341
Second Payment	549,900
Liabilities assumed
Accounts payable and accrued liabilities	9,876
Current portion of long-term debt	5,500
Long-term debt	760,500
Other noncurrent liabilities	13,884
Total liabilities assumed	789,760
Total consideration	$	1,967,823

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 28.5 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 an accelerated basis. Goodwill primarily relates to the location of the business and potential for future growth. Goodwill is amortizable over 15 years for income tax purposes.

From the acquisition date through December 31, 2017, HFOTCO contributed $76.9 million of revenue and $2.4 million of net loss to our consolidated financial results. Our results for the year ended December 31, 2017, include $19.2 million of acquisition related expenses which are included in "general and administrative expenses" in our consolidated statement of operations and comprehensive income (loss). Included in the results of HFOTCO for the post acquisition period is a gain of $3.0 million related to the curtailment of HFOTCO’s defined benefit pension plan. Subsequent to the acquisition, SemGroup closed the plan to new members and stopped the accrual of future benefits under the plan to better align HFOTCO with SemGroup’s compensation strategy. Accordingly, the pension liability assumed at acquisition of $10.0 million was reduced to $7.0 million as of December 31, 2017.

Unaudited pro forma financial information for the periods disclosed below has been prepared as if the transaction occurred on January 1, 2016 (in thousands):



	Pro forma (unaudited)
	Year Ended December 31,
	2017			2016
Revenue	$	2,168,747		$	1,491,142
Net loss	$	(22,649	)	$	(23,011	)
Basic and diluted loss per share attributable to SemGroup	$	(0.29	)	$	(0.54	)

These pro forma amounts have been calculated after applying our accounting policies and adjusting the results of HFOTCO to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant, and equipment, and intangible assets had been applied from January 1, 2016. Additionally, incremental interest expense has been added related to the Second Payment assuming an 8% interest rate and cash consideration paid assuming a 5.5% interest rate. The income tax impact of these adjustments has been included in pro forma net loss using our historical blended statutory rates of 37.8% and 37.7% for the years ended December 31, 2017 and 2016, respectively. This unaudited pro forma consolidated financial information is provided for illustrative purposes only and does not purport to represent what our actual results would have been if the acquisition had occurred on the date assumed, nor is it necessarily indicative of our future operating results. However, the pro forma adjustments reflected in this unaudited pro forma consolidated financial information are based on estimates and assumptions that we believe to be reasonable.

The assets and credit of the acquired entities and their holding companies, all of which are included in the HFOTCO segment, are not available to satisfy the debts and obligations of other SemGroup entities. HFOTCO is not a subsidiary guarantor of SemGroup’s senior unsecured notes or revolving credit facility.

Year ended December 31, 2016

On September 30, 2016, we completed the acquisition of the outstanding common limited partner interests of Rose Rock Midstream, L.P. ("Rose Rock") which we did not already own (the "Merger"). We issued 13.1 million common shares as consideration and recorded a reduction to equity for $5.3 million of fees associated with the issuance. In addition, we recorded a reduction to our deferred tax liabilities and offsetting increase to additional paid-in capital of $143.3 million associated with the transaction. This non-cash adjustment represents the deferred tax impact of the difference between the book value of the noncontrolling interests acquired and the tax basis which is stepped-up to the fair market value of the consideration which includes the common shares issued and the assumption of liabilities associated with the noncontrolling interests.

We accounted for the Merger in accordance with FASB Accounting Standards Codification 810, Consolidation — Overall — Changes in a Parent’s Ownership Interest in a Subsidiary. As SemGroup controlled Rose Rock both before and after the Merger, the changes in SemGroup’s ownership interest in Rose Rock were accounted for as an equity transaction and no gain or loss was recognized in SemGroup’s consolidated statements of operations and comprehensive income (loss) as a result of the Merger. Subsequent to the Merger, Rose Rock was a wholly owned subsidiary of SemGroup.

Substantially all of Rose Rock's assets were pledged as collateral under its senior secured revolving credit facility agreement which was terminated following the Merger. Substantially all of Rose Rock's assets are now pledged as collateral under SemGroup's senior secured revolving credit facility. Rose Rock's senior unsecured notes were assumed by SemGroup.