Acquisitions

6 Months Ended

Sep. 30, 2011

Acquisitions

Acquisitions

Note 3 – Acquisitions

Fiscal 2012

Osterman

On August 15, 2011, we entered into a business combination agreement with E. Osterman Propane, Inc., its affiliated companies and members of the Osterman family (collectively, “Osterman”) for retail propane operations in the northeastern United States in order to expand our retail propane operations.  The agreement closed on October 3, 2011 and was funded with cash of $96 million and the issuance of 4 million common units, and also contemplates a working capital payment post closing for certain specified working capital items that might be payable to the Partnership or Osterman.  The cash payments were funded with advances under our acquisition facility.  We incurred and charged to general and administrative expense through September 30, 2011 $530,000 of costs incurred in connection with the Osterman transaction that cannot be capitalized under GAAP.

We will include the results of Osterman’s operations in our consolidated financial statements beginning October 3, 2011.  We have valued the 4 million limited partner common units at $20.47 per unit, the closing price of our common units on the closing date.  We have not completed the initial accounting for the business combination.  We are in the process of identifying, and obtaining an independent appraisal of, the fair value of the assets acquired in the combination.  We expect to complete this process prior to our year end of March 31, 2012.

SemStream

On August 31, 2011, we entered into a business combination agreement with SemStream, L.P. (“SemStream”).  We closed the SemStream transaction on November 1, 2011.  We entered into this business combination in order to expand our midstream and wholesale supply and marketing operations.  SemStream contributed substantially all of its natural gas liquids business and assets to us in exchange for 8,932,031 of our limited partner common units and a cash payment of approximately $93 million, which we funded with $10 million from our acquisition facility and $83 million from our working capital facility.

The agreement also contemplates a working capital payment post closing for certain specified working capital items that might be payable to the Partnership or SemStream.  In addition, in exchange for a cash contribution, SemStream acquired a 7.5% interest in our general partner.

The assets comprise 12 natural gas liquids terminals in Arizona, Arkansas, Indiana, Minnesota, Missouri, Montana, Washington and Wisconsin, 12 million gallons of above ground propane storage, 3.7 million barrels of underground leased storage for natural gas liquids and a rail fleet of approximately 350 leased and 12 owned cars and approximately $100 million of natural gas liquids inventory.

We incurred and charged to general and administrative expense through September 30, 2011 approximately $539,000 of costs related to the SemStream transaction that cannot be capitalized under GAAP.

We will include the results of SemStream’s operations in our consolidated financial statements beginning November 1, 2011.  We have valued the 8.9 million limited partner common units at $21.07 per unit, the closing price of our common units on the closing date.  We have not completed the initial accounting for the business combination.  We are beginning the process of identifying, and obtaining an independent appraisal of, the fair value of the assets acquired in the business combination and the fair value of the 7.5% interest in our general partner.  We expect to complete this process prior to our year end of March 31, 2012.

Other

During the three months ended September 30, 2011, we acquired certain retail propane operations in Kansas for a total payment of $2.1 million.  These operations have been included in our results of operations since July 2011, and have not been significant through September 30, 2011.

During the six months ended September 30, 2011, we incurred and charged to general and administrative expenses approximately $105,000 of other acquisition-related costs that cannot be capitalized under GAAP.

Fiscal 2011

As discussed in Note 1, we purchased the retail propane operations of Hicksgas in October 2010 as part of our formation transactions.  The following table presents the final allocation of the acquisition cost to the assets acquired and liabilities assumed, based on their fair values, in the acquisition of the retail propane businesses of Hicksgas described above (in thousands):

			Estimated
	Final		Allocation as of
	Allocation		March 31, 2011		Revision
Accounts receivable	$	5,669	$	6,156	$	(487	)
Inventory	6,182		6,229		(47		)
Prepaid expenses and other current assets	2,600		2,604		(4		)
	14,451		14,989		(538		)
Property, plant, and equipment:
Land	2,666		—		2,666
Tanks and other retail propane equipment (15 year life)	23,016		22,213		803
Vehicles (5 year life)	6,599		6,173		426
Buildings (30 year life)	7,053		6,241		812
Office equipment (5 year life)	523		1,264		(741		)
Amortizable intangible assets:
Customer relationships (15 year life)	2,170		3,278		(1,108		)
Non-compete agreements (5 year life)	550		868		(318		)
Tradenames (indefinite-life intangible asset)	830		—		830
Goodwill (Retail propane segment)	3,716		7,756		(4,040		)
Total assets acquired	61,574		62,782		(1,208		)
Accounts payable	1,837		2,777		(940		)
Customer advances and deposits	12,089		12,063		26
Accrued and other current liabilities	2,152		2,203		(51		)
	16,078		17,043		(965		)
Long-term debt	5,768		5,768		—
Other long-term liabilities	274		517		(243		)
Total liabilities assumed	22,120		23,328		(1,208		)
Net assets acquired	$	39,454	$	39,454	$	—

The Hicksgas acquisition accounting was based on the estimated fair value of the assets acquired and liabilities assumed, based primarily on an independent appraisal completed in July 2011.  The revisions indicated above were recorded during the three months ended June 30, 2011, on a retrospective basis as an adjustment to the March 31, 2011 carrying amounts.  The impact of such revisions on net income for prior periods was not significant.

Goodwill was warranted because these acquisitions enhance our current retail propane operations. We expect all of the goodwill acquired to be deductible for income tax purposes (see Note 8). We do not believe that the acquired finite-lived intangible assets will have any significant residual value at the end of their useful life.

The total acquisition cost was $39.5 million, consisting of cash of approximately $17.2 million and the issuance of 4,154,757 common units valued at approximately $22.3 million.  The units issued to the shareholders of HOH in the formation transaction were valued at $5.37 per unit, the price paid for common units issued in our formation.

Pro Forma Results of Operations

The operations of Hicksgas have been included in our statements of operations since they were acquired in October 2010.  The following unaudited pro forma consolidated results of operations for the three months and six months ended September 30, 2010 are presented as if the Hicksgas acquisitions had been made, and our initial public offering, unit split and unit conversion (see Note 10) had been completed, on April 1, 2010.  The pro forma earnings per unit are based on the common and subordinated units outstanding as of September 30, 2011.

	Three Months Ended			Six Months Ended
	September 30,			September 30,
	2010			2010
	(in thousands)
Revenues	$	169,397		$	336,921
Net loss	(3,173		)	(8,558		)
Limited partners’ interest in net loss	(3,170		)	(8,549		)
Basic and diluted earnings per Common Unit	(0.21		)	(0.58		)
Basic and diluted earnings per Subordinated Unit	(0.21		)	(0.58		)

The pro forma consolidated results of operations include adjustments to give effect to depreciation on the step-up of property, plant and equipment, amortization of intangible assets, use of the proceeds from our offering to pay debt issued to finance the acquisition and certain other adjustments.  The pro forma information is not necessarily indicative of the results of operations that would have occurred had the transactions been made at the beginning of the period presented or the future results of the combined operations.