Note 4 - Acquisitions

Year Ended March 31, 2013

High Sierra Combination

On June 19, 2012, we completed a business combination with High Sierra, whereby we acquired all of the ownership interests in High Sierra. We paid $91.8 million of cash, net of $5.0 million of cash acquired, and issued 18,018,468 common units to acquire High Sierra Energy, LP. These common units were valued at $406.8 million using the closing price of our common units on the New York Stock Exchange (the “NYSE”) on the merger date. We also paid $97.4 million of High Sierra Energy, LP’s long-term debt and other obligations. Our general partner acquired High Sierra Energy GP, LLC by paying $50.0 million of cash and issuing equity. Our general partner then contributed its ownership interests in High Sierra Energy GP, LLC to us, in return for which we paid our general partner $50.0 million of cash and issued 2,685,042 common units to our general partner. We recorded the value of the 2,685,042 common units issued to our general partner at $8.0 million, which represents an estimate, in accordance with GAAP, of the fair value of the equity issued by our general partner to the former owners of High Sierra’s general partner. In accordance with the GAAP fair value model, this fair value was estimated based on assumptions of future distributions and a discount rate that a hypothetical buyer might use. Under this model, the potential for distribution growth resulting from the prospect of future acquisitions and capital expansion projects would not be considered in the fair value calculation. The difference between the estimated fair value of the general partner interests issued by our general partner of $8.0 million, calculated as described above, and the fair value of the common units issued to our general partner of $60.6 million, as calculated using the closing price of the common units on the NYSE, is reported as a reduction to equity. We incurred and charged to general and administrative expense during the years ended March 31, 2013 approximately $3.7 million of costs related to the High Sierra transaction. We also incurred or accrued costs of approximately $0.6 million related to the equity issuance that we charged to equity.

We have included the results of High Sierra’s operations in our consolidated financial statements beginning on June 19, 2012. During the year ended March 31, 2013, our consolidated statement of operations includes operating income of approximately $46.6 million generated by the operations of High Sierra and by the operations of the subsequent acquisitions of crude oil logistics and water services businesses. The following table summarizes the revenues and cost of sales contributed by High Sierra’s operations and the operations of the subsequent acquisitions of crude oil logistics and water services businesses (in thousands):

	Revenues		Cost of Sales
Crude oil logistics	$	2,316,288	$	2,244,647
Natural gas liquids logistics	696,424		663,630
Water services	62,227		5,611
Other	4,233		—
Total	$	3,079,172	$	2,913,888

The fair values of the assets acquired and liabilities assumed in our acquisition of High Sierra are summarized below (in thousands):

Accounts receivable	$	395,311
Inventory	43,575
Receivables from affiliates	7,724
Derivative assets	10,646
Forward purchase and sale contracts	34,717
Other current assets	11,131
Property, plant and equipment:
Land	5,910
Transportation vehicles and equipment (5 - 10 years)	20,968
Facilities and equipment (2 - 30 years)	103,574
Buildings and improvements (5 - 30 years)	9,691
Information technology equipment and software (3 - 5 years)	4,099
Construction in progress	11,213
Intangible assets:
Customer relationships (5 - 17 years)	245,000
Lease contracts (1 - 10 years)	12,400
Trade names (indefinite)	13,000
Goodwill	220,884

Assumed liabilities:
Accounts payable	(417,369		)
Accrued expenses and other current liabilities	(35,611		)
Payables to affiliates	(9,014		)
Advance payments received from customers	(1,237		)
Derivative liabilities	(5,726		)
Forward purchase and sale contracts	(18,680		)
Long-term debt	(2,537		)
Other noncurrent liabilities	(3,224		)
Noncontrolling interest in consolidated subsidiary	(2,400		)
Consideration paid, net of cash acquired	$	654,045

The consideration paid consists of the following:

Cash paid, net of cash acquired	$	239,251
Value of common units issued, net of issuance costs	414,794
Total consideration paid	$	654,045

Goodwill represents the excess of the consideration paid for the acquired business over the fair value of the individual assets acquired, net of liabilities. Goodwill primarily represents the value of synergies between the acquired entities and the Partnership, the opportunity to use the acquired businesses as a platform for growth, and the acquired assembled workforce. We estimate that all of the goodwill will be deductible for federal income tax purposes.

We estimated the value of the customer relationship intangible asset using the income approach, which uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts.

The fair value of accounts receivable is approximately $0.6 million lower than the contract value, to give effect to estimated uncollectable accounts.

Pecos Combination

On November 1, 2012, we completed a business combination whereby we acquired Pecos. The business of Pecos consists primarily of crude oil purchasing and logistics operations in Texas and New Mexico. We paid cash of $132.4 million at closing (net of $2.2 million of cash acquired), subject to customary post-closing adjustments, and assumed certain obligations with a value of $10.2 million under certain equipment financing facilities. Also on November 1, 2012, we entered into a call agreement with the former owners of Pecos pursuant to which the former owners of Pecos agreed to purchase a minimum of $45.0 million or a maximum of $60.0 million of common units from us. On November 12, 2012, the former owners purchased 1,834,414 common units from us for $45.0 million pursuant to this call agreement. We incurred and charged to general and administrative expense during the year ended March 31, 2013 approximately $0.6 million of costs related to the Pecos combination.

We are in the process of identifying and determining the fair value of the assets and liabilities acquired in the combination with Pecos. The estimates of fair value reflected as of March 31, 2013 are subject to change, and such changes could be material. We expect to complete this process prior to finalizing our financial statements for the quarter ended September 30, 2013. We have preliminarily estimated the fair value of the assets acquired and liabilities assumed as follows (in thousands):

Accounts receivable	$	73,704
Inventory	1,903
Other current assets	1,425
Property, plant and equipment:
Vehicles and related equipment (5 - 10 years)	19,193
Other	2,562
Customer relationships (5 years)	8,000
Trade names (indefinite life)	1,000
Goodwill	86,661
Accounts payable and accrued liabilities	(51,827		)
Long-term debt	(10,234		)
Total consideration paid	$	132,387

The consideration paid consists of the following (in thousands):

Cash paid, net of cash acquired and cash received pursuant to Call Agreement	$	87,444
Value of common units issued pursuant to Call Agreement	44,943
Total consideration paid	$	132,387

Goodwill represents the excess of the estimated consideration paid for the acquired business over the fair value of the individual assets acquired, net of liabilities. Goodwill primarily represents the value of synergies between the acquired entities and the Partnership, the opportunity to use the acquired businesses as a platform for growth, and the acquired assembled workforce. We estimate that all of the goodwill will be deductible for federal income tax purposes.

Third Coast Combination

On December 31, 2012, we completed a business combination transaction whereby we acquired all of the membership interests in Third Coast for $43.0 million in cash. The business of Third Coast consists primarily of transporting crude oil via barge. The agreement contemplates a post-closing adjustment to the purchase price for certain working capital items. Also on December 31, 2012, we entered into a call agreement with the former owners of Third Coast pursuant to which the former owners of Third Coast agreed to purchase a minimum of $8.0 million or a maximum of $10.0 million of common units from us. On January 11, 2013, the former owners of Third Coast purchased 344,680 common units from us for $8.0 million pursuant to this agreement. We incurred and charged to general and administrative expense during the year ended March 31, 2013 approximately $0.3 million of costs related to the Third Coast combination.

We are in the process of identifying and determining the fair value of the assets and liabilities acquired in the combination with Third Coast. The estimates of fair value reflected as of March 31, 2013 are subject to change. We currently expect to complete this process prior to finalizing our financial statements for the quarter ended December 31, 2013. We have preliminarily estimated the fair value of the assets acquired and liabilities assumed as follows (in thousands):

Accounts receivable	$	2,248
Other current assets	140
Property, plant and equipment:
Barges and tow boats (20 years)	12,883
Other (3 - 5 years)	30
Customer relationships (5 years)	4,000
Trade names (indefinite life)	500
Goodwill	22,551
Other noncurrent assets	2,733
Assumed liabilities	(2,202		)
Consideration paid	$	42,883

The consideration paid consists of the following (in thousands):

Cash paid, net of cash received pursuant to call agreement	$	35,000
Value of common units issued pursuant to call agreement	7,883
Total consideration paid	$	42,883

Other Crude Oil Logistics and Water Services Business Combinations

During the year ended March 31, 2013, we completed four separate acquisitions to expand the assets and operations of our crude oil logistics and water services businesses. On a combined basis, we paid $52.6 million in cash and assumed $1.3 million of long-term debt in the form of non-compete agreements. We also issued 516,978 common units, valued at $12.4 million, as partial consideration for one of these acquisitions. Certain of the agreements contemplate post-closing adjustments to the purchase price for certain specified working capital items. We incurred and charged to general and administrative expense during the year ended March 31, 2013 approximately $0.3 million of costs related to these acquisitions.

We are currently in the process of identifying and determining the fair value of the assets and liabilities acquired in this combination. The estimates of fair value reflected as of March 31, 2013 are subject to change. We currently expect to complete this process prior to finalizing our financial statements for the quarter ended September 30, 2013. We have preliminarily estimated the fair value of the assets acquired and liabilities assumed as follows (in thousands):

Accounts receivable	$	2,660
Inventory	191
Other current assets	738
Property, plant and equipment:
Disposal wells and related equipment (3 - 30 years)	13,322
Other (5 - 30 years)	5,671
Customer relationships (5 - 15 years)	6,800
Non-compete agreements (3 - 5 years)	510
Trade names (indefinite life)	500
Goodwill	43,822
Current liabilities	(5,400		)
Notes payable	(1,340		)
Other noncurrent liabilities	(156		)
Noncontrolling interest	(2,333		)
Consideration paid	$	64,985

The consideration paid consists of the following (in thousands):

Cash paid, net of cash acquired	$	52,552
Value of common units issued	12,433
Total consideration paid	$	64,985

Retail Combinations During the Year Ended March 31, 2013

During the year ended March 31, 2013, we entered into six separate business combination agreements to acquire retail propane and distillate operations, primarily in the northeastern and southeastern United States. On a combined basis, we paid cash of $71.4 million and issued 850,676 common units, valued at $18.9 million, in exchange for these assets. We also assumed $6.6 million of long-term debt in the form of non-compete agreements. We incurred and charged to general and administrative expense during the year ended March 31, 2013 approximately $0.3 million related to these acquisitions. We are in the process of identifying the fair value of the assets acquired and liabilities assumed in certain of the combinations. The estimates of fair value reflected as of March 31, 2013 for certain of these acquisitions are subject to change, although such changes are not likely to be material. Our estimates of the fair value of the assets acquired and liabilities assumed in these six combinations are as follows (in thousands):

Accounts receivable	$	8,715
Inventory	5,155
Other current assets	1,228
Property, plant and equipment:
Land	1,945
Tanks and other retail propane equipment (5-20 years)	28,763
Vehicles (5 years)	11,344
Buildings (30 years)	7,052
Other equipment	1,201
Intangible assets:
Customer relationships (10-15 years)	16,890
Tradenames (indefinite)	2,924
Non-compete agreements (5 years)	1,387
Goodwill	21,983
Other non-current assets	784
Long-term debt, including current portion	(6,594		)
Other assumed liabilities	(12,511		)
Fair value of net assets acquired	$	90,266

Consideration paid consists of the following (in thousands):

Cash consideration paid	$	71,392
Value of common units issued	18,874
Total consideration	$	90,266

Goodwill represents the excess of the estimated consideration paid for the acquired businesses over the fair value of the individual assets acquired, net of liabilities. Goodwill primarily represents the value of synergies between the acquired entities and the Partnership, the opportunity to use the acquired businesses as a platform for growth, and the acquired assembled workforce. We estimate that all of the goodwill will be deductible for federal income tax purposes.

The retail combinations completed during the year ended March 31, 2013 contributed approximately $124.3 million of revenue and approximately $86.6 million of cost of sales to our consolidated statement of operations for the year ended March 31, 2013.

Pro Forma Results of Operations (Unaudited)

The operations of High Sierra have been included in our consolidated statement of operations since High Sierra was acquired on June 19, 2012. The operations of Pecos have been included in our consolidated statement of operations since Pecos was acquired on November 1, 2012. The operations of Third Coast have been included in our consolidated statement of operations since Third Coast was acquired on December 31, 2012. The following unaudited pro forma consolidated data below are presented as if the High Sierra, Pecos, and Third Coast acquisitions had been completed on April 1, 2011 (in thousands, except per unit amounts). The pro forma earnings per unit are based on the common and subordinated units outstanding as of March 31, 2013.

	Years Ended March 31,
	2013		2012
Revenues	$	5,430,449	$	4,789,040
Income from continuing operations	56,366		15,720
Limited partners’ interest in income from continuing operations	53,442		15,704
Basic and diluted earnings from continuing operations per common unit	1.00		0.29
Basic and diluted earnings from continuing operations per subordinated unit	1.00		0.29

The pro forma consolidated data in the table above was prepared by adding the historical results of operations of High Sierra, Pecos, and Third Coast to our historical results of operations and making certain pro forma adjustments. The pro forma adjustments include: (i) replacing the historical depreciation and amortization expense of High Sierra, Pecos, and Third Coast with pro forma depreciation and amortization expense, calculated using the estimated fair values of long-lived assets recorded in the acquisition accounting; (ii) replacing the historical interest expense of High Sierra, Pecos, and Third Coast with pro forma interest expense; and (iii) excluding professional fees and other expenses incurred by us and by the acquirees that were directly related to the acquisitions. In order to calculate pro forma earnings per unit in the table above, we assumed that: (i) the same number of limited partner units outstanding at March 31, 2013 had been outstanding throughout the periods shown in the table, and (ii) all of the common units were eligible for distributions related to the periods shown in the table. The pro forma information is not necessarily indicative of the results of operations that would have occurred if the acquisitions had been completed on April 1, 2011, nor is it necessarily indicative of the future results of the combined operations.

Year Ended March 31, 2012

Osterman

On October 3, 2011, we completed a business combination transaction with Osterman, whereby we acquired retail propane operations in the northeastern United States. We issued 4,000,000 common units and paid $94.9 million of cash, net of cash acquired, in exchange for the assets and operations of Osterman. The agreement also contemplated a post-closing payment of $4.8 million for certain specified working capital items, which was paid in November 2012. We valued the 4 million limited partner common units at $81.9 million based on the closing price of our common units on the closing date ($20.47 per unit). We incurred and charged to general and administrative expense during the year ended March 31, 2012 approximately $772,000 of costs incurred in connection with the Osterman transaction. We also incurred costs related to the equity issuance of approximately $127,000 that we charged to equity. We have included the results of Osterman’s operations in our consolidated financial statements beginning October 3, 2011.

During the year ended March 31, 2013 we completed the acquisition accounting for this transaction. The following table presents the final allocation of the acquisition cost to the assets acquired and liabilities assumed, based on their fair values (in thousands):

				Estimated
				Allocation
				as of
	Final			March 31,
	Allocation			2012			Revision

Accounts receivable	$	9,350		$	5,584		$	3,766
Inventory	3,869			3,898			(29		)
Other current assets	215			212			3

Property, plant and equipment:
Land	2,349			4,500			(2,151		)
Tanks and other retail propane equipment (15-20 years)	47,160			55,000			(7,840		)
Vehicles (5-20 years)	7,699			12,000			(4,301		)
Buildings (30 years)	3,829			6,500			(2,671		)
Other equipment (3-5 years)	732			1,520			(788		)

Intangible assets:
Customer relationships (20 years)	54,500			62,479			(7,979		)
Tradenames (indefinite life)	8,500			5,000			3,500
Non-compete agreements (7 years)	700			—			700

Goodwill	52,267			30,405			21,862
Assumed liabilities	(9,654		)	(5,431		)	(4,223		)
Consideration paid, net of cash acquired	$	181,516		$	181,667		$	(151	)

Consideration paid consists of the following (in thousands):

			Estimated
			Allocation
			as of
	Final		March 31,
	Allocation		2012		Revision

Cash paid at closing, net of cash acquired	$	94,873	$	96,000	$	(1,127	)
Fair value of common units issued at closing	81,880		81,880		—
Working capital payment (paid in November 2012)	4,763		3,787		976
Consideration paid, net of cash acquired	$	181,516	$	181,667	$	(151	)

We have adjusted the March 31, 2012 balances reported in these consolidated financial statements to reflect the final acquisition accounting. These revisions did not have a material impact on the consolidated statements of operations.

SemStream

On November 1, 2011, we completed a business combination with SemStream. We entered into this business combination in order to expand our natural gas liquids logistics 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 $91.0 million. We have valued the 8.9 million limited partner common units at approximately $184.8 million, based on the closing price of our common units on the closing date ($21.07) reduced by the expected present value of distributions for certain units which were not eligible for full distributions until the quarter ending September 30, 2012. In addition, in exchange for a cash contribution, SemStream acquired a 7.5% interest in our general partner. We incurred and charged to general and administrative expense during the year ended March 31, 2012 approximately $736,000 of costs related to the SemStream transaction. We also incurred costs of approximately $43,000 related to the equity issuance that we charged to equity.

The acquired assets included 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.

We have included the results of SemStream’s operations in our consolidated financial statements beginning November 1, 2011. The operations of SemStream are reflected in our natural gas liquids logistics segment.

The following table presents the fair values of the assets acquired and liabilities assumed in the SemStream combination (in thousands):

Propane and other natural gas liquids inventory	$	104,226
Derivative financial instruments	3,578
Assets held for sale	3,000
Prepaids and other current assets	9,833
Property, plant and equipment:
Land	3,470
Tanks and terminals (20-30 years)	41,434
Vehicles and rail cars (5 years)	470
Other (5 years)	3,326
Investment in capital lease	3,112
Amortizable intangible assets:
Customer relationships (8-15 years)	31,950
Rail car leases (1-4 years)	1,008
Goodwill	74,924
Assumed current liabilities	(4,591		)
Consideration paid	$	275,740

Goodwill represents the excess of the estimated consideration paid for the acquired business over the fair value of the individual assets acquired, net of liabilities. Goodwill primarily represents the value of synergies between the acquired operations and the Partnership, the opportunity to use the acquired businesses as a platform to expand our wholesale marketing operations, and the acquired assembled workforce. We estimate that all of the goodwill will be deductible for federal income tax purposes.

Pacer Combination

On January 3, 2012, we completed a business combination with Pacer in order to expand our retail propane operations. The combination was funded with cash of $32.2 million and the issuance of 1.5 million common units. We valued the 1.5 million common units based on the closing price of our common units on the closing date. We incurred and charged to general and administrative expense during the year ended March 31, 2012 approximately $710,000 of costs related to the Pacer transaction. We also incurred costs of approximately $64,000 related to the equity issuance that we charged to equity.

The assets contributed by Pacer consist of retail propane operations in Colorado, Illinois, Mississippi, Oregon, Utah and Washington. The contributed assets include 17 owned or leased customer service centers and satellite distribution locations. We have included the results of Pacer’s operations in our consolidated financial statements beginning January 3, 2012. The operations of Pacer are reported within our retail propane segment.

The consideration paid in the Pacer combination consisted of the following (in thousands):

Cash	$	32,213
Common units	30,375
	$	62,588

During the year ended March 31, 2013, we completed the acquisition accounting for this transaction. The following table presents the final allocation of the acquisition cost to the assets acquired and liabilities assumed, based on their fair values (in thousands):

					Estimated
					Allocation
					as of
		Final			March 31,
		Allocation			2012			Revision

	Accounts receivable	$	4,389		$	4,389		$	—
	Inventory	965			965			—
	Other current assets	43			43			—
	Property, plant and equipment:
	Land	1,967			1,400			567
	Tanks and other retail propane equipment (15 - 20 years)	12,793			11,200			1,593
	Vehicles (5 years)	3,090			5,000			(1,910		)
	Buildings (30 years)	409			2,300			(1,891		)
	Other equipment (3-5 years)	59			200			(141		)
	Intangible assets:
	Customer relationships (15 years)	23,560			21,980			1,580
	Tradenames (indefinite life)	2,410			1,000			1,410
	Noncompete agreements	1,520			—			1,520
	Goodwill	15,782			18,460			(2,678		)
	Assumed Liabilities	(4,399		)	(4,349		)	(50		)
	Consideration paid	$	62,588		$	62,588		$	—

We have adjusted the March 31, 2012 balances reported in these consolidated financial statements to reflect the final acquisition accounting. These revisions did not have a material impact on the consolidated statements of operations.

North American Combination

On February 3, 2012, we completed a business combination with North American in order to expand our retail propane operations. The combination was funded with cash of $69.8 million. We incurred and charged to general and administrative expense during the year ended March 31, 2012 approximately $1.6 million of costs related to the North American acquisition.

The assets acquired from North American include retail propane and distillate operations in Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, Pennsylvania, and Rhode Island. We have included the results of North American’s operations in our consolidated financial statements beginning on February 3, 2012.

During the year ended March 31, 2013, we completed the acquisition accounting for this transaction. The following table presents the final allocation of the acquisition costs to the assets acquired and liabilities assumed, based on their fair values (in thousands):

				Estimated
				Allocation
				as of
	Final			March 31,
	Allocation			2012			Revision

Accounts receivable	$	10,338		$	10,338		$	—
Inventory	3,437			3,437			—
Other current assets	282			282			—
Property, plant and equipment:
Land	2,251			2,600			(349		)
Tanks and other retail propane equipment (15-20 years)	24,790			27,100			(2,310		)
Terminal assets (15-20 years)	1,044			—			1,044
Vehicles (5-15 years)	5,819			9,000			(3,181		)
Buildings (30 years)	2,386			2,200			186
Other equipment (3-5 years)	634			500			134
Intangible assets:
Customer relationships (10 years)	12,600			9,800			2,800
Tradenames (10 years)	2,700			1,000			1,700
Noncompete agreements (3 years)	700			—			700
Goodwill	13,978			14,702			(724		)
Assumed liabilities	(11,129		)	(11,129		)	—
Consideration paid	$	69,830		$	69,830		$	—

Other Acquisitions

During the year ended March 31, 2012, we closed three additional acquisitions for cash payments of approximately $6.4 million on a combined basis. We also assumed $0.6 million in long-term debt in the form of non-compete agreements. These operations have been included in our results of operations since the acquisition dates, and have not been material to our consolidated financial statements.

Six Months Ended March 31, 2011

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

Accounts receivable	$	5,669
Inventory	6,182
Prepaid expenses and other current assets	2,600
	14,451
Property, plant, and equipment:
Land	2,666
Tanks and other retail propane equipment (15 year life)	23,016
Vehicles (5 year life)	6,599
Buildings (30 year life)	7,053
Office equipment (5 year life)	523
Amortizable intangible assets:
Customer relationships (15 year life)	2,170
Non-compete agreements (5 year life)	550
Tradenames (indefinite-life intangible asset)	830
Goodwill (retail propane segment)	3,716
Total assets acquired	61,574

Accounts payable	1,837
Customer advances and deposits	12,089
Accrued and other current liabilities	2,152
	16,078

Long-term debt	5,768
Other long-term liabilities	274
Total liabilities assumed	22,120

Net assets acquired	$	39,454

Goodwill was warranted because these acquisitions enhanced our retail propane operations. We expect all of the goodwill acquired to be tax deductible. We do not believe that the acquired 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 $22.3 million. The units issued to the shareholders of Hicksgas LLC in the formation transaction were valued at $5.37 per unit, the price paid by unrelated parties for the common units they acquired near the transaction date.

The operations of Hicksgas LLC and Gifford have been included in our statements of operations since acquisition in October 2010. For convenience, and because the impact was not significant, we have accounted for the acquisition as it if occurred on October 1, 2010.