DCP Midstream, LP - FORM 8-K/A - EX-99.3 - EXHIBIT 99.3 - March 15, 2017

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EX-99.2 - EXHIBIT 99.2 - DCP Midstream, LPexhibit992sanctuarycarveou.htm
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8-K/A - 8-K/A - DCP Midstream, LPa8-ksanctuary.htm

 Exhibit 99.3

DCP MIDSTREAM, LP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Introduction
Set forth below are DCP Midstream, LP’s unaudited pro forma condensed consolidated balance sheet as of December 31, 2016 and unaudited pro forma condensed consolidated statements of operations for each of the three years in the period ended December 31, 2016 (together with the notes to unaudited condensed consolidated financial statements, the “pro forma financial statements”). References to “we”, “our”, “us” or the “Partnership” refers to DCP Midstream, LP and its consolidated subsidiaries.
Our operations and activities are managed by our general partner, DCP Midstream GP, LP, which in turn is managed by its general partner, DCP Midstream GP, LLC, which we refer to as the General Partner, and is 100% owned by DCP Midstream, LLC. DCP Midstream, LLC and its subsidiaries, collectively referred to as DCP Midstream, LLC, is owned 50% by Phillips 66 and 50% by Enbridge, Inc and its affiliates, or Enbridge. As of December 31, 2016 DCP Midstream, LLC owned approximately 21.4% of us, including limited partner and general partner interests.
On December 30, 2016, we entered into a Contribution Agreement (the “Contribution Agreement”) with DCP Midstream, LLC and DCP Midstream Operating, LP (the “Operating Partnership”), a wholly owned subsidiary of the Partnership. The transactions and documents contemplated by the Contribution Agreement are collectively referred to hereafter as the “Transaction.” The Transaction closed effective January 1, 2017.
On January 1, 2017, DCP Midstream, LLC contributed to us: (i) its ownership interests in all of its subsidiaries owning operating assets, and (ii) $424 million of cash (together the “Contributions”). In consideration of the Partnership’s receipt of the Contributions, (i) the Partnership issued 28,552,480 common units to DCP Midstream, LLC and 2,550,644 general partner units to the General Partner in a private placement and (ii) the Operating Partnership assumed $3,150 million of DCP Midstream, LLC’s debt.
DCP Midstream, LLC retained its respective interests in (i) DCP Midstream GP, LP (the general partner of the Partnership or “GP LP”), DCP Midstream GP, LLC (the general partner of GP LP) and the general partner interests in the Partnership, and DCP Services, LLC (the subsidiary that holds our employees)(collectively the “Excluded Subsidiaries”), and (ii) the incentive distribution rights in the Partnership, and (iii) the limited partnership interests in the Partnership (collectively, the “Excluded Interests”).
The Transaction represents a transaction between entities under common control and a change in reporting entity for the Partnership. Accordingly, the Transaction will be accounted for as an equity transaction by the Partnership and the unaudited pro forma condensed consolidated financial statements are combined on an "as if" pooled basis. The historical basis of the contributed assets and liabilities of DCP Midstream, LLC are carried forward by the Partnership.
The pro forma financial statements present the impact of the Transaction on our financial position and results of operations. The pro forma adjustments have been prepared as if the Transaction had taken place as of December 31, 2016, in the case of the unaudited pro forma condensed consolidated balance sheet, and as of January 1, 2014, in the case of the unaudited pro forma condensed consolidated statements of operations for each of the years in the three year period ended December 31, 2016.
The pro forma financial statements are qualified in their entirety by reference to historical consolidated financial statements and related notes contained therein, and should be read in conjunction with the accompanying notes and with the historical consolidated financial statements and related notes thereto.


DCP MIDSTREAM, LP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2016
 
 
DCP Midstream, LP
 
The DCP Midstream Business
 
Pro Forma Adjustments
 
Eliminations
 
DCP Midstream, LP Pro Forma
 
 
(a)
 
(b)
 
 
 
(e)
 
 
 
 
 (Millions)
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
1

 
$
418

 
$
(195
)
(d)
$
—

 
$
224

Accounts receivable:
 
 
 
 
 
 
 
 
 
 
  Trade, net
 
62

 
590

 
—

 
—

 
652

  Affiliates
 
94

 
162

 
—

 
(122
)
 
134

  Other
 
—

 
6

 
—

 
—

 
6

Inventories
 
44

 
28

 
—

 
—

 
72

Unrealized gains on derivative instruments
 
16

 
63

 
—

 
(37
)
 
42

Other
 
10

 
77

 
—

 
—

 
87

    Total current assets
 
227

 
1,344

 
(195
)
 
(159
)
 
1,217

Property, plant and equipment, net
 
3,272

 
5,797

 
—

 
—

 
9,069

Goodwill
 
72

 
164

 
—

 
—

 
236

Intangible assets, net
 
103

 
34

 
—

 
—

 
137

Investments in unconsolidated affiliates
 
1,475

 
1,494

 
—

 
—

 
2,969

Unrealized gains on derivative instruments
 
—

 
5

 
—

 
—

 
5

Other long-term assets
 
12

 
189

 
—

 
—

 
201

    Total assets
 
$
5,161

 
$
9,027

 
$
(195
)
 
$
(159
)
 
$
13,834

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
  Trade
 
$
108

 
$
569

 
$
—

 
$
—

 
$
677

  Affiliates
 
31

 
139

 
—

 
(122
)
 
48

  Other
 
—

 
10

 
—

 
—

 
10

Current maturities of long-term debt
 
500

 
—

 
—

 
—

 
500

Unrealized losses on derivative instruments
 
29

 
99

 
—

 
(37
)
 
91

Accrued interest
 
18

 
54

 
—

 
—

 
72

Accrued taxes
 
19

 
30

 
—

 
—

 
49

Accrued wages and benefits
 
—

 
72

 
—

 
—

 
72

Other
 
29

 
75

 
—

 
—

 
104

   Total current liabilities
 
734

 
1,048

 
—

 
(159
)
 
1,623

Deferred income taxes
 
—

 
22

 
—

 
6

 
28

Long-term debt
 
1,750

 
3,157

 
(195
)
(d)
—

 
4,712

Unrealized losses on derivative instruments
 
—

 
1

 
—

 
—

 
1

Other long-term liabilities
 
44

 
161

 
—

 
(6
)
 
199

  Total liabilities
 
2,528

 
4,389

 
(195
)
 
(159
)
 
6,563

Commitments and contingent liabilities
 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
 
 
 
Limited partners
 
2,591

 
—

 
1,125

(c)
—

 
3,716

 
 
—

 
—

 
3,515

(f)
—

 
3,515



General partner
 
18

 
—

 
—

 
—

 
18

Parent equity
 
—

 
4,640

 
(4,640
)
(g)
—

 
—

Accumulated other comprehensive loss
 
(8
)
 
(2
)
 
—

 
—

 
(10
)
  Total partners' equity
 
2,601

 
4,638

 
—

 
—

 
7,239

Noncontrolling interest
 
32

 
—

 
—

 
—

 
32

  Total equity
 
2,633

 
4,638

 
—

 
—

 
7,271

  Total liabilities and equity
 
$
5,161

 
$
9,027

 
$
(195
)
 
$
(159
)
 
$
13,834

See accompanying notes to unaudited pro forma condensed consolidated financial statements.



DCP MIDSTREAM, LP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2016
 
 
DCP Midstream, LP
 
The DCP Midstream Business
 
Pro Forma Adjustments
 
Eliminations
 
DCP Midstream, LP Pro Forma
 
 
(a)
 
(b)
 
 
 
(e)
 
 
 
 
 (Millions, except per unit amounts)
Operating revenues:
 
 
 
 
 
 
 
 
 
 
Sales of natural gas, propane, NGLs and condensate
 
$
348

 
$
4,969

 
$
—

 
$
—

 
$
5,317

Sales of natural gas, propane, NGLs and condensate to affiliates
 
745

 
1,052

 
—

 
(845
)
 
952

Transportation, storage and processing
 
424

 
390

 
—

 
(167
)
 
647

Trading and marketing losses, net
 
(20
)
 
(3
)
 
—

 
—

 
(23
)
Total operating revenues
 
1,497

 
6,408

 
—

 
(1,012
)
 
6,893

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
 
Purchases of natural gas, propane, NGLs and condensate
 
814

 
4,164

 
—

 
—

 
4,978

Purchases of natural gas, propane, NGLs and condensate from affiliates
 
132

 
1,196

 
—

 
(845
)
 
483

Transportation and other fees - affiliates
 
—

 
167

 
—

 
(167
)
 
—

Operating and maintenance
 
183

 
487

 
—

 
—

 
670

Depreciation and amortization
 
122

 
256

 
—

 
—

 
378

General and administrative
 
88

 
204

 
—

 
—

 
292

Other expense (income), net
 
7

 
(72
)
 
—

 
—

 
(65
)
(Gain) loss on sale of assets, net
 
(47
)
 
12

 
—

 
—

 
(35
)
Restructuring costs
 
—

 
13

 
—

 
—

 
13

Total operating costs and expenses
 
1,299

 
6,427

 
—

 
(1,012
)
 
6,714

Operating income (loss)
 
198

 
(19
)
 
—

 
—

 
179

Interest expense, net
 
(94
)
 
(227
)
 
—

 
—

 
(321
)
Earnings from unconsolidated affiliates
 
214

 
68

 
—

 
—

 
282

Income (loss) before income taxes
 
318

 
(178
)
 
—

 
—

 
140

Income tax expense
 
—

 
(46
)
 
—

 
—

 
(46
)
Net income (loss)
 
318

 
$
(224
)
 
$
—

 
$
—

 
94

Net income attributable to noncontrolling interests
 
(6
)
 
 
 
 
 
 
 
(6
)
Net income attributable to partners
 
312

 
 
 
 
 
 
 
88

General partners' interest in net income
 
(124
)
 
 
 
 
 
 
 
(164
)
Net income (loss) allocable to limited partners
 
$
188

 
 
 
 
 
 
 
$
(76
)
 
 
 
 
 
 
 
 
 
 
 
Net income per limited partner unit – basic and diluted
 
$
1.64

 


 
 
 
 
 
$
(0.53
)
Weighted-average limited partner units outstanding – basic and diluted
 
114.7

 
 
 
28.6

(c)
 
 
143.3

See accompanying notes to unaudited pro forma condensed consolidated financial statements.



DCP MIDSTREAM, LP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2015
 
 
DCP Midstream, LP
 
The DCP Midstream Business
 
Pro Forma Adjustments
 
Eliminations
 
DCP Midstream, LP Pro Forma
 
 
(a)
 
(b)
 
 
 
(e)
 
 
 
 
 (Millions, except per unit amounts)
Operating revenues:
 
 
 
 
 
 
 
 
 
 
Sales of natural gas, propane, NGLs and condensate
 
$
484

 
$
5,530

 
$
—

 
$
—

 
$
6,014

Sales of natural gas, propane, NGLs and condensate to affiliates
 
958

 
826

 
—

 
(1,019
)
 
765

Transportation, storage and processing
 
371

 
279

 
—

 
(118
)
 
532

Trading and marketing losses, net
 
85

 
34

 
—

 
—

 
119

Total operating revenues
 
1,898

 
6,669

 
—

 
(1,137
)
 
7,430

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
 
Purchases of natural gas, propane, NGLs and condensate
 
1,139

 
4,424

 
—

 
—

 
5,563

Purchases of natural gas, propane, NGLs and condensate from affiliates
 
107

 
1,330

 
—

 
(1,019
)
 
418

Transportation and other fees - affiliates
 
—

 
118

 
—

 
(118
)
 
—

Operating and maintenance
 
214

 
518

 
—

 
—

 
732

Depreciation and amortization
 
120

 
257

 
—

 
—

 
377

Asset impairments
 
82

 
830

 
 
 
 
 
912

General and administrative
 
85

 
196

 
—

 
—

 
281

Gain on sale of assets, net
 
—

 
(42
)
 
—

 
—

 
(42
)
Restructuring costs
 
—

 
11

 
—

 
—

 
11

Other expense, net
 
4

 
6

 
—

 
—

 
10

Total operating costs and expenses
 
1,751

 
7,648

 
—

 
(1,137
)
 
8,262

Operating income (loss)
 
147

 
(979
)
 
—

 
—

 
(832
)
Interest expense, net
 
(92
)
 
(228
)
 
—

 
—

 
(320
)
Earnings from unconsolidated affiliates
 
173

 
11

 
—

 
—

 
184

Income (loss) before income taxes
 
228

 
(1,196
)
 
—

 
—

 
(968
)
Income tax benefit
 
5

 
97

 
—

 
—

 
102

Net income (loss)
 
233

 
$
(1,099
)
 
$
—

 
$
—

 
(866
)
Net income attributable to noncontrolling interests
 
(5
)
 
 
 
 
 
 
 
(5
)
Net income attributable to partners
 
228

 
 
 
 
 
 
 
(871
)
General partners' interest in net income
 
(124
)
 
 
 
 
 
 
 
(144
)
Net income allocable to limited partners
 
$
104

 
 
 
 
 
 
 
$
(1,015
)
 
 
 
 
 
 
 
 
 
 
 
Net income per limited partner unit – basic and diluted
 
$
0.91

 
 
 
 
 
 
 
$
(7.09
)
Weighted-average limited partner units outstanding – basic and diluted
 
114.6

 
 
 
28.6

(c)
 
 
143.2

See accompanying notes to unaudited pro forma condensed consolidated financial statements.


DCP MIDSTREAM, LP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2014
 
 
DCP Midstream, LP
 
The DCP Midstream Business
 
Pro Forma Adjustments
 
Eliminations
 
DCP Midstream, LP Pro Forma
 
 
(a)
 
(b)
 
 
 
(e)
 
 
 
 
 (Millions, except per unit amounts)
Operating revenues:
 
 
 
 
 
 
 
 
 
 
Sales of natural gas, propane, NGLs and condensate
 
$
963

 
$
10,427

 
$
—

 
$
—

 
$
11,390

Sales of natural gas, propane, NGLs and condensate to affiliates
 
2,180

 
2,208

 
(21
)
(h)
(2,337
)
 
2,030

Transportation, storage and processing
 
345

 
264

 
(1
)
(h)
(91
)
 
517

Trading and marketing losses, net
 
154

 
(66
)
 
—

 
—

 
88

Total operating revenues
 
3,642

 
12,833

 
(22
)
 
(2,428
)
 
14,025

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
 
Purchases of natural gas, propane, NGLs and condensate
 
2,524

 
8,838

 
—

 
—

 
11,362

Purchases of natural gas, propane, NGLs and condensate from affiliates
 
271

 
2,542

 
(16
)
(h)
(2,336
)
 
461

Transportation and other fees - affiliates
 
—

 
96

 
—

 
(92
)
 
4

Operating and maintenance
 
216

 
558

 
—

 
—

 
774

Depreciation and amortization
 
110

 
238

 
—

 
—

 
348

Asset impairments
 
—

 
18

 
—

 
—

 
18

General and administrative
 
64

 
213

 
—

 
—

 
277

Other expense, net
 
3

 
4

 
—

 
—

 
7

Loss on sale of assets, net
 
—

 
7

 
—

 
—

 
7

Total operating costs and expenses
 
3,188

 
12,514

 
(16
)
 
(2,428
)
 
13,258

Operating income
 
454

 
319

 
(6
)
 
—

 
767

Interest expense, net
 
(86
)
 
(201
)
 
—

 
—

 
(287
)
Earnings from unconsolidated affiliates
 
75

 
7

 
—

 
—

 
82

Income before income taxes
 
443

 
125

 
(6
)
 
—

 
562

Income tax expense
 
(6
)
 
(5
)
 
—

 
—

 
(11
)
Net income
 
437

 
$
120

 
$
(6
)
 
$
—

 
551

Net income attributable to noncontrolling interests
 
(14
)
 
 
 
 
 
 
 
(14
)
Net income attributable to partners
 
423

 
 
 
 
 
 
 
537

Net income attributable to predecessor operations
 
(6
)
 
 
 
 
 
 
 
—

General partners' interest in net income
 
(114
)
 
 
 
 
 
 
 
(157
)
Net income allocable to limited partners
 
$
303

 
 
 
 
 
 
 
$
380

 
 
 
 
 
 
 
 
 
 
 
Net income per limited partner unit – basic and diluted
 
$
2.84

 
 
 
 
 
 
 
$
2.81

Weighted-average limited partner units outstanding – basic and diluted
 
106.6

 
 
 
28.6

(c)
 
 
135.2

See accompanying notes to unaudited pro forma condensed consolidated financial statements.


DCP MIDSTREAM, LP
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation
The unaudited pro forma condensed consolidated financial statements (“the pro forma financial statements”) present the impact on our financial position and results of operations of the Transaction as discussed in the Introduction to these pro forma financial statements. The pro forma financial statements as of December 31, 2016 for each of the three years in the period ended December 31, 2016 have been prepared based on certain pro forma adjustments to our audited consolidated financial statements set forth in our Annual Report on Form 10-K filed on February 15, 2017 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 that report. The pro forma 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 December 31, 2016 has been prepared as if the Transaction occurred on that date. The unaudited pro forma condensed consolidated statements of operations for each of the three years in the period ended December 31, 2016 have been prepared as if the Transaction had occurred on January 1, 2014. Since the Transaction represents a transaction between entities under common control and a change in reporting entity, the unaudited pro forma condensed consolidated financial statements are combined on an “as if” pooling basis and the historical basis of the contributed assets and liabilities are carried forward by the Partnership.
The pro forma adjustments are based upon currently available information and certain estimates and assumptions; therefore, actual results may differ from the pro forma adjustments. Management believes, however, that the assumptions provide a reasonable basis for presenting the significant effects of the Transaction and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the pro forma financial statements.
Note 2. Pro Forma Adjustments and Assumptions
(a)
Amounts were derived from the audited consolidated financial statements included in our Form 10-K, as filed with the Securities and Exchange Commission (“SEC”) on February 15, 2017.
(b)
Amounts were derived from the Audited Combined Financial Statements of The DCP Midstream Business as of December 31, 2016 and 2015 and for each of the three years in the period ended December 31, 2016, included in this Current Report on Form 8-K/A as Exhibit 99.2.
(c)
Reflects the issuance of 28,552,480 common units and 2,550,644 general partner units to DCP Midstream, LLC having an aggregate value of $1,125 million as determined by the volume weighted average price of the common units over the 20-day trading period ended December 28, 2016.
(d)
Reflects repayment of debt outstanding on the Partnership’s revolving credit facility from proceeds received in the Transaction.
(e)
To remove impacts of intercompany transactions and maintain presentational consistency of deferred income tax liabilities and other long-term liabilities.
(f)
Reflects the adjustment to limited partners’ equity for the deficit of consideration paid compared to the historical cost of the net assets acquired. The consideration was assigned as follows, subject to additional customary post-closing adjustments (in millions):
Aggregate consideration
 
$
4,275

Less: Historical cost of the assets acquired (excluding debt)
 
(7,790
)
Adjustment to limited partners’ equity for deficit consideration
 
$
3,515

(g) To reclassify net parent equity to limited partners equity.
(h)
To eliminate the impact of activity attributable to predecessor results included in the accounts of both DCP Midstream, LP and The DCP Midstream Business, related to the effect of pooling historical results within the DCP Midstream, LP financial statements from the March 2014 transactions (as discussed in the combined financial statements of The DCP Midstream Business).




Note 3. Pro Forma Net Income or Loss Per Limited Partner Unit
Our net income or net loss is allocated to the general partner and the limited partners in accordance with their respective ownership percentages, after allocating Available Cash generated during the period in accordance with our partnership agreement.
Securities that meet the definition of a participating security are required to 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.
These required disclosures do not impact our overall net income or loss or other financial results; however, in periods in which aggregate net income exceeds certain distribution levels, it will have the impact of reducing net income per limited partner unit, or LPU.
Basic and diluted net income or loss per LPU is calculated by dividing limited partners’ interest in pro forma net income or loss, by the weighted average number of outstanding LPUs during the period, assuming the 28,552,480 limited partner units issued in connection with the Transaction were issued on January 1, 2014.

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