| Equity |
EQUITY AND NET EARNINGS PER UNIT
We had 68,901,930 common public units outstanding as of September 30, 2016. Additionally, Tesoro owned 33,194,109 of our common units and 2,083,330 of our general partner units (the 2.0% general partner interest) as of September 30, 2016, which together constitutes a 34% ownership interest.
UNIT ISSUANCE. We closed a registered public offering of 6,325,000 common units representing limited partner interests, including the over-allotment option exercised by the underwriter for the purchase of an additional 825,000 common units, at a public offering price of $47.13 per unit on June 10, 2016. The net proceeds of $293 million are expected to be used for general partnership purposes, which may include debt repayment, future acquisitions, capital expenditures and additions to working capital.
ATM PROGRAM. On August 24, 2015, we filed a prospectus supplement to our shelf registration statement filed with the SEC on August 6, 2015, authorizing the continuous issuance of up to an aggregate of $750 million of common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of our offerings (such continuous offering program, or at-the-market program, referred to as our “ATM Program”). During the three and nine months ended September 30, 2016, we issued an aggregate of 655,940 and 1,492,637 common units, respectively, under our ATM Program, generating proceeds of approximately $31 million and $72 million, respectively, before issuance costs. The net proceeds from sales under the ATM Program will be used for general partnership purposes, which may include debt repayment, future acquisitions, capital expenditures and additions to working capital.
CHANGE IN THE CARRYING AMOUNT OF OUR EQUITY (in millions)
| | | | | | | | | | | | | | | | | | | | |
| | | Partnership | | |
|
| | Equity of Predecessors (a) | | Common | | General Partner | | Noncontrolling Interest | | Total | Balance at December 31, 2015 | $ | 16 |
| | $ | 1,707 |
| | $ | (13 | ) | | $ | 84 |
| | $ | 1,794 |
| Sponsor contributions of equity to the Predecessors | 34 |
| | — |
| | — |
| | — |
| | 34 |
| Loss attributable to the Predecessors | (4 | ) | | — |
| | — |
| | — |
| | (4 | ) | Allocation of net assets acquired by the unitholders (b) | (46 | ) | | 40 |
| | 6 |
| | — |
| | — |
| Equity offering under ATM Program, net of issuance costs | — |
| | 71 |
| | — |
| | — |
| | 71 |
| Proceeds from issuance of units, net of issuance costs | — |
| | 293 |
| | — |
| | — |
| | 293 |
| Effect of deconsolidation of RGS (c) | — |
| | (2 | ) | | — |
| | (84 | ) | | (86 | ) | Quarterly distributions to unitholders and general partner(d) | — |
| | (234 | ) | | (95 | ) | | — |
| | (329 | ) | Distributions to unitholders and general partner related to acquisitions (b) | — |
| | (321 | ) | | (79 | ) | | — |
| | (400 | ) | Net earnings attributable to partners | — |
| | 154 |
| | 109 |
| | — |
| | 263 |
| Contributions (e) | — |
| | 17 |
| | 2 |
| | — |
| | 19 |
| Other | — |
| | 4 |
| | 4 |
| | — |
| | 8 |
| Balance at September 30, 2016 | $ | — |
| | $ | 1,729 |
| | $ | (66 | ) | | $ | — |
| | $ | 1,663 |
|
| | (a) | Adjusted to include the historical results of the Predecessors. See Note 1 for further discussion. |
| | (b) | Distributions to unitholders and general partner include $400 million in cash payments for the Alaska Storage and Terminalling Assets acquisition from Tesoro. As an entity under common control with Tesoro, we record the assets that we acquire from Tesoro in our consolidated balance sheets at Tesoro’s historical book value instead of fair value, and any excess of cash paid over the historical book value of the assets acquired from Tesoro is recorded within equity. As a result of this accounting treatment, this transaction resulted in a net decrease of $354 million in our equity balance during the nine months ended September 30, 2016. |
| | (c) | As a result of the reassessment performed, we deconsolidated RGS causing the derecognition of noncontrolling interest and an opening equity impact totaling $86 million. The cumulative effect to opening equity of $2 million related to the difference in earnings under the equity method of accounting in prior periods. |
| | (d) | Represents cash distributions declared and paid during the nine months ended September 30, 2016 relating to the fourth quarter of 2015 through the second quarter of 2016. |
| | (e) | Includes Tesoro and TLGP contributions to the Partnership primarily related to reimbursements for capital spending pursuant predominantly to the Amended Omnibus Agreement and the Carson Assets Indemnity Agreement. |
NET EARNINGS PER UNIT. We use the two-class method when calculating the net earnings per unit applicable to limited partners, because we have more than one participating security. At September 30, 2016, our participating securities consist of common units, general partner units and IDRs. Net earnings earned by the Partnership are allocated between the common and general partners in accordance with our partnership agreement. We base our calculation of net earnings per unit on the weighted average number of common limited partner units outstanding during the period.
Diluted net earnings per unit include the effects of potentially dilutive units on our common units, which consist of unvested service and performance phantom units. Distributions less than or greater than earnings are allocated in accordance with our partnership agreement.
NET EARNINGS PER UNIT (in millions, except per unit amounts)
| | | | | | | | | | | | | | | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | 2016 | | 2015 | | 2016 | | 2015 | Net earnings | $ | 87 |
| | $ | 71 |
| | $ | 259 |
| | $ | 206 |
| Net earnings attributable to noncontrolling interest | — |
| | (3 | ) | | — |
| | (19 | ) | Special allocations of net earnings (“Special Allocations”) (a) | 2 |
| | — |
| | 2 |
| | — |
| Net earnings, excluding noncontrolling interest and including Special Allocations | 89 |
| | 68 |
| | 261 |
| | 187 |
| General partner’s distributions | (3 | ) | | (1 | ) | | (7 | ) | | (4 | ) | General partner’s IDRs (b) | (39 | ) | | (19 | ) | | (105 | ) | | (47 | ) | Limited partners’ distributions on common units | (89 | ) | | (66 | ) | | (250 | ) | | (186 | ) | Distributions greater than earnings | $ | (42 | ) | | $ | (18 | ) | | $ | (101 | ) | | $ | (50 | ) | General partner’s earnings: | | | | | | | | Distributions | $ | 3 |
| | $ | 1 |
| | $ | 7 |
| | $ | 4 |
| General partner’s IDRs (b) | 39 |
| | 19 |
| | 105 |
| | 47 |
| Allocation of distributions greater than earnings (c) | (2 | ) | | (6 | ) | | (6 | ) | | (17 | ) | Total general partner’s earnings | $ | 40 |
| | $ | 14 |
| | $ | 106 |
| | $ | 34 |
| Limited partners’ earnings on common units: | | | | | | | | Distributions | $ | 89 |
| | $ | 66 |
| | $ | 250 |
| | $ | 186 |
| Special Allocations (a) | (2 | ) | | — |
| | (2 | ) | | — |
| Allocation of distributions greater than earnings | (40 | ) | | (12 | ) | | (95 | ) | | (33 | ) | Total limited partners’ earnings on common units | $ | 47 |
| | $ | 54 |
| | $ | 153 |
| | $ | 153 |
| Weighted average limited partner units outstanding: | | | | | | | | Common units - basic | 101.4 |
| | 86.6 |
| | 96.7 |
| | 82.5 |
| Common units - diluted | 101.4 |
| | 86.7 |
| | 96.8 |
| | 82.6 |
| Net earnings per limited partner unit: | | | | | | | | Common - basic | $ | 0.46 |
| | $ | 0.62 |
| | $ | 1.58 |
| | $ | 1.85 |
| Common - diluted | $ | 0.46 |
| | $ | 0.62 |
| | $ | 1.58 |
| | $ | 1.85 |
|
| | (a) | Normal allocations according to percentage interests are made after giving effect, if any, to priority income allocations in an amount equal to incentive cash distributions fully allocated to the general partner and any special allocations. The adjustment reflects the special allocation to common units held by TLGP for the interest incurred in connection with borrowings on the Dropdown Credit Facility in lieu of using cash on hand to fund the Alaska Storage and Terminalling Assets acquisition during the three and nine months ended September 30, 2016. |
| | (b) | IDRs entitle the general partner to receive increasing percentages, up to 50%, of quarterly distributions in excess of $0.3881 per unit per quarter. The amount above reflects earnings distributed to our general partner net of $3 million and $8 million of IDRs for the three and nine months ended September 30, 2015, respectively, waived by TLGP. See Note 12 of our Annual Report on Form 10-K for the year ended December 31, 2015, for further discussion related to IDRs. |
| | (c) | We have revised the historical allocation of general partner earnings to include the Predecessors’ losses of $1 million and $4 million for the three and nine months ended September 30, 2016, respectively, and $6 million and $17 million for the three and nine months ended September 30, 2015, respectively. |
CASH DISTRIBUTIONS
Our partnership agreement, as amended, sets forth the calculation to be used to determine the amount and priority of cash distributions that the limited partner unitholders and general partner will receive. The table below summarizes the quarterly distributions related to our quarterly financial results:
QUARTERLY DISTRIBUTIONS
| | | | | | | | | | | | | Quarter Ended | Quarterly Distribution Per Unit | | Total Cash Distribution including general partner IDRs (in millions) | | Date of Distribution | | Unitholders Record Date | December 31, 2015 | $ | 0.780 |
| | $ | 98 |
| | February 12, 2016 | | February 2, 2016 | March 31, 2016 | 0.810 |
| | 108 |
| | May 13, 2016 | | May 2, 2016 | June 30, 2016 | 0.842 |
| | 123 |
| | August 12, 2016 | | August 2, 2016 | September 30, 2016 (a) | 0.875 |
| | 131 |
| | November 14, 2016 | | November 4, 2016 |
| | (a) | This distribution was declared on October 18, 2016 and will be paid on the date of distribution. |
|
| Earnings Per Share |
EQUITY AND NET EARNINGS PER UNIT
We had 68,901,930 common public units outstanding as of September 30, 2016. Additionally, Tesoro owned 33,194,109 of our common units and 2,083,330 of our general partner units (the 2.0% general partner interest) as of September 30, 2016, which together constitutes a 34% ownership interest.
UNIT ISSUANCE. We closed a registered public offering of 6,325,000 common units representing limited partner interests, including the over-allotment option exercised by the underwriter for the purchase of an additional 825,000 common units, at a public offering price of $47.13 per unit on June 10, 2016. The net proceeds of $293 million are expected to be used for general partnership purposes, which may include debt repayment, future acquisitions, capital expenditures and additions to working capital.
ATM PROGRAM. On August 24, 2015, we filed a prospectus supplement to our shelf registration statement filed with the SEC on August 6, 2015, authorizing the continuous issuance of up to an aggregate of $750 million of common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of our offerings (such continuous offering program, or at-the-market program, referred to as our “ATM Program”). During the three and nine months ended September 30, 2016, we issued an aggregate of 655,940 and 1,492,637 common units, respectively, under our ATM Program, generating proceeds of approximately $31 million and $72 million, respectively, before issuance costs. The net proceeds from sales under the ATM Program will be used for general partnership purposes, which may include debt repayment, future acquisitions, capital expenditures and additions to working capital.
CHANGE IN THE CARRYING AMOUNT OF OUR EQUITY (in millions)
| | | | | | | | | | | | | | | | | | | | |
| | | Partnership | | |
|
| | Equity of Predecessors (a) | | Common | | General Partner | | Noncontrolling Interest | | Total | Balance at December 31, 2015 | $ | 16 |
| | $ | 1,707 |
| | $ | (13 | ) | | $ | 84 |
| | $ | 1,794 |
| Sponsor contributions of equity to the Predecessors | 34 |
| | — |
| | — |
| | — |
| | 34 |
| Loss attributable to the Predecessors | (4 | ) | | — |
| | — |
| | — |
| | (4 | ) | Allocation of net assets acquired by the unitholders (b) | (46 | ) | | 40 |
| | 6 |
| | — |
| | — |
| Equity offering under ATM Program, net of issuance costs | — |
| | 71 |
| | — |
| | — |
| | 71 |
| Proceeds from issuance of units, net of issuance costs | — |
| | 293 |
| | — |
| | — |
| | 293 |
| Effect of deconsolidation of RGS (c) | — |
| | (2 | ) | | — |
| | (84 | ) | | (86 | ) | Quarterly distributions to unitholders and general partner(d) | — |
| | (234 | ) | | (95 | ) | | — |
| | (329 | ) | Distributions to unitholders and general partner related to acquisitions (b) | — |
| | (321 | ) | | (79 | ) | | — |
| | (400 | ) | Net earnings attributable to partners | — |
| | 154 |
| | 109 |
| | — |
| | 263 |
| Contributions (e) | — |
| | 17 |
| | 2 |
| | — |
| | 19 |
| Other | — |
| | 4 |
| | 4 |
| | — |
| | 8 |
| Balance at September 30, 2016 | $ | — |
| | $ | 1,729 |
| | $ | (66 | ) | | $ | — |
| | $ | 1,663 |
|
| | (a) | Adjusted to include the historical results of the Predecessors. See Note 1 for further discussion. |
| | (b) | Distributions to unitholders and general partner include $400 million in cash payments for the Alaska Storage and Terminalling Assets acquisition from Tesoro. As an entity under common control with Tesoro, we record the assets that we acquire from Tesoro in our consolidated balance sheets at Tesoro’s historical book value instead of fair value, and any excess of cash paid over the historical book value of the assets acquired from Tesoro is recorded within equity. As a result of this accounting treatment, this transaction resulted in a net decrease of $354 million in our equity balance during the nine months ended September 30, 2016. |
| | (c) | As a result of the reassessment performed, we deconsolidated RGS causing the derecognition of noncontrolling interest and an opening equity impact totaling $86 million. The cumulative effect to opening equity of $2 million related to the difference in earnings under the equity method of accounting in prior periods. |
| | (d) | Represents cash distributions declared and paid during the nine months ended September 30, 2016 relating to the fourth quarter of 2015 through the second quarter of 2016. |
| | (e) | Includes Tesoro and TLGP contributions to the Partnership primarily related to reimbursements for capital spending pursuant predominantly to the Amended Omnibus Agreement and the Carson Assets Indemnity Agreement. |
NET EARNINGS PER UNIT. We use the two-class method when calculating the net earnings per unit applicable to limited partners, because we have more than one participating security. At September 30, 2016, our participating securities consist of common units, general partner units and IDRs. Net earnings earned by the Partnership are allocated between the common and general partners in accordance with our partnership agreement. We base our calculation of net earnings per unit on the weighted average number of common limited partner units outstanding during the period.
Diluted net earnings per unit include the effects of potentially dilutive units on our common units, which consist of unvested service and performance phantom units. Distributions less than or greater than earnings are allocated in accordance with our partnership agreement.
NET EARNINGS PER UNIT (in millions, except per unit amounts)
| | | | | | | | | | | | | | | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | 2016 | | 2015 | | 2016 | | 2015 | Net earnings | $ | 87 |
| | $ | 71 |
| | $ | 259 |
| | $ | 206 |
| Net earnings attributable to noncontrolling interest | — |
| | (3 | ) | | — |
| | (19 | ) | Special allocations of net earnings (“Special Allocations”) (a) | 2 |
| | — |
| | 2 |
| | — |
| Net earnings, excluding noncontrolling interest and including Special Allocations | 89 |
| | 68 |
| | 261 |
| | 187 |
| General partner’s distributions | (3 | ) | | (1 | ) | | (7 | ) | | (4 | ) | General partner’s IDRs (b) | (39 | ) | | (19 | ) | | (105 | ) | | (47 | ) | Limited partners’ distributions on common units | (89 | ) | | (66 | ) | | (250 | ) | | (186 | ) | Distributions greater than earnings | $ | (42 | ) | | $ | (18 | ) | | $ | (101 | ) | | $ | (50 | ) | General partner’s earnings: | | | | | | | | Distributions | $ | 3 |
| | $ | 1 |
| | $ | 7 |
| | $ | 4 |
| General partner’s IDRs (b) | 39 |
| | 19 |
| | 105 |
| | 47 |
| Allocation of distributions greater than earnings (c) | (2 | ) | | (6 | ) | | (6 | ) | | (17 | ) | Total general partner’s earnings | $ | 40 |
| | $ | 14 |
| | $ | 106 |
| | $ | 34 |
| Limited partners’ earnings on common units: | | | | | | | | Distributions | $ | 89 |
| | $ | 66 |
| | $ | 250 |
| | $ | 186 |
| Special Allocations (a) | (2 | ) | | — |
| | (2 | ) | | — |
| Allocation of distributions greater than earnings | (40 | ) | | (12 | ) | | (95 | ) | | (33 | ) | Total limited partners’ earnings on common units | $ | 47 |
| | $ | 54 |
| | $ | 153 |
| | $ | 153 |
| Weighted average limited partner units outstanding: | | | | | | | | Common units - basic | 101.4 |
| | 86.6 |
| | 96.7 |
| | 82.5 |
| Common units - diluted | 101.4 |
| | 86.7 |
| | 96.8 |
| | 82.6 |
| Net earnings per limited partner unit: | | | | | | | | Common - basic | $ | 0.46 |
| | $ | 0.62 |
| | $ | 1.58 |
| | $ | 1.85 |
| Common - diluted | $ | 0.46 |
| | $ | 0.62 |
| | $ | 1.58 |
| | $ | 1.85 |
|
| | (a) | Normal allocations according to percentage interests are made after giving effect, if any, to priority income allocations in an amount equal to incentive cash distributions fully allocated to the general partner and any special allocations. The adjustment reflects the special allocation to common units held by TLGP for the interest incurred in connection with borrowings on the Dropdown Credit Facility in lieu of using cash on hand to fund the Alaska Storage and Terminalling Assets acquisition during the three and nine months ended September 30, 2016. |
| | (b) | IDRs entitle the general partner to receive increasing percentages, up to 50%, of quarterly distributions in excess of $0.3881 per unit per quarter. The amount above reflects earnings distributed to our general partner net of $3 million and $8 million of IDRs for the three and nine months ended September 30, 2015, respectively, waived by TLGP. See Note 12 of our Annual Report on Form 10-K for the year ended December 31, 2015, for further discussion related to IDRs. |
| | (c) | We have revised the historical allocation of general partner earnings to include the Predecessors’ losses of $1 million and $4 million for the three and nine months ended September 30, 2016, respectively, and $6 million and $17 million for the three and nine months ended September 30, 2015, respectively. |
CASH DISTRIBUTIONS
Our partnership agreement, as amended, sets forth the calculation to be used to determine the amount and priority of cash distributions that the limited partner unitholders and general partner will receive. The table below summarizes the quarterly distributions related to our quarterly financial results:
QUARTERLY DISTRIBUTIONS
| | | | | | | | | | | | | Quarter Ended | Quarterly Distribution Per Unit | | Total Cash Distribution including general partner IDRs (in millions) | | Date of Distribution | | Unitholders Record Date | December 31, 2015 | $ | 0.780 |
| | $ | 98 |
| | February 12, 2016 | | February 2, 2016 | March 31, 2016 | 0.810 |
| | 108 |
| | May 13, 2016 | | May 2, 2016 | June 30, 2016 | 0.842 |
| | 123 |
| | August 12, 2016 | | August 2, 2016 | September 30, 2016 (a) | 0.875 |
| | 131 |
| | November 14, 2016 | | November 4, 2016 |
| | (a) | This distribution was declared on October 18, 2016 and will be paid on the date of distribution. |
|