Valero Energy Partners LP (NYSE: VLP, the “Partnership”) today
reported third quarter 2018 net income of $70 million, or $0.75 per
limited partner common unit, and EBITDA of $104 million.
The Partnership reported net cash provided by operating activities
of $89 million and distributable cash flow of
$88 million. The distribution coverage ratio for the
third quarter was 1.6x.
Financial Results Revenues of
$141 million for the third quarter of 2018 were $31 million higher
than the third quarter of 2017 due primarily to contributions from
the Port Arthur terminal and Parkway Pipeline, which were acquired
from subsidiaries of Valero in November 2017. Cost of
revenues from lease and customer contracts totaled $33 million
in the third quarter of 2018 compared to $26 million in the
third quarter of 2017, and total depreciation expense was
$19 million in the third quarter of 2018 compared to
$12 million in the third quarter of 2017. General and
administrative expenses of $4 million were in line with the
third quarter of 2017.
Liquidity and Financial
PositionAs of September 30, 2018, the Partnership had
$878 million of total liquidity, consisting of
$128 million in cash and cash equivalents and $750 million
available on its revolving credit facility. Capital
expenditures in the third quarter of 2018 were $5 million,
including $2 million for expansion and $3 million for
maintenance.
The Partnership is targeting capital
expenditures of $30 million to $40 million for 2018,
which includes $15 million to $20 million for expansion and
$15 million to $20 million for maintenance.
On October 18, the board of directors of VLP’s
general partner declared a third quarter 2018 cash distribution of
$0.551 per unit.
Merger Agreement with Valero On
October 18, 2018, the Partnership and Valero announced the
execution of a merger agreement under which Valero plans to acquire
all of the Partnership’s outstanding publicly held common units at
a price of $42.25 per common unit in cash. This transaction
is expected to close as soon as possible following the satisfaction
of certain customary closing conditions.
“After considering a range of options, we
concluded that a merger would provide the best outcome for VLP
unitholders and VLO shareholders,” said Joe Gorder, Chairman and
Chief Executive Officer of VLP’s general partner. “The merger
offers a premium to VLP’s average trading prices and immediate
conversion of VLP’s equity to cash.”
Conference CallThe
Partnership’s senior management will host a conference call at 3:00
p.m. ET today to discuss this earnings release. A live
broadcast of the conference call will be available on the
Partnership’s website at www.valeroenergypartners.com.
About Valero Energy Partners
LPValero Energy Partners LP is a master limited
partnership formed by Valero Energy Corporation to own, operate,
develop and acquire crude oil and refined petroleum products
pipelines, terminals, and other transportation and logistics
assets. With headquarters in San Antonio, the Partnership’s assets
include crude oil and refined petroleum products pipeline and
terminal systems in the Gulf Coast and Mid-Continent regions of the
United States (U.S.) that are integral to the operations of 10 of
Valero’s refineries. Please visit www.valeroenergypartners.com for
more information.
ContactsInvestors: John Locke,
Vice President – Investor Relations, 210-345-3077Karen Ngo, Senior
Manager – Investor Relations, 210-345-4574Tom Mahrer, Manager –
Investor Relations, 210-345-1953Media: Lillian Riojas, Executive
Director – Media and Communications, 210-345-5002
Forward-Looking StatementsThis
release contains forward-looking statements. The safe harbor
provisions under Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 do not apply to
forward-looking statements made or referred to in this release.
These statements include forward-looking statements related to the
proposed merger with Valero as described above, discuss future
expectations, contain projections of results of operations or of
financial condition or state other forward-looking information. You
can identify forward-looking statements by words such as “plans,”
“target,” “anticipate,” “believe,” “estimate,” “expect,”
“forecast,” “project,” “could,” “may,” “should,” “would,” “will” or
other similar expressions that convey the uncertainty of future
events or outcomes. These forward-looking statements are not
guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond the
Partnership’s control and are difficult to predict, including the
risk that the proposed merger is not consummated on the expected
time frame or at all. These factors, as they relate to Valero’s
and/or the Partnership’s ability to consummate the merger include,
but are not limited to, failure of closing conditions, delays in
the consummation of the proposed merger and changes to business
plans, as circumstances warrant. These statements are often based
upon various assumptions, many of which are based, in turn, upon
further assumptions, including examination of historical operating
trends made by the management of the Partnership. Although the
Partnership believes that these assumptions were reasonable when
made, because assumptions are inherently subject to significant
uncertainties and contingencies, which are difficult or impossible
to predict and are beyond its control, the Partnership cannot give
assurance that it will achieve or accomplish these expectations,
beliefs or intentions. When considering these forward-looking
statements, you should keep in mind the risk factors and other
cautionary statements contained in the Partnership’s filings with
the SEC, including the Partnership’s annual reports on Form 10-K,
quarterly reports on Form 10-Q and other reports filed with the SEC
and available on the Partnership’s website at
www.valeroenergypartners.com. These risks could cause the
Partnership’s actual results to differ materially from those
contained in any forward-looking statement.
Important Information About the Proposed
MergerThe Partnership has filed with the SEC a Current
Report on Form 8-K, which contains, among other things, a copy of
the merger agreement and the support agreement for the proposed
merger with Valero. In connection with the proposed merger, the
Partnership will prepare an information statement to be filed with
the SEC that will provide additional important information
concerning the proposed merger. When completed, a definitive
information statement will be mailed to the Partnership’s
unitholders. THE PARTNERSHIP’S UNITHOLDERS ARE STRONGLY ADVISED TO
READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE
PARTNERSHIP’S INFORMATION STATEMENT, BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. The
Partnership’s unitholders will be able to obtain, without charge,
copies of the Partnership’s Form 8-K announcing the execution of
the merger agreement and the support agreement, the information
statement (when available) and other relevant documents filed with
the SEC from the SEC’s website at www.sec.gov. The Partnership’s
unitholders will also be able to obtain, without charge, a copy of
the Partnership’s Form 8-K announcing the execution of the merger
agreement and the support agreement, the information statement and
other documents relating to the proposed merger (when available) at
www.valeroenergypartners.com.
Use of Non-GAAP Financial
InformationThis earnings release includes the terms
“EBITDA,” “distributable cash flow,” and “coverage ratio.”
These terms are supplemental financial measures that are not
defined under U.S. generally accepted accounting principles (GAAP).
We reconcile these non-GAAP measures to the most directly
comparable GAAP measures in the tables that accompany this
release. In note (m) to the tables that accompany this
release, we disclose the reasons why we believe our use of the
non-GAAP financial measures in this release provides useful
information.
|
VALERO ENERGY PARTNERS LP |
EARNINGS RELEASE TABLES |
(thousands of dollars, except per unit
amounts) |
(unaudited) |
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Statement of
income data: |
|
|
|
|
|
|
|
|
|
|
|
Revenues
– related party: |
|
|
|
|
|
|
|
Revenues
from lease contracts |
$ |
112,078 |
|
|
$ |
85,811 |
|
|
$ |
325,655 |
|
|
$ |
251,580 |
|
Revenues
from contracts with customer |
28,512 |
|
|
23,529 |
|
|
81,504 |
|
|
74,121 |
|
Total
revenues – related party (a) |
140,590 |
|
|
109,340 |
|
|
407,159 |
|
|
325,701 |
|
Costs and
expenses: |
|
|
|
|
|
|
|
Cost of
revenues from lease contracts (excluding depreciation expense
reflected below) (b) |
26,753 |
|
|
20,202 |
|
|
77,867 |
|
|
59,570 |
|
Cost of
revenues from contracts with customer (excluding depreciation
expense reflected below) (b) |
6,176 |
|
|
6,276 |
|
|
19,717 |
|
|
17,508 |
|
Depreciation expense associated with lease contracts (c) |
15,946 |
|
|
9,288 |
|
|
47,384 |
|
|
27,768 |
|
Depreciation expense associated with contracts with
customer (c) |
3,120 |
|
|
2,825 |
|
|
9,087 |
|
|
8,625 |
|
Other
operating expenses (d) |
— |
|
|
537 |
|
|
— |
|
|
537 |
|
General
and administrative expenses (e) |
4,082 |
|
|
3,865 |
|
|
12,352 |
|
|
11,558 |
|
Total
costs and expenses |
56,077 |
|
|
42,993 |
|
|
166,407 |
|
|
125,566 |
|
Operating
income |
84,513 |
|
|
66,347 |
|
|
240,752 |
|
|
200,135 |
|
Other
income, net |
610 |
|
|
300 |
|
|
1,403 |
|
|
546 |
|
Interest
and debt expense, net of capitalized interest (f) |
(14,348 |
) |
|
(8,747 |
) |
|
(40,527 |
) |
|
(25,587 |
) |
Income
before income tax expense |
70,775 |
|
|
57,900 |
|
|
201,628 |
|
|
175,094 |
|
Income
tax expense |
426 |
|
|
311 |
|
|
1,181 |
|
|
925 |
|
Net
income |
70,349 |
|
|
57,589 |
|
|
200,447 |
|
|
174,169 |
|
Less: General partner’s interest in net income |
18,203 |
|
|
13,037 |
|
|
52,835 |
|
|
33,923 |
|
Limited
partners’ interest in net income |
$ |
52,146 |
|
|
$ |
44,552 |
|
|
$ |
147,612 |
|
|
$ |
140,246 |
|
|
|
|
|
|
|
|
|
Net income per limited partner common unit (basic and
diluted) |
$ |
0.75 |
|
|
$ |
0.65 |
|
|
$ |
2.13 |
|
|
$ |
2.06 |
|
|
|
|
|
|
|
|
|
Weighted-average limited partner common units outstanding
(basic and diluted) (in thousands): |
|
|
|
|
|
|
|
Public |
22,482 |
|
|
22,476 |
|
|
22,481 |
|
|
22,310 |
|
Valero |
46,769 |
|
|
45,687 |
|
|
46,769 |
|
|
45,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Earnings Release Tables.
|
VALERO ENERGY PARTNERS
LP |
EARNINGS RELEASE
TABLES |
(thousands of dollars,
except per unit and per barrel amounts) |
(unaudited) |
|
|
Three Months Ended September
30, |
|
Nine Months Ended September
30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Operating highlights: |
|
|
|
|
|
|
|
|
|
|
|
Pipeline transportation: |
|
|
|
|
|
|
|
Pipeline transportation revenues (a) |
$ |
31,563 |
|
|
$ |
23,042 |
|
|
$ |
93,238 |
|
|
$ |
71,076 |
|
Pipeline transportation throughput
(BPD) (g) |
1,141,216 |
|
|
859,473 |
|
|
1,078,958 |
|
|
941,289 |
|
Average pipeline transportation revenue per
barrel (h) (i) |
$ |
0.30 |
|
|
$ |
0.29 |
|
|
$ |
0.32 |
|
|
$ |
0.28 |
|
Terminaling: |
|
|
|
|
|
|
|
Terminaling revenues (a) |
$ |
107,089 |
|
|
$ |
85,157 |
|
|
$ |
308,756 |
|
|
$ |
252,460 |
|
Terminaling throughput (BPD) (j) |
3,766,632 |
|
|
2,693,788 |
|
|
3,576,253 |
|
|
2,760,000 |
|
Average terminaling revenue per
barrel (h) (k) |
$ |
0.31 |
|
|
$ |
0.34 |
|
|
$ |
0.32 |
|
|
$ |
0.34 |
|
Storage and other revenues (l) |
$ |
1,938 |
|
|
$ |
1,141 |
|
|
$ |
5,165 |
|
|
$ |
2,165 |
|
Total revenues – related party |
$ |
140,590 |
|
|
$ |
109,340 |
|
|
$ |
407,159 |
|
|
$ |
325,701 |
|
Capital expenditures: |
|
|
|
|
|
|
|
Maintenance |
$ |
2,726 |
|
|
$ |
921 |
|
|
$ |
7,651 |
|
|
$ |
4,294 |
|
Expansion |
2,159 |
|
|
8,136 |
|
|
10,317 |
|
|
20,003 |
|
Total capital expenditures |
$ |
4,885 |
|
|
$ |
9,057 |
|
|
$ |
17,968 |
|
|
$ |
24,297 |
|
Other financial information: |
|
|
|
|
|
|
|
Net cash provided by operating activities |
$ |
89,071 |
|
|
$ |
78,837 |
|
|
$ |
264,228 |
|
|
$ |
219,819 |
|
Distributable cash flow (m) |
$ |
88,128 |
|
|
$ |
74,732 |
|
|
$ |
254,892 |
|
|
$ |
211,209 |
|
Distribution declared per unit |
$ |
0.5510 |
|
|
$ |
0.4800 |
|
|
$ |
1.6295 |
|
|
$ |
1.3625 |
|
Distribution declared: |
|
|
|
|
|
|
|
Limited partner units – public |
$ |
12,394 |
|
|
$ |
10,794 |
|
|
$ |
36,653 |
|
|
$ |
30,635 |
|
Limited partner units – Valero |
25,769 |
|
|
22,449 |
|
|
76,209 |
|
|
62,768 |
|
General partner units – Valero |
17,918 |
|
|
12,999 |
|
|
52,126 |
|
|
32,993 |
|
Total distribution declared |
$ |
56,081 |
|
|
$ |
46,242 |
|
|
$ |
164,988 |
|
|
$ |
126,396 |
|
Distribution coverage ratio: Distributable cash flow
divided by total distribution declared (m) |
|
1.57x |
|
|
|
1.62x |
|
|
|
1.54x |
|
|
|
1.67x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2018 |
|
December 31,
2017 |
Balance sheet data: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
$ |
128,199 |
|
|
$ |
42,052 |
|
Total assets |
|
|
|
|
1,600,281 |
|
|
1,517,352 |
|
Debt (no current portion) |
|
|
|
|
1,274,694 |
|
|
1,275,283 |
|
Partners’ capital |
|
|
|
|
279,131 |
|
|
205,797 |
|
Working capital |
|
|
|
|
133,091 |
|
|
56,727 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Earnings Release Tables.
|
VALERO ENERGY PARTNERS
LP |
EARNINGS RELEASE
TABLES |
RECONCILIATION OF
NON-GAAP MEASURES TO MOST COMPARABLE AMOUNTS |
REPORTED UNDER U.S. GAAP
(m) |
(thousands of
dollars) |
(unaudited) |
|
|
Three Months Ended September
30, |
|
Nine Months Ended September
30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Reconciliation of net income to EBITDA and distributable
cash flow: |
|
|
|
|
|
|
|
Net income |
$ |
70,349 |
|
|
$ |
57,589 |
|
|
$ |
200,447 |
|
|
$ |
174,169 |
|
Plus: |
|
|
|
|
|
|
|
Depreciation expense |
19,066 |
|
|
12,113 |
|
|
56,471 |
|
|
36,393 |
|
Interest and debt expense, net of capitalized
interest |
14,348 |
|
|
8,747 |
|
|
40,527 |
|
|
25,587 |
|
Income tax expense |
426 |
|
|
311 |
|
|
1,181 |
|
|
925 |
|
EBITDA |
104,189 |
|
|
78,760 |
|
|
298,626 |
|
|
237,074 |
|
Plus: |
|
|
|
|
|
|
|
Adjustments related to minimum throughput
commitments |
91 |
|
|
(15 |
) |
|
(98 |
) |
|
(1,740 |
) |
Less: |
|
|
|
|
|
|
|
Cash interest paid |
13,426 |
|
|
3,092 |
|
|
35,067 |
|
|
19,136 |
|
Income taxes paid |
— |
|
|
— |
|
|
918 |
|
|
695 |
|
Maintenance capital expenditures |
2,726 |
|
|
921 |
|
|
7,651 |
|
|
4,294 |
|
Distributable cash flow |
$ |
88,128 |
|
|
$ |
74,732 |
|
|
$ |
254,892 |
|
|
$ |
211,209 |
|
Reconciliation of net cash provided by operating activities
to EBITDA and distributable cash flow: |
|
|
|
|
|
|
|
Net cash provided by operating activities |
$ |
89,071 |
|
|
$ |
78,837 |
|
|
$ |
264,228 |
|
|
$ |
219,819 |
|
Plus: |
|
|
|
|
|
|
|
Changes in current assets and current
liabilities |
1,239 |
|
|
(8,722 |
) |
|
(4,862 |
) |
|
(7,988 |
) |
Changes in deferred charges and credits and other
operating activities, net |
(783 |
) |
|
(324 |
) |
|
(2,155 |
) |
|
(1,016 |
) |
Interest and debt expense, net of capitalized
interest |
14,348 |
|
|
8,747 |
|
|
40,527 |
|
|
25,587 |
|
Current income tax expense |
314 |
|
|
222 |
|
|
888 |
|
|
672 |
|
EBITDA |
104,189 |
|
|
78,760 |
|
|
298,626 |
|
|
237,074 |
|
Plus: |
|
|
|
|
|
|
|
Adjustments related to minimum throughput
commitments |
91 |
|
|
(15 |
) |
|
(98 |
) |
|
(1,740 |
) |
Less: |
|
|
|
|
|
|
|
Cash interest paid |
13,426 |
|
|
3,092 |
|
|
35,067 |
|
|
19,136 |
|
Income taxes paid |
— |
|
|
— |
|
|
918 |
|
|
695 |
|
Maintenance capital expenditures |
2,726 |
|
|
921 |
|
|
7,651 |
|
|
4,294 |
|
Distributable cash flow |
$ |
88,128 |
|
|
$ |
74,732 |
|
|
$ |
254,892 |
|
|
$ |
211,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Earnings Release Tables.
VALERO ENERGY PARTNERS
LPNOTES TO EARNINGS RELEASE TABLES
(a) |
|
The
increase in “total revenues – related party” in the three and nine
months ended September 30, 2018 compared to the three and nine
months ended September 30, 2017 was due primarily to the
following: |
- Revenues from a terminal and
pipeline system acquired from Valero Energy Corporation (Valero) in
November 2017. We generated revenues of $16.4 million and
$47.5 million from the operations of our Port Arthur terminal
and $6.8 million and $19.3 million from our Parkway
pipeline in the three and nine months ended September 30,
2018, respectively.
- Higher throughput volumes. We
experienced a 12 percent and 3 percent increase in volumes handled
at our other terminals in the three and nine months ended
September 30, 2018, respectively, compared to the three and
nine months ended September 30, 2017. The increase in volumes
had a favorable impact to our operating revenues of $5.6 million
and $8.8 million in the three and nine months ended
September 30, 2018, respectively.We experienced a 23 percent
increase in volumes handled at our other pipelines in the three
months ended September 30, 2018 compared to the three months
ended September 30, 2017. The increase in volumes had a
favorable impact to our operating revenues of $1.8 million in the
three months ended September 30, 2018.
- Incremental revenues from our rail
loading facility and storage tank placed in service in May 2017 and
April 2018, respectively. Our rail loading facility and new storage
tank at our St. Charles terminal generated combined
incremental revenues of $800,000 and $3.0 million in the three
and nine months ended September 30, 2018, respectively,
compared to the three and nine months ended September 30,
2017.
(b) |
|
The
combined increase in cost of revenues in the three and nine months
ended September 30, 2018 compared to the three and nine months
ended September 30, 2017 was due primarily to expenses of
$5.6 million and $18.5 million, respectively, related to
our Port Arthur terminal and Parkway pipeline, which were acquired
in November 2017. |
|
|
|
(c) |
|
The
combined increase in depreciation expense in the three and nine
months ended September 30, 2018 compared to the three and nine
months ended September 30, 2017 was due primarily to
depreciation expense of $5.8 million and $17.5 million,
respectively, associated with the assets that compose our Port
Arthur terminal and Parkway pipeline, which were acquired in
November 2017. |
|
|
|
(d) |
|
Other
operating expenses reflects the uninsured portion of our property
damage losses and repair costs incurred in the three and nine
months ended September 30, 2017 as a result of damages caused
by Hurricane Harvey primarily at our Houston terminal and Port
Arthur products system. |
|
|
|
(e) |
|
The
increase in general and administrative expenses in the three and
nine months ended September 30, 2018 compared to the three and
nine months ended September 30, 2017 was due primarily to
incremental costs of $173,000 and $518,000, respectively, related
to the management fee charged to us by Valero for additional
services provided to us as a result of our acquisition of our Port
Arthur terminal and Parkway pipeline, which were acquired in
November 2017, and an increase of $139,000 and $340,000,
respectively, in professional fees. These increases were partially
offset by minor reductions in other expenses. |
|
|
|
(f) |
|
The
increase in “interest and debt expense, net of capitalized
interest” in the three and nine months ended September 30,
2018 compared to the three and nine months ended September 30,
2017 was due primarily to the following: |
- Incremental borrowings in
connection with acquisitions. In connection with the acquisitions
of the Port Arthur terminal and Parkway pipeline in November 2017,
we borrowed $380.0 million under our revolving credit
facility. Interest expense on the incremental borrowings was
$3.5 million and $9.7 million in the three and nine
months ended September 30, 2018, respectively.
- Incremental interest expense on
senior notes. In March 2018, we issued $500.0 million of
4.5 percent senior notes due March 2028. We used the gross
proceeds of $498.3 million to repay the outstanding balance of
$410.0 million under our revolving credit facility and
$85.0 million on a portion of the outstanding balance under
one of our subordinated credit agreements with Valero. The interest
rate on these senior notes is higher than the interest rates on our
revolving credit facility and our subordinated credit agreements
with Valero, thereby increasing the effective interest rate in
2018. Incremental interest expense resulting from these senior
notes was approximately $1.1 million and $2.5 million,
respectively, in the three and nine months ended September 30,
2018.
- Higher interest rates in 2018.
Borrowings under our revolving credit facility and our subordinated
credit agreements with Valero bear interest at variable rates. We
incurred additional interest of $573,000 and $2.0 million in the
three and nine months ended September 30, 2018, respectively,
on these borrowings due to higher interest rates in 2018 compared
to 2017.
(g) |
|
The
volumes reflected represent the sum of volumes transported through
each separately tariffed pipeline segment divided by the number of
days in the period. The increase in pipeline transportation
throughput in the three and nine months ended September 30,
2018 compared to the three and nine months ended September 30,
2017 was due primarily to the effect from new volumes at our
Parkway pipeline. |
|
|
|
(h) |
|
Management uses average revenue per barrel to evaluate operating
and financial performance and compare results to other companies in
the industry. There are a variety of ways to calculate average
revenue per barrel; different companies may calculate it in
different ways. We calculate average revenue per barrel as revenue
divided by throughput for the period. Throughput is derived by
multiplying the throughput barrels per day (BPD) by the
number of days in the period. Investors and analysts use this
financial measure to help analyze and compare companies in the
industry on the basis of operating performance. |
|
|
|
(i) |
|
Average
pipeline transportation revenue per barrel was higher in the three
and nine months ended September 30, 2018 compared to the three
and nine months ended September 30, 2017 due primarily to
higher revenue per barrel generated by our Parkway pipeline
compared to the average revenue per barrel generated by our other
pipelines. |
|
|
|
(j) |
|
The
volumes reflected represent the sum of throughput volumes at each
of our terminals divided by the number of days in the period. The
increase in terminaling throughput in the three and nine months
ended September 30, 2018 compared to the three and nine months
ended September 30, 2017 was due primarily to incremental
throughput volumes attributed to our Port Arthur terminal. |
|
|
|
(k) |
|
Average
terminaling revenue per barrel was lower in the three and nine
months ended September 30, 2018 compared to the three and nine
months ended September 30, 2017 due primarily to lower revenue
per barrel generated by our Port Arthur terminal compared to the
average revenue per barrel generated by our other terminals. |
|
|
|
(l) |
|
Storage
and other revenues were higher in the three and nine months ended
September 30, 2018 compared to the three and nine months ended
September 30, 2017 due primarily to revenues generated by our
rail loading facility and storage tank at our St. Charles
terminal, which were placed in service in May 2017 and April 2018,
respectively. |
|
|
|
(m) |
|
Defined
terms are as follows: |
- EBITDA is defined
as net income plus income tax expense, interest expense, and
depreciation expense.
- Distributable cash
flow is defined as EBITDA plus (i) adjustments
related to minimum throughput commitments; less (ii) cash
payments during the period for interest, income taxes, and
maintenance capital expenditures.
- Distribution coverage
ratio is defined as the ratio of distributable cash flow
to the total distribution declared.
These terms are not defined under United States (U.S.)
generally accepted accounting principles (GAAP) and are
considered non-GAAP measures. Management has defined these terms
and believes that the presentation of the associated measures is
useful to external users of our financial statements, such as
industry analysts, investors, lenders, and rating agencies,
to: |
- describe our expectation of
forecasted earnings;
- assess our operating performance as
compared to other publicly traded limited partnerships in the
transportation and logistics industry, without regard to historical
cost basis or, in the case of EBITDA, financing methods;
- assess the ability of our business
to generate sufficient cash to support our decision to make
distributions to our unitholders;
- assess our ability to incur and
service debt and fund capital expenditures; and
- assess the viability of
acquisitions and other capital expenditure projects and the returns
on investment of various investment opportunities.
We believe that the presentation of EBITDA provides useful
information to investors in assessing our financial condition and
results of operations. The U.S. GAAP measures most directly
comparable to EBITDA are net income and net cash provided by
operating activities. EBITDA should not be considered an
alternative to net income or net cash provided by operating
activities presented in accordance with U.S. GAAP. EBITDA has
important limitations as an analytical tool because it excludes
some, but not all, items that affect net income or net cash
provided by operating activities. EBITDA should not be considered
in isolation or as a substitute for analysis of our results as
reported under U.S. GAAP. Additionally, because EBITDA may be
defined differently by other companies in our industry, our
definition of EBITDA may not be comparable to similarly titled
measures of other companies, thereby diminishing its utility. |
|
We use distributable cash flow to measure whether we have generated
from our operations, or “earned,” an amount of cash sufficient to
support the payment of the minimum quarterly distributions. Our
partnership agreement contains the concept of “operating surplus”
to determine whether our operations are generating sufficient cash
to support the distributions that we are paying, as opposed to
returning capital to our partners. Because operating surplus is a
cumulative concept (measured from our initial public
offering (IPO) date and compared to cumulative distributions
from the IPO date), we use distributable cash flow to approximate
operating surplus on a quarterly or annual, rather than a
cumulative, basis. As a result, distributable cash flow is not
necessarily indicative of the actual cash we have on hand to
distribute or that we are required to distribute. |
|
We use the distribution coverage ratio to reflect the relationship
between our distributable cash flow and the total distribution
declared. |
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