Valero Energy Partners LP (NYSE:VLP) (the “Partnership”) today
reported third quarter 2016 net income attributable to partners of
$52 million, or $0.77 per common limited partner unit.
Earnings before interest, income taxes, depreciation, and
amortization (“EBITDA”) attributable to the Partnership was $66
million, and distributable cash flow was $62 million. VLP’s
distribution coverage ratio for the third quarter was 1.9x.
“We continued to operate safely and reliably in
the third quarter, generating strong earnings and distribution
growth,” said Joe Gorder, Chairman and Chief Executive Officer of
VLP’s general partner. “We successfully integrated the
operations of the Meraux and Three Rivers terminals into our system
and remain on track to grow distributions at a target annual rate
of 25 percent through 2017.”
Earlier this week, the board of directors of
VLP’s general partner declared a third quarter 2016 cash
distribution of $0.385 per unit, representing a 5.5 percent
increase from the second quarter of 2016.
Financial Results Revenues were
$92 million for the third quarter of 2016. Operating expenses
were $24 million, general and administrative expenses were $4
million, and depreciation expense was $11 million. Revenues
for the Partnership were higher in the third quarter of 2016
compared to the third quarter of 2015 primarily due to
contributions from the Corpus Christi terminals, which were
acquired on October 1, 2015; the McKee terminal, which was acquired
on April 1, 2016; and the Meraux and Three Rivers terminals, which
were acquired on September 1, 2016.
The Partnership completed the Meraux and Three
Rivers Terminal Services Business acquisition from a subsidiary of
Valero Energy Corporation for total consideration of $325
million. The acquired business is expected to contribute
approximately $39 million of EBITDA in its first 12 months of
operations. The Partnership entered into 10-year terminaling
agreements with a subsidiary of Valero that include minimum volume
commitments covering approximately 85 percent of planned
throughput.
“We completed our drop-down transaction target
for the year,” said Gorder. “Growing the Partnership through
opportunistic drop downs and the development of logistics projects
that support Valero’s operations or provide third-party revenue
remain priorities for us.”
Liquidity and Financial
PositionAs of September 30, 2016, the Partnership had $261
million of total liquidity consisting of $35 million of cash
and cash equivalents and $226 million available on its revolving
credit facility. Capital expenditures attributable to the
Partnership in the third quarter of 2016 totaled $3 million,
which includes $1 million for expansion and $2 million
for maintenance.
The Partnership expects 2016 capital
expenditures to be approximately $22 million, slightly higher than
previous guidance. Of the total, $11 million is allocated for
expansion, and the balance is for maintenance.
Conference CallThe
Partnership’s senior management will host a conference call at 10
a.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 fee-based master limited
partnership formed by Valero Energy Corporation to own, operate,
develop and acquire crude oil and refined 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, Manager
– Investor Relations, 210-345-4574
Media: Lillian Riojas, Director – Media
Relations and Communications, 210-345-5002
Safe-Harbor StatementThis
release contains forward-looking statements within the meaning of
federal securities laws. These statements 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
“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. 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
and quarterly reports on Form 10-Q 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.
Use of Non-GAAP Financial
InformationThis earnings release and the accompanying
earnings release tables include financial measures that are not
defined under U.S. generally accepted accounting principles
(“GAAP”). These non-GAAP financial measures include “EBITDA,”
“distributable cash flow,” and “distribution coverage ratio.”
We have included these non-GAAP financial measures to help
facilitate the comparison of operating results between
periods. See the accompanying earnings release tables for a
reconciliation of these non-GAAP measures to their most directly
comparable U.S. GAAP measures. In note (k) to the
earnings release tables, we disclose the reasons why we believe our
use of the non-GAAP financial measures provides useful
information.
VALERO ENERGY PARTNERS
LPEARNINGS RELEASE
TABLES(Thousands of Dollars, Except per Unit
Amounts)(Unaudited) |
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Statement of
income data (a): |
|
|
|
|
|
Operating
revenues – related party (b) |
$ |
92,040 |
|
|
$ |
62,037 |
|
|
$ |
258,471 |
|
|
$ |
164,168 |
|
Costs and
expenses: |
|
|
|
|
|
|
|
Operating
expenses (c) |
24,089 |
|
|
27,482 |
|
|
72,461 |
|
|
80,812 |
|
General
and administrative expenses (d) |
4,094 |
|
|
3,731 |
|
|
12,174 |
|
|
11,000 |
|
Depreciation expense (e) |
11,319 |
|
|
13,760 |
|
|
34,652 |
|
|
34,702 |
|
Total
costs and expenses |
39,502 |
|
|
44,973 |
|
|
119,287 |
|
|
126,514 |
|
Operating
income |
52,538 |
|
|
17,064 |
|
|
139,184 |
|
|
37,654 |
|
Other
income, net |
76 |
|
|
29 |
|
|
210 |
|
|
166 |
|
Interest
and debt expense, net of capitalized interest (f) |
(3,672 |
) |
|
(1,353 |
) |
|
(9,582 |
) |
|
(3,365 |
) |
Income
before income taxes |
48,942 |
|
|
15,740 |
|
|
129,812 |
|
|
34,455 |
|
Income
tax expense (benefit) (g) |
235 |
|
|
115 |
|
|
780 |
|
|
(62 |
) |
Net
income |
48,707 |
|
|
15,625 |
|
|
129,032 |
|
|
34,517 |
|
Less: Net loss attributable to Predecessor |
(3,002 |
) |
|
(15,803 |
) |
|
(15,422 |
) |
|
(52,694 |
) |
Net
income attributable to partners |
51,709 |
|
|
31,428 |
|
|
144,454 |
|
|
87,211 |
|
Less: General partner’s interest in net income |
6,634 |
|
|
1,612 |
|
|
15,351 |
|
|
3,821 |
|
Limited
partners’ interest in net income |
$ |
45,075 |
|
|
$ |
29,816 |
|
|
$ |
129,103 |
|
|
$ |
83,390 |
|
|
|
|
|
|
|
|
|
Net income per
limited partner unit (basic and diluted): |
|
|
|
|
|
|
|
Common
units |
$ |
0.77 |
|
|
$ |
0.51 |
|
|
$ |
2.08 |
|
|
$ |
1.43 |
|
Subordinated units (h) |
$ |
0.29 |
|
|
$ |
0.49 |
|
|
$ |
1.73 |
|
|
$ |
1.40 |
|
|
|
|
|
|
|
|
|
Weighted-average limited partner units outstanding (basic
and diluted) (in thousands): |
|
|
|
|
|
|
|
Common
units – public |
21,504 |
|
|
17,250 |
|
|
21,502 |
|
|
17,250 |
|
Common
units – Valero |
32,395 |
|
|
13,448 |
|
|
21,095 |
|
|
13,029 |
|
Subordinated units – Valero (h) |
12,517 |
|
|
28,790 |
|
|
23,326 |
|
|
28,790 |
|
|
|
See Notes to Earnings Release Tables. |
|
VALERO ENERGY PARTNERS
LPEARNINGS RELEASE
TABLES(Thousands of Dollars, Except per Unit and
per Barrel
Amounts)(Unaudited) |
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Operating
highlights (a): |
|
|
|
|
|
|
|
|
|
|
|
Pipeline
transportation: |
|
|
|
|
|
|
|
Pipeline
transportation revenues (b) |
$ |
18,371 |
|
|
$ |
21,322 |
|
|
$ |
57,934 |
|
|
$ |
61,164 |
|
Pipeline
transportation throughput (BPD) (i) |
778,369 |
|
|
960,410 |
|
|
849,015 |
|
|
964,380 |
|
Average
pipeline transportation revenue per barrel (j) |
$ |
0.26 |
|
|
$ |
0.24 |
|
|
$ |
0.25 |
|
|
$ |
0.23 |
|
Terminaling: |
|
|
|
|
|
|
|
Terminaling revenues (b) |
$ |
73,534 |
|
|
$ |
40,580 |
|
|
$ |
200,132 |
|
|
$ |
102,599 |
|
Terminaling throughput (BPD) |
2,394,292 |
|
|
1,335,659 |
|
|
2,131,113 |
|
|
1,176,216 |
|
Average
terminaling revenue per barrel (j) |
$ |
0.33 |
|
|
$ |
0.33 |
|
|
$ |
0.34 |
|
|
$ |
0.32 |
|
Storage
revenues |
$ |
135 |
|
|
$ |
135 |
|
|
$ |
405 |
|
|
$ |
405 |
|
Total
operating revenues – related party |
$ |
92,040 |
|
|
$ |
62,037 |
|
|
$ |
258,471 |
|
|
$ |
164,168 |
|
Capital
expenditures (a): |
|
|
|
|
|
|
|
Maintenance |
$ |
3,352 |
|
|
$ |
1,465 |
|
|
$ |
9,063 |
|
|
$ |
8,503 |
|
Expansion |
953 |
|
|
7,753 |
|
|
6,848 |
|
|
22,245 |
|
Total
capital expenditures |
4,305 |
|
|
9,218 |
|
|
15,911 |
|
|
30,748 |
|
Less:
Capital expenditures attributable to Predecessor |
1,113 |
|
|
8,024 |
|
|
3,394 |
|
|
27,195 |
|
Capital
expenditures attributable to Partnership |
$ |
3,192 |
|
|
$ |
1,194 |
|
|
$ |
12,517 |
|
|
$ |
3,553 |
|
Other financial
information: |
|
|
|
|
|
|
|
Net cash
provided by operating activities |
$ |
61,528 |
|
|
$ |
30,692 |
|
|
$ |
162,212 |
|
|
$ |
64,517 |
|
Distributable cash flow (k) |
$ |
61,750 |
|
|
$ |
41,880 |
|
|
$ |
171,695 |
|
|
$ |
109,383 |
|
Distribution declared per unit |
$ |
0.3850 |
|
|
$ |
0.3075 |
|
|
$ |
1.0900 |
|
|
$ |
0.8775 |
|
Distribution declared: |
|
|
|
|
|
|
|
Limited
partner units – public |
$ |
8,341 |
|
|
$ |
5,307 |
|
|
$ |
23,510 |
|
|
$ |
15,145 |
|
Limited
partner units – Valero |
17,590 |
|
|
13,471 |
|
|
48,989 |
|
|
37,547 |
|
General
partner units – Valero |
6,244 |
|
|
1,386 |
|
|
14,196 |
|
|
3,194 |
|
Total
distribution declared |
$ |
32,175 |
|
|
$ |
20,164 |
|
|
$ |
86,695 |
|
|
$ |
55,886 |
|
Distribution coverage ratio: Distributable cash flow divided by
total distribution declared (k) |
|
1.92x |
|
|
|
2.08x |
|
|
|
1.98x |
|
|
|
1.96x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
|
|
|
2016 |
|
2015 |
Balance sheet
data (a): |
|
|
|
|
|
|
|
Cash and
cash equivalents |
|
|
|
|
$ |
35,399 |
|
|
$ |
80,783 |
|
Total
assets |
|
|
|
|
922,317 |
|
|
954,106 |
|
Current portion of debt and capital lease obligations |
|
|
|
45 |
|
|
913 |
|
Debt and capital lease obligations, less current portion |
|
|
|
894,012 |
|
|
545,246 |
|
Total
debt and capital lease obligations |
|
|
|
|
894,057 |
|
|
546,159 |
|
Partners’
capital |
|
|
|
|
11,091 |
|
|
394,152 |
|
Working
capital |
|
|
|
|
49,911 |
|
|
86,231 |
|
|
|
See Notes to Earnings Release Tables. |
|
VALERO ENERGY PARTNERS
LPEARNINGS RELEASE
TABLESRECONCILIATION OF NON-GAAP MEASURES TO MOST
COMPARABLE AMOUNTSREPORTED UNDER U.S. GAAP
(k)(Thousands of
Dollars)(Unaudited) |
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Reconciliation
of net income to EBITDA and distributable cash flow (a)
(k): |
|
|
|
|
|
|
|
Net
income |
$ |
48,707 |
|
|
$ |
15,625 |
|
|
$ |
129,032 |
|
|
$ |
34,517 |
|
Plus: |
|
|
|
|
|
|
|
Depreciation expense |
11,319 |
|
|
13,760 |
|
|
34,652 |
|
|
34,702 |
|
Interest
and debt expense, net of capitalized interest |
3,672 |
|
|
1,353 |
|
|
9,582 |
|
|
3,365 |
|
Income
tax expense (benefit) |
235 |
|
|
115 |
|
|
780 |
|
|
(62 |
) |
EBITDA |
63,933 |
|
|
30,853 |
|
|
174,046 |
|
|
72,522 |
|
Less: EBITDA attributable to Predecessor |
(2,395 |
) |
|
(12,727 |
) |
|
(11,492 |
) |
|
(41,605 |
) |
EBITDA
attributable to Partnership |
66,328 |
|
|
43,580 |
|
|
185,538 |
|
|
114,127 |
|
Plus: |
|
|
|
|
|
|
|
Adjustments related to minimum throughput commitments |
865 |
|
|
— |
|
|
1,100 |
|
|
4 |
|
Projects
prefunded by Valero |
— |
|
|
— |
|
|
— |
|
|
589 |
|
Other |
— |
|
|
— |
|
|
— |
|
|
384 |
|
Less: |
|
|
|
|
|
|
|
Cash
interest paid |
3,204 |
|
|
1,374 |
|
|
8,688 |
|
|
2,952 |
|
Income
taxes paid |
— |
|
|
— |
|
|
496 |
|
|
441 |
|
Maintenance capital expenditures |
2,239 |
|
|
326 |
|
|
5,759 |
|
|
2,328 |
|
Distributable cash flow |
$ |
61,750 |
|
|
$ |
41,880 |
|
|
$ |
171,695 |
|
|
$ |
109,383 |
|
|
See Notes to Earnings Release Tables. |
VALERO ENERGY PARTNERS
LPEARNINGS RELEASE
TABLESRECONCILIATION OF NON-GAAP MEASURES TO MOST
COMPARABLE AMOUNTSREPORTED UNDER U.S. GAAP
(k)(Thousands of
Dollars)(Unaudited) |
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Reconciliation
of net cash provided by operating activities to EBITDA and
distributable cash flow (a) (k): |
|
|
|
|
|
|
|
Net cash
provided by operating activities |
$ |
61,528 |
|
|
$ |
30,692 |
|
|
$ |
162,212 |
|
|
$ |
64,517 |
|
Plus: |
|
|
|
|
|
|
|
Changes
in current assets and current liabilities |
(1,263 |
) |
|
(1,430 |
) |
|
2,179 |
|
|
4,643 |
|
Changes
in deferred charges and credits and other operating activities,
net |
(157 |
) |
|
118 |
|
|
(406 |
) |
|
(341 |
) |
Interest
and debt expense, net of capitalized interest |
3,672 |
|
|
1,353 |
|
|
9,582 |
|
|
3,365 |
|
Current
income tax expense |
153 |
|
|
120 |
|
|
479 |
|
|
338 |
|
EBITDA |
63,933 |
|
|
30,853 |
|
|
174,046 |
|
|
72,522 |
|
Less: EBITDA attributable to Predecessor |
(2,395 |
) |
|
(12,727 |
) |
|
(11,492 |
) |
|
(41,605 |
) |
EBITDA
attributable to Partnership |
66,328 |
|
|
43,580 |
|
|
185,538 |
|
|
114,127 |
|
Plus: |
|
|
|
|
|
|
|
Adjustments related to minimum throughput commitments |
865 |
|
|
— |
|
|
1,100 |
|
|
4 |
|
Projects
prefunded by Valero |
— |
|
|
— |
|
|
— |
|
|
589 |
|
Other |
— |
|
|
— |
|
|
— |
|
|
384 |
|
Less: |
|
|
|
|
|
|
|
Cash
interest paid |
3,204 |
|
|
1,374 |
|
|
8,688 |
|
|
2,952 |
|
Income
taxes paid |
— |
|
|
— |
|
|
496 |
|
|
441 |
|
Maintenance capital expenditures |
2,239 |
|
|
326 |
|
|
5,759 |
|
|
2,328 |
|
Distributable cash flow |
$ |
61,750 |
|
|
$ |
41,880 |
|
|
$ |
171,695 |
|
|
$ |
109,383 |
|
|
See Notes to Earnings Release Tables. |
|
VALERO ENERGY PARTNERS
LPEARNINGS RELEASE
TABLES(Thousands of
Dollars)(Unaudited)
The following tables present our statements of
income for the three and nine months ended September 30, 2015.
Our financial results have been adjusted for the acquisitions of
the Corpus Christi Terminal Services Business, the McKee Terminal
Services Business, and the Meraux and Three Rivers Terminal
Services Business. See Note (a) of Notes to Earnings
Release Tables for a discussion of the basis of this
presentation.
|
Three Months Ended September 30,
2015 |
|
ValeroEnergyPartners
LP(PreviouslyReported) |
|
CorpusChristiTerminalServicesBusiness |
|
McKeeTerminalServicesBusiness |
|
Meraux
andThree RiversTerminalServicesBusiness |
|
ValeroEnergyPartners
LP(CurrentlyReported) |
Operating revenues –
related party |
$ |
62,037 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
62,037 |
|
Costs and
expenses: |
|
|
|
|
|
|
|
|
|
Operating
expenses |
15,042 |
|
|
6,198 |
|
|
2,405 |
|
|
3,837 |
|
|
27,482 |
|
General
and administrative expenses |
3,444 |
|
|
91 |
|
|
66 |
|
|
130 |
|
|
3,731 |
|
Depreciation expense |
10,684 |
|
|
1,279 |
|
|
1,125 |
|
|
672 |
|
|
13,760 |
|
Total
costs and expenses |
29,170 |
|
|
7,568 |
|
|
3,596 |
|
|
4,639 |
|
|
44,973 |
|
Operating income
(loss) |
32,867 |
|
|
(7,568 |
) |
|
(3,596 |
) |
|
(4,639 |
) |
|
17,064 |
|
Other income, net |
29 |
|
|
— |
|
|
— |
|
|
— |
|
|
29 |
|
Interest and debt
expense, net of capitalized interest |
(1,353 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(1,353 |
) |
Income (loss) before
income taxes |
31,543 |
|
|
(7,568 |
) |
|
(3,596 |
) |
|
(4,639 |
) |
|
15,740 |
|
Income tax expense |
115 |
|
|
— |
|
|
— |
|
|
— |
|
|
115 |
|
Net income (loss) |
31,428 |
|
|
(7,568 |
) |
|
(3,596 |
) |
|
(4,639 |
) |
|
15,625 |
|
Less: Net loss
attributable to Predecessor |
— |
|
|
(7,568 |
) |
|
(3,596 |
) |
|
(4,639 |
) |
|
(15,803 |
) |
Net income attributable
to partners |
$ |
31,428 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
31,428 |
|
|
|
Nine Months Ended September 30,
2015 |
|
|
ValeroEnergyPartners
LP(PreviouslyReported) |
|
CorpusChristiTerminalServicesBusiness |
|
McKeeTerminalServicesBusiness |
|
Meraux
andThree RiversTerminalServicesBusiness |
|
ValeroEnergyPartners
LP(CurrentlyReported) |
Operating revenues –
related party |
|
$ |
164,168 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
164,168 |
|
Costs and
expenses: |
|
|
|
|
|
|
|
|
|
|
Operating
expenses |
|
47,280 |
|
|
17,089 |
|
|
5,763 |
|
|
10,680 |
|
|
80,812 |
|
General
and administrative expenses |
|
10,169 |
|
|
267 |
|
|
189 |
|
|
375 |
|
|
11,000 |
|
Depreciation expense |
|
25,887 |
|
|
3,165 |
|
|
3,379 |
|
|
2,271 |
|
|
34,702 |
|
Total
costs and expenses |
|
83,336 |
|
|
20,521 |
|
|
9,331 |
|
|
13,326 |
|
|
126,514 |
|
Operating income
(loss) |
|
80,832 |
|
|
(20,521 |
) |
|
(9,331 |
) |
|
(13,326 |
) |
|
37,654 |
|
Other income, net |
|
166 |
|
|
— |
|
|
— |
|
|
— |
|
|
166 |
|
Interest and debt
expense, net of capitalized interest |
|
(3,365 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(3,365 |
) |
Income (loss) before
income taxes |
|
77,633 |
|
|
(20,521 |
) |
|
(9,331 |
) |
|
(13,326 |
) |
|
34,455 |
|
Income tax benefit |
|
(62 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(62 |
) |
Net
income (loss) |
|
77,695 |
|
|
(20,521 |
) |
|
(9,331 |
) |
|
(13,326 |
) |
|
34,517 |
|
Less: Net
loss attributable to Predecessor |
|
(9,516 |
) |
|
(20,521 |
) |
|
(9,331 |
) |
|
(13,326 |
) |
|
(52,694 |
) |
Net income attributable
to partners |
|
$ |
87,211 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
87,211 |
|
|
See Notes to Earnings Release Tables. |
|
VALERO ENERGY PARTNERS
LP NOTES TO EARNINGS RELEASE TABLES
(Continued)
(a) References to “Partnership,” “we,” “us,” or “our” refer to
Valero Energy Partners LP, one or more of its subsidiaries, or all
of them taken as a whole. For businesses that we acquired from
Valero, those terms refer to Valero Energy Partners LP Predecessor,
our Predecessor for accounting purposes. References in these notes
to “Valero” may refer to Valero Energy Corporation, one or more of
its subsidiaries, or all of them taken as a whole, other than
Valero Energy Partners LP, any of its subsidiaries, or its general
partner.
Effective September 1, 2016, we acquired
the Meraux and Three Rivers Terminal Services Business from Valero
for total consideration of $325.0 million consisting of
(i) cash of $276.0 million and (ii) the issuance of
1,149,905 common units representing limited partner interests
in us and 23,467 general partner units representing general
partner interests in us having an aggregate value, collectively, of
$49.0 million. We funded the cash distribution to Valero with
$66.0 million of our cash on hand and $210.0 million of
borrowings under our revolving credit facility. We began receiving
fees for services provided by this business commencing on
September 1, 2016.
Effective April 1, 2016, we acquired the
McKee Terminal Services Business from Valero for total
consideration of $240.0 million consisting of (i) cash of
$204.0 million and (ii) the issuance of
728,775 common units representing limited partner interests in
us and 14,873 general partner units representing general
partner interests in us having an aggregate value, collectively, of
$36.0 million. We funded the cash distribution to Valero with
$65.0 million of our cash on hand and $139.0 million of
borrowings under our revolving credit facility. We began receiving
fees for services provided by this business commencing on
April 1, 2016.
Effective October 1, 2015, we acquired the
Corpus Christi Terminal Services Business from Valero for total
consideration of $465.0 million and began receiving fees for
services provided by this business commencing on
October 1, 2015.
Each acquisition was accounted for as the
transfer of a business between entities under the common control of
Valero. Accordingly, the statement of income data, operating
highlights, and capital expenditures data have been retrospectively
adjusted to include the historical results of operations of the
acquired businesses for periods prior to their dates of
acquisition.
(b) In addition to the businesses described in
Note (a), we acquired the Houston and St. Charles
Terminal Services Business from Valero effective March 1,
2015. Prior to being acquired by us, these businesses did not
charge Valero for services provided and did not generate revenues.
Effective with the date of each acquisition, we entered into
additional schedules to our commercial agreements with Valero with
respect to the services we provide to Valero using the assets of
the acquired businesses. This resulted in new charges for
terminaling services provided by these assets.
(c) The decrease in operating expenses in the
three months ended September 30, 2016 compared to the three
months ended September 30, 2015 was due primarily to lower
maintenance expense of $2.3 million related to inspection
activity and lower waste handling costs of $449,000 at the Corpus
Christi terminals.
The decrease in operating expenses in the nine
months ended September 30, 2016 compared to the nine months
ended September 30, 2015 was due primarily to lower
maintenance expense of $5.2 million at the Corpus Christi
terminals related to inspection activity. Additionally, waste
handling costs at the Corpus Christi and St. Charles terminals
decreased $2.3 million in the nine months ended
September 30, 2016.
(d) The increase in general and administrative
expenses in the three months ended September 30, 2016 compared
to the three months ended September 30, 2015 was due primarily
to incremental costs of $221,000 related to the management fee
charged to us by Valero related to our acquisitions of the Corpus
Christi Terminal Services Business, the McKee Terminal Services
Business, and the Meraux and Three Rivers Terminal Services
Business.
The increase in general and administrative
expenses in the nine months ended September 30, 2016 compared
to the nine months ended September 30, 2015 was due primarily
to incremental costs of $714,000 related to the management fee
charged to us by Valero related to our acquisitions of the Corpus
Christi Terminal Services Business, the McKee Terminal Services
Business, and the Meraux and Three Rivers Terminal Services
Business, and an increase of $624,000 in costs related to being a
separate publicly traded limited partnership. These increases were
offset by lower transaction costs of $164,000 associated with the
acquisition of businesses from Valero.
(e) The decrease in depreciation expense in the
three months ended September 30, 2016 compared to the
three months ended September 30, 2015 was due primarily
to $2.8 million in accelerated depreciation related to the
retirement of certain assets of the McKee Crude System in the third
quarter of 2015, partially offset by an increase in depreciation
expense on assets placed into service in the latter part of 2015
and the beginning of 2016, including expansion and improvement
projects at our Houston and Meraux terminals.
The decrease in depreciation expense in the nine
months ended September 30, 2016 compared to the nine months
ended September 30, 2015 was due primarily to
$2.8 million in accelerated depreciation related to the
retirement of certain assets of the McKee Crude System in the third
quarter of 2015, partially offset by an increase in depreciation
expense on assets placed into service in the latter part of 2015
and the beginning of 2016, including expansion and improvement
projects at our Corpus Christi, St. Charles, and Meraux
terminals.
(f) The increase in “interest and debt expense,
net of capitalized interest” in the three and nine months ended
September 30, 2016 compared to the three and nine months ended
September 30, 2015 was due primarily to interest expense
incurred on borrowings under our revolving credit facility and
under the subordinated credit agreements with Valero entered into
in connection with the acquisitions described in Note (a) as
well as the Houston and St. Charles Terminal Services Business
acquisition on March 1, 2015. Interest expense on these
incremental borrowings was approximately $1.9 million and
$5.2 million in the three and nine months ended
September 30, 2016, respectively.
(g) Our income tax expense is associated with
the Texas margin tax. During the nine months ended
September 30, 2015, we reduced our deferred income tax
liabilities due to a reduction in the relative amount of revenue we
generate in Texas compared to our total revenue. This reduction was
a result of the acquisition of the Houston and St. Charles
Terminal Services Business on March 1, 2015 (which includes
operations in Louisiana). In addition, in June 2015, the Texas
margin tax rate was reduced from 1 percent to
0.75 percent.
During the nine months ended September 30,
2016, the relative amount of revenue we generate in Texas increased
in connection with the acquisitions of the Corpus Christi Terminal
Services Business, the McKee Terminal Services Business, and the
Meraux and Three Rivers Terminal Services Business. As a result,
our income tax expense has increased.
(h) The requirements under the partnership
agreement for the conversion of all of our outstanding subordinated
units into common units were satisfied upon the payment of our
quarterly cash distribution on August 9, 2016. Therefore,
effective August 10, 2016, all of our subordinated units,
which were owned by Valero, were converted on a one-for-one basis
into common units. The conversion of the subordinated units does
not impact the amount of cash distributions paid or the total
number of outstanding units. The subordinated units were only
allocated earnings generated by us through the conversion date.
(i) Represents the sum of volumes transported
through each separately tariffed pipeline segment divided by the
number of days in the period.
(j) Management uses average revenue per barrel
to evaluate performance and compare profitability 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.
(k) Defined terms are as follows:
- EBITDA is defined as net income less income
tax expense, interest expense, and depreciation expense.
- Distributable cash flow is defined as EBITDA
less (i) EBITDA attributable to Predecessor and cash payments
during the period for interest, income taxes, and maintenance
capital expenditures; plus (ii) adjustments related to minimum
throughput commitments, capital projects prefunded by Valero, and
certain other items.
- 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 the term 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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