Valero Energy Partners LP (NYSE:VLP) (the “Partnership”) today
reported fourth quarter 2016 net income attributable to partners of
$60 million, or $0.77 per common limited partner unit, and
earnings before interest, income taxes, depreciation, and
amortization (“EBITDA”) attributable to the Partnership of $77
million. The Partnership reported net cash provided by
operating activities of $68 million and distributable cash flow of
$68 million. The distribution coverage ratio for the fourth
quarter was 1.9x.
For the year ended December 31, 2016, net income
attributable to partners was $204 million, or $2.85 per common
limited partner unit, and EBITDA attributable to the Partnership
was $262 million. The Partnership reported net cash provided
by operating activities of $230 million and distributable cash flow
of $240 million.
“We ran well, delivered 25 percent annual
distribution growth, maintained a strong balance sheet, and
achieved investment grade credit ratings,” said Joe Gorder,
Chairman and Chief Executive Officer of VLP’s general partner.
“We’re pleased with what we’ve accomplished, and we should be
well-positioned to achieve our future growth targets.”
The Partnership expects to grow distributions at
an annual rate of 25 percent for 2017 and at least 20 percent for
2018.
On January 18, the Partnership announced the
acquisition of a 40 percent undivided interest in the Hewitt
segment of Plains All American Pipeline, L.P.’s Red River pipeline
for approximately $70 million cash.
On January 20, the board of directors of VLP’s
general partner declared a fourth quarter 2016 cash distribution of
$0.4065 per unit. This distribution represents a 5.6 percent
increase from the third quarter of 2016 and results in a 25 percent
annual increase.
Financial Results Revenues were
$104 million for the fourth quarter of 2016 and $363 million for
2016. Operating expenses in the fourth quarter of 2016 were
$24 million, general and administrative expenses were $4 million,
and depreciation expense was $11 million. For 2016, operating
expenses were $96 million, general and administrative expenses
were $16 million, and depreciation expense was $46 million.
Revenues were higher in 2016 compared to 2015 primarily due to the
acquisition of the McKee, Meraux, and Three Rivers terminals in
2016.
Liquidity and Financial
PositionIn December, VLP issued $500 million of 4.375
percent senior notes due 2026 and used the proceeds to repay a
substantial portion of its indebtedness under its senior unsecured
revolving credit facility. As of December 31, 2016, the Partnership
had $791 million of total liquidity consisting of $71 million
in cash and cash equivalents and $720 million available on its
revolving credit facility. Capital expenditures attributable
to the Partnership in the fourth quarter of 2016 were $7 million,
including $3 million for expansion and $4 million for
maintenance. For 2016, capital expenditures attributable to
the Partnership were $20 million, including $10 million for
expansion and $10 million for maintenance.
The Partnership expects 2017 capital
expenditures to be approximately $49 million, including
$14 million for maintenance and $35 million for expansion.
“We remain focused on growing the Partnership
through opportunistic drop downs and the development of logistics
projects that support Valero’s operations or provide third-party
revenue,” Gorder said.
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 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, 210-345-3077Media: Lillian
Riojas, Director – Media 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 includes the terms
“EBITDA,” “distributable cash flow,” and “coverage ratio.”
These terms are supplemental financial measures that are not
defined under United States 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 (l) 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
December 31, |
|
Year
EndedDecember 31, |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Statement of
income data (a): |
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues – related party (b) |
$ |
104,148 |
|
|
$ |
79,456 |
|
|
$ |
362,619 |
|
|
$ |
243,624 |
|
Costs and
expenses: |
|
|
|
|
|
|
|
Operating
expenses (c) |
23,654 |
|
|
25,161 |
|
|
96,115 |
|
|
105,973 |
|
General
and administrative expenses (d) |
3,791 |
|
|
3,520 |
|
|
15,965 |
|
|
14,520 |
|
Depreciation expense (e) |
11,313 |
|
|
10,976 |
|
|
45,965 |
|
|
45,678 |
|
Total
costs and expenses |
38,758 |
|
|
39,657 |
|
|
158,045 |
|
|
166,171 |
|
Operating
income |
65,390 |
|
|
39,799 |
|
|
204,574 |
|
|
77,453 |
|
Other
income, net |
74 |
|
|
57 |
|
|
284 |
|
|
223 |
|
Interest
and debt expense, net of capitalized interest (f) |
(5,333 |
) |
|
(2,748 |
) |
|
(14,915 |
) |
|
(6,113 |
) |
Income
before income taxes |
60,131 |
|
|
37,108 |
|
|
189,943 |
|
|
71,563 |
|
Income
tax expense (g) |
332 |
|
|
313 |
|
|
1,112 |
|
|
251 |
|
Net
income |
59,799 |
|
|
36,795 |
|
|
188,831 |
|
|
71,312 |
|
Less: Net loss attributable to Predecessor |
— |
|
|
(7,872 |
) |
|
(15,422 |
) |
|
(60,566 |
) |
Net
income attributable to partners |
59,799 |
|
|
44,667 |
|
|
204,253 |
|
|
131,878 |
|
Less: General partner’s interest in net income |
8,202 |
|
|
2,248 |
|
|
23,553 |
|
|
6,069 |
|
Limited
partners’ interest in net income |
$ |
51,597 |
|
|
$ |
42,419 |
|
|
$ |
180,700 |
|
|
$ |
125,809 |
|
|
|
|
|
|
|
|
|
Net income per limited partner unit (basic and
diluted): |
|
|
|
|
|
|
|
Common
units |
$ |
0.77 |
|
|
$ |
0.69 |
|
|
$ |
2.85 |
|
|
$ |
2.12 |
|
Subordinated units (h) |
$ |
— |
|
|
$ |
0.66 |
|
|
$ |
2.38 |
|
|
$ |
2.07 |
|
|
|
|
|
|
|
|
|
Weighted-average limited partner units outstanding (basic
and diluted) (in thousands): |
|
|
|
|
|
|
|
Common
units – public |
21,654 |
|
|
19,005 |
|
|
21,540 |
|
|
17,692 |
|
Common
units – Valero |
45,687 |
|
|
15,019 |
|
|
27,277 |
|
|
13,530 |
|
Subordinated units – Valero (h) |
— |
|
|
28,790 |
|
|
17,463 |
|
|
28,790 |
|
|
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
December 31, |
|
Year Ended December 31, |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Operating
highlights (a): |
|
|
|
|
|
|
|
|
|
|
|
Pipeline
transportation: |
|
|
|
|
|
|
|
Pipeline
transportation revenues (b) |
$ |
20,517 |
|
|
$ |
20,271 |
|
|
$ |
78,451 |
|
|
$ |
81,435 |
|
Pipeline
transportation throughput (BPD) (i) |
770,460 |
|
|
906,870 |
|
|
829,269 |
|
|
949,884 |
|
Average
pipeline transportation revenue per barrel (j) (k) |
$ |
0.29 |
|
|
$ |
0.24 |
|
|
$ |
0.26 |
|
|
$ |
0.23 |
|
Terminaling: |
|
|
|
|
|
|
|
Terminaling revenues (b) |
$ |
83,496 |
|
|
$ |
59,050 |
|
|
$ |
283,628 |
|
|
$ |
161,649 |
|
Terminaling throughput (BPD) |
2,664,351 |
|
|
1,827,623 |
|
|
2,265,150 |
|
|
1,340,407 |
|
Average
terminaling revenue per barrel (j) |
$ |
0.34 |
|
|
$ |
0.35 |
|
|
$ |
0.34 |
|
|
$ |
0.33 |
|
Storage
revenues |
$ |
135 |
|
|
$ |
135 |
|
|
$ |
540 |
|
|
$ |
540 |
|
Total
operating revenues – related party |
$ |
104,148 |
|
|
$ |
79,456 |
|
|
$ |
362,619 |
|
|
$ |
243,624 |
|
Capital
expenditures (a): |
|
|
|
|
|
|
|
Maintenance |
$ |
3,964 |
|
|
$ |
2,325 |
|
|
$ |
13,027 |
|
|
$ |
10,828 |
|
Expansion |
3,281 |
|
|
5,036 |
|
|
10,129 |
|
|
27,281 |
|
Total
capital expenditures |
7,245 |
|
|
7,361 |
|
|
23,156 |
|
|
38,109 |
|
Less:
Capital expenditures attributable to Predecessor |
— |
|
|
2,437 |
|
|
3,394 |
|
|
29,632 |
|
Capital
expenditures attributable to Partnership |
$ |
7,245 |
|
|
$ |
4,924 |
|
|
$ |
19,762 |
|
|
$ |
8,477 |
|
Other financial
information: |
|
|
|
|
|
|
|
Net cash
provided by operating activities |
$ |
67,682 |
|
|
$ |
43,859 |
|
|
$ |
229,894 |
|
|
$ |
108,376 |
|
Distributable cash flow (l) |
$ |
68,012 |
|
|
$ |
52,861 |
|
|
$ |
239,707 |
|
|
$ |
162,244 |
|
Distribution declared per unit |
$ |
0.4065 |
|
|
$ |
0.3200 |
|
|
$ |
1.4965 |
|
|
$ |
1.1975 |
|
Distribution declared: |
|
|
|
|
|
|
|
Limited
partner units – public |
$ |
8,872 |
|
|
$ |
6,883 |
|
|
$ |
32,382 |
|
|
$ |
22,028 |
|
Limited
partner units – Valero |
18,571 |
|
|
14,019 |
|
|
67,560 |
|
|
51,566 |
|
General
partner units – Valero |
7,709 |
|
|
1,809 |
|
|
21,905 |
|
|
5,003 |
|
Total
distribution declared |
$ |
35,152 |
|
|
$ |
22,711 |
|
|
$ |
121,847 |
|
|
$ |
78,597 |
|
Distribution coverage ratio: Distributable cash flow divided by
total distribution declared (l) |
|
1.93x |
|
|
|
2.33x |
|
|
|
1.97x |
|
|
|
2.06x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
|
|
|
|
2016 |
|
2015 |
Balance sheet
data (a): |
|
|
|
|
|
|
|
Cash and
cash equivalents |
|
|
|
|
$ |
71,491 |
|
|
$ |
80,783 |
|
Total
assets |
|
|
|
|
971,909 |
|
|
954,106 |
|
Current portion of debt and capital lease obligations |
|
|
|
— |
|
|
913 |
|
Debt and capital lease obligations, less current portion |
|
|
|
895,355 |
|
|
545,246 |
|
Total
debt and capital lease obligations |
|
|
|
|
895,355 |
|
|
546,159 |
|
Partners’
capital |
|
|
|
|
55,824 |
|
|
394,152 |
|
Working
capital |
|
|
|
|
84,688 |
|
|
86,231 |
|
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 (l) |
(Thousands of Dollars) |
(Unaudited) |
|
|
Three Months Ended
December 31, |
|
Year Ended December 31, |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Reconciliation
of net income to EBITDA and distributable cash flow (a) (l):
|
|
|
|
|
|
|
|
Net
income |
$ |
59,799 |
|
|
$ |
36,795 |
|
|
$ |
188,831 |
|
|
$ |
71,312 |
|
Plus: |
|
|
|
|
|
|
|
Depreciation expense |
11,313 |
|
|
10,976 |
|
|
45,965 |
|
|
45,678 |
|
Interest
and debt expense, net of capitalized interest |
5,333 |
|
|
2,748 |
|
|
14,915 |
|
|
6,113 |
|
Income
tax expense |
332 |
|
|
313 |
|
|
1,112 |
|
|
251 |
|
EBITDA |
76,777 |
|
|
50,832 |
|
|
250,823 |
|
|
123,354 |
|
Less: EBITDA attributable to Predecessor |
— |
|
|
(6,047 |
) |
|
(11,492 |
) |
|
(47,652 |
) |
EBITDA
attributable to Partnership |
76,777 |
|
|
56,879 |
|
|
262,315 |
|
|
171,006 |
|
Plus: |
|
|
|
|
|
|
|
Adjustments related to minimum throughput commitments |
393 |
|
|
18 |
|
|
1,493 |
|
|
22 |
|
Projects
prefunded by Valero |
— |
|
|
— |
|
|
— |
|
|
589 |
|
Other |
— |
|
|
— |
|
|
— |
|
|
384 |
|
Less: |
|
|
|
|
|
|
|
Cash
interest paid |
5,185 |
|
|
2,415 |
|
|
13,873 |
|
|
5,367 |
|
Income
taxes paid |
9 |
|
|
— |
|
|
505 |
|
|
441 |
|
Maintenance capital expenditures attributable to Partnership |
3,964 |
|
|
1,621 |
|
|
9,723 |
|
|
3,949 |
|
Distributable cash flow |
$ |
68,012 |
|
|
$ |
52,861 |
|
|
$ |
239,707 |
|
|
$ |
162,244 |
|
|
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 (l) |
(Thousands of Dollars) |
(Unaudited) |
|
|
Three Months EndedDecember 31, |
|
Year EndedDecember 31, |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Reconciliation
of net cash provided by operating activities to EBITDA and
distributable cash flow (a) (l): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by operating activities |
$ |
67,682 |
|
|
$ |
43,859 |
|
|
$ |
229,894 |
|
|
$ |
108,376 |
|
Plus: |
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in current assets and current liabilities |
3,777 |
|
|
4,330 |
|
|
5,956 |
|
|
|
8,973 |
|
Changes
in deferred charges and credits and other operating activities,
net |
(240 |
) |
|
(246 |
) |
|
(646 |
) |
|
|
(587 |
) |
Interest
and debt expense, net of capitalized interest |
5,333 |
|
|
2,748 |
|
|
14,915 |
|
|
|
6,113 |
|
Current
income tax expense |
225 |
|
|
141 |
|
|
704 |
|
|
|
479 |
|
EBITDA |
76,777 |
|
|
50,832 |
|
|
250,823 |
|
|
|
123,354 |
|
Less: EBITDA attributable to Predecessor |
— |
|
|
(6,047 |
) |
|
(11,492 |
) |
|
|
(47,652 |
) |
EBITDA
attributable to Partnership |
76,777 |
|
|
56,879 |
|
|
262,315 |
|
|
|
171,006 |
|
Plus: |
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments related to minimum throughput commitments |
393 |
|
|
18 |
|
|
1,493 |
|
|
|
22 |
|
Projects
prefunded by Valero |
— |
|
|
— |
|
|
— |
|
|
|
589 |
|
Other |
— |
|
|
— |
|
|
— |
|
|
|
384 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
interest paid |
5,185 |
|
|
2,415 |
|
|
13,873 |
|
|
|
5,367 |
|
Income
taxes paid |
9 |
|
|
— |
|
|
505 |
|
|
|
441 |
|
Maintenance capital expenditures attributable to Partnership |
3,964 |
|
|
1,621 |
|
|
9,723 |
|
|
|
3,949 |
|
Distributable cash flow |
$ |
68,012 |
|
|
$ |
52,861 |
|
|
$ |
239,707 |
|
|
$ |
162,244 |
|
|
See Notes to Earnings Release Tables. |
VALERO ENERGY PARTNERS
LP NOTES TO EARNINGS RELEASE
TABLES
(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.
We acquired the following businesses from Valero
in 2016 and 2015:
- On September 1, 2016, we acquired the Meraux and Three
Rivers Terminal Services Business for total consideration of
$325.0 million.
- On April 1, 2016, we acquired the McKee Terminal Services
Business for total consideration of $240.0 million.
- On October 1, 2015, we acquired the Corpus Christi
Terminal Services Business for total consideration of
$465.0 million.
- On March 1, 2015, we acquired the Houston and
St. Charles Terminal Services Business for total consideration
of $671.2 million.
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) Prior to being acquired by us, the
businesses described in Note (a) 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 December 31, 2016 compared to the three
months ended December 31, 2015 was due primarily to lower
maintenance expense of $1.5 million at the McKee terminal and
the Wynnewood products system, which was mainly related to
inspection activity in the 2015 period.The decrease in operating
expenses in the year ended December 31, 2016 compared to the
year ended December 31, 2015 was due primarily to lower
maintenance expense of $4.7 million at the Corpus Christi
terminals related to inspection activity in the 2015 period.
Additionally, waste handling costs at the Corpus Christi and
St. Charles terminals decreased $2.3 million in the year
ended December 31, 2016.
(d) The increase in general and
administrative expenses in the three months ended December 31,
2016 compared to the three months ended December 31, 2015 was
due primarily to incremental costs of $129,000 related to the
management fee charged to us by Valero for our acquisitions in 2016
described in Note (a) and an increase of $85,000 in public
company costs.
The increase in general and administrative
expenses in the year ended December 31, 2016 compared to the
year ended December 31, 2015 was due primarily to incremental
costs of $843,000 related to the management fee charged to us by
Valero for our acquisitions described in Note (a) and an
increase of $470,000 in public company costs.
(e) The increase in depreciation expense
in the three months ended December 31, 2016 compared to the
three months ended December 31, 2015 was due primarily to
depreciation expense on assets placed into service in the latter
part of 2015 and 2016, including expansion and improvement projects
at our Houston, Corpus Christi, and St. Charles terminals.
The increase in depreciation expense in the year
ended December 31, 2016 compared to the year ended
December 31, 2015 was due primarily to depreciation expense on
assets placed into service in the latter part of 2015 and 2016,
including expansion and improvement projects at our Corpus Christi,
Houston, Meraux, and St. Charles terminals, partially offset
by $2.8 million in accelerated depreciation related to the
retirement of certain assets of the McKee crude system in 2015.
(f) The increase in “interest and debt
expense, net of capitalized interest” in the three months and year
ended December 31, 2016 compared to the three months and year
ended December 31, 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).
Additionally, in December 2016 we issued $500.0 million of
4.375% senior notes due December 2026, which we used to repay a
majority of the outstanding balance under our revolving credit
facility. The interest rate on these senior notes is higher than
our revolving credit facility, thereby increasing the effective
interest rate for 2016. Interest expense on these incremental
borrowings was approximately $2.6 million and
$8.2 million in the three months and year ended
December 31, 2016, respectively.
(g) Our income tax expense is associated
with the Texas margin tax. During the year ended December 31,
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 year ended December 31, 2016,
the relative amount of revenue we generate in Texas increased in
connection with the acquisitions of the McKee Terminal Services
Business and the Meraux and Three Rivers Terminal Services
Business. As a result, our income tax expense increased.
(h) The requirements under our 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. The decrease in
pipeline transportation throughput in the three months and year
ended December 31, 2016 compared to the three months and year
ended December 31, 2015 was due primarily to lower volumes at
the Port Arthur logistics system as a result of the turnaround of
Valero’s Port Arthur refinery in September and October 2016,
during which time the refinery was largely shut down.
(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) Average pipeline transportation
revenue per barrel was higher in the three months and year ended
December 31, 2016 compared to the three months and year
ended December 31, 2015 due primarily to the recognition of
$2.2 million of deferred revenue associated with unused
minimum volume credits by Valero.
(l) 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 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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