CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES
|
Description of Business
Valero Energy Partners LP (the Partnership) is a fee-based, master limited partnership formed by Valero (defined below) in
July 2013
to own, operate, develop, and acquire crude oil and refined petroleum products pipelines, terminals, and other transportation and logistics assets.
References in this report 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. References in this report to “Valero” refer collectively to Valero Energy Corporation and its subsidiaries, other than Valero Energy Partners LP, any of its subsidiaries, or its general partner, and other than Diamond Green Diesel Holdings, LLC (DGD), a joint venture consolidated by Valero.
We acquired from Valero the McKee Terminal Services Business on April 1, 2016, the Meraux and Three Rivers Terminal Services Business on September 1, 2016, and Parkway Pipeline LLC (Parkway Pipeline) and the Port Arthur terminal (defined in Note
2
) on November 1, 2017. We acquired the Red River crude system (defined in Note
2
) from Plains All American Pipeline L.P. (Plains) on January 18, 2017. See Note
2
for further discussion of these acquisitions.
Our assets consist of crude oil and refined petroleum products pipeline and terminal systems in the United States (U.S.) Gulf Coast and U.S. Mid-Continent regions that are integral to the operations of
ten
of Valero’s refineries.
We generate operating revenues
by providing fee-based transportation and terminaling services.
Basis of Presentation
General
These unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature unless disclosed otherwise. Operating results for the three and
nine months ended
September 30, 2017
are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.
The balance sheet as of
December 31, 2016
has been derived from our audited financial statements as of that date. For further information, refer to our financial statements and notes thereto included in our annual report on Form 10-K for the year ended
December 31, 2016
.
Acquisitions from Valero
The acquisitions from Valero in 2016 noted above were accounted for as transfers of businesses between entities under the common control of Valero. Accordingly, we recorded these acquisitions on our balance sheet at Valero’s carrying value as of the beginning of the period of transfer, and we retrospectively adjusted prior period financial statements and financial information to furnish comparative information. We refer to
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the historical results of the transferred assets from Valero prior to their transfer to us as those of our “Predecessor.”
The combined financial statements of our Predecessor were derived from the consolidated financial statements and accounting records of Valero and reflect the combined historical financial position, results of operations, and cash flows of our Predecessor as if the acquisitions from Valero had been combined for periods prior to the effective dates of each acquisition.
There were no transactions between the operations of our Predecessor; therefore, there were no intercompany transactions or accounts to be eliminated in connection with the combination of those operations. In addition, our Predecessor’s statements of income include direct charges for the management and operation of our assets and certain expenses allocated by Valero for general corporate services, such as treasury, accounting, and legal services. These expenses were charged, or allocated, to our Predecessor based on the nature of the expenses. Prior to the acquisitions from Valero, our Predecessor transferred cash to Valero daily and Valero funded our Predecessor’s operating and investing activities as needed. Therefore, transfers of cash to and from Valero’s cash management system are reflected as a component of net investment and are reflected as a financing activity in our statements of cash flows. In addition, interest expense was not included on the net cash transfers from Valero.
The acquisitions of Parkway Pipeline and the Port Arthur terminal on November 1, 2017 will be accounted for as acquisitions of assets and as such, our prior period financial statements and financial information will not be retrospectively adjusted. However, because these assets were transferred between entities under the common control of Valero, we will record these assets on our balance sheet at Valero’s carrying value as of November 1, 2017.
The financial information presented for the periods after the effective dates of each acquisition represents the consolidated financial position, results of operations, and cash flows of the Partnership.
Reclassifications
Certain amounts reported as of December 31, 2016 and for the
nine months ended
September 30, 2016
have been reclassified to conform to the 2017 presentation.
Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. On an ongoing basis, we review our estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.
Accounting Pronouncement Adopted During the Period
ASU No. 2017-01
In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-01, “Business Combinations (Topic 805),” to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The provisions of this ASU provide a more robust framework to use in determining when a set of assets and activities is a business by clarifying the requirements related to inputs, processes, and outputs. These provisions are to be applied prospectively and are effective for annual reporting periods beginning after December 15, 2017,
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
with early adoption permitted. Our early adoption of this ASU effective January 1, 2017 did not have an effect on our financial position or results of operations. However, our acquisitions of Parkway Pipeline and the Port Arthur terminal on November 1, 2017 will be, and more of our future acquisitions may be, accounted for as acquisitions of assets in accordance with this ASU.
Accounting Pronouncements Not Yet Adopted
ASU No. 2014-09
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” to clarify the principles for recognizing revenue. This new standard is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual periods. We have completed our evaluation of the provisions of this standard and concluded that our adoption will not materially change the amount or timing of revenues recognized by us, nor will it materially affect our financial position. We will adopt this new standard effective January 1, 2018, and we will use the modified retrospective method of adoption as permitted by the standard. Under that method, the cumulative effect of initially applying the standard is recognized as an adjustment to the opening balance of partners’ capital, and revenues reported in the periods prior to the date of adoption are not changed. We do not, however, expect to make such an adjustment to partners’ capital. We are currently developing our revenue disclosures and enhancing our accounting systems to enable the preparation of such disclosures as well as the implementation of our internal controls.
Certain of our commercial agreements are considered operating leases under U.S. GAAP. The scope of Topic 606 does not extend to revenues generated by lease arrangements; therefore, lease revenues generated by us will continue to be accounted for under existing lease accounting standards and will be reflected in a separate revenue line item on our statements of income.
ASU No. 2016-01
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments—Overall (Subtopic 825-10),” to enhance the reporting model for financial instruments regarding certain aspects of recognition, measurement, presentation, and disclosure. The provisions of this ASU are effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual periods. This ASU is to be applied using a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The adoption of this ASU effective January 1, 2018 will not affect our financial position or results of operations, but will result in revised disclosures.
ASU No. 2016-02
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This new standard is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within those annual periods, with early adoption permitted. We will adopt this new standard on January 1, 2019 and we expect to use the modified retrospective method of adoption as permitted by the standard. We are developing enhanced contracting and lease evaluation processes and information systems to support such processes, as well as new and enhanced accounting systems to account for our leases and support the required disclosures. We continue to evaluate the effect that adopting this standard will have on our financial statements and related disclosures.
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Acquisitions in 2016
McKee Terminal Services Business
Effective
April 1, 2016
, we acquired from Valero a subsidiary that owns and operates a crude oil, intermediates, and refined petroleum products terminal supporting Valero’s McKee Refinery for total consideration of
$240.0 million
, which consisted of (i) a cash distribution of
$204.0 million
and (ii) the issuance of
728,775
common units and
14,873
general partner units to Valero having an aggregate value of
$36.0 million
. We funded the cash distribution with
$65.0 million
of our cash on hand and
$139.0 million
of borrowings under our revolving credit facility. See
Note 5
for further discussion of the borrowings under our revolving credit facility. This acquisition was accounted for as an acquisition of a business. See Note
1
for a further discussion about the accounting and basis of presentation of this acquisition.
Meraux and Three Rivers Terminal Services Business
Effective
September 1, 2016
, we acquired from Valero
two
subsidiaries that own and operate crude oil, intermediates, and refined petroleum products terminals supporting Valero’s Meraux and Three Rivers Refineries for total consideration of
$325.0 million
, which consisted of (i) a cash distribution of
$276.0 million
and (ii) the issuance of
1,149,905
common units and
23,467
general partner units to Valero having an aggregate value of
$49.0 million
. We funded the cash distribution with
$66.0 million
of our cash on hand and
$210.0 million
of borrowings under our revolving credit facility. See
Note 5
for further discussion of the borrowings under our revolving credit facility. This acquisition was accounted for as an acquisition of a business. See Note
1
for a further discussion about the accounting and basis of presentation of this acquisition.
Acquisitions in 2017
Red River Crude System
Effective
January 18, 2017
, we acquired a
40
percent undivided interest in (i) the newly constructed Hewitt segment of Plains’ Red River pipeline (the Hewitt segment), (ii)
two
150,000
shell barrel capacity tanks located at Hewitt Station in Hewitt, Oklahoma (the Hewitt Storage Tanks), and (iii) a pipeline connection from Hewitt Station to Wasson Station (the Wasson Interconnect) (collectively, the Red River crude system) for total cash consideration of
$71.8 million
. We funded this acquisition with available cash on hand.
The Hewitt segment consists of a 138-mile, 16-inch crude oil pipeline with
150,000
barrels per day of throughput capacity that originates at Plains Marketing L.P.’s Cushing, Oklahoma terminal and ends at Hewitt Station. The pipeline supports Valero’s Ardmore Refinery and began supplying crude oil to Valero in January 2017. We retain a right to participate in any future expansions of the pipeline.
This acquisition was accounted for as an acquisition of assets. See Note
3
for a further discussion of the commercial agreement we entered into with Valero concurrent with this acquisition.
We also entered into a Joint Ownership Agreement (JOA) and an Operating and Administrative Services Agreement with Plains concurrent with this acquisition. The JOA provides us with access to the remaining
60
percent of the capacity of the Hewitt Storage Tanks and the Wasson Interconnect and continues until terminated by mutual agreement. This access arrangement is accounted for as an operating lease. The administrative agreement facilitates the day-to-day operations and management functions of the pipeline for an initial
five
-year term and automatically renews for successive
five
-year terms.
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Parkway Pipeline and Port Arthur Terminal
Effective
November 1, 2017
, we acquired Parkway Pipeline , a subsidiary of Valero, that owns and operates a 141-mile, 16-inch refined petroleum products pipeline with
110,000
barrels per day of capacity that transports refined petroleum products from Valero’s St. Charles Refinery, located in Norco, Louisiana, to Collins, Mississippi for supply into the Plantation and Colonial pipeline systems, for cash consideration of
$200.0 million
. We funded the cash distribution with
$82.0 million
of our cash on hand and
$118.0 million
of borrowings under our revolving credit facility. We also acquired Valero Partners Port Arthur, LLC, a subsidiary of Valero that owns certain terminaling assets (Port Arthur terminal) that support Valero’s Port Arthur Refinery for total consideration of
$308.0 million
, which consisted of (i) a cash distribution of
$262.0 million
and (ii) the issuance of
1,081,315
common units and
22,068
general partner units to Valero having an aggregate value of
$46.0 million
. We funded the cash distribution with
$262.0 million
of borrowings under our revolving credit facility. See
Note 5
for further discussion of the borrowings under our revolving credit facility. These acquisitions were accounted for as acquisitions of assets.
Concurrent with the acquisitions of Parkway Pipeline and the Port Arthur terminal described above, we entered into various amended and restated agreements with Valero.
|
|
3.
|
RELATED-PARTY TRANSACTIONS
|
New and Amended Commercial Agreements in 2017
Agreement with Diamond Green Diesel
Effective
March 31, 2017
, we entered into a commercial agreement with DGD to construct and operate a rail loading facility located at Valero’s St. Charles Refinery for the purpose of loading DGD’s renewable diesel onto railcars. The construction of the rail loading facility was completed in April 2017, and we began providing services to DGD in May 2017. In addition, we have agreed to construct a new
180,000
barrel storage tank and provide storage services to DGD. The construction of the new tank is expected to be completed in the first quarter of 2018. The agreement has an initial term that ends on
June 30, 2033
. The agreement contains minimum commitments for DGD’s use of the assets.
Agreements with Valero
Effective March 31, 2017 and in connection with the DGD agreement described above, we amended our land lease and access agreement with Valero related to our St. Charles terminal to include our use of Valero’s rail loading facility.
Concurrent with the acquisition of the Red River crude system as described in Note
2
, we entered into a
10
-year throughput agreement under which we provide transportation services to Valero. The agreement provides Valero an option to renew for
one
additional
five
-year term, unless terminated by Valero upon at least
180
days’ prior written notice before the end of the initial term, and it contains minimum throughput requirements and inflation escalators.
Summary of Transactions
The amounts shown in our balance sheets as “deferred revenue – related party” represent the unearned revenues from Valero associated with Valero’s quarterly deficiency payment, which is the result of Valero not meeting its minimum quarterly throughput commitments under certain schedules of our master transportation services agreement and master terminal services agreement (collectively, the commercial agreements).
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
All of our operating revenues are generated by providing services under our commercial agreements described above. The cost of services provided to us by Valero, including the cost of financing provided to us by Valero in connection with certain acquisitions from Valero as more fully described in Notes
2
and
5
, is reflected in the supplemental information disclosure on our statements of income.
Concentration Risk
Substantially all of our operating revenues and “receivables – related party” resulted from transactions with Valero. Therefore, we are subject to the business risks associated with Valero’s business.
Insurance Recoveries
During the three and
nine
months ended
September 30, 2017
, we experienced property damage losses and repair costs associated with Hurricane Harvey primarily at our Houston terminal and Port Arthur products system. As a result of these losses, we have submitted claims under our insurance policies with Valero. The amount shown in our statements of income as other operating expenses reflects the uninsured portion of our losses. As of September 30, 2017, we have recorded a $
2.3 million
receivable from Valero related to our property damage claims, which was recorded as a reduction to other operating expenses.
Operating Leases – Lessor
Certain schedules under our commercial agreements with Valero are considered operating leases under U.S. GAAP. These agreements contain minimum throughput requirements and escalation clauses to adjust transportation tariffs and terminaling and storage fees to reflect changes in price indices. These lease revenues are recorded within “operating revenues – related party” in our statements of income. The components of our lease revenues were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Minimum rental revenues
|
|
$
|
70,588
|
|
|
$
|
60,133
|
|
|
$
|
208,859
|
|
|
$
|
164,659
|
|
Contingent rental revenues
|
|
15,223
|
|
|
10,710
|
|
|
42,721
|
|
|
28,271
|
|
Total lease revenues
|
|
$
|
85,811
|
|
|
$
|
70,843
|
|
|
$
|
251,580
|
|
|
$
|
192,930
|
|
As of
September 30, 2017
, future minimum rentals to be received related to these noncancelable commercial agreements were as follows (in thousands):
|
|
|
|
|
Remainder of 2017
|
$
|
70,589
|
|
2018
|
280,056
|
|
2019
|
280,056
|
|
2020
|
280,824
|
|
2021
|
280,056
|
|
Thereafter
|
2,394,350
|
|
Total minimum rental payments
|
$
|
3,585,931
|
|
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
4.
|
PROPERTY AND EQUIPMENT
|
Our property and equipment includes non-leased assets and assets under operating leases for which we are the lessor under U.S. GAAP. Major classes of property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
|
Non-Leased
Assets
|
|
Assets
Leased
to Valero
|
|
Total
|
Land
|
|
|
$
|
4,672
|
|
|
$
|
—
|
|
|
$
|
4,672
|
|
Pipelines and related assets
|
|
224,794
|
|
|
113,381
|
|
|
338,175
|
|
Terminals and related assets
|
|
120,482
|
|
|
816,684
|
|
|
937,166
|
|
Other
|
|
10,530
|
|
|
—
|
|
|
10,530
|
|
Construction-in-progress
|
|
50,363
|
|
|
—
|
|
|
50,363
|
|
Property and equipment, at cost
|
|
410,841
|
|
|
930,065
|
|
|
1,340,906
|
|
Accumulated depreciation
|
|
(123,924
|
)
|
|
(262,035
|
)
|
|
(385,959
|
)
|
Property and equipment, net
|
|
$
|
286,917
|
|
|
$
|
668,030
|
|
|
$
|
954,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Non-Leased
Assets
|
|
Assets
Leased
to Valero
|
|
Total
|
Land
|
|
|
$
|
4,672
|
|
|
$
|
—
|
|
|
$
|
4,672
|
|
Pipelines and related assets
|
|
224,656
|
|
|
47,366
|
|
|
272,022
|
|
Terminals and related assets
|
|
112,614
|
|
|
793,765
|
|
|
906,379
|
|
Other
|
|
9,538
|
|
|
—
|
|
|
9,538
|
|
Construction-in-progress
|
|
23,677
|
|
|
—
|
|
|
23,677
|
|
Property and equipment, at cost
|
|
375,157
|
|
|
841,131
|
|
|
1,216,288
|
|
Accumulated depreciation
|
|
(115,538
|
)
|
|
(235,670
|
)
|
|
(351,208
|
)
|
Property and equipment, net
|
|
$
|
259,619
|
|
|
$
|
605,461
|
|
|
$
|
865,080
|
|
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
5.
|
DEBT AND NOTES PAYABLE
–
RELATED PARTY
|
Debt
We have a
$750.0 million
senior unsecured revolving credit facility agreement (the Revolver) that matures in
November 2020
. We have the option to increase the aggregate commitments under the Revolver to
$1.0 billion
, subject to certain restrictions. The Revolver also provides for the issuance of letters of credit of up to
$100.0 million
. Borrowings on the Revolver bear interest at a variable rate, which was
2.75
percent and
2.3125
percent as of
September 30, 2017
and
December 31, 2016
, respectively.
There was no activity related to our debt during the nine months ended
September 30, 2017
. During the nine months ended
September 30, 2016
, we borrowed
$139.0 million
and
$210.0 million
under the Revolver in connection with the acquisitions of the McKee Terminal Services Business and the Meraux and Three Rivers Terminal Services Business, respectively. See Note
2
for information about our acquisitions from Valero.
In connection with the acquisitions of Parkway Pipeline and the Port Arthur terminal as described in
Note
2
, we borrowed
$118.0 million
and
$262.0 million
, respectively, under the Revolver on
November 1, 2017
. These borrowings bear interest at variable rates, which were
2.75
percent and
2.875
percent, respectively, as of
November 1, 2017
.
Notes Payable
–
Related Party
There was no activity under our
two
subordinated credit agreements with Valero (the Loan Agreements) for the
nine months ended
September 30, 2017
and
2016
. Borrowings on the Loan Agreements bear interest at a variable rate, which was
2.73722
percent and
2.27
percent as of
September 30, 2017
and
December 31, 2016
, respectively.
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We have long-term operating lease commitments for pipelines and land used in the terminaling and transportation of crude oil and refined petroleum products. Certain leases contain escalation clauses and renewal options that allow for the same rental payment over the lease term or a revised rental payment based on fair rental value or negotiated value. Currently, one of our leases with Valero does not contain a renewal option. We expect our leases will be renewed or replaced by other leases in the normal course of business.
As of
September 30, 2017
, our future minimum rentals for leases having initial or remaining noncancelable lease terms in excess of one year were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agreements With
|
|
|
|
Related Party
|
|
Others
|
|
Total
|
Remainder of 2017
|
$
|
2,436
|
|
|
$
|
226
|
|
|
$
|
2,662
|
|
2018
|
9,744
|
|
|
1,068
|
|
|
10,812
|
|
2019
|
9,744
|
|
|
1,052
|
|
|
10,796
|
|
2020
|
9,745
|
|
|
1,052
|
|
|
10,797
|
|
2021
|
9,745
|
|
|
1,047
|
|
|
10,792
|
|
Thereafter
|
219,893
|
|
|
25,362
|
|
|
245,255
|
|
Total minimum rental payments
|
$
|
261,307
|
|
|
$
|
29,807
|
|
|
$
|
291,114
|
|
Minimum rental expenses for all operating leases are shown in the following table (in thousands). Contingent rental expense for all operating leases was immaterial.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Minimum rental expenses – related party
|
|
$
|
2,437
|
|
|
$
|
2,281
|
|
|
$
|
7,310
|
|
|
$
|
6,518
|
|
Minimum rental expenses – others
|
|
304
|
|
|
175
|
|
|
909
|
|
|
541
|
|
Total minimum rental expenses
|
|
$
|
2,741
|
|
|
$
|
2,456
|
|
|
$
|
8,219
|
|
|
$
|
7,059
|
|
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Our partnership agreement prescribes the amount and priority of cash distributions that our limited partners and general partner will receive. Our distributions are declared subsequent to quarter end. The table below summarizes information related to our quarterly cash distributions that have been declared since January 1,
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly
Period
Ended
|
|
Total
Quarterly
Distribution
(Per Unit)
|
|
Total Cash
Distribution
(In Thousands)
|
|
Declaration
Date
|
|
Record
Date
|
|
Distribution
Date
|
September 30, 2017
|
|
$
|
0.4800
|
|
|
$
|
46,242
|
|
|
October 19, 2017
|
|
November 1, 2017
|
|
November 9, 2017
|
June 30, 2017
|
|
0.4550
|
|
|
42,111
|
|
|
July 19, 2017
|
|
August 1, 2017
|
|
August 10, 2017
|
March 31, 2017
|
|
0.4275
|
|
|
38,043
|
|
|
April 20, 2017
|
|
May 2, 2017
|
|
May 11, 2017
|
December 31, 2016
|
|
0.4065
|
|
|
34,895
|
|
|
January 20, 2017
|
|
February 2, 2017
|
|
February 10, 2017
|
September 30, 2016
|
|
0.3850
|
|
|
32,175
|
|
|
October 24, 2016
|
|
November 3, 2016
|
|
November 10, 2016
|
June 30, 2016
|
|
0.3650
|
|
|
28,912
|
|
|
July 21, 2016
|
|
August 1, 2016
|
|
August 9, 2016
|
March 31, 2016
|
|
0.3400
|
|
|
25,608
|
|
|
April 21, 2016
|
|
May 2, 2016
|
|
May 10, 2016
|
December 31, 2015
|
|
0.3200
|
|
|
22,711
|
|
|
January 25, 2016
|
|
February 4, 2016
|
|
February 11, 2016
|
The following table reflects the allocation of total cash distributions to the general and limited partners and distribution equivalent right (DER) payments applicable to the period in which the distributions and DERs were earned (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
General partner’s distributions:
|
|
|
|
|
|
|
|
|
General partner’s distributions
|
|
$
|
925
|
|
|
$
|
644
|
|
|
$
|
2,362
|
|
|
$
|
1,734
|
|
General partner’s incentive distribution
rights (IDRs)
|
|
12,074
|
|
|
5,600
|
|
|
30,631
|
|
|
12,462
|
|
Total general partner’s distributions
|
|
12,999
|
|
|
6,244
|
|
|
32,993
|
|
|
14,196
|
|
Limited partners’ distributions:
|
|
|
|
|
|
|
|
|
Common – public
|
|
10,789
|
|
|
8,336
|
|
|
30,620
|
|
|
23,495
|
|
Common – Valero
|
|
22,449
|
|
|
17,590
|
|
|
62,768
|
|
|
28,692
|
|
Subordinated – Valero
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,297
|
|
Total limited partners’ distributions
|
|
33,238
|
|
|
25,926
|
|
|
93,388
|
|
|
72,484
|
|
DERs
|
|
5
|
|
|
5
|
|
|
15
|
|
|
15
|
|
Total cash distributions, including DERs
|
|
$
|
46,242
|
|
|
$
|
32,175
|
|
|
$
|
126,396
|
|
|
$
|
86,695
|
|
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
8.
|
NET INCOME PER LIMITED PARTNER UNIT
|
We calculate net income available to limited partners based on the distributions pertaining to each period’s net income. After considering the appropriate period’s distributions, the remaining undistributed earnings or excess distributions over earnings, if any, are allocated to the general partner, limited partners, and other participating securities in accordance with the contractual terms of our partnership agreement and as prescribed under the two-class method. Participating securities include IDRs and awards under our Valero Energy Partners LP 2013 Incentive Compensation Plan that receive DERs. However, the terms of our partnership agreement limit the general partner’s incentive distribution to the amount of available cash, which, as defined in our partnership agreement, is net of reserves deemed appropriate. As such, IDRs are not allocated undistributed earnings or distributions in excess of earnings in the calculation of net income per limited partner unit.
Net losses of our Predecessor are allocated to the general partner. Subsequent to the effective dates of the acquisitions from Valero, we calculate net income available to limited partners based on the methodology described above.
Basic net income per limited partner unit is determined pursuant to the two-class method for master limited partnerships. The two-class method is an earnings allocation formula that is used to determine earnings to our general partner, common unitholders, and participating securities according to (i) distributions pertaining to each period’s net income and (ii) participation rights in undistributed earnings.
Diluted net income per limited partner unit is also determined using the two-class method, unless the treasury stock method is more dilutive. For the three and
nine months ended
September 30, 2017
and
2016
, we used the two-class method to determine diluted net income per limited partner unit. We did not have any potentially dilutive instruments outstanding during the three and
nine months ended
September 30, 2017
and
2016
.
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 subordinated units were only allocated earnings generated by us through the conversion date. See
Note 9
for further discussion of the conversion of subordinated units.
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net income per unit was computed as follows (in thousands, except per unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
|
General
Partner
|
|
Limited
Partners
Common
Units
|
|
Restricted
Units
|
|
Total
|
Allocation of net income to determine net income available to limited partners:
|
|
|
|
|
|
|
|
|
Distributions, excluding general partner’s IDRs
|
|
$
|
925
|
|
|
$
|
33,238
|
|
|
$
|
—
|
|
|
$
|
34,163
|
|
General partner’s IDRs
|
|
12,074
|
|
|
—
|
|
|
—
|
|
|
12,074
|
|
DERs
|
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
Distributions and DERs declared
|
|
12,999
|
|
|
33,238
|
|
|
5
|
|
|
46,242
|
|
Undistributed earnings
|
|
38
|
|
|
11,307
|
|
|
2
|
|
|
11,347
|
|
Net income available to
limited partners – basic and diluted
|
|
$
|
13,037
|
|
|
$
|
44,545
|
|
|
$
|
7
|
|
|
$
|
57,589
|
|
|
|
|
|
|
|
|
|
|
Net income per limited partner unit – basic and diluted:
|
|
|
|
|
|
|
|
|
Weighted-average units outstanding
|
|
|
|
68,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per limited partner unit – basic and diluted
|
|
|
|
$
|
0.65
|
|
|
|
|
|
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
|
|
|
|
Limited Partners
|
|
|
|
|
|
|
General
Partner
|
|
Common
Units
|
|
Subordinated
Units
|
|
Restricted
Units
|
|
Total
|
Allocation of net income to determine net income available to limited partners:
|
|
|
|
|
|
|
|
|
|
|
Distributions, excluding general partner’s IDRs
|
|
$
|
644
|
|
|
$
|
25,926
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26,570
|
|
General partner’s IDRs
|
|
5,600
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,600
|
|
DERs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
Distributions and DERs declared
|
|
6,244
|
|
|
25,926
|
|
|
—
|
|
|
5
|
|
|
32,175
|
|
Undistributed earnings
|
|
390
|
|
|
15,533
|
|
|
3,607
|
|
|
4
|
|
|
19,534
|
|
Net income available to
limited partners – basic and diluted
|
|
$
|
6,634
|
|
|
$
|
41,459
|
|
|
$
|
3,607
|
|
|
$
|
9
|
|
|
$
|
51,709
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per limited partner unit – basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
Weighted-average units outstanding
|
|
|
|
53,899
|
|
|
12,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per limited partner unit – basic and diluted
|
|
|
|
$
|
0.77
|
|
|
$
|
0.29
|
|
|
|
|
|
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
|
General
Partner
|
|
Limited
Partners
Common
Units
|
|
Restricted
Units
|
|
Total
|
Allocation of net income to determine net income available to limited partners:
|
|
|
|
|
|
|
|
|
Distributions, excluding general partner’s IDRs
|
|
$
|
2,362
|
|
|
$
|
93,388
|
|
|
$
|
—
|
|
|
$
|
95,750
|
|
General partner’s IDRs
|
|
30,631
|
|
|
—
|
|
|
—
|
|
|
30,631
|
|
DERs
|
|
—
|
|
|
—
|
|
|
15
|
|
|
15
|
|
Distributions and DERs declared
|
|
32,993
|
|
|
93,388
|
|
|
15
|
|
|
126,396
|
|
Undistributed earnings
|
|
930
|
|
|
46,834
|
|
|
9
|
|
|
47,773
|
|
Net income available to
limited partners – basic and diluted
|
|
$
|
33,923
|
|
|
$
|
140,222
|
|
|
$
|
24
|
|
|
$
|
174,169
|
|
|
|
|
|
|
|
|
|
|
Net income per limited partner unit – basic and diluted:
|
|
|
|
|
|
|
|
|
Weighted-average units outstanding
|
|
|
|
67,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per limited partner unit – basic and diluted
|
|
|
|
$
|
2.06
|
|
|
|
|
|
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
|
|
|
Limited Partners
|
|
|
|
|
|
|
General
Partner
|
|
Common
Units
|
|
Subordinated
Units
|
|
Restricted
Units
|
|
Total
|
Allocation of net income to determine net income available to limited partners:
|
|
|
|
|
|
|
|
|
|
|
Distributions, excluding general partner’s IDRs
|
|
$
|
1,734
|
|
|
$
|
52,187
|
|
|
$
|
20,297
|
|
|
$
|
—
|
|
|
$
|
74,218
|
|
General partner’s IDRs
|
|
12,462
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,462
|
|
DERs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
15
|
|
Distributions and DERs declared
|
|
14,196
|
|
|
52,187
|
|
|
20,297
|
|
|
15
|
|
|
86,695
|
|
Undistributed earnings
|
|
1,155
|
|
|
36,568
|
|
|
20,025
|
|
|
11
|
|
|
57,759
|
|
Net income available to
limited partners – basic and diluted
|
|
$
|
15,351
|
|
|
$
|
88,755
|
|
|
$
|
40,322
|
|
|
$
|
26
|
|
|
$
|
144,454
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per limited partner unit – basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
Weighted-average units outstanding
|
|
|
|
42,597
|
|
|
23,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per limited partner unit – basic and diluted
|
|
|
|
$
|
2.08
|
|
|
$
|
1.73
|
|
|
|
|
|
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unit Activity
Activity in the number of units was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
General
Partner
|
|
|
|
|
Public
|
|
Valero
|
|
Subordinated
|
|
|
Total
|
Balance as of December 31, 2015
|
|
21,509,651
|
|
|
15,018,602
|
|
|
28,789,989
|
|
|
1,332,829
|
|
|
66,651,071
|
|
Unit-based compensation
|
|
5,958
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,958
|
|
Units issued in connection with acquisitions (see Note 2)
|
|
—
|
|
|
1,878,680
|
|
|
—
|
|
|
38,340
|
|
|
1,917,020
|
|
Conversion of subordinated units
|
|
—
|
|
|
28,789,989
|
|
|
(28,789,989
|
)
|
|
—
|
|
|
—
|
|
Units issued under ATM Program
|
|
65,980
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
65,980
|
|
General partner units issued to maintain 2% interest
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,346
|
|
|
1,346
|
|
Balance as of September 30, 2016
|
|
21,581,589
|
|
|
45,687,271
|
|
|
—
|
|
|
1,372,515
|
|
|
68,641,375
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
21,738,692
|
|
|
45,687,271
|
|
|
—
|
|
|
1,375,721
|
|
|
68,801,684
|
|
Unit-based compensation
|
|
5,997
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,997
|
|
Units issued under ATM Program
|
|
742,897
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
742,897
|
|
General partner units issued to maintain 2% interest
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,602
|
|
|
15,602
|
|
Balance as of September 30, 2017
|
|
22,487,586
|
|
|
45,687,271
|
|
|
—
|
|
|
1,391,323
|
|
|
69,566,180
|
|
ATM Program
On September 16, 2016, we entered into an equity distribution agreement pursuant to which we may offer and sell from time to time our common units having an aggregate offering price of up to
$350.0 million
based on 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”). The table below summarizes activities of the common units issued under our ATM Program and general partner units issued to maintain the
2.0
percent general partner interest in the Partnership.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
Issued
|
|
Total Proceeds
|
|
Offering Costs
|
|
Net Proceeds
|
|
|
|
|
(in thousands)
|
Nine months ended September 30, 2017:
|
|
|
|
|
|
|
|
|
Common – public
|
|
742,897
|
|
|
$
|
35,728
|
|
|
$
|
542
|
|
|
$
|
35,186
|
|
General partner
|
|
15,602
|
|
|
748
|
|
|
—
|
|
|
748
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2016:
|
|
|
|
|
|
|
|
|
Common – public
|
|
65,980
|
|
|
2,853
|
|
|
39
|
|
|
2,814
|
|
General partner
|
|
1,346
|
|
|
58
|
|
|
—
|
|
|
58
|
|
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Subordinated Unit Conversion
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.
Transfers to (from) Partners
Subsequent to the expiration of the subordination period on August 10, 2016, all of our common units have equal rights, including rights to distributions and to our net assets in the event of liquidation. As a result, a reallocation of the carrying values of our public common unitholders’ interest in us and Valero’s common unitholder interest in us is required when a change in ownership occurs in order for the portion of those carrying values associated with activity subsequent to the subordination period to be equal to the respective unitholders’ ownership interests (in units) in us. Transfers to (from) partners resulted from the issuance of equity under our ATM Program for the
nine months ended
September 30, 2017
. During the
nine months ended
September 30, 2016
, transfers to (from) partners resulted from the issuance of equity to Valero in connection with our acquisition of the Meraux and Three Rivers Terminal Services Business and issuance of equity under our ATM Program.
|
|
10.
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
In order to determine net cash provided by operating activities, net income is adjusted by, among other things, changes in current assets and current liabilities as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
2016
|
Decrease (increase) in current assets:
|
|
|
|
|
Receivables – related party
|
|
$
|
894
|
|
|
$
|
(7,668
|
)
|
Receivables
|
|
(225
|
)
|
|
—
|
|
Prepaid expenses and other
|
|
512
|
|
|
223
|
|
Increase (decrease) in current liabilities:
|
|
|
|
|
Accounts payable
|
|
1,361
|
|
|
791
|
|
Accounts payable – related party
|
|
1,433
|
|
|
(558
|
)
|
Accrued liabilities
|
|
(283
|
)
|
|
(212
|
)
|
Accrued liabilities – related party
|
|
(99
|
)
|
|
(66
|
)
|
Accrued interest payable
|
|
5,173
|
|
|
565
|
|
Accrued interest payable – related party
|
|
797
|
|
|
71
|
|
Taxes other than income taxes payable
|
|
1,518
|
|
|
1,000
|
|
Deferred revenue – related party
|
|
(3,093
|
)
|
|
3,675
|
|
Changes in current assets and current liabilities
|
|
$
|
7,988
|
|
|
$
|
(2,179
|
)
|
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Noncash investing and financing activities that affected recognized assets or liabilities for the
nine months ended
September 30, 2017
and
2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
2016
|
Transfer (from) to Valero for:
|
|
|
|
|
Deferred income taxes
|
|
$
|
—
|
|
|
$
|
(190
|
)
|
Change in accrued capital expenditures
|
|
—
|
|
|
46
|
|
Increase (decrease) in accounts payable related to capital expenditures
|
|
2,424
|
|
|
(2,499
|
)
|
Noncash capital contributions from Valero
|
|
27,866
|
|
|
23,820
|
|
Units issued to Valero in connection with the acquisitions (see Note 2)
|
|
—
|
|
|
85,000
|
|
In addition to the activities in the above table, noncash financing activities for the
nine months ended
September 30, 2017
included the transfers to (from) partners to reflect the impact of ownership changes occurring as a result of the issuance of common units under our ATM Program described in
Note 9
.
Noncash financing activities for the
nine months ended
September 30, 2016
included:
|
|
•
|
the conversion of all of our outstanding subordinated units into common units having an aggregate value of
$406.4 million
, described in
Note 9
; and
|
|
|
•
|
the transfers to (from) partners to reflect the impact of ownership changes occurring as a result of the issuance of common units (i) to Valero for the acquisition of the Meraux and Three Rivers Terminal Services Business and (ii) under our ATM Program, described in
Note 9
.
|
The following table presents our investing and financing cash outflows in connection with the acquisitions from Valero described in
Note 2
(in thousands). Of the cash consideration paid, the portion attributed to Valero’s historical carrying value of each acquisition was reflected as an investing cash outflow and the excess purchase price paid over the carrying value of each acquisition was reflected as a financing cash outflow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Cash
Outflow
|
|
Financing
Cash
Outflow
|
|
Total
Cash
Outflow
|
Nine months ended September 30, 2016:
|
|
|
|
|
|
|
McKee Terminal Services Business
|
|
$
|
51,361
|
|
|
$
|
152,639
|
|
|
$
|
204,000
|
|
Meraux and Three Rivers Terminal Services Business
|
|
52,246
|
|
|
223,754
|
|
|
276,000
|
|
|
|
$
|
103,607
|
|
|
$
|
376,393
|
|
|
$
|
480,000
|
|
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
There were no net transfers from Valero during the
nine months ended
September 30, 2017
. The following is a reconciliation of the amounts presented as net transfers from Valero on our statement of partners’ capital and statement of cash flows (in thousands) for the
nine months ended
September 30, 2016
.
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
Net transfers from Valero per statement of partners’ capital
|
|
$
|
15,030
|
|
Less: Noncash transfers from Valero
|
|
144
|
|
Net transfers from Valero per statement of cash flows
|
|
$
|
14,886
|
|
Cash flows related to interest and income taxes paid were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
2016
|
Interest paid
|
|
$
|
19,136
|
|
|
$
|
8,688
|
|
Income taxes paid
|
|
695
|
|
|
496
|
|
VALERO ENERGY PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
11.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
Financial instruments that we recognize in our balance sheets at their carrying amounts are shown in the table below along with their associated fair values (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Financial assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
115,755
|
|
|
$
|
115,755
|
|
|
$
|
71,491
|
|
|
$
|
71,491
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
Revolver
|
30,000
|
|
|
30,000
|
|
|
30,000
|
|
|
30,000
|
|
Senior Notes
|
495,177
|
|
|
516,305
|
|
|
495,355
|
|
|
506,670
|
|
Notes payable – related party
|
370,000
|
|
|
370,000
|
|
|
370,000
|
|
|
370,000
|
|
The methods and significant assumptions used to estimate the fair value of these financial instruments are as follows:
|
|
•
|
The fair value of cash and cash equivalents approximates the carrying value due to the low level of credit risk of these assets combined with their market interest rates. The fair value measurement for cash and cash equivalents is categorized as Level 1 in the fair value hierarchy. Fair values determined by Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets.
|
|
|
•
|
The fair values of our variable-rate debt, which includes our Revolver and “notes payable – related party,” approximate their carrying values as our borrowings bear interest based upon short-term floating market interest rates. The fair value of our fixed-rate
4.375
percent Senior Notes is determined primarily using the market approach based on quoted prices provided by vendor pricing services. The fair value measurement for these liabilities is categorized as Level 2 in the fair value hierarchy. Fair values determined by Level 2 utilize inputs that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
|