Valero Energy Partners LP (NYSE:VLP) (the “Partnership”) today
reported fourth quarter 2017 net income attributable to partners of
$64 million, or $0.71 per common limited partner unit, and
EBITDA attributable to the Partnership of $91 million.
The Partnership reported net cash provided by operating activities
of $69 million and distributable cash flow of
$72 million. The distribution coverage ratio for the
fourth quarter was 1.5x.
For the year ended December 31, 2017, net income
attributable to partners was $238 million, or $2.77 per common
limited partner unit, and EBITDA attributable to the Partnership
was $328 million. The Partnership reported net cash provided
by operating activities of $289 million and distributable cash flow
of $284 million.
“We operated safely and reliably, delivered 25
percent annual distribution growth, and remain positioned to
deliver on our distribution growth target of at least 20 percent
for 2018 without having to complete additional acquisitions,” said
Joe Gorder, Chairman and Chief Executive Officer of VLP’s general
partner. “Our focus remains on disciplined growth through
drop downs, organic growth projects, and midstream acquisitions,”
Gorder said.
Financial Results Revenues of
$126 million for the fourth quarter of 2017 were $22 million higher
than the fourth quarter of 2016 due primarily to contributions from
the Red River pipeline segment, which was acquired in
January 2017, and the Port Arthur terminal and Parkway
Pipeline, which were acquired in November 2017. Cost of
revenues excluding depreciation expense was $31 million and
depreciation expense was $16 million in the fourth quarter of
2017 compared to $24 million and $11 million, respectively, in the
fourth quarter of 2016. General and administrative
expenses of $4 million were in line with the fourth quarter of
2016.
Revenues of $452 million in 2017 were
$89 million higher than 2016 due primarily to contributions
from the McKee, Meraux, and Three Rivers terminals, which were
acquired in 2016, and the Red River pipeline segment, Port Arthur
terminal, and Parkway Pipeline, which were acquired in 2017.
Cost of revenues excluding depreciation expense was
$108 million and depreciation expense was $52 million in
2017 compared to $96 million and $46 million,
respectively, in 2016. General and administrative expenses of
$16 million were in line with 2016.
Liquidity and Financial
PositionAs of December 31, 2017, the Partnership had $382
million of total liquidity consisting of $42 million in cash
and cash equivalents and $340 million available on its revolving
credit facility. Capital expenditures attributable to the
Partnership in the fourth quarter of 2017 were $14 million,
including $9 million for expansion and $5 million for
maintenance. For 2017, capital expenditures were
$39 million, including $30 million for expansion and
$9 million for maintenance.
The Partnership expects 2018 capital
expenditures to be between $35 million and $45 million,
which includes between $15 million and $20 million for expansion
and between $20 million and $25 million for
maintenance.
On January 24, the board of directors of VLP’s
general partner declared a fourth quarter 2017 cash distribution of
$0.5075 per unit. This distribution represents a
5.7 percent increase from the third quarter of 2017.
“Looking ahead, we remain focused on delivering
top-tier distribution growth, while maintaining a healthy coverage
ratio and a strong balance sheet,” 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 master limited
partnership formed by Valero Energy Corporation to own, operate,
develop and acquire crude oil and refined petroleum products
pipelines, terminals, and other transportation and logistics
assets. With headquarters in San Antonio, the Partnership’s assets
include crude oil and refined petroleum products pipeline and
terminal systems in the Gulf Coast and Mid-Continent regions of the
United States that are integral to the operations of 10 of Valero’s
refineries. Please visit www.valeroenergypartners.com for more
information.
ContactsInvestors: John Locke,
Vice President – Investor Relations, 210-345-3077Karen Ngo, Senior
Manager – Investor Relations, 210-345-4574Tom Mahrer, Manager –
Investor Relations, 210-345-1953Media: Lillian Riojas, 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,
quarterly reports on Form 10-Q and other reports filed with the SEC
and available on the Partnership’s website at
www.valeroenergypartners.com. These risks could cause the
Partnership’s actual results to differ materially from those
contained in any forward-looking statement.
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 (o) 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, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Statement of
income data (a): |
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues – related party (b) |
$ |
126,304 |
|
|
$ |
104,148 |
|
|
$ |
452,005 |
|
|
$ |
362,619 |
|
Costs and
expenses: |
|
|
|
|
|
|
|
Cost of
revenues (excluding depreciation expense reflected
below) (c) |
31,296 |
|
|
23,654 |
|
|
108,374 |
|
|
96,115 |
|
Depreciation expense (d) |
16,082 |
|
|
11,313 |
|
|
52,475 |
|
|
45,965 |
|
Other
operating expenses (e) |
40 |
|
|
— |
|
|
577 |
|
|
— |
|
General
and administrative expenses (f) |
3,991 |
|
|
3,791 |
|
|
15,549 |
|
|
15,965 |
|
Total costs and expenses |
51,409 |
|
|
38,758 |
|
|
176,975 |
|
|
158,045 |
|
Operating
income |
74,895 |
|
|
65,390 |
|
|
275,030 |
|
|
204,574 |
|
Other
income, net |
207 |
|
|
74 |
|
|
753 |
|
|
284 |
|
Interest
and debt expense, net of capitalized interest (g) |
(10,428 |
) |
|
(5,333 |
) |
|
(36,015 |
) |
|
(14,915 |
) |
Income
before income tax expense |
64,674 |
|
|
60,131 |
|
|
239,768 |
|
|
189,943 |
|
Income
tax expense |
410 |
|
|
332 |
|
|
1,335 |
|
|
1,112 |
|
Net
income |
64,264 |
|
|
59,799 |
|
|
238,433 |
|
|
188,831 |
|
Less: Net loss attributable to Predecessor |
— |
|
|
— |
|
|
— |
|
|
(15,422 |
) |
Net
income attributable to partners |
64,264 |
|
|
59,799 |
|
|
238,433 |
|
|
204,253 |
|
Less: General partner’s interest in net income |
15,190 |
|
|
8,202 |
|
|
49,113 |
|
|
23,553 |
|
Limited
partners’ interest in net income |
$ |
49,074 |
|
|
$ |
51,597 |
|
|
$ |
189,320 |
|
|
$ |
180,700 |
|
|
|
|
|
|
|
|
|
Net income per limited partner unit (basic and
diluted): |
|
|
|
|
|
|
|
Common
units |
$ |
0.71 |
|
|
$ |
0.77 |
|
|
$ |
2.77 |
|
|
$ |
2.85 |
|
Subordinated units (h) |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2.38 |
|
|
|
|
|
|
|
|
|
Weighted-average limited partner units
outstanding(basic and diluted) (in
thousands): |
|
|
|
|
|
|
|
Common
units – public |
22,476 |
|
|
21,654 |
|
|
22,352 |
|
|
21,540 |
|
Common
units – Valero |
46,404 |
|
|
45,687 |
|
|
45,868 |
|
|
27,277 |
|
Subordinated units – Valero (h) |
— |
|
|
— |
|
|
— |
|
|
17,463 |
|
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 EndedDecember 31, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Operating
highlights (a): |
|
|
|
|
|
|
|
|
|
|
|
Pipeline
transportation: |
|
|
|
|
|
|
|
Pipeline
transportation revenues (b) |
$ |
29,555 |
|
|
$ |
20,517 |
|
|
$ |
100,631 |
|
|
$ |
78,451 |
|
Pipeline
transportation throughput (BPD) (i) |
1,032,176 |
|
|
770,460 |
|
|
964,198 |
|
|
829,269 |
|
Average
pipeline transportation revenue per barrel (j) (k) |
$ |
0.31 |
|
|
$ |
0.29 |
|
|
$ |
0.29 |
|
|
$ |
0.26 |
|
Terminaling: |
|
|
|
|
|
|
|
Terminaling revenues (b) |
$ |
95,536 |
|
|
$ |
83,496 |
|
|
$ |
347,996 |
|
|
$ |
283,628 |
|
Terminaling throughput (BPD) (l) |
3,273,219 |
|
|
2,664,351 |
|
|
2,889,361 |
|
|
2,265,150 |
|
Average
terminaling revenue per barrel (j) (m) |
$ |
0.32 |
|
|
$ |
0.34 |
|
|
$ |
0.33 |
|
|
$ |
0.34 |
|
Storage
and other revenues (n) |
$ |
1,213 |
|
|
$ |
135 |
|
|
$ |
3,378 |
|
|
$ |
540 |
|
Total
operating revenues – related party |
$ |
126,304 |
|
|
$ |
104,148 |
|
|
$ |
452,005 |
|
|
$ |
362,619 |
|
Capital
expenditures (a): |
|
|
|
|
|
|
|
Maintenance |
$ |
4,660 |
|
|
$ |
3,964 |
|
|
$ |
8,954 |
|
|
$ |
13,027 |
|
Expansion |
9,559 |
|
|
3,281 |
|
|
29,562 |
|
|
10,129 |
|
Total
capital expenditures |
14,219 |
|
|
7,245 |
|
|
38,516 |
|
|
23,156 |
|
Less:
Capital expenditures attributable to Predecessor |
— |
|
|
— |
|
|
— |
|
|
3,394 |
|
Capital
expenditures attributable to Partnership |
$ |
14,219 |
|
|
$ |
7,245 |
|
|
$ |
38,516 |
|
|
$ |
19,762 |
|
Other financial
information: |
|
|
|
|
|
|
|
Net cash
provided by operating activities |
$ |
69,112 |
|
|
$ |
67,682 |
|
|
$ |
288,931 |
|
|
$ |
229,894 |
|
Distributable cash flow (o) |
$ |
72,488 |
|
|
$ |
68,012 |
|
|
$ |
283,697 |
|
|
$ |
239,707 |
|
Distribution declared per unit |
$ |
0.5075 |
|
|
$ |
0.4065 |
|
|
$ |
1.8700 |
|
|
$ |
1.4965 |
|
Distribution declared: |
|
|
|
|
|
|
|
Limited
partner units – public |
$ |
11,416 |
|
|
$ |
8,872 |
|
|
$ |
42,051 |
|
|
$ |
32,382 |
|
Limited
partner units – Valero |
23,735 |
|
|
18,571 |
|
|
86,503 |
|
|
67,560 |
|
General
partner units – Valero |
14,904 |
|
|
7,452 |
|
|
47,897 |
|
|
21,648 |
|
Total distribution declared |
$ |
50,055 |
|
|
$ |
34,895 |
|
|
$ |
176,451 |
|
|
$ |
121,590 |
|
Distribution coverage ratio: Distributable cash flow divided by
total distribution declared (o) |
1.45x |
|
|
1.95x |
|
|
1.61x |
|
|
1.97x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
2017 |
|
2016 |
Balance sheet
data: |
|
|
|
|
|
|
|
Cash and
cash equivalents |
|
|
|
|
$ |
42,052 |
|
|
$ |
71,491 |
|
Total
assets |
|
|
|
|
1,517,352 |
|
|
979,257 |
|
Debt (no current portion) |
|
|
|
1,275,283 |
|
|
895,355 |
|
Partners’
capital |
|
|
|
|
205,797 |
|
|
55,824 |
|
Working
capital |
|
|
|
|
56,727 |
|
|
84,688 |
|
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 (o) |
(thousands of dollars) |
(unaudited) |
|
|
Three Months Ended December 31, |
|
Year EndedDecember 31, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Reconciliation
of net income to EBITDA and distributable cash
flow (a) (o): |
|
|
|
|
|
|
|
Net
income |
$ |
64,264 |
|
|
$ |
59,799 |
|
|
$ |
238,433 |
|
|
$ |
188,831 |
|
Plus: |
|
|
|
|
|
|
|
Depreciation expense |
16,082 |
|
|
11,313 |
|
|
52,475 |
|
|
45,965 |
|
Interest and debt expense, net of capitalized interest |
10,428 |
|
|
5,333 |
|
|
36,015 |
|
|
14,915 |
|
Income tax expense |
410 |
|
|
332 |
|
|
1,335 |
|
|
1,112 |
|
EBITDA |
91,184 |
|
|
76,777 |
|
|
328,258 |
|
|
250,823 |
|
Less: EBITDA attributable to Predecessor |
— |
|
|
— |
|
|
— |
|
|
(11,492 |
) |
EBITDA
attributable to Partnership |
91,184 |
|
|
76,777 |
|
|
328,258 |
|
|
262,315 |
|
Plus: |
|
|
|
|
|
|
|
Adjustments related to minimum throughput commitments |
207 |
|
|
393 |
|
|
(1,533 |
) |
|
1,493 |
|
Less: |
|
|
|
|
|
|
|
Cash interest paid |
14,219 |
|
|
5,185 |
|
|
33,355 |
|
|
13,873 |
|
Income taxes paid |
24 |
|
|
9 |
|
|
719 |
|
|
505 |
|
Maintenance capital expenditures attributable to Partnership |
4,660 |
|
|
3,964 |
|
|
8,954 |
|
|
9,723 |
|
Distributable cash flow |
$ |
72,488 |
|
|
$ |
68,012 |
|
|
$ |
283,697 |
|
|
$ |
239,707 |
|
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 (o) |
(thousands of dollars) |
(unaudited) |
|
|
Three Months Ended December 31, |
|
Year EndedDecember 31, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Reconciliation
of net cash provided by operating activities to EBITDA and
distributable cash flow (a) (o): |
|
|
|
|
|
|
|
Net cash
provided by operating activities |
$ |
69,112 |
|
|
$ |
67,682 |
|
|
$ |
288,931 |
|
|
$ |
229,894 |
|
Plus: |
|
|
|
|
|
|
|
Changes in current assets and current liabilities |
11,718 |
|
|
3,777 |
|
|
3,730 |
|
|
5,956 |
|
Changes in deferred charges and credits and other operating
activities, net |
(344 |
) |
|
(240 |
) |
|
(1,360 |
) |
|
(646 |
) |
Interest and debt expense, net of capitalized interest |
10,428 |
|
|
5,333 |
|
|
36,015 |
|
|
14,915 |
|
Current income tax expense |
270 |
|
|
225 |
|
|
942 |
|
|
704 |
|
EBITDA |
91,184 |
|
|
76,777 |
|
|
328,258 |
|
|
250,823 |
|
Less: EBITDA attributable to Predecessor |
— |
|
|
— |
|
|
— |
|
|
(11,492 |
) |
EBITDA
attributable to Partnership |
91,184 |
|
|
76,777 |
|
|
328,258 |
|
|
262,315 |
|
Plus: |
|
|
|
|
|
|
|
Adjustments related to minimum throughput commitments |
207 |
|
|
393 |
|
|
(1,533 |
) |
|
1,493 |
|
Less: |
|
|
|
|
|
|
|
Cash interest paid |
14,219 |
|
|
5,185 |
|
|
33,355 |
|
|
13,873 |
|
Income taxes paid |
24 |
|
|
9 |
|
|
719 |
|
|
505 |
|
Maintenance capital expenditures attributable to Partnership |
4,660 |
|
|
3,964 |
|
|
8,954 |
|
|
9,723 |
|
Distributable cash flow |
$ |
72,488 |
|
|
$ |
68,012 |
|
|
$ |
283,697 |
|
|
$ |
239,707 |
|
See 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 for periods prior to their
dates of acquisition. 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 completed the following acquisitions from
Valero in 2017 and 2016:
- On November 1, 2017, we acquired the Parkway Pipeline
products system and the Port Arthur terminal for total
consideration of $508.0 million.
- 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.
The acquisitions from Valero prior to 2017 were
accounted for as transfers of businesses 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.
The acquisitions from Valero in 2017 were
accounted for as transfers of assets between entities under the
common control of Valero. As such, our prior period financial
statements and financial information were not retrospectively
adjusted for these acquisitions.
(b) The increase in operating revenues in the
three months and year ended December 31, 2017 compared to the
three months and year ended December 31, 2016 was due
primarily to the following:
- Incremental throughput from terminals and pipeline system
acquired from Valero. We generated incremental revenues of $11.3
million and $56.2 million in the three months and year ended
December 31, 2017, respectively, from the operations of
the acquired terminals described in Note (a). In addition, we
generated incremental revenues of $4.3 million in each period from
our Parkway Pipeline products system. The businesses acquired from
Valero in 2016 did not historically charge for services provided to
Valero; therefore, results associated with our Predecessor do not
include revenues associated with those businesses. 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 acquired assets. This
resulted in new charges for terminaling and pipeline transportation
services provided by these assets.
- Incremental operating revenues at our Red River crude system.
We generated incremental revenues of $3.1 million and $10.3
million from our Red River crude system, respectively. Effective
January 18, 2017, we acquired a 40 percent undivided
interest in (i) the newly constructed Hewitt segment of Plains
All American L.P.’s Red River pipeline, (ii) two 150,000
shell barrel capacity tanks located at Hewitt Station, and
(iii) a pipeline connection from Hewitt Station to Wasson
Station (collectively, the Red River crude system).
- Higher terminal volumes. We experienced an 8 percent increase
in volumes handled at our other terminals in the year ended
December 31, 2017 compared to the year ended December 31, 2016. The
increase in volumes had a favorable impact to our operating
revenues of $8.2 million in the year ended
December 31, 2017.
- Higher pipeline volumes. We experienced a 20 percent and 10
percent increase in volumes transported through our other pipeline
systems in the three months and year ended December 31, 2017
compared to the three months and year ended December 31, 2016,
respectively. The increase in volumes had a favorable impact to our
operating revenues of $1.4 million and $7.6 million in the
three months and year ended December 31, 2017, respectively.
(c) The increase in “cost of revenues (excluding
depreciation expense reflected below)” in the three months and
year ended December 31, 2017 compared to the three
months and year ended December 31, 2016 was due primarily to
incremental expenses of $3.9 million in each period related to our
newly acquired Parkway Pipeline products system and Port Arthur
terminal. In addition, we incurred incremental expenses of $735,000
and $2.0 million, respectively, related to the rail loading
facility at our St. Charles terminal, which was placed in
service in the second quarter of 2017; and $700,000 and $2.2
million, respectively, related to our Red River crude system. We
also incurred higher maintenance expenses of $2.3 million and
$4.1 million, respectively, at our Houston and Corpus Christi
terminals and Lucas and Collierville crude systems due primarily to
inspection activity.
(d) The increase in depreciation expense in the
three months and year ended December 31, 2017 compared to the
three months and year ended December 31, 2016 was due
primarily to depreciation expense recognized on the assets that
compose our Red River crude system, Parkway Pipeline products
system, and Port Arthur terminal, which were acquired in 2017.
(e) Other operating expenses reflects the
uninsured portion of our property damage losses and repair costs
incurred in 2017 as a result of damages caused by Hurricane Harvey
primarily at our Houston terminal and Port Arthur products
system.
(f) The increase in general and administrative
expenses in the three months ended December 31, 2017 compared
to the three months ended December 31, 2016 was due primarily
to incremental costs of $115,000 related to the management fee
charged to us by Valero in connection with the acquisition of the
Parkway Pipeline products system and Port Arthur terminal in the
fourth quarter of 2017 and higher professional fees of
$115,000.
The decrease in general and administrative
expenses in the year ended December 31, 2017 compared to the
year ended December 31, 2016 was due primarily to acquisition
costs of $832,000 incurred in 2016 in connection with our
acquisitions of the businesses described in Note (a). The decrease
in acquisition costs in the 2017 period was partially offset by
incremental costs of $319,000 related to the management fee charged
to us by Valero in connection with the acquired businesses and
assets described in Note (a).
(g) The increase in “interest and debt expense,
net of capitalized interest” in the three months and year ended
December 31, 2017 compared to the three months and year ended
December 31, 2016 was due primarily to the following:
- Incremental interest expense incurred on the senior notes. In
December 2016, we issued $500.0 million of 4.375% senior
notes due December 2026. We used the proceeds of the senior notes
to repay $494.0 million of outstanding borrowings under our
revolving credit facility agreement. The interest rate on these
senior notes is higher than our revolving credit facility
agreement, thereby increasing the effective interest rate in 2017.
Incremental interest expense resulting from these senior notes was
approximately $2.0 million and $8.9 million in the three
months and year ended December 31, 2017, respectively.
- Incremental borrowings in connection with acquisitions. In
connection with the acquisitions described in Note (a), we
borrowed $729.0 million under our revolving credit facility
agreement. Interest expense on the incremental borrowings was
approximately $1.8 million and $6.1 million in the three
months and year ended December 31, 2017, respectively.
- Higher interest rates in 2017. Borrowings on our revolving
credit facility agreement and two subordinated credit agreements
with Valero bear interest at variable rates. We incurred additional
interest of $1.1 million and $5.1 million in the three
months and year ended December 31, 2017, respectively, on
borrowings under these agreements that were outstanding during 2016
and 2017.
(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 increase in pipeline
transportation throughput in the three months and year ended
December 31, 2017 compared to the three months and year ended
December 31, 2016 was due primarily to the effect from lower
volumes at our Lucas crude system and Port Arthur products system
in the 2016 periods that resulted from Valero’s maintenance
activities at its Port Arthur refinery in 2016, as well as new
volumes at our Red River crude system and Parkway Pipeline products
system, which were acquired in 2017.
(j) Management uses average revenue per barrel
to evaluate operating and financial performance and compare results
to other companies in the industry. There are a variety of ways to
calculate average revenue per barrel; different companies may
calculate it in different ways. We calculate average revenue per
barrel as revenue divided by throughput for the period. Throughput
is derived by multiplying the throughput barrels per
day (BPD) by the number of days in the period. Investors and
analysts use this financial measure to help analyze and compare
companies in the industry on the basis of operating
performance.
(k) Average pipeline transportation revenue per
barrel was higher in the three months and year ended
December 31, 2017 compared to the three months and year
ended December 31, 2016 due primarily to higher pipeline
transportation revenue per barrel generated by our Red River crude
system and Parkway Pipeline products system, which were acquired in
2017.
(l) Represents the sum of throughput volumes at
each of our terminals divided by the number of days in the period.
The increase in terminaling throughput in the three months and year
ended December 31, 2017 compared to the three months and year
ended December 31, 2016 was due primarily to incremental
throughput volumes attributed to the terminal businesses and assets
we acquired from Valero in 2017 and 2016, which are described in
Note (a).
(m) Average terminaling revenue per barrel was
lower in the three months and year ended
December 31, 2017 compared to the three months and year
ended December 31, 2016 due primarily to lower average tiered
rates charged at our Houston terminal and Lucas crude system as a
result of higher throughput volumes, as well as a lower tariff rate
charged at our Port Arthur terminal (compared to tariff rates
charged at our other terminals).
(n) Storage and other revenues was higher in the
three months and year ended December 31, 2017 compared to the
three months and year ended December 31, 2016 due primarily to
revenues generated by the rail loading facility at our
St. Charles terminal, which was placed in service in the
second quarter of 2017.
(o) 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.
- 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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