VLP
$40.04
Valero Energy Partners LP
($.04)
(.10%)
Earnings Details
3rd Quarter September 2016
Thursday, October 27, 2016 7:11:15 AM
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Summary

Valero Energy Partners LP (VLP) Recent Earnings

Valero Energy Partners LP (VLP) reported 3rd Quarter September 2016 earnings of $0.77 per share on revenue of $92.0 million. The consensus earnings estimate was $0.66 per share on revenue of $89.0 million. Revenue grew 48.4% on a year-over-year basis.

Valero Energy Partners LP owns, operates, develops, and acquires crude oil and refined petroleum products pipelines, terminals, and other transportation and logistics assets.

Results
Reported Earnings
$0.77
Earnings Whisper
-
Consensus Estimate
$0.66
Reported Revenue
$92.0 Mil
Revenue Estimate
$89.0 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Valero Energy Partners LP Reports Third Quarter 2016 Results

Reported net income attributable to partners of $52 million and EBITDA attributable to the Partnership of $66 million.

Reported net cash provided by operating activities of $62 million and distributable cash flow of $62 million.

Increased quarterly cash distribution 5.5 percent to $0.385 per unit, with distribution coverage ratio of 1.9x.

Valero Energy Partners LP (VLP) (the "Partnership") today reported third quarter 2016 net income attributable to partners of $52 million, or $0.77 per common limited partner unit. Earnings before interest, income taxes, depreciation, and amortization ("EBITDA") attributable to the Partnership was $66 million, and distributable cash flow was $62 million. VLP’s distribution coverage ratio for the third quarter was 1.9x.

"We continued to operate safely and reliably in the third quarter, generating strong earnings and distribution growth," said Joe Gorder, Chairman and Chief Executive Officer of VLP’s general partner. "We successfully integrated the operations of the Meraux and Three Rivers terminals into our system and remain on track to grow distributions at a target annual rate of 25 percent through 2017."

Earlier this week, the board of directors of VLP’s general partner declared a third quarter 2016 cash distribution of $0.385 per unit, representing a 5.5 percent increase from the second quarter of 2016.

Financial Results

Revenues were $92 million for the third quarter of 2016. Operating expenses were $24 million, general and administrative expenses were $4 million, and depreciation expense was $11 million. Revenues for the Partnership were higher in the third quarter of 2016 compared to the third quarter of 2015 primarily due to contributions from the Corpus Christi terminals, which were acquired on October 1, 2015; the McKee terminal, which was acquired on April 1, 2016; and the Meraux and Three Rivers terminals, which were acquired on September 1, 2016.

The Partnership completed the Meraux and Three Rivers Terminal Services Business acquisition from a subsidiary of Valero Energy Corporation for total consideration of $325 million. The acquired business is expected to contribute approximately $39 million of EBITDA in its first 12 months of operations. The Partnership entered into 10-year terminaling agreements with a subsidiary of Valero that include minimum volume commitments covering approximately 85 percent of planned throughput.

"We completed our drop-down transaction target for the year," said Gorder. "Growing the Partnership through opportunistic drop downs and the development of logistics projects that support Valero’s operations or provide third-party revenue remain priorities for us."

Liquidity and Financial Position

As of September 30, 2016, the Partnership had $261 million of total liquidity consisting of $35 million of cash and cash equivalents and $226 million available on its revolving credit facility. Capital expenditures attributable to the Partnership in the third quarter of 2016 totaled $3 million, which includes $1 million for expansion and $2 million for maintenance.

The Partnership expects 2016 capital expenditures to be approximately $22 million, slightly higher than previous guidance. Of the total, $11 million is allocated for expansion, and the balance is for maintenance.

Conference Call

The 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 LP

Valero Energy Partners LP is a fee-based master limited partnership formed by Valero Energy Corporation to own, operate, develop and acquire crude oil and refined products pipelines, terminals and other transportation and logistics assets. With headquarters in San Antonio, the Partnership’s assets include crude oil and refined petroleum products pipeline and terminal systems in the Gulf Coast and Mid-Continent regions of the United States ("U.S.") that are integral to the operations of 10 of Valero’s refineries. Please visit www.valeroenergypartners.com for more information.

Contacts

Investors:

John Locke, Vice President - Investor Relations, 210-345-3077

Karen Ngo, Manager - Investor Relations, 210-345-4574

Media:

Lillian Riojas, Director - Media Relations and Communications, 210-345-5002

Safe-Harbor Statement

This 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 Information

This earnings release and the accompanying earnings release tables include financial measures that are not defined under U.S. generally accepted accounting principles ("GAAP"). These non-GAAP financial measures include "EBITDA," "distributable cash flow," and "distribution coverage ratio." We have included these non-GAAP financial measures to help facilitate the comparison of operating results between periods. See the accompanying earnings release tables for a reconciliation of these non-GAAP measures to their most directly comparable U.S. GAAP measures. In note (k) to the earnings release tables, we disclose the reasons why we believe our use of the non-GAAP financial measures provides useful information.

VALERO ENERGY PARTNERS LP
EARNINGS RELEASE TABLES
(Thousands of Dollars, Except per Unit Amounts)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
Statement of income data (a):
Operating revenues - related party (b)
$
92,040
$
62,037
$
258,471
$
164,168
Costs and expenses:
Operating expenses (c)
24,089
27,482
72,461
80,812
General and administrative expenses (d)
4,094
3,731
12,174
11,000
Depreciation expense (e)
11,319
13,760
34,652
34,702
Total costs and expenses
39,502
44,973
119,287
126,514
Operating income
52,538
17,064
139,184
37,654
Other income, net
76
29
210
166
Interest and debt expense, net of capitalized interest (f)
(3,672
)
(1,353
)
(9,582
)
(3,365
)
Income before income taxes
48,942
15,740
129,812
34,455
Income tax expense (benefit) (g)
235
115
780
(62
)
Net income
48,707
15,625
129,032
34,517
Less:
Net loss attributable to Predecessor
(3,002
)
(15,803
)
(15,422
)
(52,694
)
Net income attributable to partners
51,709
31,428
144,454
87,211
Less:
General partner’s interest in net income
6,634
1,612
15,351
3,821
Limited partners’ interest in net income
$
45,075
$
29,816
$
129,103
$
83,390
Net income per limited partner unit (basic and diluted):
Common units
$
0.77
$
0.51
$
2.08
$
1.43
Subordinated units (h)
$
0.29
$
0.49
$
1.73
$
1.40
Weighted-average limited partner units outstanding (basic and diluted)
(in thousands):
Common units - public
21,504
17,250
21,502
17,250
Common units - Valero
32,395
13,448
21,095
13,029
Subordinated units - Valero (h)
12,517
28,790
23,326
28,790
See Notes to Earnings Release Tables.
VALERO ENERGY PARTNERS LP
EARNINGS RELEASE TABLES
(Thousands of Dollars, Except per Unit and per Barrel Amounts)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
Operating highlights (a):
Pipeline transportation:
Pipeline transportation revenues (b)
$
18,371
$
21,322
$
57,934
$
61,164
Pipeline transportation throughput (BPD) (i)
778,369
960,410
849,015
964,380
Average pipeline transportation revenue per barrel (j)
$
0.26
$
0.24
$
0.25
$
0.23
Terminaling:
Terminaling revenues (b)
$
73,534
$
40,580
$
200,132
$
102,599
Terminaling throughput (BPD)
2,394,292
1,335,659
2,131,113
1,176,216
Average terminaling revenue per barrel (j)
$
0.33
$
0.33
$
0.34
$
0.32
Storage revenues
$
135
$
135
$
405
$
405
Total operating revenues - related party
$
92,040
$
62,037
$
258,471
$
164,168
Capital expenditures (a):
Maintenance
$
3,352
$
1,465
$
9,063
$
8,503
Expansion
953
7,753
6,848
22,245
Total capital expenditures
4,305
9,218
15,911
30,748
Less: Capital expenditures attributable to Predecessor
1,113
8,024
3,394
27,195
Capital expenditures attributable to Partnership
$
3,192
$
1,194
$
12,517
$
3,553
Other financial information:
Net cash provided by operating activities
$
61,528
$
30,692
$
162,212
$
64,517
Distributable cash flow (k)
$
61,750
$
41,880
$
171,695
$
109,383
Distribution declared per unit
$
0.3850
$
0.3075
$
1.0900
$
0.8775
Distribution declared:
Limited partner units - public
$
8,341
$
5,307
$
23,510
$
15,145
Limited partner units - Valero
17,590
13,471
48,989
37,547
General partner units - Valero
6,244
1,386
14,196
3,194
Total distribution declared
$
32,175
$
20,164
$
86,695
$
55,886
Distribution coverage ratio: Distributable cash flow divided by total distribution declared (k)
1.92x
2.08x
1.98x
1.96x
September 30,
December 31,
2016
2015
Balance sheet data (a):
Cash and cash equivalents
$
35,399
$
80,783
Total assets
922,317
954,106
Current portion of debt and capital lease obligations
45
913
Debt and capital lease obligations, less current portion
894,012
545,246
Total debt and capital lease obligations
894,057
546,159
Partners’ capital
11,091
394,152
Working capital
49,911
86,231
See Notes to Earnings Release Tables.
VALERO ENERGY PARTNERS LP
EARNINGS RELEASE TABLES
RECONCILIATION OF NON-GAAP MEASURES TO MOST COMPARABLE AMOUNTS
REPORTED UNDER U.S. GAAP (k)
(Thousands of Dollars)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
Reconciliation of net income to EBITDA and distributable cash flow (a) (k):
Net income
$
48,707
$
15,625
$
129,032
$
34,517
Plus:
Depreciation expense
11,319
13,760
34,652
34,702
Interest and debt expense, net of capitalized interest
3,672
1,353
9,582
3,365
Income tax expense (benefit)
235
115
780
(62
)
EBITDA
63,933
30,853
174,046
72,522
Less:
EBITDA attributable to Predecessor
(2,395
)
(12,727
)
(11,492
)
(41,605
)
EBITDA attributable to Partnership
66,328
43,580
185,538
114,127
Plus:
Adjustments related to minimum throughput commitments
865
--
1,100
4
Projects prefunded by Valero
--
--
--
589
Other
--
--
--
384
Less:
Cash interest paid
3,204
1,374
8,688
2,952
Income taxes paid
--
--
496
441
Maintenance capital expenditures
2,239
326
5,759
2,328
Distributable cash flow
$
61,750
$
41,880
$
171,695
$
109,383
See Notes to Earnings Release Tables.
VALERO ENERGY PARTNERS LP
EARNINGS RELEASE TABLES
RECONCILIATION OF NON-GAAP MEASURES TO MOST COMPARABLE AMOUNTS
REPORTED UNDER U.S. GAAP (k)
(Thousands of Dollars)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
Reconciliation of net cash provided by operating activities to EBITDA and distributable cash flow (a) (k):
Net cash provided by operating activities
$
61,528
$
30,692
$
162,212
$
64,517
Plus:
Changes in current assets and current liabilities
(1,263
)
(1,430
)
2,179
4,643
Changes in deferred charges and credits and other operating activities, net
(157
)
118
(406
)
(341
)
Interest and debt expense, net of capitalized interest
3,672
1,353
9,582
3,365
Current income tax expense
153
120
479
338
EBITDA
63,933
30,853
174,046
72,522
Less:
EBITDA attributable to Predecessor
(2,395
)
(12,727
)
(11,492
)
(41,605
)
EBITDA attributable to Partnership
66,328
43,580
185,538
114,127
Plus:
Adjustments related to minimum throughput commitments
865
--
1,100
4
Projects prefunded by Valero
--
--
--
589
Other
--
--
--
384
Less:
Cash interest paid
3,204
1,374
8,688
2,952
Income taxes paid
--
--
496
441
Maintenance capital expenditures
2,239
326
5,759
2,328
Distributable cash flow
$
61,750
$
41,880
$
171,695
$
109,383
See Notes to Earnings Release Tables.

VALERO ENERGY PARTNERS LP

EARNINGS RELEASE TABLES

(Thousands of Dollars)

(Unaudited)

The following tables present our statements of income for the three and nine months ended September 30, 2015. Our financial results have been adjusted for the acquisitions of the Corpus Christi Terminal Services Business, the McKee Terminal Services Business, and the Meraux and Three Rivers Terminal Services Business. See Note (a) of Notes to Earnings Release Tables for a discussion of the basis of this presentation.

Three Months Ended September 30, 2015
Valero
Corpus
McKee
Meraux and
Valero
Energy
Christi
Terminal
Three Rivers
Energy
Partners LP
Terminal
Services
Terminal
Partners LP
(Previously
Services
Business
Services
(Currently
Reported)
Business
Business
Reported)
Operating revenues - related party
$
62,037
$
--
$
--
$
--
$
62,037
Costs and expenses:
Operating expenses
15,042
6,198
2,405
3,837
27,482
General and administrative expenses
3,444
91
66
130
3,731
Depreciation expense
10,684
1,279
1,125
672
13,760
Total costs and expenses
29,170
7,568
3,596
4,639
44,973
Operating income (loss)
32,867
(7,568
)
(3,596
)
(4,639
)
17,064
Other income, net
29
--
--
--
29
Interest and debt expense, net of capitalized interest (1,353
)
--
--
--
(1,353
)
Income (loss) before income taxes
31,543
(7,568
)
(3,596
)
(4,639
)
15,740
Income tax expense
115
--
--
--
115
Net income (loss)
31,428
(7,568
)
(3,596
)
(4,639
)
15,625
Less: Net loss attributable to Predecessor
--
(7,568
)
(3,596
)
(4,639
)
(15,803
)
Net income attributable to partners
$
31,428
$
--
$
--
$
--
$
31,428
Nine Months Ended September 30, 2015
Valero
Corpus
McKee
Meraux and
Valero
Energy
Christi
Terminal
Three Rivers
Energy
Partners LP
Terminal
Services
Terminal
Partners LP
(Previously
Services
Business
Services
(Currently
Reported)
Business
Business
Reported)
Operating revenues - related party
$
164,168
$
--
$
--
$
--
$
164,168
Costs and expenses:
Operating expenses
47,280
17,089
5,763
10,680
80,812
General and administrative expenses
10,169
267
189
375
11,000
Depreciation expense
25,887
3,165
3,379
2,271
34,702
Total costs and expenses
83,336
20,521
9,331
13,326
126,514
Operating income (loss)
80,832
(20,521 )
(9,331
)
(13,326
)
37,654
Other income, net
166
--
--
--
166
Interest and debt expense, net of capitalized interest
(3,365
)
--
--
--
(3,365
)
Income (loss) before income taxes
77,633
(20,521 )
(9,331
)
(13,326
)
34,455
Income tax benefit
(62
)
--
--
--
(62
)
Net income (loss)
77,695
(20,521 )
(9,331
)
(13,326
)
34,517
Less: Net loss attributable to Predecessor
(9,516
)
(20,521 )
(9,331
)
(13,326
)
(52,694
)
Net income attributable to partners
$
87,211
$
--
$
--
$
--
$
87,211
See Notes to Earnings Release Tables.

VALERO ENERGY PARTNERS LP

NOTES TO EARNINGS RELEASE TABLES (Continued)

(a) References to "Partnership," "we," "us," or "our" refer to Valero Energy Partners LP, one or more of its subsidiaries, or all of them taken as a whole. For businesses that we acquired from Valero, those terms refer to Valero Energy Partners LP Predecessor, our Predecessor for accounting purposes. References in these notes to "Valero" may refer to Valero Energy Corporation, one or more of its subsidiaries, or all of them taken as a whole, other than Valero Energy Partners LP, any of its subsidiaries, or its general partner.

Effective September 1, 2016, we acquired the Meraux and Three Rivers Terminal Services Business from Valero for total consideration of $325.0 million consisting of (i) cash of $276.0 million and (ii) the issuance of 1,149,905 common units representing limited partner interests in us and 23,467 general partner units representing general partner interests in us having an aggregate value, collectively, of $49.0 million. We funded the cash distribution to Valero with $66.0 million of our cash on hand and $210.0 million of borrowings under our revolving credit facility. We began receiving fees for services provided by this business commencing on September 1, 2016.

Effective April 1, 2016, we acquired the McKee Terminal Services Business from Valero for total consideration of $240.0 million consisting of (i) cash of $204.0 million and (ii) the issuance of 728,775 common units representing limited partner interests in us and 14,873 general partner units representing general partner interests in us having an aggregate value, collectively, of $36.0 million. We funded the cash distribution to Valero with $65.0 million of our cash on hand and $139.0 million of borrowings under our revolving credit facility. We began receiving fees for services provided by this business commencing on April 1, 2016.

Effective October 1, 2015, we acquired the Corpus Christi Terminal Services Business from Valero for total consideration of $465.0 million and began receiving fees for services provided by this business commencing on October 1, 2015.

Each acquisition was accounted for as the transfer of a business between entities under the common control of Valero. Accordingly, the statement of income data, operating highlights, and capital expenditures data have been retrospectively adjusted to include the historical results of operations of the acquired businesses for periods prior to their dates of acquisition.

(b) In addition to the businesses described in Note (a), we acquired the Houston and St. Charles Terminal Services Business from Valero effective March 1, 2015. Prior to being acquired by us, these businesses did not charge Valero for services provided and did not generate revenues. Effective with the date of each acquisition, we entered into additional schedules to our commercial agreements with Valero with respect to the services we provide to Valero using the assets of the acquired businesses. This resulted in new charges for terminaling services provided by these assets.

(c) The decrease in operating expenses in the three months ended September 30, 2016 compared to the three months ended September 30, 2015 was due primarily to lower maintenance expense of $2.3 million related to inspection activity and lower waste handling costs of $449,000 at the Corpus Christi terminals.

The decrease in operating expenses in the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 was due primarily to lower maintenance expense of $5.2 million at the Corpus Christi terminals related to inspection activity. Additionally, waste handling costs at the Corpus Christi and St. Charles terminals decreased $2.3 million in the nine months ended September 30, 2016.

(d) The increase in general and administrative expenses in the three months ended September 30, 2016 compared to the three months ended September 30, 2015 was due primarily to incremental costs of $221,000 related to the management fee charged to us by Valero related to our acquisitions of the Corpus Christi Terminal Services Business, the McKee Terminal Services Business, and the Meraux and Three Rivers Terminal Services Business.

The increase in general and administrative expenses in the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 was due primarily to incremental costs of $714,000 related to the management fee charged to us by Valero related to our acquisitions of the Corpus Christi Terminal Services Business, the McKee Terminal Services Business, and the Meraux and Three Rivers Terminal Services Business, and an increase of $624,000 in costs related to being a separate publicly traded limited partnership. These increases were offset by lower transaction costs of $164,000 associated with the acquisition of businesses from Valero.

(e) The decrease in depreciation expense in the three months ended September 30, 2016 compared to the three months ended September 30, 2015 was due primarily to $2.8 million in accelerated depreciation related to the retirement of certain assets of the McKee Crude System in the third quarter of 2015, partially offset by an increase in depreciation expense on assets placed into service in the latter part of 2015 and the beginning of 2016, including expansion and improvement projects at our Houston and Meraux terminals.

The decrease in depreciation expense in the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 was due primarily to $2.8 million in accelerated depreciation related to the retirement of certain assets of the McKee Crude System in the third quarter of 2015, partially offset by an increase in depreciation expense on assets placed into service in the latter part of 2015 and the beginning of 2016, including expansion and improvement projects at our Corpus Christi, St. Charles, and Meraux terminals.

(f) The increase in "interest and debt expense, net of capitalized interest" in the three and nine months ended September 30, 2016 compared to the three and nine months ended September 30, 2015 was due primarily to interest expense incurred on borrowings under our revolving credit facility and under the subordinated credit agreements with Valero entered into in connection with the acquisitions described in Note (a) as well as the Houston and St. Charles Terminal Services Business acquisition on March 1, 2015. Interest expense on these incremental borrowings was approximately $1.9 million and $5.2 million in the three and nine months ended September 30, 2016, respectively.

(g) Our income tax expense is associated with the Texas margin tax. During the nine months ended September 30, 2015, we reduced our deferred income tax liabilities due to a reduction in the relative amount of revenue we generate in Texas compared to our total revenue. This reduction was a result of the acquisition of the Houston and St. Charles Terminal Services Business on March 1, 2015 (which includes operations in Louisiana). In addition, in June 2015, the Texas margin tax rate was reduced from 1 percent to 0.75 percent.

During the nine months ended September 30, 2016, the relative amount of revenue we generate in Texas increased in connection with the acquisitions of the Corpus Christi Terminal Services Business, the McKee Terminal Services Business, and the Meraux and Three Rivers Terminal Services Business. As a result, our income tax expense has increased.

(h) The requirements under the partnership agreement for the conversion of all of our outstanding subordinated units into common units were satisfied upon the payment of our quarterly cash distribution on August 9, 2016. Therefore, effective August 10, 2016, all of our subordinated units, which were owned by Valero, were converted on a one-for-one basis into common units. The conversion of the subordinated units does not impact the amount of cash distributions paid or the total number of outstanding units. The subordinated units were only allocated earnings generated by us through the conversion date.

(i) Represents the sum of volumes transported through each separately tariffed pipeline segment divided by the number of days in the period.

(j) Management uses average revenue per barrel to evaluate performance and compare profitability to other companies in the industry. There are a variety of ways to calculate average revenue per barrel; different companies may calculate it in different ways. We calculate average revenue per barrel as revenue divided by throughput for the period. Throughput is derived by multiplying the throughput barrels per day (BPD) by the number of days in the period. Investors and analysts use this financial measure to help analyze and compare companies in the industry on the basis of operating performance.

(k) Defined terms are as follows:

EBITDA is defined as net income less income tax expense, interest expense, and depreciation expense.

Distributable cash flow is defined as EBITDA less (i) EBITDA attributable to Predecessor and cash payments during the period for interest, income taxes, and maintenance capital expenditures; plus (ii) adjustments related to minimum throughput commitments, capital projects prefunded by Valero, and certain other items.

Distribution coverage ratio is defined as the ratio of distributable cash flow to the total distribution declared.

These terms are not defined under United States (U.S.) generally accepted accounting principles (GAAP) and are considered non-GAAP measures. Management has defined these terms and believes that the presentation of the associated measures is useful to external users of our financial statements, such as industry analysts, investors, lenders, and rating agencies, to:

-- describe our expectation of forecasted earnings;

assess our operating performance as compared to other publicly traded limited partnerships in the transportation and logistics industry, without regard to historical cost basis or, in the case of EBITDA, financing methods;

assess the ability of our business to generate sufficient cash to support our decision to make distributions to our unitholders;

-- assess our ability to incur and service debt and fund capital expenditures; and

assess the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

We believe that the presentation of EBITDA provides useful information to investors in assessing our financial condition and results of operations. The U.S. GAAP measures most directly comparable to EBITDA are net income and net cash provided by operating activities. EBITDA should not be considered an alternative to net income or net cash provided by operating activities presented in accordance with U.S. GAAP. EBITDA has important limitations as an analytical tool because it excludes some, but not all, items that affect net income or net cash provided by operating activities. EBITDA should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Additionally, because EBITDA may be defined differently by other companies in our industry, our definition of EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.

We use distributable cash flow to measure whether we have generated from our operations, or "earned," an amount of cash sufficient to support the payment of the minimum quarterly distributions. Our partnership agreement contains the concept of "operating surplus" to determine whether our operations are generating sufficient cash to support the distributions that we are paying, as opposed to returning capital to our partners. Because operating surplus is a cumulative concept (measured from our initial public offering (IPO) date and compared to cumulative distributions from the IPO date), we use the term distributable cash flow to approximate operating surplus on a quarterly or annual, rather than a cumulative, basis. As a result, distributable cash flow is not necessarily indicative of the actual cash we have on hand to distribute or that we are required to distribute.

We use the distribution coverage ratio to reflect the relationship between our distributable cash flow and the total distribution declared.

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