
3.	ACQUISITIONS

In connection with the Acquisitions, we entered into various agreements with Valero related to the acquisition agreements, including amended and restated schedules to our omnibus agreement, an amended and restated services and secondment agreement, lease agreements, and additional schedules to our commercial agreements. See Note 4 for a summary of the terms of these agreements.

Texas Crude Systems Business Acquisition

Effective July 1, 2014, we acquired the Texas Crude Systems Business from Valero for total cash consideration of $154.0 million. The Texas Crude Systems Business is engaged in the business of transporting, terminaling, and storing crude oil and refined petroleum products through various pipeline and terminal systems that compose the McKee Crude System (supporting Valero’s McKee Refinery), the Three Rivers Crude System (supporting Valero’s Three Rivers Refinery), and the Wynnewood Products System (supporting Valero’s Ardmore Refinery).

Houston and St. Charles Terminal Services Business Acquisition

Effective March 1, 2015 we acquired two subsidiaries from Valero that own and operate crude oil, intermediates, and refined petroleum products terminals supporting Valero’s Houston Refinery (in Houston, Texas) and St. Charles Refinery (in Norco, Louisiana) for total consideration of $671.2 million, which consisted of (i) a cash distribution of $571.2 million and (ii) the issuance of 1,908,100 common units and 38,941 general partner units having an aggregate value of $100.0 million. We funded the cash distribution to Valero with $211.2 million of our cash on hand, $200.0 million of borrowings under our revolving credit facility, and $160.0 million of proceeds from a subordinated credit agreement we entered into with Valero. See Note 6 for further discussion of the borrowings under our revolving credit facility and subordinated credit agreement.

We attributed $296.1 million of the total $571.2 million cash consideration to the historical carrying value of this acquisition (an investing cash outflow). The remaining $275.1 million of cash consideration represents the excess purchase price paid over the carrying value of this acquisition (a financing cash outflow).

The assets and liabilities of the Houston and St. Charles Terminal Services Business are included in the consolidated balance sheets as of March 31, 2015 and December 31, 2014. The following table presents the previously reported December 31, 2014 consolidated balance sheet adjusted for the acquisition of the Houston and St. Charles Terminal Business (in thousands):



	Valero Energy Partners LP (Previously Reported)			Houston and St. Charles Terminal Services Business			Valero Energy Partners LP (Currently Reported)
ASSETS
Current assets:
Cash and cash equivalents	$	236,579		$	—		$	236,579
Receivables from related party	8,499			—			8,499
Prepaid expenses and other	727			—			727
Total current assets	245,805			—			245,805
Property and equipment, at cost	474,843			344,261			819,104
Accumulated depreciation	(125,960		)	(48,570		)	(174,530		)
Property and equipment, net	348,883			295,691			644,574
Deferred charges and other assets, net	1,385			—			1,385
Total assets	$	596,073		$	295,691		$	891,764
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Current portion of capital lease obligations	$	1,200		$	—		$	1,200
Accounts payable	4,297			—			4,297
Accrued liabilities	1,054			—			1,054
Taxes other than income taxes	765			—			765
Deferred revenue from related party	124			—			124
Total current liabilities	7,440			—			7,440
Capital lease obligations, net of current portion	1,519			—			1,519
Deferred income taxes	830			—			830
Other long-term liabilities	1,065			—			1,065
Partners’ capital:
Common unitholders – public	374,954			—			374,954
Common unitholder – Valero	58,844			—			58,844
Subordinated unitholder – Valero	146,804			—			146,804
General partner – Valero	4,617			—			4,617
Net investment	—			295,691			295,691
Total partners’ capital	585,219			295,691			880,910
Total liabilities and partners’ capital	$	596,073		$	295,691		$	891,764

The consolidated results of operations of the Texas Crude Systems Business and the Houston and St. Charles Terminal Services Business after the effective dates of each acquisition are included in “Valero Energy Partners LP” in the table below. The combined results of operations of the Texas Crude Systems Business and the Houston and St. Charles Terminal Services Business prior to the effective dates of each acquisition are included in “Texas Crude Systems Business” and “Houston and St. Charles Terminal Services Business,” respectively. The following table presents our consolidated statement of income for the three months ended March 31, 2015 adjusted for the acquisition of the Houston and St. Charles Terminal Services Business (in thousands):



	Three Months Ended March 31, 2015
	Valero Energy Partners LP			Houston and St. Charles Terminal Services Business			Valero Energy Partners LP (Currently Reported)
Operating revenues – related party	$	41,886		$	—		$	41,886
Costs and expenses:
Operating expenses	10,669			7,195			17,864
General and administrative expenses	3,518			47			3,565
Depreciation expense	5,214			2,274			7,488
Total costs and expenses	19,401			9,516			28,917
Operating income (loss)	22,485			(9,516		)	12,969
Other income, net	111			—			111
Interest and debt expense, net of capitalized interest	(601		)	—			(601		)
Income (loss) before income taxes	21,995			(9,516		)	12,479
Income tax benefit	(126		)	—			(126		)
Net income (loss)	22,121			(9,516		)	12,605
Less: Net loss attributable to Predecessor	—			(9,516		)	(9,516		)
Net income attributable to partners	$	22,121		$	—		$	22,121

The following table presents the previously reported consolidated statement of income for the three months ended March 31, 2014 adjusted for the acquisition of the Texas Crude Systems Business and the Houston and St. Charles Terminal Services Business (in thousands):



	Three Months Ended March 31, 2014
	Valero Energy Partners LP (Previously Reported)			Texas Crude Systems Business		Houston and St. Charles Terminal Services Business			Valero Energy Partners LP (Currently Reported)
Operating revenues – related party	$	21,531		$	7,958	$	—		$	29,489
Costs and expenses:
Operating expenses	5,726			1,902		8,609			16,237
General and administrative expenses	2,595			437		65			3,097
Depreciation expense	3,058			843		2,015			5,916
Total costs and expenses	11,379			3,182		10,689			25,250
Operating income (loss)	10,152			4,776		(10,689		)	4,239
Other income, net	648			18		—			666
Interest and debt expense, net of capitalized interest	(228		)	—		—			(228		)
Income (loss) before income taxes	10,572			4,794		(10,689		)	4,677
Income tax expense	90			67		—			157
Net income (loss)	10,482			4,727		(10,689		)	4,520
Less: Net income (loss) attributable to Predecessor	—			4,727		(10,689		)	(5,962		)
Net income attributable to partners	$	10,482		$	—	$	—		$	10,482

The consolidated cash flows of the Texas Crude Systems Business and the Houston and St. Charles Terminal Services Business after the effective dates of each acquisition are included in “Valero Energy Partners LP.” The combined cash flows of the Texas Crude Systems Business and the Houston and St. Charles Terminal Services Business prior to the effective dates of each acquisition are included in “Texas Crude Systems Business” and “Houston and St. Charles Terminal Services Business,” respectively. The following table presents our consolidated statement of cash flows for the three months ended March 31, 2015 adjusted for the acquisition of the Houston and St. Charles Terminal Services Business (in thousands):



	Three Months Ended March 31, 2015
	Valero Energy Partners LP			Houston and St. Charles Terminal Services Business			Valero Energy Partners LP (Currently Reported)
Cash flows from operating activities:
Net income (loss)	$	22,121		$	(9,516	)	$	12,605
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation expense	5,214			2,274			7,488
Deferred income tax benefit	(249		)	—			(249		)
Changes in current assets and current liabilities	(7,755		)	—			(7,755		)
Changes in deferred charges and credits and other operating activities, net	418			—			418
Net cash provided by (used in) operating activities	19,749			(7,242		)	12,507
Cash flows from investing activities:
Capital expenditures	(1,285		)	(3,693		)	(4,978		)
Acquisition of the Houston and St. Charles Terminal Services Business from Valero Energy Corporation	(296,109		)	—			(296,109		)
Net cash used in investing activities	(297,394		)	(3,693		)	(301,087		)
Cash flows from financing activities:
Proceeds from debt borrowings	200,000			—			200,000
Proceeds from note payable to related party	160,000			—			160,000
Payments of capital lease obligations	(284		)	—			(284		)
Excess purchase price paid to Valero Energy Corporation over the carrying value of the Houston and St. Charles Terminal Services Business	(275,111		)	—			(275,111		)
Cash distributions to unitholders and distribution equivalent right payments	(15,829		)	—			(15,829		)
Net transfers from Valero Energy Corporation	—			10,935			10,935
Net cash provided by financing activities	68,776			10,935			79,711
Net decrease in cash and cash equivalents	(208,869		)	—			(208,869		)
Cash and cash equivalents at beginning of period	236,579			—			236,579
Cash and cash equivalents at end of period	$	27,710		$	—		$	27,710

The following table presents the previously reported consolidated statement of cash flows for the three months ended March 31, 2014 adjusted for the acquisitions of the Texas Crude Systems Business and the Houston and St. Charles Terminal Services Business (in thousands):



	Three Months Ended March 31, 2014
	Valero Energy Partners LP (Previously Reported)			Texas Crude Systems Business			Houston and St. Charles Terminal Services Business			Valero Energy Partners LP (Currently Reported)
Cash flows from operating activities:
Net income (loss)	$	10,482		$	4,727		$	(10,689	)	$	4,520
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation expense	3,058			843			2,015			5,916
Deferred income tax expense	8			36			—			44
Changes in current assets and current liabilities	2,771			—			—			2,771
Changes in deferred charges and credits and other operating activities, net	3			(76		)	—			(73		)
Net cash provided by (used in) operating activities	16,322			5,530			(8,674		)	13,178
Cash flows from investing activities:
Capital expenditures	(864		)	(257		)	(21,355		)	(22,476		)
Net cash used in investing activities	(864		)	(257		)	(21,355		)	(22,476		)
Cash flows from financing activities:
Payments of capital lease obligations	(249		)	—			—			(249		)
Offering costs	(3,223		)	—			—			(3,223		)
Debt issuance costs	(1,071		)	—			—			(1,071		)
Cash distributions to unitholders and distribution equivalent right payments	(2,174		)	—			—			(2,174		)
Net transfers from (to) Valero	—			(5,273		)	30,029			24,756
Net cash provided by (used in) financing activities	(6,717		)	(5,273		)	30,029			18,039
Net increase in cash and cash equivalents	8,741			—			—			8,741
Cash and cash equivalents at beginning of period	375,118			—			—			375,118
Cash and cash equivalents at end of period	$	383,859		$	—		$	—		$	383,859