Delaware | 1-36232 | 90-1006559 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
One Valero Way San Antonio, Texas | 78249 | |
(Address of principal executive offices) | (Zip Code) |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
(d) | Exhibits. |
VALERO ENERGY PARTNERS LP | |||
By: | Valero Energy Partners GP LLC | ||
its general partner | |||
Date: | February 2, 2018 | By: | /s/ Donna M. Titzman |
Donna M. Titzman | |||
Senior Vice President, Chief Financial Officer, | |||
and Treasurer | |||
• | Reported net income attributable to partners of $64 million for the fourth quarter and $238 million for the year. |
• | Reported EBITDA attributable to the Partnership of $91 million for the quarter and $328 million for the year. |
• | Reported net cash provided by operating activities of $69 million for the quarter and $289 million for the year. |
• | Reported distributable cash flow of $72 million for the quarter and $284 million for the year. |
• | Successfully integrated the previously announced acquisitions of the Port Arthur terminal assets and Parkway Pipeline LLC. |
• | Delivered annual distribution growth of 25 percent in 2017. |
Three Months Ended December 31, | Year Ended December 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 |
Three Months Ended December 31, | Year Ended December 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 |
Three Months Ended December 31, | Year Ended December 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 |
Three Months Ended December 31, | Year Ended December 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 |
(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. |
• | 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. |
(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. |
(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. |
• | 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. |