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Holly Energy Partners, L.P. Reports Second Quarter Results

Stocks in this article: HEP

RESULTS OF OPERATIONS (Unaudited)

Income, Distributable Cash Flow and Volumes The following tables present income, distributable cash flow and volume information for the three and six months ended June 30, 2012 and 2011.

     
Three Months Ended June 30,

Change from

2012     2011 2011
(In thousands, except per unit data)
Revenues
Pipelines:
Affiliates – refined product pipelines $ 13,271 $ 11,689 $ 1,582
Affiliates – intermediate pipelines 6,712 5,069 1,643
Affiliates – crude pipelines 10,993   9,624   1,369  
30,976 26,382 4,594
Third parties – refined product pipelines 7,452   11,906   (4,454 )
38,428 38,288 140
Terminals, tanks and loading racks:
Affiliates 23,248 10,757 12,491
Third parties 2,016   1,895   121  
25,264   12,652   12,612  
Total revenues 63,692 50,940 12,752
Operating costs and expenses:
Operations 17,923 14,366 3,557
Depreciation and amortization 9,132 7,713 1,419
General and administrative 2,487   1,573   914  
29,542   23,652   5,890  
Operating income 34,150 27,288 6,862
 
Equity in earnings of SLC Pipeline 794 467 327
Interest expense, including amortization (11,324 ) (8,724 ) (2,600 )
Loss on early extinguishment of debt (383 )   (383 )
(10,913 ) (8,257 ) (2,656 )
Income before income taxes 23,237 19,031 4,206
State income tax expense (75 ) (18 ) (57 )
Net income 23,162 19,013 4,149
Less general partner interest in net income, including incentive distributions (1) 5,917   3,847   2,070  
Limited partners’ interest in net income $ 17,245   $ 15,166   $ 2,079  
Limited partners’ earnings per unit – basic and diluted: (1) $ 0.63   $ 0.69   $ (0.06 )
Weighted average limited partners’ units outstanding 27,361   22,079   5,282  
EBITDA (2) $ 44,076   $ 35,468   $ 8,608  
Distributable cash flow (3) $ 34,520   $ 21,421   $ 13,099  
 
Volumes (bpd)
Pipelines:
Affiliates – refined product pipelines 101,886 90,984 10,902
Affiliates – intermediate pipelines 137,115 84,201 52,914
Affiliates – crude pipelines 168,047   160,648   7,399
407,048 335,833 71,215
Third parties – refined product pipelines 56,297   51,627   4,670
463,345 387,460 75,885
Terminals and loading racks:
Affiliates 267,988 182,394 85,594
Third parties 48,825   42,694   6,131
316,813   225,088   91,725
Total for pipelines and terminal assets (bpd) 780,158   612,548   167,610
       
Six Months Ended June 30,

Change from

2012     2011 2011
(In thousands, except per unit data)
Revenues
Pipelines:
Affiliates – refined product pipelines $ 25,628 $ 21,547 $ 4,081
Affiliates – intermediate pipelines 13,757 9,702 4,055
Affiliates – crude pipelines 21,538   18,945   2,593  
60,923 50,194 10,729
Third parties – refined product pipelines 15,780   21,061   (5,281 )
76,703 71,255 5,448
Terminals, tanks and loading racks:
Affiliates 46,094 21,052 25,042
Third parties 4,410   3,650   760  
50,504   24,702   25,802  
Total revenues 127,207 95,957 31,250
Operating costs and expenses:
Operations 34,911 27,162 7,749
Depreciation and amortization 19,396 15,353 4,043
General and administrative 4,526   2,936   1,590  
58,833   45,451   13,382  
Operating income 68,374 50,506 17,868
 
Equity in earnings of SLC Pipeline 1,625 1,207 418
Interest expense, including amortization (21,729 ) (17,273 ) (4,456 )
Loss on early extinguishment of debt (2,979 ) (2,979 )
Other expense   (12 ) 12  
(23,083 ) (16,078 ) (7,005 )
Income before income taxes 45,291 34,428 10,863
State income tax expense (150 ) (246 ) 96  
Net income 45,141 34,182 10,959
Less general partner interest in net income, including incentive distributions (1) 11,425   7,409   4,016  
Limited partners’ interest in net income $ 33,716   $ 26,773   $ 6,943  
Limited partners’ earnings per unit – basic and diluted: (1) $ 1.23   $ 1.21   $ 0.02  
Weighted average limited partners’ units outstanding 27,361   22,079   5,282  
EBITDA (2) $ 89,395   $ 67,054   $ 22,341  
Distributable cash flow (3) $ 71,075   $ 42,193   $ 28,882  
Volumes (bpd)
Pipelines:
Affiliates – refined product pipelines 99,556 84,139 15,417
Affiliates – intermediate pipelines 130,341 76,452 53,889
Affiliates – crude pipelines 160,855   148,520   12,335
390,752 309,111 81,641
Third parties – refined product pipelines 60,292   50,086   10,206
451,044 359,197 91,847
Terminals and loading racks:
Affiliates 265,109 170,230 94,879
Third parties 50,604   41,532   9,072
315,713   211,762   103,951
Total for pipelines and terminal assets (bpd) 766,757   570,959   195,798
 
(1) Net income is allocated between limited partners and the general partner interest in accordance with the provisions of the partnership agreement. Net income allocated to the general partner includes incentive distributions declared subsequent to quarter end. General partner incentive distributions were $5.6 million and $3.5 million for the three months ended June 30, 2012 and 2011, respectively, and $10.7 million and $6.9 million for the six months ended June 30, 2012 and 2011, respectively. Net income attributable to the limited partners is divided by the weighted average limited partner units outstanding in computing the limited partners’ per unit interest in net income.
 
(2) Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income plus (i) interest expense, net of interest income, (ii) state income tax and (iii) depreciation and amortization. EBITDA is not a calculation based upon GAAP. However, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements. EBITDA should not be considered as an alternative to net income or operating income, as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure performance. EBITDA also is used by our management for internal analysis and as a basis for compliance with financial covenants.
 

Set forth below is our calculation of EBITDA.

       

Three Months Ended

June 30,

Six Months Ended

June 30,

2012     2011 2012     2011
(In thousands)
Net income $ 23,162 $ 19,013 $ 45,141 $ 34,182
Add (subtract):
Interest expense 9,547 8,419 18,307 16,678
Amortization of discount and deferred debt charges 1,777 305 3,422 595
Loss on early extinguishment of debt 383 2,979
State income tax 75 18 150 246
Depreciation and amortization 9,132   7,713   19,396   15,353
EBITDA $ 44,076   $ 35,468   $ 89,395   $ 67,054
 
 
 

(3)

Distributable cash flow is not a calculation based upon GAAP. However, the amounts included in the calculation are derived from amounts separately presented in our consolidated financial statements, with the exception of billed crude revenue settlement and maintenance capital expenditures. Distributable cash flow should not be considered in isolation or as an alternative to net income or operating income, as an indication of our operating performance, or as an alternative to operating cash flow as a measure of liquidity. Distributable cash flow is not necessarily comparable to similarly titled measures of other companies. Distributable cash flow is presented here because it is a widely accepted financial indicator used by investors to compare partnership performance. It also is used by management for internal analysis and our performance units. We believe that this measure provides investors an enhanced perspective of the operating performance of our assets and the cash our business is generating.
 

Set forth below is our calculation of distributable cash flow.

       

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

2012     2011 2012     2011
(In thousands)
Net income $ 23,162 $ 19,013 $ 45,141 $ 34,182
Add (subtract):
Depreciation and amortization 9,132 7,713 19,396 15,353
Amortization of discount and deferred debt issuance costs 1,777 305 3,422 595
Loss on early extinguishment of debt 383 2,979
Billed crude revenue settlement 917 1,835
Increase (decrease) in deferred revenue 163 (4,014 ) (429 ) (5,118 )
Maintenance capital expenditures* (1,292 ) (1,904 ) (1,599 ) (3,133 )
Other non-cash adjustments 278   308   330   314  
Distributable cash flow $ 34,520   $ 21,421   $ 71,075   $ 42,193  
 

* Maintenance capital expenditures are capital expenditures made to replace partially or fully depreciated assets in order to maintain the existing operating capacity of our assets and to extend their useful lives. Maintenance capital expenditures include expenditures required to maintain equipment reliability, tankage and pipeline integrity, and safety and to address environmental regulations.

          June 30,     December 31,
2012 2011
(In thousands)
Balance Sheet Data
Cash and cash equivalents $ 4,216 $ 3,269
Working capital $ 10,351 $ 12,293
Total assets $ 959,698 $ 966,956
Long-term debt $ 613,195 $ 605,888
Total equity (4) $ 312,864 $ 329,377
 

(4)

As a master limited partnership, we distribute our available cash, which historically has exceeded our net income because depreciation and amortization expense represents a non-cash charge against income. The result is a decline in partners’ equity since our regular quarterly distributions have exceeded our quarterly net income. Additionally, if the assets contributed and acquired from HollyFrontier while we were a consolidated variable interest entity of HollyFrontier had been acquired from third parties, our acquisition cost in excess of HollyFrontier’s basis in the transferred assets of $295.6 million (as of June 30, 2012) would have been recorded as increases to our properties and equipment and intangible assets instead of decreases to partners’ equity.
 




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