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EQT Midstream Partners Reports Fourth Quarter 2012 Results

SUNRISE PIPELINE

On June 18, 2012, Equitrans transferred ownership of Sunrise, an approximately 40 mile Federal Energy Regulatory Commission (FERC) regulated transmission pipeline, to EQT Corporation. At the time of the transfer, the Partnership entered into a capital lease with EQT Corporation for the lease of the pipeline. Under the lease, the Partnership operates the pipeline as part of its transmission and storage system under the rates, terms and conditions of its FERC-approved tariff. Sunrise was placed into service during the third quarter of 2012. Revenues and expenses associated with Sunrise are included in the Partnership’s financial statements. The lease payment, which totaled $6.0 million in the fourth quarter, is not expected to have a net positive or negative impact on distributable cash flow. The revenues and expenses associated with Sunrise are set forth in the Reconciliation table in the Non-GAAP Disclosures section of this press release.

NON-GAAP DISCLOSURES

Adjusted EBITDA and Distributable Cash Flow

As used in this press release, adjusted EBITDA means net income (loss) plus net interest expense, income tax expense, depreciation and amortization expense, non-cash long-term compensation expense, and other non-cash adjustments, less other income and the Sunrise lease payment. As used in this press release, distributable cash flow means adjusted EBITDA less net cash paid for interest expense, maintenance capital expenditures, and income taxes. Adjusted EBITDA and distributable cash flow are non-GAAP supplemental financial measures that management and external users of the Partnership’s financial statements, such as industry analysts, investors, lenders, and rating agencies, use to assess:

  • the Partnership’s operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of adjusted EBITDA, financing methods;
  • the ability of the Partnership’s assets to generate sufficient cash flow to make distributions to the Partnership’s unitholders;
  • the Partnership’s ability to incur and service debt and fund capital expenditures; and
  • the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

The Partnership believes that adjusted EBITDA and distributable cash flow provide useful information to investors in assessing the Partnership’s financial condition and results of operations. Adjusted EBITDA and distributable cash flow should not be considered alternatives to net income, operating income, cash flows from operating activities, or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA and distributable cash flow have important limitations as analytical tools because they exclude some, but not all, items that affect net income and net cash provided by operating activities. Additionally, because adjusted EBITDA and distributable cash flow may be defined differently by other companies in the industry, the Partnership’s definition of adjusted EBITDA and distributable cash flow may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. The table below reconciles adjusted EBITDA and distributable cash flow with net income and net cash provided by operating activities as derived from the statements of consolidated operations and the statements of consolidated cash flows, to be included in the Partnership’s annual report on Form 10-K for the year ended December 31, 2012.

Reconciliation of Adjusted EBITDA and Distributable Cash Flow

 
Q4 2012
(in thousands $)
Operating revenues:
Transmission and storage $ 37,681
Gathering 4,109
Total operating revenues 41,790
Operating expenses:
Operating and maintenance 8,110
Selling, general and administrative 2,481
Depreciation and amortization 7,196
Total operating expenses 17,787
Operating income 24,003
Other income 458
Interest expense (4,301)
Net income $ 20,160
Add:
Depreciation and amortization 7,196
Interest expense 4,301
Non-cash long-term compensation expense 132
Non-cash reserve adjustment (2,508)
Less:
Other income (458)
Sunrise lease payment (6,004)
Adjusted EBITDA $ 22,819
Less:
Cash interest, net (224)
Ongoing maintenance capital expenditures (4,416)
Reimbursable maintenance capital expenditures (5,765)
Add:
Reimbursement of reimbursable maintenance capital expenditures 2,382
Distributable cash flow $ 14,796
 
Distributions declared (a) $ 12,386
 
Coverage ratio

1.19x

 

(a) Reflects quarterly cash distribution of $0.35 per unit for the fourth quarter of 2012

                      Q4 2012
(in thousands $)
 
Net cash provided by operating activities $ 25,721
Add:
Interest expense, net

4,301

Sunrise pipeline lease payment

(6,004)

Other, including changes in working capital

(1,199)

Adjusted EBITDA $ 22,819

Adjusted Operating Revenues, Adjusted Operating Expenses, Adjusted Operating Income and Adjusted Income Before Income Taxes

Adjusted operating revenues, adjusted operating expenses, adjusted operating income and adjusted income before income taxes, all of which exclude the impact associated with Sunrise, are non-GAAP supplemental financial measures that are presented because they are important measures used by management to evaluate the Partnership’s performance. Sunrise is not expected to have a net positive or negative impact on the Partnership’s distributable cash flow. Adjusted operating revenues, adjusted operating expenses, adjusted operating income and adjusted income before income taxes should not be considered in isolation or as a substitute for operating revenues, operating expenses, operating income or income before income taxes. The table below reconciles adjusted operating revenues, adjusted operating expenses, adjusted operating income and adjusted income before income taxes with operating revenues, operating expenses, operating income and income before income taxes as derived from the statements of consolidated operations to be included in the Partnership’s annual report on Form 10-K for the year ended December 31, 2012.

     

 

Three Months Ending December 31,
2012   2011

(in thousands $)

Reported Results

 

Adjustment to exclude Sunrise

 

Adjusted Results (excludes Sunrise)

Reported Results

REVENUES:
Operating revenues – affiliate $ 32,095 $ (5,688) $ 26,407 $ 23,909
Operating revenues – third party 9,695 (1,509) 8,186 6,479
Total operating revenues $ 41,790 $ (7,197) $ 34,593 $ 30,388
 
OPERATING EXPENSES:
Operating and maintenance $ 8,110 $ (598) $ 7,512 $ 6,734
Selling, general and administrative 2,481 (595) 1,886 3,934
Depreciation and amortization 7,196 (3,643) 3,553 2,935
Total operating expenses $ 17,787 $ (4,836) $ 12,951 $ 13,603
Operating income 24,003 (2,361) 21,642 16,785
Plus: Other income, net 458 - 458 1,670
Less: Interest expense, net 4,301 (4,080) 221 700
Income before income taxes $ 20,160 $ 1,719 $ 21,879 $ 17,755
 




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