ENID, Okla., Aug. 6 /PRNewswire-FirstCall/ -- The Hiland companies,
Hiland Partners, LP (NASDAQ:HLND) (the "Partnership") and Hiland
Holdings GP, LP (NASDAQ:HPGP) today announced results for the
second quarter of 2009. Hiland Partners, LP Financial Results
Hiland Partners, LP reported net income (loss) for the three months
ended June 30, 2009 of $(0.9) million compared to net income (loss)
of $(2.5) million for the three months ended June 30, 2008. Net
income (loss) per limited partners' unit-basic for the second
quarter of 2009 was $(0.10) per unit compared to net income (loss)
of $(0.49) per unit in the corresponding quarter in 2008. Weighted
average limited partner units outstanding were 9.4 million units
for the three months ended June 30, 2009 and 9.3 million units for
the three months ended June 30, 2008. Adjusted EBITDA (adjusted
EBITDA is defined as net income (loss) plus interest expense,
provisions for income taxes, and depreciation, amortization and
accretion expense, and adjusted for significant non-cash and
non-recurring items) for the three months ended June 30, 2009 was
$17.1 million compared to $20.0 million for the three months ended
June 30, 2008, a decrease of 14%. A reconciliation of adjusted
EBITDA, a non-GAAP financial measure, to net income (loss), the
most directly comparable GAAP financial measure, is provided within
the financial tables of this press release. Total segment margin
for the three months ended June 30, 2009 was $23.1 million compared
to $27.4 million for the three months ended June 30, 2008, a
decrease of 16%. A reconciliation of total segment margin, a
non-GAAP financial measure, to operating income (loss), the most
directly comparable GAAP financial measure, is provided within the
financial tables of this press release. The decreases in adjusted
EBITDA and total segment margin are primarily due to unfavorable
gross processing spreads and significantly lower average realized
natural gas and NGL prices despite an overall increase in volumes.
The decrease in adjusted EBITDA was also partially offset by $3.2
million of net proceeds from the early settlement of derivative
assets. The decrease in total segment margin was also partially
offset by gains on closed/settled derivative transactions and
unrealized non-cash gains on open derivative transactions for the
three months ended June 30, 2009 totaling $2.8 million compared to
net losses of $3.1 million on closed/settled derivative
transactions and unrealized non-cash losses on open derivative
transactions for the three months ended June 30, 2008. Hiland
Partners, LP reported net income (loss) for the six months ended
June 30, 2009 of $(3.9) million compared to net income (loss) of
$(1.2) million for the six months ended June 30, 2008. Net income
(loss) per limited partners' unit-basic for the six months ended
June 30, 2009 was $(0.40) per unit compared to net income (loss) of
$(0.54) per unit for the six months ended June 30, 2008. Weighted
average limited partner units outstanding were 9.3 million units
for the six months ended June 30, 2009 and June 30, 2008. Adjusted
EBITDA for the six months ended June 30, 2009 was $27.9 million
compared to $34.6 million for the six months ended June 30, 2008, a
decrease of 19%. Total segment margin for the six months ended June
30, 2009 was $44.2 million compared to $50.2 million for the six
months ended June 30, 2008, a decrease of 12%. The decreases in
adjusted EBITDA and total segment margin are primarily due to
unfavorable gross processing spreads and significantly lower
average realized natural gas and NGL prices despite an overall
increase in volumes and approximately $2.3 million of foregone
margin as a result of the nitrogen rejection plant at the Badlands
gathering system being taken out of service due to equipment
failure during the three months ended March 31, 2008. The decrease
in adjusted EBITDA was also partially offset by $3.2 million of net
proceeds from the early settlement of derivative assets. The
decrease in total segment margin was also partially offset by gains
on closed/settled derivative transactions and unrealized non-cash
gains on open derivative transactions for the six months ended June
30, 2009 totaling $4.9 million compared to net losses of $5.5
million on closed/settled derivative transactions and unrealized
non-cash losses on open derivative transactions for the six months
ended June 30, 2008. The Partnership reported distributable cash
flow ("DCF") of $11.6 million for the three months ended June 30,
2009, compared to $6.1 million for the three months ended June 30,
2008, an increase of 90%. The increase is primarily attributable to
$8.1 million of bad debt expense during the three months ended June
30, 2008 offset by $3.2 million of proceeds from settlement of
derivative assets during the three months ended June 30, 2009. A
reconciliation of DCF, a non-GAAP financial measure, to net income,
the most directly comparable GAAP financial measure, is provided
within the financial tables of this press release. Hiland Partners,
LP has suspended quarterly cash distributions on common and
subordinated units beginning with the first quarter distribution of
2009 due to the impact of lower commodity prices and reduced
drilling activity on its current and projected throughput volumes,
midstream segment margins and cash flows combined with future
required levels of capital expenditures and the outstanding
indebtedness under Hiland Partners, LP's senior secured revolving
credit facility (the "credit facility"). Under the terms of Hiland
Partners, LP's partnership agreement, the common units carry an
arrearage of $0.90 per unit, representing the minimum quarterly
distribution to common units for the first two quarters of 2009
that must be paid before the Partnership can make distributions to
the subordinated units. Due to lower natural gas and NGL prices and
the impact of reduced drilling activity on Hiland Partners, LP's
current and projected throughput volumes, the Partnership believes
that cash generated from operations will decrease for the remainder
of 2009 relative to comparable periods in 2008. Hiland Partners'
credit facility requires the Partnership to meet certain financial
tests, including a maximum consolidated funded debt to EBITDA
covenant ratio. If commodity prices do not significantly improve
above the current forward prices for 2009, the Partnership could be
in violation of the consolidated funded debt to EBITDA covenant
ratio as early as September 30, 2009, unless this ratio is amended,
the Partnership receives an infusion of equity capital, the
Partnership's debt is restructured or the Partnership is able to
monetize "in-the-money" hedge positions. Management is continuing
extensive discussions with certain lenders under the credit
facility as to ways to address a potential covenant violation.
While no potential solution has been agreed to, the Partnership
expects that any solution will require the assessment of fees and
increased rates, the infusion of additional equity capital or the
incurrence of subordinated indebtedness by the Partnership and the
suspension of distributions for a certain period of time. There can
be no assurance that any such agreement will be reached with the
lenders, that any required equity or debt financing will be
available to the Partnership, or that the Partnership's hedge
positions will be "in-the-money." As of June 30, 2009, Hiland
Partners had $261.1 million outstanding under the credit facility
and was in compliance with its financial covenants. Also at June
30, 2009, Hiland Partners EBITDA to interest expense ratio was 4.95
to 1.0 and the Partnership's consolidated funded debt to EBITDA
ratio was 4.40 to 1.0. The maximum consolidated funded debt to
EBITDA covenant ratio under the credit facility is 4.0:1.0 as of
the last day of any fiscal quarter; provided that in the event that
the Partnership makes certain permitted acquisitions or capital
expenditures, this ratio may be increased to 4.75:1.0 for the three
fiscal quarters following the quarter in which such permitted
acquisition or capital expenditure occurs. The Partnership met the
permitted capital expenditure requirements for the four quarter
period ended March 31, 2009 and elected to increase the ratio to
4.75:1.0 on March 31, 2009 for the quarters ended March 31, 2009,
June 30, 2009 and September 30, 2009. The maximum consolidated
funded debt to EBITDA covenant ratio will revert back to 4.0:1.0
for the quarter ended December 31, 2009. Hiland Holdings GP, LP
Financial Results Hiland Holdings GP, LP reported limited partners'
interest in net income (loss) for the three months ended June 30,
2009 of $(2.5) million or $(0.12) per limited partners' unit-basic
compared to limited partners' interest in net income (loss) of
$(1.1) million or $(0.05) per limited partners' unit-basic for the
three months ended June 30, 2008. Weighted average limited partner
units outstanding were 21.6 million for the three months ended June
30, 2009 and June 30, 2008. Net income (loss) was $(2.9) million in
the three months ended June 30, 2009 compared to net income (loss)
of $(3.3) million in the three months ended June 30, 2008. For the
six months ended June 30, 2009, Hiland Holdings GP, LP reported
limited partners' interest in net income (loss) of $(5.4) million
or $(0.25) per limited partners' unit-basic compared to limited
partners' interest in net income (loss) of $(0.3) million or
$(0.01) per limited partners' unit-basic for the six months ended
June 30, 2008. Weighted average limited partner units outstanding
were 21.6 million for the six months ended June 30, 2009 and June
30, 2008. Net income (loss) was $(7.0) million in the six months
ended June 30, 2009 compared to net income (loss) of $(2.7) million
in the six months ended June 30, 2008. Hiland Holdings GP, LP has
suspended quarterly cash distributions on its common units
beginning with the first quarter of 2009 resulting from the
quarterly distribution suspension announced by Hiland Partners, LP.
Hiland Holdings' sole cash generating assets are its two percent
general partner interest, 2,321,471 common units and 3,060,000
subordinated units in Hiland Partners, LP, and the incentive
distribution rights in Hiland Partners, LP. As mentioned above,
under the terms of the Hiland Partners, LP partnership agreement,
the Hiland Partners, LP common units carry an arrearage of $0.90
per unit, representing the minimum quarterly distribution to the
Hiland Partners, LP common units for the first two quarters of 2009
that must be paid before Hiland Partners, LP can make distributions
to the Hiland Partners, LP subordinated units. Hiland Holdings GP,
LP owns 3,060,000 of the Hiland Partners, LP subordinated units
which will not receive a cash distribution until the distribution
arrearage to the Hiland Partners, LP common units is paid. A number
of the areas in which Hiland Partners, LP operates have experienced
a significant decline in drilling activity as a result of the
recent decline in natural gas and crude oil prices. Along the
Partnership's systems, excluding its North Dakota Bakken gathering
system, which commenced operations in late April 2009, the
Partnership connected 23 wells during the first six months of 2009
as compared to 55 wells connected during the same period in 2008.
Currently, there is one rig drilling along Hiland Partners, LP's
dedicated acreage company wide. While the Partnership anticipates
continued exploration and production activities in the areas in
which it operates, albeit at depressed levels, fluctuations in
energy prices can greatly affect production rates and investments
by third parties in the development of natural gas and oil
reserves. Drilling activity generally decreases as natural gas and
oil prices decrease. The Partnership has no control over the level
of drilling activity in the areas of its operations. "During the
second quarter of 2009 natural gas and natural gas liquids prices
remained depressed compared to 2008 levels," said Joseph L.
Griffin, Hiland's President and Chief Executive Officer. "Although
forward natural gas prices for late 2009 are higher than current
prices, we are noticing negative volume trends, particularly on all
of our Mid-Continent systems, as severely depressed natural gas
prices are contributing to a dramatic slowdown in natural gas well
drilling activity along those gathering systems," added Griffin.
Mergers Update On June 1, 2009, Hiland Partners, LP and Hiland
Holdings GP, LP (together the "Hiland Companies") signed separate
definitive merger agreements with an affiliate of Harold Hamm,
pursuant to which affiliates of Mr. Hamm have agreed to acquire for
cash (i) all of the outstanding common units of Hiland Partners, LP
(other than certain restricted common units owned by officers and
employees) not owned by the Hiland Holdings GP, LP (the "Hiland
Partners Merger"); and (ii) all of the outstanding common units of
the Hiland Holdings GP, LP (other than certain restricted common
units owned by officers and employees) not owned by Mr. Hamm, his
affiliates or the Hamm family trusts (the "Hiland Holdings
Merger"). Upon consummation of the mergers, the common units of the
Hiland Companies will no longer be publicly owned or publicly
traded. In the mergers, the Hiland Partners, LP's unitholders will
receive $7.75 in cash for each common unit they hold and the Hiland
Holdings GP, LP's unitholders will receive $2.40 in cash for each
common unit they hold. Conflicts committees comprised entirely of
independent members of the boards of directors of the general
partners of the Hiland Partners, LP and Hiland Holdings GP, LP
separately determined that the mergers are advisable, fair to and
in the best interests of the applicable Hiland Company and its
public unitholders. In determining to make their recommendation to
the boards of directors, each conflicts committee considered, among
other things, the fairness opinion received from its respective
financial advisor. Based on the recommendation of its conflicts
committee, the board of directors of the general partner of each of
the Hiland Partners, LP and Hiland Holdings GP, LP has approved the
applicable merger agreement and has recommended, along with its
respective conflicts committee, that the public unitholders of
Hiland Partners, LP and Hiland Holdings GP, LP, respectively,
approve the applicable merger. Consummation of the transactions is
subject to customary closing conditions, including the approval by
a majority of the public common units of the applicable company.
Each merger is conditioned on the simultaneous consummation of the
other merger, which may be waived by Mr. Hamm's affiliates in
certain circumstances. There can be no assurance that the mergers
will be approved or consummated. On July 1, 2009, Hiland Partners,
LP and Hiland Holdings GP, LP jointly filed a Preliminary Proxy
Statement on Schedule 14A pursuant to the definitive version of
which the Boards of Directors of the general partner of each of the
Hiland Partners, LP and Hiland Holdings GP, LP will be soliciting
proxies from unitholders of Hiland Partners, LP and Hiland Holdings
GP, LP in connection with the mergers of both Hiland Companies. On
July 10, 2009, the United States Federal Trade Commission granted
early termination of the waiting period under the Hart-Scott-Rodino
Act with respect to the Hiland Partners Merger. Conference Call
Information Hiland has scheduled a conference call for 10:00 am
Central Time, Friday, August 7, 2009, to discuss the 2009 second
quarter results. To participate in the call, dial 1.888.396.2298
and participant passcode 92002423, or access it live over the
Internet at http://www.hilandpartners.com/, on the "Investor
Relations" section of the Partnership's website. During this
conference call, Hiland management will only address the second
quarter 2009 results and will not address the Hiland Partners and
Hiland Holdings mergers. Use of Non-GAAP Financial Measures This
press release and the accompanying schedules include the
non-generally accepted accounting principles ("non-GAAP") financial
measures of EBITDA, adjusted EBITDA, total segment margin and
distributable cash flow. The accompanying schedules provide
reconciliations of these non-GAAP financial measures to their most
directly comparable financial measure calculated and presented in
accordance with accounting principles generally accepted in the
United States of America ("GAAP"). Our non-GAAP financial measures
should not be considered as alternatives to GAAP measures such as
net income, operating income or any other GAAP measure of liquidity
or financial performance. About the Hiland Companies Hiland
Partners, LP is a publicly traded midstream energy partnership
engaged in purchasing, gathering, compressing, dehydrating,
treating, processing and marketing of natural gas, and
fractionating, or separating, and marketing of natural gas liquids,
or NGLs. The Partnership also provides air compression and water
injection services for use in oil and gas secondary recovery
operations. The Partnership's operations are primarily located in
the Mid-Continent and Rocky Mountain regions of the United States.
Hiland Partners, LP's midstream assets consist of fifteen natural
gas gathering systems with approximately 2,147 miles of gathering
pipelines, six natural gas processing plants, seven natural gas
treating facilities and three NGL fractionation facilities. The
Partnership's compression assets consist of two air compression
facilities and a water injection plant. Hiland Holdings GP, LP owns
the two percent general partner interest, 2,321,471 common units
and 3,060,000 subordinated units in Hiland Partners, LP, and the
incentive distribution rights of Hiland Partners, LP.
Forward-Looking Statements This press release includes certain
statements concerning expectations for the future that are
forward-looking statements. Such forward-looking statements are
subject to a variety of known and unknown risks, uncertainties, and
other factors that are difficult to predict and many of which are
beyond management's control. An extensive list of factors that can
affect future results are discussed in the Partnership's Annual
Report on Form 10-K and other documents filed from time to time
with the Securities and Exchange Commission. Any such forward
looking statements are made as of the date of this press release
and the Partnership undertakes no obligation to update or revise
any such forward-looking statements to reflect new information or
events. Important Additional Information Regarding the Mergers will
be Filed with the SEC: In connection with the proposed mergers, the
Hiland companies have filed a preliminary joint proxy statement and
each of Hiland Partners and Hiland Holdings will file other
documents with the SEC. INVESTORS AND SECURITY HOLDERS ARE ADVISED
TO READ THE DEFINITIVE JOINT PROXY STATEMENT WHEN IT BECOMES
AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE
HILAND COMPANIES AND THE MERGERS. Investors and security holders
may obtain copies of the definitive joint proxy statement and other
documents that Hiland Partners or Hiland Holdings file with the SEC
(when they are available) free of charge at the SEC's web site at
http://www.sec.gov/. The definitive joint proxy statement and other
relevant documents may also be obtained (when available) free of
charge on the Hiland companies' web site at
http://www.hilandpartners.com/ or by directing a request to either
(i) Hiland Partners, LP, 205 West Maple, Suite 1100, Enid, Oklahoma
73701, Attention: Investor Relations (for documents filed by Hiland
Partners, LP), or (ii) Hiland Holdings GP, LP, 205 West Maple,
Suite 1100, Enid, Oklahoma 73701, Attention: Investor Relations
(for documents filed by Hiland Holdings GP, LP). Hiland Partners
and its directors, executive officers and other members of its
management and employees (including Mr. Hamm) may be deemed
participants in the solicitation of proxies from the unitholders of
Hiland Partners and Hiland Holdings and its directors, executive
officers and other members of its management and employees
(including Mr. Hamm) may be deemed participants in the solicitation
of proxies from the unitholders of Hiland Holdings in connection
with the proposed transactions. Information regarding the special
interests of persons who may be deemed to be such participants in
the proposed transactions will be included in the joint proxy
statement described above. Additional information regarding the
directors and executive officers of Hiland Partners and Hiland
Holdings is also included in each Hiland company's Annual Report on
Form 10-K for the year ended December 31, 2008, which were filed
with the SEC on March 9, 2009, and subsequent statements of changes
in beneficial ownership on file with the SEC. These documents are
available free of charge at the SEC's web site at
http://www.sec.gov/ and from Investor Relations at Hiland Partners
or Hiland Holdings, as applicable, as described above. -- tables to
follow -- Other Financial and Operating Data Hiland Partners, LP -
Results of Operations Set forth in the table below is financial and
operating data for Hiland Partners, LP. Three Months Six Months
Ended June 30, Ended June 30, -------------- -------------- 2009
2008 2009 2008 ---- ---- ---- ---- (unaudited, in (unaudited, in
thousands) thousands) Total Segment Margin Data: Midstream revenues
$48,874 $114,236 $100,017 $204,510 Midstream purchases 26,999
88,073 58,215 156,691 ------ ------ ------ ------- Midstream
segment margin 21,875 26,163 41,802 47,819 Compression revenues (A)
1,205 1,205 2,410 2,410 ------- ------- ------- ------- Total
segment margin $23,080 $27,368 $44,212 $50,229 ======= =======
======= ======= Summary of Operations Data: Midstream revenues
$48,874 $114,236 $100,017 $204,510 Compression revenues 1,205 1,205
2,410 2,410 ------ ------- ------- ------- Total revenues 50,079
115,441 102,427 206,920 Midstream purchases (exclusive of items
shown separately below) 26,999 88,073 58,215 156,691 Operations and
maintenance 7,785 7,551 15,480 14,320 Depreciation, amortization
and accretion 10,538 9,169 20,509 18,098 Property impairments - -
950 - Bad debt - 8,103 - 8,103 General and administrative 2,939
1,863 5,879 4,164 ----- ----- ----- ----- Total operating costs and
expenses 48,261 114,759 101,033 201,376 ------ ------- -------
------- Operating income 1,818 682 1,394 5,544 Other income
(expense) (2,766) (3,190) (5,255) (6,725) ------- ------- -------
------- Net loss $(948) $(2,508) $(3,861) $(1,181) ====== ========
======== ======== Maintenance Capital expenditures $1,472 $2,416
$2,858 $2,944 Expansion Capital expenditures 5,702 7,822 16,331
15,424 ------ ------- ------- ------- Total Capital expenditures
$7,174 $10,238 $19,189 $18,368 ====== ======= ======= =======
Operating Data: Inlet natural gas (Mcf/d) 272,666 246,339 274,521
236,885 Natural gas sales (MMBtu/d) 87,273 86,203 89,579 86,174 NGL
sales (Bbls/d) 7,260 5,979 7,155 5,626 Average realized natural gas
sales price ($/MMBtu) $3.02 $9.29 $3.36 $8.29 Average realized NGL
sales price ($/gallon) $0.66 $1.64 $0.62 $1.53 June 30, December
31, 2009 2008 ---- ---- (in thousands) (unaudited) Balance Sheet
Data (at period end): Property and equipment, at cost, net $346,393
$345,855 Total assets $414,475 $426,139 Long-term debt, net of
current maturities $265,117 $256,466 Total partners' equity
$122,674 $133,156 (A) Compression revenues and compression segment
margin are the same. There are no compression purchases associated
with the compression segment. Reconciliation of total segment
margin to operating income: Three Months Ended Six Months Ended
June 30, June 30, ------------ ---------- 2009 2008 2009 2008 ----
---- ---- ---- (unaudited, in (unaudited, in thousands) thousands)
Reconciliation of Total Segment Margin to Operating Income
Operating income $1,818 $682 $1,394 $5,544 Add: Operations and
maintenance expenses 7,785 7,551 15,480 14,320 Depreciation,
amortization and accretion 10,538 9,169 20,509 18,098 Property
impairments - - 950 - Bad debt expense - 8,103 - 8,103 General and
administrative expenses 2,939 1,863 5,879 4,164 ------- -------
------- ------- Total segment margin $23,080 $27,368 $44,212
$50,229 ======= ======= ======= ======= We view total segment
margin, a non-GAAP financial measure, as an important performance
measure of the core profitability of our operations because it is
directly related to our volumes and commodity price changes. We
review total segment margin monthly for consistency and trend
analysis. We define midstream segment margin as midstream revenue
less midstream purchases. Midstream purchases include the following
costs and expenses: cost of natural gas and NGLs purchased by us
from third parties, cost of natural gas and NGLs purchased by us
from affiliates, and the cost of crude oil purchased by us from
third parties. We define compression segment margin as the revenue
derived from our compression segment. Our total segment margin may
not be comparable to similarly titled measures of other entities,
as other entities may not calculate total segment margin in the
same manner we do. Reconciliation of adjusted EBITDA to net loss:
Three Months Six Months Ended June 30, Ended June 30,
-------------- -------------- 2009 2008 2009 2008 ---- ---- ----
---- (unaudited, in (unaudited, in thousands) thousands)
Reconciliation of adjusted EBITDA to Net Loss Net loss $(948)
$(2,508) $(3,861) $(1,181) Add: Depreciation, amortization and
accretion 10,538 9,169 20,509 18,098 Amortization of deferred loan
costs 150 145 299 279 Interest expense 2,684 3,116 5,037 6,617
------- ------ ------ ------ EBITDA $12,424 $9,922 21,984 23,813
Add: Non-cash unrealized loss (gain) on derivatives 150 1,534 (120)
1,935 Non-cash unit-based compensation expense 281 392 601 763 Bad
debt expense - 8,103 - 8,103 Property impairments - - 950 -
Proceeds from settlement of derivative assets 3,155 - 3,155 - Going
private transaction costs 1,067 - 1,378 - ------- ------- -------
------- Adjusted EBITDA $17,077 $19,951 $27,948 $34,614 =======
======= ======= ======= We define EBITDA, a non-GAAP financial
measure, as net income (loss) plus interest expense, provisions for
income taxes and depreciation, amortization and accretion expense.
EBITDA is used as a supplemental financial measure by our
management and by external users of our financial statements such
as investors, commercial banks, research analysts and others to
assess: (1) the financial performance of our assets without regard
to financial methods, capital structure or historical cost basis;
(2) the ability of our assets to generate cash sufficient to pay
interest costs and support our indebtedness; (3) our operating
performance and return on capital as compared to those of other
companies in the midstream energy sector, without regard to
financing or structure; and (4) the viability of acquisitions and
capital expenditure projects and the overall rates of return on
alternative investment opportunities. EBITDA is also a financial
measure that, with certain negotiated adjustments, is reported to
our banks and is used as a gauge for compliance with our financial
covenants under our credit facility. EBITDA should not be
considered as an alternative to net income (loss), operating
income, cash flows from operating activities or any other measures
of financial performance presented in accordance with GAAP. Our
EBITDA may not be comparable to EBITDA of similarly titled measures
of other entities, as other entities may not calculate EBITDA in
the same manner as we do. We define adjusted EBITDA, a non-GAAP
financial measure, as net income (loss) plus interest expense,
provisions for income taxes and depreciation, amortization and
accretion expense, adjusted for significant non-cash and
non-recurring items. Adjusted EBITDA is used as a supplemental
financial measure by our management and by external users of our
financial statements such as investors, commercial banks, research
analysts and others to assess: (1) the financial performance of our
assets without regard to financial methods, capital structure or
historical cost basis; (2) the ability of our assets to generate
cash sufficient to pay interest costs and support our indebtedness;
(3) our operating performance and return on capital as compared to
those of other companies in the midstream energy sector, without
regard to financing or structure; and (4) the viability of
acquisitions and capital expenditure projects and the overall rates
of return on alternative investment opportunities. Adjusted EBITDA
is also a financial measurement that, with certain negotiated
adjustments, is reported to our banks and is used as a gauge for
compliance with our financial covenants under our credit facility.
Adjusted EBITDA should not be considered as an alternative to net
income (loss), operating income, cash flows from operating
activities or any other measures of financial performance presented
in accordance with GAAP. Our adjusted EBITDA may not be comparable
to adjusted EBITDA of similarly titled measures of other entities,
as other entities may not calculate adjusted EBITDA in the same
manner as we do. Reconciliation of distributable cash flow to net
loss: Three Months Six Months Ended June 30, Ended June 30,
-------------- -------------- 2009 2008 2009 2008 ---- ---- ----
---- (unaudited, in (unaudited, in thousands) thousands)
Reconciliation of Distributable Cash Flow to Net loss Net loss
$(948) $(2,508) $(3,861) $(1,181) Add: Depreciation, amortization
and accretion 10,538 9,169 20,509 18,098 Amortization of deferred
loan costs 150 145 299 279 Interest expense 2,684 3,116 5,037 6,617
------- ------ ------ ------ EBITDA $12,424 $9,922 21,984 23,813
Add: Non-cash unrealized loss (gain) on derivatives 150 1,534 (120)
1,935 Non-cash unit-based compensation expense 281 392 601 763 Bad
debt expense - 8,103 - 8,103 Property impairments - - 950 -
Proceeds from settlement of derivative assets 3,155 - 3,155 - Going
private transaction costs 1,067 - 1,378 - ------- ------- -------
------- Adjusted EBITDA $17,077 $19,951 $27,948 $34,614 Less: Cash
interest expense 2,724 3,196 5,179 6,416 Maintenance capital
expenditures 1,472 2,416 2,858 2,944 Payments on capital lease
obligations 185 128 351 235 Bad debt expense - 8,103 - 8,103 Going
private transaction costs 1,067 - 1,378 - ------- ------ -------
------- Distributable cash flow $11,629 $6,108 $18,182 $16,916
======= ====== ======= ======= We view distributable cash flow, a
non-GAAP financial measure, as an important performance measure
used by senior management to compare basic cash flows generated by
the Partnership (prior to the establishment of any retained cash
reserves by the Board of Directors) to the cash distributions
expected to be paid to unitholders. Using this metric, management
can compute the coverage ratio of estimated cash flows to planned
cash distributions. Distributable cash flow is also an important
non-GAAP financial measure for unitholders since it serves as an
indicator of the Partnership's success in providing a cash return
on investment. The financial measure indicates to investors whether
or not the Partnership is generating cash flow at a level that can
sustain or support an increase in quarterly distribution rates.
Distributable cash flow is also a quantitative standard used
throughout the investment community with respect to publicly-traded
master limited partnerships because the value of such an entity
generally is related to the amount of cash distributions the entity
can pay to its unitholders. The GAAP financial measure most
directly comparable to distributable cash flow is net income
(loss). Our distributable cash flow may not be comparable to
similarly titled measures of other entities, as other entities may
not calculate distributable cash flow in the same manner we do.
Other Financial and Operating Data Hiland Holdings GP, LP - Results
of Operations Set forth in the table below is financial and
operating data for Hiland Holdings GP, LP. Three Months Six Months
Ended June 30, Ended June 30, -------------- -------------- 2009
2008 2009 2008 ---- ---- ---- ---- (unaudited, in (unaudited, in
thousands) thousands) Total Segment Margin Data: Midstream revenues
$48,874 $114,236 $100,017 $204,510 Midstream purchases 26,999
88,073 58,215 156,691 ------ ------ ------ ------- Midstream
segment margin 21,875 26,163 41,802 47,819 Compression revenues (A)
1,205 1,205 2,410 2,410 ------- ------- ------- ------- Total
segment margin (B) $23,080 $27,368 $44,212 $50,229 ======= =======
======= ======= Summary of Operations Data: Midstream revenues
$48,874 $114,236 $100,017 $204,510 Compression revenues 1,205 1,205
2,410 2,410 ------ ------- ------- ------- Total revenues 50,079
115,441 102,427 206,920 Midstream purchases (exclusive of items
shown separately below) 26,999 88,073 58,215 156,691 Operations and
maintenance 7,785 7,551 15,480 14,320 Depreciation, amortization
and accretion 10,824 9,456 21,082 18,671 Property impairments - -
950 - Bad debt - 8,103 - 8,103 General and administrative 4,606
2,333 8,433 5,018 ----- ----- ----- ----- Total operating costs and
expenses 50,214 115,516 104,160 202,803 ------ ------- -------
------- Operating income (loss) (135) (75) (1,733) 4,117 Other
income (expense) (2,795) (3,225) (5,311) (6,783) ------- -------
------- ------- Net loss (2,930) (3,300) (7,044) (2,666) Less:
Noncontrolling partners' interest in loss of Hiland Partners (395)
(2,192) (1,610) (2,398) ----- ------- ------- ------- Limited
partners' interest in net loss $(2,535) $(1,108) $(5,434) $(268)
======== ======== ======== ====== June 30, December 31, 2009 2008
---- ---- (in thousands) (unaudited) Balance Sheet Data (at period
end): Property and equipment, at cost, net $349,473 $349,159 Total
assets $422,585 $435,560 Long-term debt, net of current maturities
$265,117 $256,466 Noncontrolling partners' interest in Hiland
Partners $121,874 $125,851 Total partners' equity $128,106 $141,348
(A) Compression revenues and compression segment margin are the
same. There are no compression purchases associated with the
compression segment. (B) Reconciliation of total segment margin to
operating loss: Three Months Six Months Ended June 30, Ended June
30, -------------- -------------- 2009 2008 2009 2008 ---- ----
---- ---- (unaudited, in (unaudited, in thousands) thousands)
Reconciliation of Total Segment Margin to Operating Loss Operating
loss $(135) $(75) $(1,733) $4,117 Add: Operations and maintenance
expenses 7,785 7,551 15,480 14,320 Depreciation, amortization and
accretion 10,824 9,456 21,802 18,671 Property impairments - - 950 -
Bad debt expense - 8,103 - 8,103 General and administrative
expenses 4,606 2,333 8,433 5,018 ------- ------- ------- -------
Total segment margin $23,080 $27,368 $44,212 $50,229 =======
======= ======= ======= We view total segment margin, a non-GAAP
financial measure, as an important performance measure of the core
profitability of our operations because it is directly related to
our volumes and commodity price changes. We review total segment
margin monthly for consistency and trend analysis. We define
midstream segment margin as midstream revenue less midstream
purchases. Midstream purchases include the following costs and
expenses: cost of natural gas and NGLs purchased by us from third
parties, cost of natural gas and NGLs purchased by us from
affiliates, and cost of crude oil purchased by us from third
parties. We define compression segment margin as the revenue
derived from our compression segment. Our total segment margin may
not be comparable to similarly titled measures of other entities,
as other entities may not calculate total segment margin in the
same manner we do. DATASOURCE: Hiland Partners, LP; Hiland Holdings
GP, LP CONTACT: Derek Gipson, Director - Business Development and
Investor Relations of Hiland Partners, LP, +1-580-242-6040 Web
Site: http://www.hilandpartners.com/
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