Non-GAAP Financial Measures

Compressco occasionally uses numerical measures in press releases, earnings conference calls and other forums which are or may be considered Non-GAAP Financial Measures. We have provided below for your reference supplemental financial disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation. This supplemental financial disclosure should be considered within the context of our complete audited financial results for the given period, which are available on the SEC Filings page of our website.

EBITDA
Distributable Cash Flow

EBITDA

EBITDA is used as a supplemental financial measure by the Partnership’s management to: assess the Partnership’s ability to generate available cash sufficient to make distributions to the Partnership’s unitholders and general partner; evaluate the financial performance of its assets without regard to financing methods, capital structure or historical cost basis; measure operating performance and return on capital as compared to those of other companies in the production enhancement business; and, determine the Partnership’s ability to incur and service debt and fund capital expenditures. The Partnership defines EBITDA as earnings before interest, taxes, depreciation and amortization. The following table reconciles net income to EBITDA for the three and twelve month periods ended December 31, 2012 and December 31, 2011:

Three Months Ended
Twelve Months Ended
December 31,
December 31,
2012
2011
2012
2011
(In Thousands)
Net income
$4,899
$3,123
$16,331
$7,257
Provision for income taxes
957
1,058
3,353
1,905
Depreciation and amortization
3,506
3,069
13,227
12,521
Interest (income) expense, net
23
(50)
25
5,052
EBITDA
$9,385
$7,200
$32,936
$26,735


Distributable Cash Flow

Distributable cash flow is used as a supplemental financial measure by the Partnership’s management as it provides important information relating to the relationship between the Partnership’s financial operating performance and its cash distribution capability. Additionally, the Partnership uses distributable cash flow in setting forward expectations and in communications with the board of directors of its general partner. The Partnership defines distributable cash flow as EBITDA less current income tax expense and maintenance capital expenditures, plus the non-cash cost of compressors sold and equity compensation expense. The Partnership also calculates the ratio of distributable cash flow to the total cash distributed (the distribution coverage ratio) as it provides important information relating to the relationship between the Partnership’s financial operating performance and its cash distribution capability. The Partnership defines the distribution coverage ratio as the ratio of distributable cash flow to the total quarterly distribution payable on all outstanding common and subordinated units and the general partner interest. The following table reconciles net income to distributable cash flow and distribution coverage ratio for the three and twelve month periods ended December 31, 2012:

Three Months Ended
Twelve Months Ended
December 31, 2012
December 31, 2012
(In Thousands)
Net income
$4,899 $16,331
Provision for income taxes
957 3,353
Depreciation and amortization
3,506 13,227
Interest (income) expense
23 25
EBITDA
9,385 32,936
Less:
Current income tax benefit (expense)
362 (1,423)
Maintenance capital expenditures
(425) (730)
Interest expense (23)   (25)
Plus:
Non-cash cost of compressors sold
59 127
Equity compensation
592 1,905
Distributable cash flow
$9,950 $32,790
Cash distribution attributable to period
$6,660 $25,252
Distribution coverage ratio
1.49x 1.30x