this one is hard to figure--the sec is making them change alot of wording and reclasify things but accoring to rjf it does not impact their distribution---i have a feeling mlp's will drop significantly across the board this morning though.
This is new: (Page 235):
EXPLANATORY NOTE REGARDING NON-GAAP FINANCIAL MEASURES AND
Historically, LINN’s management has recommended, and the LINN board of directors has made a determination regarding, the appropriate level of cash distributions to unitholders by starting with “Adjusted EBITDA,” which previously included adjustments for cash flows from acquisitions and divestitures between the effective date and the closing date and did not deduct premiums paid for put options, and deducting
interest expense, “maintenance capital expenditures” and provision for legal matters. Going forward, LINN has decided to describe its methodology for evaluating distributions in the following manner:
Adjusted EBITDA will no longer include adjustments for cash flows from acquisitions and divestitures between the effective date and the closing date and will deduct the premiums paid for put options that settled during the period.
• Adjusted EBITDA will no longer be the starting point for explaining LINN’s management’s recommendation of and the LINN board of directors’ determination of the appropriate level of cash distributions to unitholders.
• In explaining LINN’s management’s recommendation of and the LINN board of directors’ methodology for determining the appropriate level of cash distributions to unitholders, LINN’s approach:
• no longer uses the term “distributable cash flow;”
starts with net cash provided by (used in) operating activities as determined in accordance with GAAP and as set forth on LINN’s statement of cash flows;
• shows the difference between net cash provided by (used in) operating activities and the amount of cash distributions actually paid to unitholders for the applicable period; and
• describes the discretionary adjustments made by the LINN board of directors when determining the amount of cash distributions to pay unitholders
That's not good at all, DCF is the foundation for reporting coverage throughout the industry. Cash flow from operations is a polluted GAAP metric that includes changes in receivables and payables and does not include gains from "investments" , but rather the gross cash in and out, which can be heavily distorted. In addition, maintenance capex is not even in the universe of GAAP reporting, which is actually a distortion the other way! Cash from operations is USELESS.
So, the SEC can be perceived as being on Hedgeye's side here, even though they're actually doing something else entirely. In addition, they seem to be setting up an entirely new metric, adjusted cash flow from operations, in essence. This is just nuts, and it will be very unsettling for the industry. A bad day.
LINN’s intent is to describe the specific adjustments considered by LINN’s management and the LINN board of directors in recommending and determining the level of distributions and to allow investors to evaluate these adjustments.
LINN’s limited liability company agreement requires that LINN distribute, at a minimum, all “available cash” to unitholders with respect to each quarter, subject to any limitations contained under the Delaware Limited Liability Company Act. “Available cash” is generally defined as all cash on hand as of the end of a quarter, including cash from working capital borrowings, less the amount of any cash reserves established by the LINN board of directors to (i) provide for the proper conduct of LINN’s business (including reserves for future capital expenditures including drilling and acquisitions and for anticipated future credit needs), (ii) comply with applicable law or any of LINN’s agreements or obligations or (iii) provide funds for distributions with respect to any one or more of
the next four quarters. It is under this broad grant of authority that the LINN board of directors makes its discretionary determinations regarding the appropriate adjustments to net cash provided by (used in) operating activities when determining the distribution.