EX-99 2 f8k1030ervli.htm

Exhibit 99.01


Valero L.P. Reports Third Quarter 2006 Earnings

and Announces Distribution Increase

 

SAN ANTONIO, October 30, 2006 -- Valero L.P. (NYSE: VLI) today announced income applicable to limited partners from continuing operations of $36.9 million, or $0.79 per unit, for the third quarter of 2006 compared to $37.1 million, or $0.79 per unit, for the third quarter of 2005.

 

Distributable cash flow available to limited partners from continuing operations for the third quarter was $52.4 million, or $1.12 per unit, compared to $49.0 million, or $1.05 per unit for the third quarter of 2005. As of September 30, 2006, the partnership’s debt-to-capitalization ratio was 38.5 percent compared to 38.0 percent as of September 30, 2005.

 

With respect to the quarterly distribution to unitholders payable for the third quarter of 2006, Valero L.P. also announced that it has declared a distribution of $0.915 per unit, or $3.66 per unit on an annual basis, which will be paid on November 14, 2006, to holders of record as of November 7, 2006. This distribution represents an increase of $0.06 per unit, or 7 percent, over the distribution for the third quarter of 2005. Distributable cash flow available to limited partners from continuing operations covers the distribution to the limited partners by 1.22 times for the third quarter of 2006.

 

“We are pleased to report better than expected results for the third quarter and consequently another increase in the quarterly distribution,” said Curt Anastasio, Valero L.P.’s Chief Executive Officer and President. “This increase represents a total increase in our quarterly distribution of 52.5 percent since Valero L.P. went public in 2001.

 

“The third quarter has been a very active and productive quarter for us with the Burgos pipeline project coming on-line in early August and our recent announcement of our agreement to acquire Koch Supply and Trading, L.P.’s St. James, Louisiana facility for $140 million, which we expect to be immediately accretive to distributable cash flow per unit. We expect to close on the acquisition in December 2006 and have already identified major projects for further growth there.

 

“As part of our $250 million terminal expansion program, we have started construction on projects at our terminals in Texas City, Savannah, Linden (New York Harbor), Baltimore and St. Eustatius in the Caribbean and completed tank repairs at our Piney Point, Maryland terminal. In

 

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the next two months, we expect to start construction on expansion projects at our terminals in Portland and Stockton. Additionally, in the first quarter of 2007, we expect to start construction on expanding our Amsterdam terminal in the Netherlands and our Vancouver terminal in Washington. Over the next year or so, we expect to spend around $175 million on these expansion opportunities. The majority of these projects will start contributing to the partnership’s results in mid to late 2007.

 

“With respect to our ammonia pipeline, we recently completed a new pumping station on the southern end of the pipeline in Louisiana, which will allow us to capture incremental tariff revenue by increasing throughput volumes to both existing and new customers. We are also close to starting one of our pipeline lateral projects on our ammonia pipeline in Southern Louisiana, which will serve an industrial end-user. Additionally, we have now identified around $75 million of projects on our ammonia pipeline, primarily related to pipeline laterals to industrial end-users, which is higher than $30 million of projects we previously anticipated.

 

“Looking ahead to the fourth quarter of 2006, we expect results to be lower than the third quarter and in the range of $0.65 to $0.70 per unit primarily due to higher maintenance expenses and seasonality. Nonetheless, second half results for 2006 are expected to be better than the first half,” said Anastasio.

 

A conference call with management is scheduled for 2:30 p.m. ET (1:30 p.m. CT) today to discuss the financial and operational results for the third quarter of 2006. Investors interested in listening to the presentation may call 800/622-7620, passcode 8566945. International callers may access the presentation by dialing 706/645-0327, passcode 8566945. The company intends to have a playback available following the presentation, which may be accessed by calling 800/642-1687, passcode 8566945. A live broadcast of the conference call will also be available on the company’s website at www.valerolp.com.

 

Valero L.P. is a publicly traded, limited partnership based in San Antonio, with 9,303 miles of pipeline, 86 terminal facilities and four crude oil storage facilities. One of the largest independent terminal and petroleum liquids pipeline operators in the nation, the partnership has operations in the United States, the Netherlands Antilles, Canada, Mexico, the Netherlands and the United Kingdom. The partnership’s combined system has approximately 77 million barrels of storage capacity, and includes crude oil and refined product pipelines, refined product terminals, a petroleum and specialty liquids storage and terminaling business, as well as crude oil storage tank facilities. For more information, visit Valero L.P.’s web site at www.valerolp.com.

 

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Cautionary Statement Regarding Forward-Looking Statements

This press release includes forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995 regarding future events and the future financial performance of Valero L.P. All forward-looking statements are based on the partnership’s beliefs as well as assumptions made by and information currently available to the partnership. These statements reflect the partnership’s current views with respect to future events and are subject to various risks, uncertainties and assumptions. These risks, uncertainties and assumptions are discussed in Valero L.P.’s 2005 annual report on Form 10-K and subsequent filings with the Securities and Exchange Commission.

 

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Valero L.P.
Consolidated Financial Information
September 30, 2006 and 2005
(unaudited, thousands of dollars, except unit data and per unit data)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2006
2005
2006
2005
 Statement of Income Data (Note 1):             (Note 2)           (Note 2)  
  Revenues:    
    Services revenues     $ 161,888   $ 148,210   $ 461,911   $ 263,151  
    Product sales       129,135     110,175     383,084     110,175  
      Total revenues       291,023     258,385     844,995     373,326  
     
  Costs and expenses:    
    Cost of product sales       117,759     101,217     350,260     101,217  
    Operating expenses       82,502     68,429     232,727     109,759  
    General and administrative expenses       11,388     10,000     30,323     17,064  
    Depreciation and amortization       24,994     22,732     74,022     40,255  
      Total costs and expenses       236,643     202,378     687,332     268,295  
  Operating income       54,380     56,007     157,663     105,031  
    Equity income from joint ventures       1,464     1,541     4,514     2,340  
    Interest and other expenses, net       (15,289 )   (14,637 )   (47,630 )   (26,344 )
  Income from continuing operations    
    before income tax (benefit) expense       40,555     42,911     114,547     81,027  
    Income tax (benefit) expense       (614 )   2,050     1,997     2,050  
  Income from continuing operations       41,169     40,861     112,550     78,977  
  Income (loss) from discontinued operations       —     4,306     (377 )   4,306  
  Net income applicable to general partner    
    and limited partners' interest       41,169     45,167     112,173     83,283  
  Net income applicable to general partner    
    (Note 3)       (4,310 )   (3,892 )   (12,550 )   (7,215 )
  Net income applicable to limited partners     $ 36,859   $ 41,275   $ 99,623   $ 76,068  
  Income per unit applicable to limited    
     partners (Note 3):    
    Continuing operations     $ 0.79   $ 0.79   $ 2.14   $ 2.31  
    Discontinued operations       —     0.09     (0.01 )   0.14  
    Net income     $ 0.79   $ 0.88   $ 2.13   $ 2.45  
  Weighted average number of basic    
     and diluted units outstanding       46,809,749     46,809,749     46,809,749     31,051,243  
  EBITDA from continuing operations (Note 4)     $ 82,155   $ 80,027   $ 237,475   $ 147,373  
  Distributable cash flow from continuing    
    operations (Note 4)     $ 60,413   $ 55,951   $ 163,990   $ 107,011  
                             
        September 30,     September 30,           December 31,  
        2006     2005           2005  
 
 Balance Sheet Data:    
  Long-term debt, including current portion (a)     $ 1,179,042   $ 1,175,473         $ 1,170,705  
  Partners' equity (b)       1,886,671     1,918,933           1,900,779  
  Debt-to-capitalization ratio (a) / ((a)+(b))       38.5 %   38.0 %         38.1 %

Valero L.P.
Consolidated Financial Information — Continued
September 30, 2006 and 2005
(unaudited, thousands of dollars, except barrel information)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2006
2005
2006
2005
Operating Data:                    
   Refined product terminals (Note 2):    
     Throughput (barrels/day) (a)       267,144     253,415     261,619     252,933  
     Throughput revenues     $ 13,273   $ 12,387   $ 36,689   $ 33,808  
     Storage lease revenues       62,925     56,411     182,951     56,411  
     Bunkering revenues       128,369     110,175     382,318     110,175  
       Total revenues       204,567     178,973     601,958     200,394  
     Cost of product sales       117,161     101,217     349,662     101,217  
     Operating expenses       49,555     39,450     143,626     49,672  
     Depreciation and amortization       11,249     11,936     33,196     15,655  
     Segment operating income     $ 26,602   $ 26,370   $ 75,474   $ 33,850  
   Refined product pipelines:    
     Throughput (barrels/day)       722,952     688,126     711,215     524,290  
     Throughput revenues     $ 58,567   $ 53,749   $ 162,814   $ 98,609  
     Product revenues       766     —     766     —  
       Total revenues       59,333     53,749     163,580     98,609  
     Cost of product sales       598     —     598     —  
     Operating expenses       25,972     22,507     69,510     41,362  
     Depreciation and amortization       10,554     7,772     31,296     15,533  
     Segment operating income     $ 22,209   $ 23,470   $ 62,176   $ 41,714  
   Crude oil pipelines:    
     Throughput (barrels/day)       410,211     382,615     426,129     362,574  
     Revenues     $ 15,072   $ 14,041   $ 43,989   $ 39,601  
     Operating expenses       4,559     4,455     12,546     12,464  
     Depreciation and amortization       1,277     1,155     3,809     3,457  
     Segment operating income     $ 9,236   $ 8,431   $ 27,634   $ 23,680  
   Crude oil storage tanks:    
     Throughput (barrels/day)       513,904     504,060     503,769     512,349  
     Revenues     $ 12,051   $ 11,622   $ 35,468   $ 34,722  
     Operating expenses       2,416     2,017     7,045     6,261  
     Depreciation and amortization       1,914     1,869     5,721     5,610  
     Segment operating income     $ 7,721   $ 7,736   $ 22,702   $ 22,851  
   Consolidated Information:    
     Revenues     $ 291,023   $ 258,385   $ 844,995   $ 373,326  
     Cost of product sales       117,759     101,217     350,260     101,217  
     Operating expenses       82,502     68,429     232,727     109,759  
     Depreciation and amortization       24,994     22,732     74,022     40,255  
     Segment operating income       65,768     66,007     187,986     122,095  
     General and administrative expenses       11,388     10,000     30,323     17,064  
     Consolidated operating income     $ 54,380   $ 56,007   $ 157,663   $ 105,031  

(a)     Excludes throughputs related to the storage lease and bunkering operations acquired.

Notes:

  1.   The statement of income data for the nine months ended September 30, 2006 and 2005 includes $69.3 million and $28.7 million, respectively, of operating income related to the Kaneb Acquisition on July 1, 2005. Of the $69.3 million and $28.7 million for the nine months ended September 30, 2006 and 2005, respectively, $53.0 million and $17.9 million is attributed to the refined product terminals segment, respectively, and $16.3 million and $10.8 million is attributed to the refined product pipelines segment, respectively.

  2.   The statement of income data and the operating data for the refined product terminals for the three and nine months ended September 30, 2005 has been restated to reflect the March 30, 2006 sale of our Australia and New Zealand subsidiaries as income (loss) from discontinued operations.

  3.   Income is allocated between limited partners and the general partner’s interests based on provisions in the partnership agreement. The income applicable to limited partners is divided by the weighted average number of limited partnership units outstanding in computing the income per unit applicable to limited partners. On July 1, 2005, Valero L.P. issued 23,768,355 of common units in exchange for all of the outstanding common units of Kaneb Pipe Line Partners, L.P. As of September 30, 2006, Valero L.P. has 46,809,749 common units outstanding.

      During the quarter ended September 30, 2006 our general partner reimbursed us for certain charges we incurred related to services historically provided under our Services Agreement with Valero Energy Corporation. Generally accepted accounting principles require us to record the charges as expenses and record the reimbursement as partner’s capital contribution.

Valero L.P.
Consolidated Financial Information — Continued
September 30, 2006 and 2005
(unaudited, thousands of dollars, except unit data and per unit data)

Notes:  (continued)    

      The following table details the calculation of net income applicable to the general partner (in thousands):

Three Months Ended
September 30,
Nine Months Ended
September 30,
2006
2005
2006
2005
Net income applicable to general partner                    
     and limited partners' interest     $ 41,169   $ 45,167   $ 112,173   $ 83,283  
Charges reimbursed by general partner       352     —     352     —  
Net income before charges reimbursed by general partner       41,521     45,167     112,525     83,283  
General partner incentive distribution       3,909     3,050     10,869     5,662  
Net income before charges reimbursed by general partner    
     and after general partner incentive distribution       37,612     42,117     101,656     77,621  
General partner interest       2 %   2 %   2 %   2 %
General partner allocation of net income before charges    
     reimbursed by general partner and after general    
     partner incentive distribution       753     842     2,033     1,553  
Charges reimbursed by general partner       (352 )   —     (352 )   —  
General partner incentive distribution       3,909     3,050     10,869     5,662  
Net income applicable to general partner     $ 4,310   $ 3,892   $ 12,550   $ 7,215  
  4.   Valero L.P. utilizes two financial measures, EBITDA from continuing operations and distributable cash flow from continuing operations, which are not defined in United States generally accepted accounting principles. Management uses these financial measures because they are widely accepted financial indicators used by investors to compare partnership performance. In addition, management believes that these measures provide investors an enhanced perspective of the operating performance of the partnership’s assets and the cash that the business is generating. Neither EBITDA from continuing operations nor distributable cash flow from continuing operations are intended to represent cash flows for the period, nor are they presented as an alternative to income from continuing operations. They should not be considered in isolation or as substitutes for a measure of performance prepared in accordance with United States generally accepted accounting principles.

      The following is a reconciliation of income from continuing operations to EBITDA from continuing operations and distributable cash flow from continuing operations (in thousands):

Three Months Ended
September 30,
Nine Months Ended
September 30,
2006
2005
2006
2005
     Income from continuing operations     $ 41,169   $ 40,861   $ 112,550   $ 78,977  
       Plus interest expense, net       16,606     14,384     48,906     26,091  
       Plus income tax expense (benefit)       (614 )   2,050     1,997     2,050  
       Plus depreciation and amortization       24,994     22,732     74,022     40,255  
     EBITDA from continuing operations       82,155     80,027     237,475     147,373  
       Less equity income from joint ventures       (1,464 )   (1,541 )   (4,514 )   (2,340 )
       Less interest expense, net       (16,606 )   (14,384 )   (48,906 )   (26,091 )
       Less reliability capital expenditures       (6,601 )   (8,476 )   (22,817 )   (12,369 )
       Less income tax (expense) / benefit       614     (2,050 )   (1,997 )   (2,050 )
       Plus general partner reimbursable charges       352     —     352     —  
       Plus distributions from joint ventures       1,963     2,375     4,397     2,488  
     Distributable cash flow from continuing operations       60,413     55,951     163,990     107,011  
     
     General partner's interest in distributable cash flow    
       from continuing operations       (8,044 )   (6,928 )   (19,819 )   (12,742 )
     Limited partners' interest in distributable cash flow    
       from continuing operations     $ 52,369   $ 49,023   $ 144,171   $ 94,269  
     Weighted average number of basic    
       and diluted units outstanding       46,809,749     46,809,749     46,809,749     31,051,243  
     
     Distributable cash flow from continuing    
       operations per limited partner unit     $ 1.119   $ 1.050   $ 3.080   $ 3.010