VLI Valero Lp

Valero L.P. (NYSE:VLI) today announced record net income applicable to limited partners of $41.3 million, or $0.88 per unit, which includes net income applicable to limited partners from discontinued operations of $4.4 million, or $0.09 per unit. For the comparable period in 2004, net income applicable to limited partners was $17.9 million, or $0.78 per unit. Distributable cash flow available to limited partners for the third quarter was a record $54.7 million, or $1.17 per unit, compared to $22.7 million, or $0.99 per unit, for the third quarter of 2004. Reported results for Valero L.P.'s third quarter and nine months ended September 30, 2005, include three months contribution from Kaneb Services LLC and Kaneb Pipe Line Partners, L.P., which merged into an affiliate of Valero L.P. on July 1, 2005. With respect to the quarterly distribution to unitholders payable for the third quarter of 2005, Valero L.P. also announced that it has declared a distribution of $0.855 per unit payable November 14, 2005, to holders of record as of November 7, 2005. Distributable cash flow covers the distribution to the limited partners by 1.37 times. As previously announced, the partnership completed the sale of certain terminal and pipeline assets to Pacific Energy Partners, L.P. on September 30, 2005. These assets consisted of two California terminals handling refined products, blendstocks, and crude oil, three East Coast refined products terminals, and a 550-mile refined products pipeline with four truck terminals and storage in the U.S. Rocky Mountains. Proceeds of approximately $455 million were received in connection with the sale and were used to pay down outstanding debt incurred to partially finance the Kaneb acquisition. Results of the divested assets have been classified as discontinued operations on the income statement and reflect three months contribution. Effective October 1, 2005, the financial results from these divested assets will no longer be included in the reported results of Valero L.P. "We are pleased to report record results in our initial quarter after completing the Kaneb acquisition," said Curt Anastasio, Valero L.P.'s Chief Executive Officer. "We had an outstanding quarter financially as we benefited from the Kaneb acquisition, increases in our pipeline tariffs, which went into effect on July 1, and higher overall throughput volumes due to seasonally strong demand. "Fortunately, we experienced no significant damage to our Gulf Coast assets from either Hurricane Katrina or Hurricane Rita. Certain of our Gulf Coast pipeline and terminal assets were shut down prior to the storms making landfall, however, our skilled team of engineers and operators had these assets back up and running within a few days. As a result, the financial impact from these shutdowns was minimal. "With respect to the recently announced pipeline project to construct approximately 110 miles of new pipeline in the northeastern Mexico and South Texas regions, we are ahead of schedule and now expect to be completed by May 2006. The newly constructed pipeline will connect to our recently expanded Valley products pipeline system, which transports refined products to the Rio Grande Valley from refineries in the Corpus Christi area. This connection allows us to increase our shipments of products to the fast growing South Texas, Rio Grande Valley and northern Mexico regions. With this new pipeline and the recently expanded Valley pipeline, we expect to move approximately 36,000 barrels per day of petroleum products. "Looking ahead to the fourth quarter, operations are expected to be impacted temporarily by lower throughput volumes from the typical seasonal slowdown in demand for asphalt and the previously announced scheduled plant-wide turnaround at Valero Energy's McKee refinery. Higher power costs due to significantly higher natural gas prices and higher maintenance expenses on certain legacy Kaneb assets are also expected to impact the quarter. In addition, the sale of assets to Pacific Energy Partners, L.P. is expected to lower earnings compared to the third quarter. Given those factors, we expect to report earnings in the range of 65 to 70 cents per unit for the fourth quarter," said Anastasio. A conference call with management is scheduled for 4:00 p.m. ET (3:00 p.m. CT) today to discuss the financial and operational results for the third quarter of 2005. Investors interested in listening to the presentation may call 800/622-7620, passcode 1089876. International callers may access the presentation by dialing 706/645-0327, passcode 1089876. The company intends to have a playback available following the presentation, which may be accessed by calling 800/642-1687, passcode 1089876. 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 master limited partnership based in San Antonio, with 9,150 miles of pipeline, 94 terminal facilities and four crude oil storage facilities. One of the largest terminal and independent petroleum liquids pipeline operators in the nation, the partnership has terminal facilities in 25 U.S. states, Canada, Mexico, the Netherlands Antilles, the Netherlands, Australia, New Zealand and the United Kingdom. The partnership's combined system has approximately 77.6 million barrels of storage capacity, and includes crude oil and refined product pipelines, refined product terminals, petroleum and a 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. 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 2004 annual report on Form 10-K and subsequent filings with the Securities and Exchange Commission. -0- *T Valero L.P. Consolidated Financial Information September 30, 2005 and 2004 (unaudited, thousands of dollars, except unit data and per unit data) Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 2005 2004 2005 2004 ----------- ----------- ----------- ----------- Statement of Income Data (Note 1): Revenues: Services $153,371 $58,075 $268,312 $166,106 Products 110,175 -- 110,175 -- ----------- ----------- ----------- ---------- Total Revenues 263,546 58,075 378,487 166,106 Costs and expenses: Cost of sales 101,217 -- 101,217 -- Operating expenses 71,358 21,626 112,688 59,746 General and administrative expenses 10,391 3,588 17,455 8,233 Depreciation and amortization 23,902 8,413 41,425 24,536 ----------- ----------- ----------- ----------- Total costs and expenses 206,868 33,627 272,785 92,515 ----------- ----------- ----------- ----------- Operating income 56,678 24,448 105,702 73,591 Equity income from joint ventures 1,541 372 2,340 1,102 Interest and other expense, net (15,315) (5,433) (27,022) (15,630) ----------- ----------- ----------- ----------- Income from continuing operations before income tax expense 42,904 19,387 81,020 59,063 Income tax expense 2,147 -- 2,147 -- ----------- ----------- ----------- ----------- Income from continuing operations 40,757 19,387 78,873 59,063 Income from discontinued operations 4,410 -- 4,410 -- ----------- ----------- ----------- ----------- Net income applicable to general partner and limited partners' interest 45,167 19,387 83,283 59,063 Net income applicable to general partner including incentive distributions (Note 2) (3,892) (1,478) (7,215) (4,451) ----------- ----------- ----------- ----------- Net income applicable to limited partners $41,275 $17,909 $76,068 $54,612 =========== =========== =========== =========== Net income per unit applicable to limited partners (Note 2): Continuing operations $0.79 $0.78 $2.31 $2.37 Discontinued operations 0.09 -- 0.14 -- ----------- ----------- ----------- ----------- Net income $0.88 $0.78 $2.45 $2.37 Weighted average number of limited partnership units outstanding 46,809,749 23,041,394 31,051,243 23,041,394 Earnings before interest, taxes and depreciation and amortization (EBITDA, Note 3) $91,221 $33,233 $158,567 $99,229 Distributable cash flow (Note 3) $63,574 $25,684 $114,634 $76,690 September 30, September 30, December 31, 2005 2004 2004 ------------- --------------- ------------ Balance Sheet Data: Long-term debt, including current portion (a) $1,175,473 $395,599 $385,161 Partners' equity (b) 1,918,933 438,903 438,311 Debt-to- capitalization ratio (a) / ((a)+(b)) 38.0% 47.4% 46.8% Valero L.P. Consolidated Financial Information - Continued September 30, 2005 and 2004 (unaudited, thousands of dollars, except barrel information) Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ------------------------ 2005 2004 2005 2004 ----------- ----------- ----------- ----------- Operating Data: Crude oil pipelines: Throughput (barrels/day) 382,615 380,395 362,574 384,643 Gross margin $14,041 $13,231 $39,601 $39,462 Operating expenses 4,455 4,225 12,464 11,825 Depreciation and amortization 1,155 1,136 3,457 3,368 ----------- ----------- ----------- ----------- Segment operating income $8,431 $7,870 $23,680 $24,269 =========== =========== =========== =========== Refined product pipelines: Throughput (barrels/day) 688,126 433,695 524,290 440,853 Gross margin $53,749 $22,324 $98,609 $63,764 Operating expenses 22,507 10,493 41,362 28,360 Depreciation and amortization 7,772 3,690 15,533 10,978 ----------- ----------- ----------- ----------- Segment operating income $23,470 $8,141 $41,714 $24,426 =========== =========== =========== =========== Refined product terminals: Throughput (barrels/day) 253,415 260,440 252,933 256,291 Throughput gross margin $12,387 $11,150 $33,808 $30,259 Storage lease gross margin 61,572 -- 61,572 -- Bunkering gross margin 8,958 -- 8,958 -- Operating expenses 42,379 4,677 52,601 13,930 Depreciation and amortization 13,106 1,720 16,825 4,593 ----------- ----------- ----------- ----------- Segment operating income $27,432 $4,753 $34,912 $11,736 =========== =========== =========== =========== Crude oil storage tanks: Throughput (barrels/day) 504,060 517,135 512,349 490,190 Gross margin $11,622 $11,370 $34,722 $32,621 Operating expenses 2,017 2,231 6,261 5,631 Depreciation and amortization 1,869 1,867 5,610 5,597 ----------- ----------- ----------- ----------- Segment operating income $7,736 $7,272 $22,851 $21,393 =========== =========== =========== =========== Consolidated Information: Gross margin $162,329 $58,075 $277,270 $166,106 Operating expenses 71,358 21,626 112,688 59,746 Depreciation and amortization 23,902 8,413 41,425 24,536 ----------- ----------- ----------- ----------- Segment operating income 67,069 28,036 123,157 81,824 General and administrative expenses 10,391 3,588 17,455 8,233 ----------- ----------- ----------- ----------- Consolidated operating income $56,678 $24,448 $105,702 $73,591 =========== =========== =========== =========== Valero L.P. Consolidated Financial Information - Continued September 30, 2005 and 2004 (unaudited) Notes: 1. The statement of income data for the three and nine months ended September 30, 2005 includes $29.4 million of operating income related to the Kaneb Acquisition. Of the $29.4 million, $10.8 million is attributed to the refined product pipeline segment and $18.6 million is attributed to the refined product terminal segment. 2. Net income is allocated between limited partners and the general partner's interests based on provisions in the partnership agreement. The net income applicable to limited partners is divided by the weighted average number of limited partnership units outstanding in computing the net income per unit applicable to limited partners. On July 1, 2005, Valero L.P. issued 23,768,751 of common units in exchange for all of the outstanding common units of Kaneb Pipe Line Partners, L.P. As of September 30, 2005, Valero L.P. has 46,809,749 common and subordinated units outstanding. Net income applicable to the general partner includes incentive distributions aggregating $3.1 million and $1.1 million for the three months ended September 30, 2005 and 2004, respectively, and $5.7 million and $3.3 million for the nine months ended September 30, 2005 and 2004, respectively. 3. Valero L.P. utilizes two financial measures, EBITDA and distributable cash flow, 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 nor distributable cash flow are intended to represent cash flows for the period, nor are they presented as an alternative to net income. 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 net income to EBITDA and distributable cash flow (thousands of dollars, except unit data and per unit data): Three Months Nine Months Ended Ended September 30, September 30, ------------------- ---------------------- 2005 2004 2005 2004 --------- --------- ----------- ---------- Net income $45,167 $19,387 $83,283 $59,063 Plus interest expense, net (a) 20,005 5,433 31,712 15,630 Plus income tax expense 2,147 -- 2,147 -- Plus depreciation and amortization 23,902 8,413 41,425 24,536 --------- ---------- ---------- ---------- EBITDA 91,221 33,233 158,567 99,229 Less equity income from joint ventures (1,541) (372) (2,340) (1,102) Less interest expense, net (a) (20,005) (5,433) (31,712) (15,630) Less reliability capital expenditures (8,476) (1,992) (12,369) (7,030) Plus distributions from joint ventures 2,375 248 2,488 1,223 --------- ---------- ---------- ---------- Distributable cash flow $63,574 $25,684 $114,634 $76,690 General partner's interest in distributable cash flow (8,834) (2,946) (14,648) (8,748) --------- ---------- ---------- ---------- Limited partners' interest in distributable cash flow $54,740 $22,738 $99,986 $67,942 ========= ========== ========== ========== Weighted average number of limited partnership units outstanding 46,809,749 23,041,394 31,051,243 23,041,394 Distributable cash flow per limited partner unit $1.17 $0.99 $3.22 $2.95 (a) Interest expense of $4.9 million is included in income from discontinued operations in the statement of income data for the three and nine months ended September 30, 2005. *T