VLI Valero Lp

Valero L.P. (NYSE:VLI) today announced income applicable to limited partners from continuing operations of $27.8 million, or $0.60 per unit, for the second quarter of 2006, compared to $17.0 million, or $0.74 per unit, for the second quarter of 2005. For the six months ended June 30, 2006, income applicable to limited partners from continuing operations was $63.1 million, or $1.35 per unit, compared to $34.8 million, or $1.51 per unit, for the six months ended June 30, 2005. Including discontinued operations, Valero L.P. reported net income applicable to limited partners of $27.5 million, or $0.59 per unit, for the second quarter of 2006 and $62.8 million, or $1.34 per unit for the six months ended June 30, 2006. Distributable cash flow available to limited partners from continuing operations for the second quarter was $41.4 million, or $0.88 per unit, compared to $22.1 million, or $0.96 per unit for the second quarter of 2005. Distributable cash flow available to limited partners from continuing operations for the six months ended June 30, 2006 was $91.8 million, or $1.96 per unit, compared to $45.2 million, or $1.96 per unit for the six months ended June 30, 2005. As of June 30, 2006, the partnership's debt-to-capitalization ratio was 38.0 percent compared to 47.7 percent as of June 30, 2005. The increases in income and distributable cash flow applicable to limited partners from continuing operations were primarily due to the acquisition of Kaneb completed on July 1, 2005. Valero L.P.'s second quarter 2005 results do not include any results from Kaneb. With respect to the quarterly distribution to unitholders payable for the second quarter of 2006, Valero L.P. also announced that it has declared a distribution of $0.885 per unit payable August 14, 2006, to holders of record as of August 7, 2006. Distributable cash flow available to limited partners from continuing operations covers the distribution to the limited partners by 1.0 times for the second quarter of 2006 and 1.11 times for the six months ended June 30, 2006. "The partnership's earnings for the second quarter met our guidance and expectations provided to investors on the first quarter conference call," said Curt Anastasio, Valero L.P.'s Chief Executive Officer and President. "During the quarter, our results were primarily impacted by higher operating and interest expenses. Scheduled turnarounds and operating problems at several of our customers' refineries also had an impact on the partnership's results. "I am pleased to report we continue to make substantial progress on our strategic growth projects. The partnership has completed the Burgos pipeline construction project in South Texas and northeastern Mexico. On an annual basis, we are expecting incremental throughputs of approximately 36,000 barrels per day and a contribution of $8.2 million of EBITDA from this project. "Additionally, we have completed several ethanol blending and storage projects at our Linden and Paulsboro terminals located on the East Coast, our Southlake terminal in the Dallas area and our Glasgow, Grangemouth and Grays terminals in the United Kingdom. The expected annual EBITDA contribution from these projects is around $2.8 million. And, in the second half of this year we will begin construction on several terminal expansion projects that are part of the nearly $300 million of strategic growth capital we have identified for 2006 through 2008. The terminal expansion projects in Texas City, Portland, the New York Harbor area, Jacksonville, Savannah, St. Eustatius in the Caribbean and elsewhere are expected to start contributing to the partnership's results in 2007. Our growth strategy is supported by a strong balance sheet and a low cost of capital given our incentive distribution rights are capped at 25 percent. "Looking ahead to the third quarter of 2006, results will be positively impacted by increases in our pipeline tariffs that took effect July 1, Burgos project volumes and higher seasonal demand for asphalt and refined products. However, we expect to continue to be negatively impacted by scheduled turnarounds at refineries we serve and higher maintenance expenses. As a result, we expect third quarter earnings to be similar to the second quarter. "For the fourth quarter of 2006, operations and results should improve significantly as the partnership benefits from fewer turnarounds, lower maintenance expenses and a seasonal increase in bunker fuel sales. We continue to expect that the results for the second half of 2006 will exceed the results achieved in the first half of this year," 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 second quarter of 2006. Investors interested in listening to the presentation may call 800-622-7620, passcode 2888567. International callers may access the presentation by dialing 706-645-0327, passcode 2888567. The company intends to have a playback available following the presentation, which may be accessed by calling 800-642-1687, passcode 2888567. 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 9,243 miles of pipeline, 88 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. 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. -0- *T Valero L.P. Consolidated Financial Information June 30, 2006 and 2005 (unaudited, thousands of dollars, except unit data and per unit data) Three Months Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- 2006 2005 2006 2005 ----------- ----------- ----------- ----------- Statement of Income Data (Note 1): Revenues: Services revenues $152,094 $58,306 $300,023 $114,941 Product sales 127,874 - 253,949 - ----------- ----------- ----------- ----------- Total revenues 279,968 58,306 553,972 114,941 Costs and expenses: Cost of product sales 118,283 - 232,501 - Operating expenses 79,155 21,645 150,225 41,330 General and administrative expenses 10,375 3,561 18,935 7,064 Depreciation and amortization 24,839 8,791 49,028 17,523 ----------- ----------- ----------- ----------- Total costs and expenses 232,652 33,997 450,689 65,917 ----------- ----------- ----------- ----------- Operating income 47,316 24,309 103,283 49,024 Equity income from joint ventures 1,844 421 3,050 799 Interest and other expenses, net (16,876) (5,878) (32,341) (11,707) ----------- ----------- ----------- ----------- Income from continuing operations before income tax expense 32,284 18,852 73,992 38,116 Income tax expense 492 - 2,611 - ----------- ----------- ----------- ----------- Income from continuing operations 31,792 18,852 71,381 38,116 Loss from discontinued operations (239) - (377) - ----------- ----------- ----------- ----------- Net income applicable to general partner and limited partners' interest 31,553 18,852 71,004 38,116 Net income applicable to general partner including incentive distributions (Note 2) (4,041) (1,847) (8,240) (3,323) ----------- ----------- ----------- ----------- Net income applicable to limited partners $27,512 $17,005 $62,764 $34,793 =========== =========== =========== =========== Income per unit applicable to limited partners (Note 2): Continuing operations $0.60 $0.74 $1.35 $1.51 Discontinued operations (0.01) - (0.01) - ----------- ----------- ----------- ----------- Net income $0.59 $0.74 $1.34 $1.51 Weighted average number of basic and diluted units outstanding 46,809,749 23,041,394 46,809,749 23,041,394 EBITDA from continuing operations (Note 3) $73,727 $33,521 $155,320 $67,346 Distributable cash flow from continuing operations (Note 3) $45,772 $24,867 $103,577 $51,060 June 30, June 30, December 31, 2006 2005 2005 ------------- ------------ ------------- Balance Sheet Data: Long-term debt, including current portion (a) $1,159,482 $397,983 $1,170,705 Partners' equity (b) 1,891,092 436,579 1,900,779 Debt-to-capitalization ratio (a) / ((a)+(b)) 38.0% 47.7% 38.1% Valero L.P. Consolidated Financial Information - Continued June 30, 2006 and 2005 (unaudited, thousands of dollars, except barrel information) Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------- 2006 2005 2006 2005 --------- -------- --------- --------- Operating Data: Refined product terminals: Throughput (barrels/day) (a) 265,277 251,851 258,811 252,686 Throughput revenues $12,876 $11,484 $23,416 $21,421 Storage lease revenues 60,493 - 120,026 - Bunkering revenues 127,874 - 253,949 - --------- -------- --------- --------- Total revenues 201,243 11,484 397,391 21,421 Cost of product sales 118,283 - 232,501 - Operating expenses 50,092 5,725 94,071 10,222 Depreciation and amortization 11,041 1,860 21,947 3,719 --------- -------- --------- --------- Segment operating income $21,827 $3,899 $48,872 $7,480 ========= ======== ========= ========= Refined product pipelines: Throughput (barrels/day) 709,480 438,067 705,248 441,014 Revenues $52,201 $22,678 $104,247 $44,860 Operating expenses 23,736 9,552 43,538 18,855 Depreciation and amortization 10,603 3,904 20,742 7,761 --------- -------- --------- --------- Segment operating income $17,862 $9,222 $39,967 $18,244 ========= ======== ========= ========= Crude oil pipelines: Throughput (barrels/day) 440,691 324,001 434,219 352,386 Revenues $14,868 $12,375 $28,917 $25,560 Operating expenses 4,290 4,186 7,987 8,009 Depreciation and amortization 1,283 1,156 2,532 2,302 --------- -------- --------- --------- Segment operating income $9,295 $7,033 $18,398 $15,249 ========= ======== ========= ========= Crude oil storage tanks: Throughput (barrels/day) 484,322 527,361 498,618 516,562 Revenues $11,656 $11,769 $23,417 $23,100 Operating expenses 1,037 2,182 4,629 4,244 Depreciation and amortization 1,912 1,871 3,807 3,741 --------- -------- --------- --------- Segment operating income $8,707 $7,716 $14,981 $15,115 ========= ======== ========= ========= Consolidated Information: Revenues $279,968 $58,306 $553,972 $114,941 Cost of product sales 118,283 - 232,501 - Operating expenses 79,155 21,645 150,225 41,330 Depreciation and amortization 24,839 8,791 49,028 17,523 --------- -------- --------- --------- Segment operating income 57,691 27,870 122,218 56,088 General and administrative expenses 10,375 3,561 18,935 7,064 --------- -------- --------- --------- Consolidated operating income $47,316 $24,309 $103,283 $49,024 ========= ======== ========= ========= (a) Excludes throughputs related to the storage lease and bunkering operations acquired in the Kaneb Acquisition. Valero L.P. Consolidated Financial Information - Continued June 30, 2006 and 2005 (unaudited) Notes: 1. The statement of income data for the three and six months ended June 30, 2006 includes $17.7 million and $46.4 million, respectively, of operating income related to the Kaneb Acquisition on July 1, 2005. Of the $17.7 million and $46.4 million for the three and six months ended June 30, 2006, respectively, $13.5 million and $34.7 million is attributed to the refined product terminals segment, respectively, and $4.2 million and $11.7 million is attributed to the refined product pipelines segment, respectively. 2. 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 June 30, 2006, Valero L.P. has 46,809,749 common units outstanding. Net income applicable to the general partner includes incentive distributions aggregating $3.5 million and $1.5 million for the three months ended June 30, 2006 and 2005, respectively, and $7.0 million and $2.6 million for the six months ended June 30, 2006 and 2005, respectively. 3. 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 Six Months Ended June 30, June 30, ----------------------- ----------------------- 2006 2005 2006 2005 ----------- ----------- ----------- ----------- Income from continuing operations $31,792 $18,852 $71,381 $38,116 Plus interest expense, net 16,604 5,878 32,300 11,707 Plus income tax expense 492 - 2,611 - Plus depreciation and amortization 24,839 8,791 49,028 17,523 ----------- ----------- ----------- ----------- EBITDA from continuing operations 73,727 33,521 155,320 67,346 Less equity income from joint ventures (1,844) (421) (3,050) (799) Less interest expense, net (16,604) (5,878) (32,300) (11,707) Less reliability capital expenditures (10,052) (2,468) (16,216) (3,893) Less income tax expense (492) - (2,611) - Plus distributions from joint ventures 1,037 113 2,434 113 ----------- ----------- ----------- ----------- Distributable cash flow from continuing operations 45,772 24,867 103,577 51,060 General partner's interest in distributable cash flow from continuing operations (4,383) (2,741) (11,775) (5,814) ----------- ----------- ----------- ----------- Limited partners' interest in distributable cash flow from continuing operations $41,389 $22,126 $91,802 $45,246 =========== =========== =========== =========== Weighted average number of basic and diluted units outstanding 46,809,749 23,041,394 46,809,749 23,041,394 Distributable cash flow from continuing operations per limited partner unit $0.884 $0.960 $1.961 $1.964 *T