UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): October 30, 2006

 

VALERO L.P.

(Exact name of registrant as specified in its charter)

 

 

 

 

Registrant’s telephone number, including area code: (210) 345-2000

 

_______________________

 

NOT APPLICABLE

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 

 

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On October 30, 2006, Valero L.P., a Delaware limited partnership, issued a press release announcing financial results for the quarter ended September 30, 2006. A copy of the press release announcing the financial results is furnished with this report as Exhibit 99.1, and is incorporated herein by reference.

 

The information in this report is being furnished, not filed, pursuant to Item 2.02 of Form 8-K. Accordingly, the information in this report, including the press release, will not be incorporated by reference into any registration statement filed by Valero L.P. under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.

 

NON-GAAP FINANCIAL MEASURES

 

The press release announcing the earnings discloses certain financial measures, EBITDA, distributable cash flow, and distributable cash flow per unit, that are non-GAAP financial measures as defined under SEC rules. The press release furnishes a reconciliation of these non-GAAP financial measures to their nearest GAAP financial measures. 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, distributable cash flow, nor distributable cash flow per unit are intended to represent cash flows for the period, nor are they presented as an alternative to net income or cash flow from 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.

 

 

 

 

 

 

 

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SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

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EXHIBIT INDEX

 

 

 

 

 

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	%

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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.

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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