VALERO L.P. AND VALERO LOGISTICS OPERATIONS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
o amends Statement No. 13, "Accounting for Leases," to eliminate an
inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications
that have economic effects that are similar to sale-leaseback transactions.
This statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability
under changed conditions. The provisions of Statement No. 145 related to the
rescission of Statement No. 4 shall be applied in fiscal years beginning after
May 15, 2002 and the provisions of this statement related to the Statement No.
13 sale-leaseback inconsistency shall be effective for transactions occurring
after May 15, 2002, with early application encouraged. All other provisions of
this statement shall be effective for financial statements issued on or after
May 15, 2002, with earlier application encouraged. The Partnership does not
expect that the adoption of this statement will have a material impact on its
financial position or results of operations.
NOTE 4: Commitments and Contingencies
The Partnership's operations are subject to environmental laws and regulations
adopted by various federal, state and local governmental authorities in the
jurisdictions in which it operates. Although the Partnership believes its
operations are in general compliance with applicable environmental regulations,
risks of additional costs and liabilities are inherent in pipeline, terminalling
and storage operations, and there can be no assurance that significant costs and
liabilities will not be incurred. Moreover, it is possible that other
developments, such as increasingly stringent environmental laws, regulations and
enforcement policies thereunder, and claims for damages to property or persons
resulting from the operations, could result in substantial costs and
liabilities. Accordingly, the Partnership has adopted policies, practices and
procedures in the areas of pollution control, product safety, occupational
health and the handling, storage, use and disposal of hazardous materials to
prevent material environmental or other damage, and to limit the financial
liability which could result from such events. However, some risk of
environmental or other damage is inherent in pipeline, terminalling and storage
operations, as it is with other entities engaged in similar businesses. Although
environmental costs may have a significant impact on results of operations for
any single period, the Partnership believes that such costs will not have a
material adverse effect on its financial position.
In connection with the initial public offering of Valero L.P., UDS agreed to
indemnify Valero L.P. for environmental liabilities that arose prior to April
16, 2001 and are discovered within 10 years after April 16, 2001. Excluded from
this indemnification are liabilities that result from a change in environmental
law after April 16, 2001. Effective with the acquisition of UDS by Valero
Energy, Valero Energy has assumed this environmental indemnification. In
addition, as an operator or owner of the assets, the Partnership could be held
liable for pre-April 16, 2001 environmental damage should Valero Energy be
unable to fulfill its obligation. However, the Partnership believes that such a
situation is remote given Valero Energy's financial condition.
In conjunction with the sale of the Wichita Falls Business to Valero L.P.,
Valero Energy has agreed to indemnify Valero L.P. for any environmental
liabilities that arose prior to February 1, 2002 and are discovered by April 15,
2011. As of and for the years ended December 31, 2001, 2000 and 1999, and as of
and for the one month ended January 31, 2002, the Wichita Falls Business did not
incur any environmental liability; thus there was no accrual on January 31,
The Partnership is involved in various lawsuits, claims and regulatory
proceedings incidental to its business. In the opinion of management, the
outcome of such matters will not have a material adverse effect on the
Partnership's financial position or results of operations.