| 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): December 7, 2004 | ||
| VALERO L.P. | ||
| (Exact name of registrant as specified in its charter) | ||
| Delaware | 1-16417 | 74-2956831 | ||||||
| (State or other jurisdiction | Commission File Number | (IRS Employee | ||||||
| of incorporation) | Identification No.) |
| One Valero Way | |||||
| San Antonio, Texas | 78249 | ||||
| (Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: (210) 345-2000
_________________
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 (see General Instruction A.2. below):
[X ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
| Item 7.01 | REGULATION FD DISCLOSURE |
The Partnership is furnishing herewith certain information being presented to analysts and investors at the Wachovia Pipeline Conference and Symposium on December 7, 2004. The presentation is set forth in Exhibit 99.1 hereto and incorporated by reference herein.
The information in this report is being furnished, not filed, pursuant to Item 7.01 of Form 8-K. Accordingly, the information in this report, including the exhibit, will not be incorporated by reference into any registration statement filed by the Company under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.
| Item 9.01 | FINANCIAL STATEMENTS AND EXHIBITS |
| (c) Exhibits. |
| 99.1 | Presentation by Valero L.P. (the "Partnership") December 7, 2004. |
2
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.
| VALERO L.P. By: Riverwalk Logistics, L.P. its general partner |
| By: Valero GP, LLC its general partner | |
| Date: December 7, 2004 | By: /s/Bradley C. Barron Name: Bradley C. Barron Title: Corporate Secretary |
3
EXHIBIT INDEX
| Number | Exhibit |
| 99.1 | Presentation by Valero L.P. (the "Partnership") on December 7, 2004. |
4
Exhibit 99.1
1
Steve Blank, CFO
Wachovia Pipeline Conference &
Symposium
December
7, 2004
Investor Notice
Valero L.P. (“Valero LP”) has filed on November 23, 2004 a Form S-4
Registration
Statement with the Securities and Exchange Commission (SEC) regarding its proposed
mergers with Kaneb Services LLC (“Kaneb Services”) and Kaneb Pipe Line Partners, L.P.
(“Kaneb Partners”). Valero L.P.,
Kaneb Services and Kaneb Partners have also filed other
relevant documents with the SEC. Investors and security holders are urged to read carefully
the Form S-4 Registration Statement
and other relevant documents, because they contain
important information regarding Valero LP, Kaneb Services, Kaneb Partners and the
merger.
A definitive joint proxy statement/prospectus will be sent to security holders
of Valero LP,
Kaneb Services, and Kaneb Partners seeking their approval of the merger transactions.
Investors and security holders may obtain a free copy of the registration statement and other
relevant documents containing information
about Valero LP, Kaneb Services, and Kaneb
Partners, without charge, at the SEC’s web site at www.sec.gov. Copies of the definitive
joint proxy statement/prospectus (when available) and the SEC filings that will be
incorporated by
reference in the joint proxy statement/prospectus may also be obtained for
free by directing a request to Kaneb Services or the respective partnerships.
Valero LP, Kaneb Services, Kaneb Partners, and the officers and directors of Kaneb
Services and of the respective general partners of Valero LP and Kaneb Partners may be
deemed to be participants in the solicitation of proxies from their security holders.
Information about these persons can be found in Valero LP’s,
Kaneb Services’, and Kaneb
Partner’s respective Annual Reports on Form 10-K filed with the SEC, and additional
information about such persons may be obtained from the Form S-4 Registration Statement.
2
Valero L.P. Forward Looking Statements
Cautionary Statement Regarding Forward-Looking Statements
This presentation 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 the
prospectus and prospectus supplement, Valero L.P.’s 2003
annual report on Form 10-K and subsequent filings with the
Securities and Exchange Commission.
3
One of the leading publicly traded growth MLPs in U.S.
(NYSE:VLI)
Market cap at IPO of $470 million; currently around $1.3 billion
Increased quarterly distribution from $.60 to $.80 per unit
Own and operate diversified portfolio of logistics assets,
serving 8 Valero Energy refineries
3,800 miles of refined product pipelines
800 miles of crude oil pipelines
21 refined product terminals
4.5 million barrels of refined product storage capacity
12.6 million barrels of crude oil storage capacity
Valero L.P.
4
System Overview
Key Statistics:
3,800 miles of refined product pipelines
800 miles of crude oil pipelines
21 terminals with 4.5 million barrels of refined
product storage capacity
4 primary crude oil storage tank facilities with
12.6 million barrels of crude oil storage capacity
5
Balanced Portfolio of Assets
Refined Product
Pipelines
Crude Oil Pipelines
Crude Oil
Storage Tanks
Refined Product
Terminals
Percentage of total operating income for the nine months
ended September 30, 2004
6
Strong Relationship with Valero Energy
Valero L.P. assets critical to profitability of 8 Valero
Energy refineries
Long-term handling and throughput agreements in place
100% of crude oil and other feedstocks at 3 refineries
75% of feedstocks and production at 3 refineries
Valero Energy retains all commodity risk
Pre-existing environmental risk retained by Valero
Energy
Insurance coverage through Valero Energy’s program
Valero Energy maintains a significant retained interest
46% ownership (44% subordinated common; 2% GP interest)
GP weighted average incentive distribution at around 7.6%
GP’s incentive distribution limited to 25%
7
(Dollars in millions)
Capital Structure
1 For purposes of this calculation, EBITDA for the last 12 months was used.
1
8
Sept. 30, 2004
$175mm Revolving credit facility
$
38.0
Long term debt, including current
9.2
6.875% senior notes due 2012
99.1
6.05% senior notes due 2013
249.3
Total Debt
395.6
Common units
310.8
Subordinated units
118.2
General partner’s equity
9.9
Total Partners’ Equity
438.9
Total Capitalization
$834.5
Debt-to-Book Capitalization
47.4%
Debt-to-EBITDA
3.3x
(Dollars in millions, except EPU)
Financial Performance
9
YTD
3Q04
9/30/2004
Total Throughput (MBPD)
1,592
1,572
Revenue
$58.0
$166.1
Operating Expenses
21.6
59.8
G&A Expense
3.6
8.2
Depreciation
8.4
24.5
Operating Income
24.4
73.6
Interest Expense
5.4
15.6
Equity Income from Affiliates
0.4
1.1
Net Income
$19.4
$59.1
Net Income applicable to LPs
$17.9
$54.6
Earnings per Unit
$0.78
$2.37
Distributable Cash Flow
applicable to LPs
$22.7
$67.9
Coverage Ratio applicable to LPs
1.23x
1.23x
Kaneb Acquisition
Valero L.P. (NYSE: VLI) to acquire Kaneb Services (NYSE: KSL)
and Kaneb Pipe Line Partners (NYSE: KPP) for $2.8 billion
VLI will acquire KSL for $43.31 cash per share
VLI will acquire KPP for $61.50 per unit, subject to a fixed value
collar of +/- 5%
Upon closing, Valero Energy (NYSE: VLO) will continue to own
100% of the GP of VLI and 21% of the common units
Upon closing, VLI intends to recommend an increase in its
common unit distribution to $3.42 per unit
Expect transaction to close in the 1st quarter 2005
10
Strategic Rationale
Creates the largest terminal operator and 2nd largest petroleum
liquids
pipeline operator in the U.S.
Transaction is expected to be cash flow accretive to both VLI
and KPP unitholders
Expect to achieve at least $25 million annually in synergies
Greatly expands geographic presence and enhances growth
prospects
Diversifies VLI’s customer base
Relationship with Valero Energy creates additional
opportunities
11
Creates one of the largest MLPs with an enterprise value of
approximately $4.3 billion
Combined entity will operate around 9,700 miles of refined
product and crude pipelines
100 terminals and 4 crude oil storage tanks with approx. 85
million barrels of storage capacity
Combined partnership expected to be rated investment grade
by Moody’s and S&P
Bill Greehey will remain Chairman of the Board and
Curt Anastasio will remain President and CEO
Headquartered in San Antonio
The Combined Enterprise
12
Combined Operations
Pro Forma Key Statistics:
Around 9,700 miles of crude
and refined product pipeline
100 terminal facilities and 4
crude oil storage tanks with
around 85 million barrels of
storage
13
KPP
Better Earnings Diversity
VLI
Combined Operations
Pipeline Operations Terminal Operations
Crude Oil Storage Tanks Product Sales Operations
Percent of Operating Income by Segment
1 Excludes operating income of Martin Oil, a marketing subsidiary of KSL.
Note: Percentage of total operating income is for the nine months ended September 30, 2004
1
1
14
Less Dependence on One Customer
Dependence on McKee System reduced from 40% to 15% of EBITDA
Valero Energy 98%
Third Parties 2%
Pro Forma Post-Merger
Customer Base1
Valero Energy
26%
Third Parties
74%
Pre-Merger
Customer Base
1 Excludes revenue of Martin Oil, a marketing subsidiary of KSL.
Note: Percentages based on total revenues for the nine months ended September 30, 2004
15
Financing Plan
(Dollars in millions)
1
1
Assuming exchange at mid-point of fixed value collar
16
Sources of Funds:
Valero L.P. common unit exchange
$1,422
New debt issuance
550
Less: cash assumed
(79)
Debt assumed at book value
686
Debt assumed FV write-up
44
Other liabilities assumed
180
Valero Energy capital contribution to maintain 2% GP
28
Total Sources
$2,831
Uses of Funds:
Current Assets
$
112
Property, Plant & Equipment
1,681
Other Assets
34
Goodwill & other intangible assets
1,004
Total Uses
$2,831
Pro Forma Debt Position
(Dollars in millions)
17
Issuer
Amount
Maturity
Valero Logistics Operations (6.875%)1
$100
2012
Valero Logistics Operations (6.05%)1
$250
2013
Kaneb Pipe Line Operating Partnership,
L.P. (5.875%)2
$250
2013
Kaneb Pipe Line Operating Partnership,
L.P. (7.75%)2
$250
2012
New Valero Logistics Operations
- term debt
$500
- $400 mm revolving credit facility and
other bank borrowings2
$158
5-Year Revolver
1 Guaranteed by VLI, non-recourse to Valero Energy
2 Estimated draw down at close
Pro Forma Ownership Structure
Valero
GP, Inc.
Valero L.P.
(VLI)
Valero Logistics
Operations, L.P.
Kaneb
Services, LLP
(Kaneb Pipe
Line Company
LLC)
Kaneb Pipe Line
Operating Partnership, L.P.
LP 99.99%
LP 99.99%
GP 0.01%
GP 0.01%
100%
100%
VLO
21%
Public
Unitholders
79%
VLI Public and U.S.
Revolving Credit Facility
* Preliminary structure pending further analysis.
KPP Public and Foreign
Bank Debt
18
Expected synergies of $25 million annually
Corporate expense reduction & other - $10 million
Terminal operations - $6 million
Pipeline operations - $5 million
Operating cost reductions - $4 million
$365 million of 2005 projected pro forma EBITDA
2005 pro forma distributable cash flow accretion of
37 cents per unit
Pro forma debt-to-capitalization ratio at approximately 46%
Expected to be investment grade rated
Great Combination of Assets
1
1
1
See Appendix for pro forma assumptions.
19
Appendix
20
Fixed Value Collar
21
Reconciliation of Net Income to EBITDA and
Distributable Cash Flow
The following is a reconciliation of net income to EBITDA and distributable cash flow (in thousands):
221,668
Distributable Cash Flow
(46,427)
Less reliability capital
(4,188)
Less income taxes
(92,455)
Less interest expense
364,738
EDITDA
94,034
Plus depreciation & amortization
94,449
Plus net interest expense & other
$176,255
Net income
2005
Projected Pro Forma
91,804
(17,439)
(3,403)
(31,389)
144,035
41,677
32,180
$67,123
Kaneb Partners
YTD 9/30/2004
76,690
(7,030)
-
(15,630)
99,229
24,536
15,630
$59,063
Valero L.P.
n/a
Less VLI’s Skelly interest
n/a
121
Plus income tax expense
n/a
3,055
n/a
1
1
Based on the assumptions set forth on Slide 23. While we believe that the assumptions underlying these budgets are
reasonable in light of current beliefs concerning future events, the assumptions
are inherently uncertain and are subject to
significant business, economic, regulatory and competitive risks and uncertainties that could cause actual results to differ
materially from those anticipated. If the assumptions are not realized, then actual
cash available for distribution could be
significantly lower.
22
Pro Forma Assumptions
23
Closing Date:
Assumed at December 31, 2004
Forecast:
2004: Based on 9 mos. actuals and 4th quarter forecasts for
each entity as of November 1, 2004
2005: Internal budgets prepared by each entity as of
November 1, 2004
Distribution:
GP’s incentive distribution limited to 25%. Adopt Kaneb’s
distribution of $3.42 per unit. Distributable cash flow accretion
calculated assuming distribution of all distributable cash flow.
Synergies:
$25 million per year
Units Outstanding:
47.9 million units outstanding pro forma
Fixed Value Collar:
Baseline value set at $61.50 and exchange ratio of 1.074 VLI
units for each KPP unit
Interest Rates:
Interest rate on new term debt at 6.5%
Interest rate on revolving credit debt at 4%
Debt Assumption/Refinancing:
VLI will assume KPP’s public debt and refinance bank debt
KSL Purchase:
To be paid in cash and debt-financed by VLI in either the
public or bank market