VLI Valero Lp

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 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. 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. 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 Nine Months Ended September 30, 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 30,2006 September 30,2005 December 31,2005 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% Valero L.P. Consolidated Financial Information - Continued September 30, 2006 and 2005 (unaudited, thousands of dollars, except barrel information) � � � Three Months Ended Nine Months Ended September 30, 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. 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 Nine Months Ended September 30, 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 EndedSeptember 30, Nine Months EndedSeptember 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� 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 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. 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 September 30, 2006 and 2005 (unaudited, thousands of dollars, except unit data and per unit data) Three Months Ended Nine Months Ended September 30, September 30, --------------------------- ------------------------ 2006 2005 2006 2005 ------------- ------------- ----------- ------------ Statement of (Note 2) (Note 2) Income Data (Note 1): 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% *T -0- *T Valero L.P. Consolidated Financial Information - Continued September 30, 2006 and 2005 (unaudited, thousands of dollars, except barrel information) Three Months Ended Nine Months Ended September 30, 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. *T -0- *T 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 Nine Months Ended September 30, 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): *T -0- *T Three Months Ended Nine Months Ended September 30, 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 *T