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Previous: FIRST TRUST COMBINED SERIES 13, 24F-2NT, 1994-03-17 |
Next: FIRST TRUST COMBINED SERIES 14, 24F-2NT, 1994-03-17 |
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
[Amendment No. 2]
Valero Natural Gas Partners, L.P.
(Name of Issuer)
Valero Natural Gas Partners, L.P., Valero Natural Gas Company
and Valero Energy Corporation
(Name of Person(s) Filing Statement)
Common Units of Limited Partner Interests
(Title of Class of Securities)
918906 20 7
(CUSIP Number of Class of Securities)
Rand C. Schmidt, Esq.
Corporate Secretary
530 McCullough Avenue
San Antonio, Texas 78215
(210) 246-2000
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. /X/ The filing of solicitation materials or an
information statement subject to Regulation 14A, Regulation 14C or Rule
13e-3(c) under the Securities Exchange Act of 1934.
b. / / The filing of a registration statement under the
Securities Act of 1933.
c. / / A tender offer.
d. / / None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: /X/
<PAGE> 2
Calculation of Filing Fee
Not applicable. The filing fee was paid with the filing of the original
Schedule 13E-3 on December 30, 1993.
ii
<PAGE> 3
INTRODUCTION
This Schedule 13E-3 relates to the solicitation of proxies of the
holders of the common units of limited partner interests ("Common Units") in
Valero Natural Gas Partners, L.P. ("VNGP") by VNGP and Valero Natural Gas
Company, the general partner of VNGP and a wholly owned subsidiary of Valero
Energy Corporation ("VEC"), in connection with a proposed merger of VNGP with a
limited partnership that is wholly owned by subsidiaries of VEC. The Schedule
13E-3 was filed on December 30, 1993. Amendment No. 1 to Schedule 13E-3 was
filed January 11, 1994. It amended Item 17 of Schedule 13E-3 and included two
exhibits. Portions of those exhibits were omitted from Amendment No. 1 pursuant
to an Application for Confidential Treatment filed January 12, 1994. The
Application for Confidential Treatment has been withdrawn. This Amendment No. 2
to Schedule 13E-3 is filed to amend Item 17 of the Schedule 13E-3 and includes
such exhibits in their entirety. Pursuant to a comment received from the staff
of the Commission with respect to the Schedule 13E-3, VEC has been added as a
filing person and signatory in this Amendment No. 2.
iii
<PAGE> 4
SCHEDULE 13E-3
<TABLE>
<S> <C>
Item 17. Material to Be Filed as Exhibits.
---------------------------------
(a) Not applicable.
(b-1)+ Opinion of Financial Advisor to the Special Committee dated as of
December 20, 1993, appears as Annex B to the Proxy Statement and is
incorporated herein by reference.
(b-2)* Report of Financial Advisor to the Special Committee dated as of
December 10, 1993.
(b-3)* Report of the Financial Advisor to Valero Energy Corporation dated
October 1993.
(c)+ Agreement of Merger dated December 20, 1993, among Valero Natural
Gas Partners, L.P., Valero Merger Partnership, L.P., Valero Natural
Gas Company and Valero Energy Corporation appears as Annex A to the
Proxy Statement and is incorporated herein by reference.
(d)+ Exhibit 17(d) hereto--Letter to Unitholders, Notice of Special
Meeting, form of Proxy and preliminary Proxy Statement.
(e) Not applicable.
(f) Not applicable.
</TABLE>
- ------------------
+Previously filed.
*Filed herewith.
iv
<PAGE> 5
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
<TABLE>
<S> <C>
VALERO NATURAL GAS COMPANY
Date: March 17, 1994
By: /s/ Stan L. McLelland
-----------------------------------
Name: Stan L. McLelland
----------------------------------
Title: Executive Vice President
---------------------------------
VALERO NATURAL GAS PARTNERS, L.P.
Date: March 17, 1994
By: VALERO NATURAL GAS COMPANY,
GENERAL PARTNER
By: /s/ Stan L. McLelland
------------------------------------
Name: Stan L. McLelland
----------------------------------
Title: Executive Vice President
---------------------------------
VALERO ENERGY CORPORATION
Date: March 17, 1994
By: /s/ Stan L. McLelland
-----------------------------------
Name: Stan L. McLelland
----------------------------------
Title: Executive Vice President
---------------------------------
</TABLE>
v
<PAGE> 1
CONFIDENTIAL
- --------------------------------------------------------------------------------
VALERO NATURAL GAS COMPANY
SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS
December 10, 1993
- --------------------------------------------------------------------------------
Dillon, Read & Co. Inc.
<PAGE> 2
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Tab
---
<S> <C>
Executive Summary A
Dillon Read Valuation Effort B
Valuation Methodology C
Valuation Overview D
- Pre-Tax Discounted Cash Flow Analysis
- Comparable Company Trading Analysis
- Analysis of Comparable Company Acquisitions
- Analysis of Historical Premiums of Non-Control Position Buyouts
Appendices
Pre-Tax Discounted Cash Flow Analysis 1
Comparable Company Trading Analysis 2
Selected Comparable Company Acquisitions 3
Historical Premiums of Non-Control Position Buyouts 4
Weighted Average Cost of Capital Analysis 5
G&A and O&M Savings Analysis 6
Comparison of Current and Historical VLP Projections 7
VLP Operating Statistics 8
Stock Price Performance of Peer Group 9
Historical Product Price Performance 10
Summary Financial Impact on VLO 11
</TABLE>
- --------------------------------------------------------------------------------
Valero Natural Gas Company
<PAGE> 3
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------------
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
Valero Natural Gas Company
<PAGE> 4
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------------
Executive Summary
- --------------------------------------------------------------------------------
- The following presentation reviews the factual information as
presented to the Special Committee on December 3, 1993 and is
followed by Dillon Read's valuation analysis.
- On October 14, 1993, Valero Energy Corporation ("VLO") announced
its intent to acquire Valero Natural Gas Partners, LP ("VLP") by
merger for $11.00 per unit. This proposed offer represented a
premium of approximately 24% over the undisturbed market closing
price one-month prior to the announcement date of $8.875.
- On October 14, 1993, VLP units closed at $11.00 per unit.
- On October 16, 1993, VLO obtained board approval for the transaction
and presented its proposal to the Board of Valero Natural Gas Company
on October 17.
- On November 9, 1993, Dillon Read met with and was subsequently hired
by the Special Committee representing the public unit holders of VLP.
- Following this appointment, Dillon Read began an extensive review
and analysis of VLP.
- --------------------------------------------------------------------------------
Valero Natural Gas Company A.1
<PAGE> 5
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------------
Executive Summary
- --------------------------------------------------------------------------------
- On December 2, 1993, Dillon Read had a preliminary meeting with its
own fairness committee to review its progress and methodologies to
date, which was followed on December 3, 1993 with its presentation to
the Special Committee of VLP.
- On December 9, 1993, Dillon Read met again with its fairness
committee.
- This presentation is intended to discuss Dillon Read's efforts to
date in evaluating VLP, including its methodologies, and the
valuation discussion is intended to prepare the Special Committee for
its meeting with VLO on December 11, 1993.
- --------------------------------------------------------------------------------
Valero Natural Gas Company A.2
<PAGE> 6
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------------
Executive Summary
- --------------------------------------------------------------------------------
- Fundamental assumptions implicit in our valuation of VLP include the
following:
- The VLP plan dated November 10, 1993 is the basis for our
analysis.
- As represented by VLO, incremental compression expenditures
above the VLP plan are not feasible (i.e., system capacity is
at maximum throughput).
- Potential litigation liabilities are excluded from the analyses as
presented herein.
- --------------------------------------------------------------------------------
Valero Natural Gas Company A.3
<PAGE> 7
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------------
DILLON READ VALUATION EFFORT
- --------------------------------------------------------------------------------
Valero Natural Gas Company
<PAGE> 8
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------------
Dillon Read Valuation Effort
- --------------------------------------------------------------------------------
- The following Dillon Read personnel are involved in the VLP evaluation:
Name Position
---- --------
James W. Hunt Managing Director
Mark J. Salisbury Senior Vice President
Jason D. Sweet Senior Vice President
Jeffrey W. Miller Associate
Jeffrey J. Singer Financial Analyst
- Wachtell, Lipton and Vinson & Elkins are conducting the legal review
- The Dillon Read and Wachtell, Lipton teams have interviewed the
following VLO and VLP representatives:
Management
----------
Name Position
---- --------
William E. Greehey Chairman of the Board and
Chief Executive Officer
Edward C. Benninger, Jr. President: Valero Natural Gas and
Natural Gas Liquids Companies
Stan L. McLelland Executive Vice President and
General Counsel
Don M. Heep Vice President - Finance
Rand C. Schmidt Corporate Secretary
William H. Zesch Assistant Controller
- -------------------------------------------------------------------------------
Valero Natural Gas Company B.1
<PAGE> 9
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------------
Dillon Read Valuation Effort (Continued)
- --------------------------------------------------------------------------------
- Interview list (continued):
Valero Natural Gas Company
--------------------------
Name Position
---- --------
Terrence E. Ciliske Senior Vice President
Natural Gas Supply, Marketing and
Transportation
Peter A. Fasullo Senior Vice President Planning and
Development
Mark Stavinoha Controller - Natural Gas/Natural Gas
Liquids Division
- Dillon Read's efforts focused on industry conditions, VLP's
competitive position, and a thorough understanding of the VLP plan and
business opportunities
- Identify operational constraints
- Identify implicit assumptions within the VLP plan
- The following documents and material were reviewed
- Review of publicly available information on VLP including proxies,
annual reports, forms 10K and 10Q and other SEC filings, news
stories and trading data
- Review of internally generated VLP operational and financial
plans
- Review of outstanding litigation, including take or pay exposure
- --------------------------------------------------------------------------------
Valero Natural Gas Company B.2
<PAGE> 10
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------------
Dillon Read Valuation Effort (Continued)
- --------------------------------------------------------------------------------
- On December 7, 1993 the Dillon Read team and Wachtell, Lipton held a
conference call with Salomon Brothers to discuss its own assumptions
implicit in its analysis
- The Salomon Brothers team consisted of the following:
Name Position
---- --------
David J. Prend Director
C. Scott Baxter Vice President
Laurie Cowen Vice President
Roy W. Jageman Associate
D. Richard Dowdle Analyst
- The most sign-perceived differences between Dillon Read's and Salomon
Brothers' analyses include the following:
- Calculation of net debt
- Discounted cash flow analysis methodology
- Terminal multiples
- Cash flow perpetuity analysis
- Adjustments to reported twelve month VLP data
- Selection of most relevant comparables
- --------------------------------------------------------------------------------
Valero Natural Gas Company B.3
<PAGE> 11
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------------
VALUATION METHODOLOGY
- --------------------------------------------------------------------------------
Valero Natural Gas Company
<PAGE> 12
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------------
Valuation Methodology
- --------------------------------------------------------------------------------
- Comparison of VLP to selected publicly-traded Gas Gathering,
Transportation and Marketing ("GTM") Companies. The industry group
includes:
- American Oil & Gas Corporation
- Aquila Gas Pipeline Corporation
- Associated Natural Gas Corporation
- Tejas Gas Corporation
- Tejas Power Corporation
- Trident NGL Holdings, Inc.
- USX - Delhi Group included by Salomon
- Western Gas Resources, Inc.
- This industry group was narrowed to the following more comparable
group:
- Aquila Gas Pipeline Corporation included by Salomon
- Associated Natural Gas Corporation excluded by Salomon
- Trident NGL Holdings, Inc. included by Salomon
- Western Gas Resources, Inc. excluded by Salomon
- Pre-tax discounted cash flow analysis of VLP
- An analysis of market premiums paid for non-control stockholder
positions
- Review of acquisitions within the sector
- --------------------------------------------------------------------------------
Valero Natural Gas Company C.1
<PAGE> 13
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------------
VALUATION OVERVIEW
- --------------------------------------------------------------------------------
Valero Natural Gas Company
<PAGE> 14
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------------
Valuation Overview
- --------------------------------------------------------------------------------
Pre-Tax Discounted Cash Flow
Base Case
- ---------
<TABLE>
<CAPTION>
Discount Rate
Assumed Terminal -------------------------------------
EDITDA Multiple 10.0% 10.5% 11.0% 11.5% 12.0%
---------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
7.5x $11.47 $10.56 $ 9.68 $ 8.82 $ 7.98
8.0x 13.14 12.19 11.27 10.37 9.49
8.5x 14.81 13.82 12.86 11.92 11.01
9.0x 16.48 15.45 14.45 13.47 12.52
</TABLE>
Annual O&M and G&A Savings $5mm and Downward NGL Price Adjustments
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
Discount Rate
Assumed Terminal -------------------------------------
EBITDA Multiple 10.0% 10.5% 11.0% 11.5% 12.0%
---------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
7.5x $11.59 $10.65 $ 9.74 $ 8.86 $ 8.00
8.0x 13.33 12.36 11.41 10.48 9.58
8.5x 15.08 14.06 13.07 12.10 11.16
9.0x 16.83 15.77 14.73 13.73 12.75
</TABLE>
- --------------------------------------------------------------------------------
Valero Natural Gas Company D.1
<PAGE> 15
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------------
Valuation Overview
- --------------------------------------------------------------------------------
Annual O&M and G&A Savings $10mm and Base Case NGL Price Forecast
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
Discount Rate
-------------------------------------
Assumed Terminal 10.0% 10.5% 11.0% 11.5% 12.0%
EBITDA Multiple ----- ----- ----- ----- -----
---------------
<S> <C> <C> <C> <C> <C>
7.5x $16.34 $15.34 $14.37 $13.42 $12.50
8.0x 18.16 17.12 16.11 15.12 14.16
8.5x 19.99 18.90 17.84 16.81 15.81
9.0x 21.81 20.68 19.58 18.51 17.46
</TABLE>
- --------------------------------------------------------------------------------
Valero Natural Gas Company D.2
<PAGE> 16
Dillon, Read & Co. Inc. December 10, 1993
- -------------------------------------------------------------------------------
Valuation Overview
- -------------------------------------------------------------------------------
Annualized Adjustments to Reported LTM 9/30/93 Financials
- ---------------------------------------------------------
<TABLE>
<CAPTION>
($MM)
<S> <C> <C>
- Favorable prior year adjustments $8.5 (non-cash adjustment)
- System gain and sales margin 7.5 (cash adjustment)
- Unrecoverable affiliate gathering &
transportation costs 4.4 (cash adjustment)
-----
$20.4
=====
</TABLE>
<TABLE>
<CAPTION>
EBITDA CFFO(a) Net Income(a)
------ ------- -------------
<S> <C> <C> <C>
As Reported (LTM 9/30/93) $115.9 $46.1 $12.2
(7.5) (7.5) (7.5)
(4.4) (4.4) (4.4)
--- --- (8.5)
--- 7.1 (b) 7.1 (b)
------ ----- -----
Adjusted (LTM 9/30/93) $104.0 $41.4 ($1.1)
====== ===== =====
</TABLE>
- -------------
(a) Assumes a 35% tax rate and deferred tax component is zero.
(b) Tax shield of 35% associated with downward adjustments.
- -------------------------------------------------------------------------------
Valero Natural Gas Company D.3
<PAGE> 17
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------------
Valuation Overview
- --------------------------------------------------------------------------------
Trading Company Analysis
Peer Group (a)
(Tax Rate = 35%)
<TABLE>
<CAPTION>
Indicated Value per Unit
---------------------------------------------
Multiple Parameter Actual Adjusted
- ------------------ ----------------- -----------------
Mean Median Mean Median
---- ------ ---- ------
<S> <C> <C> <C> <C>
Net Income to Common (b)
LTM (9/30/93) $10.04 $10.30 NM NM
1993 (c) 12.98 12.98 $12.98 $12.98
1994 (c) 12.45 12.45 12.45 12.45
Cash Flow From Operations (b)
LTM (9/30/93) $16.15 $16.52 $14.48 $14.82
1994E 13.38 13.38 13.38 13.38
LTM Operating Cash Flow (EDITDA) $17.60 $13.98 $12.41 $ 9.16
(9/30/93)
</TABLE>
- --------------
(a) Peer group includes AQP, NGA, NGL, and WGR.
(b) Assumes a 35% tax rate and deferred tax component is zero.
(c) Based on IBES estimates.
- -----------------------------------------------------------------------------
Valero Natural Gas Company D.4
<PAGE> 18
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------
VALUATION OVERVIEW
- --------------------------------------------------------------------------
Trading Company Analysis
Industry Group(a)
(Tax Rate = 35%)
<TABLE>
<CAPTION>
Indicated Value per Unit
------------------------------------
Multiple Parameter Actual Adjusted
- ------------------ ---------------- ----------------
Mean Median Mean Median
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Income to Common (b)
LTM (9/30/93) $13.92 $13.80 NM NM
1993 (c) 15.98 14.68 $15.98 $14.68
1994 (c) 13.45 12.45 13.45 12.45
Cash Flow From Operations (b)
LTM (9/30/93) $17.87 $20.18 $16.02 $18.10
1994E 13.30 14.29 13.30 14.29
LTM Operating Cash Flow (EDITDA) $16.71 $19.74 $11.61 $14.33
(9/30/93)
</TABLE>
- ---------------
(a) Industry group includes AOG, AQP, NGA, TEJ, TPC, NGL, DGP and WGR.
(b) Assumes a 35% tax rate and deferred tax component is zero.
(c) Based on IBES estimates.
- --------------------------------------------------------------------------
Valero Natural Gas Company D.5
<PAGE> 19
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------
VALUATION OVERVIEW
- --------------------------------------------------------------------------
Trading Company Analysis
Peer Group(a)
(Tax Rate = 0%)
<TABLE>
<CAPTION>
Indicated Value per Unit
------------------------------------
Multiple Parameter Actual Adjusted
- ------------------ ---------------- ----------------
Mean Median Mean Median
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Income to Common (b)
LTM (9/30/93) $15.45 $15.84 NM NM
1993 (c) 19.97 19.97 $19.97 $19.97
1994 (c) 19.15 19.15 19.15 19.15
Cash Flow From Operations (b)
LTM (9/30/93) $18.44 $18.87 $14.28 $14.61
1994E 13.19 13.19 13.19 13.19
LTM Operating Cash Flow (EDITDA) $17.60 $13.98 $12.41 $ 9.16
(9/30/93)
</TABLE>
- ---------------
(a) Peer group includes AQP, NGA, NGL, and WGR.
(b) Assumes a 0% tax rate.
(c) Based on IBES estimates.
- --------------------------------------------------------------------------
Valero Natural Gas Company D.6
<PAGE> 20
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------
VALUATION OVERVIEW
- --------------------------------------------------------------------------
Trading Company Analysis
Industry Group(a)
(Tax Rate = 0%)
<TABLE>
<CAPTION>
Indicated Value per Unit
------------------------------------
Multiple Parameter Actual Adjusted
- ------------------ ---------------- ----------------
Mean Median Mean Median
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Income to Common (b)
LTM (9/30/93) $21.42 $21.23 NM NM
1993 (c) 24.58 22.58 $24.58 $22.58
1994 (c) 20.69 19.55 20.69 19.15
Cash Flow From Operations (b)
LTM (9/30/93) $20.41 $23.05 $15.80 $17.85
1994E 13.12 14.08 13.12 14.08
LTM Operating Cash Flow (EDITDA) $16.71 $19.74 $11.61 $14.33
(9/30/93)
</TABLE>
- ---------------
(a) Industry group includes AOG, AQP, NGA, TEJ, TPC, NGL, DGP and WGR.
(b) Assumes a 0% tax rate.
(c) Based on IBES estimates.
- --------------------------------------------------------------------------
Valero Natural Gas Company D.7
<PAGE> 21
Dillion, Read & Co. Inc. December 10, 1993
- ----------------------------------------------------------------------------
VALUATION OVERVIEW
- ----------------------------------------------------------------------------
Comparable Company Acquisitions
- -------------------------------
- - An analysis of comparable company acquisitions yields a range of EBITDA
multiples from 3.5x - 11.2x(a)
Implied Value
EBITDA Multiple Per Unit
--------------- -------------
Mean 6.8x $8.43
Median 6.9x $9.04
Historical Premiums Paid In Non-Control Position Buyouts
- --------------------------------------------------------
- - An analysis of 137 buyouts of non-control positions yields a wide range of
premiums paid over market prices. However 72% of the transactions fall
within a range of 0 to 70% (b)
Implied Value
Premium Per Unit
------- -------------
Mean 35.2% $12.00
Median 33.0% $11.80
- ---------------
(a) See Appendix 3 for a tabulation of comparable company acquisitions.
(b) Based on the premium to market one-month prior to the announcement date.
The closing price of VLP was $8 7/8/unit on 9/14/93. Statistical data
implicit in the analysis is based on the buyouts of 137 non-control
positions since 1/1/86.
- ----------------------------------------------------------------------------
Valero Natural Gas Company D.8
<PAGE> 22
Dillon, Read & Co. Inc. December 10, 1993
- ---------------------------------------------------------------------------
PRE-TAX DISCOUNTED CASH FLOW ANALYSIS
- ---------------------------------------------------------------------------
Valero Natural Gas Company
<PAGE> 23
DILLON, READ & CO. INC. 12/09/93 AT 7:57 PM
PRELIMINARY & CONFIDENTIAL BASED ON 11/10/93 FORECAST
VALERO NATURAL GAS PARTNERS, L.P.
DISCOUNTED CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
DERIVATION OF UNLEVERED CASH FLOWS:
Cash Flow From Operations (a) $ 38.1 $ 48.3 $ 55.4 $ 60.9 $ 54.1 $ 51.6
Net Take-or-Pay Recoveries / (Payments) (8.6) 14.0 11.7 11.7 11.7 7.7
Changes in Working Capital and Other
Items (8.5) 2.5 2.9 2.1 2.3 1.8
Interest Expense 70.3 70.1 68.3 65.1 59.0 59.0
------ ------ ------ ------ ----- -----
Unlevered Cash From Operating
Activities 91.4 135.0 138.4 139.8 127.1 120.2
Less Maintenance Capital Expenditures (27.0) (28.0) (28.0) (29.0) (29.0) (29.0)
Less Growth Capital Expenditures (29.2) (3.5) 0.0 0.0 0.0 0.0
------ ------ ------ ----- ----- ------
Unlevered Free Cash Flow $ 35.3 $103.5 $110.4 $110.8 $ 98.1 $ 91.2
</TABLE>
<TABLE>
<CAPTION>
DISCOUNTED VALUE OF CASH FLOWS (USING
MID YEAR DISCOUNTING) DISCOUNT RATE
-------------------------------------------------
10.0% 10.5% 11.0% 11.5% 12.0%
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Estimated Value at 12/31/93 $407.6 $402.1 $396.7 $391.4 $386.2
</TABLE>
<TABLE>
<CAPTION>
DERIVATION OF TERMINAL VALUE:
Discounted Value of
Terminal Value
Multiple Discount Rate
Of 1999E ------------------------------------------------
EBITDA 10.0% 10.5% 11.0% 11.5% 12.0%
------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
7.5 x $477.3 $465.6 $454.1 $443.0 $432.3
8.0 x 509.1 496.6 484.4 472.6 461.1
8.5 x 541.0 527.6 514.7 502.1 489.9
9.0 x 572.8 558.7 545.0 531.7 518.7
</TABLE>
<TABLE>
<CAPTION>
DERIVATION OF ESTIMATED VALUE OF PARTNERS' CAPITAL AT 12/31/93:
Discounted Value of Total
Operations
Discount Rate
Assumed -------------------------------------------------
Multiple 10.0% 10.5% 11.0% 11.5% 12.0%
-------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
7.5 x $884.9 $867.6 $850.8 $834.4 $818.4
8.0 x 916.7 898.7 881.1 863.9 847.3
8.5 x 948.6 929.7 911.3 893.5 876.1
9.0 x 980.4 960.7 941.6 923.0 904.9
Less Estimated Net Debt
at 12/31/93 $666.4 $666.4 $666.4 $666.4 $666.4
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED VALUE OF TOTAL
PARTNER'S CAPITAL Discount Rate
Assumed -------------------------------------------------
Multiple 10.0% 10.5% 11.0% 11.5% 12.0%
------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
7.5 x $218.5 $201.3 $184.4 $168.0 $152.1
8.0 x 250.4 232.3 214.7 197.6 180.9
8.5 x 282.2 263.3 245.0 227.1 209.7
9.0 x 314.0 294.4 275.2 256.6 238.5
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED VALUE PER PUBLIC UNIT (ASSUMES THAT 51.0% OF TOTAL VALUE ACCRUES TO 9.71 MILLION PUBLIC UNITS)
Discount Rate
Assumed -------------------------------------------------
Multiple 10.0% 10.5% 11.0% 11.5% 12.0%
-------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
7.5 x $11.47 $10.56 $ 9.68 $ 8.82 $ 7.98
8.0 x 13.14 12.19 11.27 10.37 9.49
8.5 x 14.81 13.82 12.86 11.92 11.01
9.0 x 16.48 15.45 14.45 13.47 12.52
</TABLE>
(a) Assumes combined annual savings from O&M and G&A expenses of $0.0 million.
Also, assumes base case projections for NGL business.
SAVINGS: $0.0 mill
NGLs: Base
Calculation of Net Debt at 12/3
-------------------------------
<TABLE>
<S> <C>
Total Long-Term Debt $506.4
Plus Capital Leases 103.8
Plus Current Maturities 27.9
Plus Current Lease Payments 1.1
Plus Short-Term Notes 47.0
Other Adjustements 18.0
Less Cash & Equivalents (3.6)
Less Escrow of Debt Principal (20.9)
Less Escrow of Interest Costs (13.3)
-----
Net Debt at 12/31/93 $666.4
</TABLE>
Other Items
-----------
<TABLE>
<S> <C>
1999E Operating Cash Flow/EBITDA $107.5
Number of Public Units, millions 9.711919
Effective Percentage of Total Capital 51.0%
</TABLE>
<PAGE> 24
DILLON, READ & CO. INC. 12/21/93 AT12:47 PM
PRELIMINARY & CONFIDENTIAL BASED ON 11/10/93 FORECAST
VALERO NATURAL GAS PARTNERS, L.P.
PROJECTED BALANCE SHEETS AS OF DECEMBER 31 OF EACH YEAR
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS:
Operating Cash Balance 6.598 3.561 18.166 23.113 26.270
Cash Held in Debt Service Escrow
Interest Escrow 13.846 13.293 12.673 11.984 11.228
Principal Escrow 19.018 20.892 22.767 24.643 26.518
--------- --------- --------- --------- ---------
32.864 34.185 35.440 36.627 37.746
Current Take-or-Pay Charges 0.000 0.000 14.013 11.737 11.737
Other Current Assets 215.013 177.541 195.486 196.962 197.662
--------- --------- --------- --------- ---------
Total Current Assets 254.475 215.287 263.105 268.439 273.415
Net Property, Plant & Equipment 743.107 746.638 764.778 755.125 744.756
Non-Current Take-or-Pay Asset 72.174 67.096 61.685 49.948 38.211
Other Assets 14.616 13.179 7.446 5.242 3.269
--------- --------- --------- --------- ---------
Total Assets 1,084.372 1,042.200 1,097.014 1,078.755 1,059.652
========= ========= ========= ========= =========
LIABILITIES & PARTNERS' CAPITAL:
Current L-T Debt Maturities 25.357 27.857 30.357 32.857 35.357
Current Capital Lease Maturities 0.762 1.052 1.174 1.692 2.552
Short-Term Notes 0.000 47.000 50.000 50.000 50.000
New Funding Source 0.000 0.000 88.000 91.000 99.000
Other Current Liabilities 261.308 187.630 190.135 189.076 188.411
--------- --------- --------- --------- ---------
Total Current Liabilities 287.427 263.539 359.666 364.625 375.320
Long-Term Debt 534.286 506.429 476.072 443.215 407.858
Capital Lease Obligations 103.968 103.786 103.600 103.029 100.780
Deferred Credits and Other Liabilities 2.672 4.230 6.190 9.034 12.030
Public Common Units 135.942 136.923 127.246 127.870 127.273
Valero Common Units 18.519 25.548 22.954 29.659 35.043
General Partners' Capital 1.558 1.745 1.286 1.322 1.347
--------- --------- --------- --------- ---------
Total Partners' Capital 156.019 164.216 151.486 158.852 163.664
--------- --------- --------- --------- ---------
Total Liabilities & Partners' Capital 1,084.372 1,042.200 1,097.014 1,078.755 1,059.652
========= ========= ========= ========= =========
Net Debt / Net Book Capitalization 80.0% 79.8% 82.1% 80.6% 79.4%
</TABLE>
<TABLE>
<CAPTION>
1997 1998 1999
----------- --------- -------
<S> <C> <C> <C>
ASSETS:
Operating Cash Balance 27.686 26.815 21.912
Cash Held in Debt Service Escrow
Interest Escrow 10.394 10.394 10.394
Principal Escrow 28.394 28.394 28.394
----------- --------- -------
38.788 38.788 38.788
Current Take-or-Pay Charges 11.737 11.737 11.737
Other Current Assets 189.862 190.862 191.862
----------- --------- -------
Total Current Assets 268.073 268.202 264.299
Net Property, Plant & Equipment 734.285 723.134 711.288
Non-Current Take-or-Pay Asset 26.474 14.737 7.000
Other Assets 10.362 8.889 7.416
----------- --------- -------
Total Assets 1,039.195 1,014.962 990.003
=========== ========= =======
LIABILITIES & PARTNERS' CAPITAL:
Current L-T Debt Maturities 37.900 37.000 40.500
Current Capital Lease Maturities 3.100 3.500 3.900
Short-Term Notes 50.000 50.000 50.000
New Funding Source 105.000 116.500 130.500
Other Current Liabilities 187.317 187.645 187.419
----------- --------- -------
Total Current Liabilities 383.317 394.645 412.319
Long-Term Debt 369.958 332.958 292.458
Capital Lease Obligations 97.680 94.180 90.280
Deferred Credits and Other Liabilities 15.186 18.186 21.186
Public Common Units 128.811 126.583 122.736
Valero Common Units 42.756 47.065 49.913
General Partners' Capital 1.487 1.345 1.111
----------- --------- -------
Total Partners' Capital 173.054 174.993 173.760
----------- --------- -------
Total Liabilities & Partners' Capital 1,039.195 1,014.962 990.003
=========== ========= =======
Net Debt / Net Book Capitalization 77.5% 76.5% 75.9%
</TABLE>
Page 2
<PAGE> 25
DILLON, READ & CO. INC. 12/21/93 AT12:47 PM
PRELIMINARY & CONFIDENTIAL BASED ON 11/10/93 FORECAST
VALERO NATURAL GAS PARTNERS, L.P.
PROJECTED INCOME STATEMENTS
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING INCOME:
Total Gross Profits 240.601 243.467 259.594 268.717 274.549 265.446 267.040
Less Operating and General Expenses 102.820 118.831 124.095 127.163 129.957 132.935 135.983
Less O&M Savings 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Less G&A Savings 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Less Allocated Overhead Expenses 17.540 19.238 20.047 20.878 21.740 22.631 23.559
------- ------- ------- ------- ------- ------- -------
Operating Cash Flow / EBITDA 120.241 105.398 115.452 120.676 122.852 109.880 107.498
Less FMV Amortization 6.757 6.765 6.765 6.523 6.966 6.966 6.966
Less Depreciation and Amortization 29.652 31.246 31.188 31.846 32.505 33.185 33.880
------- ------- ------- ------- ------- ------- -------
Operating Income / EBIT 83.832 67.387 77.499 82.307 83.381 69.729 66.652
OTHER INCOME:
Minority Interest (0.906) (0.742) (0.843) (0.888) (0.903) (0.767) (0.736)
Gain / (Loss) on Disposition 0.000 0.000 9.300 0.000 0.000 0.000 0.000
Interest Income 0.784 0.726 1.221 1.362 1.640 1.703 1.681
Other Income / (Expense) 0.432 0.019 0.000 0.000 0.000 0.000 0.000
------- ------- ------- ------- ------- ------- -------
0.310 0.003 9.678 0.474 0.737 0.936 0.945
INTEREST EXPENSE:
Interest on Long-Term Debt (55.599) (53.187) (50.501) (47.544) (44.286) (38.030) (37.584)
Interest on Short-Term Debt (1.058) (3.056) (3.600) (3.600) (3.600) (3.600) (3.600)
Interest on New Funding Source 0.000 (2.772) (6.444) (6.840) (7.344) (7.974) (8.892)
Capital Lease with VEC (9.925) (12.803) (12.814) (12.478) (12.562) (12.261) (11.861)
Capitalized Interest 1.641 0.588 0.500 0.400 0.400 0.400 0.400
Other Interest Expense (1.465) 0.887 2.733 1.732 2.289 2.500 2.500
------- ------- ------- ------- ------- ------- -------
Net Interest Expense (66.406) (70.342) (70.126) (68.329) (65.103) (58.965) (59.037)
Net Income / (Loss) 17.736 (2.952) 17.051 14.452 19.015 11.700 8.559
Less General Partner's Interest (0.483) (0.075) (0.469) (0.413) (0.512) (0.368) (0.306)
Net Income to Limited Partners 17.253 (3.027) 16.582 14.038 18.503 11.332 8.253
Allocated to Public Common Units 5.857 (4.801) 5.501 4.279 6.414 2.647 1.030
Allocated to Valero Common Units 11.397 1.774 11.082 9.759 12.089 8.685 7.224
Total Allocated to General Partner 1.388 0.817 1.312 1.302 1.415 1.135 1.042
------- ------- ------- ------- ------- ------- -------
Net Income Before Minority Interest 18.642 (2.210) 17.894 15.340 19.918 12.467 9.295
% of Total Net Income to Public Units 50.97% 50.97% 50.97% 50.97% 50.97% 50.97% 50.97%
% of Total Net Income to Valero Units 46.06% 46.06% 46.06% 46.06% 46.06% 46.06% 46.06%
% of Total Net Income to General Partner 2.97% 2.97% 2.97% 2.97% 2.97% 2.97% 2.97%
EBIT / Net Interest Expense 1.3 x 1.0 x 1.1 x 1.2 x 1.3 x 1.2 x 1.1 x
EBITDA / Net Interest Expense 1.8 x 1.5 x 1.6 x 1.8 x 1.9 x 1.9 x 1.8 x
</TABLE>
Page 3
<PAGE> 26
DILLON, READ & CO. INC. 12/09/93 AT 05:44 PM
PRELIMINARY & CONFIDENTIAL BASED ON 11/10/93 FORECAST
VALERO NATURAL GAS PARTNERS, L.P.
PROJECTED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income 17.736 (2.952) 17.051 14.452 19.015 11.700 8.559
Depreciation Expense 36.409 38.011 37.953 38.369 39.471 40.151 40.846
Minority Interest 0.906 0.742 0.843 0.888 0.903 0.767 0.736
Amortization of Deferred Charges 2.510 2.333 1.791 1.736 1.473 1.473 1.473
(Gain) / Loss on Dispositions 0.000 0.000 (9.300) 0.000 0.000 0.000 0.000
------- ------- ------- ------- ------- ------- -------
Cash Flow From Operations 57.561 38.134 48.338 55.445 60.862 54.091 51.614
(Inc.) / Dec. in Other Current Assets 37.472 (17.945) (1.476) (0.700) 7.800 (1.000) (1.000)
(Inc.) / Dec. in Other Current Liabilities (73.678) 2.505 (1.059) (0.665) (1.094) 0.328 (0.226)
(Inc.) / Dec. in Interest Escrow 0.553 0.620 0.689 0.756 0.834 0.000 0.000
Changes in Current Deferred Gas Charges 0.000 (14.013) 2.276 0.000 0.000 0.000 0.000
Changes in Non-Current Deferred Gas Charges 5.078 5.411 11.737 11.737 11.737 11.737 7.737
Changes in Other Assets (1.073) 3.400 0.413 0.237 (8.566) 0.000 0.000
Changes in Deferred Credits and Other Liabilities 1.558 1.960 2.844 2.996 3.156 3.000 3.000
Changes in Capital Lease Obligations 0.870 0.988 1.121 0.303 0.000 0.000 0.000
------- ------- ------- ------- ------- ------- -------
Cash Provided By Operating Activities 28.341 21.060 64.883 70.109 74.729 68.156 61.125
CASH FLOW FROM INVESTING ACTIVITIES:
Maintenance Capital Expenditures (27.000) (27.000) (28.000) (28.000) (29.000) (29.000) (29.000)
Other Capital Expenditures (15.431) (29.151) (3.500) 0.000 0.000 0.000 0.000
Other, Net 2.491 0.000 12.500 0.000 0.000 0.000 0.000
------- ------- ------- ------- ------- ------- -------
Cash Provided / (Used) By Investing Activities (39.940) (56.151) (19.000) (28.000) (29.000) (29.000) (29.000)
Cash Flow From Financing Activities:
Long-Term Debt Reduction (25.357) (27.857) (30.357) (32.857) (35.357) (37.900) (37.000)
Capital Lease Obligation Reduction (0.762) (1.052) (1.174) (1.692) (2.552) (3.100) (3.500)
Inc. / (Dec.) in Short-Term Notes 47.000 3.000 0.000 0.000 0.000 0.000 0.000
Inc. / (Dec.) in New Funding Source 0.000 88.000 3.000 8.000 6.000 11.500 14.000
(Inc.) / Dec. in Debt Service Escrow For Principal (1.874) (1.875) (1.876) (1.875) (1.876) 0.000 0.000
Distributions to Public Unitholders (4.876) (4.876) (4.876) (4.876) (4.876) (4.876) (4.876)
Distributions to Valero's Common Units (4.368) (4.368) (4.376) (4.376) (4.376) (4.376) (4.376)
Distributions to General Partner (1.201) (1.276) (1.276) (1.276) (1.276) (1.276) (1.276)
------- ------- ------- ------- ------- ------- -------
Cash Provided / (Used) By Financing 8.562 49.696 (40.935) (38.952) (44.313) (40.028) (37.028)
Net Increase / (Decrease) in Cash Balance (3.037) 14.605 4.948 3.157 1.416 (0.872) (4.903)
Cash Flow From Operations / Gross Interest Expense 0.8 x 0.5 x 0.7 x 0.8 x 0.9 x 0.9 x 0.9 x
Cash From Operating Activities / Gross
Intrest Expense 0.4 x 0.3 x 0.9 x 1.0 x 1.1 x 1.1 x 1.0 x
</TABLE>
Page 4
<PAGE> 27
DILLON, READ & CO. INC. 12/21/93 AT12:47 PM
PRELIMINARY & CONFIDENTIAL BASED ON 11/10/93 FORECAST
VALERO NATURAL GAS PARTNERS, L.P.
PROJECTED RESULTS FOR LIQUIDS SEGMENT
<TABLE>
<CAPTION>
Actual
1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BASE CASE OPERATING ASSUMPTIONS
NGL Production Volumes, mmgals 0.880 1.062 1.165 1.173 1.173 1.173 1.173 1.173
Gas Cost Forecast
($ per mmbtu) 1.610 1.98 2.06 2.16 2.20 2.24 2.28 2.32
Assumed
Product Mix
-----------
Avg Hou Price C2 Forecast
(cents per gallon) 45.0% 21.870 22.250 24.340 25.060 25.420 25.420 25.420
Avg Hou Price C3 Forecast 28.2% 32.340 32.580 34.500 35.500 36.000 36.000 36.000
Avg Hou Price IC4 Forecast 6.6% 41.430 43.060 45.500 44.670 47.430 47.430 47.430
Avg Hou Price NC4 Forecast 8.6% 37.790 38.710 40.500 41.500 42.000 42.000 42.000
Avg Hou Price C5 Plus Forecast 11.6% 42.240 43.820 45.000 45.250 45.500 45.500 45.500
-------- -------- -------- -------- -------- -------- ---------
Aggregate NGL Price Per
Gallon(a) 31.400 29.846 30.454 32.388 33.054 33.611 33.611 33.611
Less Gas Cost Per Barrel (20.000) (19.500) (21.700) (23.600) (24.200) (24.500) (24.941) (25.390)
-------- -------- -------- -------- -------- -------- -------- ---------
Processing Margin, Cents
Per Gallon 11.400 10.346 8.754 8.788 8.854 9.111 8.670 8.221
Implicit Transportation
Charges (3.114) (3.481) (1.900) (1.941) (1.818) (2.029) (1.914) (1.927)
-------- -------- -------- -------- -------- -------- -------- ---------
Base Case Gross Margin 8.286 6.864 6.854 6.847 7.037 11.140 10.584 10.149
OPERATING INCOME
Processing Gross Profit $100.270 $109.845 $101.955 $103.105 $103.882 $106.899 $105.551 $105.711
Implicit Transportation
Charges (27.389) (36.964) (22.132) (22.775) (21.325) (23.802) (22.454) (22.614)
-------- -------- -------- -------- -------- -------- -------- ---------
Base Case Gross Profit 72.881 72.881 79.823 80.330 82.557 83.097 83.097 83.097
Reduction in Aggregate
Margin 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Impact on Gross Profit (b) 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Adjusted Gross Profit 72.881 79.823 80.330 82.557 83.097 83.097 83.097
O&G Expenses at 100.0% of Base (27.424) (29.096) (29.409) (30.258) (31.137) (32.040) (32.969)
Depreciation Expense (8.214) (8.899) (8.974) (9.230) (9.493) (9.759) (10.032)
-------- -------- -------- -------- -------- -------- ---------
Total Operating Income
Before FMV Amort. &
Alloc. Exp. 37.243 41.828 41.947 43.069 42.467 41.298 40.096
FMV Depreciation Expense 0.191 0.201 0.201 0.443 0.000 0.000 0.000
Allocated Expenses at 100.0%
of Base (3.731) (4.063) (4.231) (4.405) (4.584) (4.772) (4.968)
-------- -------- -------- -------- -------- -------- ---------
Total Operating Income From
Liquids Segment 33.703 37.966 37.917 39.107 37.883 36.526 35.128
</TABLE>
- --------------------------------------
(a) Aggregate product margin is based upon the above pricing assumptions and
the assumed product mix (at left).
(b) No adjustments have been made to company's projections for the liquids
business.
Page 5
<PAGE> 28
DILLON, READ & CO. INC. 12/09/93 AT 05:44 PM
PRELIMINARY & CONFIDENTIAL BASED ON 11/10/93 FORECAST
VALERO NATURAL GAS PARTNERS, L.P.
PROJECTED RESULTS FOR PIPELINE SEGMENT
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
GAS SALES ASSUMPTIONS:
VTC Sales Volumes at 100.0% of Base 20.550 17.882 16.425 15.738 15.695 3.886 0.000
VTC Sales Margins at 100.0% of Base 1.2962 0.8963 0.6448 0.6691 0.6690 0.6691 0.6690
VTC Gross Profit, $ millions $26.637 $16.028 $10.591 $10.530 $10.500 $2.600 $0.000
SMP Term Volumes at 100.0% of Base 160.375 136.529 148.355 158.854 168.419 180.776 185.222
SMP Term Margins at 100.0% of Base 0.2600 0.2830 0.2864 0.2913 0.2941 0.3087 0.3217
Gross Profit From SMP Term Sales,
$ millions $41.698 $38.638 $42.492 $46.281 $49.533 $55.804 $59.577
SMP Spot Volumes at 100.0% of Base 71.873 71.597 64.743 55.693 46.443 45.895 45.335
SMP Spot Margins at 100.0% of Base 0.1050 0.1230 0.1261 0.1263 0.1258 0.1270 0.1302
Gross Profit From SMP Spot Sales,
$ millions $7.547 $8.806 $8.167 $7.036 $5.842 $5.830 $5.902
636 Baseload Volumes at 100.0% of Base 6.760 26.645 26.645 26.718 26.645 26.725 26.805
636 Baseload Margins at 100.0% of Base 0.211 0.069 0.069 0.069 0.069 0.069 0.069
636 Baseload Reservation Fees at 100.0%
of Base 0.000 0.899 0.899 0.899 0.899 0.899 0.899
Gross Profit From 636 Baseload Sales,
$ millions $1.426 $2.735 $2.735 $2.740 $2.735 $2.741 $2.746
636 Swing Volumes at 100.0% of Base 0.000 39.903 43.329 47.774 52.953 58.513 64.657
636 Swing Margins at 100.0% of Base 0.000 0.093 0.092 0.091 0.090 0.089 0.088
636 Swing Reservation Fees (Net of
Storage) at 100.0% of Base 0.000 6.408 7.289 8.312 9.583 11.020 12.673
Gross Profit From 636 Swing Sales,
$ millions $0.000 $10.128 $11.284 $12.665 $14.347 $16.222 $18.352
Var. Interstate Volumes at 100.0% of Base 96.521 62.963 66.384 70.858 76.011 80.572 85.406
Var. Interstate Margins at 100.0% of Base 0.064 0.080 0.080 0.080 0.080 0.080 0.080
Gross Profit From Var. Interstate Sales,
$ millions 6.177 5.037 5.311 5.669 6.081 6.446 6.833
Off System Sales Volumes at 100.0% of Base 49.065 73.000 82.125 91.500 100.375 109.409 119.256
Off System Sales Margins at 100.0% of Base 0.035 0.050 0.050 0.050 0.050 0.050 0.050
Gross Profit From Off System Sales,
$ millions 1.717 3.650 4.106 4.575 5.019 5.470 5.963
Other Sales Revenue Sources:
Futures Market 4.201 5.000 6.000 6.400 6.800 7.200 7.600
Shrinkage / Adjustments 12.334 3.000 3.000 3.000 3.000 3.000 3.000
Other, Net 2.620 3.018 3.462 3.459 3.627 3.627 3.627
------- ------- ------- ------- ------- ------- -------
19.155 11.018 12.462 12.859 13.427 13.827 14.227
Total Gas Sales Volume 405.144 428.517 448.006 467.135 486.541 505.776 526.681
Average Sales Margin, $ per mcf 0.258 0.224 0.217 0.219 0.221 0.215 0.216
Total Gross Profit From Gas Sales,
$ millions 104.357 96.041 97.148 102.354 107.485 108.940 113.600
</TABLE>
Page 6
<PAGE> 29
DILLON, READ & CO. INC. 12/09/93 AT 05:44 PM
PRELIMINARY & CONFIDENTIAL BASED ON 11/10/93 FORECAST
VALERO NATURAL GAS PARTNERS, L.P.
PROJECTED RESULTS FOR PIPELINE SEGMENT
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998 1999
------- ------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
TRANSPORTATION REVENUES:
Transportation Volumes at 100.0%
of Base 482.606 528.430 593.973 595.576 593.707 600.062 606.513
Average Transportation Fees at 100.0%
of Base 0.0971 0.0996 0.1131 0.1155 0.1162 0.1161 0.1160
Total Transportation Revenue $46.864 $52.646 $67.154 $68.812 $69.005 $69.668 $70.343
MISCELLANEOUS REVENUES:
VTC $2.599 $2.900 $2.900 $2.900 $2.900 $0.725 $0.000
Cost of Service 6.303 0.000 0.000 0.000 0.000 0.000 0.000
SMP Cost of Service Reduction (3.316) 0.000 0.000 0.000 0.000 0.000 0.000
VTC Transportation VHC 10.861 12.057 12.062 12.094 12.062 3.016 0.000
Other 0.052 0.000 0.000 0.000 0.000 0.000 0.000
------- ------- --------- --------- --------- --------- ---------
$16.499 $14.957 $14.962 $14.994 $14.962 $3.741 $0.000
Sales Throughputs
VTC Sales Volume 20.550 17.882 16.425 15.738 15.695 3.886 0.000
Term SMP Sales Volumes 160.375 136.529 148.355 158.854 168.419 180.776 185.222
Spot SMP Sales Volumes 71.873 71.597 64.743 55.693 46.443 45.895 45.335
636 Baseload Volumes 6.760 26.645 26.645 26.718 26.645 26.725 26.805
636 Swing Volumes 0.000 39.903 43.329 47.774 52.953 58.513 64.657
Var. Interstate Volumes 96.521 62.963 66.384 70.858 76.011 80.572 85.406
Off-System Volumes 49.065 73.000 82.125 91.500 100.375 109.409 119.256
------- ------- --------- --------- --------- --------- ---------
Total Sales Volumes 405.144 428.517 448.006 467.135 486.541 505.776 526.681
Transportation Throughputs
Paid Transportation 434.919 482.904 552.827 554.338 560.127 566.482 572.933
Free Transportation 47.687 45.526 41.146 41.238 33.580 33.580 33.580
------- ------- --------- --------- --------- --------- ---------
Total Transportation 482.606 528.430 593.973 595.576 593.707 600.062 606.513
Total Volume of Throughput (bcf) 887.750 956.947 1,041.979 1,062.711 1,080.248 1,105.838 1,133.193
Average Volume Per Day (mmcf/d) 2.432 2.622 2.855 2.904 2.960 3.030 3.105
Total Gross Profits From Operations 167.720 163.644 179.264 186.160 191.452 182.349 183.943
O&G Expenses at 100.0% of Base (75.396) (89.735) (94.686) (96.905) (98.820) (100.895) (103.014)
Depreciation Expense (21.438) (22.347) (22.214) (22.616) (23.012) (23.426) (23.848)
------- ------- --------- --------- --------- --------- ---------
Total Operating Income Before FMV Amort.
& Alloc. Exp. 70.886 51.562 62.364 66.639 69.620 58.028 57.081
FMV Depreciation Expense (6.948) (6.966) (6.966) (6.966) (6.966) (6.966) (6.966)
Allocated Expenses at 100.0% of Base (13.809) (15.175) (15.816) (16.473) (17.156) (17.859) (18.592)
------- ------- --------- --------- --------- --------- ---------
Post-Allocation Operating Income From
Pipeline Segment 50.129 29.421 39.582 43.200 45.498 33.202 31.523
</TABLE>
Page 7
<PAGE> 30
DILLON, READ & CO. INC. 12/21/93 AT12:47 PM
PRELIMINARY & CONFIDENTIAL BASED ON 11/10/93 FORECAST
VALERO NATURAL GAS PARTNERS, L.P.
INPUTS FOR BASE FORECAST OPERATING ASSUMPTIONS
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NATURAL GAS SALES:
VTC Sales Volume 20.550 17.882 16.425 15.738 15.695 3.886 0.000
VTC Sales Margin, cents
per mcf 1.2962 0.8963 0.6448 0.6691 0.6690 0.6691 0.6690
VTC Gross Profit, $ millions $26.637 $16.028 $10.591 $10.530 $10.500 $2.600 $0.000
Sales Price for VTC Gas $4.850 $4.920 $4.450 $4.250 $4.290 $4.190
Term SMP Sales Volumes
Current 160.375 136.529 139.230 140.554 140.994 140.994 140.994
New 0.000 0.000 9.125 18.300 27.425 39.783 44.228
------- ------- ------- ------- ------- ------- -------
Total 160.375 136.529 148.355 158.854 168.419 180.776 185.222
Term SMP Sales Margins
Current Business 0.260 0.283 0.297 0.313 0.327 0.343 0.361
New Business 0.125 0.125 0.125 0.125 0.125 0.186 0.198
------- ------- ------- ------- ------- ------- -------
Average 0.260 0.283 0.286 0.291 0.294 0.309 0.322
Spot SMP Sales Volumes
Current Business 71.873 71.597 73.868 73.993 73.868 73.868 73.868
New Business 0.000 0.000 (9.125) (18.300) (27.425) (27.974) (28.533)
------- ------- ------- ------- ------- ------- -------
Total 71.873 71.597 64.743 55.693 46.443 45.895 45.335
Spot SMP Sales Margins
Current 0.105 0.103 0.103 0.099 0.094 0.089 0.084
Additional Margin Increase 0.000 0.020 0.023 0.027 0.032 0.037 0.044
New 0.125 0.125 0.125 0.125 0.125 0.125 0.125
------- ------- ------- ------- ------- ------- -------
Average 0.105 0.123 0.126 0.126 0.126 0.127 0.130
636 Baseload Volumes 6.760 26.645 26.645 26.718 26.645 26.725 26.805
636 Baseload Margins 0.211 0.069 0.069 0.069 0.069 0.069 0.069
636 Baseload Revenues
Sales $1.426 $1.836 $1.836 $1.841 $1.836 $1.842 $1.847
Reservation Fees 0.000 0.899 0.899 0.899 0.899 0.899 0.899
------- ------- ------- ------- ------- ------- -------
Total 1.426 2.735 2.735 2.740 2.735 2.741 2.746
636 Swing Volumes 0.000 39.903 43.329 47.774 52.953 58.513 64.657
636 Swing Margins 0.000 0.093 0.092 0.091 0.090 0.089 0.088
636 Swing Revenues
Sales $0.000 $3.721 $3.995 $4.353 $4.765 $5.202 $5.679
Reservation Fees
(Net of Storage) 0.000 6.408 7.289 8.312 9.583 11.020 12.673
------- ------- ------- ------- ------- ------- -------
Total 0.000 10.128 11.284 12.665 14.347 16.222 18.352
</TABLE>
Page 8
<PAGE> 31
DILLON, READ & CO. INC. 12/09/93 AT 05:44 PM
PRELIMINARY & CONFIDENTIAL BASED ON 11/10/93 FORECAST
VALERO NATURAL GAS PARTNERS, L.P.
INPUTS FOR BASE FORECAST OPERATING ASSUMPTIONS
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NATURAL GAS SALES (CONTINUED):
Var. Interstate Volumes 96.521 62.963 66.384 70.858 76.011 80.572 85.406
Var. Interstate Margins 0.064 0.080 0.080 0.080 0.080 0.080 0.080
------- ------- ------- ------- ------- ------- -------
Var. Interstate Revenues $6.177 $5.037 $5.311 $5.669 $6.081 $6.446 $6.833
Off-System Volumes 49.065 73.000 82.125 91.500 100.375 109.409 119.256
Off-System Margins 0.035 0.050 0.050 0.050 0.050 0.050 0.050
------- ------- ------- ------- ------- ------- -------
Off-System Revenues $1.717 $3.650 $4.106 $4.575 $5.019 $5.470 $5.963
Total Sales Revenues
Term Sales $41.698 $38.638 $42.492 $46.281 $49.533 $55.804 $59.577
Spot Sales 7.547 8.806 8.167 7.036 5.842 5.830 5.902
636 Sales 1.426 12.864 14.019 15.405 17.083 18.963 21.098
Var. Interstate 6.177 5.037 5.311 5.669 6.081 6.446 6.833
Off-System 1.717 3.650 4.106 4.575 5.019 5.470 5.963
Futures Market 4.201 5.000 6.000 6.400 6.800 6.800 6.800
Shrinkage / Adjustments 12.334 3.000 3.000 3.000 3.000 3.000 3.000
Other, Net 2.921 3.008 3.528 3.507 3.528 3.528 3.528
------- ------- ------- ------- ------- ------- -------
$78.021 $80.003 $86.623 $91.873 $96.886 $105.841 $112.701
TRANSPORTATION FEES:
Transportation Volumes
Current 447.321 401.779 409.078 417.485 423.678 430.033 436.484
Free Transportation 47.687 45.526 41.146 41.238 33.580 33.580 33.580
Reimbursement (12.402) (12.402) (12.402) (12.402) (12.402) (12.402) (12.402)
New 0.000 93.526 156.151 149.255 148.851 148.851 148.851
------- ------- ------- ------- ------- ------- -------
Total 482.606 528.430 593.973 595.576 593.707 600.062 606.513
Transportation Fees Per Mcf
Current 0.108 0.101 0.102 0.105 0.105 0.105 0.105
Free Transportation 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Reimbursement 0.113 0.113 0.113 0.113 0.113 0.113 0.113
New 0.000 0.143 0.172 0.175 0.175 0.175 0.175
------- ------- ------- ------- ------- ------- -------
Average For Net Fees 0.097 0.100 0.113 0.116 0.116 0.116 0.116
Total Transportation Fees $46.864 $52.646 $67.154 $68.812 $69.005 $69.668 $70.343
Plus / (Less) Other 0.000 0.000 0.000 0.000 0.000 0.000 0.000
------- ------- ------- ------- ------- ------- -------
Net Transportation Fees 46.864 52.646 67.154 68.812 69.005 69.668 70.343
</TABLE>
Page 9
<PAGE> 32
DILLON, READ & CO. INC. 12/09/93 AT 05:44 PM
PRELIMINARY & CONFIDENTIAL BASED ON 11/10/93 FORECAST
VALERO NATURAL GAS PARTNERS, L.P.
INPUTS FOR BASE FORECAST OPERATING ASSUMPTIONS
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EXPENSE:
Interest Income Rate 2.0% 1.9% 2.3% 2.3% 2.6% 2.6% 2.6%
Short-Term Lending Rate 4.5% 6.3% 7.2% 7.2% 7.2% 7.2% 7.2%
New Funding Int. Rate 4.5% 6.3% 7.2% 7.2% 7.2% 7.2% 7.2%
Effective Interest Rate on FMBs 10.7% 10.7% 10.8% 10.9% 11.0% 10.4% 11.5%
Long-Term Debt Reduction (25.357) (27.857) (30.357) (32.857) (35.357) (37.900) (37.000)
Capital Lease Obligation Reduction (0.762) (1.052) (1.174) (1.692) (2.552) (3.100) (3.500)
Inc. / (Dec.) in Short-Term Notes 47.000 3.000 0.000 0.000 0.000 0.000 0.000
Inc. / (Dec.) in New Funding Source 0.000 88.000 3.000 8.000 6.000 11.500 14.000
Amount of Short-Term Debt 0.000 47.000 50.000 50.000 50.000 50.000 50.000 50.000
Amount From New Funding Source 0.000 0.000 88.000 91.000 99.000 105.000 116.500 130.500
------- ------- ------- ------- ------- ------- ------- -------
Amount of Non Long-Term Debt 0.000 47.000 138.000 141.000 149.000 155.000 166.500 180.500
Amount of Free Cash 6.598 3.561 18.166 23.113 26.270 27.686 26.815 21.912
Amount of Cash 39.462 37.746 53.606 59.740 64.016 66.474 65.603 60.700
Amount of First Mortgage Bonds 534.286 509.286 481.786 451.786 419.286 383.986 346.086 309.086
Interest Income 0.784 0.726 1.221 1.362 1.640 1.703 1.681
Interest on First Mortgage Notes 55.599 53.187 50.501 47.544 44.286 38.030 37.584
Interest on Capital Leases 9.925 12.803 12.814 12.478 12.562 12.261 11.861
Interest on Short-Term Debt 1.058 3.056 3.600 3.600 3.600 3.600 3.600
Interest on New Funding Source 0.000 2.772 6.444 6.840 7.344 7.974 8.892
Capitalized Interest Expense (1.641) (0.588) (0.500) (0.400) (0.400) (0.400) (0.400)
Other Interest Expense 1.465 (0.887) (2.733) (1.732) (2.289) (2.500) (2.500)
------- ------- ------- ------- ------- ------- -------
Total Interest Expense 66.406 70.342 70.126 68.329 65.103 58.965 59.037
</TABLE>
Page 10
<PAGE> 33
DILLION, READ & CO. INC. 12/09/93 AT 05:44 PM
PRELIMINARY & CONFIDENTIAL BASED ON 11/10/93 FORECAST
VALERO NATURAL GAS PARTNERS, L.P.
INPUTS FOR BASE FORECAST OPERATING ASSUMPTIONS
<TABLE>
1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW ITEMS (Company Breakout):
Tale-or Pay Recoveries
(Dec.) / Inc. in Current Deferred Gas 0.000 (14.013) 2.276 0.000 0.000 0.000 0.000
(Dec.) / Inc. in Non-Current Deferred Gas 5.078 5.411 11.737 11.737 11.737 11.737 7.737
Inc. / (Dec.) in Other Current Liabilities (2.083) (1.145) 0.000 0.000 0.000 0.000 0.000
Inc. / (Dec.) in Deferred Credits (0.916) (0.952) 0.000 0.000 0.000 0.000 0.000
------- ------- ------- ------- ------- ------- -------
Total 2.079 (10.699) 14.013 11.737 11.737 11.737 7.737
(Dec.) / Inc. in Other Assets 2.636 2.912 3.044 3.196 3.356 3.000 3.000
Inc. / (Dec.) in Other Current Liabilities (8.500) 0.000 0.000 0.000 0.000 0.000 0.000
Increase in Storage
(Dec.) / Inc. in Other Current Assets 37.472 (17.945) (1.476) (0.700) 7.800 (1.000) (1.000)
(Dec.) / Inc. in Other Assets (3.709) 0.488 (2.631) (2.959) (11.922) (3.000) (3.000)
Inc. / (Dec.) in Deferred Credits 0.932 2.707 4.066 4.124 4.916 3.372 3.926
Inc. / (Dec.) in Other Current Liabilities (63.095) 3.650 (1.059) (0.665) (1.094) 0.328 (0.226)
------- ------- ------- ------- ------- ------- -------
Total (28.400) (11.100) (1.100) (0.200) (0.300) (0.300) (0.300)
Other Changes
Inc. / (Dec.) in Deferred Credits 1.542 0.205 (1.222) (1.128) (1.760) (0.372) (0.926)
(Dec.) / Inc. in Interest Escrow 0.553 0.620 0.689 0.756 0.834 0.000 0.000
------- ------- ------- ------- ------- ------- -------
Total 2.095 0.825 (0.533) (0.372) (0.926) (0.372) (0.926)
Total Inc. / (Dec.) in Assets
Current Deferred Gas Costs 0.000 (14.013) 2.276 0.000 0.000 0.000 0.000
Other Current Assets 37.472 (17.945) (1.476) (0.700) 7.800 (1.000) (1.000)
Non-Current Gas Costs 5.078 5.411 11.737 11.737 11.737 11.737 7.737
Interest Escrow 0.553 0.620 0.689 0.756 0.834 0.000 0.000
Other Assets (1.073) 3.400 0.413 0.237 (8.566) 0.000 0.000
Total Dec. / (Inc.) in Liabilities
Other Current Liabilities (73.678) 2.505 (1.059) (0.665) (1.094) 0.328 (0.226)
Deferred Credits 1.558 1.960 2.844 2.996 3.156 3.000 3.000
Net Adjustment on CF Statement (30.090) (18.062) 15.424 14.361 13.867 14.065 9.511
Other Cash Flow Items
Amortization of Deferred Charges 2.510 2.333 1.791 1.736 1.473 1.473 1.473
Changes in Capital Lease Obligations 0.870 0.988 1.121 0.303 0.000 0.000 0.000
Total Capital Expenditures (42.431) (56.151) (31.500) (28.000) (29.000) (29.000) (29.000)
Other Capital Expenditures (27.000) (27.000) (28.000) (28.000) (29.000) (29.000) (29.000)
Other Net 2.491 0.000 12.500 0.000 0.000 0.000 0.000
</TABLE>
Page 11
<PAGE> 34
DILLION, READ & CO. INC. 12/09/93 AT 05:44PM
PRELIMINARY & CONFIDENTIAL BASED ON 11/10/93 FORECAST
VALERO NATURAL GAS PARTNERS, L.P.
INPUTS FOR BASE FORECAST OPERATING ASSUMPTIONS
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998 1999
-------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
THROUGHPUT ANALYSIS:
VTC Sales Volume 20.550 17.882 16.425 15.738 15.695 3.886 0.000
Term SMP Sales Volumes 160.375 136.529 148.355 158.854 168.419 180.776 185.222
Spot SMP Sales Volumes 71.873 71.597 64.743 55.693 46.443 45.895 45.335
636 Baseload Volumes 6.760 26.645 26.645 26.718 26.645 26.725 26.805
636 Swing Volumes 0.000 39.903 43.329 47.774 52.953 58.513 64.657
Var. Interstate Volumes 96.521 62.963 66.384 70.858 76.011 80.572 85.406
Off-System Volumes 49.065 73.000 82.125 91.500 100.375 109.409 119.256
------- ------- --------- --------- --------- --------- ---------
Total Sales Volumes 405.144 428.517 448.006 467.135 486.541 505.776 526.681
Paid Transportation Volumes 434.919 482.904 552.827 554.338 560.127 566.482 572.933
Free Transportation Volumes 47.687 45.526 41.146 41.238 33.580 33.580 33.580
------- ------- --------- --------- --------- --------- ---------
482.606 528.430 593.973 595.576 593.707 600.062 606.513
Total Volumes (bcf) 887.750 956.947 1,041.979 1,062.711 1,080.248 1,105.838 1,133.193
Volume Per Day (mmcf/d) 2.432 2.622 2.855 2.904 2.960 3.030 3.105
AMORTIZATION SCHEDULES:
(Inc.) / Dec. in Debt Service Escrow For Principal (1.874) (1.875) (1.876) (1.875) (1.876) 0.000 0.000
Distributions to Public Units (4.876) (4.876) (4.876) (4.876) (4.876) (4.876) (4.876)
Distributions to Valero Units (4.368) (4.368) (4.376) (4.376) (4.376) (4.376) (4.376)
Distributions to General Partner (1.201) (1.276) (1.276) (1.276) (1.276) (1.276) (1.276)
OPERATING EXPENSES:
NATURAL GAS SEGMENT EXPENSES:
O&G Expense Excluding OH & FMV Amortization (75.396) (89.735) (94.686) (96.905) (98.820) (100.895) (103.014)
Depreciation Expense Excluding FMV Amortization (21.438) (22.347) (22.214) (22.616) (23.012) (23.426) (23.848)
Less FMV Depreciation Expense (6.948) (6.966) (6.966) (6.966) (6.966) (6.966) (6.966)
Less Allocated Expenses (13.809) (15.175) (15.816) (16.473) (17.156) (17.859) (18.592)
LIQUIDS SEGMENT EXPENSES:
Operating and General Expenses (27.424) (29.096) (29.409) (30.258) (31.137) (32.040) (32.969)
Depreciation Expense (8.214) (8.899) (8.974) (9.230) (9.493) (9.759) (10.032)
Less FMV Depreciation Expense 0.191 0.201 0.201 0.443 0.000 0.000 0.000
Less Allocated Expenses (3.731) (4.063) (4.231) (4.405) (4.584) (4.772) (4.968)
</TABLE>
Page 12
<PAGE> 35
DILLON, READ & CO. INC. 12/09/93 AT 05:44 PM
PRELIMINARY & CONFIDENTIAL BASED ON 11/10/93 FORECAST
VALERO NATURAL GAS PARTNERS, L.P.
YEAR-TO-YEAR PERCENTAGE CHANGES FOR BASE FORECAST ASSUMPTIONS
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
NATURAL GAS SALES:
VTC Sales Volume -13.0% -8.1% -4.2% -0.3% -75.2% -100.0%
VTC Sales Margin, cents per mcf -30.9% -28.1% 3.8% -0.0% 0.0% -0.0%
VTC Gross Profit, $ millions -39.8% -33.9% -0.6% -0.3% -75.2% -100.0%
Term SMP Sales Volumes
Current -14.9% 2.0% 1.0% 0.3% 0.0% 0.0%
New NA NA 100.5% 49.9% 45.1% 11.2%
Total -14.9% 8.7% 7.1% 6.0% 7.3% 2.5%
Term SMP Sales Margins
Current 8.8% 4.9% 5.4% 4.5% 5.0% 5.0%
New 0.0% 0.0% 0.0% 0.0% 48.7% 6.4%
Average 8.8% 1.2% 1.7% 0.9% 5.0% 4.2%
Spot SMP Sales Volumes
Current -0.4% 3.2% 0.2% -0.2% 0.0% 0.0%
New NA NA 100.5% 49.9% 2.0% 2.0%
Total -0.4% -9.6% -14.0% -16.6% -1.2% -1.2%
Spot SMP Sales Margins
Current -1.9% 0.0% -3.9% -5.6% -5.0% -5.0%
Additional Margin Increase NA 15.0% 17.4% 18.5% 17.0% 17.0%
New 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Average 17.1% 2.6% 0.1% -0.4% 1.0% 2.5%
636 Baseload Volumes 294.2% 0.0% 0.3% -0.3% 0.3% 0.3%
636 Baseload Margins -67.3% 0.0% -0.0% 0.0% 0.0% 0.0%
636 Baseload Revenues
Sales 28.7% 0.0% 0.3% -0.3% 0.3% 0.3%
Reservation Fees NA 0.0% 0.0% 0.0% 0.0% 0.0%
Total 91.8% 0.0% 0.2% -0.2% 0.2% 0.2%
636 Swing Volumes NA 8.6% 10.3% 10.8% 10.5% 10.5%
636 Swing Margins NA -1.1% -1.2% -1.2% -1.2% -1.2%
636 Swing Revenues
Sales NA 7.4% 9.0% 9.5% 9.2% 9.2%
Reservation Fees NA 13.8% 14.0% 15.3% 15.0% 15.0%
Total NA 11.4% 12.2% 13.3% 13.1% 13.1%
</TABLE>
Page 13
<PAGE> 36
DILLON, READ & CO. INC. 12/09/93 AT 05:44 PM
PRELIMINARY & CONFIDENTIAL BASED ON 11/10/93 FORECAST
VALERO NATURAL GAS PARTNERS, L.P.
YEAR-TO-YEAR PERCENTAGE CHANGES FOR BASE FORECAST ASSUMPTIONS
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
NATURAL GAS SALES (CONTINUED):
Var. Interstate Volumes -34.8% 5.4% 6.7% 7.3% 6.0% 6.0%
Var. Interstate Margins 25.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Var. Interstate Revenues -18.5% 5.4% 6.7% 7.3% 6.0% 6.0%
Off-System Volumes 48.8% 12.5% 11.4% 9.7% 9.0% 9.0%
Off-System Margins 42.9% 0.0% 0.0% 0.0% 0.0% 0.0%
Off-System Revenues 112.5% 12.5% 11.4% 9.7% 9.0% 9.0%
TOTAL SALES REVENUES
Term Sales -7.3% 10.0% 8.9% 7.0% 12.7% 6.8%
Spot Sales 16.7% -7.3% -13.9% -17.0% -0.2% 1.2%
636 Sales 801.9% 9.0% 9.9% 10.9% 11.0% 11.3%
Var. Interstate -18.5% 5.4% 6.7% 7.3% 6.0% 6.0%
Off-System 112.5% 12.5% 11.4% 9.7% 9.0% 9.0%
Futures Market 19.0% 20.0% 6.7% 6.3% 0.0% 0.0%
Shrinkage / Adjustments -75.7% 0.0% 0.0% 0.0% 0.0% 0.0%
Other, Net 3.0% 17.3% -0.6% 0.6% 0.0% 0.0%
2.5% 8.3% 6.1% 5.5% 9.2% 6.5%
TRANSPORTATION FEES:
Transportation Volumes
Current -10.2% 1.8% 2.1% 1.5% 1.5% 1.5%
Reimbursement 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
New NA 67.0% -4.4% -0.3% 0.0% 0.0%
Total 9.5% 12.4% 0.3% -0.3% 1.1% 1.1%
Transportation Fees Per Mcf
Current -6.2% 0.8% 3.4% -0.9% -0.0% 0.0%
Reimbursement 0.0% 0.0% 0.3% -0.3% 0.0% 0.0%
New NA 20.1% 2.0% 0.0% 0.0% 0.0%
Average For Net Fees 2.6% 13.5% 2.2% 0.6% -0.1% -0.1%
Total Transportation Fees 12.3% 27.6% 2.5% 0.3% 1.0% 1.0%
Plus / (Less) Other NA NA NA NA NA NA
Net Transportation Fees 12.3% 27.6% 2.5% 0.3% 1.0% 1.0%
</TABLE>
Page 14
<PAGE> 37
DILLON, READ & CO. INC. 12/09/93 AT 05:44 PM
PRELIMINARY & CONFIDENTIAL BASED ON 11/10/93 FORECAST
VALERO NATURAL GAS PARTNERS, L.P.
YEAR-TO-YEAR PERCENTAGE CHANGES FOR BASE FORECAST ASSUMPTIONS
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
Nat. Gas O&G Expense Excluding
OH & FMV Amortization 19.0% 5.5% 2.3% 2.0% 2.1% 2.1%
Nat. Gas Depreciation Expense Excluding
FMV Amortization 4.2% -0.6% 1.8% 1.8% 1.8% 1.8%
Nat. Gas FMV Depreciation Expense 0.3% 0.0% 0.0% 0.0% 0.0% 0.0%
Nat. Gas Allocated Expenses 9.9% 4.2% 4.2% 4.1% 4.1% 4.1%
Liquids Operating and General Expenses 6.1% 1.1% 2.9% 2.9% 2.9% 2.9%
Liquids Depreciation Expense 8.3% 0.8% 2.9% 2.8% 2.8% 2.8%
Liquids FMV Depreciation Expense 5.2% 0.2% 120.0% -100.0% NA NA
Liquids Allocated Expenses 8.9% 4.1% 4.1% 4.1% 4.1% 4.1%
</TABLE>
Page 15
<PAGE> 38
DILLON, READ & CO, INC. 12/09/93 AT 07:57 PM
PRELIMINARY & CONFIDENTIAL BASED ON 11/16/93 FORECAST
VALERO NATURAL GAS PARTNERS, L.P.
DISCOUNTED CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
DERIVATION OF UNLEVENED CASH FLOWS:
- ----------------------------------
Cash Flow From Operations (a) $23.1 $ 43.0 $ 52.0 $ 59.3 $54.4 $56.0
Net Take-or-Pay Recoveries / (Payments) (8.6) 14.0 11.7 11.7 11.7 7.7
Changes in Working Capital and Other Items (8.5) 2.5 2.9 2.1 2.3 1.8
Interest Expense 70.3 70.1 68.3 65.1 59.0 59.0
----- ------ ------ ------ ----- -----
Unlevered Cash From Operating Activities 76.4 129.7 135.0 138.2 127.5 124.5
Less Maintenance Capital Expenditures (27.0) (28.0) (28.0) (29.0) (29.0) (29.0)
Less Growth Capital Expenditures (29.2) (3.5) 0.0 0.0 0.0 0.0
----- ------ ------ ------ ----- -----
Unlevered Free Cash Flow $20.3 $ 98.2 $107.0 $109.2 $98.5 $95.5
</TABLE>
<TABLE>
<CAPTION>
DISCOUNTED VALUE OF CASH FLOWS (USING MID YEAR DISCOUNTING) DISCOUNT RATE
- ----------------------------------------------------------- -----------------------------------------------------
10.0% 10.5% 11.0% 11.5% 12.0%
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
ESTIMATED VALUE AT 12/31/93 $387.6 $382.1 $376.7 $371.5 $366.3
</TABLE>
DERIVATION OF TERMINAL VALUE:
<TABLE>
<CAPTION>
Multiple Discount Rate
Of 1999E -----------------------------------------------------
Discounted Value of Terminal Value EBITDA 10.0% 10.5% 11.0% 11.5% 12.0%
- ---------------------------------- ------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
7.5x $499.5 $487.2 $475.3 $463.7 $452.4
8.0x 532.8 519.7 506.9 494.6 482.5
8.5x 566.1 552.2 538.6 525.5 512.7
9.0x 599.4 584.6 570.3 556.4 542.9
</TABLE>
DERIVATION OF ESTIMATED VALUE OF PARTNERS' CAPITAL AT 12/31/93:
<TABLE>
<CAPTION>
Discount Rate
Assumed -----------------------------------------------------
Discounted Value of Total Operations Multiple 10.0% 10.5% 11.0% 11.5% 12.0%
- ------------------------------------ -------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
7.5x $887.1 $869.3 $852.0 $835.1 $818.7
8.0x 920.4 901.8 883.7 866.1 848.9
8.5x 953.7 934.3 915.4 897.0 879.0
9.0x 987.0 966.8 947.1 927.9 909.2
Less Estimated Net Debt at 12/31/93 $666.4 $666.4 $666.4 $666.4 $666.4
</TABLE>
<TABLE>
<CAPTION>
Discount Rate
Assumed ----------------------------------------------------
Estimated Value of Total Partners' Capital Multiple 10.0% 10.5% 11.0% 11.5% 12.0%
- ------------------------------------------ -------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
7.5x $220.7 $202.9 $185.6 $168.8 $152.3
8.0x 254.0 235.4 217.3 199.7 182.5
8.5x 287.3 267.9 249.0 230.6 212.7
9.0x 320.6 300.4 280.7 261.5 242.8
</TABLE>
Estimated Value Per Public Unit (Assumes that 51.0% of total value accrues to
9.71 million public units)
<TABLE>
<Caption
Discount Rate
Assumed ---------------------------------------------------
Multiple 10.0% 10.5% 11.0% 11.5% 12.0%
-------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
7.5x $11.59 $10.65 $9.74 $8.86 $8.00
8.0x 13.33 12.36 11.41 10.48 9.58
8.5x 15.08 14.06 13.07 12.10 11.16
9.0x 16.83 15.77 14.73 13.73 12.75
</TABLE>
(a) Assumes combined annual savings from O&M and G&A expenses of $5.0
million. Also, assumes downward revisions for NGL prices.
SAVINGS: $5.0 MILLION
NGLs: Down
CALCULATION OF NET DEBT AT 12/31/93
-----------------------------------
<TABLE>
<S> <C>
Total Long-term Debt $506.4
Plus Capital Leases 103.8
Plus Current Maturities 27.9
Plus Current Lease Payments 1.1
Plus Short-Term Notes 47.0
Other Adjustments 18.0
Less Cash & Equivalents (3.6)
Less Escrow of Debt Principal (20.9)
Less Escrow of Interest Costs (13.3)
------
Net Debt at 12/31/93 $666.4
</TABLE>
OTHER ITEMS
-----------
<TABLE>
<S> <C>
1999E Operating Cash Flow / EBITDA $112.5
Number of Public Units, millions 9.711919
Effective Percentage of Total Capital 51.0%
</TABLE>
<PAGE> 39
DILLON, READ & CO. INC. 12/21/93 AT12:47 PM
PRELIMINARY & CONFIDENTIAL BASED ON 11/10/93 FORECAST
VALERO NATURAL GAS PARTNERS, L.P.
PROJECTED RESULTS FOR PIPELINE SEGMENT
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
DERIVATION OF UNLEVELED CASH FLOWS:
Cash Flow From Operations (a) $ 48.1 $ 58.6 $ 65.9 $ 71.6 $ 65.2 $ 63.0
Net Take-or-Pay Recoveries / (Payments) (8.6) 14.0 11.7 11.7 11.7 7.7
Changes in Working Capital and Other Items (8.5) 2.5 2.9 2.1 2.3 1.8
Interest Expense 70.3 70.1 68.3 65.1 59.0 59.0
------- ------- ------- ------- ------- -------
Unlevered Cash From Operation Activities 101.4 145.2 148.9 150.6 138.2 131.5
Less Maintenance Capital Expenditures (27.0) (28.0) (28.0) (29.0) (29.0) (29.0)
Less Growth Capital Expenditures (29.2) (3.5) 0.0 0.0 0.0 0.0
------- ------- ------- ------- ------- -------
Unlevered Free Cash Flow $ 45.3 $ 113.7 $ 120.9 $ 121.6 $ 109.2 $ 102.5
</TABLE>
<TABLE>
<CAPTION>
Discounted Value of Cash Flows (Using Mid Year Discounting) Discount Rate
---------------------------------------------------------- ---------------------------------------------------
10.0% 10.5% 11.0% 11.5% 12.0%
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Estimated Value at 12/31/93 $455.9 $449.8 $443.8 $437.9 $432.1
</TABLE>
DERIVATION OF TERMINAL VALUE:
<TABLE>
<CAPTION>
Discounted Value of Terminal Value Multiple Discount Rate
---------------------------------- Of 1999E ---------------------------------------------------
EBITDA 10.0% 10.5% 11.0% 11.5% 12.0%
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
7.5 x $521.7 $508.9 $496.4 $484.3 $472.5
8.0 x 556.5 542.8 529.5 516.5 504.0
8.5 x 591.3 576.7 562.6 548.8 535.5
9.0 x 626.1 610.6 595.7 581.1 567.0
</TABLE>
DERIVATION OF ESTIMATED VALUE OF PERTNERS' CAPITAL AT 12/31/93:
<TABLE>
<CAPTION>
Discount Rate
Discounted Value of Total Operations Asusumed ---------------------------------------------------
------------------------------------ Multiple 10.0% 10.5% 11.0% 11.5% 12.0%
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
7.5 x $ 997.6 $ 958.6 $ 940.1 $ 922.1 $904.6
8.0 x 1,012.4 992.6 973.2 954.4 936.1
8.5 x 1,047.2 1,026.5 1,006.3 986.7 967.6
9.0 x 1,082.0 1,060.4 1,039.4 1,019.0 999.1
Less Estimated Net Debt at 12/31/93 $ 666.4 $ 666.4 $ 666.4 $ 666.4 $666.4
</TABLE>
<TABLE>
<CAPTION>
Discount Rate
Estimated Value of Total Partners' Capital Asusumed ---------------------------------------------------
------------------------------------------ Multiple 10.0% 10.5% 11.0% 11.5% 12.0%
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
7.5 x $311.2 $292.2 $273.8 $255.8 $238.2
8.0 x 346.0 326.2 306.8 288.0 269.7
8.5 x 380.8 360.1 339.9 320.3 301.2
9.0 x 415.6 394.0 373.0 352.6 332.7
</TABLE>
ESTIMATED VALUE PER PUBLIC UNIT (ASSUMES THAT 51.0% OF TOTAL VALUE ACCRUES TO
9.71 MILLION PUBLIC UNITS)
<TABLE>
<CAPTION>
Discount Rate
Asusumed ---------------------------------------------------
Multiple 10.0% 10.5% 11.0% 11.5% 12.0%
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
7.5 x $16.34 $15.34 $14.37 $13.42 $12.50
8.0 x 18.16 17.12 16.11 15.12 14.16
8.5 x 19.99 18.90 17.84 16.81 15.81
9.0 x 21.81 20.68 19.58 18.51 17.46
</TABLE>
(a) Assumes combined annual savings from O&M and G&A expenses of $10.0
million. Also, assumes base case projections for NGL business.
SAVINGS: $10.0 million
NGLs: Base
CALCULATION OF NET DEBT AT 12/31/93
<TABLE>
<S> <C>
Total Long Term Debt $506.4
Plus Capital Lesses 103.8
Plus Current Maturities 27.9
Plus Current Lease Payments 1.1
Plus Short-Term Notes 47.0
Other Adjestments 18.0
Less Cash & Equivilents (3.6)
Les Escrow of Debt Principal (20.9)
Less Escrow of Interest Costs (13.3)
------
Net Debt at 12/31/93 $666.4
</TABLE>
OTHER ITEMS
<TABLE>
<S> <C>
1999E Operating cash Flow / EBITDA $117.5
Number of Public Units, millions 9.711919
Effective Percentage of Total Capital 51.0%
</TABLE>
<PAGE> 40
DILLON, READ & CO. INC DECEMBER 10, 1993
- --------------------------------------------------------------------------------
COMPARABLE COMPANY TRADING ANALYSIS
- --------------------------------------------------------------------------------
VALERO NATURAL GAS COMPANY
<PAGE> 41
- --------------------------------------------------------------------------------
Dillon, Read & Co. Inc. 12/08/93
VALERO NATURAL GAS PARTNERS, L.P.
IMPLIED VALUATION RANGES BASED ON PEER GROUP TRADING MULTIPLES
- --------------------------------------------------------------------------------
Implied Valuation of Total Partners' Capital
- --------------------------------------------
<TABLE>
<CAPTION> Implied Market Implied Equity
Comparable Company Trading Capitalization Market Value
Multiples (b) For VLP (c) For VLP (c)
Adj. VLP ------------------------------- -------------- --------------
Valuation Criteria Results(a) Mean Median High Low Mean Median Mean Median
------------------ ---------- ----- ------ ---- --- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Net Income to Common $ (1.7) 15.9x 16.4x 19.9x 11.0x $627.6 $627.6 NA NA
LTM Cash Flow From Operations 41.4 6.7x 6.8x 8.4x 4.6x 903.5 909.9 275.9 282.3
1994E Cash Flow From Operations 39.3 6.5x 6.5x 6.9x 6.1x 882.6 882.6 255.0 255.0
1993E Net Income 13.6 18.2x 18.2x 18.8x 17.5x 874.9 874.9 247.3 247.3
1994E Net Income 16.1 14.7x 14.7x 15.1x 14.4x 864.8 864.8 237.2 237.2
LTM Operating Cash
Flow / EBITDA 104.0 8.3x 7.7x 11.3x 6.5x 863.9 802.2 236.4 174.6
</TABLE>
Implied Value of Public Units Assuming 51.0% of Partners' Value is Represented
- ------------------------------------------------------------------------------
By Public Values
----------------
<TABLE>
<CAPTION>
Total Value of Public Units Value Per Public Unit
----------------------------------- ---------------------------------
Valuation Criteria Mean Median High Low Mean Median High Low
------------------ ------ ------- ----- ---- ----- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Net Income to Common NA NA NA NA NA NA NA NA
LTM Cash Flow From Operations 140.6 143.9 177.2 97.55 14.48 14.82 18.24 10.04
1994E Cash Flow From
Operations 130.0 130.0 138.8 121.2 13.38 13.38 14.29 12.48
1993E Net Income 126.1 126.1 130.7 121.4 12.98 12.98 13.46 12.50
1994E Net Income 120.9 120.9 123.6 118.2 12.45 12.45 12.73 12.17
LTM Operating Cash
Flow/EBITDA 120.5 89.0 279.7 24.2 12.41 9.16 28.80 2.49
</TABLE>
----------------
(a) Latest twelve months results for Valero Natural Gas Partners, L.P. are for
period ended September 30, 1993. Results are tax affected at 0.0% to make
comparative analysis relevant. Taxes are assumed to be current (i.e.,
Deferred = 0) Projected net income figures, also tax affected, represent
the median earnings estimates made by Wall Street research analysts (as
reported by I.B.E.S. as of 11/18/93). LTM based financials adjusted to
reflect non-recurring items.
(b) Comparable companies used in analysis include Aquila Gas Pipeline,
Associated Natural Gas, Trident NGL, and Western Gas Resources. Market
Resources. Market values are as of 12/07/93.
(c) Net debt = $627.6 million.
<PAGE> 42
- --------------------------------------------------------------------------------
Dillon, Read & Co. Inc. 12/08/93
Valero Natural Gas Partners, L.P.
Implied Valuation Ranges Based on Industry Trading Multiples
- --------------------------------------------------------------------------------
Implied Valuation of Total Partners' Capital
- --------------------------------------------
<TABLE>
<CAPTION>
Implied Market Implied Equity
Comparable Company Capitalization Market Value
Trading Multiples(b) For VLP(c) For VLP(c)
---------------------------- --------------- --------------
Adj. VLP
Valuation Criteria Results(a) Mean Median High Low Mean Median Mean Median
------------------ ---------- ---- ------ ---- ----- ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Net Income to Common ($1.1) 21.8x 21.6x 36.7x 10.7x $627.6 $627.6 NA NA
LTM Cash Flow From Operations 41.4 7.4x 8.3x 9.7x 4.6x 932.9 972.5 305.3 344.9
1994E Cash Flow From Operations 39.3 6.4x 6.9x 8.3x 3.6x 881.1 899.8 253.5 272.2
1993E Net Income 13.6 22.3x 20.5x 32.9x 12.3x 932.0 907.2 304.4 279.6
1994E Net Income 16.1 15.9x 14.7x 21.9x 9.9x 883.8 864.8 256.3 237.2
LTM Operating Cash Flow/EBITDA 104.0 8.2x 8.7x 11.3x 4.5x 848.9 900.6 221.3 273.1
</TABLE>
Implied Value of Public Units Assuming 51.0% of Partners' Value is Represented
- ------------------------------------------------------------------------------
By Public Units
- ---------------
<TABLE>
<CAPTION>
Total Value of Public Units Value Per Public Unit
------------------------------ -----------------------------
Valuation Criteria Mean Median High Low Mean Median High Low
------------------ ---- ------ ---- ---- ---- ------ ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Net Income to Common NA NA NA NA NA NA NA NA
LTM Cash Flow From Operations 155.6 175.8 204.5 97.5 16.02 18.10 21.06 10.04
1994E Cash Flow From Operations 129.2 138.8 167.0 72.5 13.30 14.29 17.19 7.47
1993E Net Income 155.1 142.5 228.6 85.6 15.98 14.68 23.54 8.81
1994E Net Income 130.6 120.9 180.1 80.9 13.45 12.45 18.54 8.33
LTM Operating Cash Flow/EBITDA 112.8 139.2 279.7 (79.3) 11.61 14.33 28.80 (8.16)
</TABLE>
- ----------------------
(a) Latest twelve months results for Valero Natural Gas Partners, L.P. are for
period ended September 30, 1993.
Results are tax affected at 35% to make comparative analysis relevant.
Taxes are assumed to be current (i.e. Deferred = 0).
Projected net income figures, also tax affected, represent the median
earnings estimates made by Wall Street research analysts (as reported by
I.B.E.S. as of 11/18/93). LTM based financials adjusted to reflect non-
recurring items.
(b) Comparable companies used in analysis include American Oil & Gas, Aquila
Gas Pipeline, Associated Natural Gas, Tejas Natural Gas, Tejas Power Corp.,
Trident NGL, USX - Delhi Group, and Western Gas Resources. Market values
are as of 12/07/93.
(c) Net debt = $627.6 million.
<PAGE> 43
- ------------------------------------------------------------------------------
Dillon, Read & Co. Inc. 12/09/93
VALERO NATURAL GAS PARTNERS, L.P.
IMPLIED VALUATION RANGES BASED ON PEER GROUP TRADING MULTIPLES
- ------------------------------------------------------------------------------
IMPLIED VALUATION OF TOTAL PARTNERS' CAPITAL
- --------------------------------------------
<TABLE>
<CAPTION>
Implied Market Implied Equity
Capitalization Market Value
Comparable Company Trading Multiples(b) For VLP(c) For VLP(c)
Act. VLP --------------------------------------- ----------------- -----------------
Valuation Criteria Results(a) Mean Median High Low Mean Median Mean Median
------------------ ---------- ------ ------ ------ ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Net Income to Common $ 12.2 15.7x 16.1x 19.9x 10.7x $818.9 $823.8 $191.3 $196.2
LTM Cash Flow From Operations 46.1 6.7x 6.8x 8.4x 4.6x 935.2 942.4 307.6 314.8
1994E Cash Flow From Operations 39.3 6.5x 6.5x 6.9x 6.1x 882.6 882.6 255.0 255.0
1993E Net Income 13.6 18.2x 18.2x 18.8x 17.5x 874.9 874.9 247.3 247.3
1994E Net Income 16.1 14.7x 14.7x 15.1x 14.4x 864.8 864.8 237.2 237.2
LTM Operating Cash Flow/EBITDA 115.9 8.3x 7.7x 11.3x 6.5x 962.8 894.0 335.3 266.4
</TABLE>
IMPLIED VALUE OF PUBLIC UNITS ASSUMING 51.0% OF PARTNERS' VALUE IS REPRESENTED
- ------------------------------------------------------------------------------
BY PUBLIC UNITS
- ---------------
<TABLE>
<CAPTION>
Total Value of Public Units Value Per Public Unit
-------------------------------------- ---------------------------------------
Valuation Criteria Mean Median High Low Mean Median High Low
------------------ ------ ------ ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Net Income to Commmon $ 97.5 $100.0 $123.8 $ 66.2 $10.04 $10.30 $12.75 $ 6.82
LTM Cash Flow From Operations 156.8 160.5 197.6 108.7 16.15 16.52 20.24 11.20
1994E Cash Flow From Operations 130.0 130.0 138.8 121.2 13.38 13.38 14.29 12.48
1993E Net Income 126.1 126.1 130.7 121.4 12.98 12.98 13.46 12.50
1994E Net Income 120.9 120.9 123.6 118.2 12.45 12.45 12.73 12.17
LTM Operating Cash Flow/EBITDA 170.9 135.8 348.4 63.6 17.60 1.98 35.87 6.55
</TABLE>
- -----------------------
(a) Latest twelve months results for Valero Natural Gas Partners, L.P. are for
period ended September 30, 1993. Results are tax affected at a 35% current
rate, (deferred component not included), to make analysis relevant.
Projected net income figures, also tax affected, represent the median
earnings estimates made by Wall Street research analysts (as reported by
I.B.E.S. as of 11/18/93).
(b) Comparable companies used in analysis include Aquila Gas Pipeline,
Associated Natural Gas, Trident NGL, and Western Gas Resources. Market
values as of 12/07/93.
(c) Net debt = $627.6 million.
<PAGE> 44
- -----------------------------------------------------------------------------
Dillon, Read & Co. Inc. 12/09/93
Valero Natural Gas Partners, L.P.
Implied Valuation Ranges Based on Industry Trading Multiples
- -----------------------------------------------------------------------------
Implied Valuation of Total Partners' Capital
--------------------------------------------
<TABLE>
<CAPTION>
Implied Market Implied Equity
Comparable Company Capitalization Market Value
Trading Multiples(b) For VLP(c) For VLP(c)
Adj. VLP ---------------------------------- --------------- ----------------
Valuation Criteria Results(a) Mean Median High Low Mean Median Mean Median
------------------ ---------- ---- ------ ---- ------ ----- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Net Income to
Common $ 12.2 21.8x 21.6x 36.7x 10.7x $892.8 $ 890.5 $265.2 $262.9
LTM Cash Flow From
Operations 46.1 7.4x 8.3x 9.7x 4.6x 968.0 1,012.1 340.4 384.6
1994E Cash Flow From
Operations 39.3 6.4x 6.9x 8.3x 3.6x 881.1 899.8 253.5 272.2
1993E Net Income 13.6 22.3x 20.5x 32.9x 12.3x 932.0 907.2 304.4 279.6
1994E Net Income 16.1 15.9x 14.7x 21.9x 9.9x 883.8 864.2 256.3 237.2
LTM Operating Cash Flow/
EBITDA 115.9 8.2x 8.7x 11.3x 4.5x 946.0 1,003.7 318.4 376.1
</TABLE>
Implied Value of Public Units Assuming 51.0% of Partners' Value is Represented
By Public Units
<TABLE>
<CAPTION>
Total Value of Public Units Value Per Public Unit
-------------------------------- ----------------------------------
Valuation Criteria Mean Median High Low Mean Median High Low
------------------ ---- ------ ---- ----- ---- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Net Income to
Common $135.2 $134.0 $227.7 $ 66.2 $13.92 $13.80 $23.44 $ 6.82
LTM Cash Flow From
Operations 173.5 196.0 228.0 108.7 17.87 20.18 23.48 11.20
1994E Cash Flow From
Operations 129.2 138.8 167.0 72.5 13.30 14.29 17.19 7.47
1993E Net Income 155.2 142.5 228.6 85.6 15.98 14.68 23.54 8.81
1994E Net Income 130.6 120.9 180.1 80.9 13.45 12.45 18.54 8.33
LTM Operating Cash Flow/
EBITDA 162.3 191.7 348.4 (51.7) 16.71 19.74 35.87 (5.33)
</TABLE>
- ---------------
(a) Latest twelve months results for Valero Natural Gas Partners, L.P. are for
period ended September 30, 1993. Results are tax affected at 35% current
rate, (deferred component not included), to make comparative analysis
relevant. Projected net income figures, also tax affected, represent the
median earnings estimates made by Wall Street research analysts (as
reported by I.B.E.S. as of 11/18/93).
(b) Comparable companies used in analysis include American Oil & Gas, Aquila
Gas Pipeline, Associated Natural Gas, Tejas Natural Gas, Tejas Power
Corp., Trident NGL, USX -- Delhi Group, and Western Gas Resources.
Market values are as of 12/07/93.
(c) Net debt = $627.6 million.
<PAGE> 45
- -----------------------------------------------------------------------
Dillon, Read & Co. Inc. 12/09/93
Valero Natural Gas Partners, L.P.
Implied Valuation Ranges Based on Peer Group Trading Multiples
- -----------------------------------------------------------------------
Implied Valuation of Total Partners' Capital
- --------------------------------------------
<TABLE>
<CAPTION>
Implied Market Implied Equity
Comparable Company Capitalization Market Value
Trading Multiples(b) For VLP(c) For VLP(c)
Adj. VLP ------------------------------- ---------------- ----------------
Valuation Criteria Results(a) Mean Median High Low Mean Median Mean Median
------------------ ---------- ---- ------ ---- --- ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Net Income to Common ($1.7) 15.7x 16.1x 19.9x 10.7x $ 627.6 $ 627.6 NA NA
LTM Cash Flow From
Operations 40.8 6.7x 6.8x 8.4x 4.6x 899.6 905.9 272.0 278.4
1994E Cash Flow From
Operations 38.7 6.5x 6.5x 6.9x 6.1x 879.0 879.0 251.4 251.4
1993E Net Income 21.0 18.2x 18.2x 18.8x 17.5x 1,008.1 1,008.1 380.5 380.5
1994E Net Income 24.8 14.7x 14.7x 15.1x 14.4x 992.5 992.5 364.9 364.9
LTM Operating Cash
Flow / EBITDA 104.0 8.3x 7.7x 11.3x 6.5x 863.9 802.2 236.4 174.6
</TABLE>
Implied Value of Public Units Assuming 51.0% of Partners' Value is Represented
- ------------------------------------------------------------------------------
By Public Units
- ---------------
<TABLE>
<CAPTION>
Total Value of Public Units Value Per Public Unit
-------------------------------- ---------------------------------
Valuation Criteria Mean Median High Low Mean Median High Low
------------------ ---- ------ ---- --- ---- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Net Income to Common NA NA NA NA NA NA NA NA
LTM Cash Flow From
Operations 137.7 141.9 174.7 96.1 14.28 14.61 17.99 9.90
1994E Cash Flow From
Operations 128.1 128.1 136.8 119.5 13.19 13.19 14.08 12.30
1993E Net Income 194.0 194.0 201.1 186.8 19.97 19.97 20.71 19.23
1994E Net Income 186.0 186.0 190.2 181.9 19.15 19.15 19.58 18.73
LTM Operating Cash
Flow / EBITDA 120.5 89.0 279.7 24.2 12.41 9.16 28.80 2.49
</TABLE>
- -------------- -------------------------------------------------------
(a) Latest twelve months results for Valero Natural Gas Partners, L.P.
are for period ended September 30, 1993.
LTM and projected figures are not tax affected.
LTM based financials adjusted to reflect non-recurring items.
(b) Comparable companies used in analysis include Aquila Gas Pipeline,
Associated Natural Gas, Trident NGL, and Western Gas Resources.
Market values are as of 12/07/93.
(c) Net debt = $627.6 million.
<PAGE> 46
- --------------------------------------------------------------------------------
Dillon, Read & Co. Inc. 12/09/93
Valero Natural Gas Partners, L.P.
Implied Valuation Ranges Based on Industry Trading Multiples
- --------------------------------------------------------------------------------
Implied Valuation of Total Partners' Capital
- --------------------------------------------
<TABLE>
<CAPTION>
Implied Market Implied Equity
Comparable Company Capitalization Market Value
Trading Multiples(b) For VLP(c) For VLP(c)
---------------------------- --------------- --------------
Adj. VLP
Valuation Criteria Results(a) Mean Median High Low Mean Median Mean Median
------------------ ---------- ---- ------ ---- ----- ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Net Income to Common ($1.7) 21.8x 21.6x 36.7x 10.7x $627.6 $627.6 NA NA
LTM Cash Flow From Operations 40.8 7.4x 8.3x 9.7x 4.6x 928.6 967.6 301.0 340.0
1994E Cash Flow From Operations 38.7 6.4x 6.9x 8.3x 3.6x 877.5 895.9 249.9 268.3
1993E Net Income 21.0 22.3x 20.5x 32.9x 12.3x 1,095.9 1,057.7 468.3 430.2
1994E Net Income 24.8 15.9x 14.7x 21.9x 9.9x 1,021.8 992.5 394.3 364.9
LTM Operating Cash Flow/EBITDA 104.0 8.2x 8.7x 11.3x 4.5x 848.9 900.6 221.3 273.1
</TABLE>
Implied Value of Public Units Assuming 51.0% of Partners' Value is Represented
By Public Units
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Value of Public Units Value Per Public Unit
------------------------------- -----------------------------
Valuation Criteria Mean Median High Low Mean Median High Low
------------------ ----- ------ ----- ----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Net Income to Common NA NA NA NA NA NA NA NA
LTM Cash Flow From Operations 153.4 173.3 201.6 96.1 15.80 17.85 20.76 9.90
1994E Cash Flow From Operations 127.4 136.8 164.6 71.5 13.12 14.08 16.95 7.36
1993E Net Income 238.7 219.3 351.7 131.6 24.58 22.58 36.21 13.55
1994E Net Income 201.0 186.0 277.1 124.5 20.69 19.15 28.53 12.81
LTM Operating Cash Flow/EBITDA 112.8 139.2 279.7 (79.3) 11.61 14.33 28.80 (8.16)
</TABLE>
- ---------------
(a) Latest twelve months results for Valero Natural Gas Partners, L.P. are for
period ended September 30, 1993.
LTM and projected figures are not tax affected.
LTM based financials adjusted to reflect non-recurring items.
(b) Comparable companies used in analysis include American Oil & Gas, Aquila Gas
Pipeline, Associated Natural Gas, Tejas Natural Gas, Tejas Power Corp.,
Trident NGL, USX, Delhi Group, and Western Gas Resources. Market values
are as of 12/07/93.
(c) Net debt = $627.6 million.
<PAGE> 47
- --------------------------------------------------------------------------------
Dillon, Read & Co. Inc. 12/09/93
Valero Natural Gas Partners, L.P.
Implied Valuation Ranges Based on Peer Group Trading Multiples
- --------------------------------------------------------------------------------
Implied Valuation of Total Partners' Capital
- --------------------------------------------
<TABLE>
<CAPTION>
Implied Market Implied Equity
Comparable Company Capitalization Market Value
Trading Multiples(b) For VLP(c) For VLP(c)
---------------------------- --------------- --------------
Adj. VLP
Valuation Criteria Results(a) Mean Median High Low Mean Median Mean Median
------------------ ---------- ----- ------ ---- ----- ----- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Net Income to Common $18.7 15.7x 16.1x 19.9x 10.7x $ 921.9 929.4 $294.4 $301.9
LTM Cash Flow From Operations 52.7 6.7x 6.8x 8.4x 4.6x 978.9 987.1 351.4 359.6
1994E Cash Flow From Operations 38.7 6.5x 6.5x 6.9x 6.1x 879.0 879.0 251.4 251.4
1993E Net Income 21.0 18.2x 18.2x 18.8x 17.5x 1,008.1 1,008.1 380.5 380.5
1994E Net Income 24.8 14.7x 14.7x 15.1x 14.4x 992.5 992.5 364.9 364.9
LTM Operating Cash Flow/EBITDA 115.9 8.3x 7.7x 11.3x 6.5x 962.8 894.0 335.3 266.4
</TABLE>
Implied Value of Public Units Assuming 51.0% of Partners' Value is Represented
By Public Units
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Value of Public Units Value Per Public Unit
------------------------------- ------------------------------
Valuation Criteria Mean Median High Low Mean Median High Low
------------------ ----- ------- ---- --- ----- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Net Income to Common $150.6 $153.9 $190.5 $101.9 $15.45 $15.84 $19.62 $10.49
LTM Cash Flow From Operations 179.1 183.3 225.7 124.2 18.44 18.87 23.23 12.79
1994E Cash Flow From Operations 128.1 128.1 136.8 119.5 13.19 13.19 14.08 12.30
1993E Net Income 194.0 194.0 201.1 186.8 19.97 19.97 20.71 19.23
1994E Net Income 186.0 186.0 190.2 181.9 19.15 19.15 19.58 18.73
LTM Operating Cash Flow/EBITDA 170.9 135.8 348.4 63.6 17.60 13.98 35.87 6.55
</TABLE>
- ---------------
(a) Latest twelve months results for Valero Natural Gas Partners, L.P. are
for period ended September 30, 1993.
LTM and projected figures are not tax affected
(b) Comparable companies used in analysis include Aquila Gas Pipeline,
Associated Natural Gas, Trident NGL, and Western Gas Resources. Market
values are as of 12/07/93.
(c) Net debt = $627.6 million.
<PAGE> 48
- --------------------------------------------------------------------------------
Dillon, Read & Co. Inc. 12/09/93
Valero Natural Gas Partners, L.P.
Implied Valuation Ranges Based on Industry Trading Multiples
- --------------------------------------------------------------------------------
Implied Valuation of Total Partners' Capital
- --------------------------------------------
<TABLE>
<CAPTION>
Implied Market Implied Equity
Comparable Company Capitalization Market Value
Trading Multiples(b) For VLP(c) For VLP(c)
---------------------------- ------------------ ---------------
Adj. VLP
Valuation Criteria Results(a) Mean Median High Low Mean Median Mean Median
------------------ ---------- ----- ------ ---- ----- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Net Income to Common $ 18.7 21.8x 21.6x 36.7x 10.7x $1,035.6 $1.032.0 $408.0 $404.4
LTM Cash Flow From Operations 52.7 7.4x 8.3x 9.7x 4.6x 1,016.4 1,066.8 388.8 439.2
1994E Cash Flow From Operations 38.7 6.4x 6.9x 8.3x 3.6x 877.5 895.9 249.9 268.3
1993E Net Income 21.0 22.3x 20.5x 32.9x 12.3x 1,095.9 1,057.7 468.3 430.2
1994E Net Income 24.8 15.9x 14.7x 21.9x 9.9x 1,021.8 992.5 394.3 364.9
LTM Operating Cash Flow/EBITDA 115.9 8.2x 8.7x 11.3x 4.5x 946.0 1,003.7 318.4 376.1
</TABLE>
Implied Value of Public Units Assuming 51.0% of Partners' Value is Represented
By Public Units
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Value of Public Units Value Per Public Unit
------------------------------------- ---------------------------------
Valuation Criteria Mean Median High Low Mean Median High Low
------------------ ------ ------ ------ ------ ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Net Income to Common $208.0 $206.2 $350.3 $101.9 $21.42 $21.23 $36.07 $10.49
LTM Cash Flow From Operations 198.2 223.9 260.5 124.2 20.41 23.05 26.82 12.79
1994E Cash Flow From Operations 127.4 136.8 164.6 71.5 13.12 14.08 16.95 7.36
1993E Net Income 238.7 219.3 351.7 131.6 24.58 22.58 36.21 13.55
1994E Net Income 201.0 186.0 277.1 124.5 20.69 19.15 28.53 12.81
LTM Operating Cash Flow/EBITDA 162.3 191.7 348.4 (51.7) 16.71 19.74 35.87 (5.33)
</TABLE>
- ---------------------
(a) Latest twelve months results for Valero Natural Gas Partners, L.P. are for
period ended September 30, 1993.
LTM and projected figures are not tax affected.
(b) Comparable companies used in analysis include American Oil & Gas, Aquila Gas
Pipeline, Associated Natural Gas, Tejas Natural Gas, Tejas Power Corp.,
Trident NGL, USX - Delhi Group, and Western Gas Resources. Market values
are as of 12/07/93.
(c) Net debt = $627.6 million.
<PAGE> 49
DILLON, READ & CO. INC. 12/09/93
SUMMARY VALUATION ANALYSIS OF SELECTED NATURAL GAS GATHERING AND PROCESSING
COMPANIES
PAGE 1
<TABLE>
<CAPTION>
Valero American Aquila Gas Associated
Natural Gas (m) Oil & Gas (g) Pipeline (l) Natural Gas (b) Tejas Gas (i) Tejas Power (g)
--------------- ------------- ------------ --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
MARKET DATA:
Ticker Symbol VLP AOG AQP NGA TEJ TPC
Stock Exchange NYSE NYSE NYSE NYSE NYSE ASE
Latest Annual Financial
Results 12/31/92 12/31/92 12/31/92 12/31/92 12/31/92 12/31/92
Latest Quarterly Financial
Results 09/30/93 09/30/93 09/30/93 09/30/93 09/30/93 09/30/93
Common Stock Price as of
12/08/93 $11.000 $9.750 $11.250 $31.000 $49.750 $9.875
Common Shares Outstanding 19.1 25.7 29.4 13.3 10.7 14.0
52-Week High Price $11.375 $14.500 $16.375 $41.000 $61.000 $10.875
52-Week Low Price 7.375 9.500 10.625 25.500 21.500 6.875
Current Price As %
of 52-Week High 96.7% 67.2% 68.7% 75.6% 81.6% 90.8%
Total Equity Market Value $209.6 $250.9 $330.8 $412.5 $530.8 $138.5
Net Market Capitalization (a) 837.2 329.0 443.0 584.0 977.6 145.5
FINANCIAL PERFORMANCE DATA:
LTM Total Operating Revenues $1,335.1 $531.2 $260.9 $1,313.3 $987.5 $245.2
LTM Operating Cash Flow
/ EBITDA (b) 104.0 38.9 65.2 65.0 96.0 16.7
LTM Operating Income
/ EBIT (c) 63.6 22.1 49.6 43.8 66.5 7.6
LTM Net Income to Common (d) (1.7) 9.3 24.5 19.5 22.8 4.1
LTM Cash Flow From
Operations (c) 41.4 29.8 59.5 47.7 58.4 14.3
Earnings Per Share
Latest Twelve Months ($0.06) $0.36 $1.02 $1.61 $2.14 $0.27
1993E EPS (f) $0.72 $0.45 NA $1.60 $1.65 $0.30
1994E EPS (f) 0.85 0.80 NA 2.00 2.30 0.45
Cash Flow Per Share
Projection
1993E CFPS (o) $2.68 NA NA $3.70 $4.25 $1.15
1994E CFPS (o) 2.06 NA NA 4.35 6.00 1.35
Indicated Annual Dividend
Per Share $0.50 $0.00 $0.05 $0.12 $0.00 $0.00
BALANCE SHEET DATA:
Cash and Equivalents $20.6 $13.9 $18.8 $20.5 $10.7 $15.9
Net Property, Plant &
Equipment 741.5 274.7 296.4 385.8 586.2 72.2
S-T Debt (Includes
Current I Debt) 37.9 21.9 0.0 4.0 0.0 4.8
Long-Term Debt 610.3 74.6 131.0 188.0 369.2 18.0
Total Preferred Stock 0.0 0.0 0.0 0.0 0.5 1.2
Book Value of Common
Equity 164.7 189.7 138.3 201.1 245.1 60.4
Net Book Capitalization 792.2 272.3 250.5 372.6 603.8 67.3
Total Debt 648.1 96.5 131.0 192.0 369.2 22.8
</TABLE>
<TABLE>
<CAPTION> Corporate Analysis (p)
Trident NGL USX - Western Gas -----------------------------------
Holding, Inc. (m) Delhi Group Resources (k) Mean Median High Low
----------------- ----------- ------------- ------ ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
MARKET DATA:
Ticker Symbol NGL DGP WGR
Stock Exchange NYSE NYSE NYSE
Latest Annual Financial
Results 12/31/92 12/31/92 12/31/92
Latest Quarterly Financial
Results 06/30/93 09/30/93 09/30/93
Common Stock Price as of
12/08/93 $10.875 $16.875 $30.125
Common Shares Outstanding 27.7 14.0 25.6
52-Week High Price $13.125 $24.750 $45.125
52-Week Low Price 10.750 15.250 23.500
Current Price As %
of 52-Week High 82.9% 68.2% 66.8% 75.2% 72.2% 90.8% 66.8%
Total Equity Market Value $301.7 $236.3 $772.3 $371.7 $316.2 $722.3 138.5
Net Market Capitalization (a) 674.7 337.6 1,334.1 603.2 513.5 1,334.1 145.5
FINANCIAL PERFORMANCE DATA:
LTM Total Operating Revenues $611.0 $528.2 $816.2
LTM Operating Cash Flow
/ EBITDA (b) 103.9 75.5 118.2
LTM Operating Income
/ EBIT (c) 71.0 37.1 72.6
LTM Net Income to Common (d) 22.3 10.4 38.8
LTM Cash Flow From
Operations (c) 65.2 49.2 93.8
Earnings Per Share
Latest Twelve Months $0.80 $0.74 $1.52
1993E EPS (f) NA $1.40 $1.73
1994E EPS (f) NA 1.75 2.10
Cash Flow Per Share
Projection
1993E CFPS (o) NA $3.88 $4.00
1994E CFPS (o) NA $4.76 5.00
Indicated Annual Dividend
Per Share $0.05 $0.20 $0.20
BALANCE SHEET DATA:
Cash and Equivalents $11.8 $2.2 $9.7
Net Property, Plant &
Equipment 0.0 508.9 755.3
S-T Debt (Includes
Current I Debt) 10.0 0.6 0.0
Long-Term Debt 374.9 100.4 493.0
Total Preferred Stock 0.0 2.5 0.2
Book Value of Common
Equity 229.3 201.7 305.5
Net Book Capitalization 602.4 303.0 789.0
Total Debt 384.9 101.0 493.0
</TABLE>
<PAGE> 50
- --------------------------------------------------------------------------------
DILLON, READ & CO. INC. 10/09/93
SUMMARY VALUATION ANALYSIS OF SELECTED NATURAL GAS GATHERING
AND PROCESSING COMPANIES
Page 2
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Valero American Aquila Gas Associated
Natural Gas(m) Oil & Gas Pipeline(l) Natural Gas(b) Tejas Gas(l) Tejas Power(g)
--------------- ----------- ----------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
VALUATION INFORMATION:
Equity Market Value to:
LTM Net Income to Common NA x 27.4 x 11.0 x 19.2 x 23.2 x 36.7 x
LTM Cash Flow From Operations 5.1 x 8.4 x 5.6 x 8.6 x 9.1 x 9.7 x
Book Value of Common Equity 1.27 x 1.32 x 2.39 x 2.05 x 2.17 x 2.29 x
1993E Net Income (f) 15.4 x 21.7 x NA x 19.4 x 30.2 x 32.9 x
1994E Net Income (f) 13.0 x 12.2 x NA x 15.5 x 21.6 x 21.9 x
1993E Cash Flow Per Share (o) 4.1 x NA x NA x 8.4 x 11.7 x 8.6 x
1994E Cash Flow Per Share (o) 5.3 x NA x NA x 7.1 x 8.3 x 7.3 x
Net Market Capitalization to:
LTM Operating Revenues 0.6 x 0.6 x 1.7 x 0.4 x 1.0 x 0.6 x
LTM Operating Cash Flow / EBITDA 8.1 x 8.5 x 6.8 x 9.0 x 10.2 x 8.7 x
LTM Operating Income / EBIT 13.2 x 14.9 x 8.9 x 13.3 x 14.7 x 19.1 x
Indicated Dividend Yield 4.5% 0.0% 0.4% 0.4% 0.0% 0.0%
OTHER INFORMATION:
Net Debt / Net Book Capitalization 79.2% 30.3% 44.8% 46.0% 59.4% 10.3%
Net Debt / Net Market Capitalization 75.0% 25.1% 25.3% 29.4% 36.7% 4.8%
Payout Ratio (Using LTM EPS) NM 0.0% 4.9% 7.4% 0.0% 0.0%
EBITDA / Interest Expense 1.54 x 4.43 x 6.26 x 5.18 x 3.70 x 10.72 x
Cash Flow From Ops. / Net Debt 6.5% 36.1% 53.0% 27.8% 16.3% 206.0%
Cash Flow From Ops. / Interest Exp. 0.61 x 3.40 x 5.71 x 3.80 x 2.25 x 9.16 x
Net Working Capital / Total Sales -3.2% 2.9% 3.4% 0.7% -0.2% 0.2%
Capital Expenditures / Total Sales 2.5% 6.9% 18.5% 5.7% 1.8% 6.1%
% G&A/Total Sales 3.0% 3.5% 4.1% 1.1% 2.0% 3.6%
% O&M/Total Sales 5.7% 4.2% 5.3% 2.4% 3.6% 1.8%
% (G&A and O&M)/Total Sales 8.7% 7.7% 9.4% 3.5% 5.6% 5.4%
% G&A/Gross Margin 16.5% 22.5% 12.0% 13.3% 13.0% 27.7%
% O&M/Gross Margin 31.9% 26.9% 15.3% 28.4% 23.6% 14.2%
% (G&A and O&M)/Gross Margin 48.4% 49.4% 27.3% 41.7% 36.6% 41.9%
</TABLE>
<TABLE>
<CAPTION>
Comparative Analysis (p)
Trident NGL USX - Western Gas -------------------------------------
Holding, Inc.(m) Delhi Group(j) Resources(k) Mean Median High Low
---------------- -------------- ------------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
VALUATION INFORMATION:
Equity Market Value to:
LTM Net Income to Common 13.5 x 22.7 x 19.9 x 21.7 x 21.3 x 36.7 x 11.0 x
LTM Cash Flow From Operations 4.6 x 4.8 x 8.2 x 7.4 x 8.3 x 9.7 x 4.6 x
Book Value of Common Equity 1.32 x 1.17 x 2.53 x 1.91 x 2.11 x 2.53 x 1.17 x
1993E Net Income (f) NA x 12.1 x 17.4 x 22.3 x 20.5 x 32.9 x 12.1 x
1994E Net Income (f) NA x 9.6 x 14.3 x 15.9 x 14.9 x 21.9 x 9.6 x
1993E Cash Flow Per Share (o) NA x 4.4 x 7.5 x 8.1 x 8.4 x 11.7 x 4.4 x
1994E Cash Flow Per Share (o) NA x 3.5 x 6.0 x 6.5 x 7.1 x 8.3 x 3.5 x
Net Market Capitalization to:
LTM Operating Revenues 1.1 x 0.6 x 1.6 x 1.0 x 0.8 x 1.7 x 0.4 x
LTM Operating Cash Flow / EBITDA 6.5 x 4.5 x 11.3 x 8.2 x 8.6 x 11.3 x 4.5 x
LTM Operating Income / EBIT 9.5 x 9.1 x 18.4 x 13.5 x 14.0 x 19.1 x 8.9 x
Indicated Dividend Yield 0.5% 1.2% 0.7% 0.4% 0.4% 1.2% 0.0%
OTHER INFORMATION:
Net Debt / Net Book Capitalization 61.9% 32.6% 61.3% 43.3% 45.4% 61.9% 10.3%
Net Debt / Net Market Capitalization 55.3% 29.3% 36.2% 30.3% 29.3% 55.3% 4.8%
Payout Ratio (Using LTM EPS) 6.2% 26.9% 13.2% 7.3% 5.6% 26.9% 0.0%
EBITDA / Interest Expense 2.65 x 7.33 x 8.39 x 6.08 x 5.72 x 10.72 x 2.65 x
Cash Flow From Ops. / Net Debt 17.5% 49.8% 19.4% 53.2% 32.0% 206.0% 16.3%
Cash Flow From Ops. / Interest Exp. 1.66 x 4.78 x 6.66 x 4.68 x 4.29 x 9.16 x 1.66 x
Net Working Capital / Total Sales 1.7% -11.9% -0.4% -0.5% 0.4% 3.4% -11.9%
Capital Expenditures / Total Sales 7.9% 6.5% 10.3% 8.0% 6.7% 18.5% 1.8%
% G&A/Total Sales 2.7% 5.6% 3.0% 3.2% 3.3% 5.6% 1.1%
% O&M/Total Sales NA NA 7.4% 4.1% 3.9% 7.4% 1.8%
% (G&Aand O&M)/Total Sales NA NA 10.4% 7.0% 6.7% 10.4% 3.5%
% G&A/Gross Margin 13.6% 26.4% 12.0% 17.6% 13.4% 27.7% 12.0%
% O&M/Gross Margin NA NA 29.3% 23.0% 25.3% 29.3% 14.2%
% (G&Aand O&M)/Gross Margin NA NA 41.4% 39.7% 41.6% 49.4% 27.3%
</TABLE>
<PAGE> 51
DILLON, READ & CO. INC. 12/09/93
SUMMARY VALUATION ANALYSIS OF SELECTED NATURAL GAS GATHERING AND PROCESSING
COMPANIES
PAGE 3
<TABLE>
<CAPTION>
VALERO AMERICAN AQUILA GAS ASSOCIATED
NATURAL GAS(M) OIL & GAS(G) PIPELINE(L) NATURAL GAS(H) TEJAS GAS(I) TEJAS POWER(G)
------------- ------------ ----------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING INFORMATION : (r)
Areas of Operations Texas West & S TX, W TX, TX, OK, CO, S. TX, E. TX, TX & LA
South Texas OK LA, KS, AL LA, WV, OK Gulf Coast
Miles of Pipeline 7,200 5,935 2,152 5,817 5,200 NA
Number of Gas Plants 10 9 4 12(+4 fract.) 8(+2 treat.)
Average Daily Throughput (Bcf/d) 1.933 0.859 0.313 0.929 3.157 0.560
Average Daily Capacity (Bcf/d) NA 2.000 0.643 NA NA 0.750
Daily NGL Production (mgal/d) 2,409.8 NA 33.0 (s) 869.0 (t) 223.0 NA
Daily NGL Sales (mgal/d) 3,943.9 394.0 NA NA NA NA
Breakdown of Throughput
Sales 40.6% 65.0% 64.0% NA 35.0% 42.0%
Transmission 59.4% 35.0% 36.0% NA 65.0% 58.0%
Other 0.0% 0.0% 0.0% NA 0.0% 0.0%
Revenue Breakdown By %
Sales 57.0% 84.0% 67.0% NA NA 86.0%
Transmission 4.5% 2.0% 0.0% NA NA 11.7%
NGL Processing 38.5% 13.0% 33.0% NA NA 0.0%
Breakdown of Gross Profits
Sales 36.0% NA NA NA NA NA
Transmission 0.0% NA NA NA NA NA
NGL Processing 64.0% NA NA 32.5%(u) NA NA
</TABLE>
<TABLE>
<CAPTION>
TRIDENT NGL USX - WESTERN GAS
HOLDING, INC.(N) DELHI GROUP(J) RESOURCES(K)
---------------- -------------- ------------
<S> <C> <C> <C>
OPERATING INFORMATION : (r)
Areas of Operations TX, LA,
OK, KS
Miles of Pipeline 8,000 8,379 NA
Number of Gas Plants 32(+3 fract.) 21(11 partial)
Average Daily Throughput (Bcf/d) NA 0.856 NA
Average Daily Capacity (Bcf/d) NA NA NA
Daily NGL Production (mgal/d) 2,511.0 NA NA
Daily NGL Sales (mgal/d) 3,684.0 714.2 NA
Breakdown of Throughput
Sales 62.0% 63.8% NA
Transmission 38.0% 33.0% NA
Other 0.0% 3.2% NA
Revenue Breakdown By %
Sales 49.0% 81.4% 55.0%
Transmission 3.0% 3.2% 3.0%
NGL Processing 48.0% 15.4% 42.0%
Breakdown of Gross Profits
Sales 16.0% 70.2% NA
Transmission 2.0% 10.8% NA
NGL Processing 82.0% 19.0% NA
</TABLE>
<TABLE>
<CAPTION>
COMPARATIVE ANALYSIS (P)
----------------------------------------------------------------
MEAN MEDIAN HIGH LOW
---------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
OPERATING INFORMATION : (r)
Areas of Operations
Miles of Pipeline 5,914 5,876 8,379 2,152
Number of Gas Plants
Average Daily Throughput (Bcf/d) 1.112 0.858 3.157 0.313
Average Daily Capacity (Bcf/d) 1.131 0.697 2.000 0.643
Daily NGL Production (mgal/d) 909.0 546.0 2,511.0 33.0
Daily NGL Sales (mgal/d) 1,597.4 714.2 3,684.0 394.0
Breakdown of Throughput
Sales 55.3% 62.9% 65.0% 35.0%
Transmission 44.2% 37.0% 65.0% 33.0%
Other 0.5% 0.0% 3.2% 0.0%
Revenue Breakdown By %
Sales 70.4% 67.0% 86.0% 49.0%
Transmission 3.8% 3.0% 11.7% 0.0%
NGL Processing 25.2% 15.4% 48.0% 0.0%
Breakdown of Gross Profits
Sales 43.1% 0.0% 70.2% 16.0%
Transmission 6.4% 0.0% 10.8% 2.0%
NGL Processing 44.5% 32.5% 82.0% 19.0%
</TABLE>
<PAGE> 52
Dillon, Read & Co. Inc. 12/09/93
Summary Valuation Analysis of Selected Natural Gas
Gathering and Process Companies
Page 4
<TABLE>
<CAPTION>
Valero American Aquila Gas Associated
Natural Gas (m) Oil & Gas (g) Pipeline(l) Natural Gas(h)
--------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Historical Operating Trends:
Revenue Growth From Prior Periods
FY 1991 vs. FY 1990 4.8% -13.7% 489.2% 59.7%
FY 1992 vs. FY 1991 4.6% 13.2% 189.9% 47.2%
LTM vs. FY 1992 11.5% 23.3% 23.5% 41.4%
LTM vs. FY 1990 22.3% 20.4% 2009.1% 232.6%
EBITDA Growth From Prior Periods
FY 1991 vs. FY 1990 -3.0% 29.8% 826.0% 41.0%
FY 1992 vs. FY 1991 -10.7% 16.0% 172.2% 32.3%
LTM vs. FY 1992 -16.3% -16.9% 15.6% 23.9%
LTM vs. FY 1990 -27.5% 25.1% 2814.2% 130.9%
EBIT Growth From Prior Periods
FY 1991 vs. FY 1990 -5.1% 34.7% 1010.9% 30.8%
FY 1992 vs. FY 1991 -10.0% 7.9% 178.6% 38.9%
LTM vs. FY 1992 -29.2% -31.9% 18.8% 40.5%
LTM vs. FY 1990 -39.5% -1.0% 3576.4% 155.4%
Net Income Growth From Prior Periods
FY 1991 vs. FY 1990 -27.0% 3.1% 180.0% 38.1%
FY 1992 vs. FY 1991 -32.5% 22.5% 55.9% 15.1%
LTM vs. FY 1992 -104.3% -37.2% 33.9% 67.5%
LTM vs. FY 1990 -102.1% -20.7% 484.4% 166.3%
CFFO Growth From Prior Periods
FY 1991 vs. FY 1990 -14.7% -14.0% 318.6% 37.7%
FY 1992 vs. FY 1991 -20.7% 8.8% 95.6% 24.1%
LTM vs. FY 1992 -34.2% 5.3% 10.1% 23.6%
LTM vs. FY 1990 -55.1% -1.5% 801.0% 111.1%
</TABLE>
<TABLE>
<CAPTION>
Trident NGL USX- Western Gas
Tejas Gas(l) Tejas Power(g) Holding, Inc. (n) Delhi Group (l) Resources (k)
------------ -------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Historical Operating Trends:
Revenue Growth From Prior Periods
FY 1991 vs. FY 1990 79.8% 23.0% NA 4.4% 40.1%
FY 1992 vs. FY 1991 15.4% 27.5% 85.9% 8.2% 67.5%
LTM vs. FY 1992 88.3% 33.1% 1.6% 15.4% 36.0%
LTM vs. FY 1990 290.5% 108.7% NA 30.4% 219.3%
EBITDA Growth From Prior Periods
FY 1991 vs. FY 1990 45.1% -25.8% NA 10.5% 53.5%
FY 1992 vs. FY 1991 0.6% 100.5% 61.6% 4.4% 48.3%
LTM vs. FY 1992 81.6% 5.5% 4.9% 3.7% 23.9%
LTM vs. FY 1990 164.9% 57.1% NA 19.7% 182.1%
EBIT Growth From Prior Periods
FY 1991 vs. FY 1990 38.5% -69.7% NA 23.5% 42.3%
FY 1992 vs. FY 1991 0.2% 313.6% 47.6% 5.2% 50.4%
LTM vs. FY 1992 95.9% 29.0% 5.7% 13.8% 5.4%
LTM vs. FY 1990 171.9% 61.6% NA 47.8% 125.7%
Net Income Growth From Prior Periods
FY 1991 vs. FY 1990 -19.3% -169.5% NA -52.6% 19.2%
FY 1992 vs. FY 1991 39.4% -505.0% 31.1% 158.3% 90.4%
LTM vs. FY 1992 91.7% 32.4% 9.8% -44.1% -2.4%
LTM vs. FY 1990 115.7% 272.8% NA -31.6% 121.5%
CFFO Growth From Prior Periods
FY 1991 vs. FY 1990 35.1% -30.7% NA 10.1% 34.3%
FY 1992 vs. FY 1991 2.7% 147.8% 84.8% 3.6% 47.6%
LTM vs. FY 1992 73.2% 7.6% 0.2% -14.9% 41.7%
LTM vs. FY 1990 140.2% 84.6% NA -3.0% 181.0%
</TABLE>
<TABLE>
<CAPTION>
Comparative Analysis (p)
-----------------------------------------------
Mean Median High Low
---- ----- ---- ----
<S> <C> <C> <C> <C>
Historical Operating Trends:
Revenue Growth From Prior Periods
FY 1991 vs. FY 1990 97.5% 41.4% 489.2% -13.7%
FY 1992 vs. FY 1991 56.9% 27.5% 189.9% 8.2%
LTM vs. FY 1992 32.8% 23.5% 88.3% 1.6%
LTM vs. FY 1990 415.9% 170.7% 2009.1% 20.4%
EBITDA Growth From Prior Periods
FY 1991 vs. FY 1990 140.0% 35.4% 826.0% -25.8%
FY 1992 vs. FY 1991 54.5% 32.3% 172.2% 0.6%
LTM vs. FY 1992 17.8% 5.5% 81.6% -16.9%
LTM vs. FY 1990 484.9% 94.0% 2814.2% 19.7%
EBIT Growth From Prior Periods
FY 1991 vs. FY 1990 158.7% 32.8% 1010.9% -69.7%
FY 1992 vs. FY 1991 80.3% 38.9% 313.6% 0.2%
LTM vs. FY 1992 22.2% 18.8% 95.9% -31.9%
LTM vs. FY 1990 591.1% 108.5% 3576.4% -1.0%
Net Income Growth From Prior Periods
FY 1991 vs. FY 1990 -0.1% -8.1% 180.0% -169.5%
FY 1992 vs. FY 1991 -11.5% 31.1% 158.3% -505.0%
LTM vs. FY 1992 18.9% 32.4% 91.7% -44.1%
LTM vs. FY 1990 158.3% 141.0% 484.4% -31.6%
CFFO Growth From Prior Periods
FY 1991 vs. FY 1990 55.8% 22.6% 318.6% -30.7%
FY 1992 vs. FY 1991 51.9% 24.1% 147.8% 2.7%
LTM vs. FY 1992 18.3% 7.6% 73.2% -14.9%
LTM vs. FY 1990 187.6% 97.9% 801.0% -3.0%
</TABLE>
<PAGE> 53
DILLON, READ & CO. INC. 12/09/93
SUMMARY VALUATION ANALYSIS OF SELECTED NATURAL GAS GATHERING AND PROCESSING
COMPANIES
Page 5
FOOTNOTES TO ANALYSIS:
(a) Defined as equity market value plus long-term and short-term debt, capital
leases, minority interests and redeemable preferred stock, less cash & cash
equivalents and long-term investments.
(b) Defined as operating income plus depreciation, depletion and amortization.
(c) Defined as income from operations before other (non-operating) income,
extraordinary items, interest charges, minority interests and income taxes.
(d) Net income to common shareholders. Excludes extraordinary items.
(e) Before changes in working capital.
(f) Median EPS estimates as reported in the Institutional Brokers Estimate
System report, as of 11/18/93.
(g) Balance sheet is not proforma asset sales/purchased subsequent to 9/30/93.
Amounts not disclosed in 8K.
(h) Balance sheet is proforma acquisition of four pipeline systems from
Endevco, Inc. Purchased with $20.5 MM cash (debt) and 0.264 MM common
shares. Transaction closed 11/03/93. Balance sheet is also proforma Dean
Pipline acquisition for $22.5 MM cash. Transaction closed 11/8/93.
(i) Proforma the 11/02/93 common stock and 5.25% Convertible Preferred stock
Offerings. Also Proforma EGSI Acquisition. Financials LTM 6/30/93. Balance
sheet as of date of final prospectus.
(j) Balance sheet not proforma 10/05/93 acquisition of Tonkawa Gas Processing
Company (30 MM/D processing capacity)
(k) Proforma acquisitions of Mountain Gas Resources ($164.6 MM) and Black Lake
Processing and related reserves ($134 MM). Both transactions were effective
1/01/93, therefore 9/30/93 10Q was proforma. Form 8K was used for 1992
"stub" period for LTM data.
(l) Financials based on IPO prospectus dated October 26, 1993. Financials LTM
June 30, 1993.
(m) Valero Natural Gas Partnership L.P. is tax affected at 35% to make
comparative analysis relevant. Taxes are assumed to be current (i.e.
Deferred = 0). G&A expense based on VLO provided schedule.
VLP units outstanding include effective GP units of 0.5658 million units.
VLP G&A and O&M analysis adjusts LTM 9/30/93 O&M expenses by $7.7 MM for
non-recurring O&M expenses ($4.4 MM early retirement, $2.0 MM unusual bad
debt expense & $1.3 MM incremental product transport expenses)
(n) Trident Financial data obtained from proforma prospectus dated November 10,
1993. LTM financial data is for the period ended 6/30/93.
(o) Cash flow per share estimates obtained from Dillon Read, except USX-Delhi
which is based on Morgan Stanley report dated 8/16/93. VLP based on
Company's plan.
(p) Comparative analysis does not include Valero Natural Gas Partners in its
computations.
(q) Number of common shares outstanding and book equity account adjusted for
conversion of preferred issue into 4.2 MM additional common shares.
(r) Based on fiscal year 1992 results.
(s) Gross NGLs produced includes third party processing. Net figures are not
available.
(t) Total NGLs handled. Actual net production and sales information are not
available.
(u) Obtained from NGA investor relations department.
<PAGE> 54
Dillon, Read & Co. Inc. 12/09/93
Summary Valuation Analysis of Selected Pipeline Master Limited Partnerships
Draft - Subject to Change Page 1
<TABLE>
<CAPTION>
Valero Buckeye Enron Kaneb Lakehead Santa Fe TEPPCO
Natural Gas Partners Liquids Pipe Line(a) Pipe Line Pipeline Partners
----------- -------- ------- ------------ --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
MARKET DATA:
Ticker Symbol VLP BPL ENP KPP LHP SFL TP
Fiscal Year End 12/31/92 12/31/92 12/31/92 12/31/92 12/31/92 12/31/92 12/31/92
Latest Quarter Reported 9/30/93 9/30/93 9/30/93 9/30/93 9/30/93 9/30/93 9/30/93
Preferred Unit Price
as of 12/08/93 $ 11.000 $ 38.250 $ 29.625 $ 27.000 $ 32.375 $ 38.500 $ 27.875
Total Units Outstanding 18.5 12.0 6.5 16.1 21.8 19.1 14.5
Public Units As %
of Total Captial 49.9% 98.0% 85.1% 44.2% 80.4% 56.3% 89.6%
GP-Held Units / DPIs As
% of Total Captial 47.2% 0.0% 12.9% 53.8% 17.6% 41.7% 8.4%
General Partners' Interest
in Partnership 3.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
52-Week High Price $ 11.375 $ 41.625 $ 32.750 $ 28.125 $ 33.250 $ 40.750 $ 29.500
52-Week Low Price $ 7.375 $ 28.500 $ 24.875 $ 20.750 $ 23.750 $ 33.250 $ 20.500
Current Price As %
Of 52-Week High 96.7% 91.9% 90.5% 96.0% 97.4% 94.5% 94.5%
Total Equity Market Value
of Partnership(b) $ 209.6 $ 468.4 $ 171.3 $ 357.1 $ 720.3 $ 752.2 $ 377.6
Net Market Capitalization(c) 837.2 687.9 270.0 388.2 954.3 1,064.4 697.6
FINANCIAL PERFORMANCE DATA:
LTM Total Operating Revenues $1,335.2 $ 172.1 $ 49.3 $ 62.0 $ 237.2 $ 215.4 $ 176.5
LTM Operating Cash Flow(d) 115.9 72.4 22.8 33.2 108.9 121.2 91.7
LTM Operating Income(e) 84.0 61.4 15.9 27.4 80.2 102.3 68.1
LTM Net Income Before
GP Interest(f) 18.8 35.4 8.3 25.1 53.0 41.5 35.6
LTM Cash Flow From Operations(g) 51.3 45.8 17.8 31.1 92.7 82.0 58.7
Earnings Per Share
Latest Twelve Month EPS $ 0.94 $ 2.90 $ 1.46 $ 2.20 $ 2.37 $ 4.32 $ 2.27
1993 Estimate (h) 1.10 3.46 1.55 1.82 2.40 3.45 2.25
1994 Estimate (h) 1.30 3.55 1.78 NA 2.45 3.58 2.30
Indicated Annual Distribution
Per Unit $ 0.50 $ 2.60 $ 2.20 $ 2.20 $ 2.36 $ 2.80 $ 2.28
BALANCE SHEET DATA:
Cash and Cash Equivalent 20.6 12.4 11.1 5.5 89.7 44.0 44.1
Net Utility Property,
Plant and Equipment 741.5 497.6 228.1 132.2 615.0 621.6 545.9
Short-Term Debt (Includes
Current L-T Debt) 37.9 16.4 1.5 7.0 3.1 0.0 5.0
Long-Term Debt 610.3 213.0 138.5 28.5 320.0 355.0 356.5
Total Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Book Value of Partners Capital 164.7 232.4 130.8 100.1 367.0 262.8 250.8
Net Book Capitalization(i) 792.2 451.9 229.5 131.1 601.0 574.9 570.7
</TABLE>
<TABLE>
<CAPTION>
Comparable Analysis
-------------------
Mean Median High Low
---- ------ ---- ---
<S> <C> <C> <C> <C>
MARKET DATA:
Ticker Symbol
Fiscal Year End
Latest Quarter Reported
Preferred Unit Price
as of 12/08/93
Total Units Outstanding
Public Units As %
of Total Captial
GP-Held Units / DPIs As
% of Total Captial
General Partners' Interest
in Partnership
52-Week High Price
52-Week Low Price
Current Price As % 94.1% 94.5% 97.4% 90.5%
Of 52-Week High
Total Equity Market Value $ 474.5 $ 423.0 $ 752.2 $ 171.3
of Partnership(b) 677.0 692.7 1,064.4 270.0
Net Market Capitalization(c)
FINANCIAL PERFORMANCE DATA:
LTM Total Operating Revenues
LTM Operating Cash Flow(d)
LTM Operating Income(e)
LTM Net Income Before
GP Interest(f)
LTM Cash Flow From Operations(g)
Earnings Per Share
Latest Twelve Month EPS
1993 Estimate (h)
1994 Estimate (h)
Indicated Annual Distribution
Per Unit
BALANCE SHEET DATA:
Cash and Cash Equivalent
Net Utility Property,
Plant and Equipment
Short-Term Debt (Includes
Current LT Debt)
Long-Term Debt
Total Preferred Stock
Book Value of Partners Capital
Net Book Capitalization(i)
</TABLE>
- --------------------------------
(a) Kaneb's results are not adjusted for its March, 1993 acquisition of Support
Terminal Services, Inc. due to lack of public disclosure regarding financial
results.
(b) Equity market value of total partnership units (excluding DPIs / DPUs),
adjusted for general partner's interest. Assumes price of company-held
units equals price of publicly-traded units.
(c) Net market capitalization is defined as the equity market value of partners'
interests plus total debt, preferred stock and minority interests, less cash
& equivalents, discontinues operations and L-T investments.
(d) Operating cash flow is defined as earnings before interest, taxes,
depreciation and amortization (EBITDA). Excludes extraordinary items.
(e) Operating income is defined as earnings from operations before interest and
taxes (EBIT). Excludes extraordinary items.
(f) Net income before allocation of minority and / or general partner interests.
Also, amount is shown before changes in accounting methods and any
extraordinary credits or charges.
(g) Cash flow from operations is defined as cash flow from operations before
changes in working capital (CFFO).
(h) Median earnings estimates of Wall Street research analysts as reported in
the Institutional Brokers Estimate System report dated 11/18/93.
(i) Net book capitalization defined as book value of partners capital plus total
debt, preferred stock and minority interests, less cash & equivalents,
discontinued operations and L-T investments.
<PAGE> 55
DILLON, READ & CO. INC. 12/09/93
SUMMARY VALUATION ANALYSIS OF SELECTED PIPELINE MASTER LIMITED PARTNERSHIPS
DRAFT - SUBJECT TO CHANGE PAGE 2
<TABLE>
<CAPTION>
Valero Buckeye Enron Kaneb Lakehead Santa Fe TEPPCO
Natural Gas Partners Liquids Pipe Line (a) Pipe Line Pipeline Partners
----------- -------- ------- ------------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
VALUATION INFORMATION:
Equity Market Value of Limited
Partners' Capital to:
LTM Net Income to All Partners 10.8 x 12.9 x 20.1 x 7.8 x 10.9 x 10.2 x 10.4 x
LTM Cash Flow Flow from Operations 4.0 x 10.0 x 9.4 x 6.3 x 6.2 x 5.2 x 6.3 x
Book Value of Partner's Capital 1.2 x 2.0 x 1.3 x 2.0 x 1.6 x 1.6 x 1.5 x
1993E Net Income 10.0 x 11.1 x 19.1 x 14.8 x 13.5 x 11.2 x 12.4 x
1994E Net Income 8.5 x 10.8 x 16.6 x NA x 13.2 x 10.8 x 12.1 x
Net Market
Capitalization to:
LTM Total Operations 0.6 x 4.0 x 5.5 x 6.3 x 4.0 x 4.9 x 4.0 x
LTM Operating Cash Flow / EBITDA 7.2 x 9.5 x 11.8 x 11.7 x 8.8 x 8.8 x 7.6 x
LTM Operating Income / EBIT 10.0 x 11.2 x 17.0 x 14.2 x 11.9 x 10.4 x 10.2 x
Indicated Dividend Yield 4.5% 6.8% 7.4% 8.1% 7.3% 7.3% 8.2%
OTHER INFORMATION:
Net Debt / Net Book Capitalization (b) 79.2% 48.6% 43.0% 23.6% 38.9% 54.3% 56.1%
Net Debt / Net Market Capitalization (b) 75.0% 31.9% 36.5% 8.0% 24.5% 29.3% 45.9%
Payout Ratio (Using LTM EPS) 53.2% 89.7% 150.8% 100.0% 99.7% 64.9% 100.3%
EBITDA / Interest Expense 1.7 x 2.76 x 2.37 x 10.58 x 3.59 x 3.27 x 2.47 x
Cash Flow From Operations / Net Debt (b) 8.2% 20.9% 18.0% 100.2% 39.6% 26.3% 18.3%
Cash Flow From Operations / Interest Expense 0.8 x 1.75 x 1.85 x 9.89 x 3.06 x 2.21 x 1.58 x
Total Capital Expenditures / Net P.P.& E. 4.6% 2.5% 3.3% 4.8% 5.0% 3.9% 3.6%
Maintenance Capital Exp. / Net P.P.& E. 4.6% 2.5% 1.2% 4.8% 1.9% 1.1% 1.7%
D.D.&A. / Net P.P.&E. 4.3% 2.2% 3.0% 4.4% 4.7% 3.0% 4.3%
Ownership Profile
Publicly-Held Preferred / Common Units 49.9% 98.0% 85.1% 44.2% 80.4% 56.3% 89.6%
Company-Held Preferred / Common Units 47.2% 0.0% 0.0% 34.5% 17.6% 41.7% 0.0%
Company-Held DPIs/DPUs 0.0% 0.0% 12.9% 19.3% 0.0% 0.0% 8.4%
General Partnership Interests 3.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Partnership Distribution
Coverage Ratios
Free Operating Cash Flow Over: (c)
Total Distributions (d) 8.6 x 1.9 x 1.4 x 0.7 x 1.9 x 2.1 x 2.4 x
Preferred Distributions Only 8.9 x 1.9 x 1.6 x 1.7 x 2.3 x 3.7 x 2.7 x
Free Cash Flow From Operations Over: (e)
Total Distributions (d) 1.8 x 1.0 x 1.0 x 0.7 x 1.5 x 1.4 x 1.5 x
Preferred Distributions Only 1.9 x 1.1 x 1.2 x 1.6 x 1.9 x 2.5 x 1.6 x
</TABLE>
<TABLE>
<CAPTION>
Comparable Analysis
Mean Median High Low
---- ------ ---- ---
<S> <C> <C> <C> <C>
VALUATION INFORMATION:
Equity Market Value of Limited
Partners' Capital to:
LTM Net Income to All Partners 12.1 x 10.7 x 20.1 x 7.8 x
LTM Cash Flow Flow from Operations 7.2 x 6.3 x 10.0 x 5.2 x
Book Value of Partner's Capital 1.6 x 1.6 x 2.0 x 1.3 x
1993E Net Income 13.7 x 12.9 x 19.1 x 11.1 x
1994E Net Income 12.7 x 12.1 x 16.6 x 10.8 x
Net Market
Capitalization to:
LTM Total Operations 4.8 x 4.0 x 6.3 x 4.0 x
LTM Operating Cash Flow / EBITDA 9.7 x 9.1 x 11.8 x 7.6 x
LTM Operating Income / EBIT 12.5 x 11.5 x 17.0 x 10.2 x
Indicated Dividend Yield 7.5% 7.4% 8.2% 6.8%
OTHER INFORMATION:
Net Debt / Net Book Capitalization (b) 44.1% 45.8% 56.1% 23.6%
Net Debt / Net Market Capitalization (b) 29.4% 30.6% 45.9% 8.0%
Payout Ratio (Using LTM EPS) 100.9% 99.9% 150.8% 64.9%
EBITDA / Interest Expense 4.17 x 3.02 x 10.58 x 2.37 x
Cash Flow From Operations / Net Debt (b) 37.2% 23.6% 100.2% 18.0%
Cash Flow From Operations / Interest Expense 3.39 x 2.03 x 9.89 x 1.58 x
Total Capital Expenditures / Net P.P.& E. 3.9% 3.7% 5.0% 2.5%
Maintenance Capital Exp. / Net P.P.& E. 2.2% 1.8% 4.8% 1.1%
D.D.&A. / Net P.P.&E. 3.6% 3.7% 4.7% 2.2%
Ownership Profile
Publicly-Held Preferred / Common Units 75.6% 82.8% 98.0% 44.2%
Company-Held Preferred / Common Units 15.6% 8.8% 41.7% 0.0%
Company-Held DPIs/DPUs 6.8% 4.2% 19.3% 0.0%
General Partnership Interests 2.0% 2.0% 2.0% 2.0%
Partnership Distribution
Coverage Ratios
Free Operating Cash Flow Over: (c)
Total Distributions (d) 1.7 x 1.9 x 2.4 x 0.7 x
Preferred Distributions Only 2.3 x 2.3 x 3.7 x 1.6 x
Free Cash Flow From Operations Over: (e)
Total Distribution (d) 1.2 x 1.4 x 1.5 x 0.7 x
Preferred Distributions Only 1.6 x 1.6 x 2.5 x 1.1 x
</TABLE>
- -------------------------
(a) Kaneb's results are not adjusted for its March, 1993 acquisition of Support
Terminal Services, Inc. due to lack of public disclosure regarding
financial results.
(b) Net debt is defined as total debt, plus redeemable preferred stock and
minority interests, less cash & equivalents, long-term investments and
discontinued operations
(c) Free operating cash flow is defined as operating cash flow (EBITDA) less
maintenance capital expenditures.
(d) Total distributions include distributions to common / deferred units at same
rate as preferred units, inclusive of the general partner's distribution.
(e) Free cash flow from operations is defined as cash flow from operations
(CFFO) less maintenance capital expenditures.
<PAGE> 56
DILLON, READ & CO. INC. DECEMBER 10, 1993
- --------------------------------------------------------------------------------
SELECTED COMPARABLE COMPANY ACQUISITIONS
- --------------------------------------------------------------------------------
VALERO NATURAL GAS COMPANY
<PAGE> 57
Dillon, Read & Co. Inc. 12/08/93
Valero Natural Gas Partners, L.P.
Summary of Selected Mergers and Acquisitions in Gas Gathering and Processing
Industry
<TABLE>
<CAPTION>
Latest Annual Results
($mm)
Value of Value of ---------------------
Date Acquiror / Target Description of Transaction Equity Net Debt Assets Revenues EBITDA
---- ----------------- -------------------------- -------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
10/11/93 Associated Natural Gas Includes 264 miles of liquids 22.5 0.0 22.5 NA NA
Dean Pipeline Co. pipeline and 54 miles of supply
laterals (21,000 b/d).
10/05/93 USX - Delhi Group Purchase of 30 mmcf/d cryogenic 3.0 0.0 3.0 NA NA
Pettus Gas plant in Bee County, TX.
9/27/93 Western Gas Resources Purchase of gas plant and 68.9% 137.6 0.0 137.6 57.6 NA
Black Lake Gas Plant working interest in Black
(from NERCO) Lake field.
9/15/93 Tejas Gas Corporation Substantially all of Exxon's TX 380.0 0.0 380.0 384.2 47.1
Exxon Corp. and LA intrastate gathering
systems and West Clear Lake
storage facility.
9/15/93 Associated Natural Gas Purchase of pipeline (547 miles 32.5 0.0 32.5 NA NA
Endevco total) and Hattiesburg gas
storage facility (300,000 mmbtu
capacity).
7/29/93 Patrick Petroleum Company Purchase of ANP's stock for 28.0 0.0 28.0 11.7 5.5
American National $3.40 in cash and $2.60 in
Petroleum Co. stock
6/29/93 Western Gas Resources (a) Former gathering assets of 77.3 13.8 91.1 98.0 11.0
Mountain Gas Presidio Oil
Resources
3/17/93 El Paso Natural Gas (b) Purchased remaining 50% interest 40.0 70.0 110.0 27.3 NA
Mojave Pipeline in company from Enron Corp.
12/1/92 Associated Natural Gas Includes 15,000 mcf/d gas plant NA 0.0 NA NA NA
GPM Gas Corp.'s Osage and approx. 900 miles of
System pipeline connected to 300 wells
in OK.
10/1/92 Associated Natural Gas Includes 25,000 mcf/d gas plant and NA 0.0 NA NA NA
GPM Gas Corp.'s approx. 1,000 miles of pipeline
Glenpool System connected to 525 wells in OK.
5/1/92 Associated Natural Gas Peavine and West Edmond gas plants 15.9 0.0 15.9 NA NA
Finlay Energy, Inc. and associated gathering systems
in OK.
4/1/92 Associated Natural Gas West Gutherie gas plant and associated NA 0.0 NA NA NA
Triumph Oklahoma LP gathering system located in OK.
4/1/92 American Oil & Gas Corp. Includes 1,056 miles of pipeline and 11.0 75.0 86.0 71.7 NA
Maple Gas Corp. and 10 gas plants.
10/31/91 Associated Natural Gas Includes gas plant and associated 17.7 0.0 17.7 NA 2.3
Spindle Facility gathering assets ($ shown is net
(from Apache) of sale of acquired oil and gas
properties for $16.5 mm)
9/18/91 Western Gas Resources (c) 12 gas processing plants and 5,260 135.0 7.7 142.7 249.8 26.9
Union Texas Petroleum miles of gas gathering systems
in TX, OK & LA.
7/26/91 Transok (Central & South- 1,400 miles of pipeline consisting 250.0 0.0 250.0 NA NA
west Corp.) of
TEX / CON
3/22/91 Associated Natural Gas Purchased company with ops in OK, 43.0 38.0 81.0 NA 10.5
Mega Natural Gas Corp. TX, NM and KS. Owns 1,000 miles of
pipe and 166 cf/d of system
throughput
1/91 Western Gas Resources 65 mmcf/d edgewood gas plant in E. 36.0 0.0 36.0 NA 6.3
Amoco Production Company Texas. Also a 350 ton/d sulfer
recovery unit
</TABLE>
<TABLE>
<CAPTION>
Asset Value As Multiple of
--------------------------
Date Acquiror / Target Description of Transaction Revenues EBITDA
---- ----------------- -------------------------- -------- ------
<S> <C> <C> <C> <C>
10/11/93 Associated Natural Gas Includes 264 miles of liquids NA x NA x
Dean Pipeline Co. pipeline and 54 miles of supply
laterals (21,000 b/d).
10/05/93 USX - Delhi Group Purchase of 30 mmcf/d cryogenic NA x NA x
Pettus Gas plant in Bee County, TX.
9/27/93 Western Gas Resources Purchase of gas plant and 68.9% 2.4 x NA x
Black Lake Gas Plant working interest in Black
(from NERCO) Lake field.
9/15/93 Tejas Gas Corporation Substantially all of Exxon's TX 1.0 x 8.1 x
Exxon Corp. and LA intrastate gathering
systems and West Clear Lake
storage facility.
9/15/93 Associated Natural Gas Purchase of pipeline (547 miles NA x NA x
Endevco total) and Hattiesburg gas
storage facility (300,000 mmbtu
capacity).
7/29/93 Patrick Petroleum Company Purchase of ANP's stock for 2.4 x 5.1 x
American National $3.40 in cash and $2.60 in
Petroleum Co. stock
6/29/93 Western Gas Resources (a) Former gathering assets of 0.9 x 8.3 x
Mountain Gas Presidio Oil
Resources
3/17/93 El Paso Natural Gas (b) Purchased remaining 50% interest 4.0 x NA x
Mojave Pipeline in company from Enron Corp.
12/1/92 Associated Natural Gas Includes 15,000 mcf/d gas plant NA x NA x
GPM Gas Corp.'s Osage and approx. 900 miles of
System pipeline connected to 300 wells
in OK.
10/1/92 Associated Natural Gas Includes 25,000 mcf/d gas plant and NA x NA x
GPM Gas Corp.'s approx. 1,000 miles of pipeline
Glenpool System connected to 525 wells in OK.
5/1/92 Associated Natural Gas Peavine and West Edmond gas plants NA x NA x
Finlay Energy, Inc. and associated gathering systems
in OK.
4/1/92 Associated Natural Gas West Gutherie gas plant and associated NA x NA x
Triumph Oklahoma LP gathering system located in OK.
4/1/92 American Oil & Gas Corp. Includes 1,056 miles of pipeline and 1.2 x NA x
Maple Gas Corp. and 10 gas plants.
10/31/91 Associated Natural Gas Includes gas plant and associated NA x 7.7 x
Spindle Facility gathering assets ($ shown is net
(from Apache) of sale of acquired oil and gas
properties for $16.5 mm)
9/18/91 Western Gas Resources (c) 12 gas processing plants and 5,260 0.6 x 5.3 x
Union Texas Petroleum miles of gas gathering systems
in TX, OK & LA.
7/26/91 Transok (Central & South- 1,400 miles of pipeline consisting NA x NA x
west Corp.) of
TEX / CON
3/22/91 Associated Natural Gas Purchased company with ops in OK, NA x 7.7 x
Mega Natural Gas Corp. TX, NM and KS. Owns 1,000 miles of
pipe and 166 cf/d of system
throughput
1/91 Western Gas Resources 65 mmcf/d edgewood gas plant in E. NA x 5.7 x
Amoco Production Company Texas. Also a 350 ton/d sulfer
recovery unit
</TABLE>
<PAGE> 58
Dillon, Read & Co. Inc. 12/01/93
Valero Natural Gas Partners, L.P.
Summary of Selected Mergers and Acquisitions in Gas Gathering and Processing
Industry
<TABLE>
<CAPTION>
Value of Value of
Date Acquiror / Target Description of Transaction Equity Net Debt Assets
---- ----------------- -------------------------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
12/4/90 Tejas Gas Corporation Unit purchases, gathers, transports and 175.0 (15.1) 159.9
Acadian Gas Group markets natural gas along LA & TX gulf
coasts through 400 miles of pipe
(600 mmcf/d)
7/26/90 Western Gas Resources Gathering assets in LA, AR & TX. Incl. 24.6 0.4 25.0
Parker Drilling Company 75% of Giddings system of 475 miles of
pipe (65 mmcf/d). Also gas treating bus.
5/24/90 UtiliCorp United Inc. Company owns & operates 6 intrastate gas 65.0 160.0 225.0
Clajon Holdings LP pipelline systems and 2 gas plants in
SE TX.
1/24/89 American Oil & Gas Corp. Incl. gathering and transmission ops: 120.6 (0.1) 120.5
Cabot Corporation 3,500 miles of pipeline in W. TX and
TX panhandle.
6/16/88 Tejas Gas Corporation Gathers & transports gas in TX, OK, CO, 140.0 15.0 155.0
(Hamilton Oil) WV and LA
Gulf Energy Dev. Corp.
(Penn Cent.)
8/1/87 Enerfin Partners 1 LP Includes 5 gas plants and 892 miles of 62.0 0.0 62.0
Farmland Industries pipeline in West Texas and Wyoming.
(Gas Plant Div.)
</TABLE>
<TABLE>
<CAPTION>
Latest Annual Results Asset Value As
($mm) Multiple of
--------------------- ------------------
Date Acquiror / Target Description of Transaction Revenues EBITDA Revenues EBITDA
---- ----------------- -------------------------- -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
12/4/90 Tejas Gas Corporation Unit purchases, gathers, transports and NA 21.0 NA x 7.6 x
Acadian Gas Group markets natural gas along LA & TX gulf
coasts through 400 miles of pipe
(600 mmcf/d)
7/26/90 Western Gas Resources Gathering assets in LA, AR & TX. Incl. NA 7.1 NA x 3.5 x
Parker Drilling Company 75% of Giddings system of 475 miles of
pipe (65 mmcf/d). Also gas treating bus
5/24/90 UtiliCorp United Inc. Company owns & operates 6 intrastate gas NA 32.6 NA x 6.9 x
Clajon Holdings LP pipelline systems and 2 gas plants in
SE TX.
1/24/89 American Oil & Gas Corp. Incl. gathering and transmission ops: NA 10.8 NA x 11.2 x
Cabot Corporation 3,500 miles of pipeline in W. TX and
TX panhandle.
6/16/88 Tejas Gas Corporation Gathers & transports gas in TX, OK, CO, NA 22.8 NA x 6.8 x
(Hamilton Oil) WV and LA
Gulf Energy Dev. Corp.
(Penn Cent.)
8/1/87 Enerfin Partners 1 LP Includes 5 gas plants and 892 miles of NA 13.8 NA x 4.5 x
Farmland Industries pipeline in West Texas and Wyoming.
(Gas Plant Div.)
Mean 1.8 x 6.8 x
High 4.0 x 11.2 x
Low 0.6 x 3.5 x
</TABLE>
- --------------------------------------
(a) Operating results for Mountain Gas cover the period 7/16/92 to 6/30/93.
(b) Annualized change in results for six month period ending 6/30/93.
(c) Annualized nine months results.
<PAGE> 59
DILLON, READ & CO. INC DECEMBER 10, 1993
- --------------------------------------------------------------------------------
HISTORICAL PREMIUMS OF NON-CONTROL
POSITION BUYOUTS
- --------------------------------------------------------------------------------
VALERO NATURAL GAS COMPANY
<PAGE> 60
SUMMARY OF SELECTED CONTROLLING SHAREHOLDER BUYOUTS
COMPLETED/PENDING SINCE 1986
(Figures in Millions, Except per Share Data)
<TABLE>
<CAPTION>
PRIOR TO ANNOUNCEMENT
---------------------
ACQUIROR'S HOLDINGS TARGET'S HOLDINGS
TOTAL EQUITY VALUE OF ------------------------ -----------------------
VALUE TARGET'S TOTAL NUMBER PERCENT NUMBER PERCENT
(100%) HOLDINGS SHARES OUT SHARES HELD OWNERSHIP SHARES HELD OWNERSHIP
($MM) ($MM) (MM) (MM) (%) (MM) (%)
------------ -------- ---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY
STATISTICS 1986-1993
Number 147.0 153.0 -- -- 146.0 -- 130.0
Mean $525.0 $150.4 -- -- 70.7 -- 26.6
1986
Number 8.0 9.0 -- -- 8.0 -- 9.0
Mean $73.3 $20.8 -- -- 66.2 -- 33.7
1987
Number 21.0 22.0 -- -- 18.0 -- 23.0
Mean $1,193.5 $461.2 -- -- 73.7 -- 27.0
1988
Number 23.0 24.0 -- -- 23.0 -- 19.0
Mean $293.1 $461.2 -- -- 67.9 -- 29.1
1989
Number 28.0 30.0 -- -- 32.0 -- 26.0
Mean $547.4 $135.1 -- -- 70.1 -- 30.5
1990
Number 25.0 25.0 -- -- 23.0 -- 23.0
Mean $238.8 $59.0 -- -- 72.6 -- 28.0
1991
Number 17.0 17.0 -- -- 17.0 -- 17.0
Mean $915.1 $240.7 -- -- 70.0 -- 28.6
1992
Number 14.0 14.0 -- -- 13.0 -- 9.0
Mean $366.5 $53.4 -- -- 73.6 -- 22.5
1993 To Date
Number 11.0 12.0 -- -- 12.0 -- 4.0
Mean $254.3 $40.3 -- -- 69.8 -- 27.7
</TABLE>
<TABLE>
<CAPTION>
ACQUIROR'S
OWNERSHIP PREMIUM TO MARKET (%)
AFTER -------------------------------------------------
TRANSACTION ONE MONTH ONE WEEK ONE DAY
(%) BEFORE OFFER BEFORE OFFER BEFORE OFFER
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
SUMMARY
STATISTICS 1986-1993
Number 159.0 137.0 137.0 137.0
Mean 89.4 35.2 33.3 30.2
1986
Number 10.0 7.0 7.0 7.0
Mean 90.0 39.3 45.0 41.2
1987
Number 24.0 21.0 21.0 21.0
Mean 83.0 31.3 30.0 30.8
1988
Number 23.0 23.0 23.0 23.0
Mean 92.5 49.8 42.2 38.1
1989
Number 33.0 28.0 28.0 28.0
Mean 92.0 38.0 33.6 31.8
1990
Number 25.0 21.0 21.0 21.0
Mean 92.1 36.3 38.1 29.7
1991
Number 18.0 14.0 14.0 14.0
Mean 96.9 25.4 27.3 25.0
1992
Number 13.0 14.0 14.0 14.0
Mean 89.1 18.4 16.3 14.9
1993 To Date
Number 13.0 9.0 9.0 9.0
Mean 73.0 35.3 33.3 27.9
</TABLE>
Source: Securities Data Corporation
<PAGE> 61
SUMMARY OF SELECTED CONTROLLING SHAREHOLDER BUYOUTS COMPLETED/PENDING SINCE 1986
(Figures in Millions, Except per Share Data)
<TABLE>
<CAPTION>
Total Equity Value of
Value Target's
Date (100%) Holdings
Announced Acquiror Name Target Name Consideration ($MM) ($MM)
- --------- ------------- ----------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
05/09/86 WR Grace & Co El Torito Restaurants Inc $20.50 cash/sh com $228.1 $62.5
05/19/86 Konica Corp Fotomat (Konishiroku Photo) $1.70 cash/sh com $42.5 $16.7
05/30/86 Equity-DQSB Inc Delta Queen Steamboat Co $4.3 mil/29.5% remaining interest - $4.3
06/03/86 Investor Bayswater Realty & Capital $11/sh com $9.9 $1.6
06/24/86 Bally Manufacturing Corp Bally's Park Place Inc - - -
07/03/86 Laurentian Capital Corp Founders Financial Corp 0.3575 sh com/sh com and $15.5 $18.2
14.3 shs com/sh pfd
08/19/86 British Car Auction Group PLC Sandgate Corp $18.75 cash/sh com $82.5 $22.5
10/02/86 Newell Co William E Wright Co (Newell Co) $14.25 cash/sh com, plus an $31.7 $13.0
additional $0.875 cash/sh com
paid to shareholders that
held shares on 10/24/85
11/05/86 PS Group Inc Statex Petroleum Inc (PS Group) $9.00 cash/sh com and $26.4 $10.1
$18.50 cash/$2.55
cumulative convertible
preferred stock, Series A,
$20.00 par value
11/19/86 General Felt Industries Knoll International Inc $12 cash/sh com, plus options $149.6 $38.0
01/12/87 AEGON NV Life Investors Inc $51.61 cash/sh com for $456.5 $32.9
225,416 shs purchased
through tender offer and
154,168 shs purchased
through merger (estimated) and
$50.75 cash/sh com for
242,849 shs purchased from
Ownership Participation Trust
01/20/87 Collins Foods International Naugles Inc (Collins Foods) 0.2326 sh com/sh com $124.0 $10.0
01/23/87 Fiat Trattori SpA Hesston Corp (Fiat Trattori) $4 cash/sh com and $12.50/sh - $9.6
convertible pfd
03/03/87 Kebo AB(Investment AB Beijer) Calmar Inc (Kebo/Beijer Inv AB) $32 cash/sh com plus $1.14 mil $161.3 $59.8
cash to cancel outstanding
options
03/13/87 E-B Acquisition Co Elder-Beerman Stores Corp $33 cash/sh com $108.9 $33.0
03/26/87 BP America(British Petroleum) Standard Oil Co (British Petro) $71.50 cash plus 0.2 war/sh $17,459.6 $7,857.7
com plus $73.50 less exercise
price/options plus $100
cash/sh cumulative pfd stock
04/28/87 Life Investors Inc Life Investors Inc $51.61 cash/sh com for $456.5 $23.9
225,416 shs purchased
through tender offer and
$50.75 cash/sh com for
242,848 shs purchased from
Ownership Participation Trust
05/13/87 La Cadena Invts,Craig Corp Stater Brothers Inc $25.50 cash/sh com $106.6 $8.3
06/22/87 Pearson Inc(Pearson PLC) Camco Inc $29 cash/sh com plus $220.0 $77.8
$29 cash minus $14.12
exercise price/com stock options
06/30/87 Berry Petroleum Company Norris Oil Co - - -
07/15/87 Hongkong & Shanghai Banking Marine Midland Banks Inc $83 cash/sh com $1,577.0 $752.0
07/28/87 PI Acquisition Corp Parisian Inc $30.65/sh com $496.5 $229.8
07/29/87 Lexicon Corp SCOPE Inc(Lexicon Corp) - -
</TABLE>
<TABLE>
<CAPTION>
Prior to Announcement
---------------------
Acquiror's Holdings Target's Holdings Acquiror's
------------------- ----------------- Ownership
Total Number Percent Number Percent After
Date Shares Out Shares Held Ownership Shares Held Ownership Transaction
Announced Acquiror Name (MM) (MM) (%) (MM) (%) (%)
- --------- ------------- ---------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
05/09/86 WR Grace & Co 11.1 8.1 72.6 3.1 27.5 100.0
05/19/86 Konica Corp 25.0 15.2 60.6 9.8 42.0 99.8
05/30/86 Equity-DQSB Inc - - - - 29.5 100.0
06/03/86 Investor 0.9 0.8 84.0 - - 84.0
06/24/86 Bally Manufacturing Corp - - - - 16.0 16.0
07/03/86 Laurentian Capital Corp 5.8 3.0 51.7 2.8 48.5 100.0
08/19/86 British Car Auction Group PLC 4.4 3.2 72.7 1.2 27.0 100.0
10/02/86 Newell Co 2.1 1.2 59.3 0.9 41.0 100.0
11/05/86 PS Group Inc 2.9 2.0 68.4 0.9 31.5 100.0
11/19/86 General Felt Industries 12.5 7.5 60.2 5.0 40.0 100.0
01/12/87 AEGON NV 8.9 7.7 87.3 0.6 7.0 94.3
01/20/87 Collins Foods International 27.2 25.0 91.9 2.2 8.1 100.0
01/23/87 Fiat Trattori SpA - - - 2.0 47.5 55.4
03/03/87 Kebo AB(Investment AB Beijer) 5.0 3.2 63.7 1.8 36.3 100.0
03/13/87 E-B Acquisition Co 3.3 - - 2.3 30.0 69.7
03/26/87 BP America(British Petroleum) 237.6 130.2 54.8 107.4 45.0 100.0
04/28/87 Life Investors Inc 8.9 - - 0.7 7.6 7.6
05/13/87 La Cadena Invts,Craig Corp 4.2 3.9 92.2 0.3 7.8 100.0
06/22/87 Pearson Inc(Pearson PLC) 7.6 4.8 63.1 2.8 37.1 99.9
06/30/87 Berry Petroleum Company - - - - 20.0 20.0
07/15/87 Hongkong & Shanghai Banking 19.0 - - 9.2 48.0 48.4
07/28/87 PI Acquisition Corp 16.2 8.7 53.7 7.5 46.0 100.0
07/29/87 Lexicon Corp - - - - 50.0 50.0
</TABLE>
<TABLE>
<CAPTION>
Premium to Market (%)
----------------------
Date One Month One Week One Day
Announced Acquiror Name Before Offer Before Offer Before Offer
- --------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
05/09/86 WR Grace & Co 18.8 19.7 9.3
05/19/86 Konica Corp 36.0 70.0 70.0
05/30/86 Equity-DQSB Inc
06/03/86 Investor 131.6 131.6 131.6
06/24/86 Bally Manufacturing Corp
07/03/86 Laurentian Capital Corp 42.9 42.9 42.9
08/19/86 British Car Auction Group PLC 4.9 2.8 0.7
10/02/86 Newell Co - - -
11/05/86 PS Group Inc 16.1 18.0 4.3
11/19/86 General Felt Industries 24.7 29.7 29.7
01/12/87 AEGON NV 5.3 4.3 3.2
01/20/87 Collins Foods International - - -
01/23/87 Fiat Trattori SpA 14.3 28.0 23.1
03/03/87 Kebo AB(Investment AB Beijer) 54.2 43.8 45.5
03/13/87 E-B Acquisition Co 55.3 51.7 46.7
03/26/87 BP America(British Petroleum) 33.3 14.4 13.3
04/28/87 Life Investors Inc 1.2 0.7 0.7
05/13/87 La Cadena Invts,Craig Corp 45.7 50.0 25.9
06/22/87 Pearson Inc(Pearson PLC) 19.6 26.8 20.8
06/30/87 Berry Petroleum Company - - -
07/15/87 Hongkong & Shanghai Banking 60.0 38.9 38.3
07/28/87 PI Acquisition Corp 71.5 72.7 77.7
07/29/87 Lexicon Corp - - -
</TABLE>
Source: Securities Data Corporation
<PAGE> 62
SUMMARY OF SELECTED CONTROLLING SHAREHOLDER BUYOUTS COMPLETED/PENDING SINCE 1986
(Figures in Millions, Except per Share Data)
<TABLE>
<CAPTION>
Total Equity
Value
Date (100%)
Announced Acquiror Name Target Name Consideration ($MM)
- --------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
08/17/87 Philips Gloeilampenfabrieken North American Philips Corp $56 cash/sh com and $1,715.0
$56-$12.97
(low exercise price)/option
09/09/87 Kinder-Care Inc Sylvan Learning Corp sh com/sh com $82.8
10/09/87 Sugar Acquisition Corp US Sugar Corp $80 cash/sh com $200.8
10/29/87 SDA Acquisition Corp Thompson Medical Co Inc $22.50 cash/sh com $167.5
11/06/87 Sithe Energies Group Energy Factors Inc $8.25 cash/sh com $83.3
11/24/87 Dallhold Investments Pty Ltd St Joe Gold Corp(Fluor Corp) $17 cash/sh com $528.7
12/02/87 Magma Power Co Magma Energy Inc(Magma Power) 1 Magma Power sh com/1.9 Magma $33.6
Energy sh com
12/10/87 Brentwood Associates IV LP Ideal School Supply Corp $12.00 cash/sh com $50.4
12/11/87 Freeport-McMoRan Energy American Royalty Trust $42.2 mil cash/4.8 mil units $383.2
12/17/87 AGFA-Gevaert Graphics Inc Compugraphic(AGFA-Gevaert) $27/sh com $232.9
12/21/87 Rogers Communications Inc Rogers Cablesystems of America $22.75 cash/sh coma $418.1
01/20/88 Investor Chariot Group Inc(Chariot) $3.125 cash plus $5.60 $20.8
principal amount of 7%
subordinated debenture/sh com
02/16/88 Paul Kalmanovitz Testamentry Falstaff Brewing Corp $12.00/sh com $56.0
02/17/88 Minstar Inc Genmar Industries Inc(Minstar) $12.50 cash/sh com and $404.1
$920 cash/ $1,000 principal
amount of Genmar's 7%
senior convertible debentures due 2006
02/25/88 Cie de Saint-Gobain SA CertainTeed Corp(Saint-Gobain) $47.50 cash/sh com; $47.50 $909.0
minus exercise prices ranging
from $17 to $34.75/option
03/03/88 First Texas Savings Assn Gemcraft(First TX Svgs Assn) $1.50 cash/sh com $7.6
03/16/88 Investor Group Arthur D Little Inc $60 cash/sh com $151.8
03/17/88 Curtis Squire Inc Regis Corp(Curtis Squire Inc) $16.50/sh com $29.7
03/18/88 Dyson-Kissner-Moran Corp Kearney National Inc $19.35/sh com $110.3
03/18/88 Investor Group Meyers Parking System Inc $28 cash/sh com $75.6
03/23/88 J&J Snack Foods Corp ICEE-USA Corp $5.50 com/sh com and 1 option $9.2
to acquire J&J com/option to
acquire ICEE-USA com with the
same terms and conditions
04/11/88 SH Holdings Inc Gruen Marketing Corp(Jewelcor) $11.75 cash/sh com + $106.4
$2.52 mil cash to cancel
outstanding options
04/22/88 Investor Trans World Airlines Inc $20 cash plus $30 face value $1,525.0
of junior subordinated
debentures/sh com not already held by Icahn
06/10/88 BIA-COR Holdings Inc Braniff Inc(BIA-COR Holdings) $7 cash plus one-fifth of a $125.1
share in the new Braniff/sh
com $12.546 mil cash and
stock/preferred shares
06/22/88 Westminister Investment Corp BF Saul Real Estate Invt Tr $28 cash/sh com $164.3
07/01/88 Diversified Services Group Inc Nutri/System Inc 108% face amount/12% senior -
notes, plus 78% face value/15%
subordinated discount
debentures, plus $15.625
cash/warrant to purchase common stock
07/14/88 Starrett Housing Corp Levitt Corp 1 sh com/sh com $23.8
</TABLE>
<TABLE>
<CAPTION>
Prior to Announcement
---------------------
Acquiror's Holdings Target's Holdings Acquiror's
Value of ------------------- ----------------- Ownership
Target's Total Number Percent Number Percent After
Date Holdings Shares Out Shares Held Ownership Shares Held Ownership Transaction
Announced Acquiror Name ($MM) (MM) (MM) (%) (MM) (%) (%)
- --------- ------------- -------- ---------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
08/17/87 Philips Gloeilampenfabrieken $758.0 30.6 16.8 54.9 13.8 45.0 100.0
09/09/87 Kinder-Care Inc $27.6 7.2 4.8 66.7 2.4 33.3 100.0
10/09/87 Sugar Acquisition Corp $8.8 2.5 2.4 95.6 0.1 4.0 100.0
10/29/87 SDA Acquisition Corp $56.3 7.5 5.0 67.1 2.5 33.3 100.0
11/06/87 Sithe Energies Group $34.7 10.1 5.1 50.6 4.2 45.0 92.2
11/24/87 Dallhold Investments Pty Ltd $51.0 31.1 28.0 90.0 3.0 9.7 99.7
12/02/87 Magma Power Co $11.1 8.5 5.7 67.1 2.8 33.0 100.0
12/10/87 Brentwood Associates IV LP $22.8 4.2 2.3 54.8 - - 54.8
12/11/87 Freeport-McMoRan Energy $42.2 43.6 38.8 89.0 4.8 11.0 100.0
12/17/87 AGFA-Gevaert Graphics Inc $37.8 8.6 7.2 83.6 1.4 17.0 100.0
12/21/87 Rogers Communications Inc $1.3 18.4 18.3 99.7 0.1 0.3 100.0
01/20/88 Investor $5.6 2.4 1.7 72.8 - - 72.8
02/16/88 Paul Kalmanovitz Testamentry $27.6 4.7 2.4 50.7 2.3 34.0 100.0
02/17/88 Minstar Inc $98.0 32.3 24.2 74.9 4.8 16.5 89.7
02/25/88 Cie de Saint-Gobain SA $391.3 19.1 10.9 56.7 - - 56.7
03/03/88 First Texas Savings Assn $3.7 5.1 2.5 49.1 2.4 48.9 96.2
03/16/88 Investor Group $38.5 2.5 1.9 74.6 0.6 25.4 100.0
03/17/88 Curtis Squire Inc $0.9 1.8 1.3 69.4 - - 69.4
03/18/88 Dyson-Kissner-Moran Corp $50.3 5.7 3.1 54.4 2.6 46.0 100.0
03/18/88 Investor Group $15.1 2.7 2.2 80.0 0.5 20.0 100.0
03/23/88 J&J Snack Foods Corp $2.4 1.7 1.1 66.8 0.6 33.2 100.0
04/11/88 SH Holdings Inc $24.8 9.1 6.2 68.4 2.9 31.6 100.0
04/22/88 Investor $355.0 30.5 23.4 76.7 7.1 23.0 100.0
06/10/88 BIA-COR Holdings Inc $45.4 15.6 6.8 43.4 - - 43.4
06/22/88 Westminister Investment Corp $29.2 5.9 4.8 82.2 1.0 17.8 100.0
07/01/88 Diversified Services Group Inc $121.0 - - - - - -
07/14/88 Starrett Housing Corp $4.8 3.4 2.7 80.0 0.7 20.0 100.0
</TABLE>
<TABLE>
<CAPTION>
Premium to Market (%)
----------------------
Date One Month One Week One Day
Announced Acquiror Name Before Offer Before Offer Before Offer
- --------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
08/17/87 Philips Gloeilampenfabrieken 33.3 30.2 33.3
09/09/87 Kinder-Care Inc -8.0 -11.5 -9.8
10/09/87 Sugar Acquisition Corp 22.1 22.1 22.1
10/29/87 SDA Acquisition Corp 35.0 60.7 125.0
11/06/87 Sithe Energies Group -1.5 40.4 50.0
11/24/87 Dallhold Investments Pty Ltd 138.6 54.5 29.5
12/02/87 Magma Power Co -4.2 1.9 9.0
12/10/87 Brentwood Associates IV LP 33.3 37.1 37.1
12/11/87 Freeport-McMoRan Energy 13.4 19.2 27.9
12/17/87 AGFA-Gevaert Graphics Inc 28.6 42.1 27.8
12/21/87 Rogers Communications Inc 5.8 2.8 0.6
01/20/88 Investor 158.5 118.1 111.5
02/16/88 Paul Kalmanovitz Testamentry 33.3 33.3 33.3
02/17/88 Minstar Inc 51.5 37.0 37.0
02/25/88 Cie de Saint-Gobain SA 87.2 60.3 50.2
03/03/88 First Texas Savings Assn 33.3 50.0 50.0
03/16/88 Investor Group 76.5 81.8 81.8
03/17/88 Curtis Squire Inc 20.0 10.0 11.9
03/18/88 Dyson-Kissner-Moran Corp 56.4 54.8 50.3
03/18/88 Investor Group 64.7 64.7 60.0
03/23/88 J&J Snack Foods Corp 29.4 25.7 29.4
04/11/88 SH Holdings Inc 14.6 14.6 17.5
04/22/88 Investor 86.9 75.4 77.8
06/10/88 BIA-COR Holdings Inc 78.2 52.8 56.5
06/22/88 Westminister Investment Corp 76.4 61.2 27.3
07/01/88 Diversified Services Group Inc
07/14/88 Starrett Housing Corp 43.6 33.3 27.3
</TABLE>
Source: Securities Data Corporation
<PAGE> 63
SUMMARY OF SELECTED CONTROLLING SHAREHOLDER BUYOUTS COMPLETED/PENDING SINCE 1986
(Figures in Millions, Except per Share Data)
<TABLE>
<CAPTION>
Total Equity
Value
Date (100%)
Announced Acquiror Name Target Name Consideration ($MM)
- --------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
07/20/88 Home Owners Fed Svgs,Boston Knutson Mortgage Corp $10.1 cash/sh com $141.5
10/05/88 MBS Associates MBS Textbook Exchange Inc $10 cash/sh com $52.0
10/13/88 Industrial Equity(Pacific)Ltd Associated Hosts Inc $11/sh com $49.5
10/25/88 Chyron Corp CMX Corp(Chyron Corp) 1 sh com/4.75 shs com $10.5
11/15/88 Qintex Resorts BV Princeville Corp(Quintex AU) $15.50 cash/sh com $154.3
12/05/88 Zayre Corp TJX Cos(Zayre Corp) 1.45 shs Zayre com/sh com $2,436.0
12/06/88 Investor Sage Energy Co $6.50 cash/sh com $71.5
12/14/88 Ingram Industries Inc Micro D Inc(Ingram Inds) $14.75 cash/sh com $106.5
01/27/89 United Meridian Corp Ensource Inc(United Meridian) $10.50 cash/sh com plus $66.3
$31.67 cash/sh cvt pfd
convertible into 3 common
shares, plus assumption of liabilities
02/06/89 S & A Acquisition Corp Seligman & Associates Inc $6.50 cash/sh com $10.1
02/15/89 ENSERCH Corp Enserch Exploration Partners 0.5 sh of Enserch com and $1 $1,386.3
cash/sh com of Enserch
Exploration Partners
02/21/89 Investor Group Security American Finl Entps $9.77 cash/sh com, and $41.8
assumption of $880,000 of
acquisition-related payments
payable by Security American,
and $204,080 to cancel stock options
03/08/89 Commonwealth Mortgage Co Inc Commonwealth Mortgage Co Inc $8/sh com $47.2
03/10/89 Collins Foods International Sizzler Restaurants Intl Inc 1.25 shs com/sh com $359.9
03/15/89 Standard Shares Inc Pittway Corp 3 shs of a new issue Class A $153.8
stock/sh com
03/21/89 Centel Corp Centel Cable Television Co $45.625 cash/sh com $1,144.4
03/31/89 MAXXAM Inc Horizon Corp(MAXXAM Inc) $2.50/sh com $18.1
04/18/89 Primerica Corp American Capital Management $11.50 cash or .32 sh com/sh $280.5
05/12/89 Spie Group Inc Comstock Group Inc $2.25 cash/sh com $21.4
05/19/89 Carlson Hospitality Group Inc TGI Friday's Inc(Carlson Cos) $14.875/sh com, plus $.238 mil $266.5
to cancel all options to
purchase additional common shares
05/24/89 Tele-Communications Inc WestMarc Communications Inc $32.25 cash/sh com, $32.25 pfd $819.0
sh/sh com for 1000 shares and
$6.17 mil/sh issuable upon
exercise of options
06/08/89 Wheelabrator Group Inc Fisher Scientific Grp(Henley) $22.25 cash/sh com and $22.25 $815.0
cash less exercise price of
$16.13/option to acquire common shares
06/09/89 Primerica Corp AL Williams Corp(Primerica) .82 shs com/sh com $1,503.0
06/14/89 MacAndrews & Forbes Holdings Andrews Group Inc $7.25 principal amount of $66.0
Andrews Group 10% subordinated
debentures due 1999/sh com
06/15/89 Wheelabrator Group Inc Wheelabrator Group Inc 0.845 shs of the surviving $1,227.4
Wheelabrator Technologies
after a one-for-four reverse
stock split/sh of the old Wheelabrator
06/19/89 Investor Group Allied Security Inc $62 cash/sh com $30.2
06/20/89 RLI Corp American Capacity Group Inc $18 cash/sh com and $18 cash $36.4
less exercise price of $14.40/
each of the 30,000 shares
</TABLE>
<TABLE>
<CAPTION>
Prior to Announcement
---------------------
Acquiror's Holdings Target's Holdings Acquiror's
Value of ------------------- ----------------- Ownership
Target's Total Number Percent Number Percent After
Date Holdings Shares Out Shares Held Ownership Shares Held Ownership Transaction
Announced Acquiror Name ($MM) (MM) (MM) (%) (MM) (%) (%)
- --------- ------------- -------- ---------- ---------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
07/20/88 Home Owners Fed Svgs,Boston $25.6 14.0 11.5 81.9 2.5 17.0 100.0
10/05/88 MBS Associates $9.6 5.2 4.2 81.6 1.0 18.4 100.0
10/13/88 Industrial Equity(Pacific)Ltd $22.0 4.5 2.5 55.6 2.0 44.4 100.0
10/25/88 Chyron Corp $2.1 11.8 9.5 80.5 2.3 19.4 100.0
11/15/88 Qintex Resorts BV $70.0 10.0 5.2 51.9 4.8 48.1 100.0
12/05/88 Zayre Corp $414.0 70.0 58.1 83.0 11.9 17.0 100.0
12/06/88 Investor $22.2 11.0 7.6 69.0 3.4 31.0 100.0
12/14/88 Ingram Industries Inc $43.9 7.2 4.3 58.8 3.0 41.2 100.0
01/27/89 United Meridian Corp $28.0 6.3 3.8 60.2 - - 60.2
02/06/89 S & A Acquisition Corp $1.2 1.6 1.4 88.1 0.2 15.0 100.0
02/15/89 ENSERCH Corp $162.3 102.5 89.6 87.4 12.0 11.7 99.1
02/21/89 Investor Group $18.3 4.3 2.5 58.7 - - 58.7
03/08/89 Commonwealth Mortgage Co Inc $6.0 5.9 5.2 87.4 - - 87.4
03/10/89 Collins Foods International $122.0 16.3 10.8 66.1 5.5 34.0 100.0
03/15/89 Standard Shares Inc $76.8 4.6 2.3 50.1 2.3 49.0 100.0
03/21/89 Centel Corp $211.9 25.1 20.4 81.3 4.6 18.3 99.7
03/31/89 MAXXAM Inc $6.9 7.2 4.5 61.8 2.8 38.0 100.0
04/18/89 Primerica Corp $48.3 24.4 20.2 82.6 4.2 17.4 100.0
05/12/89 Spie Group Inc $7.7 9.5 6.1 64.2 3.4 35.8 100.0
05/19/89 Carlson Hospitality Group Inc $52.7 17.9 14.4 80.2 3.5 19.8 100.0
05/24/89 Tele-Communications Inc $185.4 25.4 18.4 72.6 7.0 26.5 100.0
06/08/89 Wheelabrator Group Inc $140.0 36.6 29.4 80.2 7.2 19.0 100.0
06/09/89 Primerica Corp $453.9 67.6 47.2 69.8 20.4 29.2 100.0
06/14/89 MacAndrews & Forbes Holdings $28.3 9.1 5.2 57.2 3.9 43.0 100.0
06/15/89 Wheelabrator Group Inc $490.1 47.6 28.6 60.0 19.1 40.0 100.0
06/19/89 Investor Group $14.4 0.5 0.3 52.3 0.2 46.0 100.0
06/20/89 RLI Corp $7.1 2.0 1.6 79.5 0.4 20.5 100.0
</TABLE>
<TABLE>
<CAPTION>
Premium to Market (%)
----------------------
Date One Month One Week One Day
Announced Acquiror Name Before Offer Before Offer Before Offer
- --------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
07/20/88 Home Owners Fed Svgs,Boston 34.7 17.1 13.8
10/05/88 MBS Associates 63.3 56.9 9.6
10/13/88 Industrial Equity(Pacific)Ltd 1.1 2.3 23.9
10/25/88 Chyron Corp 18.7 29.5 18.7
11/15/88 Qintex Resorts BV 3.3 6.0 3.3
12/05/88 Zayre Corp 47.3 43.5 42.0
12/06/88 Investor 4.0 6.1 2.0
12/14/88 Ingram Industries Inc 57.3 37.2 40.5
01/27/89 United Meridian Corp 82.6 78.7 71.4
02/06/89 S & A Acquisition Corp 33.3 33.3 33.3
02/15/89 ENSERCH Corp 40.5 21.6 20.2
02/21/89 Investor Group 34.8 22.1 18.4
03/08/89 Commonwealth Mortgage Co Inc 146.2 82.9 82.9
03/10/89 Collins Foods International 22.4 19.1 24.1
03/15/89 Standard Shares Inc -66.6 -67.2 -67.0
03/21/89 Centel Corp 1.1 0.8 0.1
03/31/89 MAXXAM Inc 42.9 5.3 11.1
04/18/89 Primerica Corp 7.0 16.5 17.9
05/12/89 Spie Group Inc 28.6 5.9 20.0
05/19/89 Carlson Hospitality Group Inc 14.4 13.3 12.3
05/24/89 Tele-Communications Inc 33.0 22.9 19.4
06/08/89 Wheelabrator Group Inc 12.7 14.1 15.6
06/09/89 Primerica Corp 44.7 40.1 24.4
06/14/89 MacAndrews & Forbes Holdings 28.9 23.4 3.6
06/15/89 Wheelabrator Group Inc 217.2 227.2 227.2
06/19/89 Investor Group 24.0 21.6 21.6
06/20/89 RLI Corp 71.4 71.4 53.2
</TABLE>
Source: Securities Data Corporation
<PAGE> 64
SUMMARY OF SELECTED CONTROLLING SHAREHOLDER BUYOUTS COMPLETED/PENDING SINCE 1986
(Figures in Millions, Except per Share Data)
<TABLE>
<CAPTION>
Total Equity
Value
Date (100%)
Announced Acquiror Name Target Name Consideration ($MM)
- --------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
reserved for issuance upon
exercise of outstanding
warrants
06/23/89 Investor Group Connelly Containers Inc $20/sh com $23.8
07/31/89 Montedison SpA HIMONT Inc(Montedison SpA) $51 cash/sh com and $51 cash $3,332.7
less exercise price/option
08/11/89 Merrill Lynch & Co Inc Fine Homes International LP $18 cash/sh pfd limited -
partnership unit
08/18/89 Raycomm Industries Inc Mainstream Engineering Co Inc Series B preferred stock plus warrants/com -
09/21/89 Dow Jones & Co Inc Telerate Inc(Dow Jones & Co) $21 cash/sh com $2,017.7
09/22/89 Empire of Carolina Inc Clabir Corp 0.3 shs com/Ambrit sh com, -
and 0.01 shs com/Clabir sh com
A and sh com B, and 0.2 shs
com/Clabir sh pfd
10/03/89 Esselte AB Esselte Business Systems Inc $47.64/sh com $980.1
10/06/89 Investor Group M/I Schottenstein Homes Inc $7.50 cash/sh com $44.4
10/19/89 Canadian Pacific Ltd Soo Line(Canadian Pacific LTD) $21.50 cash/sh com $204.1
10/20/89 Lep Group PLC Profit Systems Inc(LEP Group) $11.75 cash/sh com and $64.5
$736,000 for options to
acquire Profit Systems shares
11/01/89 Heritage Media Corp POP Radio Corp(Heritage Media) $21.10 cash/sh com; $75.7
11/27/89 Investor Group Transtector Systems Inc 10-year high-yield debentures/com -
11/28/89 Corporate Data Sciences Inc Consolidated Packaging Corp 1 sh com/sh com -
12/18/89 Dundee Cement Co,St Lawrence Ideal Basic Industries Inc -
12/18/89 Holnam(Holderbank) Ideal Basic Industries Inc 1 sh com/4 shs com -
12/22/89 McKesson Corp PCS Inc(McKesson Corp) $20 cash/sh com $290.7
01/08/90 Southmark Corp MGF Oil Corp(Southmark Corp) $0.08 cash/sh com $28.3
01/24/90 Imetal SA Copperweld Corp(Imetal SA) $17 cash/sh com $175.9
02/09/90 Leucadia National Corp BRAE Corp(Leucadia National) $6.25 cash/sh com $52.0
02/09/90 WR Grace & Co Del Taco Restaurants Inc $3.25 cash/sh com $27.7
02/16/90 Anderson Mavor Investments Ltd National Mines Service Co $8.875/sh com, and $43.8
approximately $500,000 to
cancel options to purchase
69,840 shares
03/02/90 American Express Co Shearson Lehman Brothers Hldgs 0.48 shs com/com $1,140.5
03/22/90 Phoenix Advanced Technology Nutri-Products Inc 4.69 shs com Phoenix/sh com $6.4
05/08/90 ISS-International Service A/S ISS International Service Sys $12 cash/sh com $46.0
05/14/90 Valhi Inc Sybra Inc(Valhi Inc) 1.6 shs com/sh com $135.9
05/17/90 Kansas City Southern Inds Inc DST Systems Inc $15.85 cash/sh com $301.8
05/18/90 OCP International Inc Ketchum & Co $2.425 cash/sh com $5.8
05/30/90 Tyco Toys Inc Nasta International Inc $1.25 cash/sh com, sweetened $6.4
from $1/sh com
06/29/90 Investor Group CR-PL $1.40/sh com -
07/06/90 Renault Vehicules Industriels Mack Trucks Inc $6.25 cash/sh com $261.8
07/12/90 Paramount Communications TVX Broadcast Group Inc $9.5/sh com $292.2
07/19/90 Caesars World Inc Caesars New Jersey Inc $22.25 cash plus interest $367.2
computed at the Sept 20
26-week Treasury bill rate of
7.45% beginning accrual on
Sept 22/sh com for 2,029,227
shs; $22.25 cash/sh com for
</TABLE>
<TABLE>
<CAPTION>
Prior to Announcement
---------------------
Acquiror's Holdings Target's Holdings Acquiror's
Value of ------------------- ----------------- Ownership
Target's Total Number Percent Number Percent After
Date Holdings Shares Out Shares Held Ownership Shares Held Ownership Transaction
Announced Acquiror Name ($MM) (MM) (MM) (%) (MM) (%) (%)
- --------- ------------- -------- ---------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
06/23/89 Investor Group $11.4 1.2 0.6 52.0 0.6 48.0 100.0
07/31/89 Montedison SpA $639.0 65.4 52.5 80.4 12.8 19.6 100.0
08/11/89 Merrill Lynch & Co Inc $140.0 29.4 21.6 73.5 - - 73.5
08/18/89 Raycomm Industries Inc - 1.0 0.8 84.0 - - 84.0
09/21/89 Dow Jones & Co Inc $681.9 96.1 63.6 66.2 32.5 33.8 100.0
09/22/89 Empire of Carolina Inc - 44.3 28.8 65.0 15.5 40.0 100.0
10/03/89 Esselte AB $217.4 20.6 16.0 77.8 4.6 22.0 100.0
10/06/89 Investor Group $7.5 5.9 4.9 83.0 - - 83.0
10/19/89 Canadian Pacific Ltd $89.8 9.5 5.3 55.8 4.2 44.2 100.0
10/20/89 Lep Group PLC $25.2 5.5 3.2 57.5 - - 57.5
11/01/89 Heritage Media Corp $39.0 3.6 2.1 57.0 1.5 43.0 100.0
11/27/89 Investor Group - - - - - - -
11/28/89 Corporate Data Sciences Inc - - - - - - -
12/18/89 Dundee Cement Co,St Lawrence - - - - - 33.0 33.0
12/18/89 Holnam(Holderbank) $100.6 176.3 118.7 67.3 57.6 32.7 100.0
12/22/89 McKesson Corp $40.7 14.5 12.4 85.3 2.0 14.0 99.3
01/08/90 Southmark Corp $1.7 353.3 332.5 94.1 20.8 5.9 100.0
01/24/90 Imetal SA $78.0 10.4 5.8 55.6 4.6 44.4 100.0
02/09/90 Leucadia National Corp $23.0 8.3 4.7 56.0 - - 56.0
02/09/90 WR Grace & Co $5.1 8.5 - - 1.6 11.0 18.2
02/16/90 Anderson Mavor Investments Ltd $21.6 4.9 2.5 50.5 2.4 49.5 100.0
03/02/90 American Express Co $360.0 88.4 60.5 68.4 27.9 39.0 100.0
03/22/90 Phoenix Advanced Technology $2.0 8.8 6.0 69.0 2.7 31.0 100.0
05/08/90 ISS-International Service A/S $15.4 3.8 2.6 66.5 1.3 34.0 100.0
05/14/90 Valhi Inc $4.1 5.6 5.4 97.0 0.2 3.0 100.0
05/17/90 Kansas City Southern Inds Inc $39.1 19.0 16.6 87.1 2.2 11.5 98.6
05/18/90 OCP International Inc $1.9 2.4 1.6 66.7 0.8 33.3 99.4
05/30/90 Tyco Toys Inc $1.7 5.1 3.8 74.2 1.3 25.8 100.0
06/29/90 Investor Group - - - - - - -
07/06/90 Renault Vehicules Industriels $103.7 41.9 25.3 60.4 16.6 40.0 100.0
07/12/90 Paramount Communications $61.4 30.8 24.3 79.0 6.5 21.0 100.0
07/19/90 Caesars World Inc $48.4 16.3 14.1 86.6 2.2 13.4 100.0
</TABLE>
<TABLE>
<CAPTION>
Premium to Market (%)
----------------------
Date One Month One Week One Day
Announced Acquiror Name Before Offer Before Offer Before Offer
- --------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
06/23/89 Investor Group 6.7 8.8 9.6
07/31/89 Montedison SpA 30.8 26.3 15.6
08/11/89 Merrill Lynch & Co Inc - - -
08/18/89 Raycomm Industries Inc
09/21/89 Dow Jones & Co Inc 29.2 36.6 38.8
09/22/89 Empire of Carolina Inc
10/03/89 Esselte AB 44.9 39.6 27.9
10/06/89 Investor Group 42.9 50.0 46.3
10/19/89 Canadian Pacific Ltd 24.6 14.7 22.9
10/20/89 Lep Group PLC 56.7 74.1 80.8
11/01/89 Heritage Media Corp -9.2 4.2 12.5
11/27/89 Investor Group - - -
11/28/89 Corporate Data Sciences Inc - - -
12/18/89 Dundee Cement Co,St Lawrence - - -
12/18/89 Holnam(Holderbank) - - -
12/22/89 McKesson Corp 17.6 34.5 27.0
01/08/90 Southmark Corp - - -
01/24/90 Imetal SA 33.3 41.7 47.8
02/09/90 Leucadia National Corp 38.9 38.9 33.3
02/09/90 WR Grace & Co 73.3 73.3 30.0
02/16/90 Anderson Mavor Investments Ltd 9.2 12.7 20.3
03/02/90 American Express Co 7.5 18.6 -0.8
03/22/90 Phoenix Advanced Technology -46.9 -49.2 -43.0
05/08/90 ISS-International Service A/S 60.0 60.0 54.8
05/14/90 Valhi Inc - - -
05/17/90 Kansas City Southern Inds Inc 51.0 40.9 24.3
05/18/90 OCP International Inc 21.3 29.3 14.1
05/30/90 Tyco Toys Inc -16.7 11.1 25.0
06/29/90 Investor Group - - -
07/06/90 Renault Vehicules Industriels 22.0 19.0 19.0
07/12/90 Paramount Communications 85.4 90.0 26.7
07/19/90 Caesars World Inc 44.5 49.3 40.0
</TABLE>
Source: Securities Data Corporation
<PAGE> 65
Summary of Selected Controlling Shareholder Buyouts Completed/Pending Since
1986
(Figures in Millions, Except per Share Data)
<TABLE>
<CAPTION>
Total Equity
Value
Date (100%)
Announced Acquiror Name Target Name Consideration ($MM)
- --------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
the remaining 146,718 shs
07/23/90 Investor Group Avery Inc $0.43 cash/sh com, up from $ 23.8
an initial offer of $0.35 cash/sh com
07/24/90 Corkin Co Entwistle Co $46.40 cash/sh com -
07/31/90 Freeport-McMoRan Inc Freeport-McMoRan Oil and Gas .3119461 shs com/sh com $ 249.9
08/10/90 Diversicare Ltd(Counsel Corp) Diversicare Corp of America $2.40 cash/sh com $ 27.4
08/16/90 Academy Mergerco Inc Academy Insurance Group Inc $1.325 cash/sh com $ 93.5
10/02/90 Torch Energy Advisors Inc Energy Assets Intl Corp $.5 cash/sh com $ 14.0
10/02/90 Phoenix Affiliates Intl Inc Phoenix American Inc $5 cash/sh com $ 22.7
10/08/90 Western Gas Resources Inc Western Gas Processors Ltd 1 sh com/com limited $ 269.4
partnership unit. The limited
partnership unit consisted of
$1.80 Cumulative Participating
Units and non-preference
limited partner interests
10/23/90 Ogden Corp ERC Environmental and Energy $15.13 cash/sh com $ 86.5
11/11/90 US WEST Inc US WEST NewVector Group Inc 1.14 shs com/sh com Class A $ 2,290.5
12/07/90 Oxford Consolidated Inc Premier Resources Ltd 1 sh com Oxford $ 1.7
Consolidated/32 shs com
Premier Resources
01/03/91 Murphy Oil Corp Ocean Drilling & Exploration .55 shs com/sh com $ 1,001.9
01/04/91 Moore Business Forms(Moore) KCR Technology Inc -
01/25/91 Investor Group Medical Management of America $5.75 cash plus $2.50 10% $ 54.5
secured 2-year promissory
paid in eight equal quarterly
installments/sh com
02/05/91 Stoneridge Resources Inc Major Group Inc .04 shs com/sh com; $.5 mil $ 2.0
promissory note/pfd
02/06/91 BHP Hldgs(USA)Inc(Broken Hill) Hamilton Oil Corp $40 cash or $40 Broken Hill $ 1,085.9
American Depository
Receipts/sh com
03/01/91 Air & Water Technologies Corp Metcalf & Eddy Cos Inc .875 shs com/sh com $ 283.3
05/01/91 Tele-Communications Inc United Artists Entertainment 1.02 sh com/sh com; plus $ 2,315.7
$4.75 cash/right; plus
pfd/pfd; plus $17.17 cash/unit
06/13/91 Staveley Industries PLC Weigh-Tronix(Staveley Indus) $22 cash/sh com $ 60.1
06/28/91 BMG Equities Corp United Capital Corp -
07/12/91 Helm Resources Inc Interpak Holdings Inc $.25 cash plus $1.25 principal $ 4.5
amount of 12% debentures, due
Dec 31, 1996/sh stock
07/25/91 Land O' Lakes Inc Country Lake Foods Inc $15.30 cash/sh com; $15.30 $ 70.1
cash per share minus the
exercise price/sh com if
options for 150,000 shs com
are exercised
07/26/91 Bristol Holdings Inc Sports-Tech International Inc 1.2 shs com/sh com $ 2.0
07/30/91 Pennzoil Co Jiffy Lube International Inc $6 cash/sh com $ 53.2
07/30/91 Norfolk and Western Railway Co Wabash Railroad Co $75 cash/sh pfd; $649.92 $ 388.8
cash/sh com, based on 10.155
times Norfolk Southern's
closing stock price of $64 on
Nov 12, the merger's effective date
</TABLE>
<TABLE>
<CAPTION>
Prior to Announcement
---------------------
Acquiror's Holdings Target's Holdings Acquiror's
Value of ------------------- ----------------- Ownership
Target's Total Number Percent Number Percent After
Date Holdings Shares Out Shares Held Ownership Shares Held Ownership Transaction
Announced Acquiror Name ($MM) (MM) (MM) (%) (MM) (%) (%)
- --------- ------------- --------- ---------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
07/23/90 Investor Group $ 4.0 55.4 46.0 83.0 9.4 17.0 100.0
07/24/90 Corkin Co - - - - - 14.0 -
07/31/90 Freeport-McMoRan Inc $ 46.2 23.0 18.7 81.5 4.3 18.5 100.0
08/10/90 Diversicare Ltd(Counsel Corp) $ 1.3 11.4 10.9 95.4 - - 95.4
08/16/90 Academy Mergerco Inc $ 46.8 70.6 - - 35.3 50.0 50.0
10/02/90 Torch Energy Advisors Inc $ 2.0 28.0 24.0 85.7 - - 85.7
10/02/90 Phoenix Affiliates Intl Inc $ 6.3 4.5 3.3 72.4 1.3 27.6 100.0
10/08/90 Western Gas Resources Inc $ 130.3 21.1 10.9 51.6 10.2 48.0 100.0
10/23/90 Ogden Corp $ 33.6 5.7 3.5 61.2 2.2 38.8 100.0
11/11/90 US WEST Inc $ 437.5 50.9 41.2 80.9 9.7 19.0 100.0
12/07/90 Oxford Consolidated Inc $ 0.8 11.1 5.7 51.0 5.4 49.0 100.0
01/03/91 Murphy Oil Corp $ 391.8 51.7 31.6 61.1 20.1 39.0 100.0
01/04/91 Moore Business Forms(Moore) - - - - - - -
01/25/91 Investor Group $ 12.9 6.6 5.0 76.3 1.6 23.7 100.0
02/05/91 Stoneridge Resources Inc $ 1.5 10.5 5.3 50.7 5.2 49.3 100.0
02/06/91 BHP Hldgs(USA)Inc(Broken Hill) $ 524.3 27.2 14.0 51.7 13.1 48.3 100.0
03/01/91 Air & Water Technologies Corp $ 51.0 14.7 12.1 82.0 2.7 18.0 100.0
05/01/91 Tele-Communications Inc $ 1,189.0 143.0 76.1 53.2 64.0 46.0 97.9
06/13/91 Staveley Industries PLC $ 25.3 2.7 1.5 55.8 1.1 40.4 96.2
06/28/91 BMG Equities Corp - - - - - 35.0 100.0
07/12/91 Helm Resources Inc $ 0.7 3.0 2.5 84.0 0.5 16.0 100.0
07/25/91 Land O' Lakes Inc $ 22.6 4.6 3.0 65.5 1.6 34.5 100.0
07/26/91 Bristol Holdings Inc $ 0.6 1.1 0.8 67.7 0.4 33.3 100.0
07/30/91 Pennzoil Co $ 9.2 8.9 7.2 81.0 1.5 17.6 98.3
07/30/91 Norfolk and Western Railway Co $ 8.5 0.6 0.6 99.8 - 1.0 100.0
</TABLE>
<TABLE>
<CAPTION>
Premium to Market (%)
----------------------
Date One Month One Week One Day
Announced Acquiror Name Before Offer Before Offer Before Offer
- --------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
07/23/90 Investor Group -40.2 -31.2 -23.6
07/24/90 Corkin Co - - -
07/31/90 Freeport-McMoRan Inc 47.5 42.7 36.0
08/10/90 Diversicare Ltd(Counsel Corp) 102.1 125.9 125.9
08/16/90 Academy Mergerco Inc 21.1 24.7 21.1
10/02/90 Torch Energy Advisors Inc 77.8 33.3 33.3
10/02/90 Phoenix Affiliates Intl Inc 42.9 66.7 53.8
10/08/90 Western Gas Resources Inc - - -
10/23/90 Ogden Corp 44.1 44.1 37.5
11/11/90 US WEST Inc 83.8 58.0 47.6
12/07/90 Oxford Consolidated Inc - - -
01/03/91 Murphy Oil Corp 9.2 24.1 14.0
01/04/91 Moore Business Forms(Moore) - - -
01/25/91 Investor Group 65.0 65.0 65.0
02/05/91 Stoneridge Resources Inc 21.6 21.6 10.5
02/06/91 BHP Hldgs(USA)Inc(Broken Hill) 31.1 21.2 18.5
03/01/91 Air & Water Technologies Corp 24.2 16.7 22.2
05/01/91 Tele-Communications Inc 25.7 22.2 19.9
06/13/91 Staveley Industries PLC 44.3 41.9 41.9
06/28/91 BMG Equities Corp - - -
07/12/91 Helm Resources Inc - - -
07/25/91 Land O' Lakes Inc 53.0 45.7 39.1
07/26/91 Bristol Holdings Inc -40.0 10.8 10.8
07/30/91 Pennzoil Co 20.0 20.0 20.0
07/30/91 Norfolk and Western Railway Co - - -
</TABLE>
Source: Securities Data Corporation
<PAGE> 66
SUMMARY OF SELECTED CONTROLLING SHAREHOLDER BUYOUTS COMPLETED/PENDING SINCE 1986
(Figures in Millions, Except per Share Data)
<TABLE>
<CAPTION>
Total Equity
Value
Date (100%)
Announced Acquiror Name Target Name Consideration ($MM)
- --------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
08/02/91 EnviroSource Inc Envirosafe Services Inc 4.25 shs com/sh com $44.9
09/06/91 Penn Traffic Co P&C Food Markets Inc $34 cash or 1.225 shs com; $267.1
holders may elect to receive
stock or cash or some mixture
subject to proration; $18.8
mil cash plus 900,000 shs
com/com plus pfd
09/18/91 Arkla Inc Arkla Exploration Co .95 sh com/sh com $514.5
09/24/91 MCEN Corp Magic Circle Energy Corp $.24 cash/sh com $3.6
10/16/91 Time Warner American Television & Commun $82.50 of redeemable reset $9,405.0
notes redeemable on Aug 15,
2002/sh com
02/06/92 Charter Co(American Financial) Spelling Entertainment Inc 1 sh com/sh com $239.3
02/24/92 Unocal Corp Unocal Exploration Corp .54 sh com/sh com $2,937.3
03/02/92 WR Grace & Co Grace Energy Corp $19 cash/sh com $465.8
03/20/92 BLV Acquisition Corp Belvedere Corp $6.30 cash/sh com $37.4
05/07/92 Credit Lyonnais Bank Nederland Pathe Communications Corp $1.50 cash/sh com $89.6
06/02/92 Investor Newport Electronics Inc $4 cash/sh com $4.6
06/25/92 Katy Holdings Katy Industries Inc $25.75 cash/sh com $232.3
07/02/92 Preferred Equities Corp Vacation Spa Resorts Inc 1 Mego Financial sh com/4 shs $5.7
com
07/06/92 Simshares Inc(Simetco Inc) Simetco Inc $1.9493 cash/sh pfd Class A $0.4
07/24/92 Reliance Group Holdings Inc Frank B Hall & Co .625 sh com/sh com, for $264.5
remaining 13.269 mil shs
08/17/92 Leucadia National Corp PHLCORP Inc 0.406 sh com/sh com $379.3
08/25/92 Union Planters Corp Bank of East Tennessee $13 8%-cumulative convertible -
pfd Series E/sh com
10/09/92 Dundee Bancorp International Avalon Corp(Corona Corp) $3.75 cash/sh com and pfd $47.1
11/13/92 Rust International Inc Brand Cos Inc Choice of $18.75 cash or 1 sh com/sh $422.2
12/17/92 Investor Group Ambulatory Medical Care Inc $5.5 cash/sh com $5.8
01/04/93 Investor Group United Medical Corp $9.50 cash/sh com $24.6
02/18/93 Sahara Resorts Sahara Casino Partners LP 1 new Sahara Gaming sh com/4.6 $53.7
units plus 1 new Sahara
Gaming exchangeable redeemable
sh prd/unit
02/19/93 National Mutual Insurance Co Celina Financial Corp $5.80 cash/sh com Class A $9.7
04/14/93 Vertex Industries Inc Computer Transceiver Sys Inc $393,240 com plus $1,206,760 -
debt reduction/42.9% remaining interest
04/26/93 DWG Corp Southeastern Public Service Co .8 shs com/sh com $297.0
05/24/93 USTrails Inc Thousand Trails Inc $1.55 cash/sh com $35.5
05/25/93 Newport Capital Inc American Medcare Corp -
06/17/93 Apache Corp Hadson Energy Resources Corp Choice of $15 cash or $15 com/sh com $102.8
06/23/93 Comcast Corp Comcast Cablevision of Phila $90 cash/sh com $145.4
07/01/93 Quartex Corp CMS/DATA Corp(Quartex Corp) 5.6 shs com in the newly -
structured entity/sh com
07/27/93 Investor Group Forum Group Inc $3.62 cash/sh com $64.4
07/30/93 State Mutual Life Assurance Co Allmerica Property & Casualty -
09/20/93 Valley Fashions Corp West Point-Pepperell Inc $46 cash/1.476 mil shs com $1,357.9
10/13/93 Medco Containment Services Inc Medical Marketing Group Inc $27.25 cash/sh com $313.7
10/19/93 Trigen Energy Corp United Thermal Corp $4.50/sh com $392.7
</TABLE>
<TABLE>
<CAPTION>
Prior to Announcement
---------------------
Acquiror's Holdings Target's Holdings Acquiror's
Value of ------------------- ----------------- Ownership
Target's Total Number Percent Number Percent After
Date Holdings Shares Out Shares Held Ownership Shares Held Ownership Transaction
Announced Acquiror Name ($MM) (MM) (MM) (%) (MM) (%) (%)
- --------- ------------- -------- ---------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
08/02/91 EnviroSource Inc $16.8 3.8 2.4 62.5 1.4 37.4 100.0
09/06/91 Penn Traffic Co $43.9 7.9 6.6 83.6 1.3 10.0 100.0
09/18/91 Arkla Inc $92.6 33.3 27.3 82.0 6.0 18.0 100.0
09/24/91 MCEN Corp $1.7 14.9 7.7 51.9 - - 51.9
10/16/91 Time Warner $1,699.5 114.0 93.4 81.9 20.6 18.0 100.0
02/06/92 Charter Co(American Financial) $43.0 33.0 27.2 82.3 5.8 18.0 100.0
02/24/92 Unocal Corp $117.5 251.5 241.4 96.0 10.1 4.0 100.0
03/02/92 WR Grace & Co $77.3 24.5 20.5 83.4 4.1 16.6 100.0
03/20/92 BLV Acquisition Corp $16.9 5.9 3.3 54.8 2.7 44.8 99.5
05/07/92 Credit Lyonnais Bank Nederland $4.2 59.8 53.4 89.3 2.8 4.8 94.0
06/02/92 Investor $1.3 1.2 0.8 71.5 - - 71.5
06/25/92 Katy Holdings $111.8 9.0 4.7 51.9 - - 51.9
07/02/92 Preferred Equities Corp $1.2 17.4 13.9 80.0 3.5 20.0 100.0
07/06/92 Simshares Inc(Simetco Inc) $0.1 0.2 - - - - -
07/24/92 Reliance Group Holdings Inc $39.4 89.1 75.8 85.1 - - 85.1
08/17/92 Leucadia National Corp $139.9 14.7 9.3 63.1 5.4 36.9 100.0
08/25/92 Union Planters Corp - - - - - - -
10/09/92 Dundee Bancorp International $7.8 12.6 10.5 83.5 1.7 13.4 96.8
11/13/92 Rust International Inc $185.0 22.5 12.6 55.8 9.9 44.0 100.0
12/17/92 Investor Group $2.3 1.1 0.6 60.0 - - 60.0
01/04/93 Investor Group $11.8 2.6 1.4 52.0 1.2 48.0 100.0
02/18/93 Sahara Resorts $19.4 19.4 12.4 64.0 - - 64.0
02/19/93 National Mutual Insurance Co $4.4 1.7 - - 0.6 35.8 35.8
04/14/93 Vertex Industries Inc $0.4 - - - - - -
04/26/93 DWG Corp $86.1 11.6 8.2 71.0 - - 71.0
05/24/93 USTrails Inc $7.1 22.9 18.3 80.0 - - 80.0
05/25/93 Newport Capital Inc - 35.7 28.7 80.2 7.1 19.8 100.0
06/17/93 Apache Corp $31.9 6.9 4.2 61.8 - - 61.8
06/23/93 Comcast Corp $11.6 1.6 1.5 92.0 - - 92.0
07/01/93 Quartex Corp - 6.2 4.1 66.2 - - 66.2
07/27/93 Investor Group $23.0 17.8 11.5 64.3 1.3 7.3 71.6
07/30/93 State Mutual Life Assurance Co - 20.9 12.0 57.4 - - 57.4
09/20/93 Valley Fashions Corp $64.4 29.5 28.0 95.0 - - 95.0
10/13/93 Medco Containment Services Inc $157.0 12.6 6.8 54.2 - - 54.2
10/19/93 Trigen Energy Corp $66.8 87.3 - - - - -
</TABLE>
<TABLE>
<CAPTION>
Premium to Market (%)
----------------------
Date One Month One Week One Day
Announced Acquiror Name Before Offer Before Offer Before Offer
- --------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
08/02/91 EnviroSource Inc -2.6 11.3 16.9
09/06/91 Penn Traffic Co - - -
09/18/91 Arkla Inc 30.0 28.6 8.3
09/24/91 MCEN Corp -14.7 -14.7 -4.0
10/16/91 Time Warner 88.6 67.5 66.7
02/06/92 Charter Co(American Financial) 45.0 45.0 52.6
02/24/92 Unocal Corp 22.9 18.3 18.3
03/02/92 WR Grace & Co 7.8 21.6 24.6
03/20/92 BLV Acquisition Corp 40.0 57.5 44.0
05/07/92 Credit Lyonnais Bank Nederland - - -
06/02/92 Investor -5.9 -5.9 -5.9
06/25/92 Katy Holdings 46.1 51.5 53.7
07/02/92 Preferred Equities Corp -34.0 -34.0 -34.0
07/06/92 Simshares Inc(Simetco Inc) 41.8 20.0 20.0
07/24/92 Reliance Group Holdings Inc -18.1 -25.8 -34.0
08/17/92 Leucadia National Corp 28.9 15.2 12.1
08/25/92 Union Planters Corp 36.8 20.9 20.9
10/09/92 Dundee Bancorp International 50.0 42.9 42.9
11/13/92 Rust International Inc 4.9 13.6 4.9
12/17/92 Investor Group -8.3 -12.0 -12.0
01/04/93 Investor Group 49.0 52.0 49.0
02/18/93 Sahara Resorts 5.1 -8.0 -4.0
02/19/93 National Mutual Insurance Co 36.5 36.5 16.0
04/14/93 Vertex Industries Inc - - -
04/26/93 DWG Corp
05/24/93 USTrails Inc 106.7 65.3 45.9
05/25/93 Newport Capital Inc - - -
06/17/93 Apache Corp 25.0 27.7 26.3
06/23/93 Comcast Corp 9.8 9.8 28.6
07/01/93 Quartex Corp - - -
07/27/93 Investor Group 106.9 141.3 122.8
07/30/93 State Mutual Life Assurance Co - - -
09/20/93 Valley Fashions Corp -6.1 -7.1 -7.8
10/13/93 Medco Containment Services Inc -15.3 -18.0 -25.9
10/19/93 Trigen Energy Corp
</TABLE>
Source: Securities Data Corporation
<PAGE> 67
Dillon, Read & Co. Inc. December 3, 1993
- --------------------------------------------------------------------------------
HISTORICAL PREMIUM ON MINORITY CLOSE-OUTS
ONE MONTH BEFORE OFFER*
- --------------------------------------------------------------------------------
{GRAPH}
{COPY TO COME}
Premiums
Mean: 35.2%
Median: 33.0%
Range: -66.6-217.2%
* Includes 137 transactions from 1/1/86-11/22/93
- --------------------------------------------------------------------------------
VALERO NATURAL GAS COMPANY
<PAGE> 68
Dillon, Read & Co. Inc. December 3, 1993
- --------------------------------------------------------------------------------
HISTORICAL PREMIUM ON MINORITY CLOSE-OUTS
ONE WEEK BEFORE OFFER*
- --------------------------------------------------------------------------------
[GRAPH]
[COPY TO COME]
Premiums
Mean: 33.3%
Median: 28.6%
Range: -672 -227.2%
* Includes 137 transactions from 1/1/86-11/22/93
- --------------------------------------------------------------------------------
VALERO NATURAL GAS COMPANY
<PAGE> 69
Dillon, Read & Co. Inc. December 3, 1993
- --------------------------------------------------------------------------------
HISTORICAL PREMIUMS ON MINORITY CLOSE-OUTS
ONE DAY BEFORE OFFER*
- --------------------------------------------------------------------------------
[GRAPH]
[COPY TO COME]
Premiums
Mean: 30.2%
Median: 24.4%
Range: -67.0 - 227.2%
* Includes 137 transactions from 1/1/86-11/22/93
- --------------------------------------------------------------------------------
VALERO NATURAL GAS COMPANY
<PAGE> 70
Dillon, Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE COST OF CAPITAL ANALYSIS
- --------------------------------------------------------------------------------
Valero Natural Gas Company
<PAGE> 71
- --------------------------------------------------------------------------------
Dillon, Read & Co. Inc. Page 1 12/09/93
Valero Natural Gas Partners, L.P.
Weighted Average Cost of Capital Analysis
($ in millions)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Levered Cost of Unlevered Pretax Value of Book Pretax
Beta Equity Beta Cost of Equity Value of W.A.C.C.
Company (a) (b) (a) Debt (c) 12/08/93 Debt (d)
------- ------- ------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Gas Gathering Companies
- -----------------------
American Oil & Gas 0.80 12.04% 0.58 6.42% $250.9 $ 96.5 10.48%
Associated Natural Gas 1.00 13.50% 0.73 8.72% $412.5 $149.0 12.23%
Tejas Gas Corp. 0.65 10.95% 0.36 6.28% $530.8 $416.5 8.89%
Tejas Power Corp. 0.44 9.41% 0.38 5.82% $138.5 $ 22.8 8.90%
Western Gas Resources 0.78 11.89% 0.48 4.43% $772.3 $493.0 8.98%
Mean 0.73 11.56% 0.51 6.33% $421.0 $235.6 9.90%
Median 0.78 11.89% 0.48 6.28% 412.5 149.0 8.98%
Pipeline MLPs
- -------------
Buckeye Partners 0.45 9.49% 0.30 10.92% $468.4 $229.4 9.96%
Kaneb Pipe Line 0.37 8.90% 0.34 11.94% $357.1 $ 35.5 9.18%
Lakehead Pipeline 0.39 9.05% 0.27 9.49% $720.3 $323.1 9.18%
Santa Fe Pacific
Pipeline 0.65 10.95% 0.44 10.41% $752.2 $355.0 10.77%
TEPPCO Partners 0.30 8.39% 0.15 10.18% $377.6 $361.5 9.26%
Mean 0.43 9.35% 0.30 10.59% $535.1 $260.9 9.67%
Median 0.39 9.05% 0.30 10.41% 468.4 323.1 9.26%
Valero Natural Gas
Partners, LP 0.78 11.89% 0.19 9.75% $209.6 $648.2 10.27%
</TABLE>
Risk Free Rate = 6.20% (Yield on 20-Yr Treasury Bonds as of 11/26/93)
Market Risk Premium = 7.3% (Average over last 70 years)
Long-term expected equity risk premium (common stock returns
versus long-term gov't bond returns), from Ibbotson Associates,
Inc. (1993 Edition)
(a) Adjusted Levered Betas obtained from Bloomberg Financial Markets
System and cover the period from 5/1/91 to 10/13/93. Valero's Beta
assumed to be equal to median Levered Beta of gas gathering companies
(0.78). Unlevered Beta = (Levered Beta) x (Equity / Total Market
Capitalization). Assumed Debt Beta = 0.
(b) Cost of Equity = Risk Free Rate + [Predicted Beta) x (Market Risk
Premium]
(c) Average interest cost over the latest stub period. See Page 2 for
details. For Valero, figure represents estimated current market
rates.
(d) Pretax W.A.C.C. = (Debt / Total Market Capitalization) x (Pretax
Cost of Debt) + (Equity / Total Market Capitalization) x (Cost of
Equity)
<PAGE> 72
- ---------------------------------------------------------------------------
Dillon, Read & Co. Inc. Page 1 12/09/93
Valero Natural Gas Partners, L.P.
Weighted Average Cost of Capital Analysis
($ in millions)
<TABLE>
<CAPTION>
Market
Levered Cost of Unlevered Pretax Value of Book Pretax
Beta Equity Beta Cost of Equity Value of W.A.C.C.
Company (a) (b) (a) Debt (c) 12/08/93 Debt (d)
------- ------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Gas Gathering Companies
- -----------------------
American Oil & Gas 0.80 12.04% 0.58 6.42% $250.9 $ 96.5 10.48%
Associated Natural Gas 1.00 13.50% 0.73 8.72% $412.5 $149.0 12.23%
Tejas Gas Corp. 0.65 10.95% 0.36 6.28% $530.8 $416.5 8.89%
Tejas Power Corp. 0.44 9.41% 0.38 5.82% $138.5 $ 22.8 8.90%
Western Gas Resources 0.78 11.89% 0.48 4.43% $772.3 $493.0 8.98%
Mean 0.73 11.56% 0.51 6.33% $421.0 $235.6 9.90%
Median 0.78 11.89% 0.48 6.28% 412.5 149.0 8.98%
Pipeline MLPs
- -------------
Buckeye Partners 0.45 9.49% 0.30 10.92% $468.4 $229.4 9.96%
Kaneb Pipe Line 0.37 8.90% 0.34 11.94% $357.1 $ 35.5 9.18%
Lakehead Pipeline 0.39 9.05% 0.27 9.49% $720.3 $323.1 9.18%
Santa Fe Pacific Pipeline 0.65 10.95% 0.44 10.41% $752.2 $355.0 10.77%
TEPPCO Partners 0.30 8.39% 0.15 10.18% $377.6 $361.5 9.26%
Mean 0.43 9.35% 0.30 10.59% $535.1 $260.9 9.67%
Median 0.39 9.05% 0.30 10.41% 468.4 323.1 9.26%
Valero Natural Gas Patners, LP 1.95 20.42% 0.48 9.75% $209.6 $648.2 12.36%
</TABLE>
---------------------------------------------------------------------
Risk Free Rate = 6.20% (Yield on 20-Yr Treasury Bonds as of 11/26/93)
Market Risk Premium = 7.3% (Average over last 70 years)
Long-term expected equity risk premium (common stock returns versus
long-term gov't bond returns), from Ibbotson Associates, Inc.
(1993 Edition)
(a) Adjusted Levered Betas obtained from Bloomberg Financial Markets
System and cover the period from 5/1/91 to 10/13/93. Valero's Beta
assumed to be equal to medium Levered Beta of gas gathering companies
(0.78). Unlevered Beta = (Levered Beta) x (Equity / Total Market
Capitalization). Assumed Debt Beta = 0.
(b) Cost of Equity = Risk Free Rate + (Predicted Beta) x (Market Risk
Premium)
(c) Average interest cost over the latest stub period. See Page 2 for
details. For Valero, figure represents estimated current market
rates.
(d) Pretax W.A.C.C. = (Debt / Total Market Capitalization) x (Pretax
Cost of Debt) + (Equity / Total Market Capitalization) x (Cost of
Equity)
<PAGE> 73
Dillon, Read & Co., Inc. December 10, 1993
- ------------------------------------------------------------------
G&A AND O&M SAVINGS ANALYSIS
- ------------------------------------------------------------------
Valero Natural Gas Company
<PAGE> 74
Dillon, Read & Co. Inc. December 3, 1993
- --------------------------------------------------------------
G&A AND O&M SAVINGS ANALYSIS
- --------------------------------------------------------------
* The Dillon Read team analyzed VLP's expenditures as a
percentage of revenue relative to its peer group. This
analysis was performed to identify any potential synergetic
savings which may/should be implicit in the price paid to
the public unitholders of VLP.
<TABLE>
<CAPTION>
(% G&A and O&M)/Gross Margin
------------------------------------------
Broad Stand-Alone
Peer Group (a) Peer Group (b)
-------------- --------------
Time Period VLP Mean Median Mean Median
----------- --- ---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
1990 44.1% 43.9% 44.1% 41.2% 43.6%
1991 43.9% 39.9% 40.9% 41.5% 40.9%
1992 48.8% 39.1% 41.1% 40.8% 41.1%
Three-Year Average
(1990-1992) 45.6% 41.0% 41.0% 41.2% 41.0%
LTM (9/30/93) 48.4%(c) 39.7% 41.6% 42.2% 41.7%
</TABLE>
(a) Broad peer group included AOG, AQP, NGA, TEJ, TPC, NGL, DGP and WGR.
(b) Stand-alone peer group includes AOG, NGA, TEJ, TPC, NGL and WGR.
(c) Adjusted for nonrecurring items present in LTM 9/30/93 financials.
- -------------------------------------------------------------------------
Valero Natural Gas Company
<PAGE> 75
Operational Comparison for Selected Comparable Companies
Selected Natural Gas Gathering, Marketing and Distribution Companies
(Figures in $ Millions)
<TABLE>
<CAPTION>
Valero Natural American Aquila Gas Associated
Gas Ptnshp.(a) Oil & Gas Pipeline Natural Gas Tejas Gas(b) Tejas Power
-------------- --------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
1990
- ----
Total Revenues $1,091.5 $441.2 $12.4 $394.8 $252.9 $117.5
Gross Margin 256.3 59.8 5.2 50.4 52.2 18.7
General & Administrative 42.6 14.5 1.6 6.5 7.9 4.7
Operation & Maintenance 70.4 11.5 1.4 15.8 8.1 3.4
% G & A/Revenues 3.9% 3.3% 13.2% 1.6% 3.1% 4.0%
% O & M/Revenues 6.5% 2.6% 10.9% 4.0% 3.2% 2.9%
% (G&A & O&M) Revenues 10.4% 5.9% 24.1% 5.6% 6.3% 6.9%
% G & A/Gross Margin 16.6% 24.3% 31.3% 12.9% 15.1% 25.0%
% O & M/Gross Margin 27.5% 19.3% 25.9% 31.3% 15.5% 18.2%
% (G&A & O&M) Gross Margin 44.1% 43.6% 57.2% 44.1% 30.6% 43.2%
1991
- ----
Total Revenues $1,144.0 $380.7 $72.9 $630.7 $454.5 $144.5
Gross Margin 247.7 69.4 28.8 70.0 78.6 16.8
General & Administrative 34.8 15.4 3.1 9.0 12.9 5.3
Operation & Maintenance 73.9 10.7 5.0 21.2 13.2 3.5
% G & A/Revenues 3.0% 4.0% 4.2% 1.4% 2.8% 3.7%
% O & M/Revenues 6.5% 2.8% 6.9% 3.4% 2.9% 2.4%
% (G&A & O&M) Revenues 9.5% 6.8% 11.1% 4.8% 5.7% 6.1%
% G & A/Gross Margin 14.0% 22.2% 10.7% 12.9% 16.4% 31.7%
% O & M/Gross Margin 29.8% 15.4% 17.4% 30.4% 16.7% 21.1%
% (G&A & O&M)/Gross Margin 43.9% 37.6% 28.1% 43.3% 33.1% 52.8%
1992
- ----
Total Revenues $1,197.1 $430.9 $211.3 $928.4 $883.2 $184.2
Gross Margin 242.5 84.9 78.4 89.5 143.0 29.0
General & Administrative 37.9 16.7 9.4 11.9 18.0 7.8
Operation & Maintenance 80.4 18.2 12.6 25.2 36.8 5.4
% G & A/Revenues 3.2% 3.9% 4.5% 1.3% 2.0% 4.2%
% O & M/Revenues 6.7% 4.2% 5.9% 2.7% 4.2% 2.9%
% (G&A & O&M)/Revenues 9.9% 8.1% 10.4% 4.0% 6.2% 7.2%
% G & A/Gross Margin 15.6% 19.7% 12.0% 13.2% 12.6% 26.9%
% O & M/Gross Margin 33.2% 21.4% 16.0% 28.1% 25.7% 18.6%
% (G&A & O&M)/Gross Margin 48.8% 41.1% 28.1% 41.4% 38.3% 45.5%
Three-Year Average (1990-1992)
- -------------------------------
% G & A/Revenues 3.4% 3.7% 7.3% 1.5% 2.7% 4.0%
% O & M/Revenues 6.5% 3.2% 7.9% 3.4% 3.4% 2.8%
% (G&A & O&M)/Revenues 9.9% 7.0% 15.2% 4.8% 6.1% 6.7%
% G & A/Gross Margin 15.4% 22.1% 18.0% 13.0% 14.7% 27.9%
% O & M/Gross Margin 30.2% 18.7% 19.8% 29.9% 19.3% 19.3%
% (G&A & O&M)/Gross Margin 45.6% 40.7% 37.8% 42.9% 34.0% 47.2%
</TABLE>
<TABLE>
<CAPTION>
Excludes VLP
----------------------------------------------
Broad Peer Group Stand-alone Group(e)
Trident NGL USX - Western Gas ------------------------ --------------------
Holding, Inc.(d) Delhi Group Resources(c) Mean Median Mean Median
--------------- ----------- ------------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1990
- ----
Total Revenues $669.9 $405.2 $255.7
Gross Margin NA 127.9 76.6
General & Administrative 18.1 31.5 13.5
Operation & Maintenance NA 25.2 20.4
% G & A/Revenues 2.7% 7.8% 5.3% 5.1% 3.6% 3.3% 3.2%
% O & M/Revenues NA 6.2% 8.0% 5.4% 4.0% 4.1% 3.2%
% (G&A & O&M) Revenues NA 14.0% 13.3% 10.9% 6.9% 7.6% 6.3%
% G & A/Gross Margin NA 24.6% 17.6% 21.5% 24.3% 10.0% 17.6%
% O & M/Gross Margin NA 19.7% 26.7% 22.4% 19.7% 22.2% 19.3%
% (G&A & O&M) Gross Margin NA 44.3% 44.3% 43.9% 44.1% 41.2% 43.6%
1991
- ----
Total Revenues $575.3 $423.2 $358.2
Gross Margin NA 139.3 114.5
General & Administrative 16.3 29.3 14.7
Operation & Maintenance NA 31.0 32.1
% G & A/Revenues 2.8% 6.9% 4.1% 3.8% 3.9% 3.2% 3.3%
% O & M/Revenues NA 7.3% 9.0% 5.0% 3.4% 4.1% 2.9%
% (G&A & O&M) Revenues NA 14.2% 13.1% 8.8% 6.8% 7.3% 6.1%
% G & A/Gross Margin NA 21.0% 12.8% 18.3% 16.4% 19.2% 16.4%
% O & M/Gross Margin NA 22.3% 28.1% 21.6% 21.1% 22.3% 21.1%
% (G&A & O&M)/Gross Margin NA 43.3% 40.9% 39.9% 40.9% 41.5% 40.9%
1992
- ----
Total Revenues $601.6 $457.8 $741.8
Gross Margin NA 137.9 256.4
General & Administrative 15.6 28.8 23.9
Operation & Maintenance NA 29.1 72.6
% G & A/Revenues 2.6% 6.3% 3.2% 3.5% 3.6% 2.9% 2.9%
% O & M/Revenues NA 6.4% 9.8% 5.2% 4.2% 4.8% 4.2%
% (G&A & O&M)/Revenues NA 12.6% 13.0% 8.8% 8.1% 7.7% 7.2%
% G & A/Gross Margin NA 20.9% 9.3% 16.4% 13.2% 16.4% 13.2%
% O & M/Gross Margin NA 21.1% 28.3% 24.8% 21.4% 24.4% 25.7%
% (G&A & O&M)/Gross Margin NA 42.0% 37.6% 39.1% 41.1% 40.8% 41.1%
Three-Year Average (1990-1992)
- -------------------------------
% G & A/Revenues 2.7% 7.0% 4.2% 4.1% 3.9% 3.1% 3.2%
% O & M/Revenues NA 6.6% 8.9% 5.2% 3.4% 4.3% 3.4%
% (G&A & O&M)/Revenues NA 13.6% 13.1% 9.5% 7.0% 7.5% 6.7%
% G & A/Gross Margin NA 22.2% 13.3% 18.7% 18.0% 18.2% 14.7%
% O & M/Gross Margin NA 21.0% 27.7% 22.2% 22.2% 23.0% 19.3%
% (G&A & O&M)/Gross Margin NA 43.2% 41.0% 41.0% 41.0% 41.2% 41.0%
</TABLE>
Note: Gross Margin defined as Total Revenues less gas/product purchases
(a) G&A was provided from a schedule prepared by the Company and reflects the
percentage (32%) of reported operating expenses which is attributable.
(b) 1992 - Pro forma EGSI acquisition
(c) 1992 - Pro forma for Mountain Gas and Black Lake Acquisitions
(d) 1991 and 1992 - Based on Pro forma financials for the acquisition of the
NGL business of OXY USA. Gross Margin as defined is not disclosed (i.e.,
separate line items for O&M and COGS).
(e) Excludes AQP and DGP from broad peer group.
<PAGE> 76
Operational Comparison for Selected Comparable Companies
Selected Pipeline Master Limited Partnerships
(Figures in $ Millions)
<TABLE>
<CAPTION>
Lake- Santa
Valero Enron Kaneb head Fe Excludes VLP
Natural Gas Buckeye Liq- Pipe Pipe Pipe TEPPCO --------------------------------
Partnership Partners uids(b) Line Line Line Partners(c) Mean Median High Low
----------- -------- ------- ----- ----- ----- ----------- ---- ------ ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990
- ----
Total Revenues $1,091.5 $159.3 $47.6 $37.6 $205.7 $192.9 $140.8
Gross Margin 256.3 85.0 19.8 25.0 NA 129.6 73.0
General &
Administration 42.6 10.9 7.4 2.9 NA 16.6 NA
Operation &
Maintenance 70.4 74.5 27.8 12.6 NA 63.3 67.8
% G & A/Revenues 3.9% 6.8% 15.6% 7.8% NA 8.6% NA 9.7% 8.2% 15.6% 6.8%
% O & M/Revenues 6.5% 46.8% 58.5% 33.5% NA 32.8% 48.2% 43.9% 46.8% 58.5% 32.8%
% (G&A & O&M)/
Revenues 10.4% 53.6% 74.0% 41.2% NA 41.4% 48.2% 51.7% 48.2% 74.0% 41.2%
% G & A/Gross
Margin 16.6% 12.8% 37.4% 11.7% NA 12.8% NA 18.7% 12.8% 37.4% 11.7%
1991
- ----
Total Revenues $1,144.0 $151.8 $25.6 $39.4 $199.3 $193.4 $163.3
Gross Margin 247.7 78.9 16.9 25.1 NA 127.8 82.2
General &
Administration 34.8 10.3 2.8 2.9 NA 18.2 NA
Operation &
Maintenance 73.9 73.0 16.9 14.3 NA 65.7 81.1
% G & A/Revenues 3.0% 6.8% 11.1% 7.3% NA 9.4% NA 8.6% 8.3% 11.1% 6.8%
% O & M/Revenues 6.5% 48.1% 66.1% 36.4% NA 33.9% 49.7% 46.8% 48.1% 66.1% 33.9%
% (G&A & O&M)/
Revenues 9.5% 54.9% 77.2% 43.6% NA 43.3% 49.7% 53.7% 49.7% 77.2% 43.3%
% G & A/Gross
Margin 14.0% 13.1% 16.8% 11.4% NA 14.2% NA 13.9% 13.7% 16.8% 11.4%
1992
- ----
Total Revenues $1,197.1 $163.1 $23.4 $42.2 $222.2 $205.0 $166.2
Gross Margin 242.5 84.0 14.4 27.7 NA 136.7 90.9
General &
Administration 37.9 10.0 2.7 2.8 NA 19.4 NA
Operation &
Maintenance 80.4 79.1 9.0 14.5 NA 68.3 75.3
% G & A/Revenues 3.2% 6.1% 11.7% 6.5% NA 9.5% NA 8.4% 8.0% 11.7% 6.1%
% O & M/Revenues 6.7% 48.5% 38.4% 34.4% NA 33.3% 45.3% 40.0% 38.4% 48.5% 33.3%
% (G&A & O&M)/
Revenues 9.9% 54.6% 50.1% 40.9% NA 42.8% 45.3% 46.7% 45.3% 54.6% 40.9%
% G & A/Gross
Margin 15.6% 11.9% 18.9% 9.9% NA 14.2% NA 13.7% 13.0% 18.9% 9.9%
Three-Year Average
- ------------------
(1990-1992)
-----------
% G & A/Revenues 3.4% 6.6% 12.8% 7.2% NA 9.2% NA 8.9% 8.2% 12.8% 6.6%
% O & M/Revenues 6.5% 47.8% 54.3% 34.7% NA 33.4% 47.7% 43.6% 47.7% 54.3% 33.4%
% (G&A & O&M)/
Revenues 9.9% 54.4% 67.1% 41.9% NA 42.5% 47.7% 50.7% 47.7% 67.1% 41.9%
% G & A/Gross
Margin 15.4% 12.6% 24.4% 11.0% NA 13.7% NA 15.4% 13.2% 24.4% 11.0%
</TABLE>
Note: Gross Margin defined as Total Revenues less O&M Expenses
(a) G&A was provided from a schedule prepared by the Company and reflects the
percentage (32%) of reported operating expenses which is attributable.
(b) 1991 and 1992 figures are for 5 months only. 1990 data based on corporate
form financials (Partnership is not available).
(c) 1990 figures for the period beginning March 7, 1990, (Inception date)
(d) G&A figures are not itemized, only aggregate operating expenses.
<PAGE> 77
Dillon, Read & Co. Inc. December 3, 1993
- -----------------------------------------------------------
COMPARISON OF CURRENT AND HISTORICAL VLP
PROJECTIONS
- -----------------------------------------------------------
Valero Natural Gas Company
<PAGE> 78
VALERO NATURAL GAS PARTNERS, L.P.
BALANCE SHEETS
STRAGETIC PLAN BASE CASE
(DOLLARS IN THOUSANDS)
FORECASTED ON 10 NOV 1993 08:04
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Operating cash balance $ 3,561 $ 3,281 $ 3,486 $ 3,663 $ 3,729
---------- ---------- ---------- ---------- ----------
Cash held in debt service escrow:
Interest escrow 13,293 12,673 11,984 11,228 10,394
Principal escrow 20,892 22,767 24,643 26,518 28,394
---------- ---------- ---------- ---------- ----------
Total escrow 34,185 35,440 36,627 37,746 38,788
---------- ---------- ---------- ---------- ----------
Other current assets 177,541 209,499 208,699 209,399 201,599
---------- ---------- ---------- ---------- ----------
Total current assets 215,287 248,220 248,812 250,808 244,116
Property, plant and equipment - net 746,638 764,778 755,125 744,756 734,285
Other assets 80,275 69,131 55,403 41,730 37,123
---------- ---------- ---------- ---------- ----------
$1,042,200 $1,082,129 $1,059,340 $1,037,294 $1,015,524
========== ========== ========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Current maturities on long-term
debt $ 27,857 $ 30,357 $ 32,857 $ 35,357 $ 37,857
Current maturities on capital leases 1,052 1,175 1,694 2,553 3,134
Short-term notes 47,000 118,500 115,500 119,000 122,000
Other current liabilities 187,630 194,135 193,289 192,661 191,604
---------- ---------- ---------- ---------- ----------
Total current liabilities 263,539 344,167 343,340 349,571 354,595
---------- ---------- ---------- ---------- ----------
Long-term debt, less current maturities 506,429 476,072 443,215 407,858 370,001
---------- ---------- ---------- ---------- ----------
Capital lease obligation 103,786 103,599 103,027 100,780 97,646
---------- ---------- ---------- ---------- ----------
Deferred credits and other liabilities 4,230 6,190 9,034 12,030 15,186
---------- ---------- ---------- ---------- ----------
Limited Partners' Capital:
Public common units 137,134 128,000 129,491 129,934 132,598
Valero common units 25,387 22,998 30,119 36,094 44,440
---------- ---------- ---------- ---------- ----------
Total limited partners' capital 162,521 150,998 159,609 166,028 177,038
---------- ---------- ---------- ---------- ----------
General Partners' Capital 1,695 1,103 1,114 1,028 1,058
---------- ---------- ---------- ---------- ----------
$1,042,200 $1,082,129 $1,059,340 $1,037,294 $1,015,524
========== ========== ========== ========== ==========
</TABLE>
<PAGE> 79
VALERO NATURAL GAS PARTNERS, L.P.
STATEMENTS OF CASH FLOW
STRATEGIC PLAN BASE CASE
(Dollars in Thousands)
Forecasted on 10 Nov. 1993 08:04
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 18,641 $ (1,596) $ 19,151 $ 16,860 $ 21,568
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation expense 36,408 38,011 37,953 38,369 39,471
Amortization of deferred charges 2,510 2,333 1,791 1,736 1,473
(Gain) or loss on dispositions -- -- (9,300) -- --
-------- -------- -------- -------- --------
Operating sources 57,559 38,748 49,595 56,965 62,512
Non-cash working capital (increase) decrease (35,653) (24,833) 643 (572) 7,577
Changes in deferred charges and credits 5,563 10,771 14,781 14,933 6,290
Changes in capital lease obligation 870 988 1,121 303 --
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities 28,339 25,674 66,140 71,629 76,379
-------- -------- -------- -------- --------
Cash flow from investing activities:
Capital expenditures(1) (42,431) (56,151) (31,500) (28,000) (29,000)
Other, net 2,491 -- 12,500 -- --
-------- -------- -------- -------- --------
Net cash provided by (used in) investing activities (39,940) (56,151) (19,000) (28,000) (29,000)
-------- -------- -------- -------- --------
Cash flow from investing activities:
Proceeds from previously unexpended debt proceeds -- -- -- -- --
Long-term debt reduction (25,357) (27,857) (30,357) (32,857) (35,357)
Capital lease obligation reduction (762) (1,052) (1,174) (1,692) (2,552)
Increase (decrease) in short-term notes 47,000 71,500 (3,000) 3,500 3,000
(Increase) decrease in debt service escrow for principal (1,874) (1,875) (1,876) (1,875) (1,876)
Distributions to partners (10,445) (10,519) (10,528) (10,528) (10,528)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities 8,562 30,197 (49,935) (43,452) (47,313)
-------- -------- -------- -------- --------
Increase (decrease) in cash balance (3,037) (280) 205 177 66
Cash balance at beginning of period 6,598 3,561 3,281 3,486 3,663
-------- -------- -------- -------- --------
Cash balance at end of period $ 3,561 $ 3,281 $ 3,486 $ 3,663 $ 3,729
======== ======== ======== ======== ========
</TABLE>
<PAGE> 80
VALERO NATURAL GAS PARTNERS, L.P.
STATEMENTS OF INCOME
STRATEGIC PLAN BASE CASE
(DOLLARS IN THOUSANDS)
FORECASTED ON 10 NOV 1993 08:04
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<C> <C> <C> <C> <C>
Operating income (loss):
Natural gas pipelines $ 70,886 $ 51,562 $ 62,364 $ 66,369 $ 69,620
Natural gas liquids 37,243 41,828 41,947 43,069 42,467
Allocated expenses (17,540) (19,238) (20,047) (20,878) (21,740)
Amortization of FMV write-up (6,757) (6,765) (6,765) (6,523) (6,966)
-------- -------- -------- -------- --------
Total 83,832 67,387 77,500 82,307 83,381
-------- -------- -------- -------- --------
Interest and other income (expense):
Gain or (loss) on disposition -- -- 9,300 -- --
Interest income 784 726 857 884 1,022
Other income (expense) 432 19 -- -- --
-------- -------- -------- -------- --------
1,216 745 10,157 884 1,022
-------- -------- -------- -------- --------
Interest expense:
Incurred (55,244) (57,542) (56,227) (53,990) (50,749)
Capital lease with V.E.C. (12,803) (12,774) (12,779) (12,741) (12,486)
Capitalized 1,641 588 500 400 400
-------- -------- -------- -------- --------
(66,406) (69,728) (68,506) (66,331) (62,835)
-------- -------- -------- -------- --------
Net income (loss) $ 18,641 $ (1,596) $ 19,151 $ 16,860 $ 21,568
======== ======== ======== ======== ========
</TABLE>
<PAGE> 81
VALERO NATURAL GAS PARTNERS LP
CALCULATION OF OPERATING INCOME -- PIPELINE SEGMENT
Forecasted on 10 Nov. 1993 08:04
(Base Case, Dollars in Thousands)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Gas sales:
VTC sales volume 20,550 17,882 16,425 15,738 15,695
VTC sales margin 129.62cent 89.63cent 64.48cent 66.91cent 66.90cent
VTC gross profit $ 26,637 $ 16,028 $ 10,591 $ 10,530 $ 10,500
SMP sales volume 331,810 409,175 431,581 451,397 470,846
SMP sales margin 22.94cent 19.55cent 20.06cent 21.34cent 20.60cent
SMP gross profit $ 76,108 $ 80,013 $ 86,557 $ 91,824 $ 96,985
Other sales volume -- -- -- -- --
Other sales margin -- -- -- -- --
Other gross profit -- -- -- -- --
-------- -------- -------- -------- --------
Total gas sales volume $352,360 $427,057 $448,006 $467,135 $486,541
Total sales margin (cent/MCF) 29.16cent 22.49cent 21.68cent 21.91cent 22.09cent
Total gross profit $102,745 $ 96,041 $ 97,148 $102,354 $107,485
Transportation:
Total transportation volume 434,919 482,904 552,827 554,338 560,127
Total transportation fee (cent/MCF) 10.78cent 10.90cent 12.15cent 12.41cent 12.32cent
Total transportation revenue $ 46,864 $ 52,646 $ 67,154 $ 68,812 $ 69,005
Brokerage:
Brokerage sales volumes 51,076 -- -- -- --
Brokerage sales margin (cent/MCF) 3.16cent -- -- -- --
Brokerage sales profit $ 1,612 -- -- -- --
Miscellaneous revenues:
VTC $ 2,599 $ 2,900 $ 2,900 $ 2,900 $ 2,900
RGV -- -- -- -- --
Cost of service 6,303 -- -- -- --
SMP cost of service reduction (3,316) -- -- -- --
VTC transportation VHC 10,861 12,057 12,062 12,094 12,062
VTC transportation VHC gas systems -- -- -- -- --
VITCO transportation VHC -- -- -- -- --
Other 52 -- -- -- --
-------- -------- -------- -------- --------
Total miscellaneous revenues $ 16,499 $ 14,957 $ 14,962 $ 14,994 $ 14,962
-------- -------- -------- -------- --------
Total profit $167,720 $163,644 $179,264 $186,160 $191,452
O and G expense excluding OH & FMV
amortization $ 75,396 $ 89,735 $ 94,686 $ 96,905 $ 98,820
Depreciation expense excluding FMC
amortization $ 21,438 $ 22,347 $ 22,214 $ 22,616 $ 23,012
-------- -------- -------- -------- --------
Total pipeline segment operating income
before FMV amortization & allocation
expense $ 70,886 $ 51,562 $ 62,364 $ 66,639 $ 69,620
======== ======== ======== ======== ========
</TABLE>
<PAGE> 82
VALERO NATURAL GAS PARTNERS LP
CALCULATION OF OPERATING INCOME -- PIPELINE SEGMENT
FORECASTED ON 10 NOV 1993 08:04
(BASE CASE; DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total pipeline segment operating
income before FMV amortization and
allocation expense $ 70,886 $ 51,562 $ 62,364 $ 66,639 $ 69,620
Less:
FMV amortization O and G expense -- -- -- -- --
FMV amortization depreciation expense (6,948) (6,966) (6,966) (6,966) (6,966)
Pipeline segment allocation expenses (13,809) (15,175) (15,816) (16,473) (17,156)
-------- -------- -------- -------- --------
Total pipeline segment reported
operating income $ 50,129 $ 29,421 $ 39,582 $ 43,200 $ 45,498
======== ======== ======== ======== ========
</TABLE>
<PAGE> 83
VALERO NATURAL GAS PARTNER LP
CALCULATION OF OPERATING INCOME -- LIQUIDS SEGMENT
FORECASTED ON 10 NOV 1993 08:04
(BASE CASE; DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Base gross margin $72,881 $79,823 $79,242 $78,949 $78,994
------- ------- ------- ------- -------
Gross margin changes:
Gross change C2 -- -- 3,395 5,230 6,147
Gross change C3 -- -- 1,354 2,830 3,568
Gross change IC4 -- -- 477 866 1,118
Gross change NC4 -- -- 371 839 1,073
Gross change C5 plus -- -- 115 273 431
Gross change gas cost -- -- (4,625) (6,430) (8,234)
INC margins new plants -- -- -- -- --
Change trading profits -- -- -- -- --
------- ------- ------- ------- -------
Gross margin changes -- -- 1,088 3,608 4,103
------- ------- ------- ------- -------
Adjusted gross margin 72,881 79,823 80,330 82,557 83,097
------- ------- ------- ------- -------
OP and GEN expenses 27,424 29,096 29,409 30,258 31,137
Depreciation expense 8,214 8,899 8,974 9,230 9,493
------- ------- ------- ------- -------
Tot NGL operating income before FMV
amortization and corporate overhead $37,243 $41,828 $41,947 $43,069 42,467
------- ------- ------- ------- -------
Less:
FMV amortization O and G expense -- -- -- -- --
FMV amortization depreciation expense $ 191 $ 201 $ 201 $ 443 --
NGL allocated expenses $(3,731) $(4,063) $(4,231) $(4,405) $(4,584)
------- ------- ------- ------- -------
Reported NGL operating income $33,703 $37,966 $37,917 $39,107 37,883
======= ======= ======= ======= =======
Base vs. Forecast
- -----------------
Avg Hou price C2 base 21.87cent 22.25cent 23.01cent 23.01cent 23.01cent
Avg Hou price C2 frcst 21.87cent 22.25cent 24.34cent 25.06cent 25.42cent
------- ------- ------- ------- -------
Avg Hou price C3 base 32.34cent 32.58cent 33.58cent 33.58cent 33.58cent
Avg Hou price C3 frcst 32.34cent 32.58cent 34.50cent 35.50cent 36.00cent
------- ------- ------- ------- -------
Avg Hou price IC4 base 41.43cent 43.06cent 44.06cent 44.06cent 44.06cent
Avg Hou price IC4 frcst 41.43cent 43.06cent 45.50cent 46.67cent 47.43cent
------- ------- ------- ------- -------
Avg Hou price NC4 base 37.79cent 38.71cent 39.71cent 39.71cent 39.71cent
Avg Hou price NC4 frcst 37.79cent 38.71cent 40.50cent 41.50cent 42.00cent
------- ------- ------- ------- -------
Avg Hou price C5 plus base 42.24cent 43.82cent 44.82cent 44.82cent 44.82cent
Avg Hou price C5 plus frcst 42.24cent 43.82cent 45.00cent 45.25cent 45.50cent
------- ------- ------- ------- -------
Gas cost base $ 1.98 $ 2.06 $ 2.06 $ 2.06 $ 2.06
Gas cost frcst $ 1.98 $ 2.06 $ 2.16 $ 2.20 $ 2.24
------- ------- ------- ------- -------
</TABLE>
<PAGE> 84
VALERO NATURAL GAS PARTNER LP
LIQUIDS SEGMENT
CALCULATION OF OPERATING INCOME
FORECASTED ON 10 NOV 1993 08:04
(BASE CASE; DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
New plant margin gallon -- -- -- -- --
New plant prod volumes -- -- -- -- --
Gross production 1,061,761 1,164,642 1,173,249 1,173,249 1,173,249
Gas sales volume -- -- -- -- --
Gas sales margin -- -- -- -- --
</TABLE>
<PAGE> 85
VALERO NATURAL GAS PARTNERS, L.P.
EBITDA RESULTS / PROJECTIONS
<TABLE>
<CAPTION>
Actuals 11/10/93 10/1/92 8/15/91
-------- -------- ------- -------
<S> <C> <C> <C> <C>
1989 $106.479
1990 143.323
1991 139.065 $119.623
1992 124.245 $131.798 114.678
1993 $120.241 124.39 120.845
1994 105.398 132.656 124.267
1995 115.453 139.041 130.843
1996 120.676 147.664
1997 122.852
</TABLE>
<PAGE> 86
VALERO NATURAL GAS PARTNERS, L.P.
CFFO RESULTS / PROJECTIONS
<TABLE>
<CAPTION>
Actuals 11/10/93 10/1/92 8/15/91
------- -------- ------- -------
<S> <C> <C> <C> <C>
1989 $54.179
1990 92.999
1991 79.342 $57.501
1992 62.910 $70.453 45.222
1993 $57.559 59.063 50.451
1994 38.748 67.518 53.510
1995 49.595 76.254 62.389
1996 56.965 88.631
1997 62.512
</TABLE>
<PAGE> 87
VALERO NATURAL GAS PARTNERS, L.P.
NET INCOME RESULTS / PROJECTIONS
<TABLE>
<CAPTION>
Actuals 11/10/93 10/1/92 8/15/91
------- -------- ------- -------
<S> <C> <C> <C> <C>
1989 $13.306
1990 50.714
1991 37.036 $15.222
1992 24.986 $32.302 3.140
1993 $18.641 20.324 8.757
1994 -1.596 28.337 12.025
1995 19.151 37.374 20.655
1996 16.860 49.322
1997 21.568
</TABLE>
<PAGE> 88
VALERO NATURAL GAS PARTNERS, L.P.
LIQUIDS: OP. INCOME RESULTS / PROJECTIONS
<TABLE>
<CAPTION>
Actuals 11/10/93 10/1/92 8/15/91
------- -------- ------- -------
($ millions)
<S> <C> <C> <C> <C>
1989 $ 3.818
1990 54.210
1991 62.694 $50.398
1992 57.357 $68.849 45.398
1993 $33.703 67.695 45.935
1994 37.966 72.041 45.458
1995 37.917 78.881 51.565
1996 39.107 86.982
1997 37.883
</TABLE>
<PAGE> 89
VALERO NATURAL GAS PARTNERS, L.P.
NGL PRODUCTION RESULTS / PROJECTIONS
<TABLE>
<CAPTION>
Actuals 11/10/93 10/1/92 8/15/91
------- -------- ------- -------
(millions of gallons)
<S> <C> <C> <C> <C>
1989 669.3
1990 702.3
1991 773.7 764.522
1992 879.6 891.317 863.773
1993 1,061.8 1,162.135 875.209
1994 1,164.7 1,162.135 875.209
1995 1,173.2 1,162.135 875.209
1996 1,173.3 1,162.135
1997 1,173.2
</TABLE>
<PAGE> 90
VALERO NATURAL GAS PARTNERS, L.P.
ACTUAL/PROJECTED NGL MARKET PRICES
<TABLE>
<CAPTION>
Actuals 11/10/93 10/1/92 8/15/91
------- -------- ------- -------
(cents/gallon)
<S> <C> <C> <C> <C>
1989 22.9
1990 33
1991 32.6 27.173
1992 31.4 31.549 28.251
1993 29.846 31.871 28.991
1994 30.454 33.08 30.2
1995 32.388 35.282 32.823
1996 33.054 37.828
1997 33.611
</TABLE>
<PAGE> 91
VALERO NATURAL GAS PARTNERS, L.P.
ACTUAL/PROJECTED NGL GROSS MARGIN
<TABLE>
<CAPTION>
Actuals 11/10/93 10/1/92 8/15/91
------- -------- ------- -------
(cents/gallon)
<S> <C> <C> <C> <C>
1989 7.8
1990 15
1991 14.1 11.6
1992 11.4 11.5 10
1993 6.9 9.1 10.2
1994 6.9 9.6 10.3
1995 6.9 10.2 11.2
1996 7 11
1997 7.1
</TABLE>
<PAGE> 92
VALERO NATURAL GAS PARTNERS, L.P.
PIPELINE: OP. INCOME RESULTS/PROJECTIONS
<TABLE>
<CAPTION>
Actuals 11/10/93 10/1/92 8/15/91
------- -------- ------- -------
($ millions)
<S> <C> <C> <C> <C>
1989 $64.437
1990 51.021
1991 37.14 $28.838
1992 32.484 $28.056 29.898
1993 $50.129 19.963 35.424
1994 29.421 23.164 38.708
1995 39.582 22.68 38.542
1996 43.2 22.656
1997 45.498
</TABLE>
<PAGE> 93
VALERO NATURAL GAS PARTNERS, L.P.
TOTAL THROUGHPUT PROJECTIONS*
<TABLE>
<CAPTION>
Actuals 11/10/93 10/1/92 8/15/91
------- -------- ------- -------
(mmcf/day)
<S> <C> <C> <C> <C>
1989 2,141
1990 2,051
1991 2,143 2,011
1992 2,190 1,913 2,268
1993 2,297 2,552 2,464
1994 2,493 2,659 2,506
1995 2,742 2,758 2,540
1996 2,791 2,844
1997 2,868
</TABLE>
* Intersegment eliminations have not been eliminated.
<PAGE> 94
VALERO NATURAL GAS PARTNERS, L.P.
ACTUAL/PROJECTED TRANSPORTATION FEES
<TABLE>
<CAPTION>
Actuals 11/10/93 10/1/92 8/15/91
------- -------- ------- -------
(cents/mcf)
<S> <C> <C> <C> <C>
1989 13.7
1990 14.8
1991 13.5 13.13
1992 11.8 11.66 11.25
1993 10.78 10.32 11.82
1994 10.9 10.41 12.77
1995 12.15 10.6 13.73
1996 12.41 10.47
1997 12.32
</TABLE>
<PAGE> 95
Dillon, Read & Co. Inc. December 10, 1993
- -----------------------------------------------------------------------------
VLP OPERATING STATISTICS
- -----------------------------------------------------------------------------
Valero Natural Gas Company
<PAGE> 96
VALERO NATURAL GAS PARTNERS, L.P.
OPERATING RESULTS/PROJECTIONS: 1988-1994
<TABLE>
<CAPTION>
EBITDA EBIT Net Income CFFO
------ ---- ---------- ----
<S> <C> <C> <C> <C>
1988A $108.544 $ 71.04 $20.765 $64.03
1989A 106.479 68.255 13.306 54.179
1990A 143.323 105.231 50.714 92.999
1991A 139.065 99.834 37.036 79.342
1992A 124.245 89.841 24.986 62.91
1993E 126.997 83.832 18.641 57.559
1994E 112.163 67.387 -1.596 38.748
</TABLE>
<PAGE> 97
VALERO NATURAL GAS PARTNERS, L.P.
LIQUIDS SEGMENT: NGL VOLUMES
<TABLE>
<CAPTION>
Plant Production
----------------
<S> <C>
1988A 17.118
1989A 15.935
1990A 16.722
1991A 18.422
1992A 20.942
1993E 25.28
1994E 27.73
</TABLE>
<PAGE> 98
VALERO NATURAL GAS PARTNERS, L.P.
LIQUIDS SEGMENT: NGL PRICES
<TABLE>
<CAPTION>
Avg Sales Price Avg Gas Cost Gross Margin
--------------- ------------ ------------
(prices per gallon)
<S> <C> <C> <C>
1988A 0.226 0.149 0.077
1989A 0.229 0.151 0.078
1990A 0.33 0.18 0.15
1991A 0.326 0.185 0.141
1992A 0.314 0.2 0.114
1993E 0.298 0.216 0.082
1994E 0.305 0.217 0.098
</TABLE>
<PAGE> 99
VALERO NATURAL GAS PARTNERS, L.P.
PIPELINE SEGMENT: THROUGHPUT VOLUMES
<TABLE>
<CAPTION>
VTC Sales Other Sales Transportation Total*
--------- ----------- -------------- ------
(mmcf/day)
<S> <C> <C> <C> <C>
1988A 109 864 1,138 2111
1989A 107 809 1,225 2141
1990A 101 835 1,115 2051
1991A 103 908 1,132 2143
1992A 78 811 1,301 2190
1993E 56 1,049 1,192 2297
1994E 49 1,121 1,323 2493
</TABLE>
* Intersegment eliminations have not been eliminated.
<PAGE> 100
VALERO NATURAL GAS PARTNERS, L.P.
PIPELINE SEGMENT: NATURAL GAS SALES
<TABLE>
<CAPTION>
VTC Other Sales Average Sales Average Gas Cost
--- ----------- ------------- ----------------
(prices per mcf)
<S> <C> <C> <C> <C>
1988A $4.33 $1.8 $2.09 $1.54
1989A 4.41 1.86 2.16 1.56
1990A 4.43 1.8 2.08 1.57
1991A 4.57 1.62 1.92 1.42
1992A 4.71 1.86 2.11 1.61
1993E 4.85 2.19 2.24 1.98
1994E 4.92 2.25 2.28 2.06
</TABLE>
<PAGE> 101
Dillon, Read & Co. Inc. December 10, 1993
- -------------------------------------------------------------------------------
STOCK PRICE PERFORMANCE OF PEER GROUP
- -------------------------------------------------------------------------------
Valero Natural Gas Company
<PAGE> 102
VALERO NATURAL GAS PARTNERS, L.P.
STOCK PRICES PERFORMANCE
For the Period: 10/23/92 - 12/08/93
<TABLE>
<CAPTION>
VLP S&P 400 Peers* Industry** MLPs***
-------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
10/23/92 1 1 1 1 1
11/10/92 0.936709 1.023996 1.059192 1.04856 0.969542
11/26/92 0.911392 1.026213 0.931244 0.94548 0.934043
12/14/92 0.860759 1.052426 0.985861 0.984951 0.943515
12/30/92 0.822785 1.073748 0.959993 0.958114 0.923006
01/15/93 0.873418 1.054969 0.942104 0.946829 0.944563
02/02/93 0.873418 1.052491 0.90133 0.91536 0.982783
02/18/93 0.848101 1.072966 0.984862 0.996892 0.993642
03/08/93 0.860759 1.059207 1.078251 1.093568 1.028676
03/24/93 0.873418 1.084703 1.130838 1.148871 1.032327
04/09/93 0.848101 1.080203 1.246076 1.259517 1.03453
04/27/93 0.810127 1.060968 1.217648 1.270559 1.071762
05/13/93 0.860759 1.062141 1.188398 1.27754 1.017296
05/31/93 0.810127 1.08868 1.201912 1.309643 1.00997
06/16/93 0.822785 1.081377 1.283488 1.395191 1.016276
07/02/93 0.835443 1.058751 1.264418 1.428642 1.023958
07/20/93 0.835443 1.063054 1.300116 1.477261 1.038015
08/05/93 0.835443 1.060576 1.26581 1.411721 1.033891
08/23/93 0.911392 1.056599 1.308966 1.500397 1.053279
09/08/93 0.936709 1.091158 1.47332 1.707904 1.075232
09/24/93 0.898734 1.084181 1.414353 1.671953 1.081458
10/12/93 0.936709 1.084116 1.536779 1.760843 1.100873
10/28/93 1.101266 1.108829 1.462285 1.69714 1.142811
11/15/93 1.101266 1.101461 1.175143 1.463409 1.101997
12/01/93 1.101266 1.112415 0.914725 1.242504 1.109423
</TABLE>
* Companies included are AQP, NGA, NGL, and WGR.
** Companies included are AOG, AQP, NGA, TEJ, TPC, NGL, DGP, and WGR.
*** MLPs included are BPL, ENP, KPP, LHP, SFL, and TPP.
<PAGE> 103
VALERO NATURAL GAS PARTNERS, L.P.
STOCK PRICE PERFORMANCE
For the Period: 10/12/90 - 12/08/93
<TABLE>
<CAPTION>
VLP S&P 400 Peers * Industry ** MLPs ***
--- ------- ------- ----------- --------
<S> <C> <C> <C> <C> <C>
10/12/90 1 1 1 1 1
11/28/90 0.969466 1.060628 1.033436 0.98739 1.069781
01/14/91 0.877863 1.042937 0.892214 0.851806 1.050462
02/28/91 0.908397 1.237443 0.979673 0.97413 1.184152
04/16/91 0.916031 1.308205 1.146117 1.053174 1.191095
05/31/91 0.664122 1.322695 1.119215 1.056128 1.20906
07/17/91 0.70229 1.293448 1.072506 0.985771 1.181802
09/02/91 0.725191 1.338608 1.249605 1.113483 1.243743
10/17/91 0.732824 1.320384 1.299455 1.162923 1.358097
12/03/91 0.671756 1.277358 1.285463 1.147021 1.283528
01/17/92 0.633588 1.417104 1.296832 1.159647 1.252117
03/04/92 0.59542 1.385901 1.06284 1.024348 1.245208
04/20/92 0.564885 1.386968 1.029366 0.975812 1.263904
06/04/92 0.519084 1.392657 1.268932 1.201403 1.309685
07/21/92 0.48855 1.381456 1.341882 1.247678 1.365571
09/04/92 0.534351 1.396746 1.594871 1.452554 1.397206
10/21/92 0.572519 1.385812 1.699551 1.491976 1.436755
12/07/92 0.519084 1.453285 1.610238 1.438518 1.364123
01/21/93 0.503817 1.432572 1.492016 1.342056 1.402197
03/09/93 0.519084 1.487066 1.888595 1.687994 1.496106
04/23/93 0.496183 1.419415 1.873314 1.726266 1.531586
06/09/93 0.480916 1.465019 2.068359 2.020038 1.472424
07/26/93 0.503817 1.449018 2.077981 2.057571 1.508866
09/09/93 0.564885 1.465464 2.411254 2.467116 1.561498
10/25/93 0.656489 1.509912 1.935552 2.177457 1.641056
</TABLE>
* Companies included are AQP, NGA, NGL, and WGR.
** Companies included are AOG, AQP, NGA, TEJ, TPC, NGL, DGP, and WGR.
*** MLPs included are BPL, ENP, KPP, LHP, SFL, and TPP.
<PAGE> 104
VALERO NATURAL GAS PARTNERS, L.P.
STOCK PRICE PERFORMANCE
For the Period: 9/30/88 - 12/08/93
<TABLE>
<CAPTION>
VLP S&P 400 Peers * Industry ** MLPs ***
--- ------- ------- ----------- --------
<S> <C> <C> <C> <C> <C>
09/30/88 1 1 1 1 1
12/16/88 0.890511 1.022561 1.0875 0.970093 0.986552
03/03/89 1.080292 1.079214 0.9625 1.116814 1.101541
05/19/89 1.080292 1.183195 1.3875 1.381779 1.070939
08/04/89 1.080292 1.261406 1.8 1.679114 1.158955
10/20/89 0.970803 1.271633 1.65 1.58475 1.115134
01/05/90 1.021898 1.296902 1.538926 1.701113 1.227915
03/23/90 0.89781 1.25569 1.343305 1.515271 1.100374
06/08/90 0.839416 1.339416 1.51845 1.653577 1.059441
08/24/90 0.963504 1.183195 1.678329 1.84673 1.07633
11/09/90 0.970803 1.177981 1.814385 1.968865 1.02305
01/25/91 0.927007 1.272536 1.455402 1.549658 1.0666
04/12/91 0.868613 1.447508 1.923598 1.928409 1.143876
06/28/91 0.635036 1.41843 1.664228 1.735987 1.174892
09/13/91 0.671533 1.458839 2.06927 2.044154 1.280516
11/29/91 0.635036 1.419533 2.172711 2.142627 1.286218
02/14/92 0.576642 1.575454 2.029547 2.065627 1.229072
05/01/92 0.525547 1.569437 1.925941 1.975822 1.253995
07/17/92 0.467153 1.56673 2.296608 2.332987 1.354395
10/02/92 0.489051 1.542866 2.891619 2.814437 1.42303
12/18/92 0.481752 1.654868 2.728085 2.656323 1.330492
03/05/93 0.49635 1.646947 3.194961 3.133054 1.486856
05/21/93 0.467153 1.656874 3.349397 3.550843 1.4617
08/06/93 0.540146 1.628296 3.567015 3.997985 1.509272
10/22/93 0.627737 1.696681 3.404723 4.139219 1.648601
</TABLE>
* Companies included are AQP, NGA, NGL, and WGR.
** Companies included are AOG, AQP, NGA, TEJ, TPC, NGL, DGP, and WGR.
*** MLPs included are BPL, ENP, KPP, LHP, SFL, and TPP.
<PAGE> 105
VALERO NATURAL GAS PARTNERS, L.P.
STOCK PRICE PERFORMANCE
For the Period: 3/18/87 - 12/08/93
<TABLE>
<CAPTION>
VLP S&P 400 Industry * MLPs **
--- ------- ---------- -------
<S> <C> <C> <C> <C>
03/18/87 1 1 1 1
06/25/87 0.978022 1.067797 1.263158 0.945355
10/02/87 1.131868 1.142205 1.438596 1.076503
01/11/88 0.901099 0.852486 0.947368 0.928962
04/19/88 0.862637 0.895511 0.964912 0.961749
07/27/88 0.807692 0.903427 1.122807 0.918033
11/03/88 0.71978 0.958093 1.107738 0.934426
02/10/89 0.774725 1.005029 1.220818 0.98282
05/22/89 0.802198 1.099925 1.687633 0.963032
08/29/89 0.78022 1.195195 1.932749 1.038251
12/06/89 0.675824 1.18821 2.065725 1.042762
03/15/90 0.686813 1.165953 1.881918 1.010886
06/22/90 0.637363 1.242969 1.910756 0.982835
10/01/90 0.708791 1.104209 2.378487 0.983344
01/08/91 0.642857 1.100112 1.950587 0.952459
04/17/91 0.653846 1.380145 2.37566 1.078573
07/25/91 0.532967 1.352952 2.223315 1.077275
11/01/91 0.56044 1.37521 2.562297 1.192186
02/10/92 0.43956 1.467685 2.417933 1.119252
05/19/92 0.379121 1.465543 2.349315 1.154066
08/26/92 0.357143 1.448314 3.000706 1.262025
12/03/92 0.373626 1.503073 3.152851 1.230044
03/12/93 0.368132 1.54228 3.69734 1.349789
06/21/93 0.340659 1.527752 4.485644 1.33075
09/28/93 0.395604 1.546843 5.52025 1.41375
</TABLE>
* Companies included are AOG, AQP, NGA, TEJ, TPC, NGL, DGP, and WGR.
** MLPs included are BPL, ENP, KPP, LHP, SFL, and TPP.
<PAGE> 106
VALERO NATURAL GAS PARTNERS, L.P.
ANALYSIS OF HISTORICAL P/E RATIOS
<TABLE>
<CAPTION>
VLP AOG NGA TEJ TPC WGR
--- --- --- --- --- ---
(price/LTM earnings per share)
<S> <C> <C> <C> <C> <C> <C>
12/90 5.5 21.6 15.8
3/91 5.5 21.5 24 21.4
6/91 4 12.9 20.7 21.7
9/91 5.7 17.8 29.9 22.1 15.4
12/91 4.9 15.3 37.7 17.1 21.1
3/92 5.5 16.2 30.2 20.8 16.5
6/92 4.6 15 28.6 21.6 30.4 18.2
9/92 4.2 20 31.2 22.1 29.6 23.8
12/92 6.5 17 24.7 19.3 28.2 18.2
3/93 6 19.8 25.6 27.8 26.3 23.6
6/93 5.7 24.3 23 37.4 28.4 23.5
9/93 9.8 33.2 23.7 42.2 32.3 31.8
</TABLE>
<PAGE> 107
Dillon Read & Co. Inc. December 10, 1993
- --------------------------------------------------------------------------------
HISTORICAL PRODUCT PRICE PERFORMANCE
- --------------------------------------------------------------------------------
Valero Natural Gas Company
<PAGE> 108
COMMODITY PRICE MOVEMENTS
FOR PERIOD: JULY, 1985 - OCTOBER, 1993
<TABLE>
<CAPTION>
West Texas
Intermediate
VLP Slate Crude Natural Gas
--------- ------------ -----------
<S> <C> <C> <C>
Jul-85 1 1 1
Nov-85 1.382694 1 0.845528
Mar-86 0.707553 0.669643 0.792683
Jul-86 0.619724 0.5 0.597561
Nov-86 0.658934 0.508929 0.577236
Mar-87 0.73037 0.625 0.605691
Jul-87 0.732703 0.660714 0.544715
Nov-87 0.707392 0.678571 0.581301
Mar-88 0.704875 0.571429 0.691057
Jul-88 0.666447 0.544643 0.565041
Nov-88 0.742609 0.455357 0.719512
Mar-89 0.695427 0.616071 0.565041
Jul-89 0.6156 0.696429 0.617886
Nov-89 0.61379 0.678571 0.666667
Mar-90 0.680832 0.75 0.577236
Jul-90 0.738747 0.580357 0.54878
Nov-90 1.506909 1.214286 0.784553
Mar-91 0.693992 0.633929 0.512195
Jul-91 0.914767 0.696429 0.434959
Nov-91 1.22383 0.776786 0.682927
Mar-92 0.88218 0.616071 0.47561
Jul-92 1.053504 0.75 0.577236
Nov-92 1.014443 0.705357 0.894309
Mar-93 1.014539 0.714286 0.747967
Jul-93 0.888488 0.642857 0.756098
</TABLE>
<PAGE> 109
COMMODITY PRICE MOVEMENTS
FOR PERIOD: JULY, 1985 - OCTOBER, 1993
<TABLE>
<CAPTION>
VLP Slate
---------
<S> <C>
Jul-85 33.8905
Nov-85 45.842
Mar-86 23.024
Jul-86 19.6215
Nov-86 20.963
Mar-87 24.596
Jul-87 25.3285
Nov-87 24.4025
Mar-88 23.593
Jul-88 21.4985
Nov-88 22.711
Mar-89 23.2365
Jul-89 21.096
Nov-89 21.076
Mar-90 23.7855
Jul-90 24.6215
Nov-90 48.696
Mar-91 24.352
Jul-91 30.383
Nov-91 38.879
Mar-92 28.8515
Jul-92 33.93
Nov-92 32.316
Mar-93 32.559
Jul-93 28.7535
</TABLE>
<PAGE> 110
COMMODITY PRICE MOVEMENTS
FOR PERIOD: JULY, 1985 - OCTOBER, 1993
<TABLE>
<CAPTION>
C2 C3 N-C4 I-C4 C5+
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Jul-85 21.5 34.25 47.25 52.75 59.5
Nov-85 31.25 46.25 67.5 73 69
Mar-86 16.25 25.5 28.75 32.5 33
Jul-86 15.5 20.25 23.25 28.75 25.25
Nov-86 17 19 26.5 29 32
Mar-87 16.25 23.25 38.25 40.75 40.5
Jul-87 15 25 37.5 45.25 44.5
Nov-87 14.25 25.25 38 41.25 41.5
Mar-88 15.5 24.25 33.5 36.75 38
Jul-88 16.75 19.5 25.75 30.75 35.5
Nov-88 21 19.5 24.75 26.75 33
Mar-89 16.25 21 26.75 35.75 44.5
Jul-89 13.25 20 26.5 34.75 41
Nov-89 12.75 21.25 29.75 34.25 38.25
Mar-90 13.5 23.75 31.25 46.75 42.5
Jul-90 16 27.25 31 37.5 38.5
Nov-90 36.75 47.75 63.75 65.25 76.5
Mar-91 13 27 32 40 46
Jul-91 20.5 31.5 40.25 45.75 49
Nov-91 29.75 43 46.5 49.25 52.25
Mar-92 20.75 29 36 44.5 44.25
Jul-92 25.75 33.75 40 52 49.25
Nov-92 25.25 32.75 40 42.5 46.75
Mar-93 24.5 34.25 41 45.25 45.5
Jul-93 20.75 31.5 36.5 39.5 40.75
</TABLE>
<PAGE> 111
COMMODITY PRICE MOVEMENTS
FOR PERIOD: JULY, 1985 - OCTOBER, 1993
<TABLE>
<CAPTION>
C2 C3 N-C4 I-C4 C5+
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Jul-85 1 1 1 1 1
Nov-85 1.453488 1.350365 1.428571 1.383886 1.159664
Mar-86 0.755814 0.744526 0.608466 0.616114 0.554622
Jul-86 0.72093 0.591241 0.492063 0.545024 0.42437
Nov-86 0.790698 0.554745 0.560847 0.549763 0.537815
Mar-87 0.755814 0.678832 0.809524 0.772512 0.680672
Jul-87 0.697674 0.729927 0.793651 0.85782 0.747899
Nov-87 0.662791 0.737226 0.804233 0.781991 0.697479
Mar-88 0.72093 0.708029 0.708995 0.696682 0.638655
Jul-88 0.77907 0.569343 0.544974 0.582938 0.596639
Nov-88 0.976744 0.569343 0.52381 0.507109 0.554622
Mar-89 0.755814 0.613139 0.566138 0.677725 0.747899
Jul-89 0.616279 0.583942 0.560847 0.658768 0.689076
Nov-89 0.593023 0.620438 0.62963 0.649289 0.642857
Mar-90 0.627907 0.693431 0.661376 0.886256 0.714286
Jul-90 0.744186 0.79562 0.656085 0.7109 0.647059
Nov-90 1.709302 1.394161 1.349206 1.236967 1.285714
Mar-91 0.604651 0.788321 0.677249 0.758294 0.773109
Jul-91 0.953488 0.919708 0.851852 0.867299 0.823529
Nov-91 1.383721 1.255474 0.984127 0.933649 0.878151
Mar-92 0.965116 0.846715 0.761905 0.843602 0.743697
Jul-92 1.197674 0.985401 0.846561 0.985782 0.827731
Nov-92 1.174419 0.956204 0.846561 0.805687 0.785714
Mar-93 1.139535 1 0.867725 0.85782 0.764706
Jul-93 0.965116 0.919708 0.772487 0.748815 0.684874
</TABLE>
<PAGE> 112
Dillon, Read & Co. Inc. December 3, 1993
- ------------------------------------------------------------
SUMMARY FINANCIAL IMPACT ON VLO
- ------------------------------------------------------------
Valero Natural Gas Company
<PAGE> 113
Dillon, Read & Co. Inc. 12/10/93
- ---------------------------------------------------------------------
Valero Natural Gas Partners, L.P.
Merger Effects on Valero Energy (a)
<TABLE>
<CAPTION>
VEC VLP Adjustments Pro Forma
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Balance Sheet:
- --------------
Cash and Equivalents 39.783 20.571 0.000 60.354
Other Current Assets 295.734 194.605 (51.957) 438.382
--------- --------- -------- ---------
Total Current Assets 335.517 215.176 (51.957) 498.736
Net Property, Plant & Equipment 1,258,348 741.472 9.935 2,009.755
Investment in VLP 26.555 0.000 (26.555) 0.000
Investment in Leases 105.439 0.000 (105.439) 0.000
Other Investments 28.438 0.000 0.000 28.438
Other Assets 65.043 79.834 (25.277) 119.600
--------- --------- -------- ---------
L-T Assets 1,483.823 821.306 (147.336) 2,157.793
--------- --------- -------- ---------
Total Assets 1,819.340 1,036.482 (199.293) 2,656.529
========= ========= ======== =========
Short-Term Debt 10.000 9.000 0.000 19.000
Current Maturities of L-T Debt 16.452 28.885 0.000 45.337
Current Lease Payments 0.000 0.000 0.000 0.000
Other Current Liabilities 145.247 219.573 (52.910) 311.910
--------- --------- -------- ---------
Total Current Liabilities 171.699 257.458 (52.910) 376.247
Deferred Income Taxes 251.074 0.000 0.000 251.074
Other Deferred Credits 39.043 4.105 9.901 53.049
--------- --------- -------- ---------
Other Liabilities 290.117 4.105 9.901 304.123
Long-Term Debt 488.406 506.429 (9.669) 985.166
Capital Lease Obligations 0.000 103.832 (103.832) 0.000
Redeemable Preferred Stock 13.800 0.000 0.000 13.800
Non-Redeemable Preferred Stock 0.000 0.000 121.875 121.875
Common Equity 855.318 164.658 (164.658) 855.318
--------- --------- -------- ---------
Total L-T Capitalization 1,357.524 774.919 (156.284) 1,976.159
--------- --------- -------- ---------
Total Liabilities & Equity 1,819.340 1,036.482 (199.293) 2,656.529
========= ========= ======== =========
Total Debt (b) 528.658 648.146 1,063.303
Tot. Debt / Tot. L-T Cap. + S-T Debt 38.2% 79.7% 52.1%
EBITDA / Interest Incurred 4.1x 1.8x 3.0x
CFFO / Interest Incurred 3.2x 0.9x 1.9x
CFFO / Total Debt 23.0% 7.0% 14.2%
</TABLE>
- ---------------------
(a) Assumes a price per share of $11.00.
(b) Total Debt includes all debt, capital leases and redeemable preferred
stock.
<PAGE> 114
Dillon, Read & Co. Inc. 12/10/93
- ---------------------------------------------------------------------
Valero Natural Gas Partners, L.P.
Merger Effects on Valero Energy (a)
<TABLE>
<CAPTION>
Nine Months Ended 9/30/93
-----------------------------------------------
VEC VLP Adjustments Pro Forma
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Income Statement:
- -----------------
Operating Revenues 940.223 994.636 (213.914) 1,720.945
Equity Investments 20.528 0.000 (20.528) 0.000
------- ------- -------- ---------
Total Revenues 960.751 994.636 (234.442) 1,720.945
Cost of Goods Sold 712.481 811.603 (156.510) 1,367.574
Operating Expenses 92.649 90.788 (62.228) 121.209
General & Administrative Expenses 0.000 0.000 0.000 0.000
------- ------- -------- ---------
Operating Cash Flow/EBITDA 155.621 92.245 (15.704) 232.162
Depreciation & Amortization 41.859 27.190 (0.742) 68.307
------- ------- ------- ---------
Operating Income/EBIT 113.762 65.055 (14.962) 163.855
Other Income 0.000 1.029 0.000 1.029
Extraordinary Gains / (Losses) 7.245 0.000 0.220 7.465
Capital Lease Interest Incurred 0.000 (9.629) 9.629 0.000
Other Interest Incurred(b) (37.640) (41.208) 0.369 (78.479)
Interest Capitalized 11.915 1.206 0.000 13.121
------- ------- ------- -------
Income Before Taxes 95.282 16.453 (4.744) 106.991
Income Tax Expense(c) 43.700 0.000 4.100 47.800
------- ------- ------- -------
Net Income 51.582 16.453 (8.845) 59.190
Preferred Dividends 0.953 0.000 6.094 7.047
------- ------- ------- -------
Net Income to Common 50.629 16.453 (14.938) 52.144
Earnings Per Share $1.18 $0.86 $1.21
Weighted Average # of Shares 43.074 19.052 43.074
Cash Flow Statement:
- --------------------
Net Income 50.629 16.453 (14.938) 52.144
Depreciation and Amortization 41.859 27.190 (0.742) 68.307
Deferred Income Taxes 26.600 0.000 0.000 26.600
Amortization of Deferred Charges 16.735 1.953 0.000 18.688
Net (Gains) / Losses (7.842) 0.000 (0.220) (8.062)
Other Items (6.478) 0.000 0.000 (6.478)
------- ------- ------- -------
Cash Flow From Operations/CFFO 121.503 45.596 (15.900) 151.199
Changes in Current Assets & Liabilities (14.993) (7.481) 0.000 (22.474)
Changes in Other Assets & Liabilities (6.273) 7.079 0.000 0.806
------- ------- ------- -------
Cash Provided By Operations 100.237 45.194 (15.900) 129.531
CFFO Less Preferred Dividends 120.550 45.596 144.152
Cash Flow Per Share $2.80 $2.39 $3.35
</TABLE>
- --------------
(a) Assumes a price per share of $11.00.
(b) Assumes an effective interest rate of 5.1%.
(c) Assumes a tax rate of 35.0%.
<PAGE> 115
Dillon, Read & Co. Inc. 12/10/93
Valero Natural Gas Partners, L.P.
Merger Effects on Valero Energy(a)
<TABLE>
<CAPTION>
Nine Months Ended 9/30/93
-----------------------------------------------
VEC VLP Adjustments Pro Forma
------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Income Statement:
- -----------------
Operating Revenues 940.223 994.636 (213.914) 1,720.945
Equity Investments 20.528 0.000 (20.528) 0.000
------- ------- -------- ---------
Total Revenues 960.751 994.636 (234.442) 1,720.945
Cost of Goods Sold 712.481 811.603 (156.510) 1,367.574
Operating Expenses 92.649 90.788 (62.228) 121.209
General & Administrative Expenses 0.000 0.000 0.000 0.000
------- ------- -------- ---------
Operating Cash Flow/EBITDA 155.621 92.245 (15.704) 232.162
Depreciation & Amortization 41.859 27.190 (0.256) 68.793
------- ------- -------- ---------
Operating Income/EBIT 113.762 65.055 (15.448) 163.369
Other Income 0.000 1.029 0.000 1.029
Extraordinary Gains/(Loss) 7.245 0.000 0.220 7.465
Capital Lease Interest Incurred 0.000 (9.629) 9.629 0.000
Other Interest Incurred(b) (37.640) (41.208) (0.372) (79.220)
Interest Capitalized 11.915 1.206 0.000 13.121
------- ------- -------- ---------
Income Before Taxes 95.282 16.453 (5.971) 105.764
Income Tax Expense(c) 43.700 0.000 3.671 47.371
------- ------- -------- ---------
Net Income 51.582 16.453 (9.642) 58.393
Preferred Dividends 0.953 0.000 6.094 7.047
-------- ------- -------- ---------
Net Income to Common 50.629 16.453 (15.736) 51.346
Earnings Per Share $1.18 $0.86 $1.19
Weighted Average # of Shares 43.074 19.052 43.074
Cash Flow Statement:
- --------------------
Net Income 50.629 16.453 (15.736) 51.346
Depreciation and Amortization 41.859 27.190 (0.256) 68.793
Deferred Income Taxes 26.600 0.000 0.000 26.600
Amortization of Deferred Charges 16.735 1.953 0.000 18.688
Net (Gain)/Losses (7.842) 0.000 (0.220) (8.062)
Other Items (6.478) 0.000 0.000 (6.478)
------- ------- -------- ----------
Cash Flow From Operation/CFFO 121.503 45.596 (16.212) 150.887
Changes in Current Assets & Liabilities (14.993) (7.481) 0.000 (22.474)
Changes in Other Assets & Liabilities (6.273) 7.079 0.000 0.806
------- ------- -------- ---------
Cash Provided By Operations 100.237 45.194 (16.212) 129.219
CFFO Less Preferred Dividends 120.550 45.596 143.840
Cash Flow Per Share $2.80 $2.39 $3.34
</TABLE>
- ---------------
(a) Assumes a price per share of $13.00.
(b) Assumes an effective interest rate of 5.1%.
(c) Assumes a tax rate of 35.0%.
<PAGE> 116
Dillon, Read & Co. Inc. 12/10/93
- ------------------------------------------------------------------------
Valero Natural Gas Partners, L.P.
Merger Effects on Valero Energy(a)
<TABLE>
<CAPTION>
VEC VLP Adjustments Pro Forma
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Balance Sheet:
Cash and Equivalents 39.783 20.571 0.000 60.354
Other Current Assets 295.734 194.605 (51.957) 438.382
--------- --------- --------- ---------
Total Current Assets 335.517 215.176 (51.957) 498.736
Net Property, Plant & Equipment 1,258.348 741.472 9.935 2,009.775
Investment in VLP 26.555 0.000 (26.555) 0.000
Investment in Leases 105.439 0.000 (105.439) 0.000
Other Investments 28.438 0.000 0.000 28.438
Other Assets 65.043 79.834 (5.853) 139.024
--------- --------- -------- ---------
L-T Assets 1,483.823 821.306 (127.912) 2,177.217
--------- --------- -------- ---------
Total Assets 1,819.340 1,036.482 (179.869) 2,675.953
========= ========= ======== =========
Short-Term Debt 10.000 9.000 0.000 19.000
Current Maturities of L-T Debt 16.452 28.885 0.000 45.337
Current Lease Payments 0.000 0.000 0.000 0.000
Other Current Liabilities 145.247 219.573 (52.910) 311.910
--------- --------- -------- ---------
Total Current Liabilities 171.699 257.458 (52.910) 376.247
Deferred Income Taxes 251.074 0.000 0.000 251.074
Other Deferred Credits 39.043 4.105 9.901 53.049
--------- --------- -------- ---------
Other Liabilities 290.117 4.105 9.901 304.123
Long-Term Debt 488.406 506.429 9.755 1,004,590
Capital Lease Obligations 0.000 103.832 (103.832) 0.000
Redeemable Preferred Stock 13.800 0.000 0.000 13.800
Non-Redeemable Preferred Stock 0.000 0.000 121.875 121.875
Common Equity 855.318 164.658 (164.658) 855.318
--------- --------- -------- ---------
Total L-T Capitalization 1,357.524 774.919 (136.860) 1,995.583
--------- --------- -------- ---------
Total Liabilities & Equity 1,819.340 1,036.482 (179.869) 2,675.953
========= ========= ======== =========
Total Debt(b) 528.658 648.146 1,082.727
Tot. Debt/Tot. L-T Cap.
+ S-T Debt 38.2% 79.7% 52.6%
EBITDA/Interest Incurred 4.1x 1.8x 2.9x
CFFO/Interest Incurred 3.2x 0.9x 1.9x
CFFO/Total Debt 23.0% 7.0% 13.9%
</TABLE>
- --------------
(a) Assumes a price per share of $13.00.
(b) Total Debt includes all debt, capital leases and redeemable preferred stock.
<PAGE> 117
Dillon, Read & Co. Inc. 12/10/93
Valero Natural Gas Partners, L.P.
Merger Effects on Valero Energy (a)
<TABLE>
<CAPTION>
VEC VLP Adjustments Pro Forma
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Balance Sheet:
- --------------
Cash and Equivalents 39.783 20.571 0.000 60.354
Other Current Assets 295.734 194.605 (51.957) 438.382
--------- --------- -------- ---------
Total Current Assets 335.517 215.176 (51.957) 498.736
Net Property, Plant & Equipment 1,258.348 741.472 9.935 2,009.755
Investment in VLP 26.555 0.000 (26.555) 0.000
Investment in Leases 105.439 0.000 (105.439) 0.000
Other Investments 28.438 0.000 0.000 28.438
Other Assets 65.043 79.834 11.143 156.020
--------- --------- -------- ---------
L-T Assets 1,483.823 821.306 (110.916) 2,194.213
--------- --------- -------- ---------
Total Assets 1,819,340 1,036,482 (162.873) 2,692,949
========= ========= ======== =========
Short-Term Debt 10.000 9.000 0.000 19.000
Current Maturities of L-T Debt 16.452 28.885 0.000 45.337
Current Lease Payments 0.000 0.000 0.000 0.000
Other Current Liabilities 145.247 219.573 (52.910) 311.910
--------- --------- -------- ---------
Total Current Liabilitie 171.699 257.458 (52.910) 376.247
Deferred Income Taxes 251.074 0.000 0.000 251.074
Other Deferred Credits 39.043 4.105 9.901 53.049
--------- ---------- -------- ---------
Other Liabilities 290.117 4.105 9.901 304.123
Long-Term Debt 488.406 506.429 26.751 1,021.586
Capital Lease Obligations 0.000 103.832 (103.832) 0.000
Redeemable Preferred Stock 13.800 0.000 0.000 13.800
Non-Redeemable Preferred Stock 0.000 0.000 121.875 121.875
Common Equity 855.318 164.658 (164.658) 855.318
--------- ---------- -------- ---------
Total L-T Capitalization 1,357.524 774.919 (119.864) 2,012.569
--------- --------- -------- ---------
Total Liabilities & Equity 1,819.340 1,036.482 (162.873) 2,692.579
========= ========= ======== =========
Total Debt(b) 528.658 648.146 1,099,723
Tot. Debt/Tot. L-T Cap. + S-T Debt 38.2% 79.7% 52.9%
EBITDA/Interest Incurred 4.1x 1.8x 2.9x
CFFO/Interest Incurred 3.2x 0.9x 1.9x
CFFO/Total Debt 23.0% 7.0% 13.7%
</TABLE>
- ---------------
(a) Assumes a price per share of $14.75.
(b) Total Debt includes all debt, capital leases and redeemable preferred
stock.
<PAGE> 118
Dillon, Read & Co. Inc. 12/10/93
- ---------------------------------------------------------------------
Valero Natural Gas Partners, L.P.
Merger Effects on Valero Energy (a)
<TABLE>
<CAPTION>
Nine Months Ended 9/30/93
-------------------------------------------------------
VEC VLP Adjustments Pro Forma
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Income Statement:
- -----------------
Operating Revenues 940.223 994.636 (213.914) 1,720.945
Equity Investments 20.528 0.000 (20.528) 0.000
------- ------- -------- ---------
Total Revenues 960.751 994.636 (234.442) 1,720.945
Cost of Goods Sold 712.481 811.603 (156.510) 1,367.574
Operating Expenses 92.649 90.788 (62.228) 121.209
General & Administrative Expenses 0.000 0.000 0.000 0.000
------- ------- -------- ---------
Operating Cash Flow/EBITDA 155.621 92.245 (15.704) 232.162
Depreciation & Amortization 41.859 27.190 0.169 69.218
------- ------- -------- ---------
Operating Income/EBIT 113.762 65.055 (15.873) 162.944
Other Income 0.000 1.029 0.000 1.029
Extraordinary Gains/(Loss) 7.245 0.000 0.220 7.465
Capital Lease Interest Incurred 0.000 (9.629) 9.629 0.000
Other Interest Incurred(b) (37.640) (41.208) (1.021) (79.869)
Interest Capitalized 11.915 1.206 0.000 13.121
------- ------- -------- ---------
Income Before Taxes 95.282 16.453 (7.045) 104.690
Income Tax Expense(c) 43.700 0.000 3.295 46.995
------- ------- -------- ---------
Net Income 51.582 16.453 (10.340) 57.695
Preferred Dividends 0.953 0.000 6.094 7.047
------- ------- -------- ---------
Net Income to Common 50.629 16.453 (16.433) 50.649
Earnings Per Share $1.18 $0.86 $1.18
Weighted Average # of Shares 43.074 19.052 43.074
Cash Flow Statement:
- --------------------
Net Income 50.629 16.453 (16.433) 50.649
Depreciation and Amortization 41.859 27.190 0.169 69.218
Deferred Income Taxes 26.600 0.000 0.000 26.600
Amortization of Deferred Charges 16.735 1.953 0.000 18.688
Net (Gains)/Losses (7.842) 0.000 (0.220) (8.062)
Other Items (6.478) 0.000 0.000 (6.478)
------- ------- -------- ---------
Cash Flow From Operations/CFFO 121.503 45.596 (16.485) 150.614
Changes in Current Assets & Liabilities (14.993) (7.481) 0.000 (22.474)
Changes in Other Assets & Liabilities (6.273) 7.079 0.000 0.806
------- ------- -------- ---------
Cash Provided By Operations 100.237 45.194 (16.485) 128.946
CFFO Less Preferred Dividends 120.550 45.596 143.568
Cash Flow Per Share $2.80 $2.39 $3.33
</TABLE>
- -----------------
(a) Assumes a price per share of $14.75.
(b) Assumes an effective interest rate of 5.1%.
(c) Assumes a tax rate of 35.0%.
<PAGE> 119
Dillon, Read & Co. Inc. 12/10/93
Valero Natural Gas Partners, L.P.
Merger Effects on Valero Energy(a)
<TABLE>
<CAPTION>
VEC VLP Adjustments Pro Forma
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Balance Sheet:
- --------------
Cash and Equivalents 39.783 20.571 0.000 60.354
Other Current Assets 295.734 194.605 (51.957) 438.382
--------- --------- -------- ---------
Total Current Assets 335.517 215.176 (51.957) 498.736
Net Property, Plant & Equipment 1,258.348 741.472 9.935 2,009.755
Investment in VLP 26.555 0.000 (26.555) 0.000
Investment in Leases 105.439 0.000 (105.439) 0.000
Other Investments 28.438 0.000 0.000 28.438
Other Assets 65.043 79.834 23.283 168.160
--------- --------- -------- ---------
L-T Assets 1,483.823 821.306 (98.776) 2,206.353
--------- --------- -------- ---------
Total Assets 1,819.340 1,036.482 (150.733) 2,705.089
========= ========= ======== =========
Short-Term Debt 10.000 9.000 0.000 19.000
Current Maturities of L-T Debt 16.452 28.885 0.000 45.337
Current Lease Payments 0.000 0.000 0.000 0.000
Other Current Liabilities 145.247 219.573 (52.910) 311.910
--------- --------- -------- ---------
Total Current Liabilities 171.699 257.458 (52.910) 376.247
Deferred Income Taxes 251.074 0.000 0.000 251.074
Other Deferred Credits 39.043 4.105 9.901 53.049
--------- --------- -------- ---------
Other Liabilities 290.117 4.105 9.901 304.123
Long-Term Debt 488.406 506.429 38.891 1,033.726
Capital Lease Obligations 0.000 103.832 (103.832) 0.000
Redeemable Preferred Stock 13.800 0.000 0.000 13.800
Non-Redeemable Preferred Stock 0.000 0.000 121.875 121.875
Common Equity 855.318 164.658 (164.658) 855.318
--------- --------- -------- ---------
Total L-T Capitalization 1,357.524 774.919 (107.724) 2,024.719
--------- --------- -------- ---------
Total Liabilities & Equity 1,819.340 1,036.482 (150.733) 2,705.089
========= ========= ======== =========
Total Debt(b) 528.658 648.146 1,111.863
Tot. Debt/Tot. L-T Cap. + S-T Debt. 38.2% 79.7% 53.2%
EBITDA/Interest Incurred 4.1x 1.8x 2.9x
CFFO/Interest Incurred 3.2x 0.9x 1.9x
CFFO/Total Debt 23.0% 7.0% 13.5%
</TABLE>
- -----------
(a) Assumes a price per share of $16.00.
(b) Total Debt includes all debt, capital leases and redeemable preferred stock.
<PAGE> 120
Dillon, Read & Co. Inc. 12/10/93
- ---------------------------------------------------------------------
Valero Natural Gas Partners, L.P.
Merger Effects on Valero Energy (a)
<TABLE>
<CAPTION>
Nine Months Ended 9/30/93
-------------------------------------------------------
VEC VLP Adjustments Pro Forma
------ ------- ----------- ---------
<S> <C> <C> <C> <C>
Income Statement:
- ----------------
Operating Revenues 940.223 994.636 (213.914) 1,720.945
Equity Investments 20.528 0.000 (20.528) 0.000
------- ------- -------- ---------
Total Revenues 960.751 994.636 (234.442) 1,720.945
Cost of Goods Sold 712.481 811.603 (156.510) 1,367.574
Operating Expenses 92.649 90.788 (62.228) 121.209
General & Administrative Expenses 0.000 0.000 0.000 0.000
------- ------- -------- ---------
Operating Cash Flow/EBITDA 155.621 92.245 (15.704) 232.162
Depreciation & Amortization 41.859 27.190 0.472 69.521
------- ------- -------- ---------
Operating Income/EBIT 113.762 65.055 (16.176) 162.641
Other Income 0.000 1.029 0.000 1.029
Extraordinary Gains/(Losses) 7.245 0.000 0.220 7.465
Capital Lease Interest Incurred 0.000 (9.629) 9.629 0.000
Other Interest Incurred(b) (37.640) (41.208) (1.485) (80.333)
Interest Capitalized 11.915 1.206 0.000 13.121
------- ------- -------- ---------
Income Before Taxes 95.282 16.453 (7.812) 103.923
Income Tax Expense(c) 43.700 0.000 3.026 46.726
------- ------- ------- ---------
Net Income 51.582 16.453 (10.838) 57.197
Preferred Dividends 0.953 0.000 6.094 7.047
------- ------- -------- ---------
Net Income to Common 50.629 16.453 (16.932) 50.150
Earnings Per Share $1.18 $0.86 $1.16
Weighted Average # of Shares 43.074 19.052 43.074
Cash Flow Statement:
- -------------------
Net Income 50.629 16.453 (16.932) 50.150
Depreciation and Amortization 41.859 27.190 0.472 69.521
Deferred Income Taxes 26.600 0.000 0.000 26.600
Amortization of Deferred Charges 16.735 1.953 0.000 18.688
Net (Gains)/Losses (7.842) 0.000 (0.220) (8.062)
Other Items (6.478) 0.000 0.000 (6.478)
------- ------- -------- ---------
Cash Flow From Operations/CFFO 121.503 45.596 (16.680) 150.419
Changes in Current Assets & Liabilities (14.993) (7.481) 0.000 (22.474)
Changes in Other Assets & Liabilities (6.273) 7.079 0.000 0.806
------- ------- -------- ---------
Cash Provided By Operations 100.237 45.194 (16.680) 128.751
CFFO Less Preferred Dividends 120.550 45.596 143.373
Cash Flow Per Share $2.80 $2.39 $3.33
</TABLE>
- ----------------
(a) Assumes a price per share of $16.00.
(b) Assumes an effective interest rate of 5.1%.
(c) Assumes a tax rate of 35.0%.
<PAGE> 121
APPENDIX 12
PRESENTATION OF GRAPHIC MATERIAL IN EDGAR FORMAT
1. The graph having the title EBITDA Results/Projections appearing in
appendix 7 was omitted. In its stead, a chart providing data points
and describing the data has been presented.
2. The graph having the title CFFO Results/Projections appearing in
appendix 7 was omitted. In its stead, a chart providing data
points and describing the data has been presented.
3. The graph having the title Net Income Results/Projections appearing
in appendix 7 was omitted. In its stead, a chart providing
data points and describing the data has been presented.
4. The graph having the title Liquids: OP Income Results/Projections
appearing in appendix 7 was omitted. In its stead, a chart
providing data points and describing the data has been presented.
5. The graph having the title NGL Plant Production Results/Projections
appearing in appendix 7 was omitted. In its stead, a chart
providing data points and describing the data has been presented.
6. The graph having the title Actual/Projected NGL Market Prices
appearing in appendix 7 was omitted. In its stead, a chart
providing data points and describing the data has been presented.
7. The graph having the title Actual/Project NGL Gross Margins appearing
in appendix 7 was omitted. In its stead, a chart providing
data points and describing the data has been presented.
8. The graph having the title Pipeline: OP Income Results/Projections
appearing in appendix 7 was omitted. In its stead, a chart
providing data points and describing the data has been presented.
9. The graph having the title Total Throughput Projections appearing
in appendix 7 was omitted. In its stead, a chart providing data points
and describing the data has been presented.
10. The graph having the title Actual/Projected Transportation Fees
appearing in appendix 7 was omitted. In its stead, a chart
providing data points and describing the data has been presented.
<PAGE> 122
11. The graph having the title Operating Results/Projections: 1988-1994
appearing in appendix 8 was omitted. In its stead, a chart
providing data points and describing the data has been presented.
12. The graph having the title Liquids Segment: NGL Volumes appearing
in appendix 8 was omitted. In its stead, a chart providing
data points and describing the data has been presented.
13. The graph having the title Liquids Segment: NGL Prices appearing
in appendix 8 was omitted. In its stead, a chart providing
data points and describing the data has been presented.
14. The graph having the title Pipeline Segment: Throughput Volumes
appearing in appendix 8 was omitted. In its stead, a chart
providing data points and describing the data has been presented.
15. The graph having the title Pipeline Segment: Natural Gas Sales
appearing in appendix 8 was omitted. In its stead, a chart
providing data points and describing the data has been presented.
16. The graph having the title Stock Price Performance for Period:
10/23/93 - 12/08/93 appearing in appendix 9 was omitted. In
its stead, a chart providing data points and describing the data has
been presented.
17. The graph having the title Stock Price Performance for the Period:
10/12/90 - 12/08/93 appearing in appendix 9 was omitted. In
its stead, a chart providing data points and describing the data has
been presented.
18. The graph having the title Stock Price Performance for the Period:
9/30/88 - 12/08/93 appearing in appendix 9 was omitted. In
its stead, a chart providing data points and describing the data has
been presented.
19. The graph having the title Stock Price Performance for the Period:
3/18/87 - 12/08/93 appearing in appendix 9 was omitted. In
its stead, a chart providing data points and describing the data has
been presented.
20. The graph having the title Analysis of Historical P/E Ratios
appearing in appendix 9 was omitted. In its stead, a chart
providing data points and describing the data has been presented.
21. The graph having the title Commodity Price Movements for the Period:
7/1985 - 10/1993 appearing in appendix 10 was omitted. In
its stead, a chart providing data points and describing the data has
been presented.
22. The graph having the title Commodity Price Movements for the Period:
7/1985 - 10/1993 appearing in appendix 10 was omitted. In
its stead, a chart providing data points and describing the data has
been presented.
<PAGE> 123
23. The graph having the title Commodity Price Movements for the Period:
7/1985 - 10/1993 appearing in appendix 10 was omitted. In
its stead, a chart providing data points and describing the data has
been presented.
24. The graph having the title Commodity Price Movements for the Period:
7/1985 -10/1993 appearing in appendix 10 was omitted. In
its stead, a chart providing data points and describing the data has
been presented.
25. The graph appearing in Appendix 4, and having the following
heading was omitted:
HISTORICAL PREMIUMS ON
MINORITY CLOSE-OUTS
ONE MONTH BEFORE OFFER
The omitted material presented in graph form the percentages of
premiums paid in 137 selected transactions involving the purchase of
minority interests from 1/1/86 through 11/22/93.
<TABLE>
<CAPTION>
NO. OF
PREMIUM % TRANSACTIONS
--------- ------------
<S> <C>
-10 - 0% 17
0 - 10% 17
10 - 20% 12
20 - 30% 20
30 - 40% 18
40 - 50% 19
50 - 60% 10
60 - 70% 3
70 - 80% 7
80 + % 14
---
TOTAL 137
</TABLE>
26. The graph appearing in Appendix 4, and having the following
heading was omitted:
HISTORICAL PREMIUMS ON
MINORITY CLOSE-OUTS
ONE WEEK BEFORE OFFER
The omitted material presented in graph form the percentages of
premiums paid in 137 selected transactions involving the purchase of
minority interests from 1/1/86 through 11/22/93.
<TABLE>
<CAPTION>
NO. OF
PREMIUM % TRANSACTIONS
--------- ------------
<S> <C>
-10 - 0% 12
0 - 10% 15
10 - 20% 24
20 - 30% 23
</TABLE>
<PAGE> 124
<TABLE>
<S> <C>
30 - 40% 14
40 - 50% 17
50 - 60% 10
60 - 70% 9
70 - 80% 6
80 + % 7
---
TOTAL 137
</TABLE>
27. The graph appearing in Appendix 4, and having the
following heading was omitted:
HISTORICAL PREMIUMS ON
MINORITY CLOSE-OUTS
ONE DAY BEFORE OFFER
The omitted material presented in graph form the percentages of
premiums paid in 137 selected transactions involving the purchase of
minority interests from 1/1/86 through 11/22/93.
<TABLE>
<CAPTION>
NO. OF
PREMIUM % TRANSACTIONS
--------- ------------
<S> <C>
-10 - 0% 12
0 - 10% 15
10 - 20% 27
20 - 30% 30
30 - 40% 12
40 - 50% 15
50 - 60% 10
60 - 70% 3
70 - 80% 3
80 + % 10
---
TOTAL 137
</TABLE>
<PAGE> 1
PROJECT MAINE
OCTOBER 1993
SALOMON BROTHERS INC
<PAGE> 2
SALOMON BROTHERS INC
<TABLE>
<CAPTION>
Outline of Presentation
- -----------------------
TAB
---
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A
VALUATION SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B
REVIEW OF TRANSACTION STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C
PRO FORMA ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D
APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E
DETAILED DCF MODEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Detailed Pro Forma Combination Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Stock Price Performance Graphs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Gathering, Transmission and Processing Comparables . . . . . . . . . . . . . . . . . . . . . . 4
Refining and Marketing Comparables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
1
<PAGE> 3
SALOMON BROTHERS INC
INTRODUCTION
2
<PAGE> 4
SALOMON BROTHERS INC
Introduction
Issues associated with the repurchase of the 51% of VLP owned by the public:
o Valuation of VLP
o Precedent transactions (MLP buy-ins and minority squeeze outs)
o Alternative transaction forms (cash tender, cash merger, exchange
offer)
o Convertible Preferred Stock ("Convert") as a means of financing the
transaction
o Transaction mechanics and timing
o Potential impact of transaction on VLO stock price and credit
rating
3
<PAGE> 5
SALOMON BROTHERS INC
The Salomon Transaction Team
ENERGY CORPORATE FINANCE
Garfield Miller, Managing Director, Head of the Energy Group
David Prend, Director
Scott Baxter, Vice President
Nick Leone, Associate
Roy Jageman, Associate
Rick Dowdle, Analyst
MERGERS AND ACQUISITIONS
David Wittig, Managing Director, Co-Head of Mergers and Acquisitions
Laurie Coben, Vice President
EQUITY CAPITAL MARKETS
Peter Blanton, Vice President
Kevin Swanson, Vice President
OTHER
Don Dufresne, Equity Research
Roger Taylor, Fixed Income Research
Mark Hallock, Private Placements
Moctar Fall, Investment Grade Debt
Sean Crowley, High Yield Debt
4
<PAGE> 6
SALOMON BROTHERS INC
VALUATION SUMMARY
5
<PAGE> 7
SALOMON BROTHERS INC
Key Issues Regarding Valuation of VLP
o Current unit price of $9.375
o Very high leverage (80% Debt/Book Capitalization) impacts value
- Debt is effectively non-redeemable
- Highly leveraged equities tend to be valued at a discount due
to financial risk
- Small variations in value of business are amplified by leverage
into large variations in equity value
o Low historical and projected growth relative to comparable public
companies
o MLP structure/impact on tax treatment
6
<PAGE> 8
SALOMON BROTHERS INC
Price and Volume Profile of VLP
VALERO NATURAL GAS PARTNERS, LP
DAILY DATA - 12/30/88 THROUGH 10/1/93
[GRAPH A]
Valero Natural Gas Partners, LP: Price (left axis)
Valero Natural Gas Partners, LP: Volume (right axis)
7
<PAGE> 9
SALOMON BROTHERS INC
Dividend Yield Profile of VLP
VALERO NATURAL GAS PARTNERS, LP
DAILY DATA - 12/30/88 THROUGH 10/1/93
[GRAPH B]
Valero Natural Gas Partners, LP
8
<PAGE> 10
SALOMON BROTHERS INC
Publicly Traded MLPs
o No publicly traded MLPs in the natural gas/processing business.
MLP PUBLIC COMPANIES
<TABLE>
<CAPTION>
FIRM MARKET FIRM
UNIT YIELD DEBT/BOOK VALUE/LTM EQUITY VALUE VALUE
PIPELINE MLP'S PRICE(a) LTM CAPITALIZATION EBDIAT(b) (MILLIONS) (MILLIONS)
- --------------------------------------- -------- ----- -------------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
VALERO NATURAL GAS PARTNERS, L.P. $ 9.125 5.5% 79.6% 6.1X $174 $ 784
Buckeye Partners, L.P. 37.375 7.0 50.5 8.5 453 667
Kaneb Pipe Line Partners, L.P. 27.750 7.9 24.6 6.5 201 229
TEPPCO Partners, L.P. 28.125 7.8 58.8 7.9 408 712
Lakehead Pipe Line Partners, L.P. 31.750 7.4 46.6 8.8 692 931
Enron Liquids Pipeline, L.P. 31.000 7.1 45.2 7.8 175 275
Santa Fe Pacific Pipeline Partners, L.P. 39.000 7.2 55.6 8.9 747 1,075
</TABLE>
(a) Prices as of October 6, 1993
(b) Financials as of June 1993
9
<PAGE> 11
SALOMON BROTHERS INC
Premium Analysis
STARTING POINT FOR VALUATION IS THE CURRENT MARKET PRICE. PRICE @ 10/7/93 =
$9.375
<TABLE>
<CAPTION>
($ in millions, except per share)
VLP CURRENT ASSUMED OFFER PRICE PER UNIT
LTM MARKET -----------------------------------------------------------------
DATA $9.38 $9.00 $10.00 $11.00 $12.00 $13.00 $14.00
---- ------ ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Implied Total Equity Value ($mm) (a) 178.6 171.5 190.5 209.6 228.6 247.7 266.7
Implied Total Firm Value ($mm) (a) 807.1 800.0 819.0 838.1 857.1 876.2 895.2
PREMIUM TO MARKET:
October 7 $9.38 0.0% -4.0% 6.7% 17.3% 28.0% 38.7% 49.3%
LTM High $9.88 -5.1% -8.9% 1.3% 11.4% 21.5% 31.6% 41.8%
LTM Low $7.75 21.0% 16.1% 29.0% 41.9% 54.8% 65.7% 80.6%
OFFER PRICE TO:
LTM Earnings per Share (b) $0.96 9.8x 9.4x 10.4x 11.4x 12.5x 13.5x 14.6x
1994E Earnings per Share (b) $0.19 48.3x 46.4x 51.5x 56.7x 61.9x 67.0x 72.2x
Book Value (6/30/93) $8.50 110.3% 105.9% 117.7% 129.4% 141.2% 153.0% 164.7%
LTM Cash Flow per Share (b) $2.89 3.2x 3.1x 3.5x 3.8x 4.2x 4.5x 4.8x
TOTAL FIRM VALUE TO:
LTM EBITDA $126.7 6.4x 6.3x 6.5x 6.6x 6.8x 6.9x 7.1x
LTM EBIT 94.2 8.6x 8.5x 8.7x 8.9x 9.1x 9.3x 9.5x
</TABLE>
(a) Assuming net debt and capitalized lease obligations of $628.501 million
and 19.05 million units outstanding.
(b) Assuming a 35% book tax rate and a 15% cash tax rate.
10
<PAGE> 12
SALOMON BROTHERS INC
Recent MLP Buy-Ins
<TABLE>
<CAPTION>
ANNOUNCEMENT LIMITED PRE-TRANSACTION PREMIUM
DATE ACQUIROR PARTNERSHIP/TARGET OWNERSHIP PAID (a)
- ------------ ------------------------ ---------------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
2/15/89 ENSERCH Corp. ENSERCH Exploration 87% 7%
Partners, Ltd.
12/20/89 National Intergroup, Inc. Permian Partners, L.P. 44% 34%
8/15/88 Apache Corp. Apache Petroleum Co. 7% 7%
L.P.
7/31/90 Freeport-McMoRan Inc. Freeport-McMoRan 81.5% 44%
Oil & Gas Co.
11/1/89 Freeport-McMoRan Oil Freeport-McMoRan 81.5% None
& Gas Co. Energy Partners
6/11/90 Unocal Exploration Union Exploration 95% None
Corporation Partners, Limited
9/10/93 Santa Fe Energy Santa Fe Energy 91% 31%
Resources, Inc. Partners L.P.
8/12/93 Southland Royalty Co./ Permian Basin Royalty 33% 25%
Burlington Resources Trust
Inc.
</TABLE>
<TABLE>
<CAPTION>
ANNOUNCEMENT TYPE OF TRANSACTION % YIELD
DATE CONSIDERATION VALUE (PRE/POST)
- ------------ ------------------------ --------------------- -------------------
($ in millions)
<S> <C> <C> <C>
2/15/89 Common Stock $153.2 10.8% / 3.7%
& Cash
12/20/89 Cash 62.8 32% / NM
8/15/88 Common Stock 138.1 --% / 3.5%
7/31/90 Common Stock 251.9 1.3% / 3.6%
11/1/89 Conversion to 207.8 24.1% / 1.0%
Corp. Common
Stock
6/11/90 Conversion to 216.5 10.9%/2.2%
Corp. Common
Stock
9/10/93 Cash 28.3 10.7% / NM
8/12/93 Cash 151.4 9.3% / NM
</TABLE>
MEDIAN PREMIUM PAID 28%
- --------------------
(a) Premium calculated live trading days prior to announcement.
11
<PAGE> 13
SALOMON BROTHERS INC
Summary of Minority Squeeze Outs
CASH TRANSACTIONS (a)
<TABLE>
<CAPTION>
ACQUIRORS 1 MONTH 1 DAY
HOLDINGS AT ACQUIROR/ % PRIOR TO PRIOR TO
TIME OF OFFER TARGET DATE HOLDING ANNOUNCEMENT(b) ANNOUNCEMENT(b)
- -------------- ----------------------------------------------- -------- -------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Below 50% General Host Corp./Sunbelt Nursery Group Inc. 7/28/93 49.5% 16.0% 1.3%
Lelakis Group/Regency Cruises Inc. 6/12/91 37.0 32.7 48.6
Investor Group/Stanley Interiors Corp. 8/16/88 47.0 46.7 49.2
MEAN 31.8% 33.0%
50% to 60% Carroll Family/Katy Industries 9/2/92 51.7 30.6 (4.2)
Stavely Industries/Weigh-Tronix 6/13/91 57.0 50.2 51.5
MEAN 40.4% NA
60% to 80% Land O'Lakes/Country Lakes Foods 7/26/91 68.2 64.0 4.1
Dow Jones/Telerate 9/22/89 67.0 30.2 3.1
Ogden Corp./ERC Environ & Energy 10/23/90 68.0 22.9 34.8
MEAN 39.0% 19.5%
80% and up W.R. Grace/Grace Energy 3/3/92 83.4 56.7 7.5
Tine Warner/American T.V. & Comm. 10/17/91 82.7 0.3 0.6
Pennzoil/Jiffy Lube 7/30/91 82.4 17.6 18.9
Kansas City Southern DST Systems 5/17/90 87.1 51.6 24.1
Olympia & York/GW Utilities Limited 1/30/90 89.3 75.3 90.2
Tico Taco Inc./Del Taco Restaurants 2/9/90 81.8 46.5 29.8
MEAN 41.3% 28.5%
ALL TRANSACTIONS MEAN 38.7% 29.1%
</TABLE>
- --------------------
(a) Selected transactions.
(b) S&P 600-adjusted return.
12
<PAGE> 14
SALOMON BROTHERS INC
Summary of Minority Squeeze Outs
STOCK-FOR-STOCK TRANSACTIONS (a)
<TABLE>
<CAPTION>
ACQUIRORS % OF COMB. 1 MONTH 1 DAY
HOLDINGS AT ACQUIROR/ % CO. OWNED PRIOR TO PRIOR TO
TIME OF OFFER TARGET DATE HOLDING BY TARGET ANNOUNCEMENT (b) ANNOUNCEMENT (b)
- -------------- ---------------------------- ------ -------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
50% TO 60% Intermark/Triton 8/31/90 51.6% 46.0% 19.9% 2.7%
Alberta Energy/Chieftain 8/18/88 57.0 10.4 16.3 23.4
Placer Dome/Kiena Gold 6/22/88 56.7 2.1 23.6 11.7
PG&E/PGT 50.5 2.1 41.2 39.6
MEAN 15.2% 25.3% 19.4%
60% TO 80% Murphy Oil/Ocean Drilling 1/4/91 61.0 19.7 14.2 14.5
Collins Foods/Sizzler 9/11/90 66.0 23.4 19.6 27.9
Placer Dome/Sigma Mines 6/22/88 64.7 1.3 27.8 6.2
Primerica/A L Williams 6/9/89 69.8 14.8 38.3 24.4
J & J Foods/ICEE 3/23/88 72.0 1.2 23.7 29.4
EnviroSource Inc./Envirosafe Srvs. 8/2/91 62.5 23.4 (6.1) 35.9
MEAN 14.0% 19.6% 23.1%
</TABLE>
- --------------------
(a) Completed Transactions Only.
(b) S&P 500-adjusted return
13
<PAGE> 15
SALOMON BROTHERS INC
Summary of Minority Squeeze Outs
STOCK-FOR-STOCK TRANSACTIONS (CONTINUED) (a)
<TABLE>
<CAPTION>
ACQUIRORS % OF COMB. 1 MONTH 1 DAY
HOLDINGS AT ACQUIROR/ % CO. OWNED PRIOR TO PRIOR TO
TIME OF OFFER TARGET DATE HOLDING BY TARGET ANNOUNCEMENT(b) ANNOUNCEMENT(b)
- -------------- ------------------------- -------- -------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
80% AND UP USWest/USWest NewVector 11/12/90 80.9% 2.7% 78.1% 48.1%
Freeport/Freeport Oil & Gas 7/31/90 81.5 12.0 49.0 37.4
Starrett/Levitt 7/14/88 80.0 10.6 41.6 26.9
Charter/Spelling Entertainment 2/7/92 95.6 2.7 70.4 23.0
Unocal/Unocal Exploration 2/25/92 99.8 0.1 20.7 14.7
MEAN 5.6% 52.0% 30.0%
ALL TRANSACTIONS MEAN 11.5% 31.9% 24.4%
</TABLE>
- --------------------
(a) Completed Transactions Only.
(b) S&P 500-adjusted return
14
<PAGE> 16
SALOMON BROTHERS INC
Valuation Methodologies
PUBLIC MARKET MULTIPLES
o Selected public market trading multiples of intrastate gas pipelines
and gas processing companies applied to VLP's historical and projected
operating results
o VLP's projected operating results are management's projections
COMPARABLE TRANSACTION MULTIPLES
o Acquisition multiples of EBDIAT are selected from recent comparable
M&A transactions
DISCOUNTED CASH FLOW ANALYSIS
o Analysis uses unleveraged free cash flow of VLP as projected by VLO
management
o Free cash flows and discount rates for VLP assume zero taxes due to
partnership structure
o Terminal values are calculated using a perpetual growth methodology
15
<PAGE> 17
SALOMON BROTHERS INC
VLP Valuation Summary
VALUATION METHODOLOGY
*(Dollars in millions, except per unit values)
<TABLE>
<CAPTION>
Reference
Multiple Range Implied Equity Value (a)
VLP ---------------------- --------------------------
Data Low High Low High
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
PUBLICLY TRADED COMPARABLES
EBDIAT LTM $127 6.5x 7.5x $10.33 $17.00
1994E $112 6.0x 7.0x $2.27 $8.15
Cash Flow (b) LTM $55 5.5x 6.5x $15.88 $18.77
Earnings (b) 1993E $11 17.0x 21.0x $9.82 $12.13
1994E $4 15.0x 19.0x $2.91 $3.69
M&A TRANSACTIONS
EBDIAT LTM $127 7.0x 8.0x $13.66 $20.33
1993E $122 7.0x 8.0x $12.19 $18.65
DISCOUNTED CASH FLOW ANALYSIS $4.60 $11.20
</TABLE>
- -----------------------
* Numbers may not be tie directly due to rounding.
(a) Assumes $639 Debt, $18 million in Deferred Management Fees, $28 million
cash and 19.05 million units outstanding.
(b) Assuming a 35% book tax rate and a 15% cash tax rate.
16
<PAGE> 18
SALOMON BROTHERS INC
Comparable Considerations
IN DETERMINING APPROPRIATE PUBLIC MARKET MULTIPLES FOR VLP, SALOMON HAS
CONSIDERED THE FOLLOWING FACTORS INFLUENCING THE VALUATION OF OTHER GATHERING,
TRANSMISSION AND PROCESSING COMPANIES AND THE POTENTIAL MARKET VALUATION OF
VLP.
o The market would look closely at VLP's historical earnings trend
and composition as an indicator of potential future performance.
- VLP's pipeline operations have been on a consistent downward
trend, declining each year from $71 million in 1988 to $33
million in 1992.
- While NGL operating profits (64% of 1992 operating profit)
have been stable in the $55 - $65 million range for the last
three years, in 1988 and 1989 EBIT was $1 million and $5
million respectively.
o The market will look to the 1988 and 1989 returns
as an indication of the potential downside in the
event of another substantial industry downturn.
o This view will be mitigated by a market view that
the industry has made a fundamental/structural shift
and future risk is lower than in the past.
o Furthermore, VLP's growth prospects are perceived to be more limited
than the other Gathering, Transmission and Processing companies due
to the capital structure.
17
<PAGE> 19
SALOMON BROTHERS INC
Comparable Considerations
o Most of the publicly traded comparables have demonstrated
substantial growth historically and as a result are regarded as
having additional growth potential.
- American Oil & Gas, Associated Natural Gas, Tejas Gas,
Aquila and Western Gas Resources have all achieved
substantial growth through acquisitions.
- The above companies have increased operating income (1)
20% - 65% annually since 1990 and have generated a
corresponding increase in E.P.S.
- Their stock prices have increased 150% since 1991 and are
currently trading at high multiples in anticipation of
continued growth.
- VLP has no comparable track record.
o Trident and USX-Delhi have demonstrated substantially lower margin
growth.
- Trident's margin is dominated by gas processing and has dropped
10% in each of the last two years.
o Trident has a stable fractionation business which
has consistently generated approximately $25 of
gross margin since 1983.
o Trident's NGL gross margin of $83 million (excluding
fractionation) is approximately double the 1988-1989
levels.
- --------------------
(1) Gross margins were used as a proxy for operating income where data was
unavailable.
18
<PAGE> 20
SALOMON BROTHERS INC
Comparable Considerations
o USX-Delhi's operations have been a stable cash flow generator over the
last 5 years.
- The stock, however, is negatively impacted by the overhang of
the pending secondary offering and the letter stock structure.
- The market does not anticipate any growth via acquisitions.
CONCLUSION
o Trident, Aquila and USX-Delhi are the closest proxies for a public
market valuation of VLP. However, Trident and Aquila are only filed
offerings, not currently public traded companies.
o The other Gathering, Transmission and Processing companies are less
comparable due to their extremely high growth record and perceived
future prospects.
o Highly leveraged capital structure and lack of historical growth
record would place VLP at the lower end of comparable multiple
range.
19
<PAGE> 21
SALOMON BROTHERS INC
Publicly Traded Comparable Companies
SELECTED INTRASTATE GAS PIPELINE AND PROCESSING COMPANIES
<TABLE>
<CAPTION>
FIRM VALUE/EBDIAT PRICE/CASH FLOW PRICE/EARNINGS
--------------------- ------------------- ------------------------
LTM 1994E LTM 1993E 1994E
-------- -------- ------------------- -------- -------
<S> <C> <C> <C> <C> <C>
American Oil & Gas 8.6x 6.1x 10.7x 17.4x 12.4x
Associated Natural Gas 9.4 8.1 10.3 24.7 19.6
Tejas Gas 10.4 10.2 10.3 36.4 26.0
USX-Delhi 5.4 4.4 5.4 16.5 13.1
Western Gas Resources 13.0 10.1 14.4 25.1 19.7
High 13.0x 10.2x 14.4x 36.4x 26.0x
Median 9.4 8.1 10.3 24.7 19.6
Low 5.4 4.4 5.4 16.5 12.4
CURRENT FILINGS:
Aquila 8.1x NA 6.6x NA NA
Trident NGL 7.4 NA 6.7 NA NA
SALOMON REFERENCE RANGE 6.5 - 7.5x 6.0 - 7.0x 5.5 - 6.5x 17.0 - 21.0x 15.0 - 19.0x
</TABLE>
- --------------------
NB: Selected financial results as of June 30, 1993.
(a) Source of projected EBDIAT: Analyst research reports.
(b) Cash flow from operations equals net income plus depreciation and
amortization, change in deferred taxes, and other non-cash items.
(c) Source of projected EPS: IBES (6/20/93), median estimate
(d) Assumes a 35% book tax rate and a 15% cash tax rate.
20
<PAGE> 22
SALOMON BROTHERS INC
Relative Market Size of the Natural Gas Industry
The Gathering, Transmission & Processing sector is a relatively small part
of the natural gas equity market and is dominated by large insider ownership.
[GRAPH C]
[ ] Insider ownership in the GTP Industry
21
<PAGE> 23
SALOMON BROTHERS INC
Liquidity in the Natural Gas Equity Market
Due to its small size, the GTP sector is much less liquid compared to the
pipeline and E&P sectors of the natural gas industry.
TOTAL SHARES TRADED AS A PERCENTAGE OF
MARKET CAPITALIZATION
[GRAPH D]
- --------------------
Data for latest twelve months
22
<PAGE> 24
SALOMON BROTHERS INC
Publicly-Traded Comparable Companies
<TABLE>
<CAPTION>
COMPANY COMMENTS
- ---------------------------------- ---------------------------------------------------------------------------
<S> <C>
American Oil and Gas Corporation o Operations dominated by the pipeline
o Acquired Maple gas processing in 1992
o Two year EBIT growth of 21%
o Smallest of the comparables ($378 million firm value)
Associated Natural Gas Corporation o EBIT has grown 31% per year since 1990
o Revenue growth of 52% per year since 1990
o Solid track record of successful acquisitions
Tejas Gas Corporation o Substantial insider holdings
o The company has achieved dramatic growth and significantly expanded
business via the acquisition of Exxon assets
o Gross margin is 94% derived from the pipeline operations
</TABLE>
23
<PAGE> 25
SALOMON BROTHERS INC
Publicly-Traded Comparable Companies
<TABLE>
<CAPTION>
COMPANY COMMENTS
- ---------------------------------- --------------------------------------------------------------------------------------
<S> <C>
USX-Delhi Group o Significant overhang from the letter stock structure and planned secondary offering
o Margins have been stable and are primarily driven by pipeline operations
o Limited revenue and margin growth since 1990
o Growth via acquisitions is not expected in the near or intermediate term
Western Gas Resources, Inc. o Primarily a pure play gas processing company
o Substantial insider holdings
o Recent acquisition of Mountain Gas Resources is not yet included in financials,
implying multiplies of pro forma earnings are lower than currently indicated
o Operating earnings growth of 49% annually since 1990 driven by solid acquisition
track record
</TABLE>
24
<PAGE> 26
SALOMON BROTHERS INC
Recently Filed Comparable Companies
<TABLE>
<CAPTION>
COMPANY COMMENTS
- ---------------------------------- -------------------------------------------------------------------------------------
<S> <C>
Aquila Gas Pipeline Corp. o Utilicorp has built the company via acquisitions in two years
o Solid 2 year revenue growth for pipeline and processing
Trident NGL, Inc. o Gross margin is 89% derived from gas processing
o Although gross margin of $83(1) million is down from 1990 highs, it is approximately
double the 1988 - 1989 levels
o Stable fractionation business ($25 million gross margin)
o Historical gas processing margin reached a low of $41 million versus VLP's NGL
operating income of $4 million in 1989
</TABLE>
Although recently filed IPOs may be used to provide a benchmark, the IPO may
be completed above or below the range, or may not be accepted by the market.
- --------------------
(1) Excludes $25 million of fractionation margin.
25
<PAGE> 27
SALOMON BROTHERS INC
Publicly-Traded Comparable Companies
($ millions)
<TABLE>
<CAPTION>
AMERICAN ASSOC. TEJAS(1) USX- WESTERN GAS
VLP AQUILA (2) O&G NATURAL GAS GAS TRIDENT (1) DELHI (1) RESOURCES
------ ---------- -------- ----------- -------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1992 REVENUES
Pipeline & Other $743 $140 $375 NA $810 $492 $387 $31
Processing 466 71 56 NA 73 386 70 569
------ ---- ---- ---- ---- ---- ---- ----
Total $1,209 $211 $431 $928 $883 $878 $457 $600
====== ==== ==== ==== ==== ==== ==== ====
% Processing 39% 34% 13% NA 8% 44% 15% 95%
2 year CAGR
Pipeline & Other (2)% 32% (7)% NA NA (7)% 4% 28%
Processing 19 16 152 NA NA (3) 26 55
------ ---- ---- ---- ---- ---- ---- ----
Total 5% 23% (1)% 52% 87% (5)% 6% 53%
====== ==== ==== ==== ==== ==== ==== ====
1992 OPERATING INCOME
Pipeline & Other $32 NA NA NA $134 $ 13 $111 NA
Processing 57 NA NA NA 9 108 26 NA
------ ---- ---- ---- ---- ---- ---- ----
Total $89 $42 $32 $31 $143 $121 $137 $69
====== ==== ==== ==== ==== ==== ==== ====
% Processing 64% NA NA NA 6% 89% 20% NA
2 year CAGR
Pipeline & Other (20%) NA NA NA 75% (25%) 2% NA
Processing 3 NA NA NA 4 (7) 12 NA
------ ---- ---- ---- ---- ---- ---- ----
Total (7)% NA 21% 35% 65% (10)% 4% 46%
====== ==== ==== ==== ==== ==== ==== ====
</TABLE>
- --------------------
(1) Operating income data based on gross margin because segment operating
income is not available.
(2) Pro Forma 1990 acquisitions; historical operating income data is not
comparable.
26
<PAGE> 28
SALOMON BROTHERS INC
Publicly-Traded Comparable Companies
SELECTED OPERATING STATISTICS
<TABLE>
<CAPTION>
American Associated
Oil & Natural Tejas USX- Western
VLP Gas (1) Gas Gas Delhi Gas
------ --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SELECTED NATURAL GAS
GATHERING DATA
Miles of Systems Pipeline 7,200 5,634 4,068 2,626 (2) 8,379 9,314
Connected Oil & Gas Wells NA NA 4,170 NA NA NA
Dedicated Reserves (bcf) NA NA NA NA 1,650 (3) 1,207
Gathering Systems Throughput (bcf)
Sales 326 208 NA 255 (7) 200 NA
Transportation 476 92 NA 166 103 NA
----- ----- ----- ----- ----- -----
Total Net Throughput 802 300 246 (4) 421 303 214
GAS PROCESSING DATA
Number of Operating Plants 10 9 14 (6) 7 14 31
Total Number of Plants 10 10 14 8 21 31
NGL Sales (mbbls) 34,274 4,745 6,422 1,191 5,358 15,738
Processing Capacity (mmcf/day) 1,700 255 (5) NA 175 1,046 (8) 1,124
Gas Throughput (mmcf/day) NA 221 419 73 NA 580
</TABLE>
- --------------------
(1) Includes acquisition of Maple Gas Corp.
(2) Includes 230 miles of a joint venture.
(3) Includes 218 bcf from the Marathon Group.
(4) Includes 92/bcf/yr. in facilities operated by the Company but owned by
third parties.
(5) Includes 55 mmcfpd processed at third-party owned sites.
(6) Includes four fractionation facilities.
(7) Includes 75 bcfpd of off-system throughput.
(8) Source: Oil & Gas Journal, 7/22/91. Includes 17 plants only.
27
<PAGE> 29
SALOMON BROTHERS INC
Comparable M&A Transactions
<TABLE>
<CAPTION>
ISSUES/ASSUMPTIONS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
o Lack of Public Information Many of the transactions listed are either private companies or are subsidiaries of
public companies, so the amount of public information available is limited.
o Multiples vs. DCF Although we use a multiple of EBDIAT as an approximate measure of value, buyers
primarily utilize a DCF approach. Therefore, these multiples reflect the buyers'
views of value, potential synergies, tax benefits, etc.
o Leverage Sensitivity Due to the high degree of leverage, equity value of the VLP units implied by multiples
is extremely sensitive.
</TABLE>
28
<PAGE> 30
SALOMON BROTHERS INC
Comparable M&A Transactions
MANY OF THE PREVIOUS M&A TRANSACTIONS AND THE PRICES PAID FOR COMPANIES IN THE
GATHERING, TRANSMISSION AND PROCESSING SECTOR ARE NOT DIRECTLY COMPARABLE TO
VLP
<TABLE>
<CAPTION>
COMPANY COMMENTS
- ---------------------------------- ---------------------------------------------------------------------------
<S> <C>
LIG Has been sold three times in the last five years.
Exxon Gas System Represented strategic value to Tejas due to location. Access to gas reserves and
tie-in capability with all interstate pipelines.
Louisiana Resources Enron needed it for their other gas systems. Not a large acquisition for Enron.
UGPL Company was on verge of bankruptcy. Koch used a DCF with implied benefits due to
step-up in tax basis and significant overhead cuts.
</TABLE>
29
<PAGE> 31
SALOMON BROTHERS INC
Comparable M&A Transactions
RECENT COMPARABLE M&A TRANSACTIONS
<TABLE>
<CAPTION>
DATE FIRM
ANNOUNCED ACQUIRING COMPANY/ VALUE FIRM VALUE/
(CLOSING) ACQUIRED COMPANY (millions) LTM EBDIAT
------------- ----------------------- ------------ -------------
<S> <C> <C> <C>
5/5/93 Equitable/ $185 8.0x (a)
(6/30/93) LIG (Arkla)
5/3/93 Tejas/ $380 7.9x
(9/15/93) Exxon Gas Supply
2/11/93 Enron Corp./ $170 10.6x
(3/31/93) Louisiana Resources Co.
10/30/92 Koch Industries/ $385 7.7x
(11/15/92) United Gas Pipeline
Salomon Reference
Range: 7.0x - 8.0x
</TABLE>
- --------------------
(a) Multiple is of revised 1993 estimated EBDIAT.
30
<PAGE> 32
SALOMON BROTHERS INC
Discounted Cash Flow Analysis
<TABLE>
<CAPTION>
ISSUES/ASSUMPTIONS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
o Projections Management's most recent projections as Base Case with Salomon sensitivity to discount
rates, growth rates and changes to operating income which incorporate potential changes
in costs, gas sales and transportation prices and volumes.
o Taxes Utilizes a "flow-through" entity cash flow approach with 0% taxes due to the partnership
structure. The discount rate is also adjusted to reflect the absence of a corporate tax
shield on interest expense.
o Discount Rate Calculated using the CAPM with weighted average cost of capital based on comparable
companies and VLP's pre-tax cost of debt. Assumes VLP's marginal corporate tax rate is
0% due to the partnership structure.
o Leverage Sensitivity Due to the high degree of leverage, the equity value of the units implied by the DCF
analysis is extremely sensitive to small changes in critical variables.
</TABLE>
31
<PAGE> 33
SALOMON BROTHERS INC
Discounted Cash Flow Analysis
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------
VIP 1990 1991 1992 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Income (before DD&A) $143.5 $139.1 $124.3 $121.7
Interest and Other Income 6.0 4.0 0.6 1.2
----- ----- ----- -----
EBITDA 149.5 143.1 124.9 122.9
Depreciation and Amortization 38.1 39.3 34.4 38.9
----- ----- ----- -----
EBIT 111.4 103.8 90.5 84.0
Interest Expense:
Incurred 51.0 57.5 56.0 55.7
Capital Lease with VLO 10.0 10.0 10.6 12.8
Capitalized (0.4) (0.7) (1.2) (1.7)
----- ----- ----- -----
Total Interest Expense 60.6 66.8 65.4 66.8
----- ----- ----- -----
Pre tax Income 50.8 37.0 25.1 17.2
Taxes (0%) 0% cash taxes 0.0 0.0 0.0 0.0
----- ----- ----- -----
Net Income 50.8 37.0 25.1 17.2
Depreciation and Amortization 38.1 39.3 34.4 38.9
(Gain) or Loss on Dispositions 0.0 0.0 0.0 0.0
Deferred Taxes (0%) 0.0 0.0 0.0 0.0
----- ----- ----- -----
After Tax Cash Flow 88.9 76.3 59.5 56.1
Changes in Working Capital(f) (10.5) (1.3) 1.7(b) (0.8)(b)(c)
Changes Deferred Charges/Credits(f) 4.2 3.1 3.5 2.3
----- ----- ----- -----
Cash Flow from Operations 82.5 78.0 64.7 57.6
After Tax Cost of Interest 60.6 66.8 65.4 66.8
Capital Expenditures (31.1) (33.1) (35.9) (41.7)
----- ----- ----- -----
Unlevered Free Cash Flow $112.0 $111.7 $94.2 $82.6
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
PROJECTED
----------------------------------------------------------------------------------
VIP 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Income (before DD&A) $112.4 $118.5 $123.8 $125.8 $113.4 $108.8 $116.6
Interest and Other Income 0.7 10.2(a) 0.9 1.0 1.0 1.0 1.0
----- ----- ----- ----- ----- ----- -----
EBITDA 113.1 128.7 124.7 126.8 114.4 109.8 117.6
Depreciation and Amortization 39.3 39.7 40.1 40.9 40.9 40.9 40.9
----- ----- ----- ----- ----- ----- -----
EBIT 73.8 88.9 84.6 85.8 73.5 68.9 76.7
Interest Expense:
Incurred 55.9 55.6 53.2 49.8 49.8 49.8 49.8
Capital Lease with VLO 12.8 12.8 12.7 12.5 12.5 12.5 12.5
Capitalized (0.5) (0.5) (0.4) (0.4) (0.4) (0.4) (0.4)
----- ----- ----- ----- ----- ----- -----
Total Interest Expense 68.2 67.9 65.6 61.9 61.9 61.9 61.9
Pre tax Income 5.7 21.0 19.0 23.9 11.6 6.9 14.7
Taxes (0%) 0% cash taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- -----
Net Income 5.7 21.0 19.0 23.9 11.6 6.9 14.7
Depreciation and Amortization 39.3 38.7 40.1 40.9 40.9 40.9 40.9
(Gain) or Loss on Dispositions 0.0 (9.3) 0.0 0.0 0.0 0.0 0.0
Deferred Taxes (0%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- -----
After Tax Cash Flow 44.9 51.5 59.1 64.8 52.5 47.9 55.7
Changes in Working Capital(f) (0.6)(b)(d)(e) 0.6 (0.5) 7.5 11.7 11.7 10.4
Changes Deferred Charges/Credits(f) 0.0(e) 14.5 14.9 6.3 0.0 0.0 0.0
Cash Flow from Operations 44.3 66.6 73.6 78.6 64.2 59.6 66.1
After Tax Cost of Interest 68.2 67.9 65.6 61.9 61.9 61.9 61.9
Capital Expenditures (52.6) (19.0)(a) (28.0) (29.0) (29.9) (30.8) (31.7)
Unlevered Free Cash Flow $ 59.8 $115.5 $111.2 $111.5 $96.3 $90.8 $96.3
</TABLE>
<TABLE>
<CAPTION>
PROJECTED
------------------------------
VIP 2001 2002 2003
---- ---- ----
<S> <C> <C> <C>
Operating Income (before DD&A) $120.1 $123.3 $126.7
Interest and Other Income 1.0 1.0 1.0
----- ----- -----
EBITDA 121.1 124.4 127.7
Depreciation and Amortization 40.9 40.9 40.9
----- ----- -----
EBIT 80.1 83.6 86.8
Interest Expense:
Incurred 49.8 49.8 49.8
Capital Lease with VLO 12.5 12.5 12.5
----- ----- -----
Capitalized (0.4) (0.4) (0.4)
----- ----- -----
Total Interest Expense 61.9 61.9 61.9
Pre tax Income 18.2 21.6 24.8
Taxes (0%) 0% cash taxes 0.0 0.0 0.0
----- ----- -----
Net Income 18.2 21.6 24.8
Depreciation and Amortization 40.9 40.9 40.9
(Gain) or Loss on Dispositions 0.0 0.0 0.0
Deferred Taxes (0%) 0.0 0.0 0.0
----- ----- -----
After Tax Cash Flow 59.1 62.5 65.8
Changes in Working Capital(f) 0.0 0.0 0.0
Changes in Deferred Charges/Credits(f) 0.0 0.0 0.0
Cash Flow from Operations 59.1 62.5 65.8
After Tax Cost of Interest 61.9 61.9 61.9
Capital Expenditures (32.6) (33.6) (34.6)
----- ----- -----
Unlevered Free Cash Flow $88.4 $90.8 $93.1
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
VLP Firm Value (g) VLP Equity Value per Unit (g)
FCF Perpetuity Growth Rate FCF Perpetuity Growth Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2.5% 3.0% 3.5% 2.5% 3.0% 3.5%
11.00% $917 $941 $969 11.00% $11.39 $12.66 $14.09
11.50% 870 890 913 11.50% $8.89 $9.97 $11.17
WACC 12.00% 827 844 864 WACC 12.00% $6.65 $7.57 $8.60
12.50% 788 803 820 12.50% $4.63 $5.42 $6.30
13.00% 753 766 781 13.00% $2.79 $3.48 $4.24
</TABLE>
(***) Assuming a 0% book tax rate and 0% cash taxes.
(***) Projections after 1998 grow at 3%.
(a) Includes $9.3 million book gain from $12.5 million sale of 50% of their
interest in two West Texas processing plants in 1996.
(b) Adjusted 1992 working capital for $25 million gain in book accounting
for the method of purchase and cost of gas between SMP and Transmission.
This offsets $16.8 million in 1993 and $8.2 million in 1994.
(c) Adjusted 1993 working capital for $28 million of "held checks" from the
30th to the 1st of the month in order to place on comparable basis with
1992 and prior years working capital requirements.
(d) Normalizes 1994 working capital by adjusting $5.8 million which
represents the last take-or-pay payment expected for the company.
(e) Adjusted for $14.2 million in reclassification of Deferred Charges which
just offsets in working capital for a net change of $0.
(f) Positive changes in working Capital and Deferred Charges from 1995
forward reflect expected take-or-pay recoveries under the Lonestar
settlement as of October 5, 1993.
(g) Assuming net Debt and Capitalized Lease Obligations of $682.2 million,
$18 million in Deferred Management Fees and 19.05 million units
outstanding.
32
<PAGE> 34
SALOMON BROTHERS INC
Weighted Average Cost of Capital Analysis
<TABLE>
<CAPTION>
EQUITY COST OF DEBT/CAP ASSET
COMPANY BETA (a) EQUITY (b) RATIO BETA (c)
<S> <C> <C> <C> <C>
American Oil & Gas 0.81 11.9% 28.8% 0.64
Associated Natural Gas 0.68 11.0% 26.3% 0.55
Tejas Gas 0.76 11.5% 40.6% 0.53
Western Gas Resources 0.85 12.2% 22.8% 0.71
USX-Delhi Group 1.06 13.7% 32.7% 0.81
Median 0.81 11.9% 28.8% 0.64
Average 0.83 12.1% 30.2% 0.65
ASSUMPTIONS
Risk-Free Rate (30 year TSY): 6.00%
Marginal Tax Rate for Comparables: 35.00%
Marginal Tax Rate for Target: 0.00%
Equity Risk Premium: 7.30%
</TABLE>
<TABLE>
<CAPTION>
USING MEDIAN: WEIGHTED AVERAGE COST OF CAPITAL (e)
TARGET EQUITY COST OF PRE-TAX COST OF DEBT ASSUMPTION
DEBT/CAP RATIO BETA (d) EQUITY (b) 8.0% 8.5% 9.0% 9.5% 10.0%
<S> <C> <C> <C> <C> <C> <C> <C>
30.0% 0.92 12.7% 11.3% 11.4% 11.6% 11.7% 11.9%
40.0% 1.07 13.8% 11.5% 11.7% 11.9% 12.1% 12.3%
50.0% 1.28 15.4% 11.7% 11.9% 12.2% 12.4% 12.7%
60.0% 1.60 17.7% 11.9% 12.2% 12.5% 12.8% 13.1%
70.0% 2.14 21.6% 12.1% 12.4% 12.8% 13.1% 13.5%
80.0% 3.21 29.4% 12.3% 12.7% 13.1% 13.5% 13.9%
</TABLE>
(a) Source: Salomon Brothers' estimate using 5 years of weekly data (where
available).
(b) Cost of Equity = Risk-Free Rate + (Equity Beta x Equity Risk Premium) +
Political Risk Premium.
(c) Asset (unlevered) beta = Equity beta/(1 + (debt/equity) x (1 - marginal
tax rate))
(d) Relevered equity beta = Median (Average) asset beta x (1 + (debt/equity) x
(1 - marginal tax rate))
(e) Weighted Average Cost of Capital = [After-tax cost of debt x target
debt/cap ratio] + [After-tax cost of equity x (1 - target debt/cap ratio)]
33
<PAGE> 35
SALOMON BROTHERS INC
REVIEW OF
TRANSACTION
STRUCTURE
34
<PAGE> 36
SALOMON BROTHERS INC
Transaction Structure
o Considerations in evaluating alternative transaction structures:
- Tax consequences of the transaction to VLO and VLP unitholders
- Form of the offer (i.e. merger vs. tender offer)
- Type of security to exchange or issue (i.e. Convert vs. common)
- Consideration offered (i.e. securities exchanged vs. cash)
35
<PAGE> 37
SALOMON BROTHERS INC
Transaction Structure
TAX CONSEQUENCES OF THE TRANSACTIONS
o A tax-free transaction would have several significant disadvantages:
- Non-taxable transaction would entail a complex legal
structure requiring a vote of VLO shareholders, as well as
additional expense and uncertainties.
- VLO would not be able to step-up basis in VLP.
o We have therefore assumed for purposes of our analysis that a
transaction would be taxable to unitholders.
36
<PAGE> 38
SALOMON BROTHERS INC
Transaction Structure
FORM OF THE OFFER (MERGER VS. TENDER OFFER)
<TABLE>
<CAPTION>
EXCHANGE OF SECURITIES CASH OFFER
----------------------------------------------- -----------------------------------------------------
<S> <C> <C>
MERGER ISSUES
o Proxy statement/prospectus reviewed by o Separate proxy statement and prospectus,
SEC in advance each reviewed by SEC in advance
o Roll up rule disclosure requirements o Roll up rule inapplicable; Rule 13e-3 disclosure
o Proxy statement/prospectus must be mailed applies
to unitholders 60 days before vote (roll up o Proxy statement must be mailed about 30 days
rules) before vote to permit time for solicitation.
o All units acquired at once Saves about 30 days compared with merger
including exchange of securities
o Price underwritten offer after merger vote; close
merger and offering simultaneously. No risk of one
closing without the other
o All units acquired at once
TENDER ISSUES
o Offer to exchange/prospectus reviewed by o Tender offer can commence without prior SEC
SEC in advance review. Amendment may be required. Offer
o Roll up rule disclosure requirements must be kept open only 20 business days
o Offer to exchange/prospectus must be (potentially required to be extended by up to 10
mailed to unitholders 60 days before business days following certain amendments)
expiration
</TABLE>
37
<PAGE> 39
SALOMON BROTHERS INC
Transaction Structure
FORM OF THE OFFER (MERGER VS. TENDER OFFER ISSUES)
<TABLE>
<CAPTION>
EXCHANGE OF SECURITIES CASH OFFER
----------------------------------------------- -----------------------------------------------------
<S> <C> <C>
TENDER ISSUES
(CONTINUED)
o Second step merger with information o Roll up rule inapplicable; Rule 13e-3 disclosure
statement/prospectus required to complete applies
100% acquisition o Prospectus for offering reviewed by SEC in advance
o May save about 4-6 weeks compared with cash merger; about
8-10 weeks compared with exchange of securities
o Complex timing issues with respect to closing financing and
tender offer; theoretical risk of closing financing without
merger occurring
o If tender offer results in 90% ownership, remaining units
can be acquired in ten days at same price under partnership
agreement
o If tender offer does not result in 90% ownership, second
step merger (with information statement) required to
complete 100% acquisition
</TABLE>
WE HAVE CONCLUDED THAT THE TRANSACTION SHOULD BE COMPLETED VIA MERGER IN
EITHER THE EXCHANGE OF SECURITIES OR THE CASH OFFER SCENARIOS.
38
<PAGE> 40
SALOMON BROTHERS INC
Transaction Structure
CONSIDERATION OFFERED: EXCHANGE OF SECURITIES OR CASH
o We have analyzed two primary types of consideration to be offered to
VLP unitholders
- Offer VLO Convert directly to unitholders ("exchange of
securities")
- Offer cash to unitholders with cash raised via a simultaneous
underwritten equity offering to new investors ("cash offer")
TYPE OF SECURITY TO EXCHANGE OR ISSUE
o Pro forma alternative transaction assumes a Convertible Preferred
Stock ("Convert") for the following reasons:
- Some type of equity offering contributes to improve debt ratios
- Avoids issuing common stock at current market
- Avoids adding additional debt on top of $680 million of VLP
debt which will be consolidated post-transaction
- Convert market is currently very attractive (See Appendix C).
o However, there are some considerations to financing with VLO common:
- Common may be slightly more beneficial to EPS than Convert,
although less beneficial to Cash Flow per share
- Dividend requirements on Convert are not tax deductible
- Common would be viewed more positively by rating agencies
- Common would advisably be sold through an underwritten
offering with a roadshow rather than exchanged directly for
VLP units
o VLO may wish to wait until talking to the rating agencies before
deciding on whether to issue Convert or common.
39
<PAGE> 41
SALOMON BROTHERS INC
Exchange of Securities via Merger
TRANSACTION SUMMARY
[GRAPH E]
o VLO offers Convertible Preferred ("Convert") in Exchange for VLP
units. Some unitholders may sell their units following the
announcement of a transaction rather than wait until the exchange
offer is complete.
o Unitholders may sell the Convert if they need liquidity. Market
makers and traditional convertible buyers may not bid aggressively
for the Convert since retail investors have small holdings and the
issue is not actively traded. However, if the price for the
Convert has been driven down in relation to comparable securities,
brokers (and hedge funds) may be induced by profit to aggregate
small retail positions and sell to convert buyers (largely
institutional investors).
o Convert buyers purchase Convert.
o Convert trades at fair market value on a fully distributed basis after
a period time.
40
<PAGE> 42
SALOMON BROTHERS INC
Exchange of Securities via Merger
MECHANICS OF TRANSACTION
o VLO Board approves an offer of VLO Convert with specified terms to VLP
unitholders.
o VLO then communicates offer in detail to VNGC Board of Directors.
o VNGC Board of Directors would likely set up a Special Committee of
independent directors to consider VLO's offer.
o Public announcement of offer and Special Committee.
o Special Committee would hire a financial advisor and legal counsel and
would analyze the proposal.
o Special Committee would then negotiate with VLO.
o If a transaction is approved by the Special Committee, a
Proxy/Prospectus would be filed with the SEC.
o Following a review by the SEC, the Proxy materials would be mailed to
unitholders.
o Unitholders would then have 60 days to consider the offer before
voting, since the offer of securities would be subject to SEC roll-up
rules.
o Unitholders vote and the merger is completed.
o Unitholders receive Convert.
41
<PAGE> 43
SALOMON BROTHERS INC
Merger/Exchange of Securities - Preliminary Timetable
[CHART]
42
<PAGE> 44
SALOMON BROTHERS INC
Exchange of Securities via Merger
REDISTRIBUTION OF CONVERT TO NATURAL HOLDERS
o A 6.5% Convert provides investors with a significant yield
pickup over the 5.5% current yield of the VLP units. This may
mitigate holders' tendency to sell the Convert.
o However, in a taxable transaction, holders will tend to either
sell their units prior to the exchange or sell the Convert
received.
- Retail investors are often passive if the
transaction requires no action; the need to
pay taxes could encourage them to sell their
entire Convert holdings.
- Retail brokers often encourage unitholders to
sell the distributed securities in order to
generate additional commissions and
reposition their portfolios.
- Certain investors may chose to sell units
before year end for 1993 tax purposes.
o If a large number of unitholders elect to sell either their
units or the new Convert, then the Convert will be
redistributed over time to natural holders of Converts.
o The $100 billion Convert market is efficient in pricing
outstanding Converts in the secondary market. Hedge funds and
broker/dealers hold around $30 billion of Converts and ensure
efficient pricing.
43
<PAGE> 45
SALOMON BROTHERS INC
Exchange of Securities via Merger
REDISTRIBUTION OF CONVERT TO NATURAL HOLDERS (CONTINUED)
o In other MLP buy-ins where holders were offered securities,
many holders either sold their units upon the announcement of
the transaction or sold the distributed securities soon after
a transaction was consummated. The resulting price pressure
in the security can make it more difficult for unitholders who
want to sell to obtain full value until the securities trade
on a fully distributed basis.
o Retail investors, making up the vast majority of VLP
Unitholders, are not natural owners of Converts. Converts are
primarily held by institutions. For example, the $275 million
Ashland Oil Convert is 59% institutional, $100 million Tosco
Convert is 60% institutional and Diamond Shamrock's $100
million 144A Convert is 100% institutional (held by Qualified
Institutional Buyers).
o Because the VLP Unitholders who receive a Convert in the
exchange offer will typically receive small amounts,
intermediation by securities firms will be necessary to effect
redistribution. However, most institutional firms will only
bid for even lots (multiples of 100).
o To induce securities firms to undertake this intermediation, a
sufficient arbitrage must be available to cover transaction
costs and provide an adequate profit. As part of the
redistribution, hedge funds and securities firms will purchase
the Converts and short the VLO stock.
o As a result, we would expect that a Convert may trade down
until the securities are in hands of natural buyers (i.e.
fully distributed).
44
<PAGE> 46
SALOMON BROTHERS INC
Exchange of Securities via Merger
STRATEGY FOR SETTING THE TERMS ON THE CONVERT IN AN EXCHANGE OF SECURITIES
o Key decision is which of the Convert terms should be set in
conjunction with the offer to the special committee.
o If terms are fully set in initial proposal, the Special
Committee may be forced to reconsider its approval if either
interest rates or the VLO stock price change prior to the
closing.
o It may be desirable to stipulate the dividend rate at the time
the offer is made and let the conversion price be set just
prior to the closing, based on a predetermined formula.
o No precedent to using Convert under these circumstances.
o Terms of Convert will vary based on rating agency reactions
and VLO's stock price reaction on announcement.
o THE KEY POINT IS THAT IN THIS CASE, THE TERMS OF THE CONVERT
WILL BE SET THROUGH NEGOTIATION WITH THE SPECIAL COMMITTEE,
NOT BY THE MARKET.
o Trading of VLO's underlying common will be significantly
affected by arbitrageurs shorting VLO to hedge their
positions.
45
<PAGE> 47
SALOMON BROTHERS INC
Cash Offer via Merger
TRANSACTION SUMMARY
[GRAPH]
o VLO makes cash offer via a merger transaction to unitholders.
o VLO simultaneously offers a new Convert issue to the public
market. Proceeds are used to purchase VLP units for cash.
o Closing of the cash merger and pricing of the underwritten
Convert are almost simultaneous.
46
<PAGE> 48
SALOMON BROTHERS INC
Cash Offer via Merger
MECHANICS OF TRANSACTION
o VLO Board approves of cash offer for VLP units subject to
financing.
o VLO communicates offer to VNGC Board of Directors.
o VNGC Board of Directors would then set up a Special Committee
of independent directors to consider VLO's offer. Special
Committee would select a financial advisor and legal counsel
to evaluate offer.
o VNGC Board would announce that it had received an offer from
VLO to be financed with a new Convert issue and that a Special
Committee had been formed to consider the offer.
o VLO would promptly file registration statement for the Convert
with the SEC.
- registration statement would include Pro Forma financial
statements and Use of Proceeds.
o Special Committee would negotiate with VLO.
o If a transaction has been approved by the Special Committee,
VLO may need to file an amended Registration Statement for the
Convert.
o Following a review by the SEC, proxy statement would be mailed
to unitholders.
o VLP unitholders would vote on the merger after 30 days.
o VLO would formally market and price the Convert offering
immediately after the unitholder vote.
o Merger and convert issue completed simultaneously; unitholders
receive cash.
47
<PAGE> 49
SALOMON BROTHERS INC
Cash Merger - Preliminary Timetable
[CHART]
48
<PAGE> 50
SALOMON BROTHERS INC
Roadshows
CASH MERGER WITH UNDERWRITTEN CONVERT OFFERING WILL ALLOW A ROADSHOW
PRESENTATION TO INVESTMENT COMMUNITY
o Traditional equity buyers or buy-side analysts may wish to
attend the roadshow
o Effective marketing of story could benefit VLO
INDICATIVE ROADSHOW SCHEDULE FOR CONVERT PUBLIC OFFERING:
<TABLE>
<S> <C>
New York One-on-ones, Lunch
Boston One-on-ones, Lunch
Los Angeles/San Francisco One-on-ones, Lunch (LA)
Chicago/Minneapolis One-on-ones, Lunch (Chicago)
*Philadelphia/Baltimore One-on-ones, Lunch (Philadelphia)
*Houston/Denver One-on-ones, Lunch (Denver)
</TABLE>
EXCHANGE OFFER
No Roadshow - all retail ownership
- No incentive for institutions to attend
- Conference call with equity analysts and investors
- ---------------------
* Optional cities.
49
<PAGE> 51
SALOMON BROTHERS INC
Convertible Preferred ("Convert") Pricing and Terms
SUMMARY OF INDICATIVE TERMS
o The pricing of the Convert will vary with VLO's senior debt
rating. The Convert will be priced based on the implied
subordinated debt rating as well as VLO's common stock price.
<TABLE>
<CAPTION>
INVESTMENT GRADE BELOW INVESTMENT
Assumed VLO Senior Debt Rating OR SPLIT RATING GRADE
---------------- ----------------
<S> <C> <C>
Maturity: Perpetual Perpetual
Offer Price Per Share: $50 $50
Dividend Yield: 6 1/4% + 25 bp 6 1/2% + 25 bp
- -
Conversion Premium 21-25% 21-25%
Conversion Price (a): $29.04 - $30.00 $29.04 - $30.00
Call Protection: NC-3 NC-3
(NC-4, yield 25 bp lower) (NC-4, yield 25 bp lower)
Call Price: Par plus dividend declining to Par plus dividend declining to
par in year 10 par in year 10
Underwriting Fees: 2 1/4 - 2 3/4% 2 1/2 - 3%
</TABLE>
o Maximum suggested size for a Convert offering is $200 million.
- -------------------------------------
(a) Assumes a $24.00 VLO stock price.
50
<PAGE> 52
SALOMON BROTHERS INC
Comparing Exchange of Securities to Cash
<TABLE>
<CAPTION>
MERGER/EXCHANGE OF SECURITIES CASH MERGER
<S> <C>
MARKET FACTORS:
o Little risk of new issue Convert market drying up. o Attractive new issue Convert market today.
o Equity market conditions affect rate and conversion o VLO will be committed to cash transaction at a
price, but not ability to complete a transaction. specific price without knowing the precise terms of
its financing.
o Value of the Convert could move significantly with
movements in equity market or price of common prior
to completion. This could force the Special
Committee to reconsider approval.
o No controlled marketing for Convert. Arbs will
determine trading. This risk may impact Special
Committee's negotiations on terms.
UNITHOLDERS' PREFERENCE FACTORS:
o Offers unitholders a continuing interest in the o Gives unitholders cash to pay taxes.
business.
o Easy for unitholders to tell what value they are
o However, retail investors are not generally the getting - "Cash is cash".
natural buyers for Converts.
o Does not provide a continuing interest in the business if
o Even if Convert yield is higher than the yield on the so desired by the unitholder.
VLP units, brokers still have the incentive to induce
unitholders to sell to get cash to pay the tax.
</TABLE>
51
<PAGE> 53
SALOMON BROTHERS INC
Comparing Exchange or Securities to Cash
<TABLE>
<CAPTION>
MERGER/EXCHANGE OF SECURITIES
<S> <C>
VALUATION EASE CASH MERGER
o In precedent MLP buy-ins where securities were given, o "Cash is cash".
significant selling took place. The resulting price
pressure makes it more difficult for unitholders to
assess the actual value.
o The more variables in the transaction, the more
difficult it is to assess what the value is. The
Convert has several variables which could change
while the transaction is open.
VLO MANAGEMENT TIME AND COST:
o No issuance costs or marketing required. o Would allow (or require) roadshow.
o Special Committee required to approve terms of o Underwriting fees.
securities as well as price paid to unitholders.
OVERALL TIMING - SEC REVIEW/DISCLOSURE/UNITHOLDER REVIEW:
o Would fall under SEC roll-up rules and would probably o Does not fall under SEC roll-up rules - can be
take at least 30 days longer to complete. completed more quickly.
o Requires 60-day review period by unitholders. o Does not require 60-day waiting period between
mailing of proxy statement and vote.
o Requires two separate sets of SEC filings -
registration statement for public Convert and proxy
statement for VLP unitholders.
</TABLE>
52
<PAGE> 54
SALOMON BROTHERS INC
Comparing Exchange of Securities to Cash
<TABLE>
<CAPTION>
MERGER/EXCHANGE OF SECURITIES CASH MERGER
<S> <C>
EASE OF EXECUTION:
o One stop transaction - no public offering on parallel o No need to convince Special Committee or unitholders
path. of value of securities.
o The Convert has several variables which if market o Convert is marketed to natural buyers.
conditions change, the special committee and their
investment banker could withdraw their fairness o Need to match the timing of the public offering with
opinion prior to the merger. completion of the merger.
CREDIT/RATING AGENCY FLEXIBILITY:
o Exchange offer does not allow for increasing the size o May raise additional proceeds through a larger
of the Convert if necessary for credit reasons or to offering in response to rating agencies or covenants.
conform to convenants.
IMPACT ON VLO STOCK PRICE:
o Greater hedge fund activity (shorting VLO common o Roadshow could allow the company to communicate its
stock) because the Converts would not be distributed rationale for the transaction and future strategy.
to "buy and hold" institutional fund managers.
o Some hedge fund activity takes place in the secondary
market even in a well distributed offering.
</TABLE>
53
<PAGE> 55
SALOMON BROTHERS INC
PRO FORMA ANALYSIS
54
<PAGE> 56
SALOMON BROTHERS INC
Price & Volume Profile of VLO
VALERO ENERGY CORPORATION
DAILY DATA - 12/30/88 THROUGH 10/1/93
[GRAPH]
Valero Energy Corporation: Price (left axis)
Valero Energy Corporation: Volume (right axis)
55
<PAGE> 57
SALOMON BROTHERS INC
Price Profile of VLO vs. Index of Refiners
VALERO ENERGY CORPORATION
DAILY DATA - 1/1/91 THROUGH 10/1/93
[GRAPH]
Valero Energy Corporation
Index of Refiners (ASH, CNPA, DRM, FI, HOC, SUN, TOS, ULR)
56
<PAGE> 58
SALOMON BROTHERS INC
Pro Forma Analysis
CONSIDERATIONS:
o We analyze several areas to assess the pro forma impact on VLO
including:
- Equity research coverage
- Valuation ratios and market pricing issues
(E.P.S., cash flow, multiples of EBDIAT)
- Credit ratios and business issues
- Sensitivity analysis to key factors
BASE ASSUMPTIONS:
o Management projections and consolidating journal entries for
VLO and VLP
o Assume purchase price of VLP units is $11.00
o Assume dividend rate on Convert of 6.50%
57
<PAGE> 59
SALOMON BROTHERS INC
Equity Research Coverage
WE EXPECT RESEARCH ANALYSTS AND WALL STREET WILL CONTINUE TO TRADE AND FOLLOW
VLO PRIMARILY AS A REFINER.
o VLO is currently followed by refining equity research analysts
at the major Wall Street firms although it already owns 49% of
VLP. VLP is covered by equity research primarily at small and
regional firms.
o The intrastate pipeline and gas processing sector is also not
well covered by equity research analysts at major firms.
o Refining will still contribute to the majority of the cash
flow and stock price volatility in VLO.
o Refining has been "good" to Wall Street and the analysts who
have followed VLO will not give up coverage easily or
immediately.
o Interstate gas pipeline equity research analysts at major Wall
Street firms have a somewhat negative view of the intrastate
and processing component of interstate pipelines that they
follow.
58
<PAGE> 60
SALOMON BROTHERS INC
Gas Transmission & Processing Research Coverage
THE GTP SECTOR IS VERY THINLY COVERED BY MAJOR WALL STREET EQUITY ANALYSTS
<TABLE>
<CAPTION>
Associated Western
American Natural Gas Total Per
O&G Gas Tejas Gas USX-Delhi Resources Firm
<S> <C> <C> <C> <C> <C> <C>
CS First Boston 0
Goldman, Sachs X 1
Lehman Brothers X X 2
Merrill Lynch X 1
Morgan Stanley X X 2
Salomon Brothers X 1
Smith Barney X 1
--------- --------- --------- --------- ---------
Subtotal 2 0 1 3 2
DLJ X X X X 4
Howard Weil X X X 3
Kidder Peabody X 1
Oppenheimer X X X 3
Prudential X 1
Raucher Pierce X X X X 4
--------- --------- --------- --------- ---------
Total per Company 6 4 2 5 7
========= ========= ========= ========= =========
</TABLE>
59
<PAGE> 61
SALOMON BROTHERS INC
Equity Market Reaction
IMPACT ON VLO STOCK PRICE
o Limited price impact expected upon full dissemination of
information regarding the transaction
- VLO already owns 49% of VLP and also owns 100% of some
natural gas assets.
- Increased leverage will be viewed negatively.
o In general, leveraged companies trade at lower
multiples.
- Some benefit from diversified earnings and
elimination of uncertainty as to future
intent of VLP. Communicating rationale for
the buy-in and future strategy to investors
is critical.
- Neutral to accretive on EPS and cash flow per share.
o Analysts will still view VLO as a refiner.
- However, demonstrated growth in gas business
will influence future trading multiples.
o Volatility in VLO stock price will probably still be driven by
refining.
o Financial impact on VLO is complex and requires good
communication with analysts and investors.
IMPACT ON VLP UNIT PRICE
o If offer cash, will move almost to the offer price.
o If offer securities, may move close to the offer price.
- Depends on how specific the Convert terms are on
announcement.
60
<PAGE> 62
SALOMON BROTHERS INC
Pro Forma Analysis
PRO FORMA FINANCIAL RESULTS (A)
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
1993 Estimated Pro Forma Projected Pro Forma
------------------ ------------- ----------------------------------------------
VLO VLP 1993 1994 1995 1996 1997
------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings Per Share $1.42 $0.58 $1.44 $1.55 $2.55 $2.85 $2.92
Accretion/(Dilution) 2% -10% -1% -1% -3%
Cash Flow Per Share $3.63 $2.80 $4.65 $4.94 $5.84 $6.31 $6.39
Accretion/(Dilution) 28% 20% 19% 21% 27%
VALUATION STATISTICS: (c)
Firm Value/EBDIAT 7.5x 6.4x 6.9x 6.6x
Price/Earnings 16.9x 15.7x 16.6x 15.4x
Price/Cash Flow 6.6x 3.3x 5.2x 4.9x
CREDIT STATISTICS:
Debt/Total Book Capitalization (b) 39% 80% 53% 53% 50% 45% 40%
EBDIAT/Gross Interest 4.3x 1.8x 3.1x 3.2x 3.8x 4.4x 5.0x
EBDIAT/Gross Interest & Pfd. Div. 4.2x 1.8x 2.8x 3.0x 3.5x 4.0x 4.6x
EBDIAT - Capex/Gross Int. & Pfd. Div. 1.4x 1.1x 1.2x 2.0x 2.4x 2.8x 3.6x
Fixed Charge Ratio (d) 2.9x 1.2x 1.9x 1.9x 2.5x 2.9x 3.2x
Cash Flow/Total Debt (b) 31% 8% 18% 18% 22% 27% 32%
</TABLE>
- ----------------------
(a) Assuming a $11.00 per unit purchase price and a $110 million Convert
offering.
(b) Includes guarantees on Javelina and PROESA debt.
(c) Assumes VLO stocks remains constant at $24.00.
(d) Pretax Income + Net interest/Gross interest + Preferred Dividends +
Mandatory Preferred Redemption.
61
<PAGE> 63
SALOMON BROTHERS INC
Pro Forma Analysis
COMPARISON OF SEGMENT AND COMPANY MULTIPLES
<TABLE>
<CAPTION>
VLO VLO R&M GTM
Multiples of: Status Quo (a) Pro Forma (b) Comparables Comparables
- ------------- -------------- ------------- ----------- -----------
(Median) (Median)
<S> <C> <C> <C> <C> <C>
EBDIAT: LTM 7.3x NA 6.8x 9.4x
1993E 7.5x 6.9x NA 9.1x
1994E 6.7x 6.6x NA 8.1x
Cash Flow: LTM 6.5x NA 6.4x 10.3x
1993E 6.6x 5.2x 5.8x 10.4x
1994E 5.9x 4.9x 5.4x 9.4x
EPS: LTM 13.7x NA 21.3x 25.2x
1993E 16.9x 16.6x 15.4x 24.7x
1994E 14.0x 15.4x 10.2x 19.6x
</TABLE>
(a) Assumes VLO price of $24.00 and VLP price of $9.125.
(b) Assumes VLO price held constant at $24.00.
62
<PAGE> 64
SALOMON BROTHERS INC
Valero Energy Corporation
[GRAPH]
* Assumes VLO Stock price constant at $24.00/Share.
63
<PAGE> 65
SALOMON BROTHERS INC
Valero Energy Corporation
[GRAPH]
* Assumes VLO Stock price constant at $24.00/Share.
64
<PAGE> 66
SALOMON BROTHERS INC
Pro Forma Analysis
PRO FORMA SENSITIVITY ANALYSIS TO PRICE PAID PER UNIT
(Dollars in millions, except per share or unit amounts)
<TABLE>
<CAPTION>
AMOUNT PAID FOR UNITS
Price Paid Total
Per Unit Amount
----------- ------
<S> <C>
$10.00 $97.5
$11.00 $107.3
$12.00 $117.0
</TABLE>
<TABLE>
<CAPTION>
VLO PRO FORMA 1993
VLO
Price Paid Per Unit Status Quo
---------------------- ----------
$10.00 $11.00 $12.00 1993
------ ------ ------ ----------
<S> <C> <C> <C> <C>
Earnings Per Share $1.47 $1.44 $1.42 $1.42
Cash Flow per Share $4.66 $4.65 $4.64 $3.63
EBDIAT/Interest & Pfd. 2.8x 2.8x 2.8x 4.2x
</TABLE>
65
<PAGE> 67
SALOMON BROTHERS INC
Pro Forma Analysis
PRO FORMA SENSITIVITY ANALYSIS TO ISSUING COMMON STOCK
(Dollars in million, except per share amounts)
<TABLE>
<CAPTION>
VLO PRO FORMA 1993 (A)
Status Quo
Common Stock Convert VLO
------------ ------- -----------
$110 $150 $200 $110 $150 $200 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings Per Share $1.45 $1.43 $1.40 $1.44 $1.41 $1.38 $1.42
Cash Flow Per Share $4.35 $4.24 $4.10 $4.65 $4.62 $4.59 $3.63
EBDIAT/Interest & Pfd. 3.0x 3.1x 3.2x 2.8x 2.8x 2.8x 4.2x
Debt/Capitalization (b) 53% 51% 49% 53% 51% 49% 39%
Cash Flow/Total Debt (b) 19% 20% 21% 18% 19% 20% 31%
</TABLE>
- ----------------------
(a) Assumes an $11.00 unit purchase price.
(b) Includes guarantees on Javelina and PROESA debt.
66
<PAGE> 68
SALOMON BROTHERS INC
Pro Forma Credit Analysis
SUMMARY
o The effect of this transaction is to increase VLO's leverage.
This will result in some deterioration of VLO's credit.
o We believe that VLO will encounter a significant risk of being
downgraded.
o Covenants on current outstanding debt (bank revolver and
private placement debt) will probably need to be waived or
renegotiated.
o Many holders of the private placement debt also own VLP debt
(VLP credit arguably improves with this transaction).
67
<PAGE> 69
SALOMON BROTHERS INC
Pro Forma Credit Analysis
<TABLE>
<CAPTION>
VLO PRO FORMA REFINING COMPARABLES PROCESSING COMPARABLES
VLO ------------- -------------------- ----------------------
1993E 1993 1994 1995 1996 BBB (1) BB (2) B (3)
----- ---- ---- ---- ---- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt/Total Capitalization (4) 39% 53% 53% 50% 45% 49-54% 56-73% 57%
Cash Flow/Total Debt (4) 31% 18% 18% 22% 27% 19-23% 10-40% 21%
EBDIAT/Gross Interest 4.3x 3.1x 3.2x 3.8x 4.4x 3.3-3.7x 2.0-6.6x 2.8x
EBDIAT/Gross Interest & Pfd. 4.2x 2.8x 3.0x 3.5x 4.0x NA NA NA
Fixed Charge Ratio (5) 2.9x 1.9x 1.9x 2.5x 2.9x NA NA NA
</TABLE>
(1) Ashland, Diamond Shamrock, Ultramar.
(2) Tosco, Clark.
(3) Trident NGL is the only processing company with rated debt; no
transmission companies have rated debt.
(4) Includes guarantees on PROESA and Javelina debt.
(5) Prefax income + Net Interest/Gross Interest + Preferred Dividends +
Mandatory Preferred Redemption.
68
<PAGE> 70
SALOMON BROTHERS INC
Pro Forma Credit Analysis
[GRAPH]
Debt/Capitalization (left axis)
EBDIAT/Gross Interest & Preferred Dividends (right axis)
Status Quo - Debt/Capitalization
Status Quo - EBDIAT/Gross Interest & Preferred Dividends
"BB" Capitalization Range
69
<PAGE> 71
SALOMON BROTHERS INC
Pro Forma Credit Analysis
CREDIT ISSUES
o Sizable increase in the relative amount of leverage.
o Leverage doesn't decline significantly until 1995 and only gets
back to 40% in 1997.
o Interest Coverage ratios also take three years to recover to
current levels.
o In 1994, VLP is a net user of funds.
o Issuing Convert adds after-tax dividend cash outflows.
o MTN holders should not over-react.
o Private placement holders have covenants which may be violated and
not all of them hold NAIC-3 paper.
o Increasing equity investments outside the country (i.e.
PROESA) will be perceived as slightly more risky than domestic
investments in physical assets.
70
<PAGE> 72
SALOMON BROTHERS INC
Pro Forma Credit Analysis
RATING AGENCY STRATEGY
o Outline plan to reduce debt on the balance sheet.
o Outline credible strategy and plans for future investments.
o Discuss by business segment the appropriate debt level relative to
investment grade comparables.
o VLO can make strong argument to rating agencies:
- Benefit of diversification and increased size
- Gas business is somewhat countercyclical to refining
- Certain refining comparables have lower credit ratios
and higher credit ratings than VLO
- Buy-in eliminates the uncertainty of VLP funding
requirements
71
<PAGE> 73
SALOMON BROTHERS INC
Estimated Transaction Costs
<TABLE>
<S> <C>
SECURITIES UNDERWRITING FEES
Preferred Stock 2.25% - 2.75% (1)
INVESTMENT BANKING FEES
VLO $1,200,000
Special Committee $1,000,000
LEGAL FEES
VLO $600,000 - $800,000
Special Committee $250,000 - $350,000
Accounting $150,000 - $250,000
OTHER FEES
Printing Costs $50,000 - $100,000
Amendment of Long Term Lenders' Agreement 0 - 25 bp
Consolidation of Bank Credit Agreement 0 - 25 bp
Miscellaneous $100,000 - $150,000
</TABLE>
- -----------------------------------
(1) Only in cash offer alternative.
72
<PAGE> 74
SALOMON BROTHERS INC
Follow-Up Discussions and Issues
o Rating Agencies
o Negotiations with Lenders and Debt Holders
o Board Meeting
o Analyst Meetings
o Response to VLO and VLP Inquiries
o Internal Communication
o Drafting of Documents
73
<PAGE> 75
SALOMON BROTHERS INC
APPENDICES
74
<PAGE> 76
SALOMON BROTHERS INC
DETAILED DCF MODEL
75
<PAGE> 77
<TABLE>
<CAPTION>
PROJECT MAINE
(Dollars in Millions)
HISTORICAL
VLP 1990 1991 1992 1993
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Income (before DD&A) $143.5 $139.1 $124.3 $121.7
Interest and Other Income 6.0 4.0 0.6 1.2
----------------------------------------------------------------
EBITDA 149.5 143.1 124.9 122.9
Depreciation and Amortization 38.1 39.3 34.4 38.9
----------------------------------------------------------------
EBIT 111.4 103.8 90.5 84.0
Interest Expense:
Incurred 51.0 57.5 56.0 55.7
Capital Lease with VLO 10.0 10.0 10.6 12.8
Capitalized (0.4) (0.7) (1.2) (1.7)
----------------------------------------------------------------
Total Interest Expense 60.6 66.8 65.4 66.8
----------------------------------------------------------------
Pre tax Income 50.8 37.0 25.1 17.2
Taxes (0%) 0% cash taxes 0.0 0.0 0.0 0.0
----------------------------------------------------------------
Net Income 50.8 37.0 25.1 17.2
Depreciation and Amortization 38.1 39.3 34.4 38.9
(Gain) or Loss on Dispositions 0.0 0.0 0.0 0.0
Deferred Taxes (0%) 0.0 0.0 0.0 0.0
----------------------------------------------------------------
After Tax Cash Flow 88.9 76.3 59.5 56.1
Changes in Working Capital(f) (10.5) (1.3) 1.7(b) (0.8)(b)(c)
Changes in Deferred Charges/Credits(f) 4.2 3.1 3.5 2.3
----------------------------------------------------------------
Cash Flow from Operations 82.5 78.0 64.7 57.6
After tax Cost of Interest 60.6 66.8 65.4 66.8
Capital Expenditures (31.1) (33.1) (35.9) (41.7)
----------------------------------------------------------------
Unlevered Free Cash Flow $112.0 $111.7 $94.2 $82.8
================================================================
</TABLE>
<TABLE>
<CAPTION>
PROJECT MAINE
(Dollars in Millions)
PROJECTED
VLP 1994 1995 1996 1997 1998
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Income (before DD&A) $112.4 $118.5 $123.8 $125.8 $113.4
Interest and Other Income 0.7 10.2(a) 0.9 1.0 1.0
------------------------------------------------------------------------------
EBITDA 113.1 128.7 124.7 126.8 114.4
Depreciation and Amortization 39.3 39.7 40.1 40.9 40.9
------------------------------------------------------------------------------
EBIT 73.8 88.9 84.6 85.8 73.5
Interest Expense:
Incurred 55.9 55.6 53.2 49.8 49.8
Capital Lease with VLO 12.8 12.8 12.7 12.5 12.5
Capitalized (0.5) (0.5) (0.4) (0.4) (0.4)
------------------------------------------------------------------------------
Total Interest Expense 68.2 67.9 65.6 61.9 61.9
------------------------------------------------------------------------------
Pre tax Income 5.7 21.0 19.0 23.9 11.6
Taxes (0%) 0% cash taxes 0.0 0.0 0.0 0.0 0.0
------------------------------------------------------------------------------
Net Income 5.7 21.0 19.0 23.9 11.6
Depreciation and Amortization 39.3 39.7 40.1 40.9 40.9
(Gain) or Loss on Dispositions 0.0 (9.3) 0.0 0.0 0.0
Deferred Taxes (0%) 0.0 0.0 0.0 0.0 0.0
------------------------------------------------------------------------------
After Tax Cash Flow 44.9 51.5 59.1 64.8 52.5
Changes in Working Capital(f) (0.6)(b)(d)(e) 0.6 (0.5) 7.5 11.7
Changes in Deferred Charges/Credits(f) (0.0)(e) 14.5 14.9 6.3 0.0
------------------------------------------------------------------------------
Cash Flow from Operations 44.3 66.6 73.6 78.6 64.2
After tax Cost of Interest 68.2 67.9 65.6 61.9 61.9
Capital Expenditures (52.6) (19.0)(a) (28.0) (29.0) (29.9)
------------------------------------------------------------------------------
Unlevered Free Cash Flow $59.8 $115.5 $111.2 $111.5 $96.3
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
PROJECT MAINE
(Dollars in Millions)
PROJECTED
VLP 1999 2000 2001 2002 2003
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Income (before DD&A) $108.8 $116.6 $120.1 $123.4 $126.7
Interest and Other Income 1.0 1.0 1.0 1.0 1.0
---------------------------------------------------------------------
EBITDA 109.8 117.6 121.1 124.4 127.7
Depreciation and Amortization 40.9 40.9 40.9 40.9 40.9
--------------------------------------------------------------------
EBIT 68.9 76.7 80.1 83.5 86.8
Interest Expense:
Incurred 49.8 49.8 49.8 49.8 49.8
Capital Lease with VLO 12.5 12.5 12.5 12.5 12.5
Capitalized (0.4) (0.4) (0.4) (0.4) (0.4)
---------------------------------------------------------------------
Total Interest Expense 61.9 61.9 61.9 61.9 61.9
--------------------------------------------------------------------
Pre tax Income 6.9 14.7 18.2 21.6 24.8
Taxes (0%) 0% cash taxes 0.0 0.0 0.0 0.0 0.0
--------------------------------------------------------------------
Net Income 6.9 14.7 18.2 21.6 24.8
Depreciation and Amortization 40.9 40.9 40.9 40.9 40.9
(Gain) or Loss on Dispositions 0.0 0.0 0.0 0.0 0.0
Deferred Taxes (0%) 0.0 0.0 0.0 0.0 0.0
---------------------------------------------------------------------
After Tax Cash Flow 47.9 55.7 59.1 62.5 65.8
Changes in Working Capital(f) 11.7 10.4 0.0 0.0 0.0
Changes in Deferred Charges/Credits(f) 0.0 0.0 0.0 0.0 0.0
--------------------------------------------------------------------
Cash Flow from Operations 59.6 66.1 59.1 62.5 65.8
After tax Cost of Interest 61.9 61.9 61.9 61.9 61.9
Capital Expenditures (30.8) (31.7) (32.6) (33.6) (34.6)
--------------------------------------------------------------------
Unlevered Free Cash Flow $90.8 $96.3 $88.4 $90.8 $93.1
====================================================================
</TABLE>
<TABLE>
<CAPTION>
VLP FIRM VALUE (g) VLP EQUITY VALUE PER UNIT (g)
FCF Perpetuity Growth Rate FCF Perpetuity Growth Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2.5% 3.0% 3.5% 2.5% 3.0% 3.5%
11.00% $917 $941 $969 11.00% $11.39 $12.66 $14.09
11.50% 870 890 913 11.50% 8.89 9.97 11.17
WACC 12.00% 827 844 864 WACC 12.00% 6.65 7.57 8.60
12.50% 788 803 820 12.50% 4.63 5.42 6.30
13.00% 753 766 781 13.00% 2.79 3.48 4.24
</TABLE>
(***) Assuming a 0% book tax rate and 0% cash taxes.
(***) Projections after 1998 grow at 3%.
(a) Includes $9.3 million book gain from $12.5 million sale of 50% of
their interest in two West Texas processing plants in 1995.
(b) Adjusted 1992 working capital for $25 million gain in book accounting
for the method of puchase and cost of gas between SMP and Transmission.
This offsets $16.8 million in 1993 and $8.2 million in 1994.
(c) Adjusted 1993 working capital for $28 million of "held checks" from
the 30th to the 1st of the month in order to place on comparable basis
with 1992 and prior years working capital requirements.
(d) Normalizes 1994 working capital by adjusting $5.8 million which
represents the last take-or-pay payment expected for the company.
(e) Adjusted for $14.2 million in reclassification of Deferred Charges
which just offsets in working capital for a net change of $0.
(f) Positive changes in working Capital and Deferred Charges from 1995
forward reflect expected take-or-pay recoveries under the Lonestar
settlement as of October 5, 1993.
(g) Assuming net Debt and Capitalized Lease Obligations of $682.2 million,
$18 million in Deferred Management Fees and 19.05 million units
outstanding.
<PAGE> 78
<TABLE>
<CAPTION>
Assumptions:
<S> <C>
SCENARIO (TAX FREE = 0 / TAXABLE = 1): 0.0
NET DEBT AND CAPITALIZED LEASES: 682.2
DEFERRED MANAGEMENT FEE 18.0
UNITS: 19.1
BOOK TAX RATE: 0.00%
DEFERRED TAX RATE: 0.00%
DISCOUNT RATE: 11.00%
OPERATING GROWTH 3.00%
</TABLE>
<TABLE>
<CAPTION>
PROJECT MAINE
HISTORICAL AND PROJECTED FINANCIAL RESULTS
(Dollars in Millions)
HISTORICAL
NATURAL GAS PIPELINE 1990 1991 1992 1993
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Transmission:
Volume 37.0 37.5 28.6 20.6
Sales Margin (cents per MCF) 18.0 16.0 15.0 15.0
--------------------------------------------------------------
Gross Profit $6.7 $6.0 $4.3 $3.1
--------------------------------------------------------------
Special Marketing Program:
Volume - On Line 273.2 295.3 296.9 334.3
Volume - Off Line 31.3 36.3 26.5 50.6
--------------------------------------------------------------
Total 304.5 331.6 323.4 384.9
Margin - On Line (cents per MCF) 26.6 22.4 20.7 22.5
Margin - Off Line (cents per MCF) 1.7 1.5 1.3 3.1
--------------------------------------------------------------
Gross Profit $73.2 $66.7 $61.8 $76.6
--------------------------------------------------------------
Transportation:
Volume - Third Party 325.6 330.6 381.6 439.5
Volume - Affiliate 81.4 82.6 94.6 117.2
--------------------------------------------------------------
Total 407.0 413.2 476.2 556.6
Trans Fee-Third Party (cents per MCF) 15.0 12.5 11.8 10.8
Trans Fee-Affiliate (cents per MCF) 11.0 10.0 9.6 9.3
--------------------------------------------------------------
Gross Profit $57.8 $49.6 $54.1 $58.4
--------------------------------------------------------------
--------------------------------------------------------------
Other Income (a) 29.7 29.7 29.7 37.3
--------------------------------------------------------------
Total Gross Profit $167.4 $152.0 $149.9 $175.4
Operating & General Expense 90.4 86.9 89.2 89.3
Depreciation & Amortization 25.8 28.0 28.1 28.4
Storage Costs 0.0 0.0 0.0 12.0
--------------------------------------------------------------
Pipeline Operating Income $51.2 $37.1 $32.6 $45.8
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PROJECT MAINE
HISTORICAL AND PROJECTED FINANCIAL RESULTS
(Dollars in Millions)
PROJECTED
NATURAL GAS PIPELINE 1994 1995 1996 1997 1998
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Transmission:
Volume 17.9 16.4 15.7 15.7 5.2
Sales Margin (cents per MCF) 15.0 15.0 15.0 15.0 15.0
-----------------------------------------------------------------------------
Gross Profit $2.7 $2.5 $2.5 $2.4 $0.8
-----------------------------------------------------------------------------
Special Marketing Program:
Volume - On Line 337.6 349.5 359.9 370.5 370.5
Volume - Off Line 73.0 82.1 91.5 100.4 100.4
-----------------------------------------------------------------------------
Total 410.6 431.6 451.4 470.9 470.9
Margin - On Line (cents per MCF) 22.7 23.6 24.2 24.8 25.6
Margin - Off Line (cents per MCF) 5.0 5.0 5.0 5.0 5.0
-----------------------------------------------------------------------------
Gross Profit $80.1 $86.6 $91.8 $97.0 $99.7
-----------------------------------------------------------------------------
Transportation:
Volume - Third Party 483.2 553.1 554.6 560.4 560.4
Volume - Affiliate 124.4 124.4 124.7 124.4 124.4
-----------------------------------------------------------------------------
Total 607.5 677.5 679.3 684.8 684.8
Trans Fee-Third Party (cents per MCF) 10.0 10.2 10.4 10.4 10.7
Trans Fee-Affiliate (cents per MCF) 9.7 9.7 9.7 9.7 9.7
-----------------------------------------------------------------------------
Gross Profit $60.5 $68.3 $70.0 $70.2 $71.9
-----------------------------------------------------------------------------
------------------------------------------------------------------------------
Other Income (a) 28.0 23.1 23.0 23.1 9.5
------------------------------------------------------------------------------
Total Gross Profit $171.3 $180.4 $187.2 $192.6 $181.9
Operating & General Expense 96.5 98.6 101.5 104.0 107.2
Depreciation & Amortization 28.6 29.2 29.6 30.0 30.0
Storage Costs 12.0 12.0 12.0 12.0 12.0
-----------------------------------------------------------------------------
Pipeline Operating Income $34.2 $40.6 $44.2 $46.6 $32.8
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PROJECT MAINE
HISTORICAL AND PROJECTED FINANCIAL RESULTS
(Dollars in Millions)
PROJECTED
NATURAL GAS PIPELINE 1999 2000 2001 2002 2003
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Transmission:
Volume 0.0 0.0 0.0 0.0 0.0
Sales Margin (cents per MCF) 0.0 0.0 0.0 0.0 0.0
-------------------------------------------------------------------
Gross Profit $0.0 $0.0 $0.0 $0.0 $0.0
-------------------------------------------------------------------
Special Marketing Program:
Volume - On Line 370.5 370.5 370.5 370.5 370.5
Volume - Off Line 100.4 100.4 100.4 100.4 100.4
--------------------------------------------------------------------
Total 470.9 470.9 470.9 470.9 470.9
Margin - On Line (cents per MCF) 26.3 27.1 27.9 28.8 29.6
Margin - Off Line (cents per MCF) 5.0 5.0 5.0 5.0 5.0
-------------------------------------------------------------------
Gross Profit $102.6 $105.5 $108.5 $111.6 $114.8
-------------------------------------------------------------------
Transportation:
Volume - Third Party 560.4 560.4 560.4 560.4 560.4
Volume - Affiliate 124.4 124.4 124.4 124.4 124.4
-------------------------------------------------------------------
Total 684.8 684.8 684.8 684.8 684.8
Trans Fee-Third Party (cents per MCF) 11.0 11.3 11.7 12.0 12.4
Trans Fee-Affiliate (cents per MCF) 9.7 9.7 9.7 9.7 9.7
-------------------------------------------------------------------
Gross Profit $73.7 $75.6 $77.5 $79.4 $81.5
-------------------------------------------------------------------
-------------------------------------------------------------------
Other Income (a) 2.8 2.8 2.8 3.0 3.0
-------------------------------------------------------------------
Total Gross Profit $179.1 $183.8 $188.8 $194.0 $199.2
Operating & General Expense 110.4 113.7 117.1 120.6 124.2
Depreciation & Amortization 30.0 30.0 30.0 30.0 30.0
Storage Costs 12.0 7.2 6.8 6.8 6.8
-------------------------------------------------------------------
Pipeline Operating Income $26.7 $33.0 $34.9 $36.6 $38.2
-------------------------------------------------------------------
</TABLE>
(a) Includes recoveries for storage costs.
<PAGE> 79
<TABLE>
<CAPTION>
PROJECT MAINE
HISTORICAL AND PROJECTED FINANCIAL RESULTS
(Dollars in Millions)
HISTORICAL
NATURAL GAS LIQUIDS 1990 1991 1992 1993
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Production (BBs of gallons) 703.6 773.3 880.0 1,066.8
NGL Market Price (cents per gallon) 31.6 31.5 31.4 30.6
Shrinkage Cost 17.7 18.0 19.9 22.1
---------------------------------------------------------------
Gross Margin per gallon 13.9 13.5 11.5 8.5
---------------------------------------------------------------
Total Gross Margin 97.8 104.4 101.2 90.7
Operating & General Expense 22.6 21.7 28.9 31.1
Depreciation & Amortization 12.3 11.3 6.3 8.4
Production and Marketing 8.7 8.7 8.7 14.1
---------------------------------------------------------------
NGL Operating Income $54.2 $62.7 $57.3 $37.0
---------------------------------------------------------------
Combined Operating Income $105.4 $99.8 $89.9 $82.8
===============================================================
</TABLE>
<TABLE>
<CAPTION>
PROJECT MAINE
HISTORICAL AND PROJECTED FINANCIAL RESULTS
(Dollars in Millions)
PROJECTED
NATURAL GAS LIQUIDS 1994 1995 1996 1997 1998
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Production (BBs of gallons) 1,164.6 1,173.2 1,173.2 1,173.2 1,173.2
NGL Market Price (cents per gallon) 30.5 32.5 33.3 33.7 34.7
Shrinkage Cost 22.3 24.2 24.8 25.1 25.9
------------------------------------------------------------------------------
Gross Margin per gallon 8.2 8.3 8.5 8.6 8.9
------------------------------------------------------------------------------
Total Gross Margin 95.5 97.4 99.7 100.9 103.9
Operating & General Expense 32.2 33.3 34.3 35.4 36.4
Depreciation & Amortization 9.1 9.2 9.7 9.5 9.5
Production and Marketing 15.3 16.7 16.2 17.8 18.3
------------------------------------------------------------------------------
NGL Operating Income $38.9 $38.2 $39.5 $38.2 $39.7
------------------------------------------------------------------------------
Combined Operating Income $73.1 $78.8 $83.7 $84.8 $72.5
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
PROJECT MAINE
HISTORICAL AND PROJECTED FINANCIAL RESULTS
(Dollars in Millions)
PROJECTED
NATURAL GAS LIQUIDS 1999 2000 2001 2002 2003
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Production (BBs of gallons) 1,173.2 1,173.2 1,173.2 1,173.2 1,173.2
NGL Market Price (cents per gallon) 35.8 36.8 37.9 39.1 40.2
Shrinkage Cost 26.6 27.4 28.3 29.1 30.0
---------------------------------------------------------------------
Gross Margin per gallon 9.1 9.4 9.7 10.0 10.3
---------------------------------------------------------------------
Total Gross Margin 107.0 110.3 113.6 117.0 120.5
Operating & General Expense 37.5 38.6 39.8 41.0 42.2
Depreciation & Amortization 9.5 9.5 9.5 9.5 9.5
Production and Marketing 18.9 19.5 20.0 20.6 21.3
---------------------------------------------------------------------
NGL Operating Income $41.2 $42.7 $44.2 $45.9 $47.5
---------------------------------------------------------------------
Combined Operating Income $67.9 $75.7 $79.1 $82.5 $85.8
=====================================================================
</TABLE>
<PAGE> 80
SALOMON BROTHERS INC
DETAILED PRO FORMA
COMBINATION MODEL
<PAGE> 81
<TABLE>
<CAPTION>
TRANSACTION SUMMARY PROJECT MAINE
<S> <C> <C> <C> <C> <C>
PURCHASE ANALYSIS: CONVERTIBLE PREFERRED TERMS: TRANSACTION EXPENSES:
Preferred Exchanged $0.00 Dividend Yield 6.50% Underwriting Fees $2,750
-------
Cash Offered / Share 11.00 Conversion Premium 25.00% Transaction Exp. 10,000
------ -------
Total Consideration / Share $11.00 Conversion Price $30.00 Total Expenses $12,750
------ -------
Premium offered 20.5% Face Value of Preferred $50.00
Total Units Purchased (Thousands) 9,750
MARKET PRICES: SHARES ISSUED (THOUSANDS): GROSS SPREADS:
VLO Stock Price $24.00 Preferred 2,200 Preferred 2.5%
VLP Unit Price $9.13 Common 0 Common 4.5%
SOURCES OF FUNDS: USES OF FUNDS:
Cash $0 Purchase of VLP Units $107,250
Common Stock Issued 0 Debt Reduction 0
Convertible Preferred 110,000 Underwriting Fees $2,750
------- --------
Total $110,000 Total $110,000
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
CALCULATION OF PP&E DEFICIT: CONSIDERATION OFFERED : PER UNIT TOTAL %
Investment in VLP $131,872 Cash $11.000 $107,250 100.0%
VLP Purchase Price 107,250 Convertible Preferred Stock 0.000 0 0.0%
-------------------------------
Transaction Costs 10,000 Total $11.000 $107,250 100.0%
VLP Partnership Equity (162,742)
Leases A/R vs. A/P 74
VLP Debt to VLO (104,839)
---------
Difference (Goodwill)/PP&E deficit ($18,385)
</TABLE>
NOTE: Assumes public offering of convertible preferred; effecting an
exchange offer instead would have an immaterial impact on pro forma earnings
and coverage.
<PAGE> 82
VALUATION AND CREDIT STATISTICS PROJECT MAINE
<TABLE>
<CAPTION>
STATUS QUO
1993 ESTIMATE
---------------------------
VLO VLP
----------------------------
<S> <C> <C>
INCOME
E.P.S.: Primary $1.42 $0.93
Accretion / (Dilution)
Fully Diluted $1.42 $0.58
Accretion / (Dilution)
Cash Flow per Share $3.63 $2.80
Accretion / (Dilution)
DEBT/TOTAL BOOK CAPITALIZATION (a)
Including Guarantees 39% 80%
Excluding Guarantees 38% 80%
FIRM VALUE AS A MULTIPLE OF (a):
EBDIAT 7.5 6.4
STOCK PRICE AS A MULTIPLE OF (a):
E.P.S. 16.9 15.7
Cash Flow per Share 6.6 3.3
COVERAGE
EBDIAT / Gross Interest 4.3 1.8
EBDIAT / Gross Interest & Pfd. Div. 4.2 1.8
EBDIAT - Capex / Gross Interest & Pfd. Div. 1.4 1.1
Fixed Charge Ratio (b) 2.9 1.2
Cash Flow / Total Debt 31% 8%
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PROJECTED PRO FORMA
-----------------------------------------------
1993 1994 1995 1996 1997
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME
E.P.S.: Primary $1.44 $1.55 $2.55 $ 2.85 $2.92
Accretion / (Dilution) 2% -10% -1% -1% -3%
Fully Diluted $1.44 $1.55 $2.50 $ 2.78 $2.85
Accretion / (Dilution) 2% -10% -3% -4% -6%
Cash Flow per Share $4.65 $4.94 $5.84 $ 6.31 $6.39
Accretion / (Dilution) 28% 20% 19% 21% 27%
DEBT/TOTAL BOOK CAPITALIZATION (a)
Including Guarantees 53% 53% 50% 45% 40%
Excluding Guarantees 52% 52% 48% 42% 36%
FIRM VALUE AS A MULTIPLE OF (a):
EBDIAT 6.9 6.6 5.9 5.5 5.4
STOCK PRICE AS A MULTIPLE OF (a):
E.P.S. 16.6 15.4 9.4 8.4 8.2
Cash Flow per Share 5.2 4.9 4.1 3.8 3.8
COVERAGE
EBDIAT / Gross Interest 3.1 3.2 3.8 4.4 5.0
EBDIAT / Gross Interest & Pfd. Div. 2.8 3.0 3.5 4.0 4.6
EBDIAT - Capex / Gross Interest & Pfd. Div. 1.2 2.0 2.4 2.8 3.6
Fixed Charge Ratio (b) 1.9 1.9 2.5 2.9 3.2
Cash Flow / Total Debt 18% 18% 22% 27% 32%
</TABLE>
- ----------------------------
(a) Includes or excludes guarantees on PROESA and Javelina debt
(b) Assumes VLO stock price remains constant at $24.00
(c) Pretax Income + Net Interest / Gross Interest + Preferred Dividends +
Mandatory Preferred Redemption
<PAGE> 83
SENSITIVITY TO OFFER PRICE PROJECT MAINE
IMPACT ON 1993 PRO FORMA RESULTS
<TABLE>
<CAPTION>
VLO
1993E
ASSUMED OFFER PRICE STATUS QUO
------------------- ----------
<S> <C>
INCOME
E.P.S.: Primary $ 1.42
Accretion / (Dilution)
Fully Diluted $ 1.42
Accretion / (Dilution)
Cash Flow per Share $ 3.63
Accretion / (Dilution)
DEBT/TOTAL BOOK CAPITALIZATION (a)
Including Guarantees 39%
Excluding Guarantees 38%
FIRM VALUE AS A MULTIPLE OF (a):
EBDIAT 7.5
STOCK PRICE AS A MULTIPLE OF (a):
E.P.S. 16.9
Cash Flow per Share 6.6
COVERAGE
EBDIAT / Gross Interest 4.3
EBDIAT / Gross Interest & Pfd. Div. 4.2
EBDIAT - Capex / Gross Interest & Pfd. Div. 1.4
Fixed Charge Ratio (b) 2.9
Cash Flow / Total Debt 31%
</TABLE>
<TABLE>
<CAPTION>
OFFER PRICE PER UNIT
----------------------------------------------------------------------------
ASSUMED OFFER PRICE $10.00 $11.00 $12.00 $13.00 $ 14.00 $15.00
------------------- ------ ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
INCOME
E.P.S.: Primary $ 1.47 $ 1.44 $ 1.42 $1.40 $ 1.37 $1.35
Accretion / (Dilution) 3% 2% 0% -2% -3% -5%
Fully Diluted $ 1.47 $ 1.44 $ 1.42 $1.40 $ 1.37 $1.35
Accretion / (Dilution) 3% 2% 0% -2% -3% -5%
Cash Flow per Share $ 4.66 $ 4.65 $ 4.64 $4.63 $ 4.63 $4.62
Accretion / (Dilution) 28% 28% 28% 28% 27% 27%
DEBT/TOTAL BOOK CAPITALIZATION (a)
Including Guarantees 53% 53% 53% 52% 52% 52%
Excluding Guarantees 53% 52% 52% 52% 52% 51%
FIRM VALUE AS A MULTIPLE OF (a):
EBDIAT 6.9 6.9 6.9 7.0 7.0 7.0
STOCK PRICE AS A MULTIPLE OF (a):
E.P.S. 16.4 16.6 16.9 17.2 17.5 17.8
Cash Flow per Share 5.2 5.2 5.2 5.2 5.2 5.2
COVERAGE
EBDIAT / Gross Interest 3.1 3.1 3.1 3.1 3.1 3.1
EBDIAT / Gross Interest & Pfd. Div. 2.8 2.8 2.8 2.8 2.8 2.8
EBDIAT - Capex / Gross Interest & Pfd. Div. 1.2 1.2 1.2 1.2 1.2 1.2
Fixed Charge Ratio (b) 1.9 1.9 1.9 1.9 1.9 1.8
Cash Flow / Total Debt 18% 18% 18% 18% 18% 18%
</TABLE>
- ----------------------------
(a) Includes or excludes guarantees on PROESA and Javelina debt
(b) Assumes VLO stock price remains constant at $24.00
(c) Pretax Income + Net Interest / Gross Interest + Preferred Dividends +
Mandatory Preferred Redemption
<PAGE> 84
SENSITIVITY TO CONVERT & COMMON OFFER SIZE PROJECT MAINE
IMPACT ON 1993 PRO FORMA RESULTS
<TABLE>
<CAPTION>
VLO SIZE OF CONVERTIBLE PREFERRED ISSUE
1993E -----------------------------------------
ASSUMED OFFER PRICE STATUS QUO $110,000 $150,000 $200,000
------------------- ---------- -------- -------- --------
<S> <C> <C> <C> <C>
INCOME
E.P.S.: Primary $ 1.42 $ 1.44 $ 1.41 $ 1.38
Accretion / (Dilution) 2% 0% -3%
Fully Diluted $ 1.42 $ 1.44 $ 1.41 $ 1.38
Accretion / (Dilution) 2% 0% -3%
Cash Flow per Share $ 3.63 $ 4.65 $ 4.62 $ 4.59
Accretion / (Dilution) 28% 27% 26%
DEBT/TOTAL BOOK CAPITALIZATION (a)
Including Guarantees 39% 53% 51% 49%
Excluding Guarantees 38% 52% 50% 48%
FIRM VALUE AS A MULTIPLE OF (a):
EBDIAT 7.5 6.9 6.9 6.9
STOCK PRICE AS A MULTIPLE OF (a):
E.P.S. 16.9 16.6 17.0 17.4
Cash Flow per Share 6.6 5.2 5.2 5.2
COVERAGE
EBDIAT / Gross Interest 4.3 3.1 3.1 3.2
EBDIAT / Gross Interest & Pfd. Div. 4.2 2.8 2.8 2.8
EBDIAT - Capex / Gross Interest & Pfd. Div. 1.4 1.2 1.2 1.2
Fixed Charge Ratio (b) 2.9 1.9 1.9 1.9
Cash Flow / Total Debt 31% 18% 19% 20%
</TABLE>
<TABLE>
<CAPTION>
SIZE OF COMMON ISSUE
----------------------------------------
ASSUMED OFFER PRICE $112,304 $ 150,000 $200,000
------------------- -------- --------- --------
<S> <C> <C> <C>
INCOME
E.P.S.: Primary $ 1.45 $ 1.43 $ 1.40
Accretion / (Dilution) 2% 1% -1%
Fully Diluted $ 1.45 $ 1.43 $ 1.40
Accretion / (Dilution) 2% 1% -1%
Cash Flow per Share $ 4.35 $ 4.24 $ 4.10
Accretion / (Dilution) 20% 17% 13%
DEBT/TOTAL BOOK CAPITALIZATION (a)
Including Guarantees 53% 51% 49%
Excluding Guarantees 52% 51% 48%
FIRM VALUE AS A MULTIPLE OF (a):
EBDIAT 6.9 6.9 6.9
STOCK PRICE AS A MULTIPLE OF (a):
E.P.S. 16.5 16.8 17.1
Cash Flow per Share 5.5 5.7 5.9
COVERAGE
EBDIAT / Gross Interest 3.1 3.1 3.2
EBDIAT / Gross Interest & Pfd. Div. 3.0 3.1 3.2
EBDIAT - Capex / Gross Interest & Pfd. Div. 1.3 1.3 1.3
Fixed Charge Ratio (b) 2.0 2.1 2.1
Cash Flow / Total Debt 19% 20% 21%
</TABLE>
- -----------------------
(a) Includes or excludes guarantees on PROESA and Javelina debt
(b) Assumes VLO stock price remains constant at $24.00
(c) Pretax Income + Net Interest / Gross Interest + Preferred Dividends +
Mandatory Preferred Redemption
<PAGE> 85
INCOME STATEMENT PROJECT MAINE
<TABLE>
<CAPTION>
ADJUSTMENTS
1993 ESTIMATE -------------------------
------------------------ CONSOLI- PURCHASE
INCOME STATEMENT VLO VLP DATING ACCT.
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Operating Revenues $1,269,469 $1,321,146 ($ 279,622) $ 4,554
Operating Expenses:
Cost of Sales 971,645 1,081,411 (198,646) (274)
Operating & General Expenses 97,275 118,075 (80,976) 5,353
EBDIAT (before equity income) 200,549 121,660 0 (525)
Depreciation & Amortization 81,626 38,918 (2,847) (4,816)
------------------------------------------------------------------
EBIT (before equity income) 118,923 82,742 2,847 4,291
Other Income and (Expense)
Equity in Earnings of VLP 11,854 (11,854)
Equity in Earnings of Javelina (1,257)
Equity in Earnings of Proesa
Equity in Earnings of Misc. JVs
Interest and Other Income 11,924 1,237 (13,178) 294
Gain on Sale of Assets 10,732
------------------------------------------------------------------
EBIT 152,176 83,979 (22,185) 4,585
Interest Expense:
Interest Incurred (49,592) (68,488) 12,822 231
Interest Capitalized 12,763 1,678
------------------------------------------------------------------
Net Interest Expense (36,829) (66,810) 12,822 231
PRE TAX INCOME 115,347 17,169 (9,363) 4,816
------------------------------------------------------------------
Taxes:
Cash 21,000 (1,468) 117
Deferred 31,100 4,200 1,629
------------------------------------------------------------------
Total Taxes 52,100 0 2,732 1,746
Net Income 63,247 17,169 (12,095) 3,071
Preferred Dividends 1,262 7,150
------------------------------------------------------------------
NET INCOME TO COMMON $ 61,985 $ 17,169 ($ 19,245) $ 3,071
==================================================================
</TABLE>
<TABLE>
<CAPTION>
PROJECTED PRO FORMA
PRO FORMA -----------------------------------------------
INCOME STATEMENT 1993 1994 1995 1996 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Operating Revenues $2,315,547
Operating Expenses:
Cost of Sales 1,854,136
Operating & General Expenses 139,727
-------------------------------------------------------------
EBDIAT (before equity income) 321,684 334,589 377,797 399,101 404,003
Depreciation & Amortization 112,881 117,166 119,518 121,752 125,293
-------------------------------------------------------------
EBIT (before equity income) 208,803 217,424 258,280 277,350 278,711
Other Income and (Expense)
Equity in Earnings of VLP 0 0 0 0 0
Equity in Earnings of Javelina (1,257) (329) (1,051) (1,091) (1,118)
Equity in Earnings of Proesa 0 0 0 6,815 8,177
Equity in Earnings of Misc. JVs 0 0 0 0 0
Interest and Other Income 277 2,951 6,676 11,551 5,493
Gain on Sale of Assets 10,732 9,300
-------------------------------------------------------------
EBIT 218,555 220,046 273,205 294,625 291,263
Interest Expense:
Interest Incurred (105,027) (103,743) (100,226) (92,658) (81,738)
Interest Capitalized 14,441 5,459 11,159 5,982 3,171
-------------------------------------------------------------
Net Interest Expense (90,586) (98,284) (89,067) (86,677) (78,567)
PRE TAX INCOME 127,969 121,762 184,138 207,948 212,696
-------------------------------------------------------------
Taxes:
Cash 19,649 14,963 31,561 43,465 48,687
Deferred 36,929 30,500 33,000 31,900 28,100
-------------------------------------------------------------
Total Taxes 56,478 45,463 64,561 75,365 76,787
Net Income 71,492 76,299 119,577 132,582 135,909
Preferred Dividends 8,412 8,314 8,216 8,119 8,019
-------------------------------------------------------------
NET INCOME TO COMMON $ 63,080 $ 67,985 $ 111,361 $ 124,463 $ 127,890
=============================================================
</TABLE>
<PAGE> 86
CASH FLOW STATEMENT PROJECT MAINE
<TABLE>
<CAPTION>
ADJUSTMENTS
1993 ESTIMATE -------------------
------------------------ CONSOLI- PURCHASE
VLO VLP DATING ACCT.
-------------------------------------------------
CASH FLOW FROM OPERATIONS
<S> <C> <C> <C> <C>
Net Income 63,247 17,169 (12,095) 3,071
------- ------ ------ -----
Book Depreciation & Amortization 56,572 36,402 (2,847) 2,103
Amortization of Deferred Charges/Other 25,054 2,516 (6,919)
Deferred Taxes 31,100 4,200 1,629
(Gain) or Loss on Disposition (10,732)
Equity in Earnings of VLP (11,854) 0 11,854 0
Equity in Earnings of Javelina 1,257 0 0 0
Equity in Earnings of Proesa 0 0 0 0
Equity in Earnings of Misc. JVs 0 0 0 0
Distributions Received from VLP 5,449 (5,449)
Distributions Received from Proesa 0 0 0 0
------- ------ ------ -----
TOTAL (before working capital) 160,093 56,087 (4,337) (117)
WORKING CAPITAL CHANGES
Net Working Capital 19,323 (28,821) 0 0
Changes in Current Assets
Changes in Current Liabilities
Changes in Deferred Lease Obligation (939) 871 0 0
Changes in Deferred Charges & Credits (13,331) 2,318 0 0
------- ------ ------ -----
TOTAL 165,146 30,455 (4,337) (117)
CASH FLOW FROM INVESTING
Capital Expenditures (141,826) (44,177)
Deferred Turnaround costs (23,370)
Distributions in Excess of Earnings 120
Investments in and Advances to VLP (116,254)
Principal Repay on Lease with LP 528
Investment in Javelina (720)
Investment in Coal Seam (1,241)
Investment in Proesa (3,950)
Investment in Misc. JVs 0
Other, Net 30,784 2,497
------- ------ ------ -----
TOTAL (255,929) (41,680) 0 0
</TABLE>
<TABLE>
<CAPTION>
PROJECTED PRO FORMA
PRO FORMA -----------------------------------------------
1993 1994 1995 1996 1997
-------------------------------------------------------------
CASH FLOW FROM OPERATIONS
<S> <C> <C> <C> <C> <C>
Net Income 71,492 76,299 119,577 132,582 135,909
------- ------- ------- ------- -------
Book Depreciation & Amortization 92,230 97,838 99,682 101,027 107,866
Amortization of Deferred Charges/Other) 20,651 19,328 19,836 20,725 17,427
Deferred Taxes 36,929 30,500 33,000 31,900 28,100
(Gain) or Loss on Disposition (10,732) (9,300)
Equity in Earnings of VLP 0 0 0 0 0
Equity in Earnings of Javelina 1,257 329 1,051 1,091 1,118
Equity in Earnings of Proesa 0 0 0 (6,815) (8,177)
Equity in Earnings of Misc. JVs 0 0 0 0 0
Distributions Received from VLP 0 0 0 0 0
Distributions Received from Proesa 0 0 0 3,453 5,228
------- ------- ------- ------- -------
TOTAL (before working capital) 211,826 224,293 263,846 283,963 287,470
WORKING CAPITAL CHANGES
Net Working Capital (9,498) 0 0 0 0
Changes in Current Assets 0 (25,340) (11,361) (2,543) 15,065
Changes in Current Liabilities 0 (39,213) 1,019 (369) 2,516
Changes in Deferred Lease Obligation (68) 0 0 0 0
Changes in Deferred Charges & Credits (11,013) 12,485 16,809 15,860 7,250
------- ------- ------- ------- -------
TOTAL 191,247 172,225 270,313 296,911 312,301
CASH FLOW FROM INVESTING
Capital Expenditures (186,003) (108,250) (119,207) (118,780) (92,222)
Deferred Turnaround costs (23,370) (17,341) (22,755) (16,524) (28,716)
Distributions in Excess of Earnings 120
Investments in and Advances to VLP (116,254)
Principal Repay on Lease with LP 528
Investment in Javelina (720) 0 0 0 0
Investment in Coal Seam (1,241) 355 2,030 0 0
Investment in Proesa (3,950) (56,577) (7,352) 3,465 0
Investment in Misc. JVs 0 0 0 0 0
Other, Net 33,281 2,000 12,500 0 0
------- ------- ------- ------- -------
TOTAL (297,609) (179,813) (134,784) (131,839) (120,938)
</TABLE>
<PAGE> 87
CASH FLOW STATEMENT (CONT'D) PROJECT MAINE
<TABLE>
<CAPTION>
ADJUSTMENTS
1993 ESTIMATE ------------------------
---------------------- CONSOLI- PURCHASE
CASH FLOW FROM FINANCING VLO VLP DATING ACCT.
----------------------------------------------
<S> <C> <C> <C> <C>
Preferred Dividends (1,270) (7,150)
Common stock dividends (19,821) 0
Preferred Stock Redemption (1,150) 107,250
Common Stock Issuance 3,034 0 0 0
Proceeds from Unexpended Debt (25,357)
Bank Line Borrowings/Reductions 5,828 (762) 0 0
Short-Term Note Increase (Decrease) 8,300 46,500 0 0
Principal Payments on Embedded Debt (15,000) 0 0 0
(Increase) Decrease in Principal Escrow 0 (1,875) 0 0
Distributions from Partners (10,445) 10,445
Additional Debt Borrowing / (Amortization)
------- ----- ------- ---
TOTAL (20,079) 8,061 110,545 0
Increase/(Decrease In Cash Balance ($110,862) ($3,164) $106,208 ($117)
======= ===== ======= ===
Cash Balance at Beginning of Period 8,174 6,598
Cash Balance at End of Period (102,688) 3,434 106,208 (117)
</TABLE>
<TABLE>
<CAPTION>
PROJECTED PRO FORMA
CASH FLOW FROM FINANCING PRO FORMA ----------------------------------------------
1993 1994 1995 1996 1997
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Preferred Dividends (8,420) (8,322) (8,224) (8,127) (8,027)
Common stock dividends (19,821) (23,353) (26,859) (30,343) (33,830)
Preferred Stock Redemption 106,100 (1,150) (1,150) (1,150) (1,150)
Common Stock Issuance 3,034 2,059 792 644 644
Proceeds from Unexpended Debt (25,357)
Bank Line Borrowings/Reductions 5,066 47,075 (21,152) (44,959) (29,791)
Short-Term Note Increase (Decrease) 54,800 48,500 (16,500) (11,000) (27,500)
Principal Payments on Embedded Debt (15,000) (55,143) (60,643) (67,943) (70,443)
(Increase) Decrease in Principal Escrow (1,875) (1,875) (1,875) (1,875) (1,876)
Distributions from Partners 0
Additional Debt Borrowing / (Amortization) 0 (203) 82 (319) (19,390)
------ ----- ------- ------- -------
TOTAL 98,527 7,588 (135,529) (165,072) (191,363)
------ ----- ------- ------- -------
Increase/(Decrease In Cash Balance ($7,934) $0 $0 $0 $0
====== ===== ======= ======= =======
Cash Balance at Beginning of Period 7,000 7,000 7,000 7,000
Cash Balance at End of Period 7,000 7,000 7,000 7,000 7,000
</TABLE>
<PAGE> 88
BALANCE SHEET PROJECT MAINE
<TABLE>
<CAPTION>
ADJUSTMENTS
1993 ESTIMATE ----------------------------
------------------------- CONSOLI- PURCHASE
VLO VLP DATING ACCT.
-----------------------------------------------------
<S> <C> <C> <C> <C>
Current Assets:
Cash $ 7,000 $ 3,434 ($ 3,434) $ 0
Other Current Assets 287,058 193,904 (48,630)
--------- --------- --------
Total Current Assets 294,058 197,338 (52,064)
Property, Plant, & Equipment 1,299,497 748,384 (18,385) 32,866
Investment in and Advances to VLP 131,872 (131,872)
Investment in Javelina 16,914
Investment in Coal Seam 7,136
Investment in Proesa 4,039
Investment in Misc. JVs 0
Deferred Charges & Credits (net) 39,907 79,284 0 (32,866)
--------- --------- ------- ------
Total Assets 1,793,423 1,025,006 (202,321) 0
========= ========= ======= ======
Liabilities & Stockholders' Equity
Current Maturities of LTD 28,737 27,857
Short Term Notes 15,000 46,500
Current Maturities Lease 1,052 (1,052)
Other Current Liabilities 161,210 176,639 (48,556) 0
--------- --------- ------- ------
Total Current Liabilities 204,947 252,048 (49,608) 0
Long-Term Debt Less Current Maturities 452,883 506,429 6,566
Capital Lease Obligations 103,787 (103,787) 0
Deferred Income Taxes 253,188 0
Redeemable Preferred Stock 13,800 0 0 0
--------- --------- ------- ------
Total Liabilities 924,818 862,264 (146,829) 0
Partnership Equity 162,742 (162,742) 0
Convertible Preferred Stock 110,000
Common Stock 868,602 0 (2,750) 0
--------- --------- ------- ------
Shareholders' Equity 868,602 162,742 (55,492) 0
Total Liabilities &
Stockholders' Equity $1,793,420 $1,025,006 ($202,321) $ 0
========= ========= ======= ======
Shares Outstanding 43,741.9 18,500.0
</TABLE>
<TABLE>
<CAPTION>
PROJECTED PRO FORMA
PRO FORMA -------------------------------------------------------
1993 1994 1995 1996 1997
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash $ 7,000 $ 7,000 $ 7,000 $ 7,000 $ 7,000
Other Current Assets 432,332 459,547 472,783 477,201 464,012
--------- --------- --------- --------- ---------
Total Current Assets 439,332 466,547 479,783 484,201 471,012
Property, Plant, & Equipment 2,062,362 2,070,460 2,086,469 2,103,907 2,087,947
Investment in and Advances to VLP 0 0 0 0 0
Investment in Javelina 16,914 16,585 15,534 14,443 13,325
Investment in Coal Seam 7,136 3,597 0 0 0
Investment in Proesa 4,039 60,616 67,968 67,865 70,814
Investment in Misc. JVs 0 0 0 0 0
Deferred Charges & Credits (net) 86,325 73,557 61,220 42,322 47,477
--------- --------- --------- --------- ---------
Total Assets 2,616,108 2,691,362 2,710,974 2,712,738 2,690,575
========= ========= ========= ========= =========
Liabilities & Stockholders' Equity
Current Maturities of LTD 56,594 62,230 69,679 72,341 75,018
Short Term Notes 61,500 110,000 93,500 82,500 55,000
Current Maturities Lease 0 0 0 0 0
Other Current Liabilities 289,293 250,080 251,099 250,730 253,246
--------- --------- --------- --------- ---------
Total Current Liabilities 407,387 422,310 414,278 405,571 383,264
Long-Term Debt Less Current Maturities 965,878 950,518 859,769 742,150 617,952
Capital Lease Obligations 0 0 0 0 0
Deferred Income Taxes 253,188 280,505 311,937 343,837 371,937
Redeemable Preferred Stock 13,800 12,650 11,500 10,350 9,200
--------- --------- --------- --------- ---------
Total Liabilities 1,640,253 1,665,983 1,597,484 1,501,908 1,382,353
Partnership Equity 0 0 0 0 0
Convertible Preferred Stock 110,000 110,000 110,000 110,000 110,000
Common Stock 865,852 915,377 1,003,489 1,100,829 1,198,222
--------- --------- --------- --------- ---------
Shareholders' Equity 975,852 1,025,377 1,113,489 1,210,829 1,308,222
Total Liabilities &
Stockholders' Equity $2,616,105 $2,691,359 $2,710,973 $2,712,737 $2,690,575
========= ========= ========= ========= =========
Shares Outstanding 43,741.9 43,741.9 43,741.9 43,741.9 43,741.9
</TABLE>
<PAGE> 89
SALOMON BROTHERS INC
STOCK PRICE
PERFORMANCE GRAPHS
77
<PAGE> 90
SALOMON BROTHERS INC
Price Profile of VLP vs. Index
VALERO NATURAL GAS PARTNERS, LP
DAILY DATA - 1/1/91 THROUGH 10/1/93
[graph 78]
_________ Valero Natural Gas Partners, LP
- --------- Index of Intrastate Pipeline Companies (AOG,DGP,NGA,TEJ,WGR)
78
<PAGE> 91
SALOMON BROTHERS INC
Price (%) Profile
WEEKLY DATA - 1/5/90 THROUGH 10/1/93
[chart 79]
Valero Natural Gas Partners, L.P. Buckeye Partners, L.P.
Kaneb Pipe Line Partners, L.P. TEPPCO Partners, L.P.
Lakehead Pipe Line Partners, L.P. Enron Liquids Pipeline, L.P.
Santa Fe Pacific Pipeline Partners, L.P.
79
<PAGE> 92
SALOMON BROTHERS INC
Yield Profile
WEEKLY DATA - 1/5/90/ THROUGH 10/1/93
[chart 80]
<TABLE>
<CAPTION>
Summary Statistics:
High Low Average Latest
<S> <C> <C> <C> <C>
Valero Natural Gas Partners, L.P. 31.25% 5.19% 15.83% 5.41%
Buckeye Partners, L.P. 11.24% 6.93% 9.26% 7.05%
Kaneb Pipe Line Partners, L.P. 15.44% 2.59% 10.68% 8.26%
TEPPCO Partners, L.P. 13.33% 0.80% 9.73% 7.93%
Lakehead Pipe Line Partners, L.P. 11.04% 7.23% 9.13% 7.23%
Enron Liquids Pipeline, L.P. 9.21% 7.39% 8.09% 7.96%
Santa Fe Pacific Pipeline Partners, L.P. 10.95% 7.00% 8.54% 7.34%
</TABLE>
80
<PAGE> 93
SALOMON BROTHERS INC
GATHERING,
TRANSMISSION AND
PROCESSING
COMPARABLES
81
<PAGE> 94
SALOMON BROTHERS INC
GAS TRANSMISSION & PROCESSING COMPANIES - COMPARABLE ANALYSIS
Dollars in Millions, except per Share Amounts
<TABLE>
<CAPTION>
ANNUAL AVG. DAILY
PRICE MARKET FIRM TOTAL BOOK LTM DIVIDEND TRADING
10/6/93 VALUE VALUE (a) DEBT VALUE (b) SALES CASH PER SHARE VOLUME
------- ----- --------- ---- --------- ----- ---- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PUBLICLY TRADED COMPANIES
AOG American Oil and Gas Corporation (f) $12.000 $308 $385 $86 $188 $504 $10 $0.00 21,694
NGA Associated Natural Gas Corporation 36.875 481 609 149 164 1,320 20 0.12 28,136
TEJ Tejas Gas Corporation (g) 59.375 610 1,019 369 234 988 11 0.00 13,316
DGP USX-Delhi Group (k) 22.875 322 413 89 203 503 0 0.20
WGR Western Gas Resources 44.625 1,143 1,361 152 299 716 9 0.20 63,058
FILED TRANSACTIONS
Aquila Gas Pipeline 14,000 419 529 129 134 214 19 0.05
Trident NGL, Inc. (j) 26,500 486 809 348 267 636 25 0.10
</TABLE>
<TABLE>
<CAPTION>
EARNINGS PER SHARE (c) CASH FLOW PER SHARE (d) EBDIAT (e)
---------------------------- ------------------------------ -------------------------
LTM 1993E 1994E LTM 1993E 1994E LTM 1993E 1994E
--- ----- ----- --- ----- ----- --- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PUBLICLY TRADED COMPANIES
AOG American Oil and Gas Corporation $0.51 $0.69 $0.97 $1.12 $1.39 $1.67 $45 $52 $63
NGA Associated Natural Gas Corporation 1.46 1.49 1.88 3.58 3.55 3.94 65 67 75
TEJS Tejas Gas Corporation 2.20 1.63 2.28 5.74 4.32 4.97 98 89 100
DGP USX-Delhi Group 1.35 1.39 1.74 4.27 4.28 4.63 77 85 95
WGR Western Gas Resources, Inc. 1.55 1.78 2.26 3.10 3.30 3.78 105 116 134
FILED TRANSACTIONS
Aquila Gas Pipeline 0.82 NA NA 2.11 NA NA 65 NA NA
Trident NGL, Inc. 1.39 NA NA 3.93 NA NA 109 NA NA
</TABLE>
<PAGE> 95
GAS TRANSMISSION & PROCESSING COMPANIES - COMPARABLE ANALYSIS
VALUATION INDICATORS
<TABLE>
<CAPTION>
PRICE/EARNINGS PRICE/CASH FLOW FIRM VALUE/EBDIAT
---------------------------- ----------------------------- -------------------------
LTM 1993E 1994E LTM 1993E 1994E LTM 1993E 1994E
--- ----- ----- --- ----- ----- --- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PUBLICLY TRADED COMPANIES
AOG American Oil and Gas Corporation 23.7x 17.4x 12.4x 10.7x 8.6x 7.2x 8.6x 7.4x 6.1x
NGA Associated Natural Gas Corporation 25.2 24.7 19.6 10.3 10.4 9.4 9.4 9.1 8.1
TEJS Tejas Gas Corporation 27.0 36.4 26.0 10.3 13.8 12.0 10.4 11.4 10.2
DGP USX-Delhi Group 16.9 16.5 13.1 5.4 5.3 4.9 5.4 4.8 4.4
WGR Western Gas Resources, Inc. 28.8 25.1 19.7 14.4 13.5 11.8 13.0 11.7 10.1
HIGH: 28.8 36.4 26.0 14.4 13.8 12.0 13.0 11.7 10.2
AVERAGE: 24.3 24.0 18.2 10.2 10.3 9.1 9.4 8.9 7.8
MEDIAN: 25.2 24.7 19.6 10.3 10.4 9.4 9.4 9.1 8.1
LOW: 16.9 16.5 12.4 5.4 5.3 4.9 5.4 4.8 4.4
FILED TRANSACTIONS
Aquila Gas Pipeline 17.1 NA NA 6.6 NA NA 8.1 NA NA
Trident NGL, Inc. 19.1 NA NA 6.7 NA NA 7.4 NA NA
</TABLE>
CREDIT STATISTICS
<TABLE>
<CAPTION>
DEBT/CAP
---------------------- LTM
BOOK MARKET DIVIDEND DIVIDEND EBDIAT/ PRICE/
CAP CAP YIELD COVERAGE PAYOUT INTEREST BOOK VALUE
--- --- ----- -------- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PUBLICLY TRADED COMPANIES
AOG American Oil and Gas Corporation 32% 22% 0.0% NM 0% 5.2x 1.6x
NGA Associated Natural Gas Corporation 44% 24% 0.2% 12.2 8% 5.2 2.9
TEJS Tejas Gas Corporation 56% 38% 0.0% NM 0% 3.8 2.6
DGP USX-Delhi Group 31% 22% 0.9% 6.8 15% 14.2 1.6
WGR Western Gas Resources, Inc. 29% 12% 0.4% 7.7 13% 11.7 3.8
HIGH: 56% 38% 0.9% 12.2x 15% 14.2x 3.8x
AVERAGE: 38% 23% 0.3% 8.9 7% 8.0 2.5
MEDIAN: 32% 22% 0.2% 7.7 8% 5.2 2.6
LOW: 29% 12% 0.0% 6.8 0% 3.8 1.6
FILED TRANSACTIONS
Aquila Gas Pipeline 48% 24% NA NA NA 8.3 3.1
Trident NGL, Inc. 57% 42% 0.4% 13.9 7% 2.7 1.8
</TABLE>
<PAGE> 96
PROFITABILITY AND RETURN RATIOS
<TABLE>
<CAPTION>
NET
GROSS EBDIAT/ EBIT INCOME/ EBDIAT/ NET INCOME/ EBDIAT/ NET INCOME/ EBDIAT/
MARGIN REVENUE REVENUE REVENUE TOT ASSETS TOT ASSETS PP&E PP&E FIRM VALUE
------ ------- ------- ------- ---------- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PUBLICLY TRADED COMPANIES
American Oil and Gas Corporation 17% 9% 6% 3% 12% 3% 17% 5% 12%
Associated Natural Gas Corporation 8% 5% 3% 1% 12% 4% 19% 6% 11%
Tejas Gas Corporation 15% 10% 7% 2% 12% 3% 17% 4% 10%
USX-Delhi Group 23% 15% 7% 4% 14% 3% 15% 4% 19%
Western Gas Resources, Inc. 26% 15% 10% 6% 17% 7% 22% 8% 8%
HIGH: 26% 15% 10% 6% 17% 7% 22% 8% 19%
AVERAGE: 18% 11% 7% 3% 13% 4% 18% 5% 12%
MEDIAN: 17% 10% 7% 3% 12% 3% 17% 5% 11%
LOW: 8% 5% 3% 1% 12% 3% 15% 4% 8%
FILED TRANSACTIONS
Aquila Gas Pipeline 20% 30% 23% 11% 17% 7% 22% 8% 12%
Trident NGL, Inc. NA 17% 12% 4% 15% 3% 19% 4% 13%
</TABLE>
OPERATING PERFORMANCE
<TABLE>
<CAPTION>
($/MMCF/YR)
-------------------------
MILES OF THROUGH- REVENUE/ EBDIAT/ REVENUE/ EBDIAT/
PIPELINE PUT PIPELINE PIPELINE THROUGHOUT THROUGHOUT
-------- --- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
PUBLICLY TRADED COMPANIES
American Oil and Gas Corporation 5,634 877 89,446 7,938 1,574 140
Associated Natural Gas Corporation 4,400 808 299,899 14,730 4,474 220
Tejas Gas Corporation 2,626 1,079 376,085 37,167 2,508 248
USX-Delhi Group 8,557 798 58,806 8,940 1,728 263
Western Gas Resources, Inc. 9,258 580 77,342 11,315 3,382 495
HIGH: 9,258 1,079 376,085 37,167 4,474 495
AVERAGE: 6,095 828 180,316 16,018 2,733 273
MEDIAN: 5,634 808 89,446 11,315 2,508 248
LOW: 2,626 580 58,806 7,938 1,574 140
FILED TRANSACTIONS
Aquila Gas Pipeline 22,235 1,439 9,642 2,932 408 124
Trident NGL, Inc. 8,000 52 79,550 13,575 33,530 5,722
</TABLE>
<PAGE> 97
SALOMON BROTHERS INC
REFINING AND
MARKETING
COMPARABLES
<PAGE> 98
SALOMON BROTHERS INC
REFINING & MARKETING COMPANIES
FINANCIAL DATA
<TABLE>
<CAPTION>
EQUITY
10/6/93 MARKET TOTAL BOOK FIRM BOOK MARKET
COMPANY PRICE VALUE DEBT EQUITY CASH VALUE CAP. CAP.
- ------------ --------- --------- -------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ashland Oil, Inc. $35,125 $2,106 $1,633.8 $1,407.8 $ 51.0 $3,989.2 $3,041.2 $4,040.2
Crown Central Petroleum Corp. 13.750 136 61.5 295.3 31.8 166.1 356.7 197.9
Diamond Shamrock Inc. 24.750 713 528.5 536.9 12.5 1,314.9 1,065.4 1,327.4
FINA, Inc. 69.750 1,088 968.6 1,115.5 7.2 2,049.0 2,084.0 2,056.2
Holly Corporation 29.375 242 90.0 36.4 1.4 331.0 126.4 332.4
Sun Company 29,625 3,156 939.0 1,909.0 100.0 4,377.8 2,848.0 4,094.8
Tosco Corporation 28.250 827 507.7 404.0 91.4 1,358.2 911.7 1,449.6
Ultramar Corporation 24.750 944 512.8 529.4 155.6 1,301.8 1,042.2 1,457.2
Valero Energy Corporation $24.000 $1,034 $551.9 $853.6 $7.8 $1,578.6 1,405.5 $1,586.4
</TABLE>
<TABLE>
<CAPTION>
LTM LTM LTM LTM LTM LTM LTM NET ASSET
Company REVENUES INTEREST DD&A EBITDA EBIT CASH FLOW EARNINGS VALUE
- ------------ -------- -------- ---- ------ ---- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ashland Oil, Inc. $10,391 $140.8 $305.8 $517.4 $211.6 $389.0 $77.0 $35.80
Crown Central Petroleum Corp. 1,826 7.7 42.1 37.3 (4.8) 24.6 (16.7) NA
Diamond Shamrock Inc. 2,647 45.0 59.1 148.1 89.0 98.9 33.5 21.14
FINA, Inc. 3,627 58.1 204.7 298.8 94.1 242.0 37.3 NA
Holly Corporation 619 9.8 11.6 49.4 37.8 33.0 19.8 NA
Sun Company 10,064 92.0 392.0 662.0 270.0 314.1 104.1 33.84
Tosco Corporation 3,914 45.0 115.8 297.2 181.4 199.3 74.4 26.27
Ultramar Corporation 2,556 52.7 35.0 182.2 147.3 105.4 45.3 20.54
Valero Energy Corporation $1,285 $49.8 $70.6 $217.6 $147.1 $161.1 $75.3 $25.02
</TABLE>
<PAGE> 99
SALOMON BROTHERS INC
REFINING & MARKETING COMPANIES
CREDIT STATISTICS
<TABLE>
<CAPTION>
DEBT RATING DEBT/ DEBT/ DIVIDEND
----------------- ------------------------------ ------------------- -----------------------
COMPANY MOODY'S S&P BOOK CAP MRKT. CAP BOOK EBITDA CASH FLOW STATED YIELD PAYOUT
- ------------ --------- ------- -------- --------- ------ ------ --------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ashland Oil, Inc. Baa1 BBB 54% 40% 116% 3.2x 4.2x $1.00 2.8% 77.9%
Crown Central Petroleum Corp. NA NA 17% 31% 21% 1.6 2.5 0.00 0.0% 0.0%
Diamond Shamrock Inc. Baa2 BBB 50% 40% 98% 3.6 5.3 0.52 2.1% 44.7%
FINA, Inc. NA NA 46% 47% 87% 3.2 4.0 0.00 0.0% 0.0%
Holly Corporation NA NA 71% 27% 247% 1.8 2.7 0.00 0.0% 0.0%
Sun Company Baa1 A- 33% 23% 49% 1.4 3.0 1.80 6.1% 184.1%
Tosco Corporation Ba1 BB+ 56% 35% 126% 1.7 2.5 0.60 2.1% 23.6%
Ultramar Corporation Baa3 BBB 49% 35% 97% 2.8 4.9 1.10 4.4% 92.7%
HIGH: 71% 47% 247% 3.6x 5.3x 1.80 6.1% 184.1%
AVERAGE: 47% 35% 105% 2.4 3.6 0.63 2.2% 52.9%
MEDIAN: 49% 35% 98% 2.3 3.5 0.56 2.1% 34.2%
LOW: 17% 23% 21% 1.4 2.5 0.00 0.0% 0.0%
Valero Energy Corporation Baa3 BBB- 39% 35% 65% 2.5x 3.4x $0.44 1.8% 25.2%
</TABLE>
<TABLE>
<CAPTION>
LTM EBDIAT / INTEREST LTM
EBIT / ------------------------------------------------------- CASH FLOW /
COMPANY INTEREST 1989 1990 1991 1992 LTM INTEREST
- -------------------- ----------- ------- ------ ------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ashland Oil, Inc. 1.5x 5.6x 5.0x 4.2x 3.3x 3.7x 2.8x
Crown Central Petroleum Corp. (0.6) 28.9 29.8 2.9 4.2 4.8 3.2
Diamond Shamrock Inc. 2.0 5.7 5.3 3.6 3.0 3.3 2.2
FINA, Inc. 1.6 4.5 5.2 4.0 4.3 5.1 4.2
Holly Corporation 3.9 10.0 9.1 5.6 2.2 5.1 3.4
Sun Company 2.9 6.2 7.8 5.8 6.7 7.2 3.4
Tosco Corporation 4.0 2.9 7.6 5.9 6.2 6.6 4.4
Ultramar Corporation 2.8 5.2 2.9 3.9 3.7 3.5 2.0
HIGH: 4.0x 28.9x 29.8x 5.9x 6.7x 7.2x 4.4x
AVERAGE: 2.3 8.6 9.1 4.5 4.2 4.9 3.2
MEDIAN: 2.4 5.6 6.5 4.1 3.9 4.9 3.3
LOW: (0.6) 2.9 2.9 2.9 2.2 3.3 2.0
Valero Energy Corporation 3.0x 3.4x 5.0x 2.8x 2.9x 4.4x 3.2x
</TABLE>
<PAGE> 100
SALOMON BROTHERS INC
REFINING & MARKETING COMPANIES
FINANCIAL DATA
<TABLE>
<CAPTION>
EARNINGS PER SHARE
------------------------------------------------------------
COMPANY 1990 1991 1992 LTM 1993 1994
- ---------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ashland Oil, Inc. $3.22 $2.59 $1.07 $1.28 $1.95 $2.60
Crown Central Petroleum Corp. 2.51 (0.69) (1.27) (1.70) 0.75 2.00
Diamond Shamrock Inc. 3.15 1.39 0.92 1.16 1.61 2.12
FINA, Inc. 8.11 2.71 1.55 2.39 NA NA
Holly Corporation 2.86 1.30 0.39 2.40 2.64 3.30
Sun Company 1.86 (0.25) 0.21 0.98 1.45 1.83
Tosco Corporation 4.78 2.09 1.24 2.54 2.16 2.76
Ultramar Corporation 1.41 2.65 1.90 1.19 2.07 2.72
HIGH: $8.11 $2.71 $1.90 $2.54 $2.64 $3.30
AVERAGE: 3.49 1.47 0.75 1.28 1.80 2.48
MEDIAN: 3.01 1.74 0.99 1.24 1.95 2.60
LOW: 1.41 (0.69) (1.27) (1.70) 0.75 1.83
Valero Energy Corporation $2.31 $2.44 $2.16 $1.75 $2.17 $2.71
</TABLE>
<TABLE>
<CAPTION>
CASH FLOW PER SHARE
--------------------------------------------------------
COMPANY 1990 1991 1992 LTM 1993 1994
- ---------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ashland Oil, Inc. $7.50 $7.27 $6.11 $6.49 $7.05 $7.70
Crown Central Petroleum Corp. 5.98 3.83 2.87 2.50 5.03 6.28
Diamond Shamrock Inc. 5.11 3.60 2.75 3.43 3.66 4.17
FINA, Inc. 20.64 15.76 14.27 15.52 NA NA
Holly Corporation 4.19 2.75 1.72 4.00 4.04 4.70
Sun Company 6.63 4.07 2.39 2.95 5.13 5.51
Tosco Corporation 6.21 3.54 3.40 6.81 6.12 6.72
Ultramar Corporation 1.95 3.94 3.14 2.76 2.99 3.64
HIGH: $20.64 $15.76 $14.27 $15.52 $7.05 $7.70
AVERAGE: 7.28 5.60 4.58 5.56 4.86 5.53
MEDIAN: 6.10 3.88 3.00 3.72 5.03 5.51
LOW: 1.95 2.75 1.72 2.50 2.99 3.64
Valero Energy Corporation $4.66 $4.90 $4.32 $3.74 $4.88 $5.42
</TABLE>
<TABLE>
<CAPTION>
EBITDA
------------------------------------------------- BOOK NET ASSET
COMPANY 1989 1990 1991 1992 LTM EQUITY VALUE
- ---------------- ------ ------ ------ ------ ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ashland Oil, Inc. $513 $603 $530 $440 $517 $1,407.8 $35.80
Crown Central Petroleum Corp. 57 81 24 33 37 295.3 NA
Diamond Shamrock Inc. 158 199 135 132 148 536.9 21.14
FINA, Inc. 377 453 321 266 299 1,115.5 NA
Holly Corporation 57 50 31 23 49 36.4 NA
Sun Company 929 964 644 649 662 1,909.0 33.84
Tosco Corporation 133 246 135 149 297 404.0 26.27
Ultramar Corporation 224 173 231 181 182 529.4 20.54
HIGH: $929 $964 $644 $649 $662 $1,909.0 $35.80
AVERAGE: 306 346 256 234 274 779.3 27.52
MEDIAN: 191 222 183 165 240 533.2 26.27
LOW: 57 50 24 23 37 36.4 20.54
Valero Energy Corporation $84 $122 $105 $136 $218 $853.6 $25.02
</TABLE>
<PAGE> 101
SALOMON BROTHERS INC
REFINING & MARKETING COMPANIES
TRADING MULTIPLES
<TABLE>
<CAPTION>
PRICE / EARNINGS
------------------------------------------------------------
COMPANY 1990 1991 1992 LTM 1993 1994
- -------------------- ------- ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ashland Oil, Inc. 10.9x 13.6x 32.9x 27.4x 18.0x 13.5x
Crown Central Petroleum Corp. 5.5 NM NM NM 18.3 6.9
Diamond Shamrock Inc. 7.9 17.8 26.9 21.3 15.4 11.7
FINA, Inc. 8.6 25.7 45.0 29.2 NA NA
Holly Corporation 10.3 22.6 75.3 12.2 11.1 8.9
Sun Company 15.9 NM 143.1 30.3 20.4 16.2
Tosco Corporation 5.9 13.5 22.8 11.1 13.1 10.2
Ultramar Corporation 17.5 9.3 13.0 20.9 12.0 9.1
HIGH: 17.5x 25.7x 143.1x 30.3x 20.4x 16.2x
AVERAGE: 10.3 17.1 51.3 21.8 15.5 10.9
MEDIAN: 9.4 15.7 32.9 21.3 15.4 10.2
LOW: 5.5 9.3 13.0 11.1 11.1 6.9
Valero Energy Corporation 10.4x 9.8x 11.1x 13.7x 11.1x 8.9x
</TABLE>
<TABLE>
<CAPTION>
PRICE / CASH FLOW
-------------------------------------------------------
COMPANY 1990 1991 1992 LTM 1993 1994
- --------------------- ------ ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ashland Oil, Inc. 4.7x 4.8x 5.8x 5.4x 5.0x 4.6x
Crown Central Petroleum Corp. 2.3 3.6 4.8 5.5 2.7 2.2
Diamond Shamrock Inc. 4.8 6.9 9.0 7.2 6.8 5.9
FINA, Inc. 3.4 4.4 4.9 4.5 NA NA
Holly Corporation 7.0 10.7 17.1 7.3 7.3 6.2
Sun Company 4.5 7.3 12.4 10.0 5.8 5.4
Tosco Corporation 4.5 8.0 8.3 4.1 4.6 4.2
Ultramar Corporation 12.7 6.3 7.9 9.0 8.3 6.8
HIGH: 12.7x 10.7x 17.1x 10.0x 8.3x 6.8x
AVERAGE: 5.5 6.5 8.8 6.6 5.8 5.0
MEDIAN: 4.6 6.6 8.1 6.4 5.8 5.4
LOW: 2.3 3.6 4.8 4.1 2.7 2.2
Valero Energy Corporation 5.2x 4.9x 5.6x 6.4x 4.9x 4.4x
</TABLE>
<TABLE>
<CAPTION>
FIRM VALUE/EBITDA PRICE /
------------------------------------------------ PRICE/ NET ASSET
COMPANY 1989 1990 1991 1992 LTM BOOK VALUE
- ------------------- ------ ------ ------ ------ ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ashland Oil, Inc. 7.8x 6.6x 7.5x 9.1x 7.7x 150% 98%
Crown Central Petroleum Corp. 2.9 2.0 7.0 5.1 4.4 46 NA
Diamond Shamrock Inc. 8.3 6.6 9.8 9.9 8.9 133 117
FINA, Inc. 5.4 4.5 6.4 7.7 6.9 98 NA
Holly Corporation 5.8 6.7 10.8 14.6 6.7 665 NA
Sun Company 4.7 4.5 6.8 6.7 6.6 165 88
Tosco Corporation 10.2 5.5 10.1 9.1 4.6 205 108
Ultramar Corporation 5.8 7.5 5.6 7.2 7.1 178 120
HIGH: 10.2x 7.5x 10.8x 14.6x 8.9x 665% 120%
AVERAGE: 6.4 5.5 8.0 8.7 6.6 205 106
MEDIAN: 5.8 6.1 7.2 8.4 6.8 157 108
LOW: 2.9 2.0 5.6 5.1 4.4 46 88
Valero Energy Corporation 18.8x 12.9x 15.0x 11.6x 7.3x 121% 96%
</TABLE>
<PAGE> 102
Figures as of 06/30/93.
Firm Value: market capitalization+total debt+minority
interest+preferred stock (liquidation value)-cash.
Tangible Book Value: shareholders; equity less intangible assets.
Earnings per share for 1992 and 1993 are median First Call estimates.
Cash Flow=Net Income available to common shareholders + Depreciation
and Amortization + Amortization of Deferred Turnaround Charges.
EBDIAT: Earnings before depreciation, interest, amortization and taxes.
1993 EBDIAT is calculated as 1993 estimated earnings plus LTM
depreciation, interest, amortization and taxes.
ASHLAND OIL, INC.
Excludes cumulative effect of accounting changes, charges for its
retirement program, environmental provisions, asset write-downs,
Riley-related reserves and other unusual items.
LTM pro forma for Nov. 19, 1992 $250 mm 8.8% Debenture issue and May
1993 cumulative convertible preferred stock issue.
CROWN CENTRAL PETROLEUM CORPORATION
Excludes cumulative effect of changes in account principles in 1992 and
sales of property, plant & equipment in 1990, 1991, 1992 and LTM
1993.
Excludes proceeds from the sale of property, plant & equipment in all
stated years.
DIAMOND SHAMROCK
Excludes cumulative effect of accounting changes ($17 mm after-tax).
FINA, INC.
Excludes for 1992 a $34.2 mm charge for the cumulative effect of a
change in accounting treatment regarding postretirement benefits.
Second quarter earnings exclude other income related to asset sales,
proceeds form insurance and $62 mm cumulative effect of accounting
change.
HOLLY CORPORATION
Net income excludes other income related principally to settlements.
SUN COMPANY
Excludes numerous special charges for all years, totaling (after tax)
$809 mm, $(413) mm and a gain of $39 mm for 1992, 1991 and 1990,
respectively. Excludes gain on divestments of $61 mm and $(9) mm
for the second quarters of June 1993 and 1992 respectively.
TOSCO CORPORATION
Excludes cumulative effect of changes in accounting and income (loss)
from discontinued operations.
LTM is pro forma for the acquisition of the Bayway refinery as if it
had occurred on January 1, 1993. Income statement data is pro forma
for the year ended December 31, 1992.
ULTRAMAR CORPORATION
Pro forma historical data for the formation of Ultramar in April 1992.
Pro forma information available in annual report (1992) and June 10Q.
<PAGE> 103
SALOMON BROTHERS INC
APPENDIX A
CASE STUDIES:
CONVERSION AND
LIQUIDATION
1
<PAGE> 104
SALOMON BROTHERS INC
E
Recent MLP Buy-Ins
<TABLE>
<CAPTION>
ANNOUNCEMENT LIMITED % PREMIUM TYPE OF TRANSACTION % YIELD
DATE ACQUIROR PARTNERSHIP/TARGET OWNED PAID CONSIDERATION VALUE (PRE/POST)
- ------------- ------------------------ --------------------- --------- ---------- ----------------- ---------- ----------
($ in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
2/15/89 ENSERCH Corp. ENSERCH Exploration 87% 7% Common Stock $153.2 10.8% / 3.7%
Partners, Ltd. & Cash
12/20/89 National Intergroup, Inc. Permian Partners, L.P. 44% 34% Cash 62.8 32% / NM
8/15/88 Apache Corp. Apache Petroleum Co. 7% 7% Common Stock 138.1 -% / 3.5%
L.P.
7/31/90 Freeport-McMoRan Inc. Freeport-McMoRan 82% 44% Common Stock 251.9 1.3% / 3.6%
Oil & Gas Co.
11/1/89 Freeport-McMoRan Oil Freeport-McMoRan 82% None Common Stock 207.8 24.1% / 1.0%
& Gas Co. Energy Partners
6/11/90 Union Exploration Union Exploration 95% None Common Stock 216.5 10.9% / 2.2%
Corporation, Limited Partners, Limited
9/10/93 Santa Fe Energy Santa Fe Energy 91% 31% Cash 28.3 10.7% / NM
Resources, Inc. Partners L.P.
8/12/93 Southland Royalty Co./ Permian Basin Royalty 33% 25% Cash 151.4 9.3% / NM
Burlington Resources Trust
Inc.
</TABLE>
2
<PAGE> 105
SALOMON BROTHERS INC
Enserch Corporation
<TABLE>
<S> <C>
Limited Partnership: ENSERCH Exploration Partners, Ltd. (EP)
Announcement Date: February 15, 1989
Pre-Deal Ownership: 87% owned by ENSERCH. 12.9 million units of ENSERCH Exploration Partners, Ltd.
were publicly held
IPO Price/Date of L.P.: $21 1/2 / April 23, 1985
Pre-Announcement Price: $11 1/8
Offer Price & Consideration: $11.875; .5 share of ENSERCH Corp. common stock, plus $1.00 cash
Aggregate Transaction Value: $153.2
Premium: 7%
Dividend Yield (Pre/Post): 10.8% / 3.7%
Form of Transaction: Tender
% Outstanding Votes Required: Not Conditioned on any number of units being tendered
Consummation Date: October 16, 1989
Description: February 15, 1989, it was announced that EP's quarterly dividend rate would be
reduced to $.075 per unit. ENSERCH announced initially that each unit would be
converted into a .5 share of stock. Later, offer was sweetened to include an
additional $1.00 of cash
</TABLE>
- --------------------
Note: Premium and dividend yield of L.P. is calculated five trading days
prior to announcement at a price of $11.125. Post-dividend yield is
calculated five days prior to announcement at a price of $21.750.
Stated annual dividends equal $1.20 and $.80 per share for EP and ENS,
respectively.
3
<PAGE> 106
SALOMON BROTHERS INC
Price & Volume Profile
ENSERCH EXPLORATION PARTNERS, LTD.
DAILY DATA - 12/15/88 THROUGH 10/16/89
[GRAPH]
ENSERCH EXPLORATION PARTNERS, LTD.: PRICE (LEFT AXIS)
ENSERCH EXPLORATION PARTNERS, LTD.: VOLUME (RIGHT AXIS)
- --------------------
(a) 02/15/89: Announced:
- Dividend reduced from $.30 to $.075.
- Conversion of each unit into .5 shares of ENSERCH
common stock, if over 505 convert, will liquidate.
- Earnings announced.
- Announced reduction of 1989 capital expenditures by
35%.
(b) 03/30/89 - Sweetened exchange after by adding $1.00 cash in
addition to the .5 shares of ENSERCH common stock.
- Will not liquidate regardless of the percent of units
exchanged.
4
<PAGE> 107
SALOMON BROTHERS INC
Price & Volume Profile
ENSERCH CORPORATION
DAILY DATA - 12/15/88 THROUGH 10/16/90
[GRAPH]
ENSERCH CORPORATION: PRICE (LEFT AXIS)
ENSERCH CORPORATION: VOLUME (RIGHT AXIS)
- --------------------
(a) 02/15/89: Announced:
- Dividend reduced from $.30 to $.075.
- Conversion of each unit into .5 shares of ENSERCH
common stock, if over 505 convert, will liquidate.
- Earnings announced.
- Announced reduction of 1989 capital expenditures
by 35%.
(b) 03/30/89: - Sweetened exchange after by adding $1.00 cash in
addition to the .5 shares of ENSERCH common stock.
- Will not liquidate regardless of the percent of units
exchanged.
(c) 10/16/89: Consummation Date.
5
<PAGE> 108
SALOMON BROTHERS INC
National Intergroup Inc.
<TABLE>
<S> <C>
Limited Partnership: Permlan Partners, L.P. (PPaPr)
Announcement Date: December 20, 1989
Pre-Deal Ownership: National Intergroup Inc. (NII) owned about 45% of the outstanding units
IPO Price/Date of L.P.: $9 / June 5, 1987
Pre-Announcement Price: $3 5/8
Offer Price & Consideration: $4.85 in cash
Aggregate Transaction Value: $60 million tender offer
Premium: 34%
Dividend Yield (Pre/Post): 32% / NM
Form of Transaction: Merger, changed to Tender offer
% Outstanding Votes Required: A Majority of the outstanding public units being tendered
Consummation Date: November 11, 1990
Description: Special Committee rejected $4.00 merger proposal on the basis the price was not
fair. Subsequently, a $3.75 offer was extended to all unitholders. When the
offer failed to induce the required number of shares to invoke conversion, the
offer was raised to $4.85 per unit. NII finally offered 5 cents per unit to
brokers who persuaded their clients to approve the amendment
</TABLE>
- -------------------
Note: Premium and dividend yield of L.P. is calculated five trading days
prior to announcement at a price of $3.60. Stated annual dividend of
$1.15 per share of PPAPr.
6
<PAGE> 109
SALOMON BROTHERS INC
Price & Volume Profile
PERMIAN PARTNERS L.P
DAILY DATA - 10/20/89 THROUGH 11/9/90
[GRAPH]
PERMIAN PARTNERS L.P.: PRICE (LEFT AXIS)
PERMIAN PARTNERS L.P.: VOLUME (RIGHT AXIS)
- --------------------
(a) 12/20/89 Announcement. Proposal to acquire units at a price of $4.00
per unit.
(b) 05/18/90 Announcement. $3.75 Tender offer.
(c) 07/09/90 Announcement. Tender offer raised to $3.85 per unit.
7
<PAGE> 110
SALOMON BROTHERS INC
Price & Volume Profile (d)
NATIONAL INTERGROUP, INC
DAILY DATA - 10/20/89 THROUGH 11/11/91
[GRAPH]
NATIONAL INTERGROUP, INC.: PRICE (LEFT AXIS)
NATIONAL INTERGROUP, INC.: VOLUME (RIGHT AXIS)
- --------------------
(a) 12/20/89 Announcement. Proposal to acquire units at a price of $4.00
per unit.
(b) 05/18/90 Announcement. $3.75 Tender offer.
(c) 07/09/90 Announcement. Tender offer raised to $3.85 per unit.
(d) 11/13/90 Consummation Date.
8
<PAGE> 111
SALOMON BROTHERS INC
Apache Corporation
<TABLE>
<S> <C>
Limited Partnership: Apache Petroleum Co., L.P. (APC)
Announcement Date: August 15, 1988
Pre-Deal Ownership: 46.7 million units outstanding, 3.5 million, or 7% owned by Apache Corporation
IPO Price/Date of L.P.: 18 3/4 / August 22, 1985
Pre-Announcement Price: $3
Offer Price & Consideration: $3.20; Unitholders received either 0.4 of a share of Apache Corp. common stock or
one share in Key Petroleum Co. per unit held
Aggregate Transaction Value: $138.1
Premium: 7%
Dividend Yield (Pre/Post): - / 3.5%
Form of Transaction: Tender
% Outstanding Votes Required: The plan requires the consent of 2/3 of the outstanding unitholders
Consummation Date: October 12, 1988
Description: Unitholders authorized the restructuring of the Partnership as a corporation.
Holders of Apache Petroleum Co., L.P. exchanged 0.4 share of Apache Corp. for
each unit tendered, or one share in Key Petroleum Co., a new company that will
own a proportionate share of the Limited Partnership's oil and gas properties,
thereby converting the limited partnership to a traditional corporate structure.
Unitholders take legal action alleging that the prospectus misrepresented the
offer and understated the value of APC units, settled for $6.75 million
</TABLE>
- --------------------
Note: Premium and dividend yield of L.P. is calculated five trading days
prior to announcement at a price of $3.00. Post-dividend yield is
calculated five days prior to announcement at a price of $8.00. Stated
annual dividend of $.28 per APA shared.
9
<PAGE> 112
SALOMON BROTHERS INC
Price & Volume Profile
APACHE PETROLEUM DEPOSITARY UNITS
DAILY DATA - 6/15/88 THROUGH 10/12/88
[GRAPH]
APACHE PETROLEUM DEPOSITARY UNITS: PRICE (LEFT AXIS)
APACHE PETROLEUM DEPOSITARY UNITS: VOLUME (RIGHT AXIS)
- --------------------
(a) 08/15/88: Announces restructuring and offers a swap of .4 shares of
Apache Corp. or 1 share of Key Production Co., new
company that will own a proportionate share of the oil
and gas properties.
(b) 09/15/88: Apache Corp. holders approve exchange of Apache Corp.
common stock.
(c) 10/03/88: Apache Petroleum holders approve restructuring through
tender.
10
<PAGE> 113
SALOMON BROTHERS INC
Price & Volume Profile
APACHE CORPORATION
DAILY DATA - 6/15/88 THROUGH 10/12/89
[GRAPH]
APACHE CORPORATION: PRICE (LEFT AXIS)
APACHE CORPORATION: VOLUME (RIGHT AXIS)
- --------------------
(a) 08/15/88: Announces restructuring and offers a swap of .4 shares of
Apache Corp. or 1 share of Key Production Co., new company
that will own a proportionate share of the oil and gas
properties.
(b) 09/15/88: Apache Corp. holders approve exchange of Apache Corp.
common stock.
(c) 10/03/88: Apache Petroleum holders approve restructuring through
tender.
(d) 10/12/88: Consummation Date.
11
<PAGE> 114
SALOMON BROTHERS INC
Freeport-McMoRan Inc.
<TABLE>
<S> <C>
Limited Partnership: Freeport-McMoRan Oil and Gas Company (FMOG)
Announcement Date: July 31, 1990
Pre-Deal Ownership: Freeport-McMoRan Inc. (FTX) owned an aggregate of 101.3 million shares, or
approximately 81.5% of the outstanding shares. 22.9 million shares of FMOG are
publicly held
IPO Price/Date of L.P.: $10 1/4 / April 2, 1990
Pre-Announcement Price: $7 5/8
Offer Price & Consideration: $11.00; Holders of FMOG will receive a fractional share of FTX based on the
conversion price
Aggregate Transaction Value: $251.9
Premium: 44%; Common stock of FTX
Dividend Yield (Pre/Post): 1.3% / 3.6%
Form of Transaction: Merger
% Outstanding Votes Required: Since FTX owned 81.5%, the approval of the merger was assured without the consent of
any other FMOG stockholder.
Consummation Date: November 15, 1990
Description: Each publicly held share was converted into a fraction of a share of
Freeport-McMoRan Inc. The fractional share received is based upon a value of
11.00 for FMOG and valuing FTX at an average of the composite tape closing prices
for the last 10 trading days prior to the formal FMOG shareholder approval (but not
more than 0.345 nor less than 0.283 of a share of FTX common stock). The
consideration for each share of FMOG was increased from $10.50 to $11.00.
</TABLE>
- --------------------
Note: Premium and dividend yield of L.P. is calculated five trading days prior
to announcement at a price of $7.625. Post-dividend yield is calculated
five days prior to announcement at a price of $34.875. Stated annual
dividend of $.10 and $1.25 per FMOG and FTX share, respectively.
12
<PAGE> 115
SALOMON BROTHERS INC
Price & Volume Profile
FREEPORT-MCMORAN OIL AND GAS COMPANY
DAILY DATA - 5/31/90 THROUGH 11/15/90
[ GRAPH ]
FREEPORT-MCMORAN OIL AND GAS COMPANY: PRICE (LEFT AXIS)
FREEPORT-MCMORAN OIL AND GAS COMPANY: VOLUME (RIGHT AXIS)
- --------------------
(a) 07/31/90 announcement. $10.50 conversion of Freeport-McMoRan Oil & Gas
Company into shares of Freeport-McMoRan Inc.
(b) 11/15/90 Consummation Date.
13
<PAGE> 116
SALOMON BROTHERS INC
Freeport-McMoRan Oil & Gas Company
<TABLE>
<S> <C>
Limited Partnership: Freeport-McMoRan Energy Partners Ltd. (FMP)
Announcement Date: November 1, 1989
Pre-Deal Ownership: Freeport-McMoRan Inc. owned 81.5% of the outstanding shares of stock or 101.4
million. 123.1 million units are outstanding
IPO Price/Date of L.P.: $22 / April 19, 1985
Pre-Announcement Price: $9 1/8
Offer Price & Consideration: $9.125. Each partnership unit of Freeport-McMoRan Energy Partners was exchanged
for one common share in Freeport-McMoRan Oil & Gas Co., a new publicly traded
company
Aggregate Transaction Value: $198.0 stock for stock exchange
Premium: None
Dividend Yield (Pre/Post): 24.1% / 1.0%
Form of Transaction: Merger
% Outstanding Votes Required: Subject to the approval of the Majority Interest (FTX)
Consummation Date: April 2, 1990
Description: Freeport-McMoRan Energy Partners Ltd. was converted from a master limited
partnership to a publicly traded corporation listed on the NYSE. Unitholders
received two additional distribution payments of $0.55 per unit before the trust
was converted.
</TABLE>
- --------------------
Note: Premium and dividend yield of L.P. is calculated five trading days prior
to announcement at a price of $9.125. Post-dividend yield is calculated
five days prior to announcement at a price of $10.250. Stated annual
dividend of $2.20 and $.10 per share for FMP and FMOG, respectively.
14
<PAGE> 117
SALOMON BROTHERS INC
Price & Volume Profile
FREEPORT-MCMORAN ENERGY PARTNERS LTD.
DAILY DATA - 9/1/89 THROUGH 4/2/90
[ GRAPH ]
FREEPORT-MCMORAN ENERGY PARTNERS LTD.: PRICE (LEFT AXIS)
FREEPORT-MCMORAN ENERGY PARTNERS LTD.: VOLUME (RIGHT AXIS)
- --------------------
(a) 11/1/89 announcement. Freeport-McMoRan Energy to convert to publicly
traded corp.
15
<PAGE> 118
SALOMON BROTHERS INC
Price & Volume Profile
FREEPORT-MCMORAN INC.
DAILY DATA - 9/1/89 THROUGH 11/15/91
[ GRAPH ]
FREEPORT-MCMORAN INC.: PRICE (LEFT AXIS)
FREEPORT-MCMORAN INC.: VOLUME (RIGHT AXIS)
- --------------------
(a) 11/01/89 announcement. Conversion of Freeport-McMoRan Energy Partners to
Freeport-McMoRan Oil & Gas Co.
(b) 03/30/90 Freeport-McMoRan Energy Partners Consummation Date.
(c) 07/31/90 announcement. $10.50 conversion of Freeport-McMoRan Oil & Gas
Company into shares of Freeport-McMoRan Inc.
(d) 11/15/90 Freeport-McMoRan Oil & Gas Co. Consummation Date.
16
<PAGE> 119
SALOMON BROTHERS INC
Unocal Exploration Corporation
<TABLE>
<S> <C>
Limited Partnership: Union Exploration Partners, Ltd. (UXP)
Announcement Date: June 11, 1990
Pre-Deal Ownership: Unocal held a controlling 95% stake in the L.P.
IPO Price/Date of L.P.: $22 / July 26, 1985
Pre-Announcement Price: $18 1/8
Offer Price & Consideration: $18.20. Each unit holder received one share of the newly formed Unocal Exploration
Corp., plus a $3.00 contingent cash distribution against price drops.
Aggregate Transaction Value: $216.5 million. Stock of newly formed Unocal Exploration Corporation.
Premium: None
Dividend Yield (Pre/Post): 10.9% / 2.2%
Form of Transaction: Merger
% Outstanding Votes Required: Union Oil's (a wholly owned subsidiary of Unocal) consent was necessary and
sufficient to approve the transaction
Consummation Date: August 1, 1990
Description: Union Exploration Partners Ltd. (UXP) converted from a Limited Partnership to a
Corporation. Unocal also provided a $3.00 contingent cash distribution to protect
unitholders against price weakness.
</TABLE>
- --------------------
Note: Premium and dividend yield of L.P. is calculated five trading days
prior to announcement at a price of $18.125. Post-dividend yield is
calculated five days prior to announcement at a price of $18.125.
Stated annual dividend of $1.97 and $0.40 per share for UXP and UXC,
respectively.
17
<PAGE> 120
SALOMON BROTHERS INC
Price & Volume Profile
UNION EXPLORATION PARTNERS LTD.
DAILY DATA - 4/11/90 THROUGH 8/1/90
[ GRAPH ]
UNION EXPLORATION PARTNERS LTD.: PRICE (LEFT AXIS)
UNION EXPLORATION PARTNERS LTD.: VOLUME (RIGHT AXIS)
- --------------------
(a) 06/11/90 announcement. Union Exploration Partners, Ltd. to change to
Unocal Exploration Corp.
18
<PAGE> 121
SALOMON BROTHERS INC
Price & Volume Profile
UNOCAL EXPLORATION CORPORATION
DAILY DATA - 8/2/90 THROUGH 8/2/91
[ GRAPH ]
UNOCAL EXPLORATION CORPORATION: PRICE (LEFT AXIS)
UNOCAL EXPLORATION CORPORATION: VOLUME (RIGHT AXIS)
- -------------------------
(a) 06/11/90 announcement. Union Partners, Ltd. to change to
Unocal Exploration Corp.
19
<PAGE> 122
SALOMON BROTHERS INC
Santa Fe Energy Resources Inc.
<TABLE>
<S> <C>
Limited Partnership: Santa Fe Energy Partners L.P. (SFP)
Announcement Date: September 10, 1993
Pre-Deal Ownership: 91%-owned affiliate of Santa Fe Energy Resources Inc. 5.75 million units were
redeemed
IPO Price/Date of L.P.: $20 / January 14, 1986
Pre-Announcement Price: $3 3/4
Offer Price & Consideration: $4.9225 Cash
Aggregate Transaction Value: $28.3 million
Premium: 31.2%
Dividend Yield (Pre/Post): 10.7% / NM
Form of Transaction: Merger
% Outstanding Votes Required: Santa Fe Energy Resources Inc. owned a controlling interest
Consummation Date: September 27, 1993
Description: 5.75 million units of Santa Fe Energy Partners L.P. were redeemed at a price of
$4.9225. Santa Fe Energy Resources also exercised a right to purchase all
outstanding depository units and undeposited limited partner units.
</TABLE>
- -----------------------------
Note: Premium and dividend yield of L.P. is calculated five trading days
prior to announcement at a price of $3.75. Stated annual dividend
of $.40 per SFP share.
20
<PAGE> 123
SALOMON BROTHERS INC
Price & Volume Profile
SANTA FE ENERGY PARTNERS L.P.
DAILY DATA - 7/9/93 THROUGH 9/27/93
[ GRAPH ]
SANTA FE ENERGY PARTNERS L.P.: PRICE (LEFT AXIS)
SANTA FE ENERGY PARTNERS L.P.: VOLUME (RIGHT AXIS)
- --------------------------
(a) 9/10/93 announcement. Repurchase for a price of $4.9225.
21
<PAGE> 124
SALOMON BROTHERS INC
Price & Volume Profile
SANTA FE ENERGY RESOURCES INC.
DAILY DATA - 7/9/93 THROUGH 10/1/93
[ GRAPH ]
SANTA FE ENERGY RESOURCES INC.: PRICE (LEFT AXIS)
SANTA FE ENERGY RESOURCES INC.: VOLUME (RIGHT AXIS)
- --------------------------
(a) 9/10/93 announcement. Repurchase for a price of $4.9225.
(b) 9/27/93 Consummation Date.
22
<PAGE> 125
SALOMON BROTHERS INC
Southland Royalty Company/burlington Resources Inc.
<TABLE>
<S> <C>
Limited Partnership: Permian Basin Royalty Trust (PBT)
Announcement Date: August 12, 1993
Pre-Deal Ownership: Southland Royalty Company, a wholly owned subsidiary of Burlington Resources Inc.,
owned 15,390,576, or 33%, of the 46,608,796 units outstanding.
IPO Price/Date of L.P.: $20 5/8 / October 1, 1980
Pre-Announcement Price: $3 7/8
Offer Price & Consideration: $4.85 cash per unit
Aggregate Transaction Value: $151.4 million
Premium: 25%
Dividend Yield (Pre/Post): 9.3% / NM
Form of Transaction: Tender
% Outstanding Votes Required: No approval is required
Consummation Date: September 24, 1993
Description: Southland Royalty Company offered $4.85 per Permian Basin Royalty Trust unit. In
1990, the purchaser held discussions with regarding the possible acquisition at a
price of $5.00 per unit, however, these discussion were terminated.
</TABLE>
- ----------------------------
Note: Premium and dividend is calculated five trading days prior to
announcement at a price of $3.875. Stated annual dividend of
$.36 per PBT share.
23
<PAGE> 126
SALOMON BROTHERS INC
Price & Volume Profile
PERMIAN BASIN ROYALTY TRUST
DAILY DATA - 6/11/93 THROUGH 9/24/93
[ GRAPH ]
PERMIAN BASIN ROYALTY TRUST: PRICE (LEFT AXIS)
PERMIAN BASIN ROYALTY TRUST: VOLUME (RIGHT AXIS)
- ---------------------------
(a) 08/12/93 announcement. Southland Royalty Company to offer $4.85 per unit.
24
<PAGE> 127
SALOMON BROTHERS INC
Price & Volume Profile
BURLINGTON RESOURCES INC.
DAILY DATA - 6/11/93 THROUGH 10/1/93
[ GRAPH ]
BURLINGTON RESOURCES INC.: PRICE (LEFT AXIS)
BURLINGTON RESOURCES INC.: VOLUME (RIGHT AXIS)
- ---------------------------
(a) 08/12/93 announcement. Southland Royalty Company to offer $4.85 per unit.
(b) 09/24/93 Consummation Date.
25
<PAGE> 128
SALOMON BROTHERS INC
APPENDIX B
CONVERTIBLE PREFERRED
STOCK AS
CONSIDERATION
26
<PAGE> 129
SALOMON BROTHERS INC
Time Incorporated/Warner Communications, Inc.
<TABLE>
<S> <C>
Announcement Date: 05/06/89
Acquiror: Time Incorporated
Target: Warner Communications, Inc.
o Total Amount: $14,000 million
o Type of Consideration: Cash - $7,000 million
Convertible Preferred - $6,100 million
Stock - $900 million
Terms of Convertible Preferred:
o Yield: 8.75%
o Premium: 471%
o Principal Amount: $35 per share
Description of Transaction: Time Incorporated and Warner Communications, Inc. agree to merge in a
tax-free exchange of stock in which Warner shareholders will receive 0.465
of a Time share for each Warner share. Time and Warner have agreed to
immediately exchange 12.5% of Time's shares for 9% of Warner's. On 4/14/89,
the SEC advises the companies that the merger cannot be accounted for as a
pooling of interests because of the immediate share exchange. Time and
Warner postpone the closing of the share exchange until February 28, 1990.
In June, Paramount Communications Inc. offers to acquire Time, threatening
to break up the merger.
On 6/19/89, Time and Warner restructure their agreement. The new terms call
for Time to acquire Warner for $70 per share, half in cash and half in a
package of securities which will consist of 8.75% exchangeable convertible
preferred shares with a face value of $35 per share, 11% pay-in-kind
exchangeable convertible shares with a face value of $26 per share, and a
portion of Warner's 12 million shares in Chris-Craft Industries, Inc.'s
Warner's largest shareholder, BHC Holdings operations, valued at $9 per
Warner share. Time begins a tender offer for 100 million Warner shares.
</TABLE>
27
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SALOMON BROTHERS INC
Time Incorporated/Warner Communications, Inc.
<TABLE>
<S> <C>
Description of Transaction: (cont'd) On 12/27/89, Shareholders file suits contending that Warner Executives will
receive favorable treatment in the proposed securities package. On 1/11/90,
Time Warner Inc. completes the acquisition. Each share of Warner communication
now represents 0.7188774 share of Time Warner Preferred Series C depositary
stock, 0.5421044 share of Time Warner Preferred Series D depositary stock, and
0.15166 share of BHC communications Class A common stock. On 12/27/89,
Shareholders file suits contending that Warner Executives will receive
favorable treatment in the proposed securities package. On 1/11/90, Time Warner
Inc. completes the acquisition. Each share of Warner communication now
represents 0.7188774 share of Time Warner Preferred Series C depositary stock,
0.5421044 share of Time Warner Preferred Series D depositary stock, and 0.15166
share of BHC communications Class A common stock.
</TABLE>
28
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SALOMON BROTHERS INC
Price & Volume Profile
TIME WARNER PREFERRED SERIES C
DAILY DATA - 12/11/89 THROUGH 1/11/91
[GRAPH]
TIME WARNER PREFERRED SERIES C: PRICE (LEFT AXIS)
TIME WARNER PREFERRED SERIES C: VOLUME (RIGHT AXIS)
- --------------------
(a) 1/11/90 Consummation Date.
29
<PAGE> 132
SALOMON BROTHERS INC
Price & Volume Profile
TIME WARNER INC.
DAILY DATA - 3/6/89 THROUGH 1/11/91
[GRAPH]
TIME WARNER INC.: PRICE (LEFT AXIS)
TIME WARNER INC.: VOLUME (RIGHT AXIS)
- --------------------
(a) 5/06/89 announcement.
(b) 1/11/90 consummation date.
30
<PAGE> 133
SALOMON BROTHERS INC
Baker Hughes Incorporated/Teleco Oilfield Services Inc. (Sonat Inc.)
<TABLE>
<S> <C>
Announcement Date: 01/07/92
Acquiror: Baker Hughes Incorporated
Target: Teleco Oilfield Services Inc. (Sonat Inc.)
o Total Amount: $400.0
o Type of Consideration: Cash - $200 million
Convertible Preferred - $200 million
Terms of Convertible Preferred:
o Yield: 6%
o Premium: 67%
o Principal Amount: $50.00
Description of Transaction: Baker Hughes Incorporated agrees to acquire Teleco Oilfield Services Inc. from
Sonat Inc. for $200 million in cash, four million shares of convertible
preferred stock and a 5% royalty payment for five years on certain technology
payments. The convertible preferred stock has a face amount of $200 million, a
dividend rate of 6% per annum and is convertible at $32.50 per share of Baker
Hughes common stock subject to adjustment at closing. The royalty is payable on
the revenues of the "triple combo" measurement-while-drilling system recently
developed by Teleco. Sonat agreed to sell certain oil and gas properties to
Kerr-McGee in May, 1991. Completion dated 4/23/92
</TABLE>
- --------------------
Note: Premium is calculated five trading days prior to announcement at a price
of $19.50.
31
<PAGE> 134
SALOMON BROTHERS INC
Price & Volume Profile
BAKER-HUGHES, INC.
DAILY DATA - 11/7/91 THROUGH 4/23/93
[GRAPH]
BAKER-HUGHES, INC.: PRICE (LEFT AXIS)
BAKER-HUGHES, INC.: VOLUME (RIGHT AXIS)
- --------------------
(a) 01/07/92 announcement.
(b) 4/23/92 consummation date.
32
<PAGE> 135
SALOMON BROTHERS INC
Cooper Industries, Inc./Cameron Iron Works, Inc.
<TABLE>
<S> <C>
Announcement Date: 08/02/89
Acquiror: Cooper Industries, Inc.
Target: Cameron Iron Works, Inc.
o Total Amount: $779 Million
o Type of Consideration: Preferred Stock - $683.8 million
Cash - $15 million
Debt Assumed - 65.1 million
Terms of Convertible Exchangeable Preferred:
o Yield: 8%
o Premium: 14%
o Principal Amount: $100
Description of Transaction: Cooper Industries, Inc. offers to acquire Cameron Iron Works, Inc. in an
exchange of stock. Cameron shareholders will receive one share of Cooper
convertible exchangeable preferred stock for every five shares of Cameron. The
preferred will have an annual dividend of $8 per share and will be convertible
into 2.75 shares of Cooper common. The shares are valued at $21 - $24.50 each.
Earlier this year, Cameron announced it had hired an investment advisor to help
major Cameron holders dispose of a 47.53% stake in the company. Completion
dated 11/29/89
</TABLE>
- --------------------
Note: Premium is calculated five trading days prior to announcement at a price
of $31,875
33
<PAGE> 136
SALOMON BROTHERS INC
Price & Volume Profile
COOPER INDUSTRIES, INC.
DAILY DATA - 6/2/89 THROUGH 11/29/90
[GRAPH]
COOPER INDUSTRIES, INC.: PRICE (LEFT AXIS)
COOPER INDUSTRIES, INC.: VOLUME (RIGHT AXIS)
- --------------------
(a) 08/02/89 announcement.
(b) 11/29/89 consummation date.
34
<PAGE> 137
SALOMON BROTHERS INC
Trian Group L.P./DWG Corporation
<TABLE>
<S> <C>
Announcement Date: 10/03/92
Acquiror: Trian Group L.P.
Target: DWG Corporation
o Total Amount: $143.6 million
o Type of Consideration: Cash - $71.8 million
Convertible Preferred - $71.8 million
Terms of Convertible Exchangeable Preferred:
o Yield: 8 1/8%
o Premium: 21%
o Principal Amount: $12 per share
Description of Transaction: Victor Posner, and related entities controlled by him, agree to sell to Trian
Group L.P., a New York investment concern, half of their 11,965,733 shares of
DWG Corporation for $12 per share and agrees to exchange the remaining shares
for shares of newly created non-voting, convertible preferred stock of DWG for
$12 per share with an aggregate stated value of $71,794,392 and cumulative
annual dividend of 8 1/8%. The interest represents 46.3% of the voting power
outstanding of DWG. On April 26, Trian, controlled by Nelson Peltz and Peter
May, completes the acquisition. The company also announced plans to change its
name to Triarc Cos. Completion dated 05/01/93
</TABLE>
- ----------------------------
Note: Premium is calculated five trading days prior to announcement at a price
of $14.48.
35
<PAGE> 138
SALOMON BROTHERS INC
Price & Volume Profile
DWG CORPORATION
DAILY DATA - 6/3/92 THROUGH 10/1/93
[Graph]
DWG CORPORATION: PRICE (LEFT AXIS)
DWG CORPORATION: VOLUME (RIGHT AXIS)
- --------------------
(a) 08/03/92 announcement.
(b) 5/1/93 consummation date.
36
<PAGE> 139
SALOMON BROTHERS INC
IDB Communications Group Inc./Telephone and Satellite
Interests (TeleColumbus AG)
<TABLE>
<S> <C>
Announcement Date: 03/09/92
Acquiror: IDB Communications Group Inc.
Target: Telephone and Satellite Interests (TeleColumbus AG)
o Total Amount: $94.8 million
o Type of Consideration: Common Stock - 60.8 million
Convertible Preferred - $34 million
Terms of Convertible Preferred:
o Yield: 4%
o Premium: 43%
o Principal Amount: $1,000 per share
Description of Transaction: IDS Communications Group agrees to acquire a 51% stake in Satellite Transmission
and Reception Specialists for 1,010,000 shares of IDB Communications common
stock. IDB also agrees to acquire the remaining 49% stake in STARS, as well as
100% of World Communications for approximately 2,990,000 additional shares of
common stock and the issuance of a nonredeemable convertible preferred stock
with a face value of $34 million. The stock yields a 4% annual cash dividend
and can be converted into IDB common stock at $18.38 per share. On October 2,
1992, IDS Communications received FCC approval of the transaction. On April
6, 1992, the acquisition of the majority interest in STARS was completed.
Completion dated 04/06/92
</TABLE>
- ----------------------------
Note: Premium is calculated five trading days prior to announcement at a price
of $12.8571
37
<PAGE> 140
SALOMON BROTHERS INC
Price & Volume Profile
IDB COMMUNICATIONS GROUP
DAILY DATA - 1/9/92 THROUGH 4/6/93
[Graph]
IDB COMMUNICATIONS GROUP: PRICE (LEFT AXIS)
IDB COMMUNICATIONS GROUP: VOLUME (RIGHT AXIS)
- --------------------
(a) 03/09/92 announcement.
(b) 04/06/92 consummation date.
38
<PAGE> 141
SALOMON BROTHERS INC
APPENDIX C
CONVERTIBLE PREFERRED
MARKET CONDITIONS
39
<PAGE> 142
SALOMON BROTHERS INC
Convertible Market Overview
RECENT CONVERTIBLE MARKET CONDITIONS
o RECORD NEW ISSUES. The lowest interest rate environment in recent
history, coupled with record equity market valuations, has resulted
in the highest level of new convertible issuance ever observed.
1993's convertible market issuance should surpass 1992's record $19
billion level.
o AGGRESSIVE TERMS. Corporate issuers have been afforded extraordinary
flexibility in setting coupons, conversion premiums, and call
features. Almost every convertible priced this year has had a coupon
below 6.5%, with many in the 4.5-5.5% range. Conversion premiums
have routinely been set in the 24-26% range, with some even higher.
o STRONG INVESTOR DEMAND. At least 85% of the convertibles priced
during 1993 have been either increased or oversubscribed. Two recent
issues that Salomon Brothers managed, Stone Container and Battle
Mountain Gold, were oversubscribed four and ten times respectively.
o RECORD REDEMPTIONS. Because of the record level of convertible
redemptions, there has been only a minor net increase in convertible
securities outstanding. This trend has left convertible investors
with large cash reserves and eager for new investment opportunities.
o STRONG SECONDARY MARKET. During the first eight months of 1993,
Salomon Brothers' Convertible Securities Index has generated total
returns of 15.8%, compared with 8.4% for the S&P 500.
40
<PAGE> 143
7SALOMON BROTHERS INC
Convertible Market Overview
RECENT CONVERTIBLE MARKET CONDITIONS
o EXPANDED INVESTOR BASE. The new convertible issue market is
attracting new investors, including straight equity funds, income
funds, bond funds, and insurance companies. Many of these investors
had not previously been meaningful players in the convertible market.
o EXPANDED ISSUER UNIVERSE. The market has grown increasingly
receptive to companies that have not previously tapped the
convertible market, including single-B credits and issuers with
relatively high dividend yields.
o PRODUCT INNOVATION. Unprecedented investor demand has given
corporations flexibility to issue advantageous new structures,
including DECS, Stock Settled Convertible Preferred Stock and ELKS.
o SHELF REGISTRATION. Issuers, including Time Warner, Masco Tech,
Comcast and First Chicago, are increasingly taking advantage of
revised S.E.C. shelf filing requirements to minimize the S.E.C.
review period and enhance their timing flexibility.
o RULE 144A. Nearly 25% of 1993's new issue volume has been issued
under Rule 144A, in order to avoid the S.E.C. review, shorten the
road show process, and increase timing flexibility.
41
<PAGE> 144
SALOMON BROTHERS INC
Convertible Market Overview
CONVERTIBLE NEW ISSUE MARKET
1993's convertible market volume is on a pace to surpass the record $19 billion
raised in 1992.
MONTHLY CONVERTIBLE VOLUME
[Graph]
42
<PAGE> 145
SALOMON BROTHERS INC
Convertible Market Overview
CONVERTIBLE NEW ISSUE MARKET
Since 1991, convertible preferred stock has become the dominant component of
the convertible market.
TOTAL CONVERTIBLE ISSUANCE 1983-1993 YTD
[Graph]
PERCS
ZEROS
CVT PFD
CASH CVTS
NOTE: 1993 FIGURES THROUGH 9/7/93
43
<PAGE> 146
SALOMON BROTHERS INC
Convertible Market Overview
AGGRESSIVE NEW ISSUE TERMS
Investors' willingness to accept securities with aggressive terms and novel
features demonstrates the vibrancy of the equity-linked market.
1992/1993 CONVERTIBLE TRANSACTIONS
<TABLE>
<CAPTION>
FEATURE ISSUER DESCRIPTION
--------------------------- ------------------------------------ --------------------------------------
<S> <C> <C>
Low Coupons o Comp. Telefonos de Chile o 4.5%, up 23.6%
o Carnival Cruise Lines o 4.5%, up 22.5%
High Conversion Premiums o Bindley-Western o 6.5%, up 30.0%
o TJX Companies o 6.0%, up 25.0%
o Storage Technology o 7.0%, up 25.3%
Accelerated Execution o First Chicago o 5.75%, up 25.1% (1-day marketing period)
New, Innovative Structures o Cellular Communications o Non-Putable 7-Year Zero, 144A
o Enquirer / Star Group o Synthetic Zero with Warrants
o Consolidated Freightways o Limited Appreciation Preference Stock
o Horace Mann o Step-up Coupon Convertible Debenture
o Battle Mountain Gold o Stock-Settled Redemption
o American Express o DECS
o Salomon/Digital Equipment o ELKS
Receptivity to Low-Rated Credits o Bethlehem Steel o B3 / B-
o Wheeling Pittsburgh o B2 / B
o Cellular Communications o Caa / CCC+
of Puerto Rico
o Reading & Bates o B3 / B
</TABLE>
o Salomon Brothers has been extremely active in underwriting
precedent-setting convertible securities. In fact, Salomon managed each
of the seventeen transactions above, eight as lead manager.
44
<PAGE> 147
SALOMON BROTHERS INCSALOMON BROTHERS INC
Convertible Market Overview
RECORD CONVERTIBLE REDEMPTIONS
The convertible market is enjoying a favorable supply/demand imbalance in 1993,
with the dollar value of new issues called nearly equaling total new issuance
volume. As a result, there has been only a minor increase in the amount of
convertible securities outstanding, despite the record level of new issuance.
SELECTED CONVERTIBLE ISSUES CALLED DURING 1993
<TABLE>
<CAPTION>
CALL DATE ISSUE PROCEEDS ($MM)
---------- -------------------------- --------------
<S> <C> <C>
01/04/93 Loral Corporation 100
01/04/93 Berkshire Hathaway 478
01/08/93 Hudson Foods 33
01/14/93 Wyle Labs 25
01/29/93 TJX Cos 70
02/05/93 Time Warner 2,250
02/10/93 Bergen Brunswig 188
02/12/93 Washington Mutual 65
02/12/93 Time Warner 1,000
02/25/93 Service Corp. 100
02/25/93 Trinity Industries 85
03/04/93 Sterling Software 93
03/11/93 Disney 1,088
03/15/93 Giddings & Lewis 58
03/15/93 Sonat 237
03/15/93 Pentair 50
03/16/93 Union Carbide 345
03/17/93 Comcast 100
04/01/93 SCI Systems 70
04/05/93 McCaw Cellular 114
04/05/93 McCaw Cellular 286
04/07/93 Weyerhaeuser 193
04/22/93 Weingarten Realty 60
04/22/93 Signal (Allied-Signal) 57
04/29/93 Burlington Resources 80
04/30/93 Plenum Publishing 48
05/04/93 CBS Inc. 400
03/17/93 MCI Communications 536
03/25/93 DSC Communications 72
03/26/93 Aluminum Co. of America 150
05/05/93 Noble Affiliates 100
05/13/93 Sprint 210
05/19/93 Petroleum & Resources 36
05/21/93 Rouse Co 100
06/04/93 Kirby Corp. 50
06/07/93 Kaufman & Broad Home 169
06/08/93 BRE Properties 47
06/10/93 Williams Cos. 150
06/25/93 Texas Instruments (PERCS) 108
06/28/93 Comcast Corp 100
07/02/93 Primerica 137
07/02/93 Anadarko Petroleum 100
07/07/93 Grumman 50
07/15/93 General Dynamics/Federal Express 75
07/15/93 Genetixs Institute 58
07/16/93 Allen Group 58
08/02/93 RPM Inc 50
08/09/93 FMC 174
09/10/93 Texas Instruments 108
09/20/93 Sun Microsystems 123
</TABLE>
1993 NEW ISSUANCE - 1993 REDEMPTIONS
$14.4 BILLION $13.7 BILLION
= NET INCREASE IN CONVERTIBLES OUTSTANDING
$0.7 BILLION
45
<PAGE> 148
SALOMON BROTHERS INC
Convertible Market Overview
SECONDARY MARKET PERFORMANCE
o Convertible securities have outperformed all other major asset classes
during 1993.
o These returns have generated unprecedented investor demand for
convertibles, allowing issuers significant flexibility in structuring
their securities.
<TABLE>
<CAPTION>
TOTAL RETURNS OF SELECTED INDEXES
---------------------------------
INDEX TOTAL RETURN YTD
----- ----------------
<S> <C>
SALOMON BROTHERS' CONVERTIBLE SECURITIES INDEX 15.8%
Salomon Brothers' High Yield Index 13.6
Dow Jones Industrials 12.6
NASDAQ Composite 9.7
Salomon Brothers' Bond Index 9.5
S&P 500 8.4
</TABLE>
- ---------------------------------
Note: Figures as of 9/1/93.
46
<PAGE> 149
SALOMON BROTHERS INC
Convertible Market Overview
EXPANDING CONVERTIBLE INVESTOR BASE
Equity mutual funds have become important buyers of equity-linked securities,
as a majority of the largest funds have some income orientation and invest in
convertibles to satisfy that objective.
<TABLE>
<CAPTION>
LARGEST EQUITY MUTUAL FUNDS
---------------------------
FUND ASSETS ($B) INVESTMENT ORIENTATION LOCATION
---- ----------- ---------------------- --------
<S> <C> <C> <C>
Fidelity Magellan $25 Growth Boston
Investment Co. of America (Capital Research) 17 Growth & Income Los Angeles
Washington Mutual Inv. (Capital Research) 11 Growth & Income Los Angeles
Vanguard Windsor 10 Growth & Income Boston
Income Fund of America (Capital Research) 8 Equity Income Los Angeles
Vanguard Index 7 Growth Philadelphia
Janus Fund 7 Capital Appreciation Denver
Fidelity Puritan 7 Equity Income Boston
Vanguard Windsor II 6 Growth & Income Philadelphia
Fidelity Growth & Income 6 Growth & Income Boston
20th Century: Ultra Inv. (Investors Research) 6 Capital Appreciation Chicago
Fidelity Equity - Income 6 Equity Income Boston
Dean Witter Dividend Growth 6 Growth & Income New York
AIM Equity 6 Growth Houston
American Mutual (Capital Research) 5 Growth & Income Los Angeles
</TABLE>
- -----------------------------------------
Source: Lipper Analytical Services
47
<PAGE> 150
SALOMON BROTHERS INC
Convertible Market Overview
EXPANDING CONVERTIBLE INVESTOR BASE
The substantial increase in Growth and Income funds has helped fuel the demand
for high-yielding convertible securities.
NET FLOWS INTO GROWTH AND INCOME FUNDS
(DOLLARS IN BILLIONS)
[Graph]
48
<PAGE> 151
SALOMON BROTHERS INC
Convertible Market Overview
EXPANDING CONVERTIBLE INVESTOR BASE
The buyers' universe for equity-linked securities is composed of six broad
sectors representing over $100 billion in assets. Figures below indicate the
amount under management and the primary product focus of each sector.
[Pie Chart]
GROWTH & INCOME MUTUAL FUNDS: $30B
o Convertible Preferreds
o Cash Pay Convertibles
o Zero Coupon Convertibles
o STEPS/ PERCS
o DECS
WARRANT BUYERS: $6B
o Warrants
o Stripped Warrants on
Convertible Debt
HIGH YIELD BUYERS: $8B
o "Busted" Convertibles
o "Distressed" Convertibles
o Zero Coupon Convertibles
HEDGE FUNDS: $28B
o Low Premium Convertibles
o Low Premium Convertible Preferreds
o STEPS/ PERCS
EQUITY-LINKED MUTUAL FUNDS: $10B
o Cash Pay Convertibles
o Convertible Preferred
o Zero Coupon Convertibles
o STEPS/ PERCS
o DECS
INCOME ORIENTED EQUITY-LINKED BUYERS: $20B
o "Busted" Convertibles
o STEPS/ PERCS
o DECS
49
<PAGE> 152
SALOMON BROTHERS INC
Convertible Market Overview
CONVERTIBLE MARKET FORWARD CALENDAR
<TABLE>
<CAPTION>
CONVERTIBLE OFFERINGS IN REGISTRATION
-------------------------------------
PROCEEDS
AMOUNT
ISSUER ($MM) SECURITY PRICE TALK EXPECTED DATE
------ -------- -------- ---------- -------------
<S> <C> <C> <C> <C>
American Express $735 DECS 6-6.5%/up 20-22% September
Boise Cascade 157 DECS 7-7.5%/up 21-25% September
Chiles Offshore 75 Convertible Preferred NA NA
Fremont General 80 Zero Coupon Convertible NA September
International Technology 60 Convertible Preferred NA NA
Motorola 300 Zero Coupon Convertible 2-2.5%/up 20-22% NA
Omnicare 50 Cvt Debt NA NA
Somatogen 40 Convertible Preferred 8%/up 23-25% September
Total Pharmaceutical 50 Convertible Debt NA NA
</TABLE>
Note: Includes deals > $20mm; excludes 144A offerings.
50
<PAGE> 153
APPENDIX 6 (PRESENTATION OF GRAPHIC MATERIAL IN EDGAR FORMAT)
1. The graph appearing behind Tab B ("Valuation Summary") entitled "Price
& Volume Profile of VLP--Valero Natural Gas Partners, LP--Daily Data" is
omitted. The omitted graph presents publicly available information regarding
the price and volume of the publicly traded partnership units of Valero Natural
Gas Partners, LP ("VLP") from 12/30/88 to 10/01/93. The graph presents
fluctuations in the market price per share of the VLP units after the
occurrence of significant events affecting the VLP units. The graph
illustrates that the market price per VLP unit decreased from approximately $15
to below $12 after the announcement in April 1991 that VLP might cut the amount
of its distributions to unitholders in 1992 (trading volume was extraordinarily
high immediately following the announcement). The graph illustrates that the
market price per VLP unit continued to decrease through 03/18/92 when Valero
Energy Corp. announced the proposed purchase of $83 million of South Texas
assets, with the price ultimately reaching a low of approximately $8 per unit
in July 1992 when VLP cut the amount of its distribution from $0.635 to $0.125
per unit. The graph further illustrates that the market price per VLP unit
increased to approximately $9 1/4 at 10/01/93 (one year after VLP announced
improved earnings results in October 1992). The graph also illustrates that
the daily trading volume for the VLP units generally averaged approximately
30,000 units during the period presented by the graph. The graph shows that
trading volumes were generally 8 to 10 times such average immediately following
the aforementioned announcements.
2. The graph appearing behind Tab B ("Valuation Summary") entitled
"Dividend Yield Profile of VLP--Valero Natural Gas Partners, LP--Daily Data" is
omitted. The omitted graph presents the dividend yield percentage for the
units of partnership interests of Valero Natural Gas Partners, L.P. ("VLP")
from 12/30/88 through 10/01/93. The graph illustrates that the dividend yield
percentage increased from approximately 16% to approximatly 21% after VLP made
an announcement in April 1991 warning that VLP may cut distribution in 1992.
The graph further illustrates that the dividend yield percentage decreased from
approximately 30% to approximately 7% after VLP in July 1992 cut its
distribution from $0.625 to $0.125 per unit.
3. The bar graph appearing behind Tab B "Valuation Summary" having the
heading "Relative Market Size of the Natural Gas Industry" is omitted. The
following chart describes the information presented in the omitted graph:
The Gathering, Transmission and Processing sector is a relatively
small part of the natural gas equity market and is dominated by large
insider ownership.
<TABLE>
<CAPTION>
Market Capitalization
Sector ($ in millions)
------ ---------------------
<S> <C>
GTP* $ 2,951
Distribution $12,399
E & P $24,216
Pipelines $34,852
</TABLE>
<PAGE> 154
*Insider ownership in the GTP industry is approximately 1/3 of GTP's
total market capitalization.
4. The bar graph appearing behind Tab B "Valuation Summary" having the
heading "Liquidity in the Natural Gas Equity Market" is omitted. The following
chart describes the information presented in the omitted graph:
Due to this small size, the GTP sector is much less liquid
compared to the pipeline and E & P sector of the natural gas industry.
<TABLE>
<CAPTION>
Total Share Traded as a Percentage
of Market Capitalization
(O - 100%)
<S> <C>
Distribution 25.4%
GTP 35.6%
Pipelines 51.4%
E & P 73.2%
</TABLE>
5. The flow chart appearing behind Tab C - "Review of Transaction
Structure" having the heading "Exchange of Securities via Merger" is omitted.
The four paragraphs appearing immediately beneath the omitted flow chart
adequately describe the information presented in the flow chart. The four
descriptive paragraphs were not omitted from the foregoing document.
6. The chart appearing behind Tab C "Review of Transaction Structure"
having the heading "Merger/Exchange of Securities - Preliminary Timetable" is
omitted. The following chart describes the information presented in the
omitted graph.
<TABLE>
<CAPTION>
SALOMON/MANAGEMENT/BOARD ACTIONS WEEK OF
- -------------------------------- -------
<S> <C> <C>
Salomon/Management/Structure Meeting October 4
Rating Agency Presentations October 11, 18
VLO Board Meeting/Recommend Buy-In October 25
Send Proposal Letter and Announce Proposal November 29
Salomon Fairness Opinion
</TABLE>
<TABLE>
<CAPTION>
SPECIAL COMMITTEE ACTIONS
- -------------------------
<S> <C>
Special Committee Formed October 25, November 1
Special Committee Reviews Recommendation November 1, 8, 15, 22
Special Committee's Investment Banker November 29
Fairness Opinion
Special Committee Approves Merger and November 29
Makes Recommendation to VLP Unitholders
</TABLE>
<PAGE> 155
<TABLE>
<CAPTION>
SEC/PROXY/PROSPECTUS PROCESS
- ----------------------------
<S> <C>
Draft Proxy/Prospectus November 1, 8, 15, 22, 29
File Proxy Statement/Prospectus at SEC November 29
SEC Review of Proxy/Prospectus November 29, December 6, 13, 20, 27
SEC Comments/Amendments January 3, 10
SEC Declares Effective/Mail to Unitholders January 17
File 8-K with Earnings Announcement February 14
Mail Convert to Unitholders March 21
</TABLE>
<TABLE>
<CAPTION>
UNITHOLDERS/VOTE MERGER PROCESS
- -------------------------------
<S> <C>
Mail Proxy/Prospectus/Notice to Vote January 17
Unitholders Review Proposal January 17, 24, 31, February 7, 14, 21,
28, March 7, 14
Unitholders Vote March 14
File Merger Certificate March 14
Closing of Merger March 14
</TABLE>
7. The flow chart appearing behind Tab C " Review of Transaction Structure"
having the heading "Cash Offer via Merger" is omitted. The three paragraphs
appearing immediately beneath the omitted flow chart adequately describe the
information presented in the flow chart. The three descriptive paragraphs were
not omitted from the foregoing document.
8. The chart appearing behind Tab C "Review of Transaction Structure" having
the heading "Cash Merger - Preliminary Timetable" is omitted. The following
chart describes the information presented in the omitted graph.
<TABLE>
<CAPTION>
SALOMON/MANAGEMENT/BOARD ACTIONS WEEK OF
- -------------------------------- -------
<S> <C> <C>
Salomon/Management/Structure Meeting October 4
Rating Agency Presentations October 11, 18
VLO Board Meeting/Recommend Buy-In October 25
Send Proposal Letter and Announce Proposal October 25
Salomon Fairness Opinion November 29
</TABLE>
<TABLE>
<CAPTION>
SPECIAL COMMITTEE ACTIONS
- -------------------------
<S> <C>
Special Committee Formed October 25, November 1
Special Committee Reviews Proposal November 1, 8, 15, 22
Special Committee's Investment Banker November 29
Fairness Opinion
Special Committee Approves Merger and November 29
Makes Recommendation
</TABLE>
<PAGE> 156
<TABLE>
<CAPTION>
SEC/PROXY/PROSPECTUS/MARKETING PROCESS
- --------------------------------------
<S> <C>
Drafting Convert Prospectus October 11, 18, 25, November 1
File Convert Prospectus with SEC/SEC Review November 8, 15, 22, 29
December 6
SEC Comments/Amendments December 6, 13
SEC Declares Effective January 31
Road Show for Convert February 7
Price Convert February 14
Drafting Proxy Statement November 1, 8, 15, 22
File Proxy/SEC Review November 2, December 6, 13, 20, 27
SEC Comments/Amendments December 27, January 3
</TABLE>
<TABLE>
<CAPTION>
UNITHOLDERS/VOTE/MERGER PROCESS
- -------------------------------
<S> <C>
Mail Proxy to Unitholders January 10
Unitholders Review Proposal January 10, 17,. 24, 31, February 7
Unitholders Vote February 7
File Merger Certificate February 7
Closing of Merger and Convert February 14
</TABLE>
9. The graph appearing behind Tab D ("Pro Forma Analysis") entitled "Price &
Volume Profile of VLO--Valero Energy Corporation-- Daily Data" is omitted. The
omitted graph presents publicly available information regarding the price and
volume of the common stock of Valero Energy Corporation ("VLO") from 12/30/88
to 10/01/93. The graph illustrates that the market price per share of the VLO
stock was below $10 at 01/03/89, the lowest price reached during the period
presented by the graph. The highest price of the VLO stock shown on the graph
was approximately $33 per share in the first quarter of 1992. The graph
further illustrates that the market price per share of the VLO stock was
approximately $24.50 at 10/01/93. The graph also illustrates that the daily
trading volume for the VLO stock generally averaged approximately 200,000
shares during the latter half of the period presented by the graph, while
trading volumes were more sporadic prior thereto.
10. The graph appearing behind Tab D ("Pro Forma Analysis") entitled "Price
Profile of VLO vs. Index of Refiners--Valero Energy Corporation--Daily Data" is
omitted. The omitted graph illustrates how the market price per share of the
common stock of Valero Energy Corporation ("VLO") has exceeded the market price
of an index comprised of a peer group of refining companies during the period
from 01/01/91 to 10/01/93. The graph illustrates that the per share price of
VLO common stock has experienced an approximate 60% increase as of 10/01/93
from the base period measuring point of 1/1/91, while the index of peer group
refiners has declined approximately 5% during the same period.
<PAGE> 157
11. The graph appearing behind Tab D ("Pro Forma Analysis") entitled "Valero
Energy Corporation--Price/Earnings Per Share" is omitted. The omitted graph
presents a comparison of the ratio of price to earnings per share of the common
stock of Valero Energy Corporation ("VLO") as compared to comparable Refining &
Marketing ("R&M") companies and comparable Gas Transmission & Processing
("GT&P") companies. The graph illustrates that the expected price/earnings per
share of VLO in 1993 will be 16.9x for "status quo" and 16.6x for "pro forma,"
which represent an expected performance between the high and mean marks for
comparable R&M companies and an expected performance near the low mark for
comparable GT&P companies. The graph illustrates that the expected
price/earnings per share of VLO in 1994 will be 16.9x for "status quo" and
16.6x for "pro forma," which represent an expected performance near the high
mark for comparable R&M companies and an expected performance between the mean
and low marks for comparable GT&P companies.
12. The graph appearing behind Tab D ("Pro Forma Analysis") entitled "Valero
Energy Corporation--Price/Cash Flow" is omitted. The omitted graph presents a
comparison of the ratio of price to cash flow for the common stock of VLO as
compared to comparable R&M companies and comparable GT&P companies. The graph
illustrates that the expected price/cash flow for VLO in 1993 will be 6.6x for
"status quo" and 5.2x for "pro forma," which represents an expected performance
for "VLO status quo" between the high and mean marks for comparable R&M
companies and an expected performance between the mean and low marks for
comparable GT&P companies, and which further represents an expected performance
for "VLO pro forma" near the mean mark for comparable R&M companies and an
expected performance near the low mark for comparable GT&P companies. The
graph illustrates that the expected price/cash flow for VLO in 1994 will be
5.9x for "status quo" and 4.9x for "pro forma," which represents an expected
performance for "VLO status quo" between the high and mean marks for comparable
R&M companies and an expected performance between the mean and low marks for
comparable GT&P companies, and which further represents an expected performance
for "VLO pro forma" near the mean mark for comparable R&M companies and an
expected performance near the low mark for comparable GT&P companies. The
graph assumes a constant price of VLO stock at $24.00 per share.
13. The graph appearing behind Tab D ("Pro Forma Analysis") entitled "Pro Forma
Credit Analysis" is omitted. The omitted graph illustrates that the
EBDIAT/Gross Interest & Prfd. Div. of VLO is expected to increase from 2.8x in
1993 to 4.6x in 1997. The omitted graph also illustrates that the
Debt/Capitalization of VLO is expected to decrease from 53% in 1993 to 40% in
1997.
14. The graph appearing in Appendix 3 ("Stock Price Performance Graphs")
entitled "Price Profile of VLP vs. Index" is omitted. The omitted graph
illustrates how the market price per unit of Valero Natural Gas Partners, L.P.
("VLP") has historically been below the market price of an index comprised of a
peer group of intrastate pipeline companies during the period from 01/01/91 to
10/01/93. The graph illustrates that the price for the index of peer group
intrastate pipeline companies has experienced an approximate 150% increase as
of 10/01/93 from the base period measuring point of 1/1/91, while the price for
VLP has declined approximately 40% during the same period.
<PAGE> 158
15. The graph appearing in Appendix 3 ("Stock Price Performance Graphs")
entitled "Price (%) Profile" is omitted. The omitted graph illustrates how the
market price per unit of Valero Natural Gas Partners, L.P. ("VLP") has
historically been below the market price of each of the companies represented
in the index appearing in the immediately preceding graph during the period
from 01/05/90 to 10/01/93. The graph illustrates that the price for VLP at
10/01/93 is approximately 70 percentage points below the next lowest company
included in the index of peer group companies. The following are included in
the peer group:
Kaneb Pipe Line Partners, L.P.
Lakehead Pipe Line Partners, L.P.
Santa Fe Pacific Pipeline Partners, L.P.
Buckeye Partners, L.P.
TEPPCO Partners, L.P.
Enron Liquids Pipeline, L.P.
16. The graph appearing in Appendix 3 ("Stock Price Performance Graphs")
entitled "Yield Profile--Weekly Data--1/5/90 Through 10/1/93" is omitted. The
omitted graph presents a comparison of the yield on Valero Natural Gas
Partners, L.P. units to the yield for each of the peer group companies listed
in the immediately preceding graph. The summary statistics presented
immediately below the graph which appear in the foregoing document fairly and
accurately describe the information presented by the omitted graph.
17. The graph appearing in Appendix A ("Case Studies: Conversion and
Liquidation") entitled "Price & Volume Profile--ENSERCH Exploration Partners,
Ltd.--Daily Data" is omitted. The omitted graph presents publicly available
information regarding the price and volume of the publicly traded partnership
units of ENSERCH Exploration Partners, Ltd. from 12/15/88 to 10/16/89. The
graph illustrates that the market price per unit of ENSERCH Exploration
Partners, Ltd. dropped from $11 1/8 to $9 5/8 after the announcement of the
proposed purchase of the publicly traded partnership units, with a substantial
increase in the trading volume immediately after the announcement. The graph
further illustrates that the market price per unit increased from below $9 to
$10 1/4 after ENSERCH sweetened the offered consideration per unit to include
an additional $1.00 of cash.
18. The graph appearing in Appendix A ("Case Studies: Conversion and
Liquidation") entitled "Price & Volume Profile--ENSERCH Corporation--Daily
Data" is omitted. The omitted graph presents publicly available information
regarding the price and volume of the publicly traded common stock of ENSERCH
Corporation from 12/15/88 to 10/16/90. The graph illustrates a drop in the
market price of the ENSERCH common stock after the announcement of the proposed
purchase of the publicly traded partnership units of ENSERCH Exploration
Partners, Ltd. The graph further illustrates in increase in the price of the
common stock from approximately $19 3/8 to $22 5/8 as well as a substantial
increase in trading volume after ENSERCH Corporation sweetened the offered
consideration per partnership unit to include an additional $1.00 of cash. The
graph also presents a increase in the market price of the ENSERCH Corporation
common stock after consummation of the transaction from approximately $22 5/8
on the date the transaction was consummated (10/16/89) to approximately $25 1/4
on 10/16/90.
<PAGE> 159
19. The graph appearing in Appendix A ("Case Studies: Conversion and
Liquidation") entitled "Price & Volume Profile--Permian Partners, L.P.--Daily
Data" is omitted. The omitted graph presents publicly available information
regarding the price and volume of the publicly traded partnership units of
Permian Partners, L.P. ("Permian") from 10/20/89 to 11/09/90. The graph
illustrates that the market price per unit of Permian dropped from $3 5/8 to
approximately $3 1/4 after the announcement of the proposed purchase of Permian
units, with a substantial increase in the trading volume immediately after the
announcement. The graph further illustrates that the market price per unit
increased from $2 5/8 to $3 5/8 after the announcement that the form of the
proposed transaction was changed from a merger to a tender offer, with a
substantial increase in trading volume immediately after such announcement.
20. The graph appearing in Appendix A ("Case Studies: Conversion and
Liquidation") entitled "Price & Volume Profile--National Intergroup,
Inc.--Daily Data" is omitted. The omitted graph presents publicly available
information regarding the price and volume of the publicly traded common stock
of National Intergroup, Inc. ("NII") from 10/20/89 to 11/11/91. The graph
illustrates that the market price per share of the common stock of NII
increased from approximately $14 3/4 to a high of $18 1/4 within the month
following the announcement by NII of the proposed acquisition of Permian units,
with a substantial increase in the trading volume immediately after the
announcement. The graph further illustrates that the market price per share
reached a low of approximately $11 1/4 immediately prior to consummation of the
transaction. The graph illustrates that the market price per share of common
stock of NII ultimately reached a high of approximately $17 7/8 within the year
following consummation of the transaction.
21. The graph appearing in Appendix A ("Case Studies: Conversion and
Liquidation") entitled "Price & Volume Profile--Apache Petroleum Depositary
Units--Daily Data" is omitted. The omitted graph presents publicly available
information regarding the price and volume of the depositary units of Apache
Petroleum Co., L.P. ("Apache Petroleum") from 06/15/88 to 10/12/88. The graph
illustrates that the market price per unit of Apache Petroleum dropped from $3
to approximately $2.65 after the announcement of the proposed reorganization of
the partnership into a corporation. The graph further illustrates that the
market price per unit ultimately declined to approximately $2.40 on the date
the transaction was consummated, with heavy trading volume prior thereto.
22. The graph appearing in Appendix A ("Case Studies: Conversion and
Liquidation") entitled "Price & Volume Profile--Apache Petroleum Depositary
Units--Daily Data" is omitted. The omitted graph presents publicly available
information regarding the price and volume of the common stock of Apache
Corporation ("Apache Corp.") from 06/15/88 to 10/12/89. The graph illustrates
that the market price per unit of Apache declined from approximately $8 to a
low of $6 1/4 during a period of unitholder litigation regarding the fairness
of the proposed consideration. The graph further illustrates that the market
price per share of Apache Corp. common stock enjoyed an increase from
approximately $6 3/4 on the date the transaction was consummated (10/12/89) to
approximately $15 7/8 within the year thereafter. The graph further
illustrates that trading volume in the common stock was heavy within the year
following consummation of the transaction.
<PAGE> 160
23. The graph appearing in Appendix A ("Case Studies: Conversion and
Liquidation") entitled "Price & Volume Profile--Freeport- McMoRan Oil and Gas
Company--Daily Data" is omitted. The omitted graph presents publicly available
information regarding the price and volume of the stock of Freeport-McMoRan Oil
and Gas Company ("McMoRan O&G") from 5/31/90 to 11/15/90. The graph
illustrates that the market price per share of the stock of McMoRan O&G
increased from $7 5/8 to $10 after the date of the announcement of conversion
of the McMoRan O&G stock into shares of Freeport-McMoRan, Inc.
24. The graph appearing in Appendix A ("Case Studies: Conversion and
Liquidation") entitled "Price & Volume Profile--Freeport- McMoRan Energy
Partners Ltd.--Daily Data" is omitted. The omitted graph presents publicly
available information regarding the price and volume of the units of
partnership interest of McMoRan Energy Partners Ltd. ("McMoRan Partners") from
09/01/89 to 04/02/90. The graph illustrates that the market price per unit of
McMoRan Partners increased only slightly from $9 1/8 to approximately $9 1/2
after the announcement that McMoRan Partners would be reorganized into a
corporation, although trading volume increased steadily after the announcement.
25. The graph appearing in Appendix A ("Case Studies: Conversion and
Liquidation") entitled "Price & Volume Profile-- Freeport- McMoRan Inc.--Daily
Data" is omitted. The omitted graph presents publicly available information
regarding the price and volume of the common stock of Freeport-McMoRan Inc.
("F-Mc Inc.") from 09/01/89 to 11/15/91, the period encompassing the
restructuring of the organization as follows: (i) conversion of Freeport
McMoRan Energy Partners into Freeport-McMoRan Oil & Gas Co. ("Step No.1"), and
(ii) conversion of Freeport-McMoRan Oil & Gas Company into shares of F-Mc Inc.
("Step No.2"). The graph illustrates that the market price per share of F-Mc
Inc. increased steadily from approximately $15 on the date of the announcement
of Step No.1 to $17 on the date of consummation of Step No.1, with sporadic but
heavier than usual trading volume during such period. The graph further
illustrates that the market price per share of F-Mc Inc. decreased from
approximately $18 on the date of announcement of Step No.2 to approximately $16
3/4 on the date of consummation of Step No.2. The graph further illustrates
that the market price per share of F-Mc Inc. stock experienced a steady
increase following consummation of Step No.2 to approximately $21 1/2 as of
11/15/91, with increased trading volume during the same period.
26. The graph appearing in Appendix A ("Case Studies: Conversion and
Liquidation") entitled "Price & Volume Profile--Union Exploration Partners
Ltd.--Daily Data" is omitted. The omitted graph presents publicly available
information regarding the price and volume of the units of partnership interest
of Union Exploration Partners Ltd. ("UXP") from 04/11/90 to 08/01/90. The
graph illustrates that the market price per unit of UXP decreased from $18 1/8
to $16 following the announcement that UXP would be converted into a
corporation. Trading volume was unusually high in the 10 days immediately
following the announcement.
<PAGE> 161
27. The graph appearing in Appendix A ("Case Studies: Conversion and
Liquidation") entitled "Price & Volume Profile--Unocal Exploration
Corporation--Daily Data" is omitted. The omitted graph presents publicly
available information regarding the price and volume of the common stock of
Unocal Exploration Corporation ("Unocal") from 08/02/90 to 08/02/91. The graph
illustrates that the market price per unit of Unocal experienced a decline from
$16 on the date of consummation of the conversion of UXP into a corporation to
approximately $10 3/4 one year later, with relatively stable trading volume
during such period.
28. The graph appearing in Appendix A ("Case Studies:
Conversion and Liquidation") entitled "Price & Volume Profile--Santa Fe Energy
Partners L.P.--Daily Data" is omitted. The omitted graph presents publicly
available information regarding the price and volume of the units of Santa Fe
Energy Partners L.P. ("Santa Fe Partners") from 07/09/93 to 09/27/93. The
graph illustrates that the market price per unit of Santa Fe Partners increased
from $3 3/4 on the date of the announcement that the Santa Fe Partners units
would be redeemed, to $4.9, the stated redemption price, with extraordinarily
high trading volume immediately following the announcement.
29. The graph appearing in Appendix A ("Case Studies: Conversion and
Liquidation") entitled "Price & Volume Profile--Santa Fe Energy Resources
Inc.--Daily Data" is omitted. The omitted graph presents publicly available
information regarding the price and volume of the common stock of Santa Fe
Energy Resources Inc. ("Santa Fe Inc.") from 07/09/93 to 10/01/93. The graph
illustrates that the market price per share of Santa Fe Inc. increased from
$9.90 to $10.50 during the 7 days following the date of the announcement of the
redemption of units of Santa Fe Partners. The graph further illustrates that
the price per share of Santa Fe Inc. decreased to $10.00 on the date of
consummation of the transaction. Trading volume was heavy during the 17 day
period from the date of the announcement to the date of consummation of the
transaction. The graph illustrates that the price per share of Santa Fe Inc.
increased to $10.40 within the week following consummation of the transaction.
30. The graph appearing in Appendix A ("Case Studies: Conversion and
Liquidation") entitled "Price & Volume Profile--Permian Basin Royalty
Trust--Daily Data" is omitted. The omitted graph presents publicly available
information regarding the price and volume of the units of Permian Basin
Royalty Trust ("Permian Trust") from 06/11/93 to 09/24/93. The graph
illustrates that the price per unit of Permian Trust increased from $3.875 to
$4.85 after the announcement of the intent of Southland Royalty Company
("Southland") intent to purchase the Permian Trust units at $4.85 per unit,
with extraordinarily high trading volume following the announcement.
31. The graph appearing in Appendix A ("Case Studies: Conversion and
Liquidation") entitled "Price & Volume Profile--Burlington Resources
Inc.--Daily Data" is omitted. The omitted graph presents publicly available
information regarding the price and volume of the common stock of Burlington
Resources Inc. ("Burlington"), the parent company of Southland, from 06/11/93
to 10/01/93. The graph illustrates that the market price per share of
Burlington increased from approximately $51 to $53.75 within the 13 days
following the announcement of the purchase of Permian Trust units by Southland.
The graph further illustrates that the price per share of Burlington fell to
approximately $48.50 on the date of consummation of the transaction, but
experienced an increase to approximately $52.00 within the following week. The
graph illustrates that trading volume was relatively stable throughout these
periods.
<PAGE> 162
32. The graph appearing in Appendix B ("Convertible Preferred Stock as
Consideration") entitled "Price & Volume Profile--Time Warner Preferred Series
C--Daily Data" is omitted. The omitted graph presents publicly available
information regarding the price and volume of the preferred stock Series C of
Time Warner, Inc. ("Time Warner") from 12/11/89 to 01/11/91. The graph
illustrates that within the year following consummation of the merger, the
market price per share of Time Warner Series C preferred stock suffered a
decline from $44 on 1/11/90 to $36 on 1/11/91. The graph further illustrates
that trading volume was volatile in the months immediately following
consummation of the transaction. Trading volume became more steady averaging
approximately 200,000 shares per day in the months immediately preceding the
one year anniversary of consummation of the transaction.
33. The graph appearing in Appendix B ("Convertible Preferred Stock as
Consideration") entitled "Price & Volume Profile--Time Warner, Inc.--Daily
Data" is omitted. The omitted graph presents publicly available information
regarding the price and volume of the common stock of Time Warner, Inc. ("Time
Warner") from 03/06/89 to 01/11/91. The graph illustrates that the market
price per share of the Time Warner common stock experienced an increase from
approximately $29 to $45 within the 45 days following the announcement of the
transaction. Thereafter, the graph illustrates that the market price per share
of Time Warner common stock followed a steady decline through consummation of
the transaction and the year following reaching a price of approximately $22
per share on 1/11/91. The graph illustrates that trading volume was stable
within the year following consummation of the transaction.
34. The graph appearing in Appendix B ("Convertible Preferred Stock as
Consideration") entitled "Price & Volume Profile--Baker- Hughes, Inc.--Daily
Data" is omitted. The omitted graph presents publicly available information
regarding the price and volume of the common stock of Baker-Hughes, Inc.
("Baker-Hughes") from 11/07/91 to 04/23/93. The graph illustrates that the
market price per share of the Baker-Hughes common stock experienced an decline
from approximately $21 on the date of the announcement of the transaction to
approximately $16 1/2 within the 3 months thereafter. The graph illustrates
that the market price per share of the Baker-Hughes stock enjoyed an increase
from $21 on the date of consummation of the transaction (4/23/92) to $26 on
4/23/93.
35. The graph appearing in Appendix B ("Convertible Preferred Stock as
Consideration") entitled "Price & Volume Profile--Cooper Industries,
Inc.--Daily Data" is omitted. The omitted graph presents publicly available
information regarding the price and volume of the common stock of Cooper
Industries, Inc. ("Cooper") from 06/02/89 to 11/29/90. The graph illustrates
that the market price per share of the Cooper stock experienced an increase
from approximately $35 on the date of the announcement of the transaction to
approximately $37 within the week thereafter. The graph illustrates that the
market price per share of the Cooper stock increased from approximately $40 on
the date of consummation of the transaction (11/29/89) to approximately $46
within 8 months thereafter (accompanied by an increased trading volume). The
graph further illustrates that the market price of the Cooper stock had
stabilized to approximately $40 on the one-year anniversary of the consummation
of the transaction (with trading volume remaining relatively stable).
<PAGE> 163
36. The graph appearing in Appendix B ("Convertible Preferred Stock as
Consideration") entitled "Price & Volume Profile--DWG Corporation--Daily Data"
is omitted. The omitted graph presents publicly available information
regarding the price and volume of the common stock of DWG Corporation ("DWG")
from 06/03/92 to 10/01/93. The graph illustrates that the market price per
share of the DWG stock steadily increased from approximately $9 on the date of
the announcement of the transaction to approximately $19 on the date of
consummation of the transaction (a period of nine months), with sporadic
trading volumes during such period. The graph illustrates that the market
price per share of the DWG stock increased to approximately $31 on 10/01/93
(five months after consummation of the transaction).
37. The graph appearing in Appendix B ("Convertible Preferred Stock as
Consideration") entitled "Price & Volume Profile--IDB Communications
Group--Daily Data" is omitted. The omitted graph presents publicly available
information regarding the price and volume of the common stock of IDB
Communications Group, Inc. ("IDB") from 01/09/92 to 04/06/93. The graph
illustrates that the market price per share of the IDB stock increased from
approximately $16.50 on the date of the announcement of the transaction to
approximately $17.50 on the date of consummation of the transaction (a period
of four weeks), with high trading volume immediately following the announcment
of the transaction. The graph illustrates that the market price per share of
the DWG stock increased to approximately $28 on 04/06/93 (one year after
consummation of the transaction), with relatively stable trading volume during
such period.
38. The graph appearing in Appendix C ("Convertible Preferred Market
Conditions") entitled "Convertible Market Overview--Monthly Convertible Volume"
is omitted. The omitted graph presents the monthly dollar amounts from January
1992 to September 1993 of new issues of convertible securities. The graph
illustrates that the 1993 convertible market volume is outpacing the record
1992 volume.
39. The graph appearing in Appendix C ("Convertible Preferred Market
Conditions") entitled "Convertible Market Overview--Total Convertible Issuance
1983-1993 YTD" is omitted. The omitted graph presents the total dollar amounts
of convertible issues for each year from 1983 to 1993 (YTD). The following
chart presents the information shown in the omitted graph.
<PAGE> 164
<TABLE>
<CAPTION>
Convertible Issues
Year (dollars in millions)
---- ---------------------
<S> <C> <C>
1983 $9,365
1984 5,007
1985 9,816
1986 14,805
1987 13,346
1988 3,810
1989 7,066
1990 7,956
1991 20,485
1992 18,346
1993 14,968*
* as of 09/07/93
</TABLE>
40. The graph appearing in Appendix C ("Convertible Preferred Market
Conditions") entitled "Convertible Market Overview--Net Flows Into Growth and
Income Funds" is omitted. The omitted graph illustrates the substantial
increase in Growth and Income funds which has fueled the demand for
high-yielding convertible securities. The following chart presents the
information shown in the omitted graph.
<TABLE>
<CAPTION>
Net Flows into Growth
and Income funds
Year (dollars in billions)
---- ---------------------
<S> <C>
1990 $4.3
1991 11.0
1992 24.0
1993E 36.9
</TABLE>
41. The pie chart appearing in Appendix C ("Convertible Preferred Market
Conditions") entitled "Convertible Market Overview--Net Flows Into Growth and
Income Funds" is omitted. The chart illustrates the buyers' universe of
equity-linked securities representing over $100 billion in assets. The
following chart presents the information shown in the omitted graph.
<TABLE>
<CAPTION>
Growth & Income Mutual Funds: $30B
-----------------------------------
<S> <C>
-Convertible Preferreds
-Cash Pay Convertibles
-Zero Coupon Convertibles
-STEPS/PERCS
-DECS
</TABLE>
<PAGE> 165
<TABLE>
<CAPTION>
Hedge Funds: $28B
------------------
<S> <C>
-Low Premium Convertibles
-Low Premium Convertible Preferreds
-STEPS/PERCS
</TABLE>
<TABLE>
<CAPTION>
Warrant Buyers: $6B
--------------------
<S> <C>
-Warrants
-Stripped Warrants on Convertible Debt
</TABLE>
<TABLE>
<CAPTION>
Equity-Linked Mutual Funds: $10B
---------------------------------
<S> <C>
-Cash Pay Convertibles
-Convertible Preferred
-Zero Coupon Convertibles
-STEPS/PERCS
-DECS
</TABLE>
<TABLE>
<CAPTION>
High Yield Buyers: $8B
-----------------------
<S> <C>
-"Busted" Convertibles
-"Distressed" Convertibles
-Zero Coupon Convertibles
</TABLE>
<TABLE>
<CAPTION>
Income Oriented Equity-Linked Buyers: $20B
-------------------------------------------
<S> <C>
-"Busted" Convertibles
-STEPS/PERCS
-DECS
</TABLE>
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