UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
Commission File Number 1-10066
SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 95-4191066
(State of incorporation) (I.R.S. Employer Identification No.)
888 South Figueroa Street
Los Angeles, California 90017
(Address of principal executive offices, including zip code)
(213) 614-1095
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes __X__ No _____
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SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at March 31, 1994
and December 31, 1993 ................................... 1
Consolidated Statement of Income for the three
month periods ended March 31, 1994 and 1993 ............. 2
Consolidated Statement of Cash Flows for the three
month periods ended March 31, 1994 and 1993.............. 3
Notes to Consolidated Financial Statements ................. 4
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations .............. 5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ..................................... 7
Item 5. Other Information ..................................... 7
Item 6. Exhibits and Reports on Form 8-K....................... 7
Signature ...................................................... 8
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SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
CONSOLIDATED BALANCE SHEET
(In thousands)
March 31, December 31,
1994 1993
--------- ---------
(Unaudited)
A S S E T S
Current assets
Cash and cash equivalents.................... $ 41,034 $ 32,162
Accounts receivable, net .................... 32,262 32,787
Other current assets......................... 6,081 2,801
--------- ---------
Total current assets.................... 79,377 67,750
--------- ---------
Properties, plant and equipment .................. 684,273 683,082
Less accumulated depreciation ............... 70,130 66,472
--------- ---------
Net properties, plant and equipment .... 614,143 616,610
Other assets...................................... 12,155 12,620
--------- ---------
Total assets............................ $705,675 $696,980
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable............................. $ 2,995 $ 2,403
Accrued liabilities.......................... 40,752 33,235
--------- ---------
Total current liabilities............... 43,747 35,638
Long-term debt ................................... 355,000 355,000
Other long-term liabilities ...................... 39,480 39,283
--------- ---------
Total liabilities ...................... 438,227 429,921
--------- ---------
Minority interest ................................ 1,216 1,208
--------- ---------
Commitments and contingencies (Notes (f) and (g)).
--------- ---------
Partners' capital
General Partner ............................. 1,216 1,208
Limited Partners............................. 265,016 264,643
--------- ---------
Total partners' capital ................. 266,232 265,851
--------- ---------
Total liabilities and partners' capital.. $705,675 $696,980
========= =========
See Notes to Consolidated Financial Statements.
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SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands, except per unit amounts)
Three months
ended March 31,
--------------------
1994 1993
--------- ---------
Operating revenues
Trunk revenues................................. $ 41,282 $ 38,707
Storage and terminaling revenues............... 8,609 8,492
Other revenues................................. 2,631 2,475
--------- ---------
Total operating revenues.................. 52,522 49,674
--------- ---------
Operating expenses
Field operating expenses....................... 7,967 8,009
General and administrative expenses............ 6,327 6,039
Facilities costs............................... 5,469 5,163
Depreciation and amortization.................. 4,878 4,771
Power cost..................................... 4,425 3,934
--------- ---------
Total operating expenses.................. 29,066 27,916
--------- ---------
Operating income.................................... 23,456 21,758
Interest expense.................................... 9,260 9,121
Other income, net................................... 177 144
--------- ---------
Net income before minority interest ................ 14,373 12,781
Less minority interest in net income ............... (298) (265)
--------- ---------
Net income.......................................... $ 14,075 $ 12,516
========= =========
Income per unit .................................... $ 0.72 $ 0.64
========= =========
See Notes to Consolidated Financial Statements.
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SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
Three months
ended March 31,
---------------------
1994 1993
--------- ---------
Cash flows from operating activities:
Net income........................................ $ 14,075 $ 12,516
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation and amortization................. 4,878 4,771
Minority interest in net income............... 298 265
Environmental and litigation costs paid ...... (428) (147)
Other, net.................................... 428 (1,606)
Changes in--
Accounts receivable......................... 526 (5,899)
Accounts payable and accrued liabilities.... 8,109 13,858
Other current assets........................ (3,280) (4,089)
--------- ---------
Total adjustments......................... 10,531 7,153
--------- ---------
Net cash provided by operating activities. 24,606 19,669
--------- ---------
Cash flows from investing activities:
Capital expenditures.............................. (1,851) (4,100)
Other............................................. 101 99
--------- ---------
Net cash used by investing activities..... (1,750) (4,001)
--------- ---------
Cash flows from financing activities:
Distributions to partners and minority interest... (13,984) (13,984)
--------- ---------
Increase in cash and cash equivalents................ 8,872 1,684
Cash and cash equivalents--
Beginning of period............................... 32,162 27,356
--------- ---------
End of period..................................... $ 41,034 $ 29,040
========= =========
See Notes to Consolidated Financial Statements.
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SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) The consolidated financial statements should be read in
conjunction with the Santa Fe Pacific Pipeline Partners, L.P.
(the "Partnership") Annual Report on Form 10-K for the year ended
December 31, 1993.
(b) In the opinion of Partnership management, all adjustments,
consisting only of normal recurring adjustments, necessary for a
fair statement of the results of operations for the periods
presented have been included in these consolidated financial
statements. Certain comparative prior year amounts in the
consolidated financial statements have been reclassified to
conform with the current year presentation.
(c) The consolidated statement of income for the three month
period ended March 31, 1994 is not necessarily indicative of the
results of operations for the full year 1994.
(d) As of January 1, 1994, all differences and distinctions
between the preference units and common units were eliminated and
the preference units will henceforth be treated as and called
common units. Income per unit is computed based upon
consolidated net income of the Partnership less an allocation of
income to the General Partner in accordance with the partnership
agreement, and is based upon the 19,148,148 units outstanding.
The quarterly allocation of income to the General Partner, which
was 2.07% of net income before minority interest for the three
month periods ended March 31, 1994 and 1993, is based on its
percentage of cash distributions from available cash at the end
of each quarter.
(e) On April 14, 1994, the Partnership declared a cash
distribution of $0.70 per unit for the first quarter of 1994, to
be paid on May 13, 1994 to unitholders of record on April
29, 1994.
(f) As discussed in Note 6 to the Partnership's consolidated
financial statements for the year ended December 31, 1993,
certain of the Partnership's shippers have filed civil suits and
initiated a Federal Energy Regulatory Commission ("FERC")
proceeding alleging, among other things, that the shippers had
been damaged by the Partnership's failure to fulfill alleged
promises to expand the East Line's capacity between El Paso,
Texas and Phoenix, Arizona to meet shipper demand. The FERC
proceeding also involves claims, among other things, that certain
of the Partnership's tariffs and charges on its East and West
Lines are excessive. It is the opinion of management that any
additional costs, in excess of recorded liabilities, incurred to
defend and resolve these matters, or any capital expenditures
which may be required under the terms of the settlement
agreement, will not have a material adverse effect on the
Partnership's financial condition; nevertheless, it is possible
that the Partnership's results of operations, in particular
quarterly or annual periods, could be materially affected by the
ultimate resolution of these matters.
(g) As discussed in Note 6 to the Partnership's consolidated
financial statements for the year ended December 31, 1993, the
Partnership's transportation and terminal operations are subject
to extensive regulation under federal, state and local
environmental laws concerning, among other things, the
generation, handling, transportation and disposal of hazardous
materials and the Partnership is, from time to time, subject to
environmental cleanup and enforcement actions.
Estimates of the Partnership's ultimate liabilities associated
with environmental remediation activities and related costs are
particularly difficult to make with certainty due to the number
of variables involved, including the early stage of investigation
at certain sites, the lengthy time frames required to complete
remediation at most locations, the number of parties involved,
the number of remediation alternatives available, and the
uncertainty of potential recoveries from third parties. Based on
the information presently available, it is the opinion of
management that any such costs, to the extent they exceed
recorded liabilities, will not have a material adverse effect on
the Partnership's financial condition; nevertheless, it is
possible that the Partnership's results of operations in
particular quarterly or annual periods could be materially
affected as conditions change or additional information becomes
available.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended March 31, 1994 Compared to 1993 Period:
The Partnership reported net income for the three months ended
March 31, 1994 of $14.1 million, compared to net income of $12.5
million in the prior year quarter, primarily due to increased
volumes and a longer average haul. Operating income for the
first quarter of 1994 of $23.5 million was $1.7 million, or 8%,
higher, and net income of $14.1 million was $1.6 million, or 12%,
higher than in 1993. Revenues for the first quarter of 1994 of
$52.5 million were $2.8 million, or 6%, above prior year quarter
levels. Trunk revenues were $2.6 million higher than in the 1993
quarter primarily due to higher volumes and longer average length
of haul. Total volumes transported increased 5.3% from the first
quarter of 1993, with commercial volumes 4.6%, and military
volumes 18%, higher than in 1993. The longer average haul
reflects increased deliveries to Arizona and Nevada, primarily
due to increased demand in 1994 and lower first quarter 1993
deliveries in Southern California and Arizona resulting from
heavy rains and intermittent down-time to repair flood related
damage on the West Line.
Operating expenses of $29.1 million were $1.2 million higher than
in the 1993 quarter, with higher power cost ($0.5 million),
facilities costs ($0.3 million) and general and administrative
expenses ($0.3 million) accounting for the increase. The increase
in power cost resulted from improved volumes and increased power
rates. Facilities costs increased as a result of higher rights-of-
way rentals. General and administrative expenses were higher due
to outside legal costs associated with the FERC proceeding, which
aggregated $1.1 million in the 1994 quarter, partially offset by
lower incentive compensation expense.
Financial Condition:
For the three months ended March 31, 1994, cash and cash
equivalents increased $8.9 million. Cash flow from operations
before working capital and minority interest adjustments totaled
$19.0 million for the three months, an increase of $3.4 million
from 1993. Working capital cash requirements decreased
$1.5 million from the 1993 three month period. Significant uses
of cash included cash distributions of $14.0 million and capital
expenditures of $1.9 million. Total cash and cash equivalents of
$41.0 million at March 31, 1994 included $14.0 million for the
first quarter 1994 distribution to be paid to unitholders in May
1994.
First quarter 1994 capital expenditures of $1.9 million were $2.2
million lower than in the prior year. Full year 1994 capital
expenditures are expected to total approximately $22 million.
While the Partnership anticipates that sufficient funds will be
provided by operations to satisfy all working capital and capital
expenditure requirements during the remainder of 1994, the
Partnership's $60 million term facility is available for
financing significant capital projects and for refinancing a
portion of the Partnership's long-term debt. The Partnership
also has a $20 million working capital facility which is
available for short-term borrowing purposes. The facilities
provide that any associated borrowings will be secured by certain
Partnership assets and are subject to other reasonable and
customary terms and conditions. To date, neither of these
facilities have been utilized.
Long-term debt at March 31, 1994 consisted of $355 million of
First Mortgage Notes at an average interest rate of 10.51% per
annum with the first annual principal repayment required December
15, 1994. The Partnership expects to refinance some or all of
this debt as it becomes payable.
Other Matters:
Reference is made to Notes (f) and (g) to the Partnership's notes
to consolidated financial statements, beginning on page 4 of this
Report, for discussions of the status of the East Line litigation
and the FERC proceeding and of environmental matters. Management
believes that, in the aggregate, the costs associated with the
resolution of the East Line litigation and related FERC
proceeding and the costs of completing known environmental
remediation projects will not adversely affect the Partnership's
ability to maintain its current quarterly cash distribution.
In October 1993, the FERC issued a ruling on oil pipeline rate-
making, to become effective January 1, 1995, which would allow
oil pipelines to adjust their transportation tariffs as long as
those rates do not exceed prescribed ceiling levels determined by
reference to annual changes in the Producer Price Index for
Finished Goods, minus one percent. The FERC has accepted
additional comments on the suitability of the reference index and
has numerous requests for rehearing of this ruling under
consideration. It is expected that a final rule will be issued
prior to year end 1994, however, at the present time, it is not
possible to predict with certainty what final simplified rate-
making methodology will be adopted or what effect such
methodology may have on future Partnership tariffs.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
East Line Litigation and FERC Proceeding:
Reference is made to Item 3 in the Partnership's 1993 Annual
Report on Form 10-K, incorporated herein by reference, for
background information on certain East Line litigation and a
related FERC proceeding.
Navajo Refining Company ("Navajo"), which, under a 1985 FERC rate
case settlement, had been prohibited from challenging the
Partnership's rates until November 1993, filed a complaint
against certain East Line and West Line rates in December 1993.
On April 20, 1994, the FERC accepted Navajo's complaint and ruled
that certain other parties seeking to challenge West Line rates
would not need to demonstrate "changed circumstances" in order to
do so. However, the FERC also ruled that the complainants
continue to bear the burden of proof and that relief, if any,
will be prospective only from the date of the filing of each
party's own complaint. The Partnership is presently considering
whether to seek reconsideration of certain aspects of the April
20 ruling.
The present procedural schedule calls for the shippers to submit
their case to FERC in mid-June 1994, and the FERC staff to submit
its case in late July 1994. The Partnership is maintaining a
vigorous defense in the FERC proceeding.
All activity in El Paso Refinery L.P.'s civil action against the
Partnership has been stayed indefinitely by virtue of the
bankruptcy proceeding. In February 1994, a permanent trustee and
a new judge were named to handle these proceedings.
Item 6. Exhibits and Reports on Form 8-K.
(b) Reports on Form 8-K filed during the quarter ended March 31,
1994: None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
(Registrant)
By: Santa Fe Pacific Pipelines, Inc., as
General Partner
Date: May 11, 1994 By: /s/ ROBERT L. EDWARDS
Robert L. Edwards
Senior Vice President,
Treasurer and Chief Financial Officer
(On behalf of the Registrant)
