<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 [_]
===============================================================================
<PAGE>
SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at March 31, 1995
and December 31, 1994............................. 1
Consolidated Statement of Income for the
three-month periods ended March 31, 1995
and 1994.......................................... 2
Consolidated Statement of Cash Flows for the
three-month periods ended March 31, 1995
and 1994.......................................... 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 6. Exhibits and Reports on Form 8-K................ 7
Signature................................................ 8
</TABLE>
<PAGE>
SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................... $ 50,913 $ 48,948
Amounts receivable, net............................ 38,419 36,470
Other current assets............................... 9,938 2,420
-------- --------
Total current assets............................ 99,270 87,838
-------- --------
Properties, plant and equipment...................... 692,945 691,263
Less accumulated depreciation...................... 81,352 78,224
-------- --------
Net properties, plant and equipment............. 611,593 613,039
Other assets......................................... 13,368 13,895
-------- --------
Total assets.................................... $724,231 $714,772
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable.................................. $ 3,226 $ 3,369
Accrued liabilities............................... 37,494 28,403
-------- --------
Total current liabilities....................... 40,720 31,772
Long-term debt....................................... 355,000 355,000
Other long-term liabilities.......................... 37,728 38,363
-------- --------
Total liabilities............................... 433,448 425,135
-------- --------
Minority interest.................................... 1,874 1,676
-------- --------
Commitments and contingencies (Notes (f) and (g))
-------- --------
Partners' capital
General Partner.................................... 1,874 1,676
Limited Partner.................................... 287,035 286,285
-------- --------
Total partners' capital......................... 288,909 287,961
-------- --------
Total liabilities and partners' capital......... $724,231 $714,772
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
-1-
<PAGE>
SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(In thousands, except per unit amounts)
<TABLE>
<CAPTION>
Three months
ended March 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
Operating revenues
Trunk revenues......................................... $42,368 $41,282
Storage and terminaling revenues....................... 8,765 8,609
Other revenues......................................... 3,067 2,631
------- -------
Total operating revenues............................ 54,200 52,522
------- -------
Operating expenses
Field operating expenses............................... 8,849 7,967
General and administrative expenses.................... 6,595 6,327
Facilities costs....................................... 5,509 5,469
Depreciation and amortization.......................... 5,095 4,878
Power cost............................................. 4,519 4,425
------- -------
Total operating expenses............................ 30,567 29,066
------- -------
Operating income............................................ 23,633 23,456
Interest expense............................................ 9,228 9,260
Other income, net........................................... 725 177
------- -------
Net income before minority interest......................... 15,130 14,373
Less minority interest in net income........................ (488) (298)
------- -------
Net income.................................................. $14,642 $14,075
======= =======
Income per unit............................................. $ 0.74 $ 0.72
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
-2-
<PAGE>
SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three months
ended March 31,
-----------------------
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 14,642 $ 14,075
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities--
Depreciation and amortization.................. 5,095 4,878
Minority interest in net income................ 488 298
Environmental and litigation costs paid........ (815) (428)
Other, net..................................... 406 428
Changes in:
Accounts receivable.......................... (1,949) 526
Accounts payable and accrued liabilities..... 8,948 8,109
Other current assets......................... (7,518) (3,280)
-------- --------
Total adjustments.......................... 4,655 10,531
-------- --------
Net cash provided by operating activities.. 19,297 24,606
-------- --------
Cash flows from investing activities:
Capital expenditures.............................. (3,348) (1,851)
Other............................................. -- 101
-------- --------
Net cash used by investing activities...... (3,348) (1,750)
Cash flows from financing activities:
Distributions to Partners......................... (13,984) (13,984)
-------- --------
Increase in cash and cash equivalents............... 1,965 8,872
Cash and cash equivalents--
Beginning of period............................... 48,948 32,162
-------- --------
End of period..................................... $ 50,913 $ 41,034
======== ========
Interest paid....................................... $ 191 $ --
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
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, 1994.
(b) In the opinion of Partnership management, all adjustments necessary for a
fair statement of the results of operations for the periods presented have been
included in these consolidated financial statements. Unless otherwise noted, all
such adjustments are of a normal recurring nature.
(c) The consolidated statement of income for the three-month period ended March
31, 1995 is not necessarily indicative of the results of operations to be
expected for the full year 1995.
(d) 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 3.23% and 2.07% of net income before minority interest for the three-month
periods ended March 31, 1995 and 1994, respectively, is based on its percentage
of cash distributions from available cash at the end of each quarter.
(e) On April 13, 1995, the Partnership declared a cash distribution of $0.75 per
unit for the first quarter of 1995, to be paid on May 15, 1995 to unitholders of
record on April 28, 1995.
(f) As discussed in Note 4 to the Partnership's consolidated financial
statements for the year ended December 31, 1994, 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.
The Partnership's accompanying balance sheet includes reserves for litigation
costs, which reflect the settlement terms of one civil action as well as
anticipated legal fees and other costs related to the FERC proceeding and the
remaining civil action. Management believes that it has acted properly with
respect to expansion of the East Line and the direction of flow of the six-inch
pipeline from Phoenix to Tucson, Arizona, which are the primary issues in the
remaining civil action. Management also believes that the Partnership's current
tariffs are just and reasonable. However, because of the nature of the FERC
rate-making methodology, it is not possible to predict with certainty whether
the Partnership's assumptions and rate-making approach will be upheld by the
FERC or whether any reparations will be ordered to be paid to the complainants
or any prospective rate reductions will be required. A decision by the FERC
which results in significant reparations being paid and a significant reduction
in the Partnership's current tariffs could have a material adverse effect on the
Partnership's results of operations, financial condition and ability to maintain
its current quarterly cash distribution.
-4-
<PAGE>
(g) As discussed in Note 4 to the Partnership's consolidated financial
statements for the year ended December 31, 1994, 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.
The Partnership's accompanying balance sheet includes reserves for environmental
costs that relate to existing conditions caused by past operations. Estimates of
the Partnership's ultimate liabilities associated with environmental 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,
the uncertainty of potential recoveries from third parties and the evolving
nature of environmental laws and regulations. Based on the information presently
available, it is the opinion of management that the Partnership's environmental
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, 1995 COMPARED TO 1994 PERIOD
The Partnership reported net income for the three months ended March 31, 1995 of
$14.6 million, compared to net income of $14.1 million in the corresponding 1994
quarter. Revenues for the first quarter of 1995 of $54.2 million were $1.7
million, or 3%, above the 1994 quarter's levels. Trunk revenues were $1.1
million higher than in the 1994 quarter primarily due to higher volumes. Total
volumes transported increased about 2.5% from the first quarter of 1994, with
commercial volumes 3% higher, and military volumes 3% lower, than in 1994. First
quarter deliveries to most of the markets served by the Partnership increased in
1995, although Southern California deliveries were lower as a result of heavy
rains and intermittent down-time to repair flood-related pipeline damage. Other
revenues increased $0.4 million as the result of new terminal services offered.
Operating expenses of $30.6 million were $1.5 million higher than in the 1994
quarter, with higher field operating expenses ($0.9 million), general and
administrative expenses ($0.3 million), depreciation and amortization ($0.2
million) and power cost ($0.1 million) accounting for the increase. The increase
in field operating expenses is primarily attributable to higher pipeline
maintenance and repairs, primarily related to flood damage, and higher
environmental costs. General and administrative expenses were higher due to
outside legal and consulting costs, primarily resulting from the Sparks, Nevada
remediation and associated litigation, as well as higher incentive compensation
expense. The increase in depreciation and amortization resulted from the
Partnership's expanding capital asset base, particularly short-lived software
costs. The increase in power cost resulted from improved volumes.
-5-
<PAGE>
Other income, net increased $0.5 million over the 1994 quarter primarily due to
higher interest income, which resulted from higher interest rates and cash
balances. The minority interest in net income is allocated based on the minority
interest's percentage of total cash distributions declared for a period, and
increases as quarterly distributions to unitholders exceed certain specified
targets. The minority interest increased $0.2 million in 1995 due to the effect
of the first quarter per unit cash distribution being increased from $0.70 in
1994 to $0.75 in 1995.
FINANCIAL CONDITION
For the three months ended March 31, 1995, cash and cash equivalents increased
$2.0 million. Cash flow from operations before working capital and minority
interest adjustments totaled $19.3 million for the three months, an increase of
$0.4 million from the corresponding 1994 period. Working capital cash
requirements increased $5.9 million from the corresponding 1994 three-month
period primarily due to purchase of a $3.1 million short-term investment and the
timing of cash receipts on reimbursable pipeline relocation projects.
Significant uses of cash included cash distributions of $14.0 million and
capital expenditures of $3.3 million. Total cash and cash equivalents of $50.9
million at March 31, 1995 included $15.4 million for the first quarter 1995
distribution to be paid to unitholders in May 1995.
First quarter 1995 capital expenditures of $3.3 million were $1.5 million higher
than in the prior year. Full year 1995 capital expenditures are expected to
total approximately $32 million. During the first quarter of 1995, the
Partnership continued to investigate the feasibility of providing pipeline
service from the San Francisco Bay area to Colton, in Southern California by
expanding the existing capacity on its North Line and building a new line
between Fresno and Colton. If sufficient shipper throughput commitments are
obtained and project approval is received, the total investment in this project
could exceed $100 million, depending on the pipeline capacity and routing
selected. The Partnership expects that it will generally finance its ongoing
capital program with internally-generated funds; however, the Partnership may
use borrowed funds or proceeds from additional equity offerings to finance a
portion of significant capital expenditures, such as this potential project that
may be undertaken to link Northern and Southern California.
Long-term debt at March 31, 1995 aggregated $355 million and consisted of $344
million of First Mortgage Notes (the "Notes") and an $11 million borrowing under
the Partnership's bank term credit facility. The Partnership intends to
refinance some or all of the Notes as the various series become payable. To
facilitate such refinancing and provide for additional financial flexibility,
the Partnership presently has available the multi-year term credit facility,
with a $60 million aggregate limit, and a $20 million working capital facility
with three banks. The term facility may continue to be used for refinancing a
portion of the Notes and for capital projects, while the working capital
facility is available for general short-term borrowing purposes.
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, and to
Part II, Item 1 of this Report, for discussions of the status of the East Line
litigation and FERC proceeding and of environmental matters.
-6-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to Item 3 in the Partnership's 1994 Annual Report on Form
10-K for background information on certain litigation.
EAST LINE LITIGATION AND FERC PROCEEDING
The Partnership submitted its case-in-chief in the FERC proceeding on April 4,
1995. The cost of service computations for the years 1990 through 1993 presented
in the Partnership's case-in-chief support the Partnership's position that the
current South System tariffs are just and reasonable and that the Partnership's
cost of service exceeded the revenues generated in each of the years except
1991, for which, under the Partnership's presentation, an immaterial amount of
reparations may be payable.
On April 3, 1995, Mobil Oil Corporation ("Mobil"), not previously a participant
in the FERC proceeding, moved to intervene. The FERC Administrative Law Judge
has deferred ruling on that motion pending FERC action on a separately-filed
complaint by Mobil. The present procedural schedule calls for the complainants
and FERC Staff to conduct discovery and submit rebuttal to the Partnership's
testimony by mid-August 1995. Hearings before the FERC Administrative Law Judge
are scheduled to commence in October 1995, with an initial decision not expected
until mid- to late-1996.
ENVIRONMENTAL MATTERS
With respect to the litigation associated with the Sparks, Nevada remediation,
the judge assigned to the consolidated matters has expressed a strong interest
in seeing that these matters are resolved prior to trial and, in accordance with
the judge's order, briefs on settlement approaches were submitted by the various
parties on April 17, 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following document is filed as part of this report:
Exhibit 27 Financial Data Schedule as of and for the three months ended
March 31, 1995.
(b) Reports on Form 8-K filed during the quarter ended March 31, 1995:
None.
-7-
<PAGE>
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, 1995 By: /s/ BARRY R. PEARL
-------------------------------------
Barry R. Pearl
Senior Vice President,
Treasurer and Chief Financial Officer
(On behalf of the Registrant)
-8-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SANTA FE PACIFIC PIPELINE PARTNERS, L.P. AS
OF AND FOR THE QUARTER ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 50,913
<SECURITIES> 3,108
<RECEIVABLES> 38,419
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 99,270
<PP&E> 692,945
<DEPRECIATION> 81,352
<TOTAL-ASSETS> 724,231
<CURRENT-LIABILITIES> 40,720
<BONDS> 355,000
<COMMON> 0
0
0
<OTHER-SE> 288,909
<TOTAL-LIABILITY-AND-EQUITY> 724,231
<SALES> 0
<TOTAL-REVENUES> 54,200
<CGS> 0
<TOTAL-COSTS> 30,567
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,228
<INCOME-PRETAX> 15,130
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,642
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,642
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.74
</TABLE>
