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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, 1996
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 [_]
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SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
TABLE OF CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at March 31, 1996 and
December 31, 1995................................... 1
Consolidated Statement of Income
for the three-month periods ended March 31, 1996
and 1995.............................................. 2
Consolidated Statement of Cash Flows
for the three-month periods ended March 31, 1996
and 1995.............................................. 3
Notes to Consolidated Financial Statements............ 4
Item 2. Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations........................... 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................... 7
Item 6. Exhibits and Reports on Form 8-K................ 7
Signature................................................ 7
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SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands)
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<CAPTION>
March 31, December 31,
1996 1995
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A S S E T S
Current assets
Cash and cash equivalents................................... $ 35,841 $ 41,219
Accounts receivable, net.................................... 38,742 38,897
Other current assets........................................ 7,159 2,139
-------- --------
Total current assets...................................... 81,742 82,255
-------- --------
Properties, plant and equipment............................... 725,410 716,197
Less accumulated depreciation............................... 97,337 92,879
-------- --------
Net properties, plant and equipment....................... 628,073 623,318
Other assets.................................................. 16,186 15,281
-------- --------
Total assets.............................................. $726,001 $720,854
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable............................................ $ 1,879 $ 3,466
Accrued liabilities......................................... 37,757 30,609
-------- --------
Total current liabilties.................................. 39,636 34,075
Long-term debt................................................ 355,000 355,000
Other long-term liabilities................................... 59,442 60,468
-------- --------
Total liabilities......................................... 454,078 449,543
-------- --------
Minority interest............................................. 1,266 1,246
-------- --------
Commitments and contingencies (Notes (d) and (e)).............
-------- --------
Partners' capital
General partner............................................. 1,266 1,246
Limited partners............................................ 269,391 268,819
-------- --------
Total partners' capital................................... 270,657 270,065
-------- --------
Total liabilities and partners' capital................... $726,001 $720,854
======== ========
</TABLE>
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)
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Three months
ended March 31,
------------------------------
1996 1995
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Operating revenues
Trunk revenues.......................................... $44,519 $42,368
Storage and terminaling revenues........................ 8,964 8,765
Other revenues.......................................... 3,113 3,067
------- -------
Total operating revenues............................... 56,596 54,200
------- -------
Operating expenses
Field operating expenses................................. 9,190 8,849
General and administrative expenses...................... 6,915 6,595
Facilities costs......................................... 5,830 5,509
Depreciation and amortization............................ 5,321 5,095
Power costs.............................................. 4,674 4,519
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Total operating expenses............................... 31,930 30,567
------- -------
Operating income............................................ 24,666 23,633
Interest expense............................................ 9,082 9,228
Other income, net........................................... 379 725
------- -------
Net income before minority interest......................... 15,963 15,130
Less minority interest in net income........................ (515) (488)
------- -------
Net income.................................................. $15,448 $14,642
======= =======
Income per unit............................................. $ 0.78 $ 0.74
======= =======
</TABLE>
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)
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Three months
ended March 31,
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1996 1995
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Cash flows from operating activities:
Net income................................................... $ 15,448 $ 14,642
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities--
Depreciation and amortization............................... 5,321 5,095
Minority interest in net income............................. 515 488
Net additions to (payments against)
environmental and litigation reserves...................... (5,057) (815)
Other, net.................................................. (1,421) 406
Changes in:
Accounts receivable........................................ 155 (1,949)
Accounts payable and accrued liabilities................... 9,564 8,948
Other current assets....................................... (5,020) (7,518)
-------- --------
Total adjustments......................................... 4,057 4,655
-------- --------
Net cash provided by
operating activities..................................... 19,505 19,297
Cash flows from investing activities:
Capital expenditures......................................... (9,531) (3,348)
Cash flows from financing activities:
Distributions to partners.................................... (15,352) (13,984)
-------- --------
Increase (decrease) in cash and cash equivalents.............. (5,378) 1,965
Cash and cash equivalents--
Beginning of period.......................................... 41,219 48,948
-------- --------
End of period................................................ $ 35,841 $ 50,913
======== ========
Interest paid................................................. $ 447 $ 191
======== ========
</TABLE>
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
Annual Report on Form 10-K of Santa Fe Pacific Pipeline Partners, L.P. (the
"Partnership") for the year ended December 31, 1995. In the opinion of
Partnership management, all adjustments necessary for a fair presentation 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. The results of operations for any interim
period are not necessarily indicative of the results of operations to be
expected for the entire year.
(b) 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% of net income before minority interest for the three-month periods
ended March 31, 1996 and 1995, respectively, is based on its percentage of cash
distributions from available cash at the end of each quarter.
(c) On April 11, 1996, the Partnership declared a cash distribution of $0.75 per
unit for the first quarter of 1996, to be paid on May 15, 1996 to unitholders of
record on April 30, 1996.
(d) As discussed in Note 4 to the Partnership's consolidated financial
statements for the year ended December 31, 1995, certain of the Partnership's
shippers have filed civil suits and initiated Federal Energy Regulatory
Commission ("FERC") complaint proceedings alleging, among other things, that the
shippers were 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 remaining civil action, brought by El Paso Refinery,
L.P. ("El Paso") and its general partner, claims unspecified actual damages,
which appear to include the $190 million cost of a refinery expansion completed
in 1992, plus punitive and consequential damages. The FERC proceeding also
involves claims, among other things, that certain of the Partnership's rates and
charges on its East and West Lines are excessive. To date, the complainants have
filed testimony in the FERC proceeding seeking reparations for shipments between
1990 and 1994 aggregating approximately $35 million, as well as rate reductions
of between 30% and 40% for shipments in 1995 and thereafter.
The Partnership's accompanying balance sheet includes reserves for costs related
to the resolution of the El Paso civil suit and FERC proceeding. While the
Partnership believes it has meritorious defenses in these matters, the
complainants and plaintiffs are seeking amounts that, in the aggregate,
substantially exceed the Partnership's reserves and, because of the
uncertainties associated with litigation and FERC rate-making methodology,
management cannot predict with certainty the ultimate outcome of these matters.
As additional information becomes available, it may be necessary for the
Partnership to record additional charges to earnings to maintain its reserves at
a level deemed adequate at that time, and the costs associated with the ultimate
resolution of these matters could have a material adverse effect on the
Partnership's results of operations, financial condition, or ability to maintain
its quarterly cash distribution at the current level.
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(e) As discussed in Note 4 to the Partnership's consolidated financial
statements for the year ended December 31, 1995, 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 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, 1996 COMPARED TO 1995 PERIOD
The Partnership reported net income for the three months ended March 31, 1996 of
$15.4 million, compared to net income of $14.6 million in the corresponding 1995
quarter, with the variance being primarily due to higher revenues. Revenues for
the first quarter of 1996 of $56.6 million were $2.4 million, or 4%, above the
1995 quarter's levels. Trunk revenues were $2.1 million higher than in the 1995
quarter primarily due to higher volumes. Total volumes transported increased
about 5% from the first quarter of 1995, with commercial volumes being 5% higher
and military volumes being 5% lower, than in 1995. First quarter deliveries to
most of the markets served by the Partnership have increased in 1996, although
Southern California deliveries were lower as a result of competition from short-
haul trucking to Los Angeles area terminals.
Operating expenses of $31.9 million were $1.4 million, or 4%, higher than in the
1995 quarter with higher field operating expenses ($0.3 million), general and
administrative expenses ($0.3 million), facilities costs ($0.3 million),
depreciation and amortization ($0.2 million) and higher power costs ($0.2
million) accounting for that increase. The increase in field operating expenses
is primarily attributable to higher pipeline repairs and maintenance, including
pipeline recoating projects. General and administrative expenses were higher due
to outside legal costs, primarily related to the litigation associated with the
Sparks, Nevada environmental site. Facilities costs were higher due to higher
right-of-way rental expense. The increase in depreciation and amortization
resulted from the Partnership's
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expanding capital asset base, particularly short-lived software costs. The
increase in power costs resulted from increased volumes and greater usage of
drag reducing agent.
Other income, net decreased by $0.3 million compared to the 1995 period
primarily due to lower interest income, which resulted from lower interest rates
and cash balances.
FINANCIAL CONDITION
For the three months ended March 31, 1996, cash and cash equivalents decreased
by $5.4 million. Cash flow from operations before working capital and minority
interest adjustments totaled $14.3 million for the three months, a decrease of
$5.0 million from the corresponding 1995 period, due primarily to payment of
settlement costs related to the Sparks, Nevada environmental site litigation.
Working capital cash requirements decreased $5.2 million from the corresponding
1995 three-month period primarily due to timing differences in the collections
of trade and nontrade receivables and prepayments of certain rentals and
insurance premiums.
Significant uses of cash included cash distributions of $15.4 million and
capital expenditures of $9.5 million. In January 1996, the Partnership completed
the purchase, from Kinley Pipelines of California, of a 35-mile, 6-inch diameter
pipeline that serves Lemoore Naval Air Station from the Partnership's Fresno,
California terminal, for approximately $6 million. Total cash and cash
equivalents of $35.8 million at March 31, 1996 included $15.4 million for the
first quarter 1996 distribution to be paid to unitholders in May 1996.
The Partnership has 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 pipeline between Fresno and Colton. The level of shipper throughput
commitments obtained to date is not sufficient to proceed and places the
viability of this project in doubt. Management anticipates that a decision on
the future of this project will be made during 1996.
Long-term debt aggregated $355 million at March 31, 1996 and consisted of $327
million of First Mortgage Notes (the "Notes") and a $28 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 (d) and (e) 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
civil litigation and FERC proceeding.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 in the Partnership's 1995 Annual Report on Form 10-K
for background information on certain litigation.
EAST LINE CIVIL LITIGATION AND FERC PROCEEDING
Hearings in the FERC proceeding commenced before a FERC Administrative Law Judge
on April 9, 1996 and are presently ongoing. An initial decision is not expected
before late 1996 or early 1997.
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, 1996.
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 13, 1996 By: /s/ BARRY R. PEARL
---------------------------------
Barry R. Pearl
Senior Vice President, Treasurer
and Chief Financial Officer
(On behalf of the Registrant)
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<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, 1996 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-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 35,841
<SECURITIES> 0
<RECEIVABLES> 38,742
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 81,742
<PP&E> 725,410
<DEPRECIATION> 97,337
<TOTAL-ASSETS> 726,001
<CURRENT-LIABILITIES> 39,636
<BONDS> 355,000
0
0
<COMMON> 0
<OTHER-SE> 270,657
<TOTAL-LIABILITY-AND-EQUITY> 726,001
<SALES> 0
<TOTAL-REVENUES> 56,596
<CGS> 0
<TOTAL-COSTS> 31,930
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,082
<INCOME-PRETAX> 15,963
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,448
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,448
<EPS-PRIMARY> .78
<EPS-DILUTED> .78
</TABLE>
