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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
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
For the Quarterly Period Commission File
Ended September 30, 1995 Number 1-10311
KANEB PIPE LINE PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2287571
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2435 NORTH CENTRAL EXPRESSWAY
RICHARDSON, TEXAS 75080
(Address of principle executive offices, including zip code)
(214) 699-4000
(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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KANEB PIPE LINE PARTNERS, L.P.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income
-- Three and Nine Months Ended September 30, 1995 and 1994 1
Condensed Consolidated Balance Sheets
-- September 30, 1995 and December 31, 1994 2
Condensed Consolidated Statements of Cash Flows
-- Nine Months Ended September 30, 1995 and 1994 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
Signature 7
</TABLE>
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KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS -- EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ----------------------------
1995 1994 1995 1994
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Revenues $ 26,533 $ 20,718 $ 70,257 $ 57,925
---------- ---------- ---------- -----------
Costs and expenses:
Operating costs 11,953 8,639 30,222 24,504
Depreciation and amortization 2,059 1,855 6,220 5,366
General and administrative 1,658 1,125 4,229 3,631
---------- ---------- ---------- -----------
Total costs and expenses 15,670 11,619 40,671 33,501
---------- ---------- ---------- -----------
Operating Income 10,863 9,099 29,586 24,424
Other income, net (principally interest) 214 270 661 926
Interest expense (1,646) (913) (4,683) (2,654)
---------- ---------- ---------- -----------
Income before minority interest
and income tax expense 9,431 8,456 25,564 22,696
Minority interest in net income (93) (80) (250) (217)
Income tax expense (129) (309) (348) (744)
---------- ---------- ---------- -----------
Net income 9,209 8,067 24,966 21,735
General partner's interest in net income (93) (80) (250) (217)
---------- ---------- ---------- -----------
Limited partner's interest in net income $ 9,116 $ 7,987 $ 24,716 $ 21,518
========== ========== ========== ===========
Allocation of net income per Senior
Preference Unit and Preference Unit $ .55 $ .55 $ 1.65 $ 1.65
========== ========== ========== ===========
Weighted average number of units outstanding:
Senior Preference Units 7,250 7,250 7,250 7,250
========== ========== ========== ===========
Preference Units 5,650 5,650 5,650 5,650
========== ========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
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KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,938 $ 4,145
Accounts receivable, trade 9,110 5,605
Current portion of receivable from general partner 2,483 2,241
Prepaid expenses 1,457 1,924
----------- -----------
Total current assets 19,988 13,915
----------- -----------
Receivable from general partner, less
current portion 1,651 3,544
----------- -----------
Property and equipment 246,767 214,556
Less accumulated depreciation and
amortization 73,146 68,910
----------- -----------
Net property and equipment 173,621 145,646
----------- -----------
$ 195,260 $ 163,105
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of long-term debt $ 1,716 $ 1,548
Accounts payable, accrued expenses
and distributions payable 17,624 13,299
Deferred terminating fees 1,753 1,641
Payable to general partner 703 786
----------- -----------
Total current liabilities 21,796 17,274
----------- -----------
Long-term debt, less current portion 68,956 43,265
----------- -----------
Other liabilities and deferred taxes 4,128 1,820
----------- -----------
Minority interest 991 992
----------- -----------
Partners' capital 99,389 99,754
----------- -----------
$ 195,260 $ 163,105
=========== ===========
</TABLE>
See notes to consolidated financial statements.
2
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KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995, AND 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Operating activities:
Net income $ 24,966 $ 21,735
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,220 5,366
Minority interest in net income 250 217
Deferred income taxes 348 716
Changes in working capital components 3,276 1,450
----------- -----------
Net cash provided by operating activities 35,060 29,484
----------- -----------
Investing activities:
Acquisition of the West Pipeline (27,100) --
Capital expenditures (7,095) (16,295)
----------- -----------
Net cash used by investing activities (34,195) (16,295)
----------- -----------
Financing activities:
Changes in receivable from general partner 1,651 1,440
Issuance of long-term debt 28,500 8,350
Payments of long-term debt (2,641) (8,496)
Distributions to partners (25,582) (22,402)
----------- -----------
Net cash provided (used) by financing activities 1,928 (21,108)
----------- -----------
Decrease in cash 2,793 (7,919)
Cash at beginning of period 4,145 15,061
----------- -----------
Cash at end of period $ 6,938 $ 7,142
=========== ===========
Supplemental information - cash paid for interest $ 3,696 $ 2,580
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial statements of Kaneb Pipe Line Partners, L.P. and
its subsidiaries (the "Partnership") for the periods ended September 30,
1995 and 1994 have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis. Significant accounting
policies followed by the Partnership were disclosed in the notes to the
financial statements included in the Partnership's Annual Report on Form
10K for the period ended December 31, 1994. In the opinion of the
Partnership's management, the accompanying financial statements contain the
adjustments, consisting of normal recurring accruals, necessary to present
fairly the financial position of the Partnership at September 30, 1995 and
the results of its operations and cash flows for the periods ended
September 30, 1995 and 1994. Operating results for the nine months ended
September 30, 1995 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1995.
2. ACQUISITIONS
Effective February 24, 1995, the Partnership, through KPOP, acquired the
refined petroleum product pipeline assets (the "West Pipeline") of Wyco
Pipe Line Company for $27.1 million. The acquisition was financed by the
issuance of first mortgage notes, which are due February 24, 2002 and bear
interest at the rate of 8.37% per annum. The acquisition has been accounted
for as a purchase and, accordingly, the results of operations of the West
Pipeline are included in the Partnership's consolidated statement of income
subsequent to the date of acquisition.
The following summarized unaudited pro forma consolidated results of
operations for the three and nine month periods ended September 30, 1995
and 1994, assume the acquisition occurred as of the beginning of the
periods presented. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the
results of operations which might have resulted had the combination been in
effect at the dates indicated, or which may occur in the future.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ------------------------
1995 1994 1995 1994
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues $ 26,533 $ 23,992 $ 71,972 $ 67,386
=========== =========== =========== ==========
Net income $ 9,209 $ 9,115 $ 24,969 $ 25,174
=========== =========== =========== ==========
Allocation of net income per Senior
Preference Unit and Preference Unit $ .55 $ .55 $ 1.65 $ 1.65
=========== =========== =========== ==========
</TABLE>
3. CASH DISTRIBUTIONS TO SENIOR PREFERENCE UNITHOLDERS
The cash distribution of $.55 per unit for the third quarter of 1995 was
declared to holders of record as of September 15, 1995 and is payable on
November 14, 1995.
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KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
FINANCIAL CONDITION
In February 1995, the Partnership, through KPOP, acquired the refined
petroleum products pipeline assets (the "West Pipeline") of Wyco Pipe Line
Company including an integrated pipeline system of approximately 550 miles of
pipeline with four terminals in Wyoming, South Dakota and Colorado. This
pipeline serves the growing Denver and northeastern Colorado markets. The
acquisition was financed by the sale of $27 million of first mortgage notes to
three insurance companies, which are due February 24, 2002 and bear interest at
the rate of 8.37% per annum.
The Partnership's working capital requirements for operations, capital
expenditures and cash distributions were funded through the use of internally
generated funds.
Cash provided by operations was $35.1 million and $29.5 million for the periods
ended September 30, 1995 and 1994, respectively, Capital expenditures were $7.1
million in the 1995 period compared to $16.3 million in 1994. The acquisition
of the Westwego terminal for $8.6 million in June 1994 is included in the 1994
capital expenditures. The Partnership anticipates that capital expenditures
will total approximately $8.0 million (excluding any acquisitions) for the year
1995.
The Partnership intends to fund future cash distributions and maintenance
capital expenditures with cash and cash flows from operating activities.
In the FERC's Lakehead decision issued June 15, 1995, the FERC partially
disallowed the inclusion of income taxes in the cost of service by Lakehead, a
pipeline master limited partnership. Specifically, the FERC held that Lakehead
was entitled to receive an income tax allowance with respect to income
attributable to its corporate partners, but was not entitled to receive such an
allowance for income attributable to the partnership interests held by
individuals. Lakehead has filed a motion for rehearing and, if unsuccessful,
may ultimately seek judicial review of the FERC decision. It is difficult to
predict what position would be adopted by a reviewing court on the income tax
issue. In another FERC proceeding that has not yet reached the hearing stage,
involving a different oil pipeline limited partnership, various shippers have
challenged such pipeline's inclusion of an income tax allowance in its cost of
service. The FERC staff has also filed testimony that supports the disallowance
of income taxes. If the FERC were to disallow the income tax allowance in the
cost of service of the Partnership's pipelines, the General Partner believes
that the Partnership's ability to pay the Minimum Quarterly Distribution to the
holders of the Senior Preference Units and Preference Units would not be
impaired; however, in view of the uncertainties involved in this issue, there
can be no assurance in this regard.
Additional information relative to sources and uses of cash is presented in the
financial statements included in this report.
5
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KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
OPERATING RESULTS
PIPELINE OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ------------------------
1995 1994 1995 1994
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues $ 17,251 $ 12,201 $ 43,376 $ 34,054
Operating costs 7,163 4,540 16,755 13,110
Depreciation and amortization 1,198 1,070 3,686 3,196
General and administrative expenses 1,059 614 2,562 2,154
----------- ----------- ----------- ----------
Operating income $ 7,831 $ 5,977 $ 20,373 $ 15,594
=========== =========== =========== ==========
</TABLE>
The West Pipeline reported revenues of $4.0 million and $8.8 million, operating
costs of $1.4 million and $2.9 million and depreciation and amortization of $.2
million and $.5 million which resulted in operating income of $2.4 million and
$5.5 million for three months ended September 30, 1995 and the period from
February 24, 1995 (date of acquisition) to September 30, 1995, respectively,
which accounted for substantially all of the increases from the previous year.
TERMINALING OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ------------------------
1995 1994 1995 1994
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues $ 9,282 $ 8,517 $ 26,881 $ 23,871
Operating costs 4,790 4,099 13,467 11,394
Depreciation and amortization 861 785 2,534 2,170
General and administrative 599 511 1,667 1,477
----------- ----------- ----------- ----------
Operating income $ 3,032 $ 3,122 $ 9,213 $ 8,830
=========== =========== =========== ==========
</TABLE>
For the nine months ended September 30, 1995, revenues and operating costs
increased 13% and 18%, respectively, primarily as a result of the acquisition
of the Westwego terminal in June 1994. The average barrels of tankage utilized
increased 7% to 6.5 million barrels while the average annualized revenue per
barrel stored increased to $5.52 in the nine months ended September 30, 1995
compared to $5.22 for the same period in 1994.
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KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
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.
KANEB PIPE LINE PARTNERS, L.P.
(Registrant)
By KANEB PIPE LINE COMPANY
---------------------------------------
(Managing General Partner)
Date: November 1, 1995 /s/ Jimmy L. Harrison
--------------------------------------
Jimmy L. Harrison
Controller
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<PAGE> 10
Exhibit Index
Exhibit
Number Description
________ _____________________________________________________
Ex-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 6,938
<SECURITIES> 0
<RECEIVABLES> 9,110
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,988
<PP&E> 246,767
<DEPRECIATION> 73,146
<TOTAL-ASSETS> 195,260
<CURRENT-LIABILITIES> 21,796
<BONDS> 68,956
<COMMON> 0
0
0
<OTHER-SE> 99,389
<TOTAL-LIABILITY-AND-EQUITY> 195,260
<SALES> 0
<TOTAL-REVENUES> 70,257
<CGS> 0
<TOTAL-COSTS> 40,671
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,683
<INCOME-PRETAX> 25,564
<INCOME-TAX> 348
<INCOME-CONTINUING> 24,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,966
<EPS-PRIMARY> 1.65
<EPS-DILUTED> 1.65
</TABLE>
