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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 June 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 JUNE 30, 1995
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<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income
- Three and Six Months Ended June 30, 1995 and 1994 1
Condensed Consolidated Balance Sheets
- June 30, 1995 and December 31, 1994 2
Condensed Consolidated Statements of Cash Flows
- Six Months Ended June 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)
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<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 23,342 $ 18,773 $ 43,724 $ 37,207
----------- ----------- ----------- -----------
Costs and expenses:
Operating costs 9,711 7,685 18,269 15,865
Depreciation and amortization 2,150 1,775 4,161 3,511
General and administrative 1,384 1,206 2,571 2,506
----------- ----------- ----------- -----------
Total costs and expenses 13,245 10,666 25,001 21,882
----------- ----------- ----------- -----------
Operating income 10,097 8,107 18,723 15,325
Other income, net (principally interest) 216 311 447 656
Interest expense (1,662) (870) (3,037) (1,741)
----------- ----------- ----------- -----------
Income before minority interest
and income tax expense 8,651 7,548 16,133 14,240
Minority interest in net income (84) (73) (157) (137)
Income tax expense (109) (186) (219) (435)
----------- ----------- ----------- -----------
Net income 8,458 7,289 15,757 13,668
General partner's interest in net income (84) (73) (157) (137)
----------- ----------- ----------- -----------
Limited partners' interest in net income $ 8,374 $ 7,216 $ 15,600 $ 13,531
=========== =========== =========== ===========
Allocation of net income per Senior
Preference Unit $ .55 $ .55 $ 1.10 $ 1.10
=========== =========== =========== ===========
Weighted average number of Senior
Preference Units outstanding 7,250 7,250 7,250 7,250
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
1
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KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
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<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,087 $ 4,145
Accounts receivable, trade 8,181 5,605
Current portion of receivable from general partner 2,398 2,241
Prepaid expenses 2,157 1,924
------------ -----------
Total current assets 15,823 13,915
------------ -----------
Receivable from general partner, less current portion 2,305 3,544
------------ -----------
Property and equipment 246,341 214,556
Less accumulated depreciation and amortization 73,035 68,910
------------ -----------
Net property and equipment 173,306 145,646
------------ -----------
$ 191,434 $ 163,105
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of long-term debt $ 1,658 $ 1,548
Accounts payable, accrued expenses and
distributions payable 15,761 13,299
Deferred terminaling fees 1,763 1,641
Payable to general partner 701 786
------------ -----------
Total current liabilities 19,883 17,274
------------ -----------
Long-term debt, less current portion 69,408 43,265
------------ -----------
Other liabilities and deferred taxes 1,899 1,820
------------ -----------
Minority interest 985 992
------------ -----------
Partners' capital 99,259 99,754
------------ -----------
$ 191,434 $ 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
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(In Thousands)
(Unaudited)
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<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Operating activities:
Net income $ 15,757 $ 13,668
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,161 3,545
Minority interest in net income 157 137
Deferred income taxes 216 430
Changes in working capital components (310) 356
----------- -----------
Net cash provided by operating activities 19,981 18,136
----------- -----------
Investing activities:
Acquisition of the West Pipeline (27,100) -
Capital expenditures (4,721) (13,924)
Other (137) -
----------- -----------
Net cash used by investing activities (31,958) (13,924)
----------- -----------
Financing activities:
Changes in receivable from general partner 1,082 944
Issuance of long-term debt 28,500 5,200
Payments of long-term debt (2,247) (5,652)
Distributions to partners (16,416) (14,354)
----------- -----------
Net cash provided (used) by financing activities 10,919 (13,862)
----------- -----------
Decrease in cash (1,058) (9,650)
Cash at beginning of period 4,145 15,061
----------- -----------
Cash at end of period $ 3,087 $ 5,411
=========== ===========
Supplemental information - cash paid for interest $ 2,185 $ 1,741
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
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KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
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1. SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial statements of Kaneb Pipe Line Partners, L.P. and
its subsidiaries (the "Partnership") for the periods ended June 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 June 30, 1995 and the results of its operations and cash
flows for the periods ended June 30, 1995 and 1994. Operating results
for the six months ended June 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 to three insurance companies, 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 six month periods ended June 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 Six Months Ended
June 30, June 30,
-------------------------- -------------------------
1995 1994 1995 1994
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 23,342 $ 21,950 $ 45,439 $ 43,394
=========== =========== ========== ==========
Net income $ 8,458 $ 8,470 $ 15,760 $ 16,059
=========== =========== ========== ==========
Allocation of net income per Senior
Preference Unit and Preference Unit $ .55 $ .55 $ 1.10 $ 1.10
=========== =========== ========== ==========
</TABLE>
3. CASH DISTRIBUTIONS TO SENIOR PREFERENCE UNITHOLDERS
The cash distribution of $.55 per unit for the second quarter of 1995 was
declared to holders of record as of July 28, 1995 and is payable on August
14, 1995.
4
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KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
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FINANCIAL CONDITION
In February 1995, the Partnership 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 $20.0 million and $18.1 million for the
periods ended June 30, 1995 and 1994, respectively. Capital expenditures
were $4.7 million in the 1995 period compared to $13.9 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 Lakehead's inclusion of income taxes in its cost of service.
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 pipeline, the General Partner believes that the Partnership's
ability to pay the Minimum Quarterly Distribution to the holders of the
Senior 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
<PAGE> 8
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
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OPERATING RESULTS
PIPELINE OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ------------------------
1995 1994 1995 1994
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 14,491 $ 10,933 $ 26,125 $ 21,853
Operating costs 5,214 4,038 9,592 8,570
Depreciation and amortization 1,307 1,064 2,488 2,126
General and administrative expenses 831 727 1,503 1,540
----------- ----------- ---------- ----------
Operating income $ 7,139 $ 5,104 $ 12,542 $ 9,617
=========== =========== ========== ==========
</TABLE>
For the three months ended June 30, 1995, revenues increased 33%, operating
costs increased 29% and depreciation and amortization increased 23% over the
comparable prior year period, as a direct result of the West Pipeline
acquisition.
The West Pipeline reported revenues of $4.8 million, operating costs of $1.5
million and depreciation and amortization of $.3 million which resulted in
operating income of $3.0 million for the period from February 24, 1995 (date
of acquisition) to June 30, 1995, which accounted for substantially all of
the increases from the six months ended June 30, 1994.
TERMINALING OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------
1995 1994 1995 1994
----------- ----------- ---------- ----------
<S> <C>
Revenues $ 8,851 $ 7,840 $ 17,599 $ 15,354
Operating costs 4,497 3,647 8,677 7,295
Depreciation and amortization 843 711 1,673 1,385
General and administrative 553 479 1,068 966
----------- ----------- ---------- ----------
Operating income $ 2,958 $ 3,003 $ 6,181 $ 5,708
=========== =========== ========== ==========
</TABLE>
For the three months ended June 30, 1995, revenues and operating costs
increased $1.0 million and $.8 million, respectively over the same period of
1994 primarily as a results of the acquisition of the Westwego terminal in
June 1994 for $8.5 million.
For the six months ended June 30, 1995, revenues and operating costs
increased 15% and 19%, respectively, primarily as a result of the
acquisition of the Westwego terminal in June 1994. The average barrels of
tankage utilized increased 8% to 6.4 million barrels while the average
annualized revenue per barrel stored increased to $5.51 in the six months
ended June 30, 1995 compared to $5.21 for the same period in 1994.
6
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KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
--------------------------------------------------------------------------------
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: August 11, 1995 /s/ Jimmy L. Harrison
---------------------------------
Jimmy L. Harrison
Controller
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 3,087
<SECURITIES> 0
<RECEIVABLES> 8,181
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,823
<PP&E> 246,341
<DEPRECIATION> 73,035
<TOTAL-ASSETS> 191,434
<CURRENT-LIABILITIES> 19,883
<BONDS> 69,408
<COMMON> 0
0
0
<OTHER-SE> 99,259
<TOTAL-LIABILITY-AND-EQUITY> 191,434
<SALES> 0
<TOTAL-REVENUES> 43,724
<CGS> 0
<TOTAL-COSTS> 25,001
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,037
<INCOME-PRETAX> 16,133
<INCOME-TAX> 219
<INCOME-CONTINUING> 15,757
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,757
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
</TABLE>
