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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 Commision File
Ended June 30, 1996 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
QUARTER ENDED JUNE 30, 1996
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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, 1996 and 1995 1
Condensed Consolidated Balance Sheets
- June 30, 1996 and December 31, 1995 2
Condensed Consolidated Statements of Cash Flows
- Six Months Ended June 30, 1996 and 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 8
Signature 8
</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>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
-------- -------- ------- -------
<S> <C> <C> <C>
Revenues $28,795 $23,342 $56,621 $43,724
------- ------- ------- -------
Costs and expenses:
Operating costs 11,911 9,711 24,019 18,269
Depreciation and amortization 2,741 2,150 5,449 4,161
General and administrative 1,302 1,384 2,712 2,571
------- ------- ------- -------
Total costs and expenses 15,954 13,245 32,180 25,001
------- ------- ------- -------
Operating income 12,841 10,097 24,441 18,723
Other income, net (principally interest) 186 216 370 447
Interest expense (2,657) (1,662) (5,387) (3,037)
------- ------- ------- -------
Income before minority interest
and income tax expense 10,370 8,651 19,424 16,133
Minority interest in net income (100) (84) (186) (157)
Income tax expense (263) (109) (554) (219)
------- ------- ------- -------
Net income 10,007 8,458 18,684 15,757
General partner's interest in net income (100) (84) (186) (157)
------- ------- ------- -------
Limited partner's interest in net income $ 9,907 $8,374 $18,498 $15,600
======= ======= ======= =======
Allocation of net income per Senior
Preference Unit and Preference Unit $ .62 $.55 $1.15 $1.10
======= ======= ======= =======
Weighted average number of Partnership
Units outstanding:
Senior Preference Units 7,250 7,250 7,250 7,250
======= ======= ======= =======
Preference Units 4,650 5,650 4,650 5,650
======= ======= ======= =======
</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,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,748 $ 6,307
Accounts receivable, trade 10,450 10,210
Current portion of receivable from general partner 2,304 2,571
Prepaid expenses 2,452 1,254
Total current assets 24,954 20,342
---------- ----------
Receivable from general partner, less current portion -- 974
---------- ----------
Property and equipment 326,470 323,671
Less accumulated depreciation and amortization 82,340 77,200
---------- ----------
Net property and equipment 244,130 246,471
---------- ----------
$ 269,084 $ 267,787
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of long-term debt $ 1,902 $ 1,777
Accounts payable, accrued expenses and
distributions payable 17,794 17,018
Deferred terminaling fees 2,857 2,634
Payable to general partner 798 963
---------- ----------
Total current liabilities 23,351 22,392
---------- ----------
Long-term debt, less current portion 135,506 136,489
---------- ----------
Other liabilities and deferred taxes 7,637 7,160
---------- ----------
Minority interest 1,004 998
---------- ----------
Partners' capital 101,586 100,748
---------- ----------
$ 269,084 $ 267,787
========== ==========
</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, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
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<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 18,684 $ 15,757
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 5,449 4,161
Minority interest in net income 186 157
Deferred income taxes 554 216
Changes in working capital components 349 (310)
-------- --------
Net cash provided by operating activities 25,222 19,981
-------- --------
Investing activities:
Capital expenditures (3,986) (4,721)
Acquisition of the West Pipeline -- (27,100)
Other (152) (137)
-------- --------
Net cash used by investing activities (4,138) (31,958)
-------- --------
Financing activities:
Changes in receivable from general partner 1,241 1,082
Issuance of long-term debt 68,000 28,500
Payments of long-term debt (68,858) (2,247)
Distributions to partners (18,026) (16,416)
-------- --------
Net cash provided (used) by financing activities (17,643) 10,919
-------- --------
Increase (decrease) in cash 3,441 (1,058)
Cash at beginning of period 6,307 4,145
-------- --------
Cash at end of period $ 9,748 $ 3,087
======== ========
Supplemental information - cash paid for interest $ 5,451 $ 2,185
======== ========
</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, 1996 and
1995 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, 1995. 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, 1996 and the results of
its operations and cash flows for the periods ended June 30, 1996 and 1995.
Operating results for the six months ended June 30, 1996 are not necessary
indicative of the results that may be expected for the year ended December
31, 1996.
2. ACQUISITIONS
In February 1995, the Partnership acquired, through Kaneb Pipe Line
Operating Partnership, L.P., the refined petroleum product pipeline assets
(the "West Pipeline") of Wyco Pipe Line Company for $27.1 million plus
transaction costs and the assumption of certain environmental liabilities.
The West Pipeline was owned 60% by a subsidiary of GATX Terminals
Corporation and 40% by a subsidiary of Amoco Pipe Line Company. The
acquisition was financed by the issuance of $27 million of first mortgage
notes.
In December 1995, the Partnership acquired the liquids terminaling assets of
Steuart Petroleum Company and certain of its affiliates (collectively,
"Steuart") for $68 million, plus transaction costs and the assumption of
certain environmental liabilities. The acquisition price was initially
financed by a $68 million bank bridge loan (see "Debt Refinancing"). The
asset purchase agreements include a provision for an earn-out payment based
upon revenues of one of the terminals exceeding a specified amount for a
seven-year period beginning in January 1996. The agreements also include a
provision for the continuation of all material terminaling contracts in
place at the time of the acquisition, including those contracts with
Steuart.
The acquisitions have been accounted for using the purchase method of
accounting. The total purchase price has been allocated to the assets and
liabilities based on their respective fair values based on valuations and
other studies. The allocation of the Steuart purchase price presented in
the consolidated financial statements is preliminary and subject to
adjustment.
The following summarized unaudited pro forma consolidated results of
operations for the three and six month periods ended June 30, 1996 and 1995,
assume the acquisitions occurred as of the beginning of each period
presented. The unaudited pro forma financial results have been prepared for
comparative purposes only and may not be indicative of the results that
would have occurred if the Partnership had acquired the pipeline assets of
the West Pipeline and the liquids terminaling assets of Steuart on the dates
indicated or which will be attained in the future.
4
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KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------- -----------------
Pro forma Pro forma
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $28,795 $27,929 $56,621 $56,030
======= ======= ======= =======
Net income $10,007 $ 9,060 $18,684 $16,884
======= ======= ======= =======
Allocation of net income per Senior
Preference Unit and Preference Unit $ .62 $ .55 $ 1.15 $ 1.10
======= ======= ======= =======
</TABLE>
3. DEBT REFINANCING
In June, 1996, the Partnership refinanced the $68 million bank bridge loan
with the issuance of $68 million of first mortgage notes ("Notes"). The
Notes were issued in four series in the amounts of $35 million, $8 million,
$10 million, and $15 million; bear interest at 7.08%, 7.43%, 7.60% and 7.98%
per annum and mature in June 2001, 2003, 2006, and 2016, respectively.
4. CASH DISTRIBUTIONS TO UNITHOLDERS
The cash distribution of $.55 per unit for the second quarter of 1996 was
declared to holders of record as of July 29, 1996 and is payable on August
14, 1996.
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
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Financial Condition
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 $25.2 million and $20.0 million for the
periods ended June 30, 1996 and 1995, respectively. Capital expenditures
were $4.0 million in the 1996 period compared to $4.7 million in 1995. The
Partnership anticipates that capital expenditures will total approximately
$8.0 million (excluding any acquisitions) for the year 1996.
The Partnership intends to fund future cash distributions and maintenance
capital expenditures with cash and cash flows from operating activities.
In June 1996, the Partnership refinanced the $68 million bank bridge loan
that was used to acquire the liquids terminaling assets of Steuart Petroleum
Company and its affiliates. The new debt was issued in the form of first
mortgage notes which range in maturity from five to twenty years with
interest rates ranging from 7.08% to 7.98% per annum.
Additional information relative to sources and uses of cash is presented in
the financial statements included in this report.
Operating Results
Pipeline Operations
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<C> <C> <C> <C> <C>
Revenues $ 15,431 $ 14,491 $ 29,827 $ 26,125
Operating costs 5,412 5,214 11,389 9,592
Depreciation and amortization 1,216 1,307 2,401 2,488
General and administrative expenses 781 831 1,443 1,503
-------- -------- -------- --------
Operating income $ 8,022 $ 7,139 $ 14,594 $ 12,542
======== ======== ======== ========
</TABLE>
Revenues for the three month period ended June 30, 1996 increased $.6
million and $.3 million on the East Pipeline and West Pipeline systems,
respectively, over the corresponding period in 1995. Operating income
increased $.3 million and $.5 million on the East Pipeline system and the
West Pipeline system from the 1995 periods.
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
- --------------------------------------------------------------------------------
The increases for the six month period result primarily from the inclusion
of the results of the operations of the West Pipeline, that was acquired in
late February 1995, for the full six month period in 1996 versus only four
months in the 1995 period.
Terminaling Operations
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 13,364 $ 8,851 $ 26,794 $ 17,599
Operating costs 6,499 4,497 12,630 8,677
Depreciation and amortization 1,525 843 3,048 1,673
General and administrative expenses 521 553 1,269 1,068
-------- -------- -------- --------
Operating income $ 4,819 $ 2,958 $ 9,847 $ 6,181
======== ======== ======== ========
</TABLE>
The Partnership acquired the terminaling assets of Steuart Petroleum Company
and its affiliates in December 1995. The increases shown for both the three
and six month periods are primarily the result of the acquisition of the
Steuart terminals, which generated revenues of $4.2 million and $8.2
million, and operating income of $1.6 million and $3.7 million for the three
and six month periods, respectively.
7
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KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
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PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K. None
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 7, 1996 /s/ Jimmy L. Harrison
--------------------------
Jimmy L. Harrison
Controller
8
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,748
<SECURITIES> 0
<RECEIVABLES> 10,450
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,954
<PP&E> 326,470
<DEPRECIATION> 82,340
<TOTAL-ASSETS> 269,084
<CURRENT-LIABILITIES> 23,351
<BONDS> 135,506
<COMMON> 0
0
0
<OTHER-SE> 101,586
<TOTAL-LIABILITY-AND-EQUITY> 269,084
<SALES> 0
<TOTAL-REVENUES> 56,621
<CGS> 0
<TOTAL-COSTS> 32,180
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,387
<INCOME-PRETAX> 19,238
<INCOME-TAX> 554
<INCOME-CONTINUING> 18,684
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,684
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
</TABLE>
