<PAGE> 1
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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, 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)
(972) 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 SEPTEMBER 30, 1996
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<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income
- Three and Nine Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . 1
Condensed Consolidated Balance Sheets
- September 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Cash Flows
- Nine Months Ended September 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>
<PAGE> 3
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,
--------------------------- -------------------------
1996 1995 1996 1995
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . $ 29,963 $ 26,533 $ 86,584 $ 70,257
------------- ------------ ----------- -----------
Costs and expenses:
Operating costs . . . . . . . . . . . . . . . 13,042 11,953 37,061 30,222
Depreciation and amortization . . . . . . . . 2,740 2,059 8,189 6,220
General and administrative . . . . . . . . . 1,349 1,658 4,061 4,229
------------- ------------ ----------- -----------
Total costs and expenses . . . . . . . . . 17,131 15,670 49,311 40,671
------------- ------------ ----------- -----------
Operating income . . . . . . . . . . . . . . . . 12,832 10,863 37,273 29,586
Other income, net (principally interest) . . . . 210 214 580 661
Interest expense . . . . . . . . . . . . . . . . (2,850) (1,646) (8,237) (4,683)
------------- ------------ ----------- -----------
Income before minority interest
and income tax expense . . . . . . . . . . . 10,192 9,431 29,616 25,564
Minority interest in net income . . . . . . . . . (102) (93) (288) (250)
Income tax expense . . . . . . . . . . . . . . . (218) (129) (772) (348)
------------- ------------ ----------- -----------
Net income . . . . . . . . . . . . . . . . . . . 9,872 9,209 28,556 24,966
General partner's interest in net income . . . . (102) (93) (288) (250)
------------- ------------ ----------- -----------
Limited partner's interest in net income . . . . $ 9,770 $ 9,116 $ 28,268 $ 24,716
============= ============ =========== ===========
Allocation of net income per Senior
Preference Unit and Preference Unit . . . . . $ .61 $ .55 $ 1.76 $ 1.65
============= ============ =========== ===========
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)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 14,260 $ 6,307
Accounts receivable, trade . . . . . . . . . . . . . . . . . . 9,765 10,210
Current portion of receivable from general partner . . . . . . 1,650 2,571
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . 2,593 1,254
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . 28,268 20,342
---------- ----------
Receivable from general partner, less current portion . . . . . . - 974
---------- ----------
Property and equipment . . . . . . . . . . . . . . . . . . . . . 328,507 323,671
Less accumulated depreciation and amortization . . . . . . . . . 84,739 77,200
---------- ----------
Net property and equipment . . . . . . . . . . . . . . . . . 243,768 246,471
---------- ----------
$ 272,036 $ 267,787
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . $ 1,968 $ 1,777
Accounts payable, accrued expenses and
distributions payable . . . . . . . . . . . . . . . . . . . 21,074 17,018
Deferred terminaling fees . . . . . . . . . . . . . . . . . . 2,822 2,634
Payable to general partner . . . . . . . . . . . . . . . . . . 721 963
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . 26,585 22,392
---------- ----------
Long-term debt, less current portion . . . . . . . . . . . . . . 134,989 136,489
---------- ----------
Other liabilities and deferred taxes . . . . . . . . . . . . . . 7,730 7,160
---------- ----------
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . 1,008 998
---------- ----------
Partners' capital . . . . . . . . . . . . . . . . . . . . . . . . 101,724 100,748
---------- ----------
$ 272,036 $ 267,787
========== ==========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,556 $ 24,966
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . 8,189 6,220
Minority interest in net income . . . . . . . . . . . . . . . 288 250
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 772 348
Changes in working capital components . . . . . . . . . . . . 4,061 3,276
--------- ----------
Net cash provided by operating activities . . . . . . . . . 41,866 35,060
--------- ----------
Investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . (6,288) (7,095)
Acquisition of the West Pipeline . . . . . . . . . . . . . . . . . - (27,100)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (353) -
--------- ----------
Net cash used by investing activities . . . . . . . . . . . (6,641) (34,195)
--------- ----------
Financing activities:
Changes in receivable from general partner . . . . . . . . . . . . 1,895 1,651
Issuance of long-term debt . . . . . . . . . . . . . . . . . . . . 68,000 28,500
Payments of long-term debt . . . . . . . . . . . . . . . . . . . . (69,309) (2,641)
Distributions to partners . . . . . . . . . . . . . . . . . . . . (27,858) (25,582)
--------- ----------
Net cash provided (used) by financing activities . . . . . . (27,272) 1,928
--------- ----------
Increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . 7,953 2,793
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . 6,307 4,145
--------- ----------
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . $ 14,260 $ 6,938
========= ==========
Supplemental information - cash paid for interest . . . . . . . . . . $ 6,913 $ 3,696
========= ==========
</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 September 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 10-K 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 September 30, 1996 and
the results of its operations and cash flows for the periods ended
September 30, 1996 and 1995. Operating results for the nine months ended
September 30, 1996 are not necessarily 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 nine month periods ended September 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 Nine Months Ended
September 30, September 30,
------------------------- -------------------------
Pro forma Pro forma
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . $ 29,963 $ 30,748 $ 86,584 $ 86,778
========== ========== ========== ==========
Net income . . . . . . . . . . . . . . . . $ 9,872 $ 8,622 $ 28,556 $ 25,506
========== ========== ========== ==========
Allocation of net income per Senior
Preference Unit and Preference Unit . . $ .61 $ .55 $ 1.76 $ 1.65
========== ========== ========== ==========
</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 $.60 per unit for the third quarter of 1996 was
declared to holders of record as of October 28, 1996 and is payable on
November 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
- --------------------------------------------------------------------------------
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 $41.9 million and $35.1 million for the
periods ended September 30, 1996 and 1995, respectively. Capital
expenditures were $6.3 million in the 1996 period compared to $7.1 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.
On October 10, 1996, the Partnership announced an increase in its quarterly
cash distributions to $.60 per unit.
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 Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . $16,443 $17,251 $46,270 $43,376
Operating costs . . . . . . . . . . . . . . . . 6,447 7,163 17,836 16,755
Depreciation and amortization . . . . . . . . . 1,207 1,198 3,608 3,686
General and administrative expenses . . . . . . 710 1,059 2,153 2,562
------- ------- ------- -------
Operating income . . . . . . . . . . . . . . $ 8,079 $ 7,831 $22,673 $20,373
======= ======= ======= =======
</TABLE>
Revenues declined $.8 million for the three month period ended September
30, 1996 primarily as a result of a decrease in volumes due to a delay in
the 1996 crop harvest. Operating income increased $.3 million for the three
month period ended September 30, 1996 resulting from
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
- --------------------------------------------------------------------------------
non-recurring accruals for two maintenance projects and a non-recurring
accrual for general and administrative expenses in 1995.
The increases for the nine 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 nine month period in 1996 versus only
seven months in the 1995 period.
TERMINALING OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $ 13,520 $ 9,282 $ 40,314 $ 26,881
Operating costs . . . . . . . . . . . . . . . 6,595 4,790 19,225 13,467
Depreciation and amortization . . . . . . . . 1,533 861 4,581 2,534
General and administrative expenses . . . . . 639 599 1,908 1,667
----------- ----------- ----------- ------------
Operating income . . . . . . . . . . . . . $ 4,753 $ 3,032 $ 14,600 $ 9,213
=========== =========== =========== ============
</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 nine month periods are primarily the result of the
acquisition of the Steuart terminals.
7
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KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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: November 13, 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
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 14,260
<SECURITIES> 0
<RECEIVABLES> 9,765
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,268
<PP&E> 328,507
<DEPRECIATION> 84,739
<TOTAL-ASSETS> 272,036
<CURRENT-LIABILITIES> 26,585
<BONDS> 134,989
0
0
<COMMON> 0
<OTHER-SE> 101,724
<TOTAL-LIABILITY-AND-EQUITY> 272,036
<SALES> 0
<TOTAL-REVENUES> 86,584
<CGS> 0
<TOTAL-COSTS> 49,311
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,237
<INCOME-PRETAX> 29,616
<INCOME-TAX> 772
<INCOME-CONTINUING> 28,556
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,556
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.76
</TABLE>
