<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 June 30, 1997 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 principal 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 [ ]
Number of Senior Preference Units of the Registrant outstanding at August 8,
1997: 7,250,000. Number of Preference Units of the Registrant outstanding at
August 8, 1997: 4,650,000.
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KANEB PIPE LINE PARTNERS, L.P.
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
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<TABLE>
<CAPTION>
Page No.
Part I. Financial Information
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income
- Three and Six Months Ended June 30, 1997 and 1996 1
Condensed Consolidated Balance Sheets
- June 30, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Cash Flows
- Six Months Ended June 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
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>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 29,793 $ 28,795 $ 58,372 $ 56,621
--------- --------- --------- ---------
Costs and expenses:
Operating costs 12,557 11,911 24,959 24,019
Depreciation and amortization 2,920 2,741 5,798 5,449
General and administrative 1,397 1,302 2,667 2,712
--------- --------- --------- ---------
Total costs and expenses 16,874 15,954 33,424 32,180
--------- --------- --------- ---------
Operating income 12,919 12,841 24,948 24,441
Other income, net (principally interest) 169 186 275 370
Interest expense (2,849) (2,657) (5,703) (5,387)
--------- --------- --------- ---------
Income before minority interest
and income taxes 10,239 10,370 19,520 19,424
Minority interest in net income (100) (100) (190) (186)
Income tax provision (190) (263) (474) (554)
--------- --------- --------- ---------
Net income 9,949 10,007 18,856 18,684
General partner's interest in net income (100) (100) (190) (186)
--------- --------- --------- ---------
Limited partner's interest in net income $ 9,849 $ 9,907 $ 18,666 $ 18,498
========= ========= ========= =========
Allocation of net income per Senior
Preference Unit and Preference Unit $ .61 $ .62 $ 1.16 $ 1.15
========= ========= ========= =========
Weighted average number of Partnership Units outstanding:
Senior Preference Units 7,250 7,250 7,250 7,250
========= ========= ========= =========
Preference Units 4,650 4,650 4,650 4,650
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,042 $ 8,196
Accounts receivable, trade 13,006 11,540
Current portion of receivable from general partner -- 975
Prepaid expenses 3,989 4,321
--------- ---------
Total current assets 26,037 25,032
--------- ---------
Property and equipment 340,809 337,202
Less accumulated depreciation and amortization 93,021 87,469
--------- ---------
Net property and equipment 247,788 249,733
--------- ---------
$ 273,825 $ 274,765
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of long-term debt $ 2,181 $ 2,036
Accounts payable, accrued expenses and
distributions payable 16,756 18,715
Deferred terminaling fees 4,714 2,874
Payable to general partner 968 711
--------- ---------
Total current liabilities 24,619 24,336
--------- ---------
Long-term debt, less current portion 138,326 139,453
--------- ---------
Other liabilities and deferred taxes 7,136 6,612
--------- ---------
Minority interest 1,017 1,024
--------- ---------
Partners' capital 102,727 103,340
--------- ---------
$ 273,825 $ 274,765
========= =========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(IN THOUSANDS)
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Operating activities:
Net income $ 18,856 $ 18,684
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 5,798 5,449
Minority interest in net income 190 186
Income taxes 474 554
Changes in working capital components (946) 349
---------- ----------
Net cash provided by operating activities 24,372 25,222
---------- ----------
Investing activities:
Capital expenditures (5,243) (3,986)
Other 1,390 (152)
---------- ----------
Net cash used by investing activities (3,853) (4,138)
---------- ----------
Financing activities:
Changes in receivable from general partner 975 1,241
Issuance of long-term debt -- 68,000
Payments of long-term debt (982) (68,858)
Distributions to partners (19,666) (18,026)
---------- ----------
Net cash used by financing activities (19,673) (17,643)
---------- ----------
Increase in cash 846 3,441
Cash at beginning of period 8,196 6,307
---------- ----------
Cash at end of period $ 9,042 $ 9,748
========== ==========
Supplemental information - cash paid for interest $ 5,731 $ 5,451
========== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
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 June 30, 1997
and 1996 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 consolidated financial statements included in the
Partnership's Annual Report on Form 10-K for the period ended December 31,
1996. In the opinion of the Partnership's management, the accompanying
consolidated financial statements contain the adjustments, consisting of
normal recurring accruals, necessary to present fairly the consolidated
financial position of the Partnership at June 30, 1997 and the
consolidated results of its operations and cash flows for the periods
ended June 30, 1997 and 1996. Operating results for the six months ended
June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997.
2. CASH DISTRIBUTIONS TO UNITHOLDERS
The cash distribution of $.60 per unit for the fourth quarter of 1996 was
made on February 14, 1997. A cash distribution of $.60 for both the first
and second quarter of 1997 were declared to holders of record as of April
30, 1997 and July 30, 1997, respectively. The first quarter distribution
was paid on May 15, 1997 and the second quarter distribution is payable on
August 14, 1997.
4
<PAGE> 7
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- -------------------------------------------------------------------------------
FINANCIAL CONDITION
During the six months ended June 30, 1997, 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 operating activities was $24.4 million and $25.2 million
for the periods ended June 30, 1997 and 1996, respectively. Capital
expenditures were $5.2 million in the 1997 period compared to $4.0 million
in 1996. Adequate pipeline capacity exists to accommodate volume growth
and the expenditures required for environmental and safety improvements
have not been, and are not expected in the future to be, material.
Environmental damages caused by sudden and accidental occurrences are
included under the Partnership's insurance coverage's. The Partnership
anticipates that capital expenditures will total approximately $8.0
million to $10.0 million (excluding acquisitions) for the year 1997.
The Partnership makes distributions of 100% of its Available Cash to
Unitholders and the General Partner. Available Cash consists generally of
all the cash receipts less all cash disbursements and reserves.
Distributions to all Unitholders of $1.20 per unit were declared in the
six months ended June 30, 1997 and $2.30 per unit was declared in the
calendar year 1996.
The Partnership expects to fund future cash distributions and maintenance
capital expenditures with cash and cash flows from operating activities.
Expansionary capital expenditures are expected to be funded through
additional Partnership borrowing.
Additional information relative to sources and uses of cash is presented
in the financial statements included in this report.
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<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,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 14,999 $ 15,431 $ 28,868 $ 29,827
Operating costs 5,501 5,412 10,871 11,389
Depreciation and amortization 1,217 1,216 2,420 2,401
General and administrative expenses 728 781 1,338 1,443
-------- -------- -------- --------
Operating income $ 7,553 $ 8,022 $ 14,239 $ 14,594
======== ======== ======== ========
</TABLE>
Pipeline revenues are based on volumes shipped and the distances over
which such volumes are transported. Revenues for the three and six month
period ended June 30, 1997 decreased $.4 million and $1.0 million,
respectively, over the corresponding periods in 1996 primarily due to the
adverse effect on product demand caused by abnormally high amounts of snow
and rainfall in the Northern Midwest. Barrel miles totaled 4.0 billion and
7.7 billion in the three and six months ended June 30, 1997 compared to
4.2 billion and 8.0 billion in the respective prior year periods.
Operating costs, which include fuel and power costs, materials and
supplies, maintenance and repair costs, salaries, wages and employee
benefits, and property and other taxes, increased $.1 million in the three
months ended June 30, 1997 over the prior year period primarily due to
higher materials and supplies and outside services. For the six months
ended June 30, 1997, operating costs decreased $.5 million primarily due
to lower materials and supplies and outside services costs. General and
administrative costs include managerial, accounting and administrative
personnel costs, office rental and expenses, legal and professional costs
and other non-operating costs.
6
<PAGE> 9
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- -------------------------------------------------------------------------------
TERMINALING OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 14,794 $ 13,364 $ 29,504 $ 26,794
Operating costs 7,056 6,499 14,088 12,630
Depreciation and amortization 1,703 1,525 3,378 3,048
General and administrative
expenses 669 521 1,329 1,269
-------- -------- -------- --------
Operating income $ 5,366 $ 4,819 $ 10,709 $ 9,847
======== ======== ======== ========
</TABLE>
The increases in revenues are primarily attributable to tankage acquired
in November and December 1996 and increases in average prices charged for
storage and tankage volumes utilized. Average annual tankage utilized for
the three and six months ended June 30, 1997 increased .6 million and .2
million barrels, respectively, over the comparable prior periods primarily
as a result of the tankage acquired late in 1996. For the three and six
months ended June 30, 1997, average annualized revenues per barrel of
tankage utilized was $4.81 and $4.84 per barrel, respectively, compared to
$4.55 and $4.48 per barrel for the same prior year periods. The increases
in per barrel averages is primarily due to larger proportionate volume of
specialty chemicals being stored with higher rates per barrel than
petroleum products.
Total tankage capacity (17.2 million barrels at June 30, 1997) has been,
and is expected to remain, adequate to meet existing customer storage
requirements. Customers consider factors such as location, access to cost
effective transportation and quality of service in addition to pricing
when selecting terminal storage. For the three and six months ended June
30, 1997, operating costs increased $.6 million and $1.5 million;
depreciation and amortization increased $.2 million and $.3 million; and
general and administrative expenses increased $.1 million and $.1 million,
respectively, over the comparable prior year periods, primarily as a
result of terminal acquisitions late in 1996.
7
<PAGE> 10
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: August 12, 1997 /s/ Jimmy L. Harrison
--------------------------------
Jimmy L. Harrison
Controller
8
<PAGE> 11
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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,042
<SECURITIES> 0
<RECEIVABLES> 13,088
<ALLOWANCES> 82
<INVENTORY> 0
<CURRENT-ASSETS> 26,037
<PP&E> 340,809
<DEPRECIATION> 93,021
<TOTAL-ASSETS> 273,825
<CURRENT-LIABILITIES> 24,619
<BONDS> 138,326
0
0
<COMMON> 0
<OTHER-SE> 102,727
<TOTAL-LIABILITY-AND-EQUITY> 273,825
<SALES> 0
<TOTAL-REVENUES> 58,372
<CGS> 0
<TOTAL-COSTS> 33,424
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,703
<INCOME-PRETAX> 19,330
<INCOME-TAX> 474
<INCOME-CONTINUING> 18,856
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,856
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.16
</TABLE>
