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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, 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 November 12,
1997: 7,250,000. Number of Preference Units of the Registrant outstanding at
November 12, 1997: 4,650,000.
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KANEB PIPE LINE PARTNERS, L.P.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
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<TABLE>
<CAPTION>
Page No.
--------
Part I. Financial Information
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income
- Three and Nine Months Ended September 30, 1997 and 1996 1
Condensed Consolidated Balance Sheets
- September 30, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Cash Flows
- Nine Months Ended September 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 Nine Months Ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 31,465 $ 29,963 $ 89,837 $ 86,584
-------- -------- -------- --------
Costs and expenses:
Operating costs 12,967 13,042 37,926 37,061
Depreciation and amortization 2,946 2,740 8,744 8,189
General and administrative 1,596 1,349 4,263 4,061
-------- -------- -------- --------
Total costs and expenses 17,509 17,131 50,933 49,311
-------- -------- -------- --------
Operating income 13,956 12,832 38,904 37,273
Other income, net (principally interest) 143 210 418 580
Interest expense (2,858) (2,850) (8,561) (8,237)
-------- -------- -------- --------
Income before minority interest
and income taxes 11,241 10,192 30,761 29,616
Minority interest in net income (148) (102) (338) (288)
Income tax provision (118) (218) (592) (772)
-------- -------- -------- --------
Net income 10,975 9,872 29,831 28,556
General partner's interest in net income (148) (102) (338) (288)
-------- -------- -------- --------
Limited partner's interest in net income $ 10,827 $ 9,770 $ 29,493 $ 28,268
======== ======== ======== ========
Allocation of net income per Senior
Preference Unit and Preference Unit $ .68 $ .61 $ 1.84 $ 1.76
======== ======== ======== ========
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>
September 30, December 31,
1997 1996
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,331 $ 8,196
Accounts receivable, trade 10,578 11,540
Current portion of receivable from general partner -- 975
Prepaid expenses 4,062 4,321
-------- --------
Total current assets 28,971 25,032
-------- --------
Property and equipment 343,180 337,202
Less accumulated depreciation and amortization 95,907 87,469
-------- --------
Net property and equipment 247,273 249,733
-------- --------
$276,244 $274,765
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of long-term debt $ 2,257 $ 2,036
Accounts payable, accrued expenses and
distributions payable 20,938 18,715
Deferred terminaling fees 3,233 2,874
Payable to general partner 984 711
-------- --------
Total current liabilities 27,412 24,336
-------- --------
Long-term debt, less current portion 137,732 139,453
-------- --------
Other liabilities and deferred taxes 6,957 6,612
-------- --------
Minority interest 1,023 1,024
-------- --------
Partners' capital 103,120 103,340
-------- --------
$276,244 $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
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 29,831 $ 28,556
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 8,744 8,189
Minority interest in net income 338 288
Deferred income taxes 592 772
Changes in working capital components 4,076 4,061
-------- --------
Net cash provided by operating activities 43,581 41,866
-------- --------
Investing activities:
Capital expenditures (7,162) (6,288)
Other 631 (353)
-------- --------
Net cash used by investing activities (6,531) (6,641)
-------- --------
Financing activities:
Changes in receivable from general partner 975 1,895
Issuance of long-term debt -- 68,000
Payments of long-term debt (1,500) (69,309)
Distributions to partners (30,390) (27,858)
-------- --------
Net cash used by financing activities (30,915) (27,272)
-------- --------
Increase in cash 6,135 7,953
Cash at beginning of period 8,196 6,307
-------- --------
Cash at end of period $ 14,331 $ 14,260
======== ========
Supplemental information - cash paid for interest $ 7,211 $ 6,913
======== ========
</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 September 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 September 30, 1997 and the consolidated results of
its operations and cash flows for the periods ended September 30, 1997 and
1996. Operating results for the nine months ended September 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 each of the
first and second quarters of 1997 was declared holders of record as of
April 30, 1997 and July 30, 1997, respectively, and was paid on May 15,
1997 and August 14, 1997, respectively. In the third quarter, a cash
distribution of $.65 was declared to holders of record as of September 30,
1997 and is payable on November 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 nine months ended September 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 $43.6 million and $41.9 million
for the periods ended September 30, 1997 and 1996, respectively. Capital
expenditures were $7.2 million in the 1997 period compared to $6.3 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. Current
levels of cash available for distribution to Unitholders has increased as
the Partnership has grown enabling the Partnership to raise the quarterly
cash distribution to $.65, commencing with the third quarter distribution
payable on November 14, 1997. Distributions to all Unitholders of $1.85
per unit were declared in the nine months ended September 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
- --------------------------------------------------------------------------------
OPERATING RESULTS
PIPELINE OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $16,312 $16,443 $45,180 $46,270
Operating costs 5,773 6,447 16,644 17,836
Depreciation and amortization 1,228 1,207 3,648 3,608
General and administrative expenses 816 710 2,154 2,153
------- ------- ------- -------
Operating income $ 8,495 $ 8,079 $22,734 $22,673
======= ======= ======= =======
</TABLE>
Pipeline revenues are based on volumes shipped and the distances over
which such volumes are transported. Revenues for the three and nine month
period ended September 30, 1997 decreased $.1 million and $1.1 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 4.2 billion and
11.9 billion in the three and nine months ended September 30, 1997
compared to 4.3 billion and 12.3 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, decreased $.7 million and $1.2
million in the three and nine months ended September 30, 1997,
respectively, over the prior year period primarily due to lower
controllable costs, including materials and supplies and outside services.
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 Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $15,153 $13,520 $44,657 $40,314
Operating costs 7,194 6,595 21,282 19,225
Depreciation and amortization 1,718 1,533 5,096 4,581
General and administrative expenses 780 639 2,109 1,908
------- ------- ------- -------
Operating income $ 5,461 $ 4,753 $16,170 $14,600
======= ======= ======= =======
</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 nine months ended September 30, 1997 increased .5 million and
.3 million barrels, respectively, over the comparable prior periods
primarily as a result of improvements in utilization of the tankage
acquired late in 1996. For the three and nine months ended September 30,
1997, average annualized revenues per barrel of tankage utilized was $4.87
and $4.85 per barrel, respectively, compared to $4.54 and $4.50 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 September 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 nine months ended September
30, 1997, operating costs increased $.6 million and $2.1 million;
depreciation and amortization increased $.2 million and $.5 million; and
general and administrative expenses increased $.1 million and $.2 million,
respectively, over the comparable prior year periods, primarily as a result
of terminal acquisitions late in 1996.
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<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: November 13, 1997 /s/ Jimmy L. Harrison
------------------------------------
Jimmy L. Harrison
Controller
8
<PAGE> 11
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 14,331
<SECURITIES> 0
<RECEIVABLES> 10,600
<ALLOWANCES> 82
<INVENTORY> 0
<CURRENT-ASSETS> 28,971
<PP&E> 343,180
<DEPRECIATION> 95,907
<TOTAL-ASSETS> 276,244
<CURRENT-LIABILITIES> 27,412
<BONDS> 137,732
0
0
<COMMON> 0
<OTHER-SE> 103,120
<TOTAL-LIABILITY-AND-EQUITY> 276,244
<SALES> 0
<TOTAL-REVENUES> 89,837
<CGS> 0
<TOTAL-COSTS> 50,933
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,561
<INCOME-PRETAX> 30,423
<INCOME-TAX> 592
<INCOME-CONTINUING> 29,831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,831
<EPS-PRIMARY> 1.84
<EPS-DILUTED> 1.84
</TABLE>
