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 March 31, 1998 Number 001-10311
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
Number of Senior Preference Units of the Registrant outstanding at April 30,
1998: 7,250,000. Number of Preference Units of the Registrant outstanding at
April 30, 1998: 5,650,000.
<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
Page No.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income -- Three Months Ended
March 31, 1998 and 1997 1
Condensed Consolidated Balance Sheets -- March 31, 1998
and December 31, 1997 2
Condensed Consolidated Statements of Cash Flows -- Three
Months Ended March 31, 1998 and 1997 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 9
Signature 9
<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands -- Except Per Unit Amounts)
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
1998 1997
-------- --------
Revenues $ 28,070 $ 28,579
-------- --------
Costs and expenses:
Operating costs 11,688 12,402
Depreciation and amortization 2,947 2,878
General and administrative 1,535 1,270
-------- --------
Total costs and expenses 16,170 16,550
-------- --------
Operating income 11,900 12,029
Interest and other income, net 48 106
Interest expense (2,707) (2,854)
-------- --------
Income before minority interest and income taxes 9,241 9,281
Minority interest in net income (91) (90)
Income tax provision (190) (284)
-------- --------
Net income 8,960 8,907
General partner's interest in net income (90) (90)
-------- --------
Limited partners' interest in net income $ 8,870 $ 8,817
======== ========
Allocation of net income per Senior Preference Unit
and Preference Unit $ .55 $ .55
======== ========
Weighted average number of Partnership units outstanding:
Senior Preference Units 7,250 7,250
======== ========
Preference Units 5,650 4,650
======== ========
<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
- --------------------------------------------------------------------------------
March 31, Dec. 31,
1998 1997
--------- --------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,941 $ 6,376
Accounts receivable 12,075 11,503
Prepaid expenses 4,024 4,021
-------- --------
Total current assets 20,040 21,900
-------- --------
Property and equipment 353,372 345,802
Less accumulated depreciation and amortization 101,416 98,670
-------- --------
Net property and equipment 251,956 247,132
-------- --------
$271,996 $269,032
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of long-term debt $ 5,899 $ 2,335
Accounts payable and accrued expenses 11,774 10,546
Distributions payable 10,652 10,725
Payable to general partner 1,040 1,143
-------- --------
Total current liabilities 29,365 24,749
-------- --------
Long-term debt, less current portion 133,000 132,118
Other liabilities and deferred taxes 6,002 6,935
Minority interest 1,019 1,034
Commitments and contingencies
Partners' capital 102,610 104,196
-------- --------
$271,996 $269,032
======== ========
<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
1998 1997
-------- --------
Operating activities:
Net income $ 8,960 $ 8,907
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,947 2,878
Minority interest in net income 91 90
Deferred income taxes 187 268
Changes in working capital components 580 1,591
-------- --------
Net cash provided by operating activities 12,765 13,734
-------- --------
Investing activities:
Capital expenditures (2,350) (1,876)
Acquisition of terminals (5,030) --
Other, net (1,438) 397
-------- --------
Net cash used in investing activities (8,818) (1,479)
-------- --------
Financing activities:
Changes in payable to general partner (103) 699
Issuance of long-term debt 5,000 --
Payments of long-term debt (554) (483)
Distributions to partners (10,725) (9,834)
-------- --------
Net cash used in financing activities (6,382) (9,618)
-------- --------
Increase (decrease) in cash and cash equivalents (2,435) 2,637
Cash and cash equivalents at beginning of period 6,376 8,196
-------- --------
Cash and cash equivalents at end of period $ 3,941 $ 10,833
======== ========
<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements of Kaneb Pipe Line
Partners, L.P. and its subsidiaries (the "Partnership") for the three month
periods ended March 31, 1998 and 1997 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 year ended December 31,
1997. 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 and its consolidated subsidiaries at
March 31, 1998 and the consolidated results of their operations and cash
flows for the three month periods ended March 31, 1998 and 1997. Operating
results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1998.
2. NEW ACCOUNTING PRONOUNCEMENT
The Partnership has adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which
establishes standards for the reporting and display of comprehensive income
and its components in a full set of general purpose financial statements.
There were no items to report for the three months ended March 31, 1998 or
1997.
3. CASH DISTRIBUTIONS
The Partnership makes quarterly distributions of 100% of its Available
Cash, as defined in the Partnership Agreement, to holders of limited
partnership units ("Unitholders") and the Company. The Partnership expects
to make distributions of Available Cash for each quarter of not less than
$0.55 per unit (the "Minimum Quarterly Distribution"), or $2.20 per unit on
an annualized basis, for the foreseeable future, although no assurance is
given regarding such distributions. The cash distribution of $0.65 per unit
for the fourth quarter of 1997 was made on February 14, 1998. A cash
distribution of $0.65 for the first quarter of 1998 was declared to holders
of record as of April 30, 1998 and is payable on May 15, 1998. As of March
31, 1998, no arrearages existed on any class of Partnership interest.
The distribution of Available Cash for each quarter during the Preference
Period, as defined, is subject to the preferential rights of the holders of
the Senior Preference Units ("SPU") to receive the Minimum Quarterly
Distribution for such quarter, plus any arrearages in the payment of the
Minimum Quarterly Distribution for prior quarters, before any distribution
of Available Cash is made to holders of Preference Units ("PU") or Common
Units ("CU") for such quarter. The CU's are not entitled to arrearages in
the payment of the Minimum Quarterly Distribution. In general, the
Preference Period will continue indefinitely until the Minimum Distribution
has been paid to the holders of the SPU's, the PU's, the Preference B
Units, to the extent outstanding, and the CU's for twelve consecutive
quarters. The Minimum Quarterly Distribution has been paid to all classes
of Unitholders for all four quarters in 1997 and 1996 and for the quarters
ended September 30 and December 31, 1995. After the Preference Period ends,
all differences and distinctions between the classes of units for the
purposes of cash distributions will cease. It is anticipated that the
Preference Period will end upon the payment of the twelfth consecutive
quarterly distribution on August 14, 1998.
<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
This discussion should be read in conjunction with the consolidated
financial statements of Kaneb Pipe Line Partners, L.P. (the "Partnership")
and notes thereto included elsewhere in this report.
Operating Results:
Pipeline Operations
Three Months Ended
March 31,
1998 1997
------- -------
(in thousands)
Revenues $14,101 $13,869
Operating costs 5,402 5,370
Depreciation and amortization 1,186 1,203
General and administrative 739 610
------- -------
Operating income $ 6,774 $ 6,686
======= =======
Pipeline revenues are based on volumes shipped and the distances over which
such volumes are transported. For the quarter ended March 31, 1998,
revenues increased 2%, compared to the same 1997 period, due to an overall
increase in volumes shipped, primarily on the East Pipeline. For the
quarter ended March 31, 1998, volumes shipped increased 11% to 16.7 million
barrels, compared to 15.0 million barrels for the same 1997 period. Total
barrel miles aggregated 3.7 billion for the first quarter of both 1998 and
1997.
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 slightly over the
comparable prior year period. General and administrative costs which
include managerial, accounting, and administrative personnel costs, office
rental and expense, legal and professional costs and other non-operating
costs increased $0.1 million over the comparable 1997 period.
Terminaling Operations
Three Months Ended
March 31,
1998 1997
-------- --------
(in thousands)
Revenues $ 13,969 $ 14,710
Operating costs 6,286 7,032
Depreciation and amortization 1,761 1,675
General and administrative 796 660
------- --------
Operating income $ 5,126 $ 5,343
======= ========
Revenues decreased 5% for the quarter ended March 31, 1998, compared to the
1997 period, due primarily to a decrease in the overall average price
charged for storage, partially offset by an increase in tankage volumes
utilized. For the quarter ended March 31, 1998, average annualized revenues
per barrel of tankage utilized was $4.51 per barrel, compared to $4.88 per
barrel for the same prior year period. The decrease in the per barrel
average is primarily a result of larger proportionate volume of petroleum
products being stored in the first quarter of 1998, which are historically
at lower per barrel rates than specialty chemicals. Average annual tankage
utilized for the quarter ended March 31, 1998 increased to 12.4 million
barrels from 12.1 million barrels for the comparable prior year period,
primarily as a result of increased utilization at the Partnership's largest
petroleum storage facility.
For the quarter ended March 31, 1998, operating costs decreased $0.7
million, depreciation and amortization increased $0.1 million, and general
and administrative expenses increased $0.1 million, over the comparable
prior year period. The overall decrease in operating costs is due largely
to variance in product mix.
Total tankage capacity (17.9 million barrels at March 31, 1998) 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.
In March 1998, the Partnership completed the acquisition of certain liquids
terminaling assets located in Chicago, Illinois. The acquisition, which
included 19 storage tanks with an aggregate capacity of 752 thousand
barrels, was funded with the Partnership's existing revolving credit
facility.
Financial Condition
During the first three months of 1998, the Partnership's working capital
requirements for operations, capital expenditures (excluding acquisitions)
and cash distributions were funded through the use of internally generated
funds.
Cash provided by operations was $12.8 million and $13.7 million for the
periods ended March 31, 1998 and 1997, respectively. Capital expenditures
(excluding acquisitions) were $2.4 million in the first quarter of 1998,
compared to $1.9 million in 1997. The Partnership anticipates that capital
expenditures will total approximately $7.0 million to $10.0 million
(excluding acquisitions) for the year ending December 31, 1998.
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 of $0.65 per unit were declared to all Unitholders in the
first quarter of 1998 and $2.50 per unit was declared in the calendar year
1997.
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.
Allocation of Net Income and Earnings
Net income is allocated to the limited partnership units in an amount equal
to the cash distributions declared for each reporting period and any
remaining income or loss is allocated to any class of units that did not
receive the same amount of cash distributions per unit (if any). If the
same cash distributions per unit are declared for all classes of units,
income or loss is allocated pro rata on the aggregate amount of
distributions declared.
In 1997, distributions by the Partnership of Available Cash reached the
Second Target Distribution, as defined in the Partnership Agreement, which
entitled the general partner to receive certain incentive distributions.
Earnings per SPU and PU shown on the consolidated statements of income are
calculated by dividing the amount of net income, allocated on the above
basis with incentives calculated on distributions declared to the SPUs and
PUs, by the weighted average number of SPUs and PUs outstanding,
respectively. If the allocation of income had been made as if all income
had been distributed in cash, earnings per SPU and PU would have been $0.55
and $0.55 for the quarters ended March 31, 1998 and 1997, respectively.
<PAGE>
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.
DATED: May 12, 1998
KANEB PIPE LINE PARTNERS, L.P.
(Registrant)
By KANEB PIPE LINE COMPANY
(Managing General Partner)
//s//
Jimmy L. Harrison
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<CASH> 3,941
<SECURITIES> 0
<RECEIVABLES> 12,157
<ALLOWANCES> 82
<INVENTORY> 0
<CURRENT-ASSETS> 20,040
<PP&E> 353,372
<DEPRECIATION> 101,416
<TOTAL-ASSETS> 271,996
<CURRENT-LIABILITIES> 29,365
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 102,610
<TOTAL-LIABILITY-AND-EQUITY> 271,996
<SALES> 0
<TOTAL-REVENUES> 28,070
<CGS> 0
<TOTAL-COSTS> 16,170
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,707
<INCOME-PRETAX> 9,150
<INCOME-TAX> 190
<INCOME-CONTINUING> 8,960
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,960
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
