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, 1999 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
Incorporation or Organization) Identification No.)
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 Units of the Registrant outstanding at November 1, 1999: 18,310,000
<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
Page No.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income -- Three and Nine Months Ended
September 30, 1999 and 1998 1
Condensed Consolidated Balance Sheets -- September 30, 1999
and December 31, 1998 2
Condensed Consolidated Statements of Cash Flows -- Nine
Months Ended September 30, 1999 and 1998 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE>
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,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 41,573 $ 33,709 $ 117,589 $ 92,332
--------- --------- --------- ---------
Costs and expenses:
Operating costs 18,057 13,176 51,403 37,781
Depreciation and amortization 3,764 3,075 11,149 9,040
General and administrative 2,301 1,748 6,975 4,955
--------- --------- --------- ---------
Total costs and expenses 24,122 17,999 69,527 51,776
--------- --------- --------- ---------
Operating income 17,451 15,710 48,062 40,556
Interest and other income, net 103 20 385 107
Interest expense (3,107) (2,816) (10,401) (8,283)
--------- --------- --------- ---------
Income before minority interest
and income taxes 14,447 12,914 38,046 32,380
Minority interest in net income (140) (127) (370) (319)
Income tax provision (472) (189) (1,072) (473)
--------- --------- --------- ---------
Net income 13,835 12,598 36,604 31,588
General partner's interest in net income (481) (205) (1,218) (539)
--------- --------- --------- ---------
Limited partners' interest in net income $ 13,354 $ 12,393 $ 35,386 $ 31,049
========= ========= ========= =========
Allocation of net income per unit $ .76 $ .77 $ 2.14 $ 1.93
========= ========= ========= =========
Weighted average number of Partnership
units outstanding 17,560 16,060 16,560 16,060
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
- --------------------------------------------------------------------------------
September 30 December 31
1999 1998
------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 5,930 $ 849
Accounts receivable 18,392 13,917
Prepaid expenses and other 5,418 4,035
-------- --------
Total current assets 29,740 18,801
-------- --------
Property and equipment 436,380 377,248
Less accumulated depreciation 119,138 108,622
-------- --------
Net property and equipment 317,242 268,626
-------- --------
Investment in affiliate 23,466 21,005
-------- --------
$370,448 $308,432
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Short-term and current portion of long-term debt $ -- $ 10,000
Accounts payable and accrued expenses 18,850 14,354
Accrued distributions payable 13,372 10,725
Payable to general partner 1,260 6,785
-------- --------
Total current liabilities 33,482 41,864
-------- --------
Long-term debt, less current portion 156,472 153,000
Other liabilities and deferred taxes 10,186 7,131
Minority interest 1,696 1,049
Commitments and contingencies
Partners' capital 168,612 105,388
-------- --------
$370,448 $308,432
======== ========
See notes to consolidated financial statements.
2
<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
- --------------------------------------------------------------------------------
Nine Months Ended
September 30
--------------------
1999 1998
-------- --------
Operating activities:
Net income $ 36,604 $ 31,588
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 11,149 9,040
Equity in earnings of affiliate (2,515) --
Minority interest in net income 370 319
Deferred income taxes 1,110 292
Changes in working capital components 70 1,980
-------- --------
Net cash provided by operating activities 46,788 43,219
-------- --------
Investing activities:
Capital expenditures (11,243) (8,048)
Acquisitions of terminals (44,390) (14,673)
Other, net (1,642) 500
-------- --------
Net cash used in investing activities (57,275) (22,221)
-------- --------
Financing activities:
Changes in payable to general partner (5,000) (98)
Issuance of short-term and long-term debt 50,919 11,736
Payments of long-term debt (57,447) (1,127)
Distributions to partners, including minority interest (38,478) (32,175)
Net proceeds from issuance of KPP units 65,574 --
-------- --------
Net cash provided by (used in)
financing activities 15,568 (21,664)
-------- --------
Increase (decrease) in cash and cash equivalents 5,081 (666)
Cash and cash equivalents at beginning of period 849 6,376
-------- --------
Cash and cash equivalents at end of period $ 5,930 $ 5,710
======== ========
Supplemental cash flow information
- cash paid for interest $ 8,845 $ 6,880
======== ========
See notes to consolidated financial statements.
3
<PAGE>
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The unaudited condensed consolidated financial statements of Kaneb Pipe
Line Partners, L.P. and its subsidiaries (the "Partnership") for the three
and nine month periods ended September 30, 1999 and 1998, have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis. Significant accounting policies followed by
the Partnership are 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, 1998. In the opinion of the Partnership's
management, the accompanying condensed 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 September 30, 1999 and the
consolidated results of their operations and cash flows for the periods
ended September 30, 1999 and 1998. Operating results for the three and nine
months ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999.
2. ACQUISITION OF TERMINALS
On February 1, 1999, the Partnership, through two wholly-owned indirect
subsidiaries, acquired six terminals in the United Kingdom from GATX
Terminals Limited for (pound)22.6 million (approximately $37.2 million)
plus the assumption of certain liabilities. The acquisition, which was
financed by term loans from a bank, has been accounted for using the
purchase method of accounting. The term loans, which bear interest in
varying amounts, are secured by the capital stock of the subsidiaries that
acquired the United Kingdom terminals, and pari passu with the existing
mortgage notes and credit facility, by a mortgage on the East Pipeline, and
contain certain financial and operational covenants. $13.3 million of the
term loans were repaid in July 1999 with the proceeds from a public unit
offering (see Note 3). The remaining portion ($25.9 million) is due in
January 2002. The pro forma effect of the acquisition was not material to
the results of operations.
3. PUBLIC OFFERING OF UNITS
In July 1999, the Partnership issued 2.25 million limited partnership units
in a public offering at $30.75 per unit, generating approximately $65.6
million in net proceeds. A portion of the proceeds was used to repay in
full the Partnership's $15.0 million promissory note, the $25.0 million
revolving credit facility and $18.3 million in term loans (including $13.3
million in term loans resulting from the United Kingdom terminal
acquisition referred to in Note 2).
4. COMPREHENSIVE INCOME
Comprehensive income for the three and nine months ended September 30, 1999
and 1998 is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands)
Net income $ 13,835 $ 12,598 $ 36,604 $ 31,588
Other comprehensive
income (loss)
- foreign currency
translation adjustment 460 -- (197) --
-------- -------- -------- --------
Comprehensive income $ 14,295 $ 12,598 $ 36,407 $ 31,588
======== ======== ======== ========
5. 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 general partner. Available Cash
consists generally of all the cash receipts of the Partnership, plus the
beginning cash balance less all of its cash disbursements and reserves. The
Partnership expects to make distributions of all Available Cash within 45
days after the end of each quarter to Unitholders of record on the
applicable record date. A cash distribution of $0.70 per unit for each the
first and second quarters of 1999 was paid on May 14, 1999 and August 13,
1999, respectively. A cash distribution of $0.70 per unit for the third
quarter of 1999 was declared to holders of record on October 29, 1999 and
was paid on November 12, 1999.
6. CONTINGENCIES
The operations of the Partnership are subject to Federal, state and local
laws and regulations relating to protection of the environment. Although
the Partnership believes its operations are in general compliance with
applicable environmental regulations, risks of additional costs and
liabilities are inherent in pipeline and terminal operations, and there can
be no assurance that significant costs and liabilities will not be incurred
by the Partnership. Moreover, it is possible that other developments, such
as increasingly stringent environmental laws, regulations and enforcement
policies thereunder, and claims for damages to property or persons
resulting from the operations of the Partnership, could result in
substantial costs and liabilities to the Partnership.
Certain subsidiaries of the Partnership are defendants in a lawsuit filed
in a Texas state court in 1997 by Grace Energy Corporation, the entity from
whom the Partnership acquired ST Services in 1993. The lawsuit involves
environmental response and remediation allegedly resulting from jet fuel
leaks in the early 1970's from a pipeline. The pipeline, which connected a
former Grace terminal with Otis Air Force Base, was abandoned in 1973, and
the connecting terminal was sold to an unrelated entity in 1976. Grace
alleges that it has incurred since 1996 expenses of approximately $3
million for response and remediation required by the State of Massachusetts
and that it expects to incur additional expenses in the future. Future
expenses could potentially include claims by the United States Government,
as described below. Grace alleges that subsidiaries of the Partnership
acquired the abandoned pipeline as part of the acquisition of ST Services
in 1993 and assumed responsibility for environmental damages caused by the
jet fuel leaks from the pipeline. Grace is seeking a ruling that these
subsidiaries are responsible for all present and future remediation
expenses for these leaks and that Grace has no obligation to indemnify
these subsidiaries for these expenses. The case is set for trial in January
2000.
The consistent position of the Partnership's subsidiaries is that they did
not acquire the abandoned pipeline as part of the 1993 ST transaction and
did not assume any responsibility for the environmental damage. In a motion
for partial summary judgment, the trial judge has ruled that the pipeline
was an asset of the company acquired by the subsidiary. The subsidiaries
intend to seek a rehearing on this issue from the trial judge. In addition,
they are continuing with their defense that the pipeline had been abandoned
prior to the acquisition of ST Services and could not have been included in
the assets they acquired. The defendants also believe that they have
certain rights to indemnification from Grace under the acquisition
agreement with Grace. These rights include claims against Grace for fraud
and breach of environmental representations in the acquisition agreement.
The acquisition agreement also includes Grace's agreement to indemnify the
subsidiaries against 60% of post-closing environmental remediation costs,
subject to a maximum indemnity payment of $10 million.
The Otis Air Force Base is a part of the Massachusetts Military
Reservation, which has been declared a Superfund Site pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act. The
MMR Site contains nine groundwater contamination plumes, two of which are
allegedly associated with the pipeline, and various other waste management
areas of concern, such as landfills. The United States Department of
Defense and the United States Coast Guard, pursuant to a Federal Facilities
Agreement, has been responding to the Government remediation demand for
most of the contamination problems at the MMR Site. Grace and others have
also received and responded to formal inquiries from the United States
Government in connection with the environmental damages allegedly resulting
from the jet fuel leaks. The Partnership's subsidiaries have voluntarily
responded to an invitation from the Government to provide information
indicating that they do not own the pipeline. In connection with a
court-ordered mediation between Grace and the subsidiaries, the Government
advised the parties in April 1999 that it has identified the two spill
areas that it believes to be related to the pipeline that is the subject of
the Grace suit. The Government advised the parties that it believes it has
incurred costs of approximately $34 million, and expects in the future to
incur costs of approximately $55 million, for remediation of one of the
spill areas. This amount was not intended to be a final accounting of costs
or to include all categories of costs. The Government also advised the
parties that it could not at that time allocate its costs attributable to
the second spill area. Any claims by the Government could be material in
amount and, if made and ultimately sustained against the Partnership's
subsidiaries, could adversely affect the Partnership's ability to pay cash
distributions to its unitholders.
The Partnership has other contingent liabilities resulting from litigation,
claims and commitments incident to the ordinary course of business.
Management believes, based on the advice of counsel, that the ultimate
resolution of such contingencies will not have a materially adverse effect
on the financial position or results of operations of the Partnership.
7. BUSINESS SEGMENT DATA
The Partnership conducts business through two principal operations; the
"Pipeline Operations," which consists primarily of the transportation of
refined petroleum products in the Midwestern states as a common carrier,
and the "Terminaling Operations," which provide storage for petroleum
products, specialty chemicals and other liquids.
The Partnership measures segment profit as operating income. Total assets
are those controlled by each reportable segment.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands)
Business segment revenues:
Pipeline operations $ 18,708 $ 17,406 $ 50,054 $ 46,858
Terminaling operations 22,865 16,303 67,535 45,474
-------- --------- -------- --------
$ 41,573 $ 33,709 $117,589 $ 92,332
======== ========= ======== ========
Business segment profit:
Pipeline operations $ 10,053 $ 9,346 $ 26,121 $ 24,108
Terminaling operations 7,398 6,364 21,941 16,448
-------- --------- -------- --------
Operating income 17,451 15,710 48,062 40,556
Interest and other income, net 103 20 385 107
Interest expense (3,107) (2,816) (10,401) (8,283)
-------- --------- -------- --------
Income before minority
interest and income taxes $ 14,447 $ 12,914 $ 38,046 $ 32,380
======== ========= ======== ========
Sept. 30 Dec. 31
1999 1998
-------- --------
Total assets:
Pipeline operations $104,168 $103,966
Terminaling operations 266,280 204,466
-------- --------
$370,448 $308,432
======== ========
<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 Nine Months Ended
September 30, September 30,
------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands)
Revenues $ 18,708 $ 17,406 $ 50,054 $ 46,858
Operating costs 6,565 6,055 17,768 16,816
Depreciation and amortization 1,273 1,192 3,811 3,569
General and administrative 817 813 2,354 2,365
-------- -------- -------- --------
Operating income $ 10,053 $ 9,346 $ 26,121 $ 24,108
======== ======== ======== ========
Pipeline revenues are based on volumes shipped and the distances over which
such volumes are transported. For each of the three and nine months ended
September 30, 1999, revenues increased 7% compared to the same 1998
periods, due to an overall increase in volumes shipped. Over 90% of the
year-to-date increase in volumes shipped was on the East Pipeline. Barrel
miles totaled 5.1 billion and 4.8 billion for the three months ended
September 30, 1999 and 1998, respectively, and 13.7 billion and 12.5
billion for the nine months ended September 30, 1999 and 1998,
respectively.
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 8% and 6 %, respectively,
for the three and nine month periods ended September 30, 1999, when
compared to the same 1998 periods. 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, are consistent with the comparable prior year periods.
<PAGE>
Terminaling Operations
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands)
Revenues $ 22,865 $ 16,303 $ 67,535 $ 45,474
Operating costs 11,492 7,121 33,635 20,965
Depreciation and amortization 2,491 1,883 7,338 5,471
General and administrative 1,484 935 4,621 2,590
-------- -------- -------- --------
Operating income $ 7,398 $ 6,364 $ 21,941 $ 16,448
======== ======== ======== ========
On October 30, 1998, the Partnership, through a wholly-owned subsidiary,
entered into acquisition and joint venture agreements with Northville
Industries Corp. to acquire and manage the former Northville terminal
located in Linden, New Jersey. Under the agreements, the Partnership
acquired a 50% interest in the newly formed ST Linden Terminal LLC for
$20.5 million plus transaction costs. During the year ended December 31,
1998, the Partnership acquired other terminals for an aggregate
consideration of $15.9 million. On February 1, 1999, the Partnership
acquired six terminals in the United Kingdom from GATX Terminals Limited
for approximately $37.2 million plus the assumption of certain liabilities.
The acquisitions (the "Acquisitions") were funded with bank financing, a
portion of which was paid off using proceeds from a public unit offering in
July 1999 (see "Liquidity and Capital Resources").
Terminaling revenues increased 40% and 49% for the three and nine month
periods ended September 30, 1999, compared to the same 1998 periods, due
primarily to the Acquisitions and an increase in tank utilization due to
favorable market conditions, partially offset by a decrease in the overall
average price realized for storage. For the nine months ended September 30,
1999, average annualized revenues per barrel of tankage utilized decreased
to $4.00, compared to $4.23 per barrel for the same prior year period, the
result of the storage of a larger proportionate volume of petroleum
products, which are historically at lower per barrel rates than specialty
chemicals. Average annual tankage utilized for the nine months ended
September 30, 1999 increased to 22.5 million barrels from 14.3 million
barrels for the comparable prior year period, as a result of the
Acquisitions and increased utilization at the Partnership's largest
petroleum storage facility.
For the three and nine month periods ended September 30, 1999, operating
costs increased by $4.4 million and $12.7 million, respectively, when
compared to the same 1998 periods, as a result of the increase in tank
utilization resulting primarily from the Acquisitions. General and
administrative expense for the three and nine months ended September 30,
1999, increased by $0.5 million and $2.0 million, when compared to 1998,
due also to the Acquisitions.
Total tankage capacity (28.9 million barrels at September 30, 1999) 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.
Liquidity and Capital Resources
During the first nine months of 1999, 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 $46.8 million and $43.2 million for the
nine months ended September 30, 1999 and 1998, respectively. Capital
expenditures (excluding acquisitions) were $11.2 million for the nine
months ended September 30, 1999, compared to $8.0 million during the same
1998 period. The Partnership anticipates that routine maintenance capital
expenditures will total approximately $12 million to $16 million (excluding
acquisitions) for the year ending December 31, 1999.
In January 1999, the Partnership, through two wholly-owned subsidiaries,
entered into a credit agreement with a bank that provides for the issuance
of $39.2 million of term loans in connection with the United Kingdom
terminal acquisition and $5.0 million for general Partnership purposes. The
term loans, which bear interest in varying amounts, are secured by the
capital stock of the subsidiaries that acquired the United Kingdom
terminals, and pari passu with the existing mortgage notes and credit
facility, by a mortgage on the East Pipeline, and contain certain financial
and operational covenants. $18.3 million of the term loans were repaid in
July 1999 with the proceeds from the public unit offering. The remaining
portion ($25.9 million) is due in January 2002.
In July 1999, the Partnership issued 2.25 million limited partnership units
in a public offering at $30.75 per unit, generating approximately $65.6
million in net proceeds. A portion of the proceeds was used to repay in
full the Partnership's $15.0 million promissory note, the $25.0 million
revolving credit facility and $18.3 million in term loans (including $13.3
million in term loans resulting from the United Kingdom terminal
acquisition).
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 $0.70 per unit were declared to all Unitholders in the
first, second and third quarters of 1999 and $2.60 per unit was declared in
the calendar year 1998.
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 borrowings and/or future public unit offerings.
Additional information relative to sources and uses of cash is presented in
the financial statements included in this report.
Year 2000 Issue
The Partnership recognizes the challenges associated with Year 2000 Issues
("Y2K") and has undertaken a review and testing of its computer systems to
identify Y2K-related issues associated with any items of software or
hardware used in its business operations. Most of the software systems used
by the Partnership are licensed from third parties and are Y2K compliant or
will be upgraded to Y2K compliant releases before the end of 1999. This
issue is being addressed by the Partnership in multiple phases, including
assessment, remediation, testing and implementation, and progress is being
monitored by the general partner's senior management. All material systems,
including non-information technology systems that may house non-compliant,
embedded technology are being evaluated.
In addition to addressing the Partnership's own systems, as described
above, the Partnership must assess the state of readiness of the systems of
other entities with which it does business. With respect to its third-party
relationships, the Partnership has contacted its primary suppliers and
service providers to assess their state of Y2K readiness. The Partnership
continues to receive information from its critical suppliers and service
providers to assist the Partnership in assessing the Y2K readiness of these
parties. Failure by these third parties to adequately resolve their Y2K
problems could have a material adverse effect on the Partnership's
operations.
The Partnership believes its success in being Y2K compliant will not be
conclusively known until the year 2000 is actually reached. Although
failure by one or more of the Partnership's own systems could result in
lost revenues and/or additional expenses required to carry out manual
processing of transactions, the Partnership cannot predict the effect that
external forces could have on its business. Failures by banking
institutions, the telecommunications industry and others could have
far-reaching effects on the entire economy and the Partnership.
At September 30, 1999, the major information technology and non-information
technology systems on which the pipeline and the terminaling operations
depend have been evaluated and updated, where necessary, and are believed
to be Y2K compliant. The Partnership continues to evaluate and remediate
certain of its less significant information technology and non-information
technology systems. The Partnership expects to complete all phases of its
Y2K program prior to December 31, 1999.
The Partnership believes that it is not possible to determine with
certainty that all Y2K problems affecting the Partnership have been
identified or corrected. The number of devices that could be affected and
the interactions among these devices are simply too numerous. In addition,
the Partnership cannot accurately predict how many failures related to the
Y2K problem will occur or the severity, duration or financial consequences
of such failures. The Partnership has hired an outside Y2K consultant to
assist the Partnership in meeting its goals and in developing contingency
plans to define and address the worst-case scenario likely to be faced by
the Partnership. At September 30, 1999, Y2K contingency plans were
substantially complete and in place for both the pipeline and the
terminaling operations.
Through September 30, 1999, the Partnership has incurred approximately $0.2
million of costs related to assessing, remediating and testing its
information technology and non-information technology systems. A portion of
these costs would have been incurred as part of normal system and
application upgrades. In certain cases, the timing of these expenditures
has been accelerated due to Y2K considerations. The Partnership does not
anticipate that future costs to become fully Y2K compliant will be
material.
Allocation of Net Income and Earnings
Net income or loss is allocated between limited partner interests and the
general partner pro rata based on the aggregate amount of cash
distributions declared (including general partner incentive distributions).
Beginning 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 at different levels of cash distributions. Earnings per unit
shown on the consolidated statements of income are calculated by dividing
the limited partners' interest in net income by the weighted average number
of units outstanding. If the allocation of income had been made as if all
income had been distributed in cash, earnings per unit would have been
$0.75 and $0.76 for the three months and $2.13 and $1.93 for the nine
months ended September 30, 1999 and 1998, 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.
KANEB PIPE LINE PARTNERS, L.P.
(Registrant)
By KANEB PIPE LINE COMPANY
(Managing General Partner)
Date: November 15, 1999 //s//
--------------------------------
Jimmy L. Harrison
Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Sep-30-1999
<CASH> 5,930
<SECURITIES> 0
<RECEIVABLES> 18,670
<ALLOWANCES> 278
<INVENTORY> 0
<CURRENT-ASSETS> 29,740
<PP&E> 436,380
<DEPRECIATION> 119,138
<TOTAL-ASSETS> 370,448
<CURRENT-LIABILITIES> 33,482
<BONDS> 156,472
0
0
<COMMON> 0
<OTHER-SE> 168,612
<TOTAL-LIABILITY-AND-EQUITY> 370,448
<SALES> 0
<TOTAL-REVENUES> 117,589
<CGS> 0
<TOTAL-COSTS> 69,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,401
<INCOME-PRETAX> 37,676
<INCOME-TAX> 1,072
<INCOME-CONTINUING> 36,604
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,604
<EPS-BASIC> 2.14
<EPS-DILUTED> 2.14
</TABLE>
