<PAGE>
- - -------------------------------------------------------------------------------
UNITED STATES
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
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10595
SFP PIPELINE HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-3713699
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
301 NUGGET AVENUE
SPARKS, NEVADA 89431
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(702) 358-6971
(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 SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK ($0.01 PAR VALUE)
AS OF MAY 10, 1996: 1,000.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H (1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED
DISCLOSURE FORMAT PERMITTED BY GENERAL INSTRUCTION H.
- - -------------------------------------------------------------------------------
<PAGE>
SFP PIPELINE HOLDINGS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at March 31, 1996 and
December 31, 1995................................... 1
Consolidated Statement of Operations for the
three-month periods ended March 31, 1996 and 1995... 2
Consolidated Statement of Cash Flows for the
three-month periods ended March 31, 1996 and 1995... 3
Notes to Consolidated Financial Statements............ 4
Item 2. Management's Narrative Analysis of the
Results of Operations........................... 5
Financial Information of Santa Fe Pacific Pipeline
Partners, L.P.......................................... *
Summary Financial Information of Santa Fe
Pacific Corporation.................................... 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................... 9
Item 6. Exhibits and Reports on Form 8-K................ 9
Signature................................................ 9
</TABLE>
* Incorporated by reference from Part I of the Form 10-Q of Santa Fe Pacific
Pipeline Partners, L.P. for the quarter ended March 31, 1996 (Commission File
Number 1-10066)
<PAGE>
SFP PIPELINE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
A S S E T S
Current assets
Cash and cash equivalents .................................... $ 9,872 $ 7,890
Interest receivable .......................................... 1,037 1,148
Other current assets ......................................... 571 450
-------- --------
Total current assets ....................................... 11,480 9,488
Investment in Santa Fe Pacific Pipeline Partners, L.P. ......... 63,685 63,402
Notes receivable from Santa Fe Pacific Corporation ............. 130,000 130,000
Debt issuance costs, net ....................................... 6,959 7,080
Other assets ................................................... 2,810 2,676
-------- --------
Total assets ............................................... $214,934 $212,646
======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Interest payable ............................................. $ 6,111 $ 6,111
Income taxes currently payable ............................... 1,879 479
Other current liabilities .................................... 5,365 6,264
-------- --------
Total current liabilities .................................. 13,355 12,854
Long-term debt, net of unamortized discount .................... 203,767 203,638
Deferred income taxes .......................................... 63,758 63,915
Other liabilities .............................................. 2,119 2,112
-------- --------
Total liabilities .......................................... 282,999 282,519
-------- --------
Commitments and contingencies (Notes (e) and (f)) ..............
-------- --------
Stockholder's deficit
Common stock ................................................. 1 1
Additional paid-in capital ................................... (33,388) (33,388)
Accumulated deficit .......................................... (34,678) (36,486)
-------- --------
Total stockholder's deficit ................................ (68,065) (69,873)
-------- --------
Total liabilities and stockholder's deficit ................ $214,934 $212,646
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
-1-
<PAGE>
SFP PIPELINE HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months
ended March 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Equity in income of Santa Fe Pacific Pipeline Partners, L.P.... $ 7,385 $ 6,999
General and administrative expenses
and other, net of reimbursements.............................. 168 300
-------- --------
Operating income............................................... 7,217 6,699
Interest income................................................ 2,198 2,525
Interest expense............................................... 6,364 6,367
-------- --------
Income before income taxes..................................... 3,051 2,857
Income taxes................................................... 1,243 1,160
-------- --------
Net income..................................................... 1,808 1,697
Accumulated deficit-
Beginning of period.......................................... (36,486) (38,007)
Cash dividends............................................... -- --
-------- --------
End of period................................................ $(34,678) $(36,310)
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
-2-
<PAGE>
SFP PIPELINE HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months
ended March 31,
------------------
1996 1995
------ -------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................... $1,808 $ 1,697
------ -------
Adjustments to reconcile net income to net
cash provided by operating activities--
Equity in undistributed earnings of
Santa Fe Pacific Pipeline Partners, L.P................... (283) (715)
Deferred income taxes...................................... (157) (1,789)
Amortization of debt issuance costs and
original issue discount................................... 250 239
Changes in--
Current assets............................................ (10) (488)
Current liabilities....................................... 501 4,049
Other assets and liabilities.............................. (127) (30)
------ -------
Total adjustments........................................ 174 1,266
------ -------
Net cash provided by operating activities................ 1,982 2,963
Cash flows from investing activities.......................... -- --
Cash flows from financing activities.......................... -- --
------ -------
Increase in cash and cash equivalents......................... 1,982 2,963
Cash and cash equivalents--
Beginning of period.......................................... 7,890 143
------ -------
End of period................................................ $9,872 $ 3,106
====== =======
Income taxes paid (refunded).................................. $ -- $ (453)
====== =======
Interest paid................................................. $6,111 $ 5,704
====== =======
</TABLE>
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
SFP PIPELINE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) The accompanying consolidated financial statements include the accounts of
SFP Pipeline Holdings, Inc. ("Holdings") and Santa Fe Pacific Pipelines, Inc.
("SFPPI"), both of which are wholly-owned subsidiaries of Santa Fe Pacific
Corporation ("Santa Fe"), on a consolidated basis (the "Company"), and should be
read in conjunction with the Company's consolidated financial statements and
notes thereto included in its Annual Report on Form 10-K for the year ended
December 31, 1995. In the opinion of Company management, all adjustments
necessary for a fair presentation of the results of operations for the periods
presented have been included in these consolidated financial statements. Unless
otherwise noted, all such adjustments are of a normal recurring nature. The
results of operations for any interim period are not necessarily indicative of
the results of operations to be expected for the entire year.
(b) SFPPI received distributions aggregating $7,102,000 and $6,284,000 during
the three-month periods ended March 31, 1996 and 1995, respectively, by virtue
of its general and limited partner interests in Santa Fe Pacific Pipeline
Partners, L.P. (the "Partnership"). In April 1996, the Partnership declared
first quarter 1996 distributions on SFPPI's general and limited partner
interests aggregating $7,102,000, payable in May 1996. Financial information
with respect to the Partnership is incorporated herein by reference from Part I
of the Partnership's Form 10-Q for the quarter ended March 31, 1996.
(c) The notes receivable from Santa Fe are due and payable upon the maturity of
the Company's Debentures in August 2010, but are payable at any time prior to
that date to the extent, and only to the extent, that Holdings' board of
directors determines in good faith that payment is needed, after taking into
account all other available funds, for Holdings to meet its obligations with
respect to its Variable Rate Exchangeable Debentures Due 2010 (the
"Debentures"). Financial information with respect to Santa Fe is presented
following Part I, Item 2 of this Report.
(d) The Debentures bear interest at a variable rate, payable quarterly in
arrears. Interest expense for each quarter is generally recorded in an amount
equal to the aggregate amount of distributions declared by the Partnership for
that quarter on the 8,148,130 common units for which the Debentures would be
exchangeable. The Partnership declared cash distributions of $0.75 per unit for
the first quarter of 1996, and, accordingly, the Company accrued interest
expense of $6,111,000 for the three months ended March 31, 1996. Interest
expense reflected in the consolidated statement of operations also includes
amortization of the original issue discount and debt issuance costs for the
Debentures.
(e) As discussed in Note 5 to the Company's consolidated financial statements
for the year ended December 31, 1995, certain of the Partnership's shippers have
filed civil suits and initiated Federal Energy Regulatory Commission ("FERC")
complaint proceedings against the Partnership, and the Partnership has
established reserves for costs related to the resolution of these matters. As
additional information becomes available, it may be necessary for the
Partnership to record additional charges to earnings to maintain its litigation
reserves at a level deemed adequate at that time, and the costs associated with
the ultimate resolution of these matters could have a material adverse effect on
the Partnership's results of operations, financial condition, or ability to
maintain its quarterly cash distribution at the current level. The discussion of
these matters appearing at Note (d) to the Partnership's consolidated financial
statements for the quarter ended March 31, 1996 is incorporated herein by
reference from the Partnership's Form 10-Q for that quarter.
-4-
<PAGE>
(f) As discussed in Note 5 to the Company's consolidated financial statements
for the year ended December 31, 1995, the Partnership's transportation and
terminal operations are subject to extensive regulation under federal, state and
local environmental laws concerning, among other things, the generation,
handling, transportation and disposal of hazardous materials and, the
Partnership is, from time to time, subject to environmental cleanup and
enforcement actions. The discussion of environmental matters appearing at Note
(e) to the Partnership's consolidated financial statements for the quarter ended
March 31, 1996 is incorporated herein by reference from the Partnership's Form
10-Q for that quarter.
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS
OF THE RESULTS OF OPERATIONS
The following analysis should be read in conjunction with the Part I financial
information presented in the Partnership's Form 10-Q for the quarter ended March
31, 1996, which is incorporated herein by reference.
For the three months ended March 31, 1996, the Company's equity in income of the
Partnership of $7.4 million was 6% higher than in the 1995 period primarily due
to the higher revenues reported by the Partnership. Partnership revenues for the
first three months of 1996 of $56.6 million were 4% above 1995 levels. Trunk
revenues were 5% higher than in the 1995 period primarily due to higher volumes.
The Partnership's operating expenses of $31.9 million for the first three months
were 4% higher than in 1995, largely due to higher field operating expenses,
general and administrative expenses and facilities costs. The Partnership's
other income, net decreased by $0.3 million as compared with the 1995 period
primarily due to lower interest income, which resulted from lower interest rates
and cash balances.
Interest income is earned on the notes receivable from Santa Fe, with the
interest rates being tied to the Federal Funds rate. The decrease in interest
income for the first three months of 1996 reflects lower market interest rates.
Interest expense is accrued based on the quarterly distribution paid on the
8,148,130 Partnership units for which the Company's Debentures are, under
certain specified conditions, exchangeable.
-5-
<PAGE>
SUMMARY FINANCIAL INFORMATION OF SANTA FE PACIFIC CORPORATION
As discussed in Note (c) to the accompanying financial statements, the Company
holds notes receivable from Santa Fe in the aggregate amount of $130 million,
which notes are due and payable upon the maturity of the Company's Debentures in
August 2010, but are also payable at any time prior to that date to the extent,
and only to the extent, that Holdings' board of directors determines in good
faith that payment is needed, after taking into account all other available
funds, for Holdings to meet its obligations with respect to the Debentures.
On September 22, 1995, Santa Fe became a consolidated subsidiary of Burlington
Northern Santa Fe Corporation ("BNSF") as a result of Santa Fe's merger with
Burlington Northern Inc. The merger was accounted for as a purchase and Santa
Fe's assets and liabilities were adjusted to their fair value based on the
purchase price. Accordingly, to reflect the change in ownership, financial
information shown below for periods prior to the merger are labeled
"Predecessor", while those subsequent to the merger are labeled "Successor". All
of the Santa Fe financial information presented below was provided by Santa Fe.
The Company has been informed that, in the opinion of Santa Fe management, all
adjustments necessary to present fairly Santa Fe's financial position as of
March 31, 1996 and December 31, 1995 and the results of its operations and cash
flows for the interim periods presented have been included in such information
and that, unless otherwise noted, all such adjustments are of a normal recurring
nature. The results of operations for any interim period are not necessarily
indicative of the results of operations for the entire year. The condensed
financial statements of Santa Fe reflected below are in millions.
SANTA FE CONDENSED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Successor Predecessor
Three months ended March 31,
----------------------------
(Unaudited, in millions) 1996 1995
------------ ------------
<S> <C> <C>
Operating revenues...................... $711 $680
Operating expenses...................... 579 576
---- ----
Operating income........................ 132 104
Interest expense........................ 30 40
Other income (expense)-net.............. 2 (23)
---- ----
Income before income taxes.............. 104 41
Income taxes............................ 40 19
---- ----
Income before extraordinary charge...... 64 22
Extraordinary charge on early retirement
of debt, net of income taxes......... -- (24)
---- ----
Net income (loss)....................... $ 64 $ (2)
==== ====
</TABLE>
-6-
<PAGE>
SANTA FE CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
Successor Successor
March 31, December 31,
(Unaudited, in millions) 1996 1995
---------- ------------
<S> <C> <C>
<C>
Current assets
Cash and cash equivalents............ $ $ --
Other current assets................. 330 280
------ -------
Total current assets................. 330 280
Other long-term assets.................. 650 649
Properties, plant and equipment, net.... 9,495 9,435
------ -------
Total assets............................ $10,475 $10,364
====== =======
Current liabilities
Accounts payable and accrued
liabilities......................... $ 926 $ 839
Long-term debt....................... 48 47
------ -------
Total current liabilities............ 974 886
Long-term debt due after one year....... 944 949
Notes payable to BNSF................... 969 995
Other long-term liabilities............. 1,124 1,157
Deferred income taxes................... 3,017 2,994
------- -------
Total liabilities....................... 7,028 6,981
Shareholder's equity.................... 3,447 3,383
------ -------
Total liabilities and shareholder's
equity................................. $10,475 $10,364
======= =======
<CAPTION>
SANTA FE CONDENSED STATEMENT OF
CASH FLOWS
Successor Predecessor
Three months ended March 31,
----------------------------
(Unaudited, in millions) 1996 1995
----------- -----------
<S> <C> <C>
Operating activities
Net income (loss).................... $ 64 $ (2)
Depreciation and amortization........ 80 53
Deferred income taxes................ 23 9
Extraordinary charge on early
retirement of debt................... -- 24
Employee merger and separation
cost paid........................... (23) (16)
Other-net............................ (11) (9)
Changes in working capital........... 37 (95)
------ -------
Net cash provided by operating
activities............................. 170 (36)
Net cash used for investing activities.. (140) (35)
Net cash used for financing activities.. (30) (63)
------ -------
Increase (decrease) in cash and -- (134)
equivalents............................
Cash and cash equivalents
Beginning of period.................. -- 176
------ -------
End of period........................ $ -- $ 42
====== =======
</TABLE>
-7-
<PAGE>
FOOTNOTES TO CONDENSED FINANCIAL STATEMENTS OF SANTA FE
- - -------------------------------------------------------
INTERCOMPANY ADVANCES
From September 1995 through March 1996, Santa Fe received net advances from BNSF
and its subsidiaries of which $969 million remained outstanding at March 31,
1996. The advances are due on demand with semi-annual interest payments at a
floating rate equal to one percent above the monthly average effective Federal
Funds rate. Santa Fe's interest expense on obligations owed BNSF was $12.4
million for the three months ended March 31, 1996. These advances were primarily
used to repay outstanding borrowings of $1 billion under Santa Fe's credit
facility. A majority of the borrowings under the credit facility were used for
Santa Fe's portion of a tender offer completed in February 1995 as part of the
merger of Santa Fe and Burlington Northern Inc.
CONTINGENCIES
Santa Fe is a party to a number of legal actions and claims, various
governmental proceedings and private civil suits arising in the ordinary course
of business, including those related to environmental matters and personal
injury claims. While the final outcome of these items cannot be predicted with
certainty, considering among other things the meritorious legal defenses
available, it is the opinion of Santa Fe management that none of these items,
when finally resolved, will have a material adverse effect on the annual results
of operations, financial position or liquidity of Santa Fe, although an adverse
resolution of a number of these items could have a material adverse effect on
the results of its operations in a particular quarter or fiscal year.
-8-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to the discussions of the current status of civil litigation
and a Federal Energy Regulatory Commission proceeding brought against the
Partnership by certain shippers, and of certain litigation associated with
Partnership environmental matters, appearing at "Part II, Item 1. Legal
Proceedings" in the Partnership's Form 10-Q for the quarter ended March 31,
1996, which is incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following document is filed as a part of this report:
Exhibit 13.1 Form 10-Q of Santa Fe Pacific Pipeline Partners, L.P. for
the quarter ended March 31, 1996.
Exhibit 27 Financial Data Schedule as of and for the three months ended
March 31, 1996.
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, thereunto duly authorized.
SFP PIPELINE HOLDINGS, INC.
(Registrant)
Date: May 13, 1996 By: /s/ BARRY R. PEARL
-------------------------------
Barry R. Pearl
Senior Vice President, Treasurer
and Chief Financial Officer
(On behalf of the Registrant)
-9-
<PAGE>
[EXHIBIT 13.1]
<PAGE>
- - -------------------------------------------------------------------------------
UNITED STATES
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
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10066
SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4191066
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
888 SOUTH FIGUEROA STREET
LOS ANGELES, CALIFORNIA 90017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(213) 614-1095
(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 [_]
- - ------------------------------------------------------------------------------
<PAGE>
SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at March 31, 1996 and
December 31, 1995................................... 1
Consolidated Statement of Income
for the three-month periods ended March 31, 1996
and 1995.............................................. 2
Consolidated Statement of Cash Flows
for the three-month periods ended March 31, 1996
and 1995.............................................. 3
Notes to Consolidated Financial Statements............ 4
Item 2. Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations........................... 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................... 7
Item 6. Exhibits and Reports on Form 8-K................ 7
Signature................................................ 7
</TABLE>
<PAGE>
SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
A S S E T S
Current assets
Cash and cash equivalents................................... $ 35,841 $ 41,219
Accounts receivable, net.................................... 38,742 38,897
Other current assets........................................ 7,159 2,139
-------- --------
Total current assets...................................... 81,742 82,255
-------- --------
Properties, plant and equipment............................... 725,410 716,197
Less accumulated depreciation............................... 97,337 92,879
-------- --------
Net properties, plant and equipment....................... 628,073 623,318
Other assets.................................................. 16,186 15,281
-------- --------
Total assets.............................................. $726,001 $720,854
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable............................................ $ 1,879 $ 3,466
Accrued liabilities......................................... 37,757 30,609
-------- --------
Total current liabilties.................................. 39,636 34,075
Long-term debt................................................ 355,000 355,000
Other long-term liabilities................................... 59,442 60,468
-------- --------
Total liabilities......................................... 454,078 449,543
-------- --------
Minority interest............................................. 1,266 1,246
-------- --------
Commitments and contingencies (Notes (d) and (e)).............
-------- --------
Partners' capital
General partner............................................. 1,266 1,246
Limited partners............................................ 269,391 268,819
-------- --------
Total partners' capital................................... 270,657 270,065
-------- --------
Total liabilities and partners' capital................... $726,001 $720,854
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
-1-
<PAGE>
SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands, except per unit amounts)
<TABLE>
<CAPTION>
Three months
ended March 31,
------------------------------
1996 1995
--------- -----------
<S> <C> <C>
Operating revenues
Trunk revenues.......................................... $44,519 $42,368
Storage and terminaling revenues........................ 8,964 8,765
Other revenues.......................................... 3,113 3,067
------- -------
Total operating revenues............................... 56,596 54,200
------- -------
Operating expenses
Field operating expenses................................. 9,190 8,849
General and administrative expenses...................... 6,915 6,595
Facilities costs......................................... 5,830 5,509
Depreciation and amortization............................ 5,321 5,095
Power costs.............................................. 4,674 4,519
------- -------
Total operating expenses............................... 31,930 30,567
------- -------
Operating income............................................ 24,666 23,633
Interest expense............................................ 9,082 9,228
Other income, net........................................... 379 725
------- -------
Net income before minority interest......................... 15,963 15,130
Less minority interest in net income........................ (515) (488)
------- -------
Net income.................................................. $15,448 $14,642
======= =======
Income per unit............................................. $ 0.78 $ 0.74
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
-2-
<PAGE>
SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months
ended March 31,
------------------------------
1996 1995
--------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 15,448 $ 14,642
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities--
Depreciation and amortization............................... 5,321 5,095
Minority interest in net income............................. 515 488
Net additions to (payments against)
environmental and litigation reserves...................... (5,057) (815)
Other, net.................................................. (1,421) 406
Changes in:
Accounts receivable........................................ 155 (1,949)
Accounts payable and accrued liabilities................... 9,564 8,948
Other current assets....................................... (5,020) (7,518)
-------- --------
Total adjustments......................................... 4,057 4,655
-------- --------
Net cash provided by
operating activities..................................... 19,505 19,297
Cash flows from investing activities:
Capital expenditures......................................... (9,531) (3,348)
Cash flows from financing activities:
Distributions to partners.................................... (15,352) (13,984)
-------- --------
Increase (decrease) in cash and cash equivalents.............. (5,378) 1,965
Cash and cash equivalents--
Beginning of period.......................................... 41,219 48,948
-------- --------
End of period................................................ $ 35,841 $ 50,913
======== ========
Interest paid................................................. $ 447 $ 191
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) The consolidated financial statements should be read in conjunction with the
Annual Report on Form 10-K of Santa Fe Pacific Pipeline Partners, L.P. (the
"Partnership") for the year ended December 31, 1995. In the opinion of
Partnership management, all adjustments necessary for a fair presentation of the
results of operations for the periods presented have been included in these
consolidated financial statements. Unless otherwise noted, all such adjustments
are of a normal recurring nature. The results of operations for any interim
period are not necessarily indicative of the results of operations to be
expected for the entire year.
(b) Income per unit is computed based upon consolidated net income of the
Partnership less an allocation of income to the General Partner in accordance
with the partnership agreement, and is based upon the 19,148,148 units
outstanding. The quarterly allocation of income to the General Partner, which
was 3.23% of net income before minority interest for the three-month periods
ended March 31, 1996 and 1995, respectively, is based on its percentage of cash
distributions from available cash at the end of each quarter.
(c) On April 11, 1996, the Partnership declared a cash distribution of $0.75 per
unit for the first quarter of 1996, to be paid on May 15, 1996 to unitholders of
record on April 30, 1996.
(d) As discussed in Note 4 to the Partnership's consolidated financial
statements for the year ended December 31, 1995, certain of the Partnership's
shippers have filed civil suits and initiated Federal Energy Regulatory
Commission ("FERC") complaint proceedings alleging, among other things, that the
shippers were damaged by the Partnership's failure to fulfill alleged promises
to expand the East Line's capacity between El Paso, Texas and Phoenix, Arizona
to meet shipper demand. The remaining civil action, brought by El Paso Refinery,
L.P. ("El Paso") and its general partner, claims unspecified actual damages,
which appear to include the $190 million cost of a refinery expansion completed
in 1992, plus punitive and consequential damages. The FERC proceeding also
involves claims, among other things, that certain of the Partnership's rates and
charges on its East and West Lines are excessive. To date, the complainants have
filed testimony in the FERC proceeding seeking reparations for shipments between
1990 and 1994 aggregating approximately $35 million, as well as rate reductions
of between 30% and 40% for shipments in 1995 and thereafter.
The Partnership's accompanying balance sheet includes reserves for costs related
to the resolution of the El Paso civil suit and FERC proceeding. While the
Partnership believes it has meritorious defenses in these matters, the
complainants and plaintiffs are seeking amounts that, in the aggregate,
substantially exceed the Partnership's reserves and, because of the
uncertainties associated with litigation and FERC rate-making methodology,
management cannot predict with certainty the ultimate outcome of these matters.
As additional information becomes available, it may be necessary for the
Partnership to record additional charges to earnings to maintain its reserves at
a level deemed adequate at that time, and the costs associated with the ultimate
resolution of these matters could have a material adverse effect on the
Partnership's results of operations, financial condition, or ability to maintain
its quarterly cash distribution at the current level.
-4-
<PAGE>
(e) As discussed in Note 4 to the Partnership's consolidated financial
statements for the year ended December 31, 1995, the Partnership's
transportation and terminal operations are subject to extensive regulation under
federal, state and local environmental laws concerning, among other things, the
generation, handling, transportation and disposal of hazardous materials, and
the Partnership is, from time to time, subject to environmental cleanup and
enforcement actions.
The Partnership's accompanying balance sheet includes reserves for environmental
costs that relate to existing conditions caused by past operations. Estimates of
the Partnership's ultimate liabilities associated with environmental costs are
particularly difficult to make with certainty due to the number of variables
involved, including the early stage of investigation at certain sites, the
lengthy time frames required to complete remediation at most locations, the
number of parties involved, the number of remediation alternatives available,
the uncertainty of potential recoveries from third parties and the evolving
nature of environmental laws and regulations.
Based on the information presently available, it is the opinion of management
that the Partnership's environmental costs, to the extent they exceed recorded
liabilities, will not have a material adverse effect on the Partnership's
financial condition; nevertheless, it is possible that the Partnership's results
of operations in particular quarterly or annual periods could be materially
affected as additional information becomes available.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO 1995 PERIOD
The Partnership reported net income for the three months ended March 31, 1996 of
$15.4 million, compared to net income of $14.6 million in the corresponding 1995
quarter, with the variance being primarily due to higher revenues. Revenues for
the first quarter of 1996 of $56.6 million were $2.4 million, or 4%, above the
1995 quarter's levels. Trunk revenues were $2.1 million higher than in the 1995
quarter primarily due to higher volumes. Total volumes transported increased
about 5% from the first quarter of 1995, with commercial volumes being 5% higher
and military volumes being 5% lower, than in 1995. First quarter deliveries to
most of the markets served by the Partnership have increased in 1996, although
Southern California deliveries were lower as a result of competition from short-
haul trucking to Los Angeles area terminals.
Operating expenses of $31.9 million were $1.4 million, or 4%, higher than in the
1995 quarter with higher field operating expenses ($0.3 million), general and
administrative expenses ($0.3 million), facilities costs ($0.3 million),
depreciation and amortization ($0.2 million) and higher power costs ($0.2
million) accounting for that increase. The increase in field operating expenses
is primarily attributable to higher pipeline repairs and maintenance, including
pipeline recoating projects. General and administrative expenses were higher due
to outside legal costs, primarily related to the litigation associated with the
Sparks, Nevada environmental site. Facilities costs were higher due to higher
right-of-way rental expense. The increase in depreciation and amortization
resulted from the Partnership's
-5-
<PAGE>
expanding capital asset base, particularly short-lived software costs. The
increase in power costs resulted from increased volumes and greater usage of
drag reducing agent.
Other income, net decreased by $0.3 million compared to the 1995 period
primarily due to lower interest income, which resulted from lower interest rates
and cash balances.
FINANCIAL CONDITION
For the three months ended March 31, 1996, cash and cash equivalents decreased
by $5.4 million. Cash flow from operations before working capital and minority
interest adjustments totaled $14.3 million for the three months, a decrease of
$5.0 million from the corresponding 1995 period, due primarily to payment of
settlement costs related to the Sparks, Nevada environmental site litigation.
Working capital cash requirements decreased $5.2 million from the corresponding
1995 three-month period primarily due to timing differences in the collections
of trade and nontrade receivables and prepayments of certain rentals and
insurance premiums.
Significant uses of cash included cash distributions of $15.4 million and
capital expenditures of $9.5 million. In January 1996, the Partnership completed
the purchase, from Kinley Pipelines of California, of a 35-mile, 6-inch diameter
pipeline that serves Lemoore Naval Air Station from the Partnership's Fresno,
California terminal, for approximately $6 million. Total cash and cash
equivalents of $35.8 million at March 31, 1996 included $15.4 million for the
first quarter 1996 distribution to be paid to unitholders in May 1996.
The Partnership has continued to investigate the feasibility of providing
pipeline service from the San Francisco Bay area to Colton, in Southern
California, by expanding the existing capacity on its North Line and building a
new pipeline between Fresno and Colton. The level of shipper throughput
commitments obtained to date is not sufficient to proceed and places the
viability of this project in doubt. Management anticipates that a decision on
the future of this project will be made during 1996.
Long-term debt aggregated $355 million at March 31, 1996 and consisted of $327
million of First Mortgage Notes (the "Notes") and a $28 million borrowing under
the Partnership's bank term credit facility. The Partnership intends to
refinance some or all of the Notes as the various series become payable. To
facilitate such refinancing and provide for additional financial flexibility,
the Partnership presently has available the multi-year term credit facility,
with a $60 million aggregate limit, and a $20 million working capital facility,
with three banks. The term facility may continue to be used for refinancing a
portion of the Notes and for capital projects, while the working capital
facility is available for general short-term borrowing purposes.
OTHER MATTERS
Reference is made to Notes (d) and (e) to the Partnership's notes to
consolidated financial statements, beginning on page 4 of this Report, and to
Part II, Item 1 of this Report, for discussions of the status of the East Line
civil litigation and FERC proceeding.
-6-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 in the Partnership's 1995 Annual Report on Form 10-K
for background information on certain litigation.
EAST LINE CIVIL LITIGATION AND FERC PROCEEDING
Hearings in the FERC proceeding commenced before a FERC Administrative Law Judge
on April 9, 1996 and are presently ongoing. An initial decision is not expected
before late 1996 or early 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following document is filed as part of this report:
Exhibit 27 Financial Data Schedule as of and for the three months ended
March 31, 1996.
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, thereunto duly authorized.
SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
(Registrant)
By: SANTA FE PACIFIC PIPELINES, INC.,
AS GENERAL PARTNER
Date: May 13, 1996 By: /s/ BARRY R. PEARL
---------------------------------
Barry R. Pearl
Senior Vice President, Treasurer
and Chief Financial Officer
(On behalf of the Registrant)
-7-
<PAGE>
[ARTICLE] 5
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SANTA FE PACIFIC PIPELINE PARTNERS, L.P. AS
OF AND FOR THE QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
[/LEGEND]
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] MAR-31-1996
[CASH] 35,841
[SECURITIES] 0
[RECEIVABLES] 38,742
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 81,742
[PP&E] 725,410
[DEPRECIATION] 97,337
[TOTAL-ASSETS] 726,001
[CURRENT-LIABILITIES] 39,636
[BONDS] 355,000
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 0
[OTHER-SE] 270,657
[TOTAL-LIABILITY-AND-EQUITY] 726,001
[SALES] 0
[TOTAL-REVENUES] 56,596
[CGS] 0
[TOTAL-COSTS] 31,930
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 9,082
[INCOME-PRETAX] 15,963
[INCOME-TAX] 0
[INCOME-CONTINUING] 15,448
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 15,448
[EPS-PRIMARY] .78
[EPS-DILUTED] .78
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SFP PIPELINE HOLDINGS, INC. AS OF AND FOR
THE QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 9,872
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,480
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 214,934
<CURRENT-LIABILITIES> 13,355
<BONDS> 203,767
0
0
<COMMON> 1
<OTHER-SE> (68,065)
<TOTAL-LIABILITY-AND-EQUITY> 214,934
<SALES> 0
<TOTAL-REVENUES> 7,385
<CGS> 0
<TOTAL-COSTS> 168
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,364
<INCOME-PRETAX> 3,051
<INCOME-TAX> 1,243
<INCOME-CONTINUING> 1,808
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,808
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
