UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission File Number 1-11234
ENRON LIQUIDS PIPELINE, L.P.
(Exact name of registrant as specified in its charter)
Delaware 76-0373562
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
Enron Building
1400 Smith Street
Houston, Texas 77002
(Address of principal executive (Zip Code)
offices)
(713) 853-6161
(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 [ ]
1 of 14
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ENRON LIQUIDS PIPELINE, L.P.
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Income Statement - Three
Months Ended March 31, 1996 and 1995 3
Consolidated Balance Sheet - March 31, 1996
and December 31, 1995 4
Consolidated Statement of Cash Flows - Three
Months Ended March 31, 1996 and 1995 5
Consolidated Statement of Partners' Capital 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 13
ITEM 5. Other Information 13
ITEM 6. Exhibits and Reports on Form 8-K 13
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<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENRON LIQUIDS PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In Thousands Except Per Unit Amounts)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Revenues
Trade $16,749 $14,278
Related party 1,682 1,430
18,431 15,708
Costs and Expenses
Cost of products sold 1,495 981
Operations and maintenance
Related party 1,718 226
Other 3,197 1,987
Fuel and power 1,273 1,151
Depreciation 2,411 2,376
General and administrative
Related party 1,476 1,371
Other 811 791
Taxes other than income taxes 926 979
13,307 9,862
Operating Income 5,124 5,846
Other Income (Expense)
Equity in earnings of partnerships 887 1,406
Interest expense (3,192) (3,069)
Other 197 186
Minority Interest (29) (41)
Income Before Income Taxes 2,987 4,328
Income Tax Expense 177 332
Net Income $ 2,810 $ 3,996
Net Income per Unit $ 0.42 $ 0.60
Number of Units used in Computation 6,510 6,510
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON LIQUIDS PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands)
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 14,419 $ 14,202
Accounts receivable
Trade 6,822 7,913
Related parties 861 2,183
Inventories
Products 417 832
Materials and supplies 1,881 2,075
24,400 27,205
Property, Plant and Equipment, at cost 265,747 263,838
Less accumulated depreciation 29,295 26,984
236,452 236,854
Investments in Partnerships 33,668 32,613
Deferred Charges and Other Assets 6,862 6,992
TOTAL ASSETS $301,382 $303,664
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable
Trade $ 3,767 $ 5,272
Related parties 1,820 2,664
Current portion of long-term debt 1,700 1,700
Accrued liabilities 4,649 2,808
Accrued taxes 2,088 2,155
Distribution payable 4,210 4,210
18,234 18,809
Long-Term Liabilities and Deferred Credits
Long-term debt 156,513 156,938
Other 2,354 2,264
158,867 159,202
Minority Interest 2,523 2,537
Partners' Capital
Common units 103,933 105,100
General Partner
Limited Partner Interest 16,610 16,787
General Partner Interest 1,215 1,229
121,758 123,116
TOTAL LIABILITIES AND PARTNERS' CAPITAL $301,382 $303,664
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON LIQUIDS PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities
Reconciliation of net income to net cash
provided by (used in) operating activities
Net income $ 2,810 $ 3,996
Depreciation 2,411 2,376
Equity in earnings of partnerships (887) (1,406)
Distributions from investments in partnerships 1,737 1,979
Changes in components of working capital
Accounts receivable 2,413 1,353
Inventories 609 323
Accounts payable (2,349) (2,105)
Accrued liabilities 1,841 4,090
Accrued taxes (67) (521)
Other, net 150 (826)
Net Cash Provided by Operating Activities 8,668 9,259
Cash Flows From Investing Activities
Additions to property, plant and equipment (1,910) (620)
Contributions to partnership investment (1,906) (40)
Net Cash Used in Investing Activities (3,816) (660)
Cash Flows From Financing Activities
Decrease in long-term debt (425) (21)
Decrease in short-term debt - (150)
Distributions to partners
Common units (3,559) (3,559)
General partner (609) (609)
Minority interest (42) (42)
Net Cash Used In Financing Activities (4,635) (4,381)
Increase in Cash and Cash Equivalents 217 4,218
Cash and Cash Equivalents, Beginning of Period 14,202 11,014
Cash and Cash Equivalents, End of Period $14,419 $15,232
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION -(Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON LIQUIDS PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(In Thousands)
(Unaudited)
<CAPTION>
General Partner
Limited General Total
Common Partner Partner Partners'
Units Interest Interest Capital
<S> <C> <C> <C> <C>
Partners' Capital at December 31, 1995 $105,100 $16,787 $ 1,229 $123,116
Net Income 2,392 365 53 2,810
Distributions (3,559) (542) (67) (4,168)
Partners' Capital at March 31, 1996 $103,933 $16,610 $ 1,215 $121,758
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON LIQUIDS PIPELINE, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
The consolidated financial statements included herein
have been prepared by Enron Liquids Pipeline, L.P. (the
"Partnership") without audit pursuant to the rules and
regulations of the Securities and Exchange Commission.
Accordingly, they reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of
the financial results for the interim periods. Certain
information and notes normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, the
Partnership believes that the disclosures are adequate to
make the information presented not misleading. These
consolidated financial statements should be read in
conjunction with the consolidated financial statements and
the notes thereto included in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1995
("Form 10-K").
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Certain reclassifications have been made to the
consolidated financial statements for the prior year to
conform with the current presentation.
2. Litigation
As previously reported in Note 5 to the financial
statements included in the Form 10-K, on June 17, 1992,
Enterprise Products Company and the other owners of the Mont
Belvieu Fractionator (the "Plaintiffs") filed a lawsuit in a
Texas state court against Tenneco, Tenneco Oil and Enron
Natural Gas Liquids Corporation ("ENGL"). The Plaintiffs in
the lawsuit allege, among other things, that Tenneco Oil
breached the operating agreement among the owners of the
Mont Belvieu Fractionator when it assigned its partnership
interest in Mont Belvieu Associates to ENGL. The Plaintiffs
are seeking damages in an unspecified amount.
On February 9, 1993, the Plaintiffs amended their
complaint in this lawsuit to name Enron Corp. ("Enron"),
Enron Liquids Pipeline Company (the "General Partner"), the
Partnership and the Enron Liquids Pipeline Operating Limited
Partnership ("ELPOLP") as additional defendants and to
allege that Enron's purchase of the stock of ENGL in 1991
and the sale of the stock of ENGL to the Partnership in
August 1992 constituted breaches of the Agreement among the
owners of the Mont Belvieu Fractionator. The Court dismissed
ENGL, Enron, the General Partner, the Partnership and ELPOLP
(collectively, the "Enron Defendants") from the lawsuit. The
Court of Appeals reversed the lower Court's dismissal of the Enron
defendants. The Texas Supreme Court heard argument in the
case in April 1996. A decision is expected later this year.
Pursuant to the Omnibus Agreement, Enron will indemnify
the Partnership, ELPOLP and ENGL for any losses and
liabilities incurred in connection with this litigation.
The Enron Defendants intend to continue to vigorously defend
the lawsuit.
On September 12, 1995, the State of Illinois filed suit
against the General Partner for events related to a fire
that occurred in September 1994 at the North System's above-
ground natural gasoline storage sphere at Morris, Illinois.
The suit seeks civil penalties in the stated amount of
$50,000 each for three counts of air and water pollution,
plus $10,000 per day for any continuing violation. The
State also seeks an injunction against future similar
events. If attempts at settlement are unsuccessful, the
General Partner will vigorously defend itself and the
Partnership against the charges. The Partnership believes
that the ultimate resolution of this matter will not have a
material adverse effect on its financial position or results
of operations.
3. Income Taxes
The Partnership is not a taxable entity for Federal
income tax purposes. ENGL, however, is subject to Federal
corporate income taxes. Accordingly, for financial
reporting purposes, no recognition has been given to income
taxes related to the operations of the Partnership other
than those recorded by ENGL.
4. Distributions
On March 21, 1996, the Partnership declared a cash
distribution for the quarterly period ended March 31, 1996,
of $0.63 per unit. The distribution will be paid on May 15,
1996, to unitholders of record as of April 30, 1996.
5. Investment in Mont Belvieu Associates
Summarized income statement information for the
Partnership's investment in Mont Belvieu Associates, of
which it holds a 50% interest, is presented below (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Income Statement
Revenues $ 5,557 $ 6,528
Expenses $ 3,661 $ 3,802
Net Income $ 1,896 $ 2,726
</TABLE>
6. Property, Plant and Equipment
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS")
No. 121 - "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," which
requires, among other things, that long-lived assets and
certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an
asset may not be recoverable. The Partnership's adoption of
SFAS No. 121 in the first quarter of 1996 had no material
impact on its financial position or results of operations.
7. Subsequent Event - Chevron Contract Buyout
In late April 1996, the Partnership was notified by
Chevron, USA ("Chevron") that it intends to exercise its
right to terminate the gas processing agreement at the
Partnership's Painter gas processing facility effective as
of August 1, 1996. Under a contract that was to extend
through December 1998, Chevron currently provides all gas
that is processed at the Painter facility. The gas
processing agreement with Chevron provides for early
termination by Chevron subject to a one time termination
payment based upon an agreed contractual schedule.
Under this schedule, the buyout payment, due on August 1,
1996, will be approximately $2.8 million. Excluding the
buyout payment, early termination of the Chevron gas processing
agreement will result in an estimated loss of revenues of $1.7
million in the last five months of 1996 and $3.9 million in
both 1997 and 1988. Following termination of this agreement,
gas processing operations at the Painter facility will cease,
however, the fractionation, terminaling and storage operations
conducted at the Painter facility will continue. The
fractionation agreement with Chevron, which extends through
April 1997, remains in effect. Although the Partnership
can give no assurances, it believes that distributions to
unitholders will continue at the current level for the
foreseeable future despite the cessation of gas processing
operations at the Painter facility. The Partnership is
currently evaluating its strategic alternatives for the
commercial application of the gas processing unit including the
possible sale or relocation of the assets.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ENRON LIQUIDS PIPELINE, L.P. AND SUBSIDIARIES
Results of Operations
First Quarter 1996 Compared With First Quarter 1995
Net income of the Partnership decreased to $2.8 million
(30%) in 1996 from $4.0 million in 1995. The decrease
primarily reflects lower earnings on the North System, the
Cora Terminal and the Mont Belvieu Fractionator, offset by
higher earnings on the Central Basin Pipeline.
Revenues of the Partnership increased $2.7 million
(17%) in the first quarter of 1996 compared to the same
period in 1995. The increase in revenues was due primarily
to a 51% increase in transport volumes on the Central Basin
Pipeline combined with revenues earned at the Bushton
Facility in connection with the Mobil Natural Gas, Inc.
processing agreement ("Mobil Agreement") assigned to the
Partnership as of October 1, 1995. These increases were
partially offset by lower revenues at the Cora Terminal due
to downtime caused by severe winter weather. Due to
increased propane deliveries, the North System's volumes
increased 16% in the first quarter of 1996 despite the July
1995 closing of a synthetic natural gas facility owned by a
customer of a North System shipper. Such propane volumes,
however, resulted in a lower average tariff than shipments
to the synthetic natural gas facility. The North System's
revenues, net of tariffs to third party pipelines, increased
slightly in the first quarter of 1996 compared to the same
quarter last year.
Operating statistics for the first quarter are as
follows:
<TABLE>
<CAPTION>
First Quarter
1996 1995
<S> <C> <C>
North System
Delivery Volumes (MMBbl) 9.4 8.1
Average Tariff ($/Bbl) $0.86 $0.96
Cypress Pipeline
Delivery Volumes (MMBbl) 2.8 2.6
Average Tariff ($/Bbl) $0.49 $0.49
Central Basin Pipeline
Delivery Volumes (MMcf/d) 146 97
Average Tariff ($/Mcf) $0.16 $0.15
Cora Terminal
Transport Volumes (MM Tons) 1.3 1.5
Average Revenues ($/Ton) $1.46 $1.32
Painter Gas Processing Plant
Processing Volumes (MMcf/d) 34 34
Average Revenues ($/Mcf) $0.34 $0.34
Fractionator Volumes (MBbls/d) 5.3 4.2
Average Revenues ($/Bbl) $0.94 $1.06
Bushton Facility Sublease
Production Volumes (MMBbls) 0.5 -
Average Revenues ($/Bbl) $2.68 -
</TABLE>
Cost of products sold increased significantly on the
Central Basin Pipeline primarily as a result of a product
selling arrangement which allows for increased throughput.
Central Basin does not assume commodity risk in this
arrangement and gross margin on the product sale is nominal.
Operations and maintenance expense increased to $4.9
million in the first quarter of 1996 compared to $2.2
million in the same period in 1995. This increase is
primarily due to expenses incurred in connection with the
Mobil Agreement as well as a new storage agreement on the
North System that went into effect on January 1, 1996. The
new storage agreement increases the North System's storage
capacity in the Bushton area from 1.5 MMBbls to 5.0 MMBbls.
The increase in expense is expected to be offset by future
storage sublease and long-haul transportation revenues. As
of May 1996, a majority of this incremental storage capacity
had already been subleased. Also, the North System's
operating expenses in the first quarter of 1995 were reduced
by product gains which arise from the ongoing operation of
the pipeline.
Equity in earnings of partnerships decreased $0.5
million (37%) in the first quarter of 1996 compared to the
same period in 1995 reflecting lower earnings at the Mont
Belvieu Fractionator. This decrease was primarily due to
lower volumes processed as a result of higher natural gas
prices relative to natural gas liquids ("NGLs") prices which
led customers to sell the gas rather than remove the NGLs.
The Partnership has been notified by Chevron, USA
("Chevron") that it intends to exercise its right to
terminate the gas processing agreement at the Partnership's
Painter gas processing facility effective as of August 1,
1996. Although the Partnership can give no assurances, it
believes that distributions to unitholders will continue at
the current level for the foreseeable future despite the
cessation of gas processing operations at the Painter
facility (see Note 7 in the Notes to Consolidated Financial
Statements).
Financial Condition
General
The Partnership's primary cash requirements, in
addition to normal operating expenses, are debt service,
sustaining capital expenditures, discretionary capital
expenditures, and quarterly distributions to partners. In
addition to utilizing cash generated from operations, the
Partnership could meet its cash requirements through the
utilization of credit facilities or by issuing additional
limited partner interests in the Partnership. The
Partnership has credit facilities with Enron which provide
for up to $5.0 million in uncommitted credit. In addition,
the Partnership has a $15.0 million committed line of credit
with a bank of which $7.0 million was available at March 31,
1996. The Partnership also has the ability to borrow up to
an additional $25.0 million in accordance with the
provisions of the First Mortgage Notes. Additionally, Enron
Transportation Services, L.P. ("ETS") has established a $2.0
million revolving line of credit with a bank which could be
used to meet its cash requirements. Pursuant to the Omnibus
Agreement between the Partnership and the General Partner,
Enron has agreed that, if necessary, it will contribute up
to $25.4 million to the Partnership through September 30,
1997 in exchange for additional partnership interests
to support the Partnership's ability to distribute the
Minimum Quarterly Distribution, as defined in the Partnership
Agreement.
Cash Provided by Operating Activities
Cash flow from operations totaled $8.7 million during
the first quarter of 1996 compared to $9.3 million in the
same period in 1995. The decrease is primarily due to lower
operating cash flow provided by the North System as a result
of reduced operating earnings combined with higher working
capital requirements, partially offset by higher operating
earnings on the Central Basin Pipeline.
Cash Used in Investing Activities
Cash used in investing activities totaled $3.8 million
during the first quarter of 1996 compared to $0.7 million
during the first quarter of 1995. Additions to property,
plant and equipment totaled $1.9 million in the first
quarter of 1996 compared to $0.6 million during the same
period in 1995. The higher additions to property, plant and
equipment primarily reflect construction costs of a propane
terminal on the North System located in Tampico, Illinois.
Contributions to Partnership investment for 1996 reflect the
Partnership's partial funding of its $6.5 million share of
an expansion project in progress at the Mont Belvieu
Fractionator. Mont Belvieu Associates is currently
negotiating a loan agreement to fund such expansion which
will fulfill the Partnership's future funding obligations,
including return of partial fundings to date.
Cash Used in Financing Activities
Cash used in financing activities totaled $4.6 million
during the first quarter of 1996 as compared to $4.4 million
during the same period in 1995. Both periods primarily
reflect cash distributions paid to unitholders.
Information Regarding Forward Looking Statements
This filing includes forward looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934.
Although the Partnership believes that its expectations are
based on reasonable assumptions, it can give no assurance
that its goals will be achieved. Price trends and overall
demand for NGLs, CO2 and coal in the United States and the
condition of the capital markets and equity markets could
cause actual results to differ from those in the forward
looking statements herein.
<PAGE>
PART II. OTHER INFORMATION
ENRON LIQUIDS PIPELINE, L.P. AND SUBSIDIARIES
ITEM 1. Legal Proceedings
See Part I, Item 1, Note 2 to Consolidated Financial
Statements entitled "Litigation" which is incorporated
herein by reference.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None filed during the quarter ended March 31, 1996.
<PAGE>
SIGNATURES
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.
ENRON LIQUIDS PIPELINE, L.P.
(A Delaware Limited Partnership)
By: Enron Liquids Pipeline Company,
as General Partner
Date: May 13, 1996 By: /s/ E. G. Parks
E. G. Parks
Senior Vice President and
Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 14,419
<SECURITIES> 0
<RECEIVABLES> 7,683
<ALLOWANCES> 0
<INVENTORY> 2,298
<CURRENT-ASSETS> 24,400
<PP&E> 265,747
<DEPRECIATION> 29,295
<TOTAL-ASSETS> 301,382
<CURRENT-LIABILITIES> 18,234
<BONDS> 158,867
0
0
<COMMON> 121,758
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 301,382
<SALES> 18,431
<TOTAL-REVENUES> 18,431
<CGS> 1,495
<TOTAL-COSTS> 13,307
<OTHER-EXPENSES> (1,055)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,192
<INCOME-PRETAX> 2,987
<INCOME-TAX> 177
<INCOME-CONTINUING> 2,810
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,810
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
