<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: December 14, 1998
EOTT ENERGY PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Commission File Number 1-12872
Delaware 76-0424520
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1330 Post Oak Blvd.
Suite 2700
Houston, Texas 77056
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(713) 993-5200
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(Registrant's telephone number, including area code)
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EOTT ENERGY PARTNERS, L.P.
TABLE OF CONTENTS
<TABLE>
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Page
<S> <C>
Item 2. Acquisition or Disposition of Assets................................................. 3
Item 7. Financial Statements, Pro Forma Financial Information, and Exhibits
(a) Koch Pipeline L.P. and Koch Oil Company
Statement of Assets Available for Disposal
Report of Independent Auditors....................................................... 6
Statement of Assets Available for Disposal - December 31, 1997....................... 7
(b) Unaudited Pro Forma Consolidated Balance Sheet
EOTT Energy Partners, L.P.
Unaudited Pro Forma Consolidated Balance Sheet
Unaudited Pro Forma Consolidated Balance Sheet
- December 31, 1997.................................................................. 11
Notes to Unaudited Pro Forma Consolidated Balance Sheet.............................. 12
(c) Exhibits
23.1 Consent of Ernst & Young LLP
</TABLE>
<PAGE> 3
EOTT ENERGY PARTNERS, L.P.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Effective December 1, 1998, EOTT Energy Partners, L.P. (the "Partnership"
or "EOTT"), through its affiliated partnerships, EOTT Energy Operating Limited
Partnership and EOTT Energy Pipeline Limited Partnership, closed a previously
announced transaction to purchase certain crude oil gathering and transportation
assets in key oil producing regions from Koch Pipeline Company, L.P., a
subsidiary of Koch Industries, Inc., and Koch Oil Company, a division of Koch
Industries, Inc. (collectively "Koch"). The transaction has almost tripled
EOTT's pipeline mileage, almost doubled crude oil lease barrels under contract
and should strengthen profitability and cash flow.
The acquisition included approximately 3,900 miles of crude oil pipelines,
crude transport trucks, meter stations, vehicles, storage tanks and contracts
for approximately 220,000 lease barrels of crude oil per day from production in
11 central and western states including Texas, Oklahoma, Kansas and California
(the "Assets").
The total estimated purchase price was approximately $235.5 million and
included consideration given to Koch of $184 million in cash, 2,000,000 Common
Units and 2,000,000 Subordinated Units. EOTT financed the cash portion of the
purchase price through borrowings from Enron Corp. ("Enron"), the parent of EOTT
Energy Corp., the general partner of the Partnership, consisting of a $77
million bridge loan due December 31, 1999 and $107 million of term debt, due
December 31, 1999. EOTT has also entered into a $1 billion credit facility with
Enron that provides increased credit support for the Partnership.
The Assets acquired from Koch, which complement EOTT's core crude oil
gathering and transportation business, should result in substantial economies of
scale and should strengthen EOTT's ability to serve customers throughout North
America. This substantial acquisition should enhance EOTT's ability to fund
Common Unit distributions from cash flow.
Since the Assets have historically been used to support Koch's integrated
revenue producing activities, EOTT does not believe that the historical
operational results of the Assets provide a meaningful basis for evaluating the
results of operations that the Assets acquired would have realized had they been
part of EOTT. In addition, EOTT believes that complete pre-acquisition financial
statements for the Assets would not be relevant to a Unitholders' understanding
of EOTT's future operations. Therefore, complete pre-acquisition financial
statements for the Assets have not been included in this Form 8-K. However, a
historical Koch Statement of Assets Available For Disposal as of December 31,
1997 and an EOTT unaudited pro forma consolidated balance sheet as of
December 31, 1997, reflecting the acquisition of the Assets together with the
acquisition of similar assets from Koch on July 1, 1998, have been included in
this Form 8-K.
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This Form 8-K includes forward looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. All statements
other than statements of historical facts included in this Form 8-K, including,
without limitation, statements regarding the effects of the acquisition of the
Assets on EOTT's future financial position and cash available for distribution
to Unitholders, are forward looking statements. Although EOTT believes that its
expectations reflected in such forward looking statements are based on
reasonable assumptions, no assurance can be given that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from the expectations reflected in the forward looking
statements herein include, but are not limited to, EOTT's success integrating
the Assets into EOTT's field and administrative operations, the ability of the
Partnership to continue purchasing crude oil under the contracts acquired,
prevailing market conditions (including purchase and sales prices for crude oil
in the areas in which EOTT operates), and EOTT's success in hedging its position
and other factors.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
Koch Pipeline Company, L.P. and
Koch Oil Company
Statement of Assets Available for Disposal
December 31, 1997
Table of Contents
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Report of Independent Auditors...........................................................................6
Financial Statements
Statement of Assets Available for Disposal...............................................................7
Notes to Statement of Assets Available for Disposal......................................................8
</TABLE>
<PAGE> 6
Koch Pipeline Company, L.P. and
Koch Oil Company
Report of Independent Auditors
The Board of Directors
Koch Pipeline Company, L.P.
and Koch Oil Company
We have audited the accompanying statement of assets available for disposal of
Koch Pipeline Company, L.P. and Koch Oil Company (collectively, the Company) as
of December 31, 1997. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets available for disposal is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets available for
disposal. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the statement of assets available for disposal. We believe that
our audit provides a reasonable basis for our opinion.
As described in Note 2, the statement referred to above has been prepared in
accordance with the purchase and sale agreements between the Company, EOTT
Energy Partners, L.P., EOTT Energy Operating Limited Partnership and EOTT Energy
Pipeline Limited Partnership and is not intended to be a complete presentation
of the Company's assets and liabilities.
In our opinion, the statement referred to above presents fairly, in all material
respects, the assets available for disposal of the Company at December 31, 1997,
pursuant to the purchase and sale agreements described in Note 1, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Wichita, Kansas
October 15, 1998
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Koch Pipeline Company, L.P. and
Koch Oil Company
Statement of Assets Available for Disposal
December 31, 1997
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Inventories $ 25,954,435
Property, plant and equipment 321,175,722
Less accumulated depreciation 162,349,792
------------
Net property, plant and equipment 158,825,930
------------
Total assets available for disposal $184,780,365
============
</TABLE>
See accompanying notes.
<PAGE> 8
Koch Pipeline Company, L.P. and
Koch Oil Company
Notes to Statement of Assets
Available for Disposal
1. Disposal of Certain Assets
On July 1, 1998 and September 21, 1998, EOTT Energy Partners, L.P., EOTT Energy
Operating Limited Partnership and EOTT Energy Pipeline Limited Partnership
(collectively, EOTT) entered into purchase and sale agreements (the Agreements)
with Koch Pipeline Company, L.P., a subsidiary of Koch Industries, Inc., and
Koch Oil Company, a division of Koch Industries, Inc., (collectively, Koch or
the Company) to acquire from the Company and its affiliates certain crude oil
gathering and transportation assets, including certain pipelines, crude
transport trucks, meter stations, vehicles, storage tanks and Koch's interest in
certain crude oil lease purchase contracts for $212,500,000 cash, 2,000,000
common units of EOTT Energy Partners, L.P. and 2,000,000 subordinated units of
EOTT Energy Partners, L.P. The assets available for disposal are primarily
located in the midwestern and southern areas of the United States.
2. Basis of Presentation
The accompanying special purpose financial statement has been prepared to
present the historical book values, as of December 31, 1997, of those assets of
Koch available for disposal as specifically identified in the Agreements. As
described in Note 3, EOTT has the ability to ultimately exclude certain inactive
pipeline assets from the acquisition. Additionally, the amount of crude oil
inventory to be acquired by EOTT is subject to a final adjustment. The
accompanying statement of assets available for disposal includes all assets
identified in the Agreements, including those which may ultimately be excluded
or adjusted.
3. Significant Accounting Policies
Inventories
Inventories are valued at the lower of cost, determined on the last-in,
first-out (LIFO) method, or market.
Inventories consist of crude oil held for resale. If the first-in, first-out
(FIFO) method of costing inventory had been used, inventory carrying values
would have been $4,184,360 higher at December 31, 1997.
As specified in the Agreements, EOTT will acquire 1,725,967 barrels of crude oil
inventory from the Company. This amount is subject to final adjustment, as
mutually agreed upon by the Company and EOTT, not to exceed 80,422 barrels. The
amount of the final adjustment, if any, is not yet known, and the historical
book value of the barrels available for sale are included in the accompanying
special purpose financial statement.
<PAGE> 9
Koch Pipeline Company, L.P. and
Koch Oil Company
Notes to Statement of Assets
Available for Disposal
3. Significant Accounting Policies - continued
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation is computed
primarily using the straight-line method with three- to 18-year lives. When
assets are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
reflected in income for the period. The cost of maintenance and repairs is
charged to expense as incurred; significant renewals and betterments are
capitalized. The Company records impairment losses on long-lived assets used in
operations or held for disposal when events and circumstances indicate the
assets might be impaired.
Under the terms of the Agreements, EOTT has the right to exclude certain
inactive pipelines having a diameter of less than six inches not to exceed 5% of
total inactive pipelines having a diameter of less than six inches available for
disposal, as defined, from the assets acquired from Koch. The amount of pipeline
ultimately excluded, if any, is not yet known, and the historical book values of
all property, plant and equipment available for sale are included in the
accompanying special purpose financial statement.
As of December 31, 1997, property, plant and equipment consisted of the
following:
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<CAPTION>
<S> <C>
Land $ 1,768,724
Buildings 5,930,688
Pipelines and transport assets 287,780,197
Gas liquids plant 19,898,529
Other 5,797,584
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Total $321,175,722
============
</TABLE>
Use of Estimates
The presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
affecting the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
<PAGE> 10
EOTT ENERGY PARTNERS, L.P.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
The following unaudited pro forma consolidated balance sheet of EOTT Energy
Partners, L.P. ("EOTT"), and related notes thereto, reflects the effects of (i)
the acquisition of certain crude oil gathering and transportation assets from
Koch Pipeline Company, L.P., a subsidiary of Koch Industries, Inc., and Koch Oil
Company, a division of Koch Industries, Inc. (collectively, "Koch"), on December
1, 1998 for $184 million in cash, 2,000,000 Common Units and 2,000,000
Subordinated Units and (ii) the acquisition of similar assets from Koch on July
1, 1998 for $28.5 million in cash. The assets acquired from Koch on December 1,
1998 and July 1, 1998 are collectively referred to as the Koch Assets.
The unaudited pro forma consolidated balance sheet reflects the acquisition
of the Koch Assets as if the acquisitions had occurred on December 31, 1997. The
acquisitions of the Koch Assets have been accounted for as asset purchases. The
unaudited pro forma consolidated balance sheet reflects EOTT's acquisitions of
the Koch Assets for approximately $212.5 million in cash, 2,000,000 Common Units
and 2,000,000 Subordinated Units. The unaudited pro forma consolidated balance
sheet also reflects approximately $11 million in transaction costs.
The unaudited pro forma consolidated balance sheet should be read in
conjunction with the historical financial statements of EOTT included in its
Annual Report on Form 10-K for the year ended December 31, 1997, EOTT's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, and the
Koch Statement of Assets Available for Disposal included elsewhere herein. The
pro forma adjustments are based on preliminary information about the Koch
Assets. Final purchase price allocations will be based on more complete
evaluations and may differ from those shown herein. However, the management of
EOTT believes that the assumptions utilized provide a reasonable basis for
presenting the significant effects of the acquisitions and the financing and
that the pro forma adjustments give appropriate effect to those assumptions and
are properly applied in the unaudited pro forma consolidated balance sheet.
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EOTT ENERGY PARTNERS, L.P.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31,1997
(In Thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------- -------------------------------
EOTT Koch Assets Adjustments Adjusted
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ASSETS
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents ....................... $ 3,737 $ -- $ -- $ 3,737
Trade and other receivables, net of allowance
for doubtful accounts of $1,660 .............. 463,983 -- -- 463,983
Inventories ..................................... 173,637 25,954 4,184(A) 203,775
Other ........................................... 7,603 -- -- 7,603
---------- ---------- ---------- ----------
Total current assets .......................... 648,960 25,954 4,184 679,098
---------- ---------- ---------- ----------
Property, Plant and Equipment, at cost ............. 224,528 321,176 (87,361)(A) 458,343
Less: Accumulated depreciation .................. 97,224 162,350 (162,350)(A) 97,224
---------- ---------- ---------- ----------
Net property, plant and equipment ............. 127,304 158,826 74,989 361,119
---------- ---------- ---------- ----------
Other Assets, net of amortization .................. 6,657 -- -- 6,657
---------- ---------- ---------- ----------
Total Assets ....................................... $ 782,921 $ 184,780 $ 79,173 $1,046,874
========== ========== ========== ==========
LIABILITIES AND CAPITAL
Current Liabilities
Trade accounts payable .......................... $ 586,897 $ -- $ -- $ 586,897
Note payable - affiliate ........................ 39,300 -- (39,300)(C) --
Short-term borrowings - affiliate ............... 70,000 -- -- 70,000
Bridge loan - affiliate ......................... -- -- 76,800(B) 76,800
Term debt - affiliate ........................... -- -- 175,000(B)(C) 175,000
Other ........................................... 11,575 -- 11,000(A) 22,575
---------- ---------- ---------- ----------
Total current liabilities ..................... 707,772 -- 223,500 931,272
---------- ---------- ---------- ----------
Long - Term Liabilities ............................ 281 -- -- 281
---------- ---------- ---------- ----------
Additional Partnership Interests ................... 12,775 -- -- 12,775
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Partners' Capital/ Net Assets
Common Unitholders .............................. 7,490 -- 27,660(A) 35,150
Special Unitholders ............................. 25,060 -- -- 25,060
Subordinated Unitholders ........................ 28,169 -- 12,000(A) 40,169
General Partner ................................. 1,374 -- 793(A) 2,167
Net Assets ...................................... -- 184,780 (184,780)(A) --
---------- ---------- ---------- ----------
Total Partners' Capital/Net Assets ............ 62,093 184,780 (144,327) 102,546
---------- ---------- ---------- ----------
Total Liabilities and Capital/Net Assets ........... $ 782,921 $ 184,780 $ 79,173 $1,046,874
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
consolidated balance sheet.
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EOTT ENERGY PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(A) Record the adjustment for the fair value of the total consideration given
for: (i) the purchase of certain crude oil gathering and transportation
assets from Koch Pipeline Company, L.P., a subsidiary of Koch Industries
Inc., and Koch Oil Company, a division of Koch Industries, Inc.
(collectively "Koch") on December 1, 1998 for approximately $235.5 million
and (ii) the purchase of similar Koch assets in West Texas by EOTT on July
1, 1998 for $28.5 million in cash, collectively referred to as the Koch
Assets. The total purchase price is comprised as follows (000s):
<TABLE>
<CAPTION>
<S> <C>
Cash consideration for Koch Assets .............................. $ 212,500
2 million Common Units at $13.83 per unit ....................... 27,660
2 million Subordinated Units at $6 per unit ..................... 12,000
General Partner contribution of approximately 2% ................ 793
Transaction costs ............................................... 11,000
----------
Total purchase price ........................................ $ 263,953
==========
</TABLE>
The preliminary allocation of the purchase price to Property, Plant and
Equipment (PP&E), Inventory and Accrued Liabilities is based upon their
estimated fair values as follows (000s):
<TABLE>
<CAPTION>
<S> <C>
Inventory ....................................................... $ 30,138
PP&E ............................................................ 233,815
Accrued Liabilities ............................................. 11,000
</TABLE>
It is expected that the PP&E acquired from Koch will have an average useful
life of approximately 13 years. The pro forma adjustments are based on
preliminary information about the Koch Assets. Final purchase price
allocations will be based on more complete evaluations and may differ from
those shown herein.
(B) Record financing arrangements with Enron Corp. ("Enron") to fund the cash
portion of the purchase of certain crude oil gathering and transportation
assets from Koch on December 1, 1998 for $184 million, consisting of a $77
million bridge loan and $107 million of term debt, as well as the purchase
of similar Koch assets in West Texas by EOTT on July 1, 1998 for $28.5
million, which was financed through additional debt with Enron. The
interest rate on the term debt is London Interbank Offered Rate (LIBOR)
plus 300 basis points. The interest rate on the bridge loan is initially
LIBOR plus 400 basis points. At the end of each three-month period, the
spread on the bridge loan will increase by 25 basis points.
(C) As a condition of the financing arrangements with Enron, the existing Note
Payable - Affiliate will be redeemed and reissued for term debt, thus
bringing the total drawn on the term debt to $175 million.
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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 hereunto duly authorized.
EOTT ENERGY PARTNERS, L.P.
(A Delaware Limited Partnership)
Date: December 14, 1998 By: EOTT ENERGY CORP. as
General Partner
/s/ LORI L. MADDOX
--------------------------------------------
Lori L. Maddox
Controller
(Principal Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
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23.1 Consent of Ernst & Young LLP.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 dated March 26, 1997) pertaining to the EOTT Energy Corp. 1994 Unit Option
Plan of EOTT Energy Partners, L.P. of our report dated October 15, 1998, with
respect to the statement of assets available for disposal of Koch Pipeline
Company, L.P. and Koch Oil Company included in the EOTT Energy Partners, L.P.
Current Report on Form 8-K dated on or about December 14, 1998, filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
Wichita, Kansas
December 10, 1998
