<PAGE> 1
The following items were the subject of
a Form 12b-25 and are included herein:
the balance sheet and certain related
information.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q / A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-12872
EOTT ENERGY PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 76-0424520
---------------------------------------- -----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1330 Post Oak Boulevard
Suite 2700
Houston, Texas 77056
---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
(713) 993-5200
----------------------------------------------------
(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
<PAGE> 2
EOTT ENERGY PARTNERS, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
<S> <C>
Condensed Consolidated Statements of Operations (Unaudited) -
Three Months Ended March 31, 2000 and 1999.........................................................3
Condensed Consolidated Balance Sheets (Unaudited) -
March 31, 2000 and December 31, 1999...............................................................4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended March 31, 2000 and 1999.........................................................5
Condensed Consolidated Statement of Partners' Capital (Unaudited) -
Three Months Ended March 31, 2000..................................................................6
Notes to Condensed Consolidated Financial Statements..................................................7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................................11
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.....................................17
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings..............................................................................18
ITEM 6. Exhibits and Reports on Form 8-K...............................................................18
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EOTT ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenue ........................................................................ $ 2,681,696 $ 1,433,157
Cost of Sales .................................................................. 2,625,232 1,380,361
----------- -----------
Gross Margin ................................................................... 56,464 52,796
Expenses
Operating expenses .......................................................... 37,500 36,183
Depreciation and amortization ............................................... 8,392 8,140
----------- -----------
Total ..................................................................... 45,892 44,323
----------- -----------
Operating Income ............................................................... 10,572 8,473
Other Income (Expense)
Interest income ............................................................. 178 175
Interest and related charges ................................................ (7,649) (6,502)
Other, net .................................................................. (880) 388
----------- -----------
Total ..................................................................... (8,351) (5,939)
----------- -----------
Net Income Before Cumulative Effect of Accounting Change ....................... 2,221 2,534
Cumulative Effect of Accounting Change ......................................... -- 1,747
----------- -----------
Net Income ..................................................................... $ 2,221 $ 4,281
=========== ===========
Basic Net Income Per Unit
Common ...................................................................... $ 0.08 $ 0.15
=========== ===========
Subordinated ................................................................ $ 0.08 $ 0.22
=========== ===========
Diluted Net Income Per Unit .................................................... $ 0.08 $ 0.17
=========== ===========
Number of Units Outstanding for Diluted Computation ............................ 27,476 23,976
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 4
EOTT ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ........................................................ $ 4,773 $ 17,525
Trade and other receivables, net of allowance for doubtful
accounts of $1,732 and $1,732 respectively .................................... 905,668 966,422
Inventories ...................................................................... 71,289 120,306
Other ............................................................................ 28,568 29,191
---------- ----------
Total current assets .......................................................... 1,010,298 1,133,444
---------- ----------
Property, Plant & Equipment, at cost ................................................. 546,753 544,723
Less: Accumulated depreciation ................................................... 148,098 140,228
---------- ----------
Net property, plant & equipment ............................................... 398,655 404,495
---------- ----------
Other Assets, net of amortization .................................................... 17,663 20,722
---------- ----------
Total Assets ......................................................................... $1,426,616 $1,558,661
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Trade accounts payable ........................................................... $ 985,110 $1,103,187
Accrued taxes payable ............................................................ 10,268 11,947
Short-term borrowings - affiliate ................................................ 12,700 --
Repurchase agreements ............................................................ 53,252 74,055
Other ............................................................................ 7,201 8,333
---------- ----------
Total current liabilities ..................................................... 1,068,531 1,197,522
---------- ----------
Long-Term Liabilities
11% Senior notes ................................................................. 235,000 235,000
Other ............................................................................ 315 3,475
---------- ----------
Total long-term liabilities ................................................... 235,315 238,475
---------- ----------
Commitments and Contingencies (Note 3)
Additional Partnership Interests ..................................................... 9,318 2,547
---------- ----------
Partners' Capital
Common Unitholders ............................................................... 66,258 73,570
Subordinated Unitholders ......................................................... 39,568 38,855
General Partner .................................................................. 7,626 7,692
---------- ----------
Total Partners' Capital ....................................................... 113,452 120,117
---------- ----------
Total Liabilities and Partners' Capital .............................................. $1,426,616 $1,558,661
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE> 5
EOTT ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of net income (loss) to net cash
provided by (used in) operating activities -
Net income ................................................................. $ 2,221 $ 4,281
Depreciation ............................................................... 8,128 7,600
Amortization of intangible assets .......................................... 264 540
Gains on disposal of assets ................................................ (211) (166)
Changes in components of working capital -
Receivables ............................................................. 60,754 (138,591)
Inventories ............................................................. 49,017 30,574
Other current assets .................................................... 623 (30,022)
Trade accounts payable .................................................. (118,077) 96,994
Accrued taxes payable ................................................... (1,679) 1,219
Other current liabilities ............................................... (1,132) 3,436
Other assets and liabilities ............................................... 434 6,121
--------- ---------
Net Cash Provided By (Used In) Operating Activities ............................ 342 (18,014)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment ........................ 181 268
Additions to property, plant and equipment ................................. (3,057) (5,588)
--------- ---------
Net Cash Used In Investing Activities .......................................... (2,876) (5,320)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term borrowings - affiliate .............................. 12,700 23,903
Increase (decrease) in repurchase agreements ............................... (20,803) 7,002
Distributions to Unitholders ............................................... (8,886) (6,935)
Issuance of Additional Partnership Interests ............................... 6,771 --
Other, net ................................................................. -- (168)
--------- ---------
Net Cash Provided By (Used In) Financing Activities ............................ (10,218) 23,802
--------- ---------
Increase (Decrease) In Cash and Cash Equivalents ............................... (12,752) 468
Cash and Cash Equivalents, Beginning of Period ................................. 17,525 3,033
--------- ---------
Cash and Cash Equivalents, End of Period ....................................... $ 4,773 $ 3,501
========= =========
Supplemental Cash Flow Information:
Interest paid .............................................................. $ 986 $ 6,408
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE> 6
EOTT ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON SUBORDINATED GENERAL
UNITHOLDERS UNITHOLDERS PARTNER
------------- ------------- -------------
<S> <C> <C> <C>
Partners' Capital at December 31, 1999................. $ 73,570 $ 38,855 $ 7,692
Net income............................................. 1,464 713 44
Cash distributions..................................... (8,776) - (110)
------------- ------------- -------------
Partners' Capital at March 31, 2000.................... $ 66,258 $ 39,568 $ 7,626
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
<PAGE> 7
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In connection with a reorganization of the business conducted by EOTT
Energy Corp., an indirect wholly-owned subsidiary of Enron Corp. ("Enron"), into
limited partnership form and a concurrent initial public offering of Common
Units of EOTT Energy Partners, L.P. ("EOTT" or the "Partnership") effective
March 24, 1994, the net assets of EOTT Energy Corp., its wholly-owned foreign
subsidiary, EOTT Energy Ltd., and Enron Products Marketing Company ("EPMC") were
acquired by three operating limited partnerships in which the Partnership is
directly or indirectly the 99% limited partner. EOTT Energy Corp., a Delaware
corporation, serves as the General Partner of the Partnership and its related
operating limited partnerships. The accompanying condensed consolidated
financial statements and related notes present the financial position as of
March 31, 2000 and December 31, 1999 for the Partnership, the results of
operations and cash flows for the three months ended March 31, 2000 and 1999,
and changes in partners' capital for the three months ended March 31, 2000. For
the three months ended March 31, 2000 and 1999, traditional net income (loss)
and comprehensive income (loss) are the same.
On March 24, 1994, the General Partner completed an initial public offering
of 10 million Common Units at $20.00 per unit, representing limited partner
interests in the Partnership. In addition to its aggregate approximate 2%
general partner interest in the Partnership, the General Partner owns an
approximate 25% subordinated limited partner interest. Enron, through its
ownership of EOTT Common Units, directly holds an approximate 12% interest in
the Partnership.
The financial statements included herein have been prepared by the
Partnership without audit pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Accordingly, they reflect all
adjustments (which consist solely of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
results for 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 financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1999 filed with the SEC.
During the first quarter of 2000, the Partnership identified certain
unresolved systems integration issues relating to its new computerized marketing
and accounting system, originally evidenced by unexplained variances in
financial results reported by the system. The Partnership immediately commenced
an extensive review and analysis of the implementation of the new system, as
well as the processes and controls surrounding the system. The Partnership was
unable to complete its review and analysis in order to prepare its financial
statements for the first quarter of 2000 on a timely basis.
As a result of these efforts, the Partnership has identified and quantified
the impacts of the systems integration issues relating to its new computerized
marketing and accounting system and has recorded appropriate financial statement
adjustments. The aggregate effect of the adjustments increased net income by
$0.1 million for the first quarter of 2000 from the initial amount reported in
May 2000. The Partnership is implementing additional control processes and
procedures that it believes will be sufficient to permit the preparation of
timely and accurate financial information in the future, including additional
preventative and monitoring controls to ensure the integrity and reliability of
financial information generated by the system as well as additional system
training for users.
Certain reclassifications have been made to prior period amounts to conform
with the current period presentation.
7
<PAGE> 8
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. EARNINGS PER UNIT
Net income shown in the tables below excludes the approximate two percent
interest of the General Partner. Earnings per unit are calculated as follows (in
millions, except per unit amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------------
2000 1999
------------------------------------- -------------------------------------
Wtd. Wtd.
Net Average Per Net Average Per
Income Units Unit Income Units Unit
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic (1)
Common $ 1,464 18,476 $ 0.08 $ 2,229 14,976 $ 0.15
Subordinated $ 713 9,000 $ 0.08 $ 1,946 9,000 $ 0.22
Diluted (2) $ 2,177 27,476 $ 0.08 $ 4,175 23,976 $ 0.17
</TABLE>
(1) Net income, excluding the two percent General Partner interest, has
been apportioned to each class of Unitholder based on the ownership of
total Units outstanding which is also reflected on the Statement of
Partners' Capital, and Special Units are considered Common Units
during the periods in which they were outstanding. Due to a negative
capital account balance for the Common Unitholders during the second
and third quarters of 1998, the loss allocated to the Common
Unitholders attributable to these periods was reallocated to the
remaining Unitholders based on their ownership percentage. The
allocated loss was fully recouped by the Unitholders allocated the
additional losses in the first quarter of 1999.
(2) The diluted income (loss) per unit calculation assumes the conversion
of Subordinated Units into Common Units. The disproportionate income
(loss) allocation between the Unitholders has no effect on the diluted
computation.
EOTT issued 3,500,000 Common Units to the public on September 29, 1999.
Per unit information related to the net income before cumulative effect of
accounting change and cumulative effect of the change in accounting principle
for the three months ended March 31, 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
------------------------------------------------
Basic
-------------------------------
Common Subordinated Diluted
------------- ------------- -------------
<S> <C> <C> <C>
Net Income Before Cumulative Effect
of Accounting Change............................ $ 0.08 $ 0.15 $ 0.10
Cumulative Effect of Accounting Change............. 0.07 0.07 0.07
------------- ------------- -------------
Net Income......................................... $ 0.15 $ 0.22 $ 0.17
============= ============= =============
</TABLE>
3. LITIGATION AND OTHER CONTINGENCIES
EOTT is, in the ordinary course of business, a defendant in various
lawsuits, some of which are covered in whole or in part by insurance. The
Partnership is responsible for all litigation and other claims relating to the
business acquired from EOTT Energy Corp., although the Partnership will be
entitled to the benefit of certain insurance maintained by Enron covering
occurrences prior to the closing of the offering. The Partnership
8
<PAGE> 9
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
believes that the ultimate resolution of litigation, individually and in the
aggregate, will not have a materially adverse impact on the Partnership's
financial position or results of operations. Various legal actions have arisen
in the ordinary course of business, the most significant of which are discussed
in "Part I, Item 3. Legal Proceedings" of EOTT's Annual Report filed on Form
10-K for the year ended December 31, 1999.
The Partnership believes that it has obtained or has applied for all of the
necessary permits required by federal, state, and local environmental agencies
for the operation of its business. Further, the Partnership believes that there
are no outstanding liabilities or claims relating to environmental matters
individually, and in the aggregate, which would have a material adverse impact
on the Partnership's financial position or results of operations.
4. NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. SFAS No. 133, as amended, is
effective for fiscal years beginning after June 15, 2000. The standard cannot be
applied retroactively, but early adoption is permitted. EOTT has not yet
determined the impact of adopting SFAS No. 133; however, this standard could
increase volatility in earnings and partners' capital, through other
comprehensive income.
5. BUSINESS SEGMENT INFORMATION
EOTT has three reportable segments, which management believes are necessary
to make decisions about resources to be allocated and assess its performance:
North American Crude Oil - East of Rockies, Pipeline Operations and West Coast
Operations. The North American Crude Oil - East of Rockies segment primarily
purchases, gathers, transports and markets crude oil. The Pipeline Operations
segment operates approximately 7,400 active miles of common carrier pipelines
operated in 12 states. The West Coast Operations include crude oil gathering and
marketing, refined products marketing and a natural gas liquids business.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies as discussed in Note 2 included
in the Partnership's Annual Report on Form 10-K for the year ended December 31,
1999. EOTT evaluates performance based on operating income (loss). EOTT accounts
for intersegment revenue and transfers between North American Crude Oil - East
of Rockies and West Coast Operations as if the sales or transfers were to third
parties, that is, at current market prices. Intersegment revenues for Pipeline
Operations are based on published pipeline tariffs.
9
<PAGE> 10
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL INFORMATION BY BUSINESS SEGMENT
(In Thousands)
<TABLE>
<CAPTION>
NORTH
AMERICAN WEST CORPORATE
CRUDE OIL PIPELINE COAST AND
- EOR OPERATIONS OPERATIONS OTHER (b) CONSOLIDATED
----------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 2000
Revenue from external customers ....................... $ 2,476,302 $ 9,789 $ 195,605 $ -- $ 2,681,696
Intersegment revenue (a) .............................. -- 23,207 -- (23,207) --
----------- -------- --------- -------- -----------
Total revenue ...................................... 2,476,302 32,996 195,605 (23,207) 2,681,696
----------- -------- --------- -------- -----------
Gross margin .......................................... 19,070 33,641 3,753 -- 56,464
----------- -------- --------- -------- -----------
Operating income (loss) ............................... (337) 17,404 (1,371) (5,124) 10,572
Other expense ......................................... -- -- -- (8,351) (8,351)
----------- -------- --------- -------- -----------
Net income (loss) ..................................... (337) 17,404 (1,371) (13,475) 2,221
----------- -------- --------- -------- -----------
Depreciation and amortization ......................... 1,917 5,265 663 547 8,392
----------- -------- --------- -------- -----------
------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1999
Revenue from external customers ....................... $ 1,315,247 $ 3,142 $ 114,768 $ -- $ 1,433,157
Intersegment revenue (a) .............................. 13,122 20,294 5,554 (38,970) --
----------- -------- --------- -------- -----------
Total revenue ...................................... 1,328,369 23,436 120,322 (38,970) 1,433,157
----------- -------- --------- -------- -----------
Gross margin .......................................... 22,092 23,564 7,140 -- 52,796
----------- -------- --------- -------- -----------
Operating income (loss) ............................... 1,569 10,761 2,385 (6,242) 8,473
Other expense ......................................... -- -- -- (5,939) (5,939)
----------- -------- --------- -------- -----------
Net income (loss) before cumulative
effect of accounting change ........................ 1,569 10,761 2,385 (12,181) 2,534
----------- -------- --------- -------- -----------
Depreciation and amortization ......................... 2,397 4,806 494 443 8,140
----------- -------- --------- -------- -----------
------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS AT MARCH 31, 2000 ........................ $ 984,696 $306,334 $ 99,193 $ 36,393 $ 1,426,616
----------- -------- --------- -------- -----------
TOTAL ASSETS AT DECEMBER 31, 1999 ..................... 1,084,613 306,321 129,461 38,266 1,558,661
----------- -------- --------- -------- -----------
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Intersegment revenue for North American Crude Oil - EOR and West Coast
Operations is made at prices comparable to those received from external
customers. Intersegment revenue for Pipeline Operations is
transportation costs charged to North American Crude Oil - EOR for the
transport of crude oil at published pipeline tariffs.
(b) Corporate and Other also includes intersegment eliminations.
6. SUBSEQUENT EVENTS
On April 18, 2000, the Board of Directors of EOTT Energy Corp., as General
Partner, declared the Partnership's regular quarterly cash distribution of
$0.475 for all Common Units for the period January 1, 2000 through March 31,
2000. The first quarter distribution of $9.0 million was paid on May 15, 2000 to
the General Partner and all Common Unitholders of record as of April 28, 2000.
The distribution was paid utilizing Available Cash from the Partnership.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNERS, L.P.
Information Regarding Forward-Looking Information
The statements in this Quarterly Report on Form 10-Q that are not
historical information are 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. Such forward-looking statements include the discussions in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Any forward-looking statements are not guarantees of future
performance and involve significant risks and uncertainties, and actual results
may vary materially from those in the forward-looking statements as a result of
various factors. Important factors that could cause actual results to differ
materially from those in the forward-looking statements herein include the
Partnership's success in obtaining additional lease barrels and maintaining
lease barrels, demands for various grades of crude oil and the resulting changes
in pricing relationships, developments relating to possible acquisitions or
business combination opportunities, industry conditions, the ability of the
Partnership to avoid environmental liabilities, developments relating to
pipeline tariff regulation, the successful resolution of litigation, the success
of the Partnership's risk management activities, and the conditions of the
capital and equity markets during the periods covered by the forward-looking
statements. Although the Partnership believes that its expectations regarding
future events are based on reasonable assumptions, it can give no assurance that
these are all the factors that could cause actual results to vary materially
from the forward-looking statements or that its expectations regarding future
developments will prove to be correct.
OVERVIEW
Through its affiliated limited partnerships, EOTT Energy Operating Limited
Partnership, EOTT Energy Canada Limited Partnership, and EOTT Energy Pipeline
Limited Partnership, EOTT is engaged in the purchasing, gathering, transporting,
marketing, storage and resale of crude oil and other petroleum products and
related activities. EOTT's principal business segments are North American Crude
Oil - East of Rockies, Pipeline Operations and West Coast Operations (see Note 5
to the Condensed Consolidated Financial Statements for certain financial
information by business segment).
Gathering and Marketing Operations
In general, as EOTT purchases crude oil in its gathering and marketing
operations, EOTT establishes a margin by selling crude oil for physical delivery
to third party users, such as independent refiners or major oil companies, or by
entering into a future delivery obligation with respect to futures contracts on
the NYMEX, thereby minimizing or reducing exposure to price fluctuations.
Through these transactions, EOTT seeks to maintain positions that are
substantially balanced between crude oil purchases and sales or future delivery
obligations. As a result, changes in the absolute price level for crude oil do
not necessarily impact the margin from gathering and marketing.
Although EOTT generally maintains a balanced position in terms of overall
volumes, some risks cannot be fully hedged, such as a portion of certain basis
risks. Basis risk arises when crude oil is acquired by a purchase or exchange
that does not meet the specifications of the crude oil EOTT is contractually
obligated to deliver, whether in terms of geographic location, grade or delivery
schedule. EOTT seeks to limit price risk and maintain margins through a
combination of physical sales, NYMEX hedging activities and exchanges of crude
oil with third parties. It is EOTT's policy not to acquire and hold crude oil,
futures contracts or other derivative products for the purpose of speculating on
crude oil price changes.
EOTT's operating results are sensitive to a number of factors including:
grades or types of crude oil, individual refinery demand for specific grades of
crude oil, area market price structures for the different grades of crude oil,
location of customers, availability of transportation facilities, and timing and
costs (including storage) involved in delivering crude oil to the appropriate
customer.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNERS, L.P.
Gross margin from gathering, marketing and pipeline operations varies from
period-to-period, depending to a significant extent upon changes in the supply
and demand of crude oil and the resulting changes in United States crude oil
inventory levels. The gross margin from gathering and marketing operations is
generated by the difference between the price of crude oil at the point of
purchase and the price of crude oil at the point of sale, minus the associated
costs of gathering and transportation. In addition to purchasing crude oil at
the wellhead, EOTT purchases crude oil in bulk at major pipeline terminal points
and major marketing points and enters into exchange transactions with third
parties. These bulk and exchange transactions are characterized by large volumes
and narrow profit margins on purchase and sales transactions, and the absolute
price levels for crude oil do not necessarily bear a relationship to gross
margin, although such price levels significantly impact revenues and cost of
sales. Because period-to-period variations in revenues and cost of sales are not
generally meaningful in analyzing the variation in gross margin for gathering
and marketing operations such changes are not addressed in the following
discussion.
EOTT operates the business differently as market conditions change. During
periods when the demand for crude oil is weak, the market for crude oil is often
in contango, meaning that the price of crude oil in a given month is less than
the price of crude oil in a subsequent month. In a contango market, storing
crude oil is favorable, because storage owners at major trading locations can
simultaneously purchase production at low current prices for storage and sell at
higher prices for future delivery. When there is a higher demand than supply of
crude oil in the near term, the market is backwardated, meaning that the price
of crude oil in a given month exceeds the price of crude oil in a subsequent
month. A backwardated market has a positive impact on marketing margins because
crude oil gatherers can capture a premium for prompt deliveries.
Pipeline Operations
Pipeline revenues and gross margins are primarily a function of the level
of throughput and storage activity and are generated by the difference between
the regulated published tariff and the fixed and variable costs of operating the
pipeline. A majority of the pipeline revenues are generated by transporting
crude oil at published pipeline tariffs for the North American Crude Oil - East
of Rockies business segment. Approximately 70.3% of the revenues of the Pipeline
Operations business segment for the three months ended March 31, 2000, were
generated from tariffs charged to the North American Crude Oil - East of Rockies
business segment. Changes in revenues and pipeline operating costs, therefore,
are relevant to the analysis of financial results of the pipeline operations and
are addressed in the following discussion of pipeline operations.
The following review of the results of operations and financial condition
should be read in conjunction with the Condensed Consolidated Financial
Statements and Notes thereto. Unless the context otherwise requires, the term
"EOTT" hereafter refers to the Partnership and its affiliated partnerships.
RESULTS OF OPERATIONS
EOTT reported net income of $2.2 million or $0.08 per diluted Unit for the
first quarter of 2000 compared to net income before the cumulative effect of an
accounting change of $2.5 million or $0.10 per diluted Unit for the first
quarter of 1999. Excluding the impact of mark-to-market accounting for certain
energy contracts, net income for the first quarter of 2000 was $4.0 million or
$0.14 per diluted Unit, compared to net income of $0.4 million, or $0.02 per
diluted Unit in the same period last year. In the first quarter of 1999, EOTT
adopted conclusions reached by the Emerging Issues Task Force in Issue No. 98-10
("Issue 98-10"), "Accounting for Contracts Involved in Energy Trading and Risk
Management Activities." Issue 98-10 requires energy trading contracts (as
defined) to be recorded at fair value on the balance sheet, with the change in
fair value included in earnings. The adoption of Issue 98-10 in the first
quarter of 1999 included a $1.7 million cumulative effect as of January 1, 1999,
approximately $2.1 million of net unrealized mark-to-market gains in the first
quarter of
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNERS, L.P.
1999 and approximately $1.8 million of net unrealized mark-to-market
losses for the three months ended March 31, 2000. The first quarter 2000 results
reflect an increase in operating income from the Pipeline Operations associated
with the acquisition of assets from Texas-New Mexico Pipeline Company, partially
offset by reduced margins in West Coast Operations and increased operating and
interest costs.
Selected financial data for EOTT's business segments are summarized below,
in millions:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
---------- ----------
<S> <C> <C>
Revenues:
North American Crude Oil - East of Rockies ............................. $ 2,476.3 $ 1,328.4
Pipeline Operations .................................................... 33.0 23.5
West Coast Operations .................................................. 195.6 120.3
Corporate and Other .................................................... -- --
Intersegment eliminations .............................................. (23.2) (39.0)
---------- ----------
Total ................................................................ $ 2,681.7 $ 1,433.2
========== ==========
Gross margin:
North American Crude Oil - East of Rockies (1) ........................ $ 19.1 $ 22.1
Pipeline Operations .................................................... 33.6 23.6
West Coast Operations .................................................. 3.8 7.1
Corporate and Other .................................................... -- --
---------- ----------
Total ................................................................ $ 56.5 $ 52.8
========== ==========
Operating income (loss):
North American Crude Oil - East of Rockies (1) ........................ $ (0.3) $ 1.6
Pipeline Operations .................................................... 17.4 10.8
West Coast Operations .................................................. (1.3) 2.3
Corporate and Other .................................................... (5.2) (6.2)
---------- ----------
Total ................................................................ $ 10.6 $ 8.5
========== ==========
</TABLE>
(1) Includes intersegment transportation costs from the Pipeline
Operations segment for the transport of crude oil at published
pipeline tariffs. Intersegment transportation costs from the Pipeline
Operations were $23.2 million and $20.3 million for the three months
ended March 31, 2000 and 1999 respectively.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999.
North American Crude Oil - East of Rockies: The North American Crude Oil -
East of Rockies segment had an operating loss of $0.3 million for the first
quarter of 2000, compared to operating income of $1.6 million for the same
period in 1999. Excluding the impact of mark-to-market accounting for certain
energy contracts, the North American Crude Oil - East of Rockies segment had
operating income of $1.5 million in the first quarter of 2000 compared to
operating income of $0.3 million for the same period in 1999. As a result of the
acquisition of assets from Koch, the North American Crude Oil - East of Rockies
segment is incurring increased transportation costs from the Pipeline Operations
segment due to the significant increase in the volume of crude oil transported
at higher published tariff rates as well as incurring additional operating costs
associated with the asset acquisitions. Gross margin decreased $3.0 million to
$19.1 million in the first quarter
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNERS, L.P.
of 2000 due primarily to increased transportation costs or tariffs paid to the
Pipeline Operations segment and $1.8 million of unrealized mark-to-market losses
being recorded in the first quarter for certain energy contracts. Crude oil
lease volumes decreased from an average of 413,600 barrels per day for the three
months ended March 31, 1999 to an average of 412,900 barrels per day for the
three months ended March 31, 2000. Operating expenses of $19.4 million for the
first quarter 2000 were $1.1 million lower than in the first quarter of 1999 due
primarily to lower employee related costs partially offset by higher operating
costs.
Pipeline Operations: Pipeline Operations had operating income of $17.4
million for the first quarter 2000 compared to operating income of $10.8 million
for the same period in 1999. Revenues for the first quarter of 2000 increased
$9.5 million to $33.0 million in the first quarter of 2000 due primarily to
increased activity related to the acquisition of pipelines from Texas-New Mexico
Pipeline Company in May 1999. Approximately $23.2 million and $20.3 million of
revenues for the three months ended March 31, 2000 and 1999, respectively, were
generated from tariffs charged to the North American Crude Oil - East of Rockies
segment. Pipeline volumes averaged 596,400 barrels per day for the three months
ended March 31, 2000 compared to 382,400 barrels per day for the three months
ended March 31, 1999. Operating expenses of $16.2 million for the first quarter
of 2000 were $3.4 million higher than in the first quarter of 1999 due to higher
employee related costs, operating costs and depreciation associated with the
acquisition of assets from Texas-New Mexico Pipeline Company.
West Coast Operations: West Coast Operations had an operating loss of $1.3
million for the first quarter 2000, compared to operating income of $2.3 million
for the same period in 1999 primarily due to lower margins associated with the
crude oil blending operations. Operating expenses of $5.1 million for the first
quarter of 2000 were $0.3 million higher than in the first quarter of 1999 due
to higher operating costs partially offset by lower employee related costs.
Corporate and Other: Corporate and Other costs were $5.2 million for the
first quarter 2000 compared to $6.2 million in the first quarter 1999. The
decrease is due primarily to lower system operating costs and insurance costs in
2000. Interest and related charges in the first quarter 2000 were $7.6 million
compared to $6.5 million for the same period in 1999. The increase is due
primarily to higher interest rates on borrowings for the financing of the
acquisitions of assets from Koch and Texas-New Mexico Pipeline Company. Other
income (expense), net, consisting primarily of discount fees on sale of
receivables, gains (losses) on transactions denominated in foreign currency and
gains (losses) on sales of fixed assets, decreased $1.3 million in the first
quarter 2000 compared to the same period in 1999 primarily due to discount fees
on sale of receivables.
LIQUIDITY AND CAPITAL RESOURCES
General
Management anticipates that short-term liquidity as well as sustaining
capital expenditures for the foreseeable future will be funded primarily by cash
generated from operations in addition to lines of credit provided by Enron and
commodity repurchase agreements.
Cash Flows From Operating Activities
Net cash provided by operating activities totaled $0.3 million for the
first three months of 2000 compared to net cash used in operating activities of
$18.0 million for the same period in 1999 primarily due to reduced cash
requirements related to NYMEX hedging activities.
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNERS, L.P.
Cash Flows From Investing Activities
Net cash used in investing activities totaled $2.9 million for the first
three months of 2000 compared to $5.3 million for the same period in 1999. Cash
additions to property, plant, and equipment of $3.1 million in 2000 primarily
include $1.3 million for information systems hardware and software and $0.9
million for pipeline, storage tank and related facility improvements. Proceeds
from asset sales were $0.2 million in the first three months of 2000 compared to
$0.3 million in the first three months of 1999.
Cash Flows From Financing Activities
Net cash used in financing activities totaled $10.2 million for the first
three months of 2000 compared to net cash provided of $23.8 million for the same
period in 1999. The 2000 amount primarily represents a reduction of repurchase
agreements outstanding and distributions paid to all Common Unitholders for the
period October 1, 1999 through December 31, 1999, partially offset by increased
short-term borrowings from Enron.
OTHER MATTERS
During the first quarter of 2000, the Partnership identified certain
unresolved systems integration issues relating to its new computerized marketing
and accounting system, originally evidenced by unexplained variances in
financial results reported by the system. The Partnership immediately commenced
an extensive review and analysis of the implementation of the new system, as
well as the processes and controls surrounding the system. The Partnership was
unable to complete its review and analysis in order to prepare its financial
statements for the first quarter of 2000 on a timely basis.
As a result of these efforts, the Partnership has identified and quantified
the impacts of the systems integration issues relating to its new computerized
marketing and accounting system and has recorded appropriate financial statement
adjustments. The aggregate effect of the adjustments increased net income by
$0.1 million for the first quarter of 2000 from the initial amount reported in
May 2000. The Partnership is implementing additional control processes and
procedures that it believes will be sufficient to permit the preparation of
timely and accurate financial information in the future, including additional
preventative and monitoring controls to ensure the integrity and reliability of
financial information generated by the system as well as additional system
training for users.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. SFAS No. 133, as amended, is
effective for fiscal years beginning after June 15, 2000. The standard cannot be
applied retroactively but early adoption is permitted. EOTT has not yet
determined the impact of adopting SFAS No. 133; however, this standard could
increase volatility in earnings and partners' capital, through other
comprehensive income.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNERS, L.P.
OUTLOOK
EOTT will continue to pursue attractive acquisition or business combination
opportunities to increase the scale of its business, add cash flow, and reduce
earnings variability. Acquisitions that result in increased lease purchase
volumes should help to enhance EOTT's gathering and marketing opportunities.
EOTT's management is committed to continually improving internal business
processes in all operational, marketing, and administrative areas and thereby
achieve improvements in productivity.
Results from operations in the first quarter of 2000 for the North American
Crude Oil - East of Rockies business continued to be favorable as compared to
the fourth quarter of 1999. Market conditions for the second quarter of 2000
continue to be favorable but are not as strong as the first quarter of 2000. In
addition, gross margins in the first quarter of 2000 for the West Coast
Operations were down as a result of increasing competitive conditions. These
competitive conditions have continued into the second quarter of 2000 and will
continue to put pressure on gross margins for the West Coast Operations.
Historically, the crude oil gathering and marketing business has been very
competitive with thin and variable profit margins. Market conditions and the
amount of crude oil produced cannot be projected with certainty. The Partnership
intends to continue to pay MQDs to all its Common Unitholders and paid first
quarter distributions to all its Common Unitholders on May 15, 2000 without any
distribution support from Enron; however, due to the changing market conditions
which affects operating results, it is possible that distribution support from
Enron may be needed to pay MQDs in the future. Enron has committed to provide
total cash distribution support in an amount necessary to pay MQDs and has
increased its cash distribution support to $29 million ($19.7 million of which
remains available) and extended it through the fourth quarter 2001, which should
further assure Common Unitholders of continued reliable distributions.
16
<PAGE> 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
EOTT ENERGY PARTNERS, L.P.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained in Item 3 updates, and should be read in
conjunction with, information set forth in Part II, Item 7A in EOTT's Annual
Report on Form 10-K for the year ended December 31, 1999, in addition to the
interim condensed consolidated financial statements and accompanying notes
presented in Items 1 and 2 of this Form 10-Q/A.
There are no material changes in market risks faced by the Company from
those reported in EOTT's Annual Report on Form 10-K for the year ended December
31, 1999.
17
<PAGE> 18
PART II. OTHER INFORMATION
EOTT ENERGY PARTNERS, L.P.
ITEM 1. Legal Proceedings
See Part I. Item 1, Note 3 to the Condensed Consolidated Financial
Statements entitled "Litigation and Other Contingencies," which is incorporated
herein by reference.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
18
<PAGE> 19
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.
EOTT ENERGY PARTNERS, L.P.
(A Delaware Limited Partnership)
Date: June 19, 2000 By: EOTT ENERGY CORP. as
General Partner
/s/ LORI L. MADDOX
---------------------------------
Lori L. Maddox
Controller
(Principal Accounting Officer)
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
