<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 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)
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)
(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
--- ---
Pursuant to Rule 12b-25, the registrant has omitted from this filing
the balance sheet and certain information from Items 1 and 2.
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EOTT ENERGY PARTNERS, L.P.
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Statements of Operations (Unaudited) -
Three Months Ended March 31, 2000 and 1999...........................3
Notes to Condensed Consolidated Statements of Operations.............4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................8
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk..........13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings...................................................14
ITEM 5. Other Information...................................................14
ITEM 6. Exhibits and Reports on Form 8-K....................................14
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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...................................................................... $ 2,680,918 $ 1,433,157
Cost of Sales................................................................ 2,625,010 1,380,361
----------- -----------
Gross Margin................................................................. 55,908 52,796
Expenses
Operating expenses........................................................ 37,050 36,183
Depreciation and amortization............................................. 8,392 8,140
----------- -----------
Total................................................................... 45,442 44,323
----------- -----------
Operating Income ............................................................ 10,466 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..................... 2,115 2,534
Cumulative Effect of Accounting Change....................................... - 1,747
----------- -----------
Net Income................................................................... $ 2,115 $ 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 this condensed
consolidated financial statement.
3
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EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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
statements of operations and related notes present the results of operations for
the three months ended March 31, 2000 and 1999. 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.
Pursuant to Rule 12b-25 the Partnership has omitted from this filing the
balance sheet and certain related information and will file with the Securities
and Exchange Commission a Form 12b-25 to submit the omitted information. The
Partnership has been engaged in an extensive review and analysis of the
implementation of its new computerized marketing and accounting system, and is
investigating certain unresolved systems integration issues. The Partnership
expects to file the omitted information on or prior to May 22, 2000, which is
within the grace period permitted under Rule 12b-25.
Certain reclassifications have been made to prior period amounts to conform
with the current period presentation.
4
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EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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 $ 1,394 18,476 $ 0.08 $2,229 14,976 $ 0.15
Subordinated $ 679 9,000 $ 0.08 $1,946 9,000 $ 0.22
Diluted(2) $ 2,073 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, 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
5
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EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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.
6
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EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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 $ 2,475,524 $ 9,789 $ 195,605 $ -- $ 2,680,918
Intersegment revenue (a) -- 23,207 -- (23,207) --
----------- -------- --------- -------- -----------
Total revenue 2,475,524 32,996 195,605 (23,207) 2,680,918
----------- -------- --------- -------- -----------
Gross margin 18,514 33,641 3,753 -- 55,908
----------- -------- --------- -------- -----------
Operating income (loss) (502) 17,533 (1,308) (5,257) 10,466
Other expense -- -- -- (8,351) (8,351)
----------- -------- --------- -------- -----------
Net income (loss) (502) 17,533 (1,308) (13,608) 2,115
----------- -------- --------- -------- -----------
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
----------- -------- --------- -------- -----------
- ----------------------------------------------------------------------------------------------------------------
</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.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 Statements of Operations 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 should be read in
conjunction with the Condensed Consolidated Statements of Operations 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 $2.1 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 $3.9 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 1999 and approximately $1.8 million of net unrealized mark-to-market
losses for the three months ended
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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................................ $ 2,475.5 $ 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................................................................... $ 2,680.9 $ 1,433.2
========= =========
Gross margin:
North American Crude Oil - East of Rockies (1)........................... $ 18.5 $ 22.1
Pipeline Operations....................................................... 33.6 23.6
West Coast Operations..................................................... 3.8 7.1
Corporate and Other....................................................... - -
---------- ---------
Total................................................................... $ 55.9 $ 52.8
========= =========
Operating income (loss):
North American Crude Oil - East of Rockies (1)........................... $ (0.5) $ 1.6
Pipeline Operations....................................................... 17.5 10.8
West Coast Operations..................................................... (1.3) 2.3
Corporate and Other....................................................... (5.2) (6.2)
--------- ---------
Total................................................................... $ 10.5 $ 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 $0.5 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 $1.3 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 $3.6 million to
$18.5 million in the first quarter of 2000 due primarily to increased
transportation costs or tariffs paid to the Pipeline Operations segment and
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
$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 $19.0 million for the first quarter 2000 were $1.5 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 $17.5
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 $16.1 million for the first quarter
of 2000 were $3.3 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.
OTHER MATTERS
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
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
12
<PAGE> 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 statements of operations and accompanying notes
presented in Item 1 of this Form 10-Q.
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.
13
<PAGE> 14
PART II. OTHER INFORMATION
EOTT ENERGY PARTNERS, L.P.
ITEM 1. Legal Proceedings
See Part I. Item 1, Note 3 to the Condensed Consolidated Statements of
Operations entitled "Litigation and Other Contingencies," which is incorporated
herein by reference.
ITEM 5. Other Information
Pursuant to Rule 12b-25 the Partnership has omitted from this filing the
balance sheet and certain related information and will file with the Securities
and Exchange Commission a Form 12b-25 to submit the omitted information. The
Partnership has been engaged in an extensive review and analysis of the
implementation of its new computerized marketing and accounting system, and is
investigating certain unresolved systems integration issues. The Partnership
expects to file the omitted information on or prior to May 22, 2000, which is
within the grace period permitted under Rule 12b-25.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
14
<PAGE> 15
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: May 15, 2000 By: EOTT ENERGY CORP. as
General Partner
/s/ LORI L. MADDOX
-------------------------------------
Lori L. Maddox
Controller
(Principal Accounting Officer)
15
<PAGE> 16
EXHIBIT INDEX
EXHIBITS
NUMBER DESCRIPTION
-------- -----------
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000917464
<NAME> EOTT ENERGY PARTNERS, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 2,680,918
<TOTAL-REVENUES> 2,680,918
<CGS> 2,625,010
<TOTAL-COSTS> 2,670,452
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,649
<INCOME-PRETAX> 2,115
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,115
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,115
<EPS-BASIC> 0.00<F1>
<EPS-DILUTED> 0.08
<FN>
<F1>"EPS Primary" represents Basic Common EPS of $0.08 and Basic Subordinated EPS
of $0.08.
</FN>
</TABLE>
