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PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2004 |
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OR |
|
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 1-14569
PLAINS ALL AMERICAN PIPELINE, L.P.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
76-0582150 (I.R.S. Employer Identification No.) |
333 Clay Street, Suite 1600
Houston, Texas 77002
(Address of principal executive offices)
(Zip Code)
(713) 646-4100
(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 ý No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o
At August 5, 2004, there were outstanding 62,628,722 Common Units, 1,307,190 Class B Common Units and 3,245,700 Class C Common Units.
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
TABLE OF CONTENTS
2
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
| |
June 30, 2004 |
December 31, 2003 |
||||||
|---|---|---|---|---|---|---|---|---|
| |
(unaudited) |
|||||||
| ASSETS | ||||||||
CURRENT ASSETS |
||||||||
| Cash and cash equivalents | $ | 12,056 | $ | 4,137 | ||||
| Trade accounts receivable, net | 645,295 | 590,645 | ||||||
| Inventory | 128,534 | 105,967 | ||||||
| Other current assets | 43,564 | 32,225 | ||||||
| Total current assets | 829,449 | 732,974 | ||||||
| PROPERTY AND EQUIPMENT | 1,730,496 | 1,272,634 | ||||||
| Accumulated depreciation | (147,949 | ) | (121,595 | ) | ||||
| 1,582,547 | 1,151,039 | |||||||
| OTHER ASSETS | ||||||||
| Pipeline linefill in owned assets | 148,680 | 95,928 | ||||||
| Inventory in third party assets | 38,745 | 26,725 | ||||||
| Other, net | 82,483 | 88,965 | ||||||
| Total assets | $ | 2,681,904 | $ | 2,095,631 | ||||
| LIABILITIES AND PARTNERS' CAPITAL | ||||||||
CURRENT LIABILITIES |
||||||||
| Accounts payable | $ | 763,659 | $ | 603,460 | ||||
| Due to related parties | 27,195 | 26,981 | ||||||
| Short-term debt | 21,989 | 127,259 | ||||||
| Other current liabilities | 42,803 | 44,219 | ||||||
| Total current liabilities | 855,646 | 801,919 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Long-term debt under credit facilities | 485,774 | 70,000 | ||||||
| Senior notes, net of unamortized discount of $957 and $1,009, respectively | 449,043 | 448,991 | ||||||
| Other long-term liabilities and deferred credits | 25,922 | 27,994 | ||||||
| Total liabilities | 1,816,385 | 1,348,904 | ||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 9) | ||||||||
PARTNERS' CAPITAL |
||||||||
| Common unitholders (57,724,722 and 49,502,556 units outstanding at June 30, 2004, and December 31, 2003, respectively) | 722,110 | 744,073 | ||||||
| Class B common unitholder (1,307,190 units outstanding at each date) | 17,951 | 18,046 | ||||||
| Class C common unitholders (3,245,700 units and no units outstanding at June 30, 2004, and December 31, 2003, respectively) | 98,297 | — | ||||||
| Subordinated unitholders (no units and 7,522,214 units outstanding at June 30, 2004, and December 31, 2003, respectively) | — | (39,913 | ) | |||||
| General partner | 27,161 | 24,521 | ||||||
| Total partners' capital | 865,519 | 746,727 | ||||||
| Total liabilities and partners' capital | $ | 2,681,904 | $ | 2,095,631 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
| |
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2004 |
2003 |
2004 |
2003 |
||||||||||
| |
(unaudited) |
(unaudited) |
||||||||||||
| REVENUES | ||||||||||||||
| Crude oil and LPG sales | $ | 4,939,467 | $ | 2,557,284 | $ | 8,555,451 | $ | 5,672,571 | ||||||
| Other gathering, marketing, terminalling and storage revenues | 1,608 | 8,608 | 16,727 | 15,957 | ||||||||||
| Pipeline margin activities revenues | 138,831 | 117,515 | 281,166 | 252,686 | ||||||||||
| Pipeline tariff activities revenues | 51,829 | 25,782 | 83,035 | 49,883 | ||||||||||
| Total revenues | 5,131,735 | 2,709,189 | 8,936,379 | 5,991,097 | ||||||||||
COSTS AND EXPENSES |
||||||||||||||
| Crude oil and LPG purchases and related costs | 4,859,173 | 2,508,709 | 8,416,244 | 5,569,420 | ||||||||||
| Pipeline margin activities purchases | 132,694 | 112,601 | 269,128 | 243,131 | ||||||||||
| Field operating costs (excluding LTIP charge) | 59,035 | 32,574 | 96,851 | 65,689 | ||||||||||
| LTIP charge—operations | — | — | 567 | — | ||||||||||
| General and administrative expenses (excluding LTIP charge) | 19,603 | 12,161 | 35,081 | 25,233 | ||||||||||
| LTIP charge—general and administrative | — | — | 3,661 | — | ||||||||||
| Depreciation and amortization | 15,998 | 11,305 | 29,118 | 22,176 | ||||||||||
| Total costs and expenses | 5,086,503 | 2,677,350 | 8,850,650 | 5,925,649 | ||||||||||
| OPERATING INCOME | 45,232 | 31,839 | 85,729 | 65,448 | ||||||||||
| OTHER INCOME/(EXPENSE) | ||||||||||||||
| Interest expense (net of $219 and $244 capitalized for the three month periods, respectively, and $397 and $296 capitalized for the six month periods, respectively) | (9,967 | ) | (8,532 | ) | (19,499 | ) | (17,686 | ) | ||||||
| Interest and other income (expense), net | 412 | 91 | 453 | (13 | ) | |||||||||
| Income before cumulative effect of change in accounting principle | 35,677 | 23,398 | 66,683 | 47,749 | ||||||||||
| Cumulative effect of change in accounting principle | — | — | (3,130 | ) | — | |||||||||
| NET INCOME | $ | 35,677 | $ | 23,398 | $ | 63,553 | $ | 47,749 | ||||||
| NET INCOME-LIMITED PARTNERS | $ | 33,247 | $ | 21,690 | $ | 58,954 | $ | 44,566 | ||||||
| NET INCOME-GENERAL PARTNER | $ | 2,430 | $ | 1,708 | $ | 4,599 | $ | 3,183 | ||||||
| BASIC AND DILUTED NET INCOME PER LIMITED PARTNER UNIT | ||||||||||||||
| Income before cumulative effect of change in accounting principle | $ | 0.54 | $ | 0.42 | $ | 1.03 | $ | 0.87 | ||||||
| Cumulative effect of change in accounting principle | — | — | (0.05 | ) | — | |||||||||
| Net income | $ | 0.54 | $ | 0.42 | $ | 0.98 | $ | 0.87 | ||||||
| WEIGHTED AVERAGE UNITS OUTSTANDING | 61,556 | 52,223 | 59,985 | 51,200 | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| |
Six Months Ended June 30, |
||||||||
|---|---|---|---|---|---|---|---|---|---|
| |
2004 |
2003 |
|||||||
| |
(unaudited) |
||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||
| Net income | $ | 63,553 | $ | 47,749 | |||||
| Adjustments to reconcile to cash flows from operating activities: | |||||||||
| Depreciation and amortization | 29,118 | 22,176 | |||||||
| Cumulative effect of change in accounting principle | 3,130 | ||||||||
| Change in derivative fair value | (556 | ) | (1,155 | ) | |||||
| Noncash portion of LTIP charge | 4,228 | — | |||||||
| Noncash amortization of terminated interest rate swap | 714 | — | |||||||
| Changes in assets and liabilities, net of acquisitions: | |||||||||
| Accounts receivable and other | (28,575 | ) | 52,402 | ||||||
| Inventory | (24,135 | ) | 41,015 | ||||||
| Accounts payable and other current liabilities | 99,423 | 35,718 | |||||||
| Settlement of environmental indemnities | — | 4,600 | |||||||
| Due to related parties | 210 | 2,292 | |||||||
| Net cash provided by operating activities | 147,110 | 204,797 | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||
| Cash paid in connection with acquisitions (Note 2) | (443,210 | ) | (79,616 | ) | |||||
| Additions to property and equipment | (32,170 | ) | (37,492 | ) | |||||
| Cash paid for linefill on assets owned | — | (28,478 | ) | ||||||
| Proceeds from sales of assets | 737 | 5,790 | |||||||
| Net cash used in investing activities | (474,643 | ) | (139,796 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||
| Net borrowings on long-term revolving credit facility | 415,827 | 29,089 | |||||||
| Net repayments on working capital revolving credit facility | (12,100 | ) | — | ||||||
| Net repayments on short-term letter of credit and hedged inventory facility | (96,091 | ) | (90,178 | ) | |||||
| Net borrowings on other short-term debt | (1,641 | ) | — | ||||||
| Principal payments on senior secured term loan | — | (7,000 | ) | ||||||
| Cash paid in connection with financing arrangements | (500 | ) | (60 | ) | |||||
| Net proceeds from the issuance of common units | 101,213 | 63,895 | |||||||
| Distributions paid to unitholders and general partner | (72,673 | ) | (58,772 | ) | |||||
| Net cash provided by (used in) financing activities | 334,035 | (63,026 | ) | ||||||
Effect of translation adjustment on cash |
1,417 |
94 |
|||||||
Net increase in cash and cash equivalents |
7,919 |
2,069 |
|||||||
| Cash and cash equivalents, beginning of period | 4,137 | 3,501 | |||||||
| Cash and cash equivalents, end of period | $ | 12,056 | $ | 5,570 | |||||
Cash paid for interest, net of amounts capitalized |
$ |
20,547 |
$ |
19,092 |
|||||
The accompanying notes are an integral part of these consolidated financial statements.
5
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
| |
Common Units |
Class B Common Units |
Class C Common Units |
Subordinated Units |
General Partner |
Total Partners' Capital |
|||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Units |
Amount |
Units |
Amount |
Units |
Amount |
Units |
Amount |
Amount |
Amount |
|||||||||||||||||
| |
(unaudited) |
||||||||||||||||||||||||||
| Balance at December 31, 2003 | 49,502 | $ | 744,073 | 1,307 | $ | 18,046 | — | $ | — | 7,523 | $ | (39,913 | ) | $ | 24,521 | $ | 746,727 | ||||||||||
| Issuance of common units under LTIP |
315 | 10,250 | — | — | — | — | — | — | 208 | 10,458 | |||||||||||||||||
| Private placement of Class C common units | — | — | — | — | 3,246 | 98,831 | — | — | 2,041 | 100,872 | |||||||||||||||||
| Payment of deferred acquisition price | 385 | 13,082 | — | — | — | — | — | — | 267 | 13,349 | |||||||||||||||||
| Distributions | — | (60,363 | ) | — | (1,470 | ) | — | (1,826 | ) | — | (4,231 | ) | (4,783 | ) | (72,673 | ) | |||||||||||
| Other comprehensive income | — | 3,604 | — | 84 | — | 78 | — | (841 | ) | 308 | 3,233 | ||||||||||||||||
| Net income | — | 55,005 | — | 1,291 | — | 1,214 | — | 1,444 | 4,599 | 63,553 | |||||||||||||||||
| Conversion of subordinated units | 7,523 | (43,541 | ) | — | — | — | — | (7,523 | ) | 43,541 | — | — | |||||||||||||||
| Balance at June 30, 2004 |
57,725 | $ | 722,110 | 1,307 | $ | 17,951 | 3,246 | $ | 98,297 | — | $ | — | $ | 27,161 | $ | 865,519 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME
(in thousands)
Statements of Comprehensive Income
| |
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2004 |
2003 |
2004 |
2003 |
||||||||
| |
(unaudited) |
(unaudited) |
||||||||||
| Net income | $ | 35,677 | $ | 23,398 | $ | 63,553 | $ | 47,749 | ||||
| Other comprehensive income | 14,047 | 16,390 | 3,233 | 36,313 | ||||||||
| Comprehensive income | $ | 49,724 | $ | 39,788 | $ | 66,786 | $ | 84,062 | ||||
Statement of Changes in Accumulated Other Comprehensive Income
| |
Net Deferred Gain (Loss) on Derivative Instruments |
Currency Translation Adjustments |
Total |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| |
(unaudited) |
||||||||||
| Balance at December 31, 2003 | $ | (7,692 | ) | $ | 39,861 | $ | 32,169 | ||||
| Current period activity: | |||||||||||
| Reclassification adjustments for settled contracts | 7,832 | — | 7,832 | ||||||||
| Changes in fair value of outstanding hedge positions | 4,418 | — | 4,418 | ||||||||
| Currency translation adjustment | — | (9,017 | ) | (9,017 | ) | ||||||
| Total period activity | 12,250 | (9,017 | ) | 3,233 | |||||||
| Balance at June 30, 2004 | $ | 4,558 | $ | 30,844 | $ | 35,402 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
7
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1—Organization and Accounting Policies
Plains All American Pipeline, L.P. is a publicly traded Delaware limited partnership (the "Partnership") engaged in interstate and intrastate crude oil transportation, and crude oil gathering, marketing, terminalling and storage, as well as the marketing and storage of liquefied petroleum gas and other petroleum products. We refer to liquefied petroleum gas and other petroleum products collectively as "LPG." Our operations are conducted directly and indirectly through our operating subsidiaries, Plains Marketing, L.P., Plains Pipeline, L.P. (formerly known as All American Pipeline, L.P.) and Plains Marketing Canada, L.P., and are concentrated in Texas, Oklahoma, California, Louisiana, Kansas and the Canadian provinces of Alberta and Saskatchewan.
The accompanying consolidated financial statements and related notes present (i) our consolidated financial position as of June 30, 2004, and December 31, 2003, (ii) the results of our consolidated operations for the three months and six months ended June 30, 2004 and 2003, (iii) our consolidated cash flows for the six months ended June 30, 2004 and 2003, (iv) our consolidated changes in partners' capital for the six months ended June 30, 2004, (v) our consolidated comprehensive income for the three months and six months ended June 30, 2004 and 2003, and (vi) our changes in consolidated accumulated other comprehensive income for the six months ended June 30, 2004. The financial statements have been prepared in accordance with the instructions for interim reporting as prescribed by the Securities and Exchange Commission. All adjustments (consisting only of normal recurring adjustments) that in the opinion of management were necessary for a fair statement of the results for the interim periods have been reflected. All significant intercompany transactions have been eliminated. Certain reclassifications are made to prior period amounts to conform to current period presentation. The results of operations for the three months and six months ended June 30, 2004 should not be taken as indicative of the results to be expected for the full year. The consolidated interim financial statements should be read in conjunction with our consolidated financial statements and notes thereto presented in our 2003 Annual Report on Form 10-K/A Amendment No. 1.
Change in Accounting Principle
During the second quarter of 2004, we changed our method of accounting for pipeline linefill in third party assets. Historically, we have viewed pipeline linefill, whether in our assets or third party assets, as having long-term characteristics rather than characteristics typically associated with the short-term classification of operating inventory. Therefore, previously we have not included linefill barrels in the same average costing calculation as our operating inventory, but instead have carried linefill at historical cost. Following this change in accounting principle, the linefill in third party assets that we have historically classified as a portion of "Pipeline Linefill" on the face of the balance sheet (a long-term asset) and carried at historical cost, will be included in "Inventory" (a current asset) in determining the average cost of operating inventory and applying the lower of cost or market analysis. At the end of each period, we will reclassify the linefill in third party assets not expected to be liquidated within the succeeding twelve months out of "Inventory" (a current asset), at average cost, and into "Inventory in Third Party Assets" (a long-term asset), which is now reflected as a separate line item within other assets on the consolidated balance sheet.
This change in accounting principle is effective January 1, 2004 and is reflected in the consolidated statement of operations for the six months ended June 30, 2004 and the consolidated balance sheet as of June 30, 2004, included herein. The cumulative effect of this change in accounting principle as of January 1, 2004, is a charge of approximately $3.1 million, representing a reduction in Inventory of approximately $1.7 million, a reduction in Pipeline Linefill of approximately $30.3 million and an
8
increase in Inventory in Third Party Assets of $28.9 million. The pro forma impact for the second quarter of 2003 was not material to net income or net income per basic and diluted limited partner unit. The pro forma impact for the first half of 2003 would have been an increase to net income of approximately $1.8 million ($0.04 per basic and diluted limited partner unit) resulting in pro forma net income of $49.6 million and pro forma net income per limited partner unit (basic and diluted) of $0.91.
In conjunction with this change in accounting principle, we will classify cash flows associated with purchases and sales of linefill on assets that we own as cash flows from investing activities instead of the historical classification as cash flows from operating activities. Accordingly, the accompanying statement of cash flows for the six months ended June 30, 2003 has been revised to reclassify the cash paid for linefill in assets owned from operating activities to investing activities. The effect of the reclassification was an increase to net cash provided by operating activities and net cash used in investing activities of $28.5 million for the six months ended June 30, 2003. As a result of this change in classification, net cash provided by operating activities for the years ended December 31, 2003 and 2002 would increase to $115.3 million from $68.5 million and to $185.0 million from $173.9 million, respectively. Net cash used in investing activities for the years ended December 31, 2003 and 2002 would increase to $272.1 million from $225.3 million and $374.8 million from $363.8 million, respectively. In addition, net cash used in operating activities for the year ended December 31, 2001 would decrease from $30 million to $16.2 million and net cash used in investing activities would increase to $263.2 million from $249.5 million.
Note 2—Acquisitions
The following acquisitions were made in 2004 and were accounted for under Statement of Financial Accounting Standards ("SFAS") No. 141 "Business Combinations."
Link Energy LLC
On April 1, 2004, we completed the acquisition of all of the North A