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UNITED STATES
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
OR
[_] 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 76-0582150
(STATE OR OTHER JURISDICTION OF (I.R.S. Employer
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
500 DALLAS STREET
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(713) 654-1414
(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 [_]
At May 10, 2000, there were outstanding 23,049,239 Common Units, 1,307,190 Class
B Common Units and 10,029,619 Subordinated Units.
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PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets:
March 31, 2000 and December 31, 1999................................... 3
Consolidated Statements of Operations:
For the three months ended March 31, 2000 and 1999..................... 4
Consolidated Statements of Cash Flows:
For the three months ended March 31, 2000 and 1999..................... 5
Consolidated Statement of Partners' Capital:
For the three months ended March 31, 2000.............................. 6
Notes to Consolidated Financial Statements................................. 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................... 11
PART II. OTHER INFORMATION................................................. 19
2
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
March 31, December 31,
2000 1999
----------- -----------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,193 $ 53,768
Accounts receivable and other 502,895 508,920
Inventory 52,848 72,697
Assets held for sale (Note 3) - 103,615
----------- -----------
Total current assets 562,936 739,000
----------- -----------
PROPERTY AND EQUIPMENT 455,572 454,878
Less allowance for depreciation and amortization (14,774) (11,581)
----------- -----------
440,798 443,297
----------- -----------
OTHER ASSETS
Pipeline linefill 17,633 17,633
Other 15,346 23,107
----------- -----------
$ 1,036,713 $ 1,223,037
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable and other current liabilities $ 480,559 $ 485,400
Due to affiliates 28,463 42,692
Short-term debt and current portion of long-term debt - 109,369
----------- -----------
Total current liabilities 509,022 637,461
LONG-TERM LIABILITIES
Bank debt 159,100 259,450
Subordinated note payable - general partner 114,000 114,000
Other long-term liabilities and deferred credits 12,516 19,153
----------- -----------
Total liabilities 794,638 1,030,064
----------- -----------
PARTNERS' CAPITAL
Common unitholders (23,049,239 units outstanding) 237,503 208,359
Class B common unitholders (1,307,190 units outstanding) 22,201 20,548
Subordinated unitholders (10,029,619 units outstanding) (18,426) (35,621)
General partner 797 (313)
----------- -----------
Total partners' capital 242,075 192,973
----------- -----------
$ 1,036,713 $ 1,223,037
=========== ===========
See notes to consolidated financial statements.
3
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
(unaudited)
Three Months Ended
March 31,
---------------------------
2000 1999
--------- ---------
(restated)
REVENUES $ 999,319 $ 455,760
COST OF SALES AND OPERATIONS 962,767 436,101
UNAUTHORIZED TRADING LOSSES
AND RELATED EXPENSES (Note 2) - 21,205
--------- ---------
Gross Margin 36,552 (1,546)
--------- ---------
EXPENSES
General and administrative 8,495 2,178
Depreciation and amortization 10,138 2,831
Restructuring expense - 410
--------- ---------
Total expenses 18,633 5,419
--------- ---------
Operating income (loss) 17,919 (6,965)
Interest expense (6,856) (3,193)
Related party interest expense (2,302) -
Noncash compensation expense (131) -
Gain on sale of assets (Note 3) 48,188 -
Interest and other income 7,482 97
--------- ---------
Net income (loss) before extraordinary item 64,300 (10,061)
Extraordinary item (4,145) -
--------- ---------
NET INCOME (LOSS) $ 60,155 $ (10,061)
========= =========
NET INCOME (LOSS) - LIMITED PARTNERS $ 58,952 $ (9,860)
========= =========
NET INCOME (LOSS) - GENERAL PARTNER $ 1,203 $ (201)
========= =========
BASIC AND DILUTED NET INCOME (LOSS)
PER LIMITED PARTNER UNIT
Net income (loss) before extraordinary item $ 1.83 $ (0.33)
Extraordinary item (0.12) -
--------- ---------
Net income (loss) $ 1.71 $ (0.33)
========= =========
WEIGHTED AVERAGE UNITS
OUTSTANDING 34,386 30,089
========= =========
See notes to consolidated financial statements.
4
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
----------------------------
2000 1999
--------- ---------
(restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 60,155 $ (10,061)
Items not affecting cash flows
from operating activities:
Depreciation and amortization 10,138 2,831
Gain on the sale of assets (Note 3) (48,188) -
Other noncash items (2,961) 110
Change in assets and liabilities:
Accounts receivable and other (19,800) (36,396)
Inventory (18,163) 13,316
Accounts payable and other current liabilities (9,526) 36,966
Pipeline linefill - (2,490)
--------- ---------
Net cash provided by (used in) operating activities (28,345) 4,276
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (2,198) (2,791)
Proceeds from sales of assets (Note 3) 219,100 -
Additions to other assets - (647)
--------- ---------
Net cash provided by (used in) investing activities 216,902 (3,438)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from affiliates (14,229) (82)
Proceeds from long-term debt 12,000 14,100
Proceeds from short-term debt 20,000 4,250
Principal payments of long-term debt (136,500) (8,100)
Principal payments of short-term debt (105,219) (9,900)
Distributions to unitholders (11,184) (5,926)
--------- ---------
Net cash used in financing activities (235,132) (5,658)
--------- ---------
Net decrease in cash and cash equivalents (46,575) (4,820)
Cash and cash equivalents, beginning of period 53,768 5,503
--------- ---------
Cash and cash equivalents, end of period $ 7,193 $ 683
========= =========
See notes to consolidated financial statements.
5
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
(unaudited)
Total
Class B General Partners'
Common Units Common Units Subordinated Units Partner Capital
------------------- ----------------- ------------------ ------ ---------
Units Amount Units Amount Units Amount Amount Amount
------ --------- ----- -------- ------ -------- ------ ---------
Balance at December 31, 1999 23,049 $ 208,359 1,307 $ 20,548 10,030 $(35,621) $ (313) $ 192,973
Noncash compensation expense - - - - - - 131 131
Distributions - (10,372) - (588) - - (224) (11,184)
Net income - 39,516 - 2,241 - 17,195 1,203 60,155
------ --------- ----- -------- ------ -------- ------ ---------
Balance at March 31, 2000 23,049 $ 237,503 1,307 $ 22,201 10,030 $(18,426) $ 797 $ 242,075
====== ========= ===== ======== ====== ======== ====== =========
See notes to consolidated financial statements.
6
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ORGANIZATION AND ACCOUNTING POLICIES
We are a Delaware limited partnership that was formed in September of 1998 to
acquire and operate the midstream crude oil business and assets of Plains
Resources Inc. and its wholly owned subsidiaries. On November 23, 1998, we
completed our initial public offering and the transactions whereby we became the
successor to the business of the midstream subsidiaries of Plains Resources. Our
operations are conducted through Plains Marketing, L.P., All American Pipeline,
L.P. and Scurlock Permian Pipe Line LLC. Our general partner, Plains All
American Inc., is a wholly owned subsidiary of Plains Resources. We are engaged
in interstate and intrastate crude oil transportation, gathering and marketing
as well as crude oil terminalling and storage activities. Our operations are
conducted primarily in California, Texas, Oklahoma, Louisiana and the Gulf of
Mexico.
The accompanying financial statements and related notes present our
consolidated financial position as of March 31, 2000 and December 31, 1999; the
results of our 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. The financial statements have been prepared in accordance with the
instructions to interim reporting as prescribed by the Securities and Exchange
Commission ("SEC"). All adjustments, consisting only of normal recurring
adjustments, which 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 have been made to prior period amounts to conform with current
period presentation. The results of operations for the three months ended March
31, 2000 should not be taken as indicative of the results to be expected for the
full year. The interim financial statements should be read in conjunction with
our consolidated financial statements and notes thereto presented in our 1999
Annual Report on Form 10-K.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and if so, the type of hedge
transaction. For fair value hedge transactions in which we are hedging changes
in the fair value of an asset, liability, or firm commitment, changes in the
fair value of the derivative instrument will generally be offset in the income
statement by changes in the fair value of the hedged item. For cash flow hedge
transactions, in which we are hedging the variability of cash flows related to a
variable-rate asset, liability, or a forecasted transaction, changes in the fair
value of the derivative instrument will be reported in other comprehensive
income. The gains and losses on the derivative instrument that are reported in
other comprehensive income will be reclassified as earnings in the periods in
which earnings are affected by the variability of the cash flows of the hedged
item. This statement was amended by Statement of Financial Accounting Standards
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133 ("SFAS 137") issued in June
1999. SFAS 137 defers the effective date of SFAS 133 to fiscal years beginning
after June 15, 2000. We are required to adopt this statement beginning in 2001.
We have not yet determined the impact of adopting SFAS 133; however, this
standard could increase volatility in earnings and partners' capital through
comprehensive income.
NOTE 2 -- UNAUTHORIZED TRADING LOSSES AND RESTATED FINANCIAL STATEMENTS
In November 1999, we discovered that a former employee had engaged in
unauthorized trading activity, resulting in losses of approximately $162.0
million ($174.0 million, including estimated associated costs and legal
expenses). A full investigation into the unauthorized trading activities by
outside legal counsel and independent accountants and consultants determined
that the vast majority of the losses occurred from March through November 1999,
and that the impact warranted a restatement of previously reported financial
information for 1999 and 1998. Consequently, the consolidated financial
statements for 1999 appearing in this report were previously restated to reflect
the unauthorized trading losses.
7
NOTE 3 -- ASSET DISPOSITIONS
We initiated the sale of approximately 5.2 million barrels of crude oil
linefill from the All American Pipeline in November 1999. This sale was
completed in March 2000. The linefill was located in the segment of the All
American Pipeline that extends from Emidio, California, to McCamey, Texas.
Except for minor third party volumes, one of our subsidiaries has been the sole
shipper on this segment of the pipeline since its predecessor acquired the line
from Goodyear on July 30, 1998. Proceeds from the sale of the linefill were
approximately $100.0 million, net of associated costs, and were used (1) to
repay outstanding indebtedness under our $65.0 million senior secured term
credit facility entered into in December 1999 to fund short-term working capital
requirements resulting from the unauthorized trading losses and (2) for general
working capital purposes. We recognized a total gain of $44.6 million in
connection with the sale of the linefill, of which $16.5 million was recorded in
the fourth quarter of 1999.
On March 24, 2000, we completed the sale of the above referenced segment of
the All American Pipeline to a unit of El Paso Energy Corporation for proceeds
of approximately $124.0 million, which are net of associated transaction costs
and estimated costs to remove certain equipment. We recognized a gain of $20.1
million in connection with the sale in the first quarter of 2000. Proceeds from
the sale were used to permanently reduce the All American Pipeline, L.P. term
loan facility. As a result, $6.8 million of an unamortized gain realized upon
the termination of interest rate swaps was recognized in the first quarter of
2000 and is included in interest and other income.
NOTE 4 -- ACQUISITIONS
Scurlock Acquisition
On May 12, 1999, we completed the acquisition of Scurlock Permian LLC and
certain other pipeline assets from Marathon Ashland Petroleum LLC. Including
working capital adjustments and closing and financing costs, the cash purchase
price was approximately $141.7 million.
Pro Forma Results for the Scurlock Acquisition
The following unaudited pro forma data is presented to show pro forma
revenues, net loss and basic and diluted net loss per limited partner unit as if
the Scurlock acquisition, which was effective May 1, 1999, had occurred on
January 1, 1999 (in thousands):
Three Months
Ended
March 31, 1999
------------
Revenues $ 730,751
=========
Net loss $ (842)
=========
Basic and diluted net loss
per limited partner unit $ (0.03)
=========
NOTE 5 -- DISTRIBUTIONS
On February 14, 2000, we paid a cash distribution of $0.45 per unit on our
outstanding common units and Class B units. The distribution was paid to
unitholders of record on February 7, 2000 for the period October 1, 1999 through
December 31, 1999. The total distribution paid was approximately $11.2 million,
with approximately $7.2 million paid to our public unitholders and the remainder
paid to our general partner for its limited and general partner interests. The
distribution is equal to the minimum quarterly distribution specified in the
Partnership Agreement. No distribution was declared on the subordinated units
owned by our general partner.
On April 25, 2000, we declared a cash distribution of $0.45 per unit on our
outstanding common units, Class B units and subordinated units. The distribution
is payable on May 15, 2000, to unitholders of record on May 5, 2000 for the
period January 1, 2000 through March 31, 2000. The total distribution to be paid
is approximately $15.8 million, with approximately $7.3 million to be paid to
our public unitholders and the remainder to be paid to our general partner for
its limited and general partner interests.
8
NOTE 6 -- EXTRAORDINARY ITEM
During the quarter ended March 31, 2000, we recognized an extraordinary loss
related to the early extinguishment of debt. The loss is related to the
permanent reduction of the All American Pipeline, L.P. term loan facility with
proceeds from the sale of the segment of the All American Pipeline (see Note 3).
NOTE 7 -- OPERATING SEGMENTS
Our operations consist of two operating segments: (1) Pipeline Operations -
engages in interstate and intrastate crude oil pipeline transportation and
certain related merchant activities; (2) Marketing, Gathering, Terminalling and
Storage Operations - engages in purchases and resales of crude oil at various
points along the distribution chain and the leasing of certain terminalling and
storage.
Marketing,
Gathering,
Terminalling
(in thousands) (unaudited) Pipeline & Storage Total
- ------------------------------------------------------------------------------------------------
Three Months Ended March 31, 2000
Revenues:
External Customers $ 180,058 $ 819,261 $ 999,319
Intersegment (a) 54,415 - 54,415
Other 6,973 509 7,482
--------- --------- -----------
Total revenues of reportable segments $ 241,446 $ 819,770 $ 1,061,216
========= ========= ===========
Segment gross margin (b) $ 13,155 $ 23,397 $ 36,552
Segment gross profit (c) 12,198 15,859 28,057
Net income before extraordinary item 62,329 1,971 64,300
Total assets 764,328 272,385 1,036,713
- ------------------------------------------------------------------------------------------------
Three Months Ended March 31, 1999 (restated)
Revenues:
External Customers $ 154,487 $ 301,273 $ 455,760
Intersegment (a) 15,305 55 15,360
Other 66 31 97
--------- --------- -----------
Total revenues of reportable segments $ 169,858 $ 301,359 $ 471,217
========= ========= ===========
Segment gross margin (b) $ 12,019 $ (13,565) $ (1,546)
Segment gross profit (c) 11,224 (14,948) (3,724)
Net income (loss) 5,474 (15,535) (10,061)
- ------------------------------------------------------------------------------------------------
a) Intersegment sales were conducted on an arm's length basis.
b) Gross margin is calculated as revenues less cost of sales and operations
expenses.
c) Gross profit is calculated as revenues less costs of sales and operations
expenses and general and administrative expenses.
NOTE 8 -- SUBSEQUENT EVENTS
Credit Facilities
On May 8, 2000, we entered into new bank credit agreements. The borrower
under the new facilities is Plains Marketing, L.P. We are a guarantor of the
obligations under the credit facilities. The obligations are also guaranteed by
the subsidiaries of Plains Marketing, L.P. We entered into the credit agreements
in order to:
. refinance the existing bank debt of Plains Marketing, L.P. and Plains
Scurlock Permian, L.P. in conjunction with the merger of these
subsidiaries;
. refinance existing bank debt of All American Pipeline, L.P.;
. repay up to $114.0 million plus accrued interest of subordinated debt to
our general partner, and
. provide additional flexibility for working capital, capital expenditures,
and for other general corporate purposes.
9
Our new bank credit agreements consist of:
. a $400 million senior secured revolving credit facility. At closing, we had
$256.0 million outstanding under the revolving credit facility. The
revolving credit facility is secured by substantially all of our assets and
matures in April 2004. No principal is scheduled for payment prior to
maturity. The revolving credit facility bears interest at our option at
either the base rate, as defined, plus an applicable margin, or LIBOR plus
an applicable margin. We incur a commitment fee on the unused portion of
the revolving credit facility.
. a $300 million senior secured letter of credit and borrowing facility, the
purpose of which is to provide standby letters of credit to support the
purchase and exchange of crude oil for resale and borrowings to finance
crude oil inventory which has been hedged against future price risk. The
letter of credit facility has a sublimit for cash borrowings of $100
million to purchase crude oil which has been hedged against future price
risk and is secured by substantially all of our assets. The letter of
credit facility expires in April 2003. Aggregate availability under the
letter of credit facility for direct borrowings and letters of credit is
limited to a borrowing base which is determined monthly based on certain of
our current assets and current liabilities, primarily accounts receivable
and accounts payable related to the purchase and sale of crude oil. At
closing, there were letters of credit of approximately $173.8 million and
borrowings of approximately $20.3 million outstanding under this facility.
Our bank credit agreements prohibit distributions on, or purchases or
redemptions of, units if any default or event of default is continuing. In
addition, the agreements contain various covenants limiting our ability to,
among other things:
. incur indebtedness;
. grant liens;
. sell assets;
. enter into hedging contracts;
. make investments;
. extend credit;
. engage in transactions with affiliates;
. enter into prohibited contracts; and
. enter into a merger or consolidation.
Our bank credit agreements treat a change of control as an event of default
and also requires us to maintain:
. a current ratio (as defined) of 1.0 to 1.0;
. a debt coverage ratio which is not greater that 4.0 to 1.0 for the period
from March 31, 2000 to March 31, 2002 and subsequently 3.75 to 1.0;
. an interest coverage ratio which is not less than 2.75 to 1.0; and
. a debt to capital ratio of not greater than 0.65 to 1.0.
At March 31, 2000, there were letters of credit of approximately $192.8
million and borrowings of $159.1 million outstanding under the credit facilities
which were refinanced. Due to the refinancing, we reclassified the current
portion of our existing bank debt of $24.2 million at March 31, 2000, to long-
term.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We were formed in September of 1998 to acquire and operate the midstream crude
oil business and assets of Plains Resources Inc. and its wholly owned
subsidiaries. On November 23, 1998, we completed our initial public offering and
the transactions whereby we became the successor to the business of the
midstream subsidiaries of Plains Resources. Our operations are conducted through
Plains Marketing, L.P., All American Pipeline, L.P. and Scurlock Pipe Line LLC.
Plains All American Inc., a wholly owned subsidiary of Plains Resources, is our
general partner. We are engaged in interstate and intrastate crude oil
transportation, gathering and marketing as well as crude oil terminalling and
storage activities. Our operations are conducted primarily in California, Texas,
Oklahoma, Louisiana and the Gulf of Mexico.
Pipeline Operations. Our activities from pipeline operations generally consist
of transporting third-party volumes of crude oil for a tariff and merchant
activities designed to capture price differentials between the cost to purchase
and transport crude oil to a sales point and the price received for such crude
oil at the sales point. Tariffs on our pipeline systems vary by receipt point
and delivery point. The gross margin generated by our tariff activities depends
on the volumes transported on the pipeline and the level of the tariff charged,
as well as the fixed and variable costs of operating the pipeline. Our ability
to generate a profit on margin activities is not tied to the absolute level of
crude oil prices but is generated by the difference between an index-related
price paid and other costs incurred in the purchase of crude oil and an index-
related price at which we sell crude oil. We are well positioned to take
advantage of these price differentials due to our ability to move purchased
volumes on our pipeline systems. We combine reporting of gross margin for tariff
activities and margin activities due to the sharing of fixed costs between the
two activities.
Terminalling and Storage Activities and Gathering and Marketing Activities.
Gross margin from terminalling and storage activities is dependent on the
throughput volume of crude oil stored and the level of fees generated at our
terminalling and storage facilities. Gross margin from our gathering and
marketing activities is dependent on our ability to sell crude oil at a price in
excess of our aggregate cost. These operations are not directly affected by the
absolute level of crude oil prices, but are affected by overall levels of supply
and demand for crude oil and fluctuations in market related indices.
2000 ASSET DISPOSITIONS
On March 24, 2000, we completed the sale of the segment of the All American
Pipeline that extends from Emidio, California to McCamey, Texas to a unit of El
Paso Energy Corporation, for proceeds of approximately $124.0 million, which are
net of associated transaction costs and estimated costs to remove certain
equipment. We recognized a total gain of $20.1 million in connection with the
sale in the first quarter of 2000. In November 1999, we initiated the sale of
approximately 5.2 million barrels of crude oil linefill from the All American
Pipeline. The sale of the linefill was completed in March 2000. We recognized a
total gain of $44.6 million in connection with the sale of the linefill, of
which $16.5 million was recorded in the fourth quarter of 1999.
UNAUTHORIZED TRADING LOSSES
In November 1999, we discovered that a former employee had engaged in
unauthorized trading activity, resulting in losses of approximately $162.0
million ($174.0 million, including estimated associated costs and legal
expenses). A full investigation into the unauthorized trading activities by
outside legal counsel and independent accountants and consultants determined
that the vast majority of the losses occurred from March through November 1999,
and that the impact warranted a restatement of previously reported financial
information for 1999 and 1998. Consequently, the consolidated financial
statements for 1999 appearing in this report were previously restated to reflect
the unauthorized trading losses.
11
RESULTS OF OPERATIONS
For the three months ended March 31, 2000, we reported net income of $60.2
million on total revenue of $1.0 billion compared to a net loss for the same
period in 1999 of $10.1 million on total revenues of $455.8 million. The results
for the three months ended March 31, 2000 and 1999 include the following
nonrecurring or notable items:
2000
. a $28.1 million gain on the portion of the All American Pipeline linefill
that was sold in 2000;
. a $20.1 million gain on the sale of the segment of the All American
Pipeline that extends from Emidio, California, to McCamey, Texas;
. $6.8 million of previously deferred gains on interest rate swap
terminations recognized due to the early extinguishment of debt;
. an extraordinary loss of $4.1 million related to the early extinguishment
of debt, and
. amortization of $4.6 million of debt issue costs associated with facilities
put in place during the fourth quarter of 1999.
1999
. $21.2 million of unauthorized trading losses and
. restructuring expenses of $0.4 million.
Excluding the above mentioned items, we would have reported net income of
$13.9 million and $11.5 million for the three months ended March 31, 2000 and
1999, respectively.
The following table sets forth our operating results for the periods indicated
and includes the impact of nonrecurring items discussed above (in thousands)
(unaudited):
THREE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
-------- --------
(RESTATED)
OPERATING RESULTS:
Revenues $999,319 $455,760
======== ========
Gross margin:
Pipeline $ 13,155 $ 12,019
Gathering and marketing
and terminalling and storage 23,397 7,640
Unauthorized trading losses - (21,205)
-------- --------
Total 36,552 (1,546)
General and administrative expense (8,495) (2,178)
-------- --------
Gross profit $ 28,057 $ (3,724)
======== ========
Net income (loss) $ 60,155 $(10,061)
======== ========
AVERAGE DAILY VOLUMES (BARRELS):
Pipeline Activities:
All American
Tariff activities 71 126
Margin activities 44 47
Other 115 -
-------- --------
Total 230 173
======== ========
Lease gathering 257 121
Bulk purchases 29 94
-------- --------
Total 286 215
======== ========
Terminal throughput 50 75
======== ========
Storage leased to third parties,
monthly average volumes 820 1,710
======== ========
12
Pipeline Operations. Gross margin from pipeline operations was $13.2 million
for the quarter ended March 31, 2000 compared to $12.0 million for the prior
year quarter. The increase resulted primarily from the Scurlock and West Texas
gathering systems that were acquired in the second and third quarters of 1999,
and which contributed approximately $2.8 million of pipeline gross margin in the
first quarter of 2000. The increase was partially offset by lower tariff
transport volumes, due to lower production from Exxon's Santa Ynez Field and the
Point Arguello Field, both offshore California, and the sale of the segment of
the All American Pipeline.
The margin between revenue and direct cost of crude purchased was $5.1 million
for the quarter ended March 31, 2000 compared to $5.0 million for the prior year
first quarter. Pipeline tariff revenues were approximately $11.3 million for the
first quarter of 2000 compared to approximately $13.1 million for the same
period in 1999. Pipeline operations and maintenance expenses were approximately
$3.5 million for the first quarter of 2000 compared to $6.1 million for the
first quarter of 1999 primarily due to the sale of the All American Pipeline
segment.
Tariff transport volumes on the All American Pipeline decreased from an
average of 126,000 barrels per day for the quarter ended March 31, 1999 to
71,000 barrels per day in the comparable quarter of 2000, primarily due to a
decrease in shipments of offshore California production, which decreased from
87,000 barrels per day to 71,000 barrels per day and the sale of the California
to Texas portion of the line. Barrels associated with our merchant activities on
the All American Pipeline decreased from 47,000 barrels per day in the first
quarter of 1999 to 44,000 barrels per day in the same quarter of 2000 also due
to the sale of the line. Tariff volumes shipped on the Scurlock and West Texas
gathering systems (acquired subsequent to the first quarter of 1999) averaged
115,000 barrels per day during the first quarter of 2000.
The following table sets forth All American Pipeline average deliveries per
day within and outside California for the periods presented (in thousands):
THREE MONTHS
ENDED
MARCH 31,
---------------
2000 1999
---- ----
Deliveries:
Average daily volumes (barrels):
Within California 115 112
Outside California(1) - 61
---- ----
Total 115 173
==== ====
--------------
(1) Shipments outside California in 1999 were attributable to the
segment of the pipeline that was sold in 2000.
Gathering and Marketing Activities and Terminalling and Storage Activities.
Gross margin from gathering, marketing, terminalling and storage activities was
approximately $23.4 million for the quarter ended March 31, 2000 compared to
$7.6 million in the prior year quarter (excluding the unauthorized trading
losses). The increase in gross margin is primarily due to an increase in lease
gathering volumes, as a result of the Scurlock acquisition and favorable market
conditions in the current year quarter. Lease gathering volumes increased from
an average of 121,000 barrels per day for the first quarter of 1999 to
approximately 257,000 barrels per day in 2000. Bulk purchase volumes decreased
from approximately 94,000 barrels per day for the first quarter of 1999 to
approximately 29,000 barrels per day in the current period due to the
termination of purchase contracts subsequent to the discovery of the
unauthorized trading losses. Due to a shift in the market from contango to
backwardation, lease capacity decreased to 820,000 barrels per month and use of
tankage for proprietary arbitrage opportunities increased.
In the period immediately following the disclosure of the unauthorized trading
losses, a significant number of our suppliers and trading partners reduced or
eliminated the open credit previously extended to us. Consequently, the amount
of letters of credit we needed to support the level of our crude oil purchases
then in effect increased significantly. In addition, the cost to us of obtaining
letters of credit increased under our amended credit facility. In many instances
we arranged for letters of credit to secure our obligations to purchase crude
oil from our customers, which increased our letter of credit costs and decreased
our unit margins. In other instances, primarily involving lower-margin wellhead
and bulk purchases, our purchase contracts were terminated.
Lease gathering and bulk purchase volumes are down approximately 190,000
barrels per day from the 1999 fourth quarter level. We had previously estimated
that our lease gathering and bulk volumes would be down approximately 150,000
barrels per day. The impact during the quarter was negligible as these barrels
were predominantly thin margin barrels that did not support the additional cost
of a letter of credit.
13
General and administrative expenses were $8.5 million for the quarter ended
March 31, 2000, compared to $2.2 million for the first quarter in 1999. The
increase in 2000 is primarily due to the Scurlock and West Texas gathering
system acquisitions and the resulting increase in activity and increased
consulting and legal expenses as a result of the unauthorized trading losses.
Depreciation and amortization expense was $10.1 million for the quarter ended
March 31, 2000, compared to $2.8 million for the first quarter of 1999. The
increase is primarily due to the Scurlock acquisition and the West Texas
gathering system acquisition during the second and third quarters of 1999. In
addition, during the quarter, we amortized $4.6 million associated with
facilities put in place during the fourth quarter of 1999 due to the
unauthorized trading losses. Such amounts will not be carried forward into
future quarters. These increases were partially offset by decreased depreciation
related to the segment of the All American Pipeline that was sold.
Interest expense was $9.2 million for the quarter ended March 31, 2000,
compared to $3.2 million for 1999. The increase is primarily due to interest
associated with the debt incurred for the Scurlock and West Texas gathering
system acquisitions and to an increase in debt levels and interest rates as a
result of the unauthorized trading losses. Based on current interest rate and
debt levels, we estimate second quarter interest expense will be approximately
$3.0 million lower than the first quarter.
On March 24, 2000, we permanently reduced the All American Pipeline, L.P. term
loan facility with the proceeds from the sale of the segment of the All American
Pipeline. In connection therewith, a proportionate amount of unamortized
interest rate swap gains of approximately $6.8 million was recognized in the
first quarter of 2000 and is included in interest and other income. In addition,
the extraordinary item of $4.1 million in 2000 relates to the write-off of a
proportionate amount of debt issue costs associated with this facility.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION
Asset Dispositions
We initiated the sale of approximately 5.2 million barrels of crude oil
linefill from the All American Pipeline in November 1999. The sale was completed
in March 2000. The linefill was located in the segment of the All American
Pipeline that extends from Emidio, California, to McCamey, Texas. Except for
minor third-party volumes, one of our subsidiaries has been the sole shipper on
this segment of the pipeline since its predecessor acquired the line from
Goodyear on July 30, 1998. Proceeds from the sale of the linefill were
approximately $100.0 million, net of associated costs, and were used (1) to
repay outstanding indebtedness under our $65.0 million senior secured term
credit facility entered into in December 1999 to fund short-term working capital
requirements resulting from the unauthorized trading losses and (2) for general
working capital purposes. We recognized a total gain of $44.6 million in
connection with the sale of the linefill, of which $16.5 million was recorded in
the fourth quarter of 1999.
On March 24, 2000, we completed the sale of the above referenced segment of
the All American Pipeline to a unit of El Paso Energy Corporation for proceeds
of approximatley $124.0 million, which are net of associated transaction costs
and estimated costs to remove certain equipment. We recognized a gain of $20.1
million in connection with the sale in the first quarter of 2000. Proceeds from
the sale were used to permanently reduce the All American Pipeline, L.P. term
loan facility. As a result, $6.8 million of an unamortized gain realized upon
the termination of interest rate swaps was recognized in the first quarter of
2000 and is included in interest and other income.
Credit Facilities
Amounts outstanding under our credit agreements before and after refinancing
were as follows (in thousands) (unaudited):
MARCH 31, MAY 8,
2000 2000
--------- ---------
New Plains Marketing, L.P. revolving credit facility $ - $ 256,250
New Plains Marketing, L.P. letter of credit and hedged inventory facility - 20,250
All American Pipeline, L.P. bank credit agreement 63,000 -
Plains Scurlock bank credit agreement 82,600 -
Plains Marketing, L.P. letter of credit and borrowing facility 13,500 -
Subordinated note payable - general partner 114,000 -
--------- ---------
$ 273,100 $ 276,250
========= =========
14
Credit Facilities
On May 8, 2000, we entered into new bank credit agreements. The borrower under
the new facilities is Plains Marketing, L.P. We are a guarantor of the
obligations under the credit facilities. The obligations are also guaranteed by
the subsidiaries of Plains Marketing, L.P. We entered into the credit agreements
in order to:
. refinance the existing bank debt of Plains Marketing, L.P. and Plains
Scurlock Permian, L.P. in conjunction with the merger of these
subsidiaries;
. refinance existing bank debt of All American Pipeline, L.P.;
. repay up to $114.0 million plus accrued interest of subordinated debt to
our general partner, and
. provide additional flexibility for working capital, capital expenditures,
and for other general corporate purposes.
Our new bank credit agreements consist of:
. a $400 million senior secured revolving credit facility. At closing, we had
$256.0 million outstanding under the revolving credit facility. The
revolving credit facility is secured by substantially all of our assets and
matures in April 2004. No principal is scheduled for payment prior to
maturity. The revolving credit facility bears interest at our option at
either the base rate, as defined, plus an applicable margin, or LIBOR plus
an applicable margin. We incur a commitment fee on the unused portion of
the revolving credit facility.
. a $300 million senior secured letter of credit and borrowing facility, the
purpose of which is to provide standby letters of credit to support the
purchase and exchange of crude oil for resale and borrowings to finance
crude oil inventory which has been hedged against future price risk. The
letter of credit facility is secured by substantially all of our assets and
has a sublimit for cash borrowings of $100 million to purchase crude oil
which has been hedged against future price risk. The letter of credit
facility expires in April 2003. Aggregate availability under the letter of
credit facility for direct borrowings and letters of credit is limited to a
borrowing base which is determined monthly based on certain of our current
assets and current liabilities, primarily accounts receivable and accounts
payable related to the purchase and sale of crude oil. At closing, there
were letters of credit of approximately $173.8 million and borrowings of
approximately $20.3 million outstanding under this facility.
Our bank credit agreements prohibit distributions on, or purchases or
redemptions of, units if any default or event of default is continuing. In
addition, the agreements contain various covenants limiting our ability to,
among other things:
. incur indebtedness;
. grant liens;
. sell assets;
. enter into hedging contracts;
. make investments;
. extend credit;
. engage in transactions with affiliates;
. enter into prohibited contracts; and
. enter into a merger or consolidation.
Our bank credit agreements treat a change of control as an event of default
and also requires us to maintain:
. a current ratio (as defined) of 1.0 to 1.0;
. a debt coverage ratio which is not greater that 4.0 to 1.0 for the period
from March 31, 2000 to March 31, 2002 and subsequently 3.75 to 1.0;
. an interest coverage ratio which is not less than 2.75 to 1.0; and
. a debt to capital ratio of not greater than 0.65 to 1.0.
At March 31, 2000, there were letters of credit of approximately $192.8
million and borrowings of $159.1 million outstanding under the credit facilities
which were refinanced. Due to the refinancing, we reclassified the current
portion of our existing bank debt of $24.2 million at March 31, 2000, to long-
term.
15
Cash Flows
THREE MONTHS ENDED
MARCH 31,
-------------------
(IN MILLIONS) (UNAUDITED) 2000 1999
----------------------------------------------------
(restated)
Cash provided by (used in):
Operating activities $ (28.3) $ 4.3
Investing activities 216.9 (3.4)
Financing activities (235.1) (5.7)
----------------------------------------------------
Operating Activities. Net cash used in operating activities for the first
quarter of 2000 resulted from the amounts paid during the first quarter of 2000
for the 1999 unauthorized trading losses.
Investing Activities. Net cash provided by investing activities for the first
quarter of 2000 included approximately $129.0 million and $90.1 million of
proceeds from the sale of the segment of the All American Pipeline and pipeline
linefill, respectively. The balance of the linefill proceeds of approximately
$5.0 million was received in April 2000.
Financing activities. Cash used in financing activities for the first quarter
of 2000 resulted from net payments of $209.7 million of short-term and
long-term debt. Proceeds used to reduce debt primarily came from the asset sales
discussed above.
Contingencies
Since our announcement in November 1999 of our losses resulting from
unauthorized trading by a former employee, numerous class action lawsuits have
been filed against us, certain of our general partner's officers and directors
and in some of these cases, our general partner and Plains Resources Inc.
alleging violations of the federal securities laws. In addition, derivative
lawsuits were filed in the Delaware Chancery Court against our general partner,
its directors and certain of its officers alleging the defendants breached the
fiduciary duties owed to us and our unitholders by failing to monitor properly
the activities of our traders.
While we maintain an extensive inspection program designed to prevent and, as
applicable, to detect and address releases of crude oil into the environment
from our pipeline and storage operations, we may experience such releases in the
future, or discover releases that were previously unidentified. Damages and
liabilities incurred due to any future environmental releases from our assets
may substantially affect our business. See Item 1. - "Legal Proceedings."
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and if so, the type of hedge
transaction. For fair value hedge transactions in which we are hedging changes
in the fair value of an asset, liability, or firm commitment, changes in the
fair value of the derivative instrument will generally be offset in the income
statement by changes in the fair value of the hedged item. For cash flow hedge
transactions, in which we are hedging the variability of cash flows related to a
variable-rate asset, liability, or a forecasted transaction, changes in the fair
value of the derivative instrument will be reported in other comprehensive
income. The gains and losses on the derivative instrument that are reported in
other comprehensive income will be reclassified as earnings in the periods in
which earnings are affected by the variability of the cash flows of the hedged
item. This statement was amended by Statement of Financial Accounting Standards
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133 ("SFAS 137") issued in June
1999. SFAS 137 defers the effective date of SFAS 133 to fiscal years beginning
after June 15, 2000. We are required to adopt this statement beginning in 2001.
We have not yet determined the impact of adopting SFAS 133; however, this
standard could increase volatility in earnings and partners' capital through
comprehensive income.
16
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We are exposed to various market risks, including volatility in crude oil
commodity prices and interest rates. To manage such exposure, we monitor our
inventory levels and our expectations of future commodity prices and interest
rates when making decisions with respect to risk management. We do not enter
into derivative transactions for speculative trading purposes that would expose
us to price risk. Substantially all of our derivative contracts are exchanged or
traded with major financial institutions and the risk of credit loss is
considered remote.
Commodity Price Risk. The fair value of outstanding derivative instruments and
the change in fair value that would be expected from a 10 percent adverse price
change are shown in the table below (in millions) (unaudited):
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
EFFECT OF EFFECT OF
10% 10%
FAIR PRICE FAIR PRICE
VALUE CHANGE VALUE CHANGE
----- ------ ----- ------
Crude oil:
Futures contracts $ 6.4 $ 3.1 $ - $ (2.8)
Swaps and options contracts (0.4) - (0.6) (0.1)
The fair values of the futures contracts are based on quoted market prices
obtained from the NYMEX. The fair value of the swaps are estimated based on
quoted prices from independent reporting services compared to the contract price
of the swap which approximate the gain or loss that would have been realized if
the contracts had been closed out at the dates indicated above. All hedge
positions offset physical positions exposed to the cash market; none of these
offsetting physical positions are included in the above table. Price-risk
sensitivities were calculated by assuming an across-the-board 10 percent
increase in prices regardless of term or historical relationships between the
contractual price of the instruments and the underlying commodity price. In the
event of an actual 10 percent change in prompt month crude prices, the fair
value of our derivative portfolio would typically change less than that shown in
the table due to lower volatility in out-month prices.
Interest Rate Risk. Our debt instruments are sensitive to market fluctuations
in interest rates. The table below presents principal payments and the related
weighted average interest rates by expected maturity dates for debt outstanding
at March 31, 2000. Our variable rate debt bears interest at LIBOR plus the
applicable margin. The average interest rates presented below are based upon
rates in effect at March 31, 2000. The carrying value of variable rate bank debt
approximates fair value as interest rates are variable, based on prevailing
market rates ($ in millions) (unaudited).
EXPECTED YEAR OF MATURITY
---------------------------------------------------------------------- FAIR
2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
----- ------- ------- ------- ------- ------- ------ -----
LIABILITIES:
Short-term debt - variable rate $13.5 $ - $ - $ - $ - $ - $ 13.5 $ 13.5
Average interest rate 8.22% 8.22%
Long-term debt - variable rate 10.6 0.6 0.7 0.7 80.0 167.0 259.6 259.6
Average interest rate 8.21% 9.06% 9.06% 9.06% 9.06% 8.19% 8.46%
At December 31, 1999, the carrying value of short-term and long-term debt of
$58.7 million and $424.1 million, respectively, approximated fair value.
Interest rate swaps and collars are used to hedge underlying debt obligations.
These instruments hedge specific debt issuances and qualify for hedge
accounting. The interest rate differential is reflected as an adjustment to
interest expense over the life of the instruments. At March 31, 2000, we had
interest rate swap and collar arrangements for an aggregate notional principal
amount of $215.0 million, which positions had an aggregate value of
approximately $0.6 million as of such date. These instruments are based on LIBOR
margins and generally provide for a floor of 5% and a ceiling of 6.5% for $90.0
million of debt and a floor of 6% and a ceiling of 8% for $125.0 million of
debt.
17
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
All statements, other than statements of historical fact, included in this
report are forward-looking statements, including, but not limited to, statements
identified by the words ''anticipate,'' ''believe,'' ''estimate,'' ''expect,''
''plan,'' ''intend'' and ''forecast'' and similar expressions and statements
regarding our business strategy, plans and objectives of our management for
future operations. These statements reflect our current views and those of our
general partner with respect to future events, based on what we believe are
reasonable assumptions. These statements, however, are subject to certain risks,
uncertainties and assumptions, including, but not limited to:
. the availability of adequate supplies of and demand for crude oil in the
areas in which we operate;
. the impact of crude oil price fluctuations;
. the effects of competition;
. the success of our risk management activities;
. the availability (or lack thereof) of acquisition or combination
opportunities;
. the impact of current and future laws and governmental regulations;
. environmental liabilities that are not covered by an indemnity or
insurance; and
. general economic, market or business conditions.
If one or more of these risks or uncertainties materialize, or if underlying
assumptions prove incorrect, actual results may vary materially from the results
anticipated in the forward-looking statements. Except as required by applicable
securities laws, we do not intend to update these forward-looking statements and
information.
18
PART II. OTHER INFORMATION
ITEMS 1. LEGAL PROCEEDINGS
Texas Securities Litigation. On November 29, 1999, a class action lawsuit was
filed in the United States District Court for the Southern District of Texas
entitled Di Giacomo v. Plains All American Pipeline, et al. The suit alleged
that Plains All American Pipeline, L.P. and certain of our general partner's
officers and directors violated federal securities laws, primarily in connection
with unauthorized trading by a former employee. An additional nineteen cases
were filed in the Southern District of Texas, some of which name our general
partner and Plains Resources as additional defendants. Plaintiffs allege that
the defendants are liable for securities fraud violations under Rule 10b-5 and
Section 20(a) of the Securities Exchange Act of 1934 and for making false
registration statements under Sections 11 and 15 of the Securities Act of 1933.
The court has consolidated all subsequently filed cases under the first filed
action described above. On April 27, 2000 the court appointed two distinct lead
plaintiffs to represent two different plaintiff classes: (1) purchasers of
Plains Resources common stock and options and (2) purchasers of our common
units. No answer or responsive pleading is due until thirty days after the lead
plaintiffs have filed a consolidated amended complaint.
Delaware Derivative Litigation. On December 3, 1999, two derivative lawsuits
were filed in the Delaware Chancery Court, New Castle County, entitled Susser v.
Plains All American Inc., et al and Senderowitz v. Plains All American Inc., et
al. These suits, and three others which were filed in Delaware subsequently,
named our general partner, its directors and certain of its officers as
defendants, and allege that the defendants breached the fiduciary duties that
they owed to Plains All American Pipeline, L.P. and its unitholders by failing
to monitor properly the activities of its employees. The derivative complaints
allege, among other things, that Plains All American Pipeline has been harmed
due to the negligence or breach of loyalty of the officers and directors that
are named in the lawsuits. These cases are currently in the process of being
consolidated. No answer or responsive pleading is due until these cases have
been consolidated and a consolidated complaint has been filed.
We intend to vigorously defend the claims made in the Texas securities
litigation and the Delaware derivative litigation. However, there can be no
assurance that we will be successful in our defense or that these lawsuits will
not have a material adverse effect on our financial position or results of
operation.
We, in the ordinary course of business, are a claimant and/or a defendant in
various other legal proceedings. Management does not believe that the outcome of
these other legal proceedings, individually and in the aggregate, will have a
materially adverse effect on our financial condition or results of operation.
ITEMS 2, 3, 4 & 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.1 Credit Agreement [Letter of Credit and Hedged Inventory Facility]
dated May 8, 2000, among Plains Marketing, L.P., All American
Pipeline, L.P., Plains All American Pipeline, L.P. and Fleet
National Bank and certain other lenders.
10.2 Credit Agreement [Revolving Credit Facility] dated May 8, 2000,
among Plains Marketing, L.P., All American Pipeline, L.P., Plains
All American Pipeline, L.P. and Fleet National Bank and certain
other lenders.
27. Financial Data Schedule
B. Reports on Form 8-K
None.
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 and thereunto duly authorized.
PLAINS ALL AMERICAN PIPELINE, L.P.
By: PLAINS ALL AMERICAN INC.
Its General Partner
Date: May 12, 2000 By: /s/ Cynthia A. Feeback
----------------------
Cynthia A. Feeback, Treasurer
(Principal Accounting Officer) of the
General Partner
20