EXHIBIT 99.1
PLAINS AAP. L.P.
BALANCE SHEET
(unaudited, in thousands)
SEPTEMBER 30,
2001
-------------
ASSETS
CASH $ 8
OTHER ASSETS 2
INVESTMENT IN PLAINS ALL AMERICAN PIPELINE, L.P. 50,120
-------
$50,130
=======
LIABILITIES AND PARTNERS' CAPITAL
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNERS' CAPITAL $49,790
GENERAL PARTNER'S CAPITAL 340
-------
$50,130
=======
See the notes to the financial statement.
NOTE 1 - ORGANIZATION
Organization
Plains AAP, L.P. (the "Partnership") is a Delaware limited partnership,
which was formed on May 21, 2001, and, through a series of transactions, was
capitalized on June 8, 2001. Through these series of transactions Plains
Holdings Inc. (formerly known as Plains All American Inc., ("PAAI")) conveyed to
the Partnership its general partner interest in Plains All American Pipeline,
L.P. ("PAA") and, subsequently, sold a portion of its interest in the newly
formed partnership to certain investors consisting of Kafu Holdings, L.P., Sable
Investments L.P., E-Holdings III, L.P., Mark E. Strome, Management of PAA,
Strome Hedgecap Fund, L.P. and John T. Raymond. The accounting for the
formation of the Partnership is based on PAAI's historical carrying value of its
retained ownership interest (45.54% limited partner interest) and fair value,
based on the cash contributed, for the investors group's 53.45% limited partner
interest and Plains All American GP LLC's 1% general partner interest. The
ownership interest in the Partnership (collectively, the "Partners") at
September 30, 2001, was comprised of a 1% general partner interest held by
Plains All American GP LLC (the "General Partner") and the following limited
partner interests:
. Plains Holdings Inc. - 43.560%
. Sable Investments, L.P. -18.810%
. KAFU Holdings, L.P. - 16.253%
. E-Holdings III, L.P. - 8.910%
. Mark E. Strome - 2.113%
. Management of Plains All American Pipeline, L.P. - 3.960%
. Strome Hedgecap Fund, L.P. - 1.055%
. John T. Raymond - .990%
. First Union Investors - 3.349%
The Partnership, effective as of June 8, 2001 owns a 2% general partner
interest in PAA and an approximate 1% limited partner interest, consisting of
450,000 subordinated units (see Note 4) in PAA. PAA was formed in the fourth
quarter of 1998, as a result of Plains Resources Inc. conveying all of its
interest in the All American Pipeline and the San Joaquin Valley Gathering
System to PAA in exchange for an indirect interest in (1) 6,974,239 Common
Units, 10,029,619 Subordinated Units and an aggregate 2% general partnership
interest in PAA; (2) the right to receive incentive distributions; and (3) the
assumption by PAA of $175.0 million of indebtedness incurred by Plains All
American Inc. in connection with the All American Pipeline acquisition.
PAA's operations are concentrated in Texas, Oklahoma, California and Louisiana,
and in the Canadian provinces of Alberta, Saskatchewan and Manitoba and can be
categorized into two primary business activities:
. Crude Oil Pipeline Transportation. PAA owns and operates over 3,000
miles of gathering and mainline crude oil pipelines located throughout
the United States and Canada. Its activities from pipeline operations
generally consist of transporting third-party volumes of crude oil for a
tariff, as well as merchant activities designed to capture location and
quality price differentials.
. Terminaling and Storage Activities and Gathering and Marketing
Activities. PAA owns and operates a state-of-the-art 3.1 million
barrel, above-ground crude oil terminalling and storage facility at
Cushing, Oklahoma, the
largest crude oil trading hub in the United States and the designated
delivery point for New York Mercantile Exchange ("NYMEX") crude oil
futures contracts. PAA recently announced a 1.1 million barrel
expansion of their Cushing facility. PAA also has an additional 7.8
million barrels of terminalling and storage capacity in its other
facilities, including tankage associated with their pipeline and
gathering systems. Its terminalling and storage operations generate
revenue through a combination of storage and throughput charges to third
parties. Its gathering and marketing operations include the purchase
of crude oil at the wellhead, and the bulk purchase of crude oil at
pipeline and terminal facilities, transportation of crude oil trucks,
barges or pipelines, and subsequent resale or exchange of crude oil at
various points along the crude oil distribution chain.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the balance
sheet. Although management believes these estimates are reasonable, actual
results could differ from these estimates.
Investment in PAA
The Partnership accounts for its ownership investment in PAA under the
equity method as it has the ability to exercise significant influence.
Accordingly, the Partnership's share of the earnings of PAA and distributions by
PAA are included in partners' capital.
Income Taxes
In accordance with the provisions of the Internal Revenue Code, the
Partnership is not subject to U.S. Federal income taxes. Each partner includes
its allocated share of the Partnership's income or loss in its own federal and
state income tax returns.
NOTE 3 - INVESTMENT IN PAA
The Partnership's investment in PAA is accounted for pursuant to the equity
method of accounting. The summarized financial information of PAA at December
31, 2000, is presented below (in thousands):
Current assets $397,904
Non - current assets $487,897
Current liabilities $350,793
Long-term debt and other liabilities $321,009
Partners' capital $213,999
At the date of inception, our investment in PAA exceeded its share of the
underlying equity in the net assets of PAA by $44.5 million. This excess is
amortized on a straight-line basis over a life of 30 years. This amortization
period approximates the useful lives of PAA's assets, which range from 5 to 30
years.
NOTE 4 - CONTRIBUTION OF SUBORDINATED UNITS
On June 8, 2001, certain of our limited partners contributed to the
Partnership an aggregate of 450,000 subordinated units of PAA. These
subordinated units are intended for use in connection with an option plan (see
Note 6) pursuant to which certain members of the management of our general
partner will, subject to the satisfaction of vesting criteria, have a right to
purchase a portion of such subordinated units. Until the exercise of such
options, we will continue to own and receive any distributions paid by PAA with
respect to such subordinated units. Any distributions we make as
a result of the receipt of distributions on the subordinated units will be paid
to our limited partners in proportion to the original contribution of such
subordinated units.
NOTE 5 - PARTNER'S CAPITAL
The Partnership distributes all of its available cash, less reserves
established by management, on a quarterly basis. Except as described in Note 4,
distributions are paid to the partners in proportion to their percentage
interest in the Partnership.
The General Partner manages the business and affairs of the Partnership.
Except for situations in which the approval of the limited partner is expressly
required by the Partnership agreement, or by nonwaivable provisions of
applicable law, the General Partner has full and complete authority, power and
discretion to manage and control the business, affairs and property of the
Partnership, to make all decisions regarding those matters and to perform any
and all other acts or activities customary or incident to the management of the
Partnership's business, including the execution of contracts and management of
litigation. The General Partner employs all officers and personnel involved in
the operation and management of PAA and its subsidiaries. PAA reimburses the
General Partner for all expenses, including compensation expenses, related to
such operation and management.
The Partnership has no commitment or intent to fund cash flow deficits or
furnish other financial assistance to PAA.
NOTE 6 - PERFORMANCE OPTION PLAN
In June 2001, the Performance Option Plan (the "plan") was approved by the
General Partner to grant options to purchase up to 450,000 subordinated units
(See Note 4) to employees of the General Partner. Options to purchase 332,500
units have been granted under the plan. The options have been granted with an
exercise price of $22, less 80% of any distributions on these subordinated
units, from the date of grant until the date of exercise. The options vest only
upon PAA meeting certain levels of distributions. The options have a ten-year
term. These options are considered performance awards and will be accounted for
at fair value upon vesting. No compensation has been recorded by the
Partnership as no vesting has occurred as of September 30, 2001.
NOTE 7 - ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141 "Business Combinations"
("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142").
SFAS 141 requires all business combinations initiated after June 30, 2001, to be
accounted for under the purchase method. For all business combinations, for
which the date of acquisition is after June 30, 2001, this Standard also
establishes specific criteria for the recognition of intangible assets
separately from goodwill and requires unallocated negative goodwill to be
written off immediately as an extraordinary gain, rather than deferred and
amortized. SFAS 142 changes the accounting for goodwill and other intangible
assets after an acquisition. The most significant changes made by SFAS 142
are:1) goodwill and intangible assets with indefinite lives will no longer be
amortized; 2) goodwill and intangible assets with indefinite lives must be
tested for impairment at least annually; and 3) the amortization period for
intangible assets with finite lives will no longer be limited to forty years.
The Partnership believes that the adoption of this Standard will not have a
material effect on either our financial position, results of operations, or cash
flows. The Partnership will account for all future business combinations under
SFAS 141. Effective January 1, 2002, we will adopt SFAS 142, as required.
In June 2001, the FASB also issued SFAS 143 "Asset Retirement Obligations".
SFAS 143 establishes accounting requirements for retirement obligations
associated with tangible long-lived assets, including (1) the timing of the
liability recognition, (2) initial measurement of the liability, (3) allocation
of asset retirement cost to expense, (4) subsequent measurement of the liability
and (5) financial statement disclosures. SFAS 143 requires that an asset
retirement cost should be capitalized as part of the cost of the related long-
lived asset and subsequently allocated to expense using a systematic and
rational method. The Partnership will adopt the statement effective January 1,
2003, as required. The transition adjustment resulting from the adoption of
SFAS 143 will be reported as a cumulative effect of a change in accounting
principle. At this time, we cannot reasonably estimate the effect of the
adoption of this statement on either our financial position, results of
operations, or cash flows. SFAS 143 will only impact the partnership to the
extent PAA is affected.
In August 2001, the FASB approved SFAS No. 144, "Accounting for Impairment
or Disposal of Long-Lived Assets". SFAS 144 establishes a single accounting
model for long-lived assets to be disposed of by sale and provides additional
implementation guidance for assets to be held and used and assets to be disposed
of other than by sale. At this time, the Partnership cannot reasonably estimate
the effect of the adoption of this statement on either financial position,
results of operations, or cash flows. The Partnership will adopt the Statement
effective January 1, 2002. SFAS 144 will only impact the partnership to the
extent PAA is affected.