1
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 JUNE 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NO.: 1-16335
WILLIAMS ENERGY PARTNERS L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 73-1599053
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
ONE WILLIAMS CENTER, P.O. BOX 3448, TULSA, OKLAHOMA 74172
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(918) 573-2000
(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
--- ---
As of August 9, 2001, 5,679,694 common units were outstanding.
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TABLE OF CONTENTS
<Table>
<Caption>
Page
----
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WILLIAMS ENERGY PARTNERS L.P.
Consolidated Statements of Income for the three and six months ended
June 30, 2001 and 2000............................................................... 2
Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000................ 3
Consolidated Statements of Cash Flows for the six months ended
June 30, 2001 and 2000............................................................... 4
Notes to Consolidated Financial Statements........................................... 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................................ 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................... 17
FORWARD-LOOKING STATEMENTS........................................................... 17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.................................................................... 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................................ 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................................................... 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS................................ 18
ITEM 5. OTHER INFORMATION.................................................................... 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................................... 19
</Table>
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WILLIAMS ENERGY PARTNERS L.P.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2001 2000 2001 2000
-------- -------- -------- --------
Revenues:
Third party .......................................................... $ 17,918 $ 13,889 $ 34,151 $ 27,202
Affiliate ............................................................ 3,728 4,875 7,781 9,418
-------- -------- -------- --------
Total revenues .................................................. 21,646 18,764 41,932 36,620
Costs and expenses:
Operating ............................................................ 8,469 8,762 16,589 15,536
Depreciation and amortization ........................................ 2,657 2,290 5,763 4,403
Affiliate general and administrative ................................. 1,848 3,491 4,131 5,866
-------- -------- -------- --------
Total costs and expenses ........................................ 12,974 14,543 26,483 25,805
-------- -------- -------- --------
Operating profit .......................................................... 8,672 4,221 15,449 10,815
Interest expense:
Affiliate interest expense ........................................... -- (3,309) (1,843) (6,406)
Other interest expense ............................................... (1,286) -- (2,121) --
Interest capitalized ................................................. -- 163 -- 163
Other income .............................................................. 8 -- -- --
-------- -------- -------- --------
Income before income taxes ................................................ 7,394 1,075 11,485 4,572
Provision for income taxes ................................................ -- 406 187 1,735
-------- -------- -------- --------
Net income ................................................................ $ 7,394 $ 669 $ 11,298 $ 2,837
======== ======== ======== ========
Allocation of 2001 net income:
Portion applicable to the period January 1 through February 9, 2001 .... $ -- $ 304
Portion applicable to the period after February 9, 2001 ................ 7,394 10,994
-------- --------
Net income .......................................................... 7,394 $ 11,298
General partners' interest in income applicable to the period after
February 9, 2001 .................................................... $ 148 $ 220
-------- --------
Limited partners' interest in income applicable to the period after
February 9, 2001 ..................................................... $ 7,246 $ 10,774
======== ========
Basic and diluted net income per limited partner unit ..................... $ 0.64 $ 0.95
======== ========
Weighted average number of units outstanding for the period after
February 9, 2001 ..................................................... 11,359 11,359
======== ========
</Table>
See accompanying notes.
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WILLIAMS ENERGY PARTNERS L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2001 2000
------------ ------------
(UNAUDITED)
Current assets:
Cash and cash equivalents ................... $ 37,931 $ --
Accounts receivable ......................... 15,400 10,645
Affiliate accounts receivable ............... 1,409 1,875
Prepaid insurance ........................... -- 903
Other current assets ........................ 482 685
------------ ------------
Total current assets ................... 55,222 14,108
Property, plant and equipment, at cost ........... 374,293 340,975
Less: accumulated depreciation .............. 45,770 40,127
------------ ------------
Net property, plant and equipment ...... 328,523 300,848
Deferred equity offering costs ................... -- 2,539
Long-term affiliate receivables .................. 1,763 --
Long-term receivables ............................ 262 262
Other noncurrent assets .......................... 1,648 748
------------ ------------
Total assets ................................ $ 387,418 $ 318,505
============ ============
Current liabilities:
Accounts payable ............................ $ 2,095 $ 3,640
Acquisition payable ......................... 29,100 --
Affiliate payable ........................... 2,218 --
Accrued affiliate payroll and benefits ...... 601 1,169
Accrued taxes other than income ............. 1,987 1,919
Accrued interest payable .................... 558 --
Other liabilities ........................... 395 --
Current portion of long-term debt ........... 100 --
------------ ------------
Total current liabilities .............. 37,054 6,728
Long-term debt ................................... 119,500 --
Unearned revenues ................................ 259 --
Affiliate note payable ........................... -- 226,188
Deferred income taxes ............................ -- 13,789
Environmental liabilities ........................ 1,763 1,944
Commitments and contingencies
Partners' capital ................................ 228,842 69,856
------------ ------------
Total liabilities and partners' capital ..... $ 387,418 $ 318,505
============ ============
</Table>
See accompanying notes.
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WILLIAMS ENERGY PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
------------------------
2001 2000
---------- ----------
Operating Activities:
Net income ........................................................... $ 11,298 $ 2,837
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .................................. 5,763 4,403
Deferred income taxes .......................................... -- 1,735
Changes in components of operating assets and liabilities:
Accounts receivable ......................................... (4,673) (3,022)
Affiliate accounts receivable ............................... 466 (8,676)
Accounts payable ............................................ (1,545) (1,795)
Affiliate accounts payable .................................. 2,218 --
Accrued affiliate payroll and benefits ...................... (568) 85
Accrued interest payable .................................... 558 --
Accrued taxes other than income ............................. 68 1,374
Prepaid insurance ........................................... 913 (37)
Current and noncurrent environmental liabilities ............ 89 426
Other current and noncurrent assets and liabilities ......... 1,234 (484)
---------- ----------
Net cash provided (used) by operating activities ....... 15,821 (3,154)
Investing Activities:
Additions to property, plant & equipment ............................ (4,573) (2,259)
Purchase of businesses .............................................. -- (300)
Other ............................................................... (66) --
---------- ----------
Net cash used by investing activities ........................... (4,639) (2,559)
Financing Activities:
Dividends paid ....................................................... (3,385) --
Borrowings under credit facility ..................................... 119,600 --
Capital contributions by affiliate ................................... 2,915 --
Return of capital contributions to affiliates ........................ (2,281) --
Sales of Common Units to public (less underwriters commissions) ...... 92,460 --
Debt placement costs ................................................. (909) --
Payment of formation costs associated with initial public offering ... (3,098) --
Redemption of 600,000 Common Units from affiliate .................... (12,060) --
Cash advances from affiliate ......................................... 5,226 --
Repayment of advances from affiliate ................................. (5,226) --
Proceeds on affiliate note payable ................................... -- 8,363
Payments on affiliate note payable ................................... (166,493) (2,650)
---------- ----------
Net cash provided by financing activities ....................... 26,749 5,713
---------- ----------
Change in cash and cash equivalents ....................................... 37,931 --
Cash and cash equivalents at beginning of period .......................... -- --
---------- ----------
Cash and cash equivalents at end of period ................................ $ 37,931 $ --
========== ==========
Supplemental non-cash investing and financing transactions:
Contribution by affiliate of predecessor company deferred income
tax liability ................................................... $ 13,789 $ --
Contribution of long-term debt to partnership capital ................ 59,695
----------
Purchase of business ................................................. 29,100 --
---------- ----------
Total ........................................................... $ 102,584 $ --
========== ==========
</Table>
See accompanying notes.
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WILLIAMS ENERGY PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying financial statements of
Williams Energy Partners L.P. (the "MLP" or the "Partnership"), which are
unaudited, except for the Balance Sheet as of December 31, 2000, which is
derived from audited financial statements, include all normal and recurring
adjustments necessary to present fairly the Partnership's financial position as
of June 30, 2001, and the results of operations for the three and six month
periods ended June 30, 2001 and 2000. The results of operations for the three
and six months ended June 30, 2001 are not necessarily indicative of the results
to be expected for the full year ending December 31, 2001.
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the financial statements do not include all of the information and
notes normally included with financial statements prepared in accordance with
accounting principles generally accepted in the United States. These financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Partnership's Annual Report on Form
10-K for the year ended December 31, 2000.
Certain amounts in the financial statements for 2000 have been reclassified
to conform to the current period's presentation.
2. ORGANIZATION
Williams Energy Partners L.P. is a Delaware limited partnership that was
formed in August 2000, to acquire, own and operate: (a) selected petroleum
product terminals owned by Williams Energy Ventures, Inc. ("WEV"), and (b) an
ammonia pipeline and terminals system, Williams Ammonia Pipeline, Inc.,
("WAPI"), owned by Williams Natural Gas Liquids Inc ("WNGL"). Prior to the
closing of the Partnership's initial public offering ("IPO") in February 2001,
WEV was owned by Williams Energy Services, LLC ("WES"). Both WES and WNGL are
wholly-owned subsidiaries of The Williams Companies, Inc. ("Williams"). Williams
GP LLC (the "Managing GP" or "General Partner") a Delaware limited liability
company, was also formed in August 2000, to serve as managing general partner
for the Partnership.
On February 9, 2001, the Partnership completed its IPO of 4,000,000 Common
Units representing limited partner interests in the Partnership at a price of
$21.50 per unit. The net proceeds of $80.4 million, after underwriter
commissions of $5.6 million, were used to pay $3.1 million of legal and
professional fees and costs associated with the IPO with the remainder used to
reduce affiliate note balances with Williams.
On October 28, 2000, the MLP and the Managing GP formed a limited operating
partnership named Williams OLP, L.P. ("OLP") to serve as limited partner of the
operating limited partnerships. Concurrent with the closing of the IPO and
pursuant to the Contribution and Conveyance dated February 9, 2001, WEV
converted itself into Williams Terminals Holdings, L.P. ("WTH LP"). Williams
Pipeline Holdings, LLC, a subsidiary of WTH LP, converted itself into Williams
Pipeline Holdings, LP ("WPH LP") and Williams Ammonia Pipeline, Inc. converted
itself into Williams Ammonia Pipeline, L.P. ("WAP LP"). All three converted
entities are Delaware limited partnerships. WNGL contributed 3.05% of its
ownership in WAP LP and WES contributed 2.05% of its ownership in WTH LP to the
Managing GP in exchange for 19.2% and 80.8% ownership interest in the Managing
GP, respectively. WNGL contributed the remainder of its interest in WAP LP to
the OLP and WES contributed the remainder of its interest in WTH LP and all of
its interest in WPH LP to the OLP in exchange for ownership interests in the
OLP. The Managing GP contributed all of its interest in WAP LP, WTH LP and WPH
LP in exchange for: (a) a 1.0% managing general partner interest in the MLP and
(b) a 1.0101% managing general partner interest in the OLP. WNGL contributed to
the MLP all of its limited partner interest in OLP in exchange for 322,501
Common
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Units and 1,090,501 Subordinated Units and WES contributed all of its limited
partner interest in OLP to the MLP in exchange for 1,357,193 Common Units and
4,589,193 Subordinated Units.
The resulting structure is as follows: Williams GP LLC serves as the
managing general partner for both the MLP and the OLP. OLP is the limited
partner of the operating limited partnerships. The operating limited
partnerships are comprised of WTH LP, WPH LP and WAP LP. Williams NGL, LLC, was
established to serve as general partner of the operating limited partnerships
and is owned by OLP. Under the resulting structure, the limited partners'
liability in each of the limited partnerships is limited to their investment.
Subsequent to the IPO, the underwriters exercised their over-allotment
option and purchased 600,000 Common Units, also at a price of $21.50 per unit.
The net proceeds of $12.1 million, after underwriter commissions of $0.8
million, from this over-allotment option were used to redeem 600,000 of the
Common Units held by WES to reimburse it for capital expenditures related to the
Partnership's assets. Upon completion of this transaction, Williams owned 60% of
the equity units of the Partnership. The MLP maintained the historical costs of
the net assets received under the Contribution Agreement.
3. ACQUISITIONS
On June 30, 2001, the Partnership purchased two petroleum product terminals
located in Little Rock, Arkansas from TransMontaigne Inc. at a cost of $29.1
million. Funds for the acquisition were disbursed on the first business day
following the execution of the transaction.
4. SEGMENT DISCLOSURES
Management evaluates performance based upon segment profit or loss from
operations which includes revenues from affiliate and external customers,
operating expenses, depreciation and affiliate general and administrative
expenses. Affiliate revenues are accounted for as if the sales were to
unaffiliated third parties.
The Partnership's reportable segments are strategic business units that
offer different products and services. The segments are managed separately
because each segment requires different marketing strategies and business
knowledge.
<Table>
<Caption>
(IN THOUSANDS)
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
------------------------------ ------------------------------
PETROLEUM PETROLEUM
PRODUCT AMMONIA PRODUCT AMMONIA
TERMINALS PIPELINE TOTAL TERMINALS PIPELINE TOTAL
--------- -------- ------- --------- -------- -------
Revenues:
Third party customers ........... $ 13,742 $ 4,176 $17,918 11,562 2,327 13,889
Affiliate customers ............. 3,728 -- 3,728 4,875 -- 4,875
--------- -------- ------- --------- -------- -------
Total revenues ............... 17,470 4,176 21,646 16,437 2,327 18,764
Operating expenses ................. 7,464 1,002 8,466 7,875 887 8,762
Depreciation ....................... 2,415 162 2,577 2,129 161 2,290
Affiliate general and administrative
expenses ........................ 1,572 276 1,848 2,976 515 3,491
--------- -------- ------- --------- -------- -------
Segment profit ..................... $ 6,019 $ 2,736 $ 8,755 $ 3,457 $ 764 $ 4,221
========= ======== ======= ========= ======== =======
</Table>
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<Table>
<Caption>
(IN THOUSANDS)
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
------------------------------- -------------------------------
PETROLEUM PETROLEUM
PRODUCT AMMONIA PRODUCT AMMONIA
TERMINALS PIPELINE TOTAL TERMINALS PIPELINE TOTAL
--------- -------- -------- --------- -------- --------
Revenues:
Third party customers ............... $ 27,287 $ 6,864 $ 34,151 $ 21,245 $ 5,957 $ 27,202
Affiliate customers ................. 7,781 -- 7,781 9,418 -- 9,418
--------- -------- -------- --------- -------- --------
Total revenues ................... 35,068 6,864 41,932 30,663 5,957 36,620
Operating expenses ..................... 14,641 1,945 16,586 13,724 1,812 15,536
Depreciation ........................... 5,359 324 5,683 4,081 322 4,403
Affiliate general and administrative
expenses ............................ 3,588 543 4,131 4,888 978 5,866
--------- -------- -------- --------- -------- --------
Segment profit ......................... $ 11,480 $ 4,052 $ 15,532 $ 7,970 $ 2,845 $ 10,815
========= ======== ======== ========= ======== ========
Total assets ........................... $ 361,322 $ 26,096 $387,418 $ 271,600 $ 21,729 $293,329
========= ======== ======== ========= ======== ========
</Table>
The following tables reflect the reconciliation of operating profit as
reported in the Consolidated Statements of Income to segment profit per the
tables on pages 6 and 7 (in thousands):
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2001
------------------ ----------------
Segment profit ................................... $ 8,755 $ 15,532
Amortization of debt placement fees .............. 80 80
Other expense .................................... 3 3
------------------ ----------------
Operating profit per consolidated statements of
income ....................................... $ 8,672 $ 15,449
================== ================
</Table>
5. RELATED PARTY TRANSACTIONS
Beginning with the closing date of the IPO, the general partner, through
provisions included in the Omnibus Agreement, has limited the amount of general
and administrative costs charged to the Partnership. The additional general and
administrative costs incurred by the general partner, but not charged to the
Partnership, totaled $2.4 million and $3.2 million for the three months ended
June 30, 2001 and the period from February 10, 2001 through June 30, 2001,
respectively.
6. LONG-TERM DEBT
Long-term debt at June 30, 2001, was $119.5 million and the current portion
of long-term debt was $0.1 million. At June 30, 2001, the Partnership had a
$150.0 million bank credit facility. The credit facility was comprised of a
$90.0 million term loan facility and a $60.0 million revolving credit facility,
which includes a $40.0 million acquisition sub-facility and a $20.0 million
working capital sub-facility. On February 9, 2001, the OLP borrowed $90.0
million under the term loan facility and $0.1 million under the acquisition
sub-facility. The credit facility's term extends through February 5, 2004.
Borrowings under the credit facility carry an interest rate equal to the London
Interbank Offered Rate ("LIBOR") plus a spread from 1.0% to 1.5%, depending on
the OLP's leverage ratio. Interest is also assessed on the unused portion of the
credit facility at a spread from 0.2% to 0.4%, depending on the OLP's leverage
ratio. The OLP's leverage ratio is defined as the ratio of consolidated total
debt to consolidated earnings before interest, income taxes, depreciation and
amortization for the period of the four fiscal quarters ending on such date.
Closing fees associated with the initiation of the credit facility were $0.9
million.
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In June 2001, the OLP borrowed an additional $29.5 million under the
acquisition sub-facility to fund the TransMontaigne terminals acquisition.
Average interest rates at June 30, 2001, were 5.84% for the term loan facility
and 4.95% for the acquisition sub-facility.
Effective July 31, 2001, the bank credit facility was modified such that
the working capital sub-facility was reduced by $8.0 million and the acquisition
sub-facility was increased by $33.0 million. The Partnership's bank credit
facility is now $175.0 million, which is comprised of a $90.0 million term loan
facility and a $85.0 million revolving credit facility. The $85.0 million
revolving credit facility includes a $73.0 million acquisition sub-facility and
a $12.0 million working capital sub-facility. After the acquisition of the
terminals from TransMontaigne, the unused portion of the acquisition
sub-facility is $43.5 million.
7. RESTRICTED STOCK
The General Partner has a restricted stock plan that provides for awards of
common units to certain key employees, subject to forfeiture if employment
terminates prior to the vesting dates. Certain awards are subject to forfeiture
if the Partnership does not achieve specified performance conditions. In April
2001, awards of 151,700 restricted units were granted to employees of the
General Partner and its affiliates, of which 87,500 units were a one-time grant
associated with the IPO and 64,200 units were associated with the long-term
incentive compensation plan. The one-time IPO restricted units will vest over a
34-month period ending on February 10, 2004. The restricted units granted as
part of the long-term incentive compensation plan will also vest over a 34-month
period; however, the vesting is conditional subject to the Partnership achieving
certain performance measures. The one-time IPO restricted units are subject to
early vesting conditional to the Partnership achieving certain performance
measures. The fair market value of the restricted units associated with the
one-time IPO grant was approximately $2.7 million on the grant date, and the
fair value of the restricted units associated with the long-term incentive
compensation grant was approximately $1.9 million as of June 30, 2001.
Management intends to make the actual distribution of these restricted units
through units acquired in the open market. For the three and six months ended
June 30, 2001, the Partnership recognized $0.3 million of compensation expense
associated with these restricted units.
The Partnership's Omnibus Agreement stipulates that the general and
administrative expenses charged to the Partnership by the General Partner are
limited to $6.0 million annually for the initial asset base. However, incentive
compensation costs are not subject to the $6.0 million general and
administrative expense restriction, and the General Partner has charged the
Partnership with these incentive costs above the expense limitation.
8. COMMITMENTS AND CONTINGENCIES
In conjunction with the 1999 acquisition of the Gulf Coast marine terminals
from Amerada Hess Corporation ("Hess"), Hess has disclosed to the Partnership
all suits, actions, claims, arbitrations, administrative, governmental
investigation or other legal proceedings pending or threatened, against or
related to the assets acquired by the Partnership, which arise under
environmental law. Hess agreed to indemnify the Partnership against all
environmental claims and losses arising from any matters related to the
pre-acquisition period through July 30, 2014. In the event that any
pre-acquisition releases of hazardous substances are identified by the
Partnership prior to July 20, 2004, the Partnership will be liable for the first
$2.5 million of environmental liabilities, Hess will be liable for the next
$12.5 million of losses, and the Partnership will assume responsibility for any
losses in excess of $15.0 million. Hess has indemnified the Partnership against
any pre-acquisition fines and claims that may be imposed or asserted against the
Partnership under environmental laws. At both June 30, 2001 and December 31,
2000, the Partnership had accrued $0.6 million for costs that may not be
recoverable under Hess' indemnification.
Williams Energy Services has agreed to indemnify the Partnership against
any covered environmental losses, up to $15 million, relating to assets it
contributed to the Partnership that arose prior to February 9, 2001, that become
known within three years after February 9, 2001, and that exceed all amounts
recovered
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or recoverable by the Partnership under contractual indemnities from third
parties or under any applicable insurance policies. Covered environmental losses
are those non-contingent environmental losses, costs, damages and expenses
suffered or incurred by the Partnership arising from correction of violations
of, or performance of remediation required by, environmental laws in effect at
February 9, 2001, due to events and conditions associated with the operation of
the assets and occurring before February 9, 2001.
Estimated liabilities for environmental costs, primarily associated with
the petroleum product terminal operations, were $2.0 million and $1.9 million at
June 30, 2001 and December 31, 2000, respectively. Management estimates that
these expenditures for environmental remediation liabilities will be paid over
the next five years. Receivables associated with environmental liabilities of
$2.0 million and $0.3 million at June 30, 2001 and December 31, 2000,
respectively, have been recognized as recoverable from affiliates and third
parties. These estimates, provided on an undiscounted basis, were determined
based primarily on data provided by a third-party environmental evaluation
service. These liabilities have been classified as current or noncurrent based
on management's estimates regarding the timing of actual payments.
WNGL will indemnify the Partnership for right of way defects or failures in
our ammonia pipeline for 15 years after the closing date. WES has also
indemnified the Partnership for right of way defects or failures associated with
the marine terminal facilities at Galena Park, Corpus Christi and Marrero for 15
years after the closing date.
The Partnership is party to various other claims, legal actions and
complaints arising in the ordinary course of business. In the opinion of
management, the ultimate resolution of all claims, legal actions and complaints
after consideration of amounts accrued, insurance coverage or other
indemnification arrangements will not have a material adverse effect upon the
Partnership's future financial position, results of operations or cash flows.
9. DISTRIBUTIONS
On April 19, 2001, the Partnership declared a cash distribution of $0.292
per unit on its outstanding Common and Subordinated Units. The distribution
represents the minimum quarterly distribution for the 50-day period following
the IPO closing date. The IPO closing was at the end of the day on February 9,
2001 and the 50-day distribution period was from February 10, 2001 through March
31, 2001. The $3.4 million distribution was paid on May 15, 2001 to unitholders
of record at the close of business on May 1, 2001.
On July 24, 2001, the Partnership declared a cash distribution of $0.5625
per unit on its outstanding Common and Subordinated Units. The distribution
exceeds the minimum quarterly distribution by $0.0375 per unit. The $6.5 million
distribution will be paid on August 14, 2001 to unitholders of record at the
close of business on August 2, 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Williams Energy Partners L.P. is a Delaware limited partnership formed by
The Williams Companies, Inc. to own, operate and acquire a diversified portfolio
of complementary energy assets. We are principally engaged in the storage,
transportation and distribution of refined petroleum products and ammonia. Our
current asset portfolio consists of:
- four marine terminal facilities;
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- 26 inland terminals (some of which are partially owned); and
- an ammonia pipeline and terminals system.
Other than the two inland terminals acquired in June 2001, these assets
were owned by several wholly-owned subsidiaries of The Williams Companies, Inc.
Upon the closing of our initial public offering on February 9, 2001, these
assets were transferred to Williams Energy Partners L.P., including the related
liabilities. The following discussion has been prepared as if the assets were
operated as a stand-alone business throughout the periods presented.
RECENT DEVELOPMENTS
On July 24, the Partnership declared an increase in the quarterly cash
distribution from $0.525 to $0.5625 per Common and Subordinated unit, a 7.1%
increase. The distribution increase is for the period of April 1 through June
30, 2001. The distribution will be paid on August 14 to unitholders of record at
the close of business on August 2.
On June 30, 2001, the Partnership completed an acquisition of two inland
petroleum product terminals in Little Rock, Ark., from TransMontaigne Inc. for
$29.1 million. This acquisition is expected to add $0.05 to $0.08 per unit
accretion to our distributable cash on an annualized basis.
On April 24, the Partnership announced that it had signed a letter of
intent with Southwest Airlines to provide jet fuel delivery services into Dallas
Love Field. This announcement coincided with the acquisition of a 6-mile
pipeline that enables a connection of the Partnership's existing Dallas terminal
to Love Field. The Partnership is in the process of building additional jet fuel
storage at the Dallas terminal to support this business. The total capital
outlay for this project is estimated to be $5.4 million and is expected to add
approximately $0.05 per unit accretion to our distributable cash on an
annualized basis. The project is on schedule to be completed by late November
2001.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO JUNE 30, 2000
<Table>
<Caption>
THREE MONTHS ENDED
JUNE 30,
-------------------
2001 2000
-------- --------
(MILLIONS)
FINANCIAL HIGHLIGHTS
Revenues:
Petroleum product terminals ................................................. $ 17.4 $ 16.5
Ammonia pipeline and terminals system ....................................... 4.2 2.3
-------- --------
Total revenues ......................................................... 21.6 18.8
Operating expenses:
Petroleum product terminals ................................................. 7.5 7.9
Ammonia pipeline and terminals system ....................................... 1.0 .9
-------- --------
Total operating expenses ............................................... 8.5 8.8
-------- --------
Total operating margin ................................................. $ 13.1 $ 10.0
======== ========
OPERATING STATISTICS
Petroleum product terminals:
Marine terminal facilities:
Average storage capacity utilized per month (barrels in millions)(a) ... 15.8 12.8
Throughput (barrels in millions)(b) .................................... 2.3 N/A
Inland terminals:
Throughput (barrels in millions) ....................................... 13.5 14.9
Ammonia pipeline and terminals system:
Volume shipped (tons in thousands) .......................................... 180 141
</Table>
10
12
- ----------
(a) For the three months ended June 30, 2000, represents the average storage
capacity utilized per month for the Gulf Coast marine terminals. For the three
months ended June 30, 2001, represents the average storage capacity utilized for
the Gulf Coast facilities (12.8) and the New Haven, Connecticut facility (3.0).
(b) Represents activity at the New Haven, Connecticut facility, which was
acquired in September, 2000.
Combined revenues for the three months ended June 30, 2001 were $21.6
million compared to $18.8 million for the three months ended June 30, 2000, an
increase of $2.8 million, or 15%. This increase was a result of:
o an increase in petroleum product terminals revenues of $0.9 million, or
5%, due to the following:
-- an increase in the marine terminal facilities revenues of $1.4 million,
from $12.4 million to $13.8 million. This increase is partially a result of the
acquisition of the New Haven facility in September 2000, which added revenues of
$2.3 million. These increases were partially offset by the recording in 2000 of
a receivable related to revenue guarantees associated with the acquisition of
the Gulf Coast marine terminals and a reduction in 2001 pipeline revenues at
Galena Park as a result of reduced third party shipments. Reflected in the
revenue comparison is a $0.8 million decrease, from $2.7 million in 2000 to $1.9
million in 2001, in revenues from Williams Energy Marketing and Trading, an
affiliate of our general partner, which utilizes our facilities in connection
with its trading business; and
-- a decrease in inland terminal revenues of $0.5 million, from $4.1
million to $3.6 million, as throughput volumes declined by 1.4 million barrels.
Throughput volume decreased primarily because of the December, 2000 expiration
of a customer's contractual commitment to utilize a specific amount of
throughput capacity. This contract was executed in January 1999 in connection
with the acquisition of 12 inland terminals. This volume reduction was partially
offset by a volume increase at the St. Charles, Missouri terminal resulting from
connecting this terminal to the Explorer Pipeline in late 2000. Terminalling
throughput rates slightly improved from 2000 to 2001 but were offset by lower
ancillary revenues. Included in the comparison is a $0.4 million decrease from
$2.2 million in 2000 to $1.8 million in 2001 from Williams Energy Marketing and
Trading;
o an increase in ammonia pipeline and terminals system revenues of $1.9
million, or 83%, primarily due to a 39,000 ton, or 28%, increase in ammonia
shipped through our pipeline and a throughput deficiency billing in the current
quarter resulting from a shipper not meeting their minimum annual throughput
commitment. In addition, tariffs increased by $0.61 per ton, from a
weighted-average tariff of $15.40 per ton for 2000 compared to a tariff of
$16.01 per ton for 2001. The increase in the weighted-average tariff resulted
from the 2000 mid-year indexing adjustment allowed under the transportation
agreements as well as the expiration of a discount received by one of our
customers.
Operating expenses for the three months ended June 30, 2001 were $8.5
million compared to $8.8 million for the three months ended June 30, 2000, a
decrease of $0.3 million, or 3%. This decrease was a result of:
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o a decrease in petroleum product terminals expenses of $0.4 million, or
5%, due to:
-- marine terminal facilities expenses that were unchanged, despite the
addition of the New Haven, Connecticut facility in September 2000, which added
$1.0 million to expense. This increase was offset by a net decrease in Gulf
Coast facilities costs as significantly lower environmental accruals more than
offset increases in outside services and utility costs; and
-- a decrease in inland terminal expenses of $0.4 million, from $2.1
million to $1.7 million, primarily as a result of declines in environmental
accruals;
o an increase in ammonia pipeline and terminals system expenses of $0.1
million.
Depreciation expense for the three months ended June 30, 2001 was $2.7
million compared to $2.3 million for the three months ended June 30, 2000, an
increase of $0.4 million, or 17%. This increase was primarily due to the
acquisition of the New Haven, Connecticut facility in September 2000.
General and administrative expenses for the three months ended June 30,
2001 were $1.8 million compared to $3.5 million for the three months ended June
30, 2000, a decrease of $1.7 million, or 49%. This decrease is a result of the
general and administrative expense limit of $1.5 million per quarter established
in the Omnibus Agreement at the time of the Initial Public Offering ("IPO").
General and administrative expense exceeds the limit due to $0.3 million of
management incentive compensation related to the Partnership's performance,
which was recorded in the second quarter of 2001. Incentive compensation costs
are specifically excluded from the $1.5 million expense limitation. The limit on
general and administrative expense that can be charged by General Partner to the
Partnership will also be adjusted in the future to reflect completed
acquisitions.
Interest expense for the three months ended June 30, 2001 was $1.3 million
compared to interest expense of $3.1 million for the three months ended June 30,
2000. The decline in interest expense was primarily related to the partial pay
down and cancellation of an affiliate note in connection with the closing of the
IPO of Williams Energy Partners on February 9, 2001. Concurrent with the closing
of the offering, the Partnership borrowed $90.1 million under its term loan
facility and revolving credit facility. At the end of the second quarter 2001,
the entire $90.1 million was still outstanding.
We do not pay income taxes because we are a partnership. We based our
income tax provision for the pre-IPO earnings upon the effective income tax rate
for The Williams Companies, Inc. for those periods of 38.0%. The effective
income tax rate exceeds the U.S. federal statutory income tax rate primarily due
to state income taxes.
Net income for the three months ended June 30, 2001, was $7.4 million
compared to $0.7 million for the three months ended June 30, 2000, an increase
of $6.7 million, or 957%. The operating margin increased by $3.2 million during
the period, largely as a result of the New Haven, Connecticut facility
acquisition in September 2000, the ammonia revenue deficiency bill and increased
tariffs on the ammonia system. In addition, depreciation and general and
administrative expenses decreased by $1.3 million while interest expense
decreased $1.8 million. Income taxes declined by $0.4 million as a result of the
Partnership not paying taxes after the IPO date of February 9, 2001.
12
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SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO JUNE 30, 2000
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
-------------------------
2001 2000
-------- --------
(MILLIONS)
FINANCIAL HIGHLIGHTS
Revenues:
Petroleum product terminals ................................................. $ 35.0 $ 30.7
Ammonia pipeline and terminals system ....................................... 6.9 5.9
-------- --------
Total revenues ......................................................... 41.9 36.6
Operating expenses:
Petroleum product terminals ................................................. 14.7 13.7
Ammonia pipeline and terminals system ....................................... 1.9 1.8
-------- --------
Total operating expenses ............................................... 16.6 15.5
-------- --------
Total operating margin ................................................. $ 25.3 $ 21.1
======== ========
OPERATING STATISTICS
Petroleum product terminals:
Marine terminal facilities:
Average storage capacity utilized per month (barrels in millions)(a) ... 15.5 12.3
Throughput (barrels in millions)(b) .................................... 5.6 N/A
Inland terminals:
Throughput (barrels in millions) ....................................... 25.2 27.5
Ammonia pipeline and terminals system:
Volume shipped (tons in thousands) .......................................... 340 374
</Table>
- ----------
(a) For the six months ended June 30, 2000, represents the average storage
capacity utilized per month for the Gulf Coast marine terminals. For the six
months ended June 30, 2001, represents the average storage capacity utilized for
the Gulf Coast facilities (12.5) and the New Haven, Connecticut facility (3.0).
(b) Represents activity at the New Haven, Connecticut facility, which was
acquired in September 2000.
Our combined revenues for the six months ended June 30, 2001 were $41.9
million compared to $36.6 million for the six months ended June 30, 2000, an
increase of $5.3 million, or 14%. This increase was a result of:
o an increase in petroleum product terminals revenues of $4.3 million, or
14%, due to the following:
-- an increase in the marine terminal facilities revenues of $5.9 million,
from $22.1 million to $28.0 million. The majority of this increase resulted from
the acquisition of the New Haven facility in September 2000, which added $4.6
million in revenue. The remaining increase is a result of a 0.2 million barrel
per month increase in utilization of the Gulf Coast facilities, a storage rate
increase at the Gulf Coast facilities of approximately $0.03 per barrel
facilitated by an improved marketing environment and a reduction in Galena Park
pipeline revenue of $1.2 million. Included in the revenue variance is a $0.7
million decrease in revenues, from $4.8 million in 2000 to $4.1 million in 2001,
from Williams Energy Marketing and Trading, an affiliate of our general partner,
which utilizes our facilities in connection with its trading business; and
-- a decrease in inland terminal revenues of $1.6 million, from $8.6
million to $7.0 million, as throughput volumes declined by 2.3 million barrels
and ancillary revenues declined. Throughput volume decreased primarily because
of the December, 2000 expiration of a customer's contractual commitment to
utilize a specific amount of throughput capacity. This contract was executed in
January 1999 in connection
13
15
with the acquisition of 12 inland terminals. The volume reduction was partially
offset by a volume increase at the St. Charles, Missouri terminal resulting from
connecting this terminal to the Explorer Pipeline in late 2000. Ancillary
revenues declined as a result of selling line-fill and higher revenues resulting
from volume metering differences in the first and second quarter of 2000.
Terminalling throughput rates increased slightly from 2000 to 2001. Included in
the inland terminal revenue variance is a $0.9 million decrease in revenues from
$4.6 million in 2000 to $3.7 million in 2001 from Williams Energy Marketing and
Trading;
o an increase in ammonia pipeline and terminals system revenues of $1.0
million, or 17%, primarily due to a throughput deficiency billing in the current
quarter resulting from a shipper not meeting their minimum annual throughput
commitment. Revenue declines from a reduction in throughput of 34,000 tons were
offset by tariff increases. The throughput decline was due to lower product
demand resulting from a wet spring planting season as well as the continuing
impact of higher prices for natural gas, the primary component for the
production of ammonia. Due to higher natural gas prices, our customers elected
to produce and transport lower quantities of ammonia and to draw more ammonia
from their existing inventories to meet demand. A higher weighted-average tariff
of $16.09 per ton for 2001 compared to a tariff of $15.07 per ton for 2000 was
the result of a 2000 mid-year indexing adjustment allowed under the
transportation agreements as well as the expiration of a discount received by
one of our customers.
Operating expenses for the six months ended June 30, 2001 were $16.6
million compared to $15.5 million for the six months ended June 30, 2000, an
increase of $1.1 million, or 7%. This increase was a result of:
o an increase in petroleum product terminals expenses of $1.0 million, or
7%, due to:
-- an increase in marine terminal facilities expenses of $1.2 million, from
$9.7 million to $10.9 million, primarily due to the acquisition and assimilation
of the New Haven, Connecticut facility. Higher utility and outside services
costs were offset by lower environmental accruals; and
-- a decrease in inland terminal expenses of $0.2 million, from $4.0
million to $3.8 million, primarily resulting from lower environmental accruals,
offset by an increase in non-income related taxes;
o an increase in ammonia pipeline and terminals system expenses of $0.1
million.
Depreciation and amortization expense for the six months ended June 30,
2001 was $5.8 million compared to $4.4 million for the six months ended June 30,
2000, an increase of $1.4 million, or 32%. This increase resulted from the
acquisition of the New Haven, Connecticut facility in September 2000 and
adjustments resulting from asset reclassifications.
General and administrative expenses for the six months ended June 30, 2001
were $4.1 million compared to $5.9 million for the six months ended June 30,
2000, a decrease of $1.8 million, or 31%. After the closing of the IPO of
Williams Energy Partners on February 9, 2001, general and administrative
expenses have been limited to $1.5 million per quarter plus the cost of
incentive compensation for the management of the general partner. Incentive
compensation accruals totaled $0.3 million for the six months ended June 30,
2001.
Interest expense for the six months ended June 30, 2001, was $4.0 million
compared to interest expense of $6.2 million for the six months ended June 30,
2000. The decline in interest expense is primarily related to the partial
extinguishment and cancellation of an affiliate note as a result of the closing
of the IPO of Williams Energy Partners on February 9, 2001. Concurrent with the
closing of the offering, the Partnership borrowed $90.1 million under its term
loan facility and revolving credit facility. At the end of the second quarter
2001, the entire $90.1 million of this original term loan was still outstanding.
We do not pay income taxes because we are a partnership. However, in the
six months ended June 30, 2001, a small portion of our earnings were related to
periods prior to the IPO and are subject to income taxes. We based our income
tax provision for the pre-IPO earnings upon the 38.0% effective income tax
14
16
rate for The Williams Companies, Inc. for those periods. The effective income
tax rate exceeds the U.S. federal statutory income tax rate primarily due to
state income taxes. No income taxes are calculated for the partnership income
for the period February 10, 2001 to June 30, 2001.
Net income for the six months ended June 30, 2001 was $11.3 million
compared to $2.8 million for the six months ended June 30, 2000, an increase of
$8.5 million, or 304%. The operating margin increased by $4.3 million during the
period, largely as a result of the New Haven, Connecticut facility acquisition
in September 2000 and the ammonia throughput deficiency billing. In addition,
depreciation and general and administrative expenses decreased $0.4 million
while interest expense decreased $2.3 million. Income taxes declined by $1.5
million as a result of the Partnership not paying taxes after the IPO date of
February 9, 2001.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS AND CAPITAL EXPENDITURES
Net cash provided (used) by operating activities for the six months ended
June 30, 2001, was $15.8 million compared to $(3.2) million for the six months
ended June 30, 2000. The $19.0 million increase in cash from 2000 to 2001 was
primarily a result of the growth of net income and a significant reduction in
our affiliate accounts receivable. Net income improved as a result of the
addition of the New Haven, Connecticut marine terminal, income related to
minimum throughput commitments on the ammonia pipeline system and changes
resulting from the Partnership's initial public offering in February 2001,
including the retirement of debt which lowered interest costs, a reduction in
general and administrative costs and the lack of income taxes due to the
partnership structure. The reduction in our affiliate receivable was the result
of better internal cash management policies, which were developed in preparation
for the public offering of this Partnership.
Net cash used by investing activities for the six months ended June 30,
2001 and 2000, was $4.6 million and $2.6 million, respectively. The $2.0 million
increase was partially the result of the Dallas jet fuel pipeline acquisition
and the coinciding construction of jet fuel tanks at the Dallas terminal. The
$0.3 million cash outlay in 2000 was for the purchase of a 50% interest in the
Southlake, Texas terminal from Citgo Petroleum Corporation.
Net cash provided by financing activities for the six months ended June 30,
2001 and 2000, was $26.7 million and $5.7 million, respectively. The cash inflow
in the first half of 2001 is primarily comprised of $29.5 million associated
with additional borrowings for the acquisition of the TransMontaigne terminals.
The cash provided for the first six months of 2000 represented net proceeds on
an affiliate note payable.
CAPITAL REQUIREMENTS
The storage, transportation and distribution business requires continual
investment to upgrade or enhance existing operations and to ensure compliance
with safety and environmental regulations. The capital requirements of our
business have consisted, and we expect them to continue to consist, primarily
of:
- maintenance capital expenditures, such as those required to maintain
equipment reliability and safety and to address environmental regulations; and
- expansion capital expenditures to acquire additional complementary assets
to grow our business and to expand or upgrade our existing facilities, such as
projects that increase storage or throughput volumes.
According to the Omnibus Agreement between Williams Energy Partners L.P.
and The Williams Companies, Inc., Williams will reimburse the Partnership for
maintenance and carryforward capital in excess of $4.9 million per year on the
base business in 2001 and 2002. The total amount the Partnership expects to
spend on maintenance and carryforward capital in 2001 will exceed $4.9 million.
As a result, Williams will continue to make capital contributions to the
Partnership over the remainder of this fiscal
15
17
year. In addition to maintenance capital, we are also planning to incur
expansion and upgrade capital expenditures at our existing facilities, including
a vapor combustion unit, dock automation, pipeline connections, a rail loading
expansion and tankage construction at our Dallas, Texas terminal. The total
amount we plan to spend for expansion is approximately $10.9 million in 2001,
not including capital needs associated with unidentified acquisition
opportunities and the $29.1 million for the Little Rock, Ark. terminals. We
expect to fund our capital expenditures, including any acquisitions, from cash
provided by operations and, to the extent necessary, from the proceeds of:
- borrowings under the revolving credit facility discussed below and other
borrowings; and
- issuance of additional common units.
LIQUIDITY
Subsequent to the closing of the offering of Williams Energy Partners L.P.,
our Partnership relies on cash generated from internal operations as its primary
source of funding. Additional funding requirements are being served by a $150.0
million credit facility, which matures on February 5, 2004. This credit facility
is comprised of a $90.0 million term loan and a $60.0 million revolving credit
facility. In July 2001, the Partnership increased its revolving credit facility
by $25.0 million. In addition, the Partnership restructured the revolver by
reducing the working capital subfacility from $20.0 million to $12.0 million and
shifting that commitment to the acquisition sub-facility. The new credit
facility totals $175.0 million with $90.0 million as a term loan and $85.0
million as a revolver facility. The revolver is comprised of a $73.0 million
acquisition sub-facility and a $12.0 million working capital sub-facility.
Immediately after the closing of the offering, our Partnership borrowed all
of the $90.0 million term loan and $0.1 million under the revolving credit
facility and paid debt issuance costs of $0.9 million. The borrowings along with
the $80.4 million in net proceeds of the offering were used to repay a portion
of the affiliate note payable owed to The Williams Companies, Inc. and to pay
$3.1 million of expenses associated with the offering and the related
transactions. Net proceeds from the sale of the underwriters' over-allotment
option in February 2001, after underwriter commissions of $0.8 million, were
$12.1 million. These proceeds were used to redeem 600,000 common units from
Williams Energy Services, LLC, an affiliate entity, to reimburse it for capital
expenditures related to the Partnership. As of June 30, 2001, $30.4 million was
available under the revolving credit facility after borrowing $29.5 million to
fund the Little Rock, Ark. terminal acquisition and related expenses. On July 9,
2001 the Partnership repaid $0.1 million borrowed under the revolving credit
facility, leaving $30.5 million available. Effective July 31, 2001, the overall
credit facility was increased to $175.0 million and the remaining revolver
capacity is $55.5 million, with $12.0 million for working capital and $43.5
million for acquisitions.
The credit facility contains various operational and financial covenants.
Management believes that our Partnership is in compliance with all of these
covenants.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB"), issued Statement of
Financial Accounting, ("SFAS") No. 142, "Goodwill and Other Intangible Assets".
The Statement requires that goodwill no longer be amortized to earnings but
instead be reviewed for impairment. The amortization of goodwill ceases upon the
adoption of this standard. The Partnership plans to adopt this Statement on
January 1, 2002, and management believes it will not have a material impact on
our results of operations and financial position.
The FASB issued SFAS No. 141, "Business Combinations". The Statement
requires that all business combinations initiated after June 30, 2001, be
accounted for under the purchase method. Management believes that the
application of this Statement will not have a material impact on our results of
operations and financial position.
16
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The FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." The Statement provides
guidance for determining whether a transfer of financial assets should be
accounted for as a sale or a secured borrowing, and whether a liability has been
extinguished. The Statement is effective for recognition and reclassification of
collateral and for disclosures ending after December 15, 2000. The Statement
became effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. The initial
application of SFAS No. 140 had no impact to our results of operations and
financial position.
In June 1998, the FASB issued, SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This was followed in June 2000 by the
issuance of SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities," which amends SFAS No. 133. SFAS No. 133 and No. 138
establish accounting and reporting standards for derivative financial
instruments. The standards require that all derivative financial instruments be
recorded on the balance sheet at their fair value. Changes in fair value of
derivatives will be recorded each period in earnings if the derivative is not a
hedge. If a derivative qualifies for hedge accounting, changes in the fair value
of the derivative will either be recognized in earnings as an offset against the
change in fair value of hedged assets, liability or firm commitments also
recognized in earnings, or the changes in fair value will be deferred on the
balance sheet until the hedged item is recognized in earnings. The ineffective
portion of a derivative's change in fair value will be recognized immediately in
earnings. We adopted these standards in our financial statements effective
January 1, 2001. The Partnership does not engage in hedging activities,
accordingly, there was no impact to our financial condition, results of
operations or cash flows from adopting these standards.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Williams Energy Partners currently does not engage in interest rate,
foreign currency exchange rate or commodity price-hedging transactions.
Market risk is the risk of loss arising from adverse changes in market
rates and prices. The principal market risk to which we are exposed is interest
rate risk. Debt we incur under our credit facility bears variable interest based
on LIBOR. If the LIBOR changed by 0.125%, our annual debt coverage obligations
associated with the $119.5 million of outstanding borrowings under the term loan
and revolving credit facility would change by approximately $0.1 million. Unless
interest rates change significantly in the future, our exposure to interest rate
market risk is minimal.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Quarterly Report on Form 10-Q include
forward-looking statements - statements that discuss our expected future results
based on current and pending business operations. We make these forward-looking
statements in reliance on the safe harbor protections provided under the Private
Securities Litigation Reform Act of 1995.
Forward-looking statements can be identified by words such as
"anticipates", "believes", "expects", "estimates", "forecasts", "projects" and
other similar expressions. Although we believe our forward-looking statements
are based on reasonable assumptions, statements made regarding future results
are subject to numerous assumptions, uncertainties and risks that may cause
future results to be materially different from the results stated or implied in
this document.
The following are among the important factors that could cause actual
results to differ materially from any results projected, forecasted, estimated
or budgeted:
o Changes in demand for refined petroleum products that we store
and distribute;
o Changes in demand for storage in our petroleum product terminals;
o Changes in the throughput on petroleum product pipelines owned
and operated by third parties and connected to our petroleum
product terminals;
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o Loss of Williams Energy Marketing and Trading as a customer;
o Loss of one or all of our three customers on our ammonia pipeline
and terminals system;
o An increase in the price of natural gas, which increases ammonia
production costs and could reduce the amount of ammonia
transported through our ammonia pipeline and terminals system;
o Changes in the federal government's policy regarding farm
subsidies, which could negatively impact the demand for ammonia
and reduce the amount of ammonia transported through our ammonia
pipeline and terminals system;
o An increase in the competition our petroleum products terminals
and ammonia pipeline and terminals system encounter;
o The occurrence of an unforeseen interruption in operations for
which we are not adequately insured;
o Changes in the general economic conditions in the United States;
o Changes in laws and regulations to which we are subject,
including tax, environmental and employment laws and regulations;
o The cost and effects of legal and administrative claims and
proceedings against us or our subsidiaries;
o The ability to raise capital in a cost-effective way;
o The effect of changes in accounting policies; o The ability to
manage rapid growth;
o The ability to control costs.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material litigation has been filed against the Partnership during the
three months ended June 30, 2001, and there have been no material changes in
legal proceedings previously disclosed.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 2001, the Partnership did not issue any
equity securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10.1 Form of First Amendment to Credit Agreement and
Limited Waiver dated as of July 31, 2001, to Credit Agreement dated
February 6, 2001, among Williams OLP, L.P., as Borrower, certain
Guarantors and Bank of America, N.A., as Agent.
Exhibit 10.2 Form of Second Amendment to Credit Agreement dated
as of July 31, 2001, to Credit Agreement dated February 6, 2001, as
amended, among Williams OLP, L.P., as Borrower, certain Guarantors and
Bank of America, N.A., as Agent.
(b) Reports on Form 8-K:
The Partnership's unaudited earnings for the three months ending
March 31, 2001 and 2000, were issued on Form 8-K on April 24, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, in Tulsa, Oklahoma, on August 10, 2001.
WILLIAMS ENERGY PARTNERS L.P.
By: Williams GP LLC
its managing general partner
/s/ Don R. Wellendorf
---------------------
Don R. Wellendorf
Senior Vice President, Chief Financial
Officer and Treasurer (Principal
Accounting and Financial Officer)
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INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.1 Form of First Amendment to Credit Agreement and Limited Waiver
dated as of July 31, 2001, to Credit Agreement dated February
6, 2001, among Williams OLP, L.P., as Borrower, certain
Guarantors and Bank of America, N.A., as Agent.
10.2 Form of Second Amendment to Credit Agreement dated as of July
31, 2001, to Credit Agreement dated February 6, 2001, as
amended, among Williams OLP, L.P., as Borrower, certain
Guarantors and Bank of America, N.A., as Agent.
</Table>