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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2001
Commission File Number 1-16417
SHAMROCK LOGISTICS , L.P.
Formed under the laws of the State of Delaware
I.R.S. Employer Identification No. 74-2958817
6000 North Loop 1604 West
San Antonio, Texas 78249-1112
Telephone number: (210) 592-2000
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 October 31, 2001, 9,599,322 common units were outstanding.
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SHAMROCK LOGISTICS, L.P.
FORM 10-Q
SEPTEMBER 30, 2001
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated and Combined Balance Sheets 3
as of September 30, 2001 and December 31, 2000......................
Consolidated and Combined Statements of Income
for the Three and Nine Months Ended September 30, 2001 and 2000..... 4
Consolidated and Combined Statements of Cash Flows
for the Nine Months Ended September 30, 2001 and 2000............... 5
Combined Statement of Net Parent Investment / Partnership
Equity for the Nine Months Ended September 30, 2000................. 6
Consolidated and Combined Statement of Partnership Equity
for the Nine Months Ended September 30, 2001........................ 6
Notes to Consolidated and Combined Financial Statements................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................ 22
Item 2. Changes in Securities and Use of Proceeds........................ 22
Item 3. Defaults Upon Senior Securities.................................. 22
Item 4. Submission of Matters to a Vote of Security Holders.............. 22
Item 5. Other Information................................................ 22
Item 6. Exhibits and Reports on Form 8-K................................. 22
SIGNATURE........................................................ 22
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SHAMROCK LOGISTICS, L.P.
AND
SHAMROCK LOGISTICS OPERATIONS, L.P.
(successor to the Ultramar Diamond Shamrock Logistics Business)
CONSOLIDATED AND COMBINED BALANCE SHEETS
(in thousands)
Successor Predecessor
--------- -----------
September 30, December 31,
2001 2000
---- ----
(unaudited)
Assets
Current assets:
Cash............................................................. $ 10,399 $ 4
Receivable from parent........................................... 5,408 22,348
Accounts and notes receivable.................................... 4,105 2,386
Other current assets.............................................. - 3,528
-------- --------
Total current assets.......................................... 19,912 28,266
-------- --------
Property, plant and equipment....................................... 400,029 388,537
Less accumulated depreciation and amortization...................... (118,254) (108,520)
------- -------
Property, plant and equipment, net............................... 281,775 280,017
Goodwill, net....................................................... 4,789 5,014
Investment in affiliate............................................. 16,471 16,187
Other noncurrent assets, net........................................ 414 -
------- -------
Total assets.................................................... $ 323,361 $ 329,484
======= =======
Liabilities and Partnership Equity
Current liabilities:
Current portion of long-term debt................................ $ 385 $ 608
Accounts payable and accrued liabilities......................... 3,872 2,685
Taxes other than income taxes.................................... 3,698 3,601
------- -------
Total current liabilities..................................... 7,955 6,894
Long-term debt, less current portion................................ 25,076 10,076
Debt due to parent.................................................. - 107,676
Other long-term liabilities......................................... 1 -
Commitments and contingencies
Partnership equity:
Limited partners' equity......................................... 284,522 202,790
General partners' equity......................................... 5,807 2,048
------- -------
Total partnership equity....................................... 290,329 204,838
------- -------
Total liabilities and partnership equity....................... $ 323,361 $ 329,484
======= =======
See accompanying notes to consolidated and combined financial statements.
3
SHAMROCK LOGISTICS, L.P.
AND SHAMROCK LOGISTICS OPERATIONS, L.P.
(successor to the Ultramar Diamond Shamrock Logistics Business)
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(unaudited, in thousands, except share and per share data)
Successor Predecessor Successor Predecessor
--------- ----------- --------- -----------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenues.............................................. $ 26,857 $ 24,903 $ 73,916 $ 69,406
------ ------ ------ ------
Operating costs and expenses:
Operating expenses................................. 8,033 7,007 23,399 22,465
General and administrative expenses................ 1,326 1,181 3,829 3,771
Depreciation and amortization...................... 3,452 3,553 9,941 9,889
Taxes other than income taxes...................... 616 864 2,637 3,318
------ ------ ------ ------
Total operating costs and expenses.............. 13,427 12,605 39,806 39,443
------ ------ ------ ------
Operating income...................................... 13,430 12,298 34,110 29,963
Interest expense.................................... (387) (2,375) (3,501) (2,808)
Equity income from affiliate........................ 728 1,118 2,304 3,044
------ ------ ------ ------
Income before income taxes............................ 13,771 11,041 32,913 30,199
Benefit for income taxes............................ - - - 30,812
------ ------ ------ ------
Net income............................................ $ 13,771 $ 11,041 $ 32,913 $ 61,011
====== ====== ====== ======
Allocation of net income:
Total net income...................................... $ 13,771 $ 32,913
Less net income applicable to the period
January 1 to April 15, 2001..................... - (10,126)
------ -------
Net income applicable to the period after
April 15, 2001.................................. 13,771 22,787
General partners' interest in net income applicable
to the period after April 15...................... (276) (456)
------ ------
Limited partners' interest in net income applicable
to the period after April 15...................... $ 13,495 $ 22,331
====== ======
Basic and diluted net income per limited
partnership unit.................................. $ 0.70 $ 1.16
====== ======
Weighted average number of limited partnership
units outstanding for the period April 16 to
September 30, 2001................................ 19,198,644 19,198,644
========== ==========
See accompanying notes to consolidated and combined financial statements.
4
SHAMROCK LOGISTICS, L.P.
AND SHAMROCK LOGISTICS OPERATIONS, L.P.
(successor to the Ultramar Diamond Shamrock Logistics Business)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Successor Predecessor
--------- -----------
Nine Months Ended Nine Months Ended
September 30, 2001 September 30, 2000
------------------ ------------------
Cash Flows from Operating Activities:
Net income ................................................... $ 32,913 $ 61,011
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization.............................. 9,941 9,889
Amortization of debt issuance costs........................ 60 -
Equity income from affiliate............................... (2,304) (3,044)
Benefit for deferred income taxes.......................... - (36,677)
Changes in operating assets and liabilities:
Decrease (increase) in receivable from parent............ 16,940 (13,038)
Decrease (increase) in accounts and notes receivable..... (1,719) 611
Decrease (increase) in other current assets.............. 3,528 (2,840)
Increase in accounts payable, accrued liabilities
and taxes other than income taxes....................... 1,284 2,366
Increase in other noncurrent assets........................ (474) -
Increase (decrease) in other long-term liabilities......... 1 (137)
-------- --------
Net cash provided by operating activities............ 60,170 18,141
-------- --------
Cash Flows from Investing Activities:
Maintenance capital expenditures.............................. (2,587) (1,804)
Expansion capital expenditures................................ (8,887) (4,082)
Distributions received from affiliate......................... 2,020 3,488
------- --------
Net cash used in investing activities................ (9,454) (2,398)
------- --------
Cash Flows from Financing Activities:
Proceeds from long-term debt borrowings....................... 20,506 -
Repayment of long-term debt................................... (5,729) (284)
Partners' contributions....................................... - 1
Distributions to parent and affiliates........................ (29,000) (15,458)
Net proceeds from sales of common units to the public......... 111,912 -
Distribution to affiliates of Ultramar Diamond Shamrock
Corporation for reimbursement of capital expenditures....... (20,517) -
Repayment of debt due to parent............................... (107,676) -
Payment of distributions to unitholders....................... (9,817) -
--------- -------
Net cash used in financing activities................ (40,321) (15,741)
--------- -------
Net Increase in Cash and Cash Equivalents..................... 10,395 2
Cash at Beginning of Period................................... 4 3
--------- -------
Cash at End of Period......................................... $ 10,399 $ 5
========= =======
Non-Cash Activities:
Increase in debt due to parent............................. $ - $ 107,676
Decrease in accrued liabilities and other long-term
liabilities (environmental)............................. - (2,507)
--------- -------
Total non-cash activities............................ $ - $ 105,169
========= =======
See accompanying notes to consolidated and combined financial statements.
5
SHAMROCK LOGISTICS, L.P.
AND
THE ULTRAMAR DIAMOND SHAMROCK LOGISTICS BUSINESS (Predecessor)
COMBINED STATEMENT OF
NET PARENT INVESTMENT / PARTNERSHIP EQUITY
Nine Months Ended September 30, 2000
(unaudited, in thousands)
Balance at January 1, 2000 $ 254,807
Net income................................................. 61,011
Net change in parent advances.............................. (15,458)
Formalization of the terms of debt due to parent........... (107,676)
Environmental liabilities as of June 30, 2001 retained
by Ultramar Diamond Shamrock Corporation.............. 2,507
-------
Balance at September 30, 2000................................... $ 195,191
=======
SHAMROCK LOGISTICS, L.P.
AND
SHAMROCK LOGISTICS OPERATIONS, L.P.
(successor to the Ultramar Diamond Shamrock Logistics Business)
CONSOLIDATED AND COMBINED STATEMENT OF PARTNERSHIP EQUITY
Nine Months Ended September 30, 2001
(unaudited, in thousands)
Limited Partner Total
------------------------------------- General Partnership
Common Subordinated Partner Equity
------ ------------ ------- -----------
Balance at January 1, 2001..................... $ 202,790 $ - $ 2,048 $ 204,838
Net income applicable to the period
January 1 to April 15, 2001............... 10,025 - 101 10,126
Distributions to affiliates of Ultramar
Diamond Shamrock Corporation of
net income applicable to the period
July 1, 2000 to April 15, 2001............ (28,710) - (290) (29,000)
Distribution to affiliates of Ultramar
Diamond Shamrock Corporation for
reimbursement of capital expenditures (20,517) - - (20,517)
Issuance of Shamrock Logistics' units for
the contribution of Shamrock Logistics
Operations' limited partner interest...... (113,141) 109,453 3,688 -
Sale of common units to the public ......... 111,912 - - 111,912
Net income applicable to the period 11,165 11,166 456 22,787
April 16 to September 30, 2001..........
Cash distributions to unitholders......... (4,810) (4,811) (196) (9,817)
------- ------- ----- -------
Balance at September 30, 2001................ $168,714 $ 115,808 $ 5,807 $ 290,329
======= ======= ===== =======
See accompanying notes to consolidated and combined financial statements.
6
SHAMROCK LOGISTICS, L.P.
AND
SHAMROCK LOGISTICS OPERATIONS, L.P.
(successor to the Ultramar Diamond Shamrock Logistics Business)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
September 30, 2001
(unaudited)
NOTE 1: Organization
Shamrock Logistics, L.P. (Shamrock Logistics) and Shamrock Logistics Operations,
L.P. (Shamrock Logistics Operations) are both subsidiaries of Ultramar Diamond
Shamrock Corporation (UDS). UDS is an independent refiner and retailer of
refined products and convenience store merchandise in the central, southwest and
northeast regions of the United States and eastern Canada. UDS owns and operates
seven refineries located in Texas, Oklahoma, California, Colorado and Quebec,
Canada and markets its refined products through 2,030 company-operated
convenience stores, 2,543 dealer-operated wholesale outlets and 85 unattended
cardlock stations.
UDS' refining operations included various logistics assets (pipelines,
terminals, marine dock facilities, bulk storage facilities, refinery delivery
racks, rail car loading equipment and shipping and trucking operations) that
support UDS' refining and retail operations. A portion of the logistics assets
consists of crude oil and refined product pipelines, refined product terminals
and crude oil storage facilities located in Texas, Oklahoma, New Mexico and
Colorado that support UDS' McKee, Three Rivers and Ardmore refineries located in
Texas and Oklahoma. These pipeline, terminalling and storage assets transport
crude oil and other raw materials to the refineries and transport refined
products from the refineries to terminals for further distribution to
convenience stores owned by UDS or wholesale customers of UDS.
Prior to July 1, 2000, the pipeline, terminalling and storage assets and
operations included in these financial statements were referred to as the
Ultramar Diamond Shamrock Logistics Business as if it had existed as a single
separate entity from UDS. UDS formed Shamrock Logistics Operations to assume
ownership of and to operate the assets of the Ultramar Diamond Shamrock
Logistics Business. Effective July 1, 2000, UDS transferred the crude oil and
refined product pipelines, terminalling and storage assets and certain
liabilities of the Ultramar Diamond Shamrock Logistics Business (predecessor) to
Shamrock Logistics Operations (successor). The transfer of assets and certain
liabilities to Shamrock Logistics Operations represented a reorganization of
entities under common control and was recorded at historical cost.
Effective with the closing of an initial public offering of common units of
Shamrock Logistics on April 16, 2001, the ownership of Shamrock Logistics
Operations held by various subsidiaries of UDS was transferred to Shamrock
Logistics in exchange for the ownership interests (common and subordinated
units) in Shamrock Logistics. This transfer also represented a reorganization of
entities under common control and was recorded at historical cost.
The general partner of Shamrock Logistics and Shamrock Logistics Operations is
Riverwalk Logistics, L.P., a wholly-owned subsidiary of UDS.
The financial statements included in this Form 10-Q represent the consolidated
and combined financial statements of Shamrock Logistics, Shamrock Logistics
Operations and the Ultramar Diamond Shamrock Logistics Business as follows:
o consolidated financial statements of Shamrock Logistics and Shamrock
Logistics Operations (successor) as of September 30, 2001 and for the
period from April 16, 2001 to September 30, 2001;
o combined financial statements of Shamrock Logistics and Shamrock Logistics
Operations (predecessor) as of December 31, 2000 and for the period from
July 1, 2000 to September 30, 2000 and the period from January 1, 2001 to
April 15, 2001; and
o combined financial statements of Shamrock Logistics and the Ultramar
Diamond Shamrock Logistics Business (predecessor) for the six months ended
June 30, 2000.
7
This consolidated and combined financial statement presentation more clearly
reflects our financial position and results of operations as a result of the
most recent reorganization of entities under common control.
NOTE 2: Basis of Presentation
We prepared these unaudited consolidated and combined financial statements in
accordance with United States' generally accepted accounting principles for
interim financial reporting and with Securities and Exchange Commission rules
and regulations for Form 10-Q. We have included all normal and recurring
adjustments considered necessary for a fair presentation. You should read these
consolidated and combined financial statements along with the audited financial
statements and notes thereto included in Shamrock Logistics Form S-1 dated April
16, 2001.
Operating results for the nine months ended September 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001. Our results of operations may be affected by seasonal
factors, such as the demand for petroleum products, which vary during the year;
or industry factors that may be specific to a particular period, such as the
demand for refined products, industry supply capacity and refinery maintenance
turnarounds. In addition, substantially all of our revenues are derived from UDS
and its various subsidiaries, based on the operations of UDS' McKee, Three
Rivers and Ardmore refineries. Accordingly, our results are directly impacted by
the operations of these three UDS refineries.
NOTE 3: Accounting Pronouncements
FASB Statement No. 144
In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." Statement No. 144 addresses
financial accounting and reporting for the impairment of long-lived assets and
for long-lived assets to be disposed of. This Statement supersedes FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" but retains Statement No. 121's fundamental
provisions for recognition and measurement of impairment of long-lived assets to
be held and used and measurement of long-lived assets to be disposed of by sale.
This Statement also supersedes APB Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" for
the disposal of a segment of a business. Statement No. 144 does not apply to
goodwill or other intangible assets, the accounting and reporting of which is
addressed in newly issued Statement No. 142, "Goodwill and Other Intangible
Assets." The provisions of Statement No. 144 are effective for financial
statements for fiscal years beginning after December 15, 2001, and interim
periods within those fiscal years, with early application encouraged. We are
currently evaluating the impact of adopting this new Statement.
NOTE 4: Commitments and Contingencies
Our operations are subject to environmental laws and regulations adopted by
various federal, state, and local governmental authorities in the jurisdictions
in which we operate. Although we believe our operations are in general
compliance with applicable environmental regulations, risks of additional costs
and liabilities are inherent in pipeline, terminalling and storage operations,
and there can be no assurance that significant costs and liabilities will not be
incurred. Moreover, it is possible that other developments, such as increasingly
stringent environmental laws, regulations, and enforcement policies thereunder,
and claims for damages to property or persons resulting from the operations,
could result in substantial costs and liabilities. Accordingly, we have adopted
policies, practices and procedures in the areas of pollution control, product
safety, occupational health and the handling, storage, use and disposal of
hazardous materials to prevent material environmental or other damage, and to
limit the financial liability which could result from such events. However, some
risk of environmental or other damage is inherent in pipeline, terminalling and
storage operations, as it is with other entities engaged in similar businesses.
Although environmental costs may have a significant impact on results of
operations for any single period, we believe that such costs will not have a
material adverse effect on our financial position.
8
In connection with the transfer of assets and liabilities from the Ultramar
Diamond Shamrock Logistics Business to Shamrock Logistics Operations on July 1,
2000, UDS has agreed to indemnify Shamrock Logistics Operations for
environmental liabilities that arose prior to April 16, 2001 and are discovered
within 10 years after April 16, 2001. Excluded from this indemnification are
liabilities that result from a change in environmental law after April 16, 2001.
In addition, as an operator or owner of the assets, Shamrock Logistics
Operations could be held liable for pre-April 16, 2001 environmental damage
should UDS be unable to fulfill its obligation. However, we believe that such a
situation is remote given UDS' financial condition.
NOTE 5: Acquisitions
On July 2, 2001, we acquired the Southlake refined product terminal located in
Dallas, Texas from UDS for $5,600,000, the option purchase price per the Omnibus
Agreement. We used available cash on hand to acquire the terminal. The Southlake
terminal averaged approximately 25,000 barrels per day of throughput and
increased our operating income by approximately $353,000 in the third quarter of
2001.
NOTE 6: Related Party Transactions
We have related party transactions with UDS for pipeline tariff and terminalling
fee revenues, certain employee costs, insurance costs, administrative costs, and
interest expense on the debt due to parent (for the period July 1, 2000 to April
15, 2001). The receivable from parent as of December 31, 2000 represents the net
amount due from UDS for these related party transactions and the net cash
collected under UDS's centralized cash management program on our behalf.
The following table summarizes transactions with UDS (in thousands):
Successor Predecessor Successor Predecessor
--------- ----------- --------- -----------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenues................................... 26,650 $ 24,694 $ 73,410 $ 68,881
Operating expenses......................... 3,418 2,909 8,831 8,302
General and administrative expenses........ 1,300 1,300 3,900 4,139
Interest expense on debt due to parent..... - 2,154 2,512 2,154
On July 1, 2000, UDS entered into a Services Agreement with us, whereby UDS has
agreed to provide the corporate functions of legal, accounting, treasury,
information technology and other services for an annual fee of $5,200,000 for a
period of eight years. The $5,200,000 is adjustable annually based on the
Consumer Price Index published by the U.S. Department of Labor. This annual fee
is in addition to the incremental general and administrative costs to be
incurred from third parties as a result of us being a publicly-held entity. The
Services Agreement also requires that we reimburse UDS for various recurring
costs of employees who work exclusively within the pipeline, terminalling and
storage operations and for certain other costs incurred by UDS relating solely
to us. These employee costs include salary, wages and benefit costs.
Prior to July 1, 2000, UDS allocated approximately 5% of its general and
administrative expenses incurred in the United States to its pipeline,
terminalling and storage operations to cover costs of centralized corporate
functions and other corporate services. General and administrative costs
allocated to the Ultramar Diamond Shamrock Logistics Business (predecessor) for
the six months ended June 30, 2000 were $2,839,000.
9
On April 16, 2001, UDS entered into a Pipeline and Terminals Usage Agreement
with us, whereby UDS has agreed to use our pipelines to transport at least 75%
of the crude oil shipped to and at least 75% of the refined products shipped
from the McKee, Three Rivers and Ardmore refineries and to use our refined
product terminals for terminalling services for at least 50% of all refined
products shipped from these refineries for a period of seven years from April
16, 2001.
If market conditions change, with respect to the transportation of crude oil or
refined products or to the end markets in which UDS sells refined products, in a
material manner such that UDS would suffer a material adverse effect if it were
to continue to use our pipelines and terminals at the required levels, UDS's
obligation to us will be suspended during the period of the change in market
conditions to the extent required to avoid the material adverse effect.
On July 9, 2001, UDS' Three Rivers refinery was shut down due to a fire in the
7,000 barrel per day alkylation unit at the refinery. The alkylation unit was
shut down for approximately eight weeks; however the rest of the refinery was
restarted on August 6th and processing levels increased slowly through the end
of August 2001. UDS operated the Three Rivers refinery at reduced rates during
the alkylation unit shut down, thus volumes of crude oil transported to and
refined products tranported from the refinery were lower. The lower production
at the refinery did not significantly impact our results of operations in the
third quarter of 2001 as UDS transported refined products from the Gulf Coast
into the refinery through the Corpus Christi to Three Rivers crude oil pipeline,
which we temporarily converted into a refined product pipeline. This conversion
and the reversal of the flow of the Three Rivers to Corpus Christi refined
product pipeline to transport additional refined product from the Gulf Coast
allowed refined products to be transported to San Antonio and Laredo, Texas
using our other pipelines connected to the Three Rivers refinery.
NOTE 7: Long-term Debt
On December 15, 2000, Shamrock Logistics Operations entered into a $120,000,000
revolving credit facility with The Chase Manhattan Bank and other lenders. The
revolving credit facility expires on January 15, 2006 and borrowings under the
revolving credit facility bear interest at either the alternative base rate or
the LIBOR rate at the option of Shamrock Logistics Operations. The revolving
credit facility requires that Shamrock Logistics Operations maintain certain
financial ratios and other restrictive covenants, including a prohibition on
distributions by Shamrock Logistics Operations if any default, as defined in the
revolving credit facility, exists or would result from the distribution.
Management believes that Shamrock Logistics Operations is in compliance with all
of these ratios and covenants.
In conjunction with the initial public offering of our common units on April 16,
2001, Shamrock Logistics Operations borrowed $20,506,000 under the revolving
credit facility. The net proceeds from the initial public offering and the
borrowings under the revolving credit facility were used to repay the debt due
to parent, make a distribution to affiliates of UDS for reimbursement of
previous capital expenditures incurred with respect to the assets transferred to
us, and for working capital purposes.
In August 2001, we repaid $5,506,000 of the borrowings under the revolving
credit facility resulting in an outstanding balance of $15,000,000 as of
September 30, 2001.
NOTE 8: Restricted Units
Shamrock Logistics GP, LLC, the general partner of Riverwalk Logistics, LP,
adopted a long-term incentive plan under which restricted units and distribution
equivalent rights (DERs) may be awarded to certain key employees and
non-employees. In July 2001, Shamrock Logistics GP granted 205 restricted units
and DERs to each of its two outside directors. The restricted units and DERs
will vest at the end of the three year period and will be paid in cash. The DERs
will accumulate equivalent distributions that other unitholders receive over the
vesting period. For the three months ended September 30, 2001, we recognized
$1,000 of compensation expense associated with these restricted units.
10
NOTE 9: Distributions
On August 14, 2001, we paid the second quarter cash distribution of $0.5011 per
unit for a total distribution of $9,817,000.
On October 19, 2001, we declared a quarterly distribution of $0.60 per unit
payable on November 14, 2001 to unitholders of record on November 1, 2001. The
third quarter distribution is expected to total $11,754,000.
NOTE 10: UDS Plan of Merger
On May 7, 2001, UDS announced that it had agreed to be acquired by Valero Energy
Corporation for total consideration of approximately $4.0 billion plus the
assumption of all outstanding debt of approximately $2.0 billion. Under the
terms of the agreement and plan of merger, UDS shareholders will receive, for
each share of UDS common stock they hold, at their election, cash, Valero common
stock or a combination of cash and Valero common stock, having a value equal to
the sum of $27.50 plus 0.614 shares of Valero common stock (based on the average
Valero common stock price over a ten trading-day period ending three days prior
to closing). The merger has been approved by the board of directors and
shareholders of both companies; however, closing of the transaction is subject
to the completion of regulatory reviews. The merger is expected to close in the
fourth quarter of 2001.
Valero Energy Corporation owns and operates seven refineries in Texas,
Louisiana, New Jersey and California with a combined throughput capacity of more
than 1.1 million barrels per day. Valero markets its gasoline, diesel and other
refined products in 34 states through a bulk and rack marketing network and, in
California, through approximately 350 retail locations. Once the merger is
completed, Valero will become the ultimate parent of Riverwalk Logistics, the
general partner of both Shamrock Logistics and its subsidiary Shamrock Logistics
Operations. In addition, Valero will become the obligor under the various
agreements UDS has with us, including the Services Agreement and the Pipeline
and Terminals Usage Agreement.
11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
Shamrock Logistics, L.P. (Shamrock Logistics), a Delaware limited partnership
and subsidiary of Ultramar Diamond Shamrock Corporation (UDS), was formed to
ultimately acquire Shamrock Logistics Operations, L.P.
Shamrock Logistics Operations, L.P. (Shamrock Logistics Operations), a Delaware
limited partnership and a subsidiary of Shamrock Logistics, was formed to
operate the crude oil and refined product pipeline, terminalling and storage
assets of the Ultramar Diamond Shamrock Logistics Business.
UDS, an independent refiner and retailer, owns and operates seven refineries
located in Texas, California, Oklahoma, Colorado and Quebec, Canada, and markets
its refined products through over 4,500 convenience stores. UDS's refining
operations include various pipeline, terminalling, and storage assets that
transport crude oil and other raw materials to the refineries and transport
refined products from the refineries to terminals for further distribution.
Prior to July 1, 2000, the pipeline, terminalling and storage assets and
operations supporting UDS' McKee, Three Rivers and Ardmore refineries were
referred to as the Ultramar Diamond Shamrock Logistics Business as if it had
existed as a single separate entity from UDS. UDS formed Shamrock Logistics
Operations to assume ownership of and to operate the assets of the Ultramar
Diamond Shamrock Logistics Business. Effective July 1, 2000, UDS transferred the
crude oil and refined product pipelines, terminalling and storage assets and
certain liabilities of the Ultramar Diamond Shamrock Logistics Business
(predecessor) to Shamrock Logistics Operations (successor). The transfer of
assets and certain liabilities to Shamrock Logistics Operations represented a
reorganization of entities under common control and was recorded at historical
cost.
Effective with the closing of Shamrock Logistics' initial public offering of
common units on April 16, 2001, the ownership of Shamrock Logistics Operations
was transferred to Shamrock Logistics in exchange for ownership interests
(common and subordinated units) in Shamrock Logistics. This transfer also
represented a reorganization of entities under common control and was recorded
at historical cost.
The following discussion is based on the historical operating results of the
consolidated and combined financial statements of Shamrock Logistics, Shamrock
Logistics Operations and the Ultramar Diamond Shamrock Logistics Business as
follows:
o consolidated financial statements of Shamrock Logistics and Shamrock
Logistics Operations (successor) as of September 30, 2001 and for the
period from April 16, 2001 to September 30, 2001;
o combined financial statements of Shamrock Logistics and Shamrock Logistics
Operations (predecessor) as of December 31, 2000 and for the period from
July 1, 2000 to September 30, 2000 and the period from January 1, 2001 to
April 15, 2001; and
o combined financial statements of Shamrock Logistics and the Ultramar
Diamond Shamrock Logistics Business (predecessor) for the six months ended
June 30, 2000.
This consolidated and combined financial statement presentation more clearly
reflects our financial position and results of operations as a result of the
most recent reorganization of entities under common control.
On July 9, 2001, UDS's 95,000 barrel per day capacity Three Rivers refinery was
shut down due to a fire in the 7,000 barrel per day alkylation unit at the
refinery. The alkylation unit was shut down for approximately eight weeks. The
majority of refinery units were restarted on August 6th and processing levels
increased to full capacity by August 31, 2001. UDS operated the Three Rivers
refinery at reduced rates during the alkylation unit shut down, thus volumes of
crude oil transported to and refined products tranported from the refinery were
lower. The lower production at the refinery did not significantly impact our
results of operations in the third quarter of 2001 as UDS transported refined
products from other locations using our pipelines.
12
Results of Operations
Three Months Ended September 30, 2001 Compared to Three Months Ended September
30, 2000
Financial Data:
Successor Predecessor
--------- -----------
Three Months Ended Three Months Ended
September 30, September 30,
2001 2000
---- ----
(in thousands)
Statement of Income Data:
Revenues.................................. $ 26,857 $ 24,903
------ ------
Operating costs and expenses:
Operating expenses...................... 8,033 7,007
General and administrative expenses..... 1,326 1,181
Depreciation and amortization........... 3,452 3,553
Taxes other than income taxes........... 616 864
------ ------
Total operating costs and expenses... 13,427 12,605
------ ------
Operating income.......................... 13,430 12,298
Interest expense........................ (387) (2,375)
Equity income from affiliate............ 728 1,118
------ ------
Net income................................ $ 13,771 $ 11,041
====== ======
13
Operating Data:
The following table reflects throughput in barrels for our crude oil and refined
product pipelines and the total throughput for all of our refined product
terminals for the three months ended September 30, 2001 and 2000 (in thousands).
Successor Predecessor
--------- -----------
Three Months Ended Three Months Ended
September 30, September 30,
2001 2000
---- ----
Crude oil pipelines:
Dixon to McKee.................................... 4,879 5,450
Wasson to Ardmore (both pipelines)................ 7,751 7,284
Ringgold to Wasson................................ 3,645 2,728
Corpus Christi to Three Rivers.................... 5,672 8,152
Other crude oil pipelines......................... 5,331 4,088
------ ------
Total crude oil pipelines....................... 27,278 27,702
------ ------
Refined product pipelines:
McKee to Colorado Springs to Denver............... 2,598 2,679
McKee to El Paso.................................. 6,192 5,991
McKee to Amarillo (both pipelines) to Abernathy... 3,255 3,286
Amarillo to Albuquerque........................... 1,297 1,263
McKee to Denver................................... 1,118 1,097
Ardmore to Wynnewood.............................. 5,073 5,233
Three Rivers to Laredo............................ 1,103 1,460
Three Rivers to San Antonio....................... 2,374 2,399
Other refined product pipelines................... 4,823 6,201
------ ------
Total refined product pipelines................. 27,833 29,609
Refined product terminals............................ 17,496 15,282
------ ------
Total throughput..................................... 72,607 72,593
====== ======
Revenues for the quarter ended September 30, 2001 were $26,857,000 as compared
to $24,903,000 for the quarter ended September 30, 2000, an increase of 8%, or
$1,954,000. This increase in revenues is primarily due to the following items:
o revenues for the Ringgold to Wasson and the Wasson to Ardmore crude oil
pipelines increased $411,000 due to a combined 14% increase in throughput
barrels, resulting from UDS purchasing greater quantities of crude oil from
third parties near Ringgold instead of gathering crude oil barrels near
Wasson;
o revenues for the Corpus Christi to Three Rivers crude oil pipeline
increased $387,000 despite the 30% decrease in throughput barrels. UDS
operated the Three Rivers refinery at reduced rates during the alkylation
unit shut down, thus volumes of crude oil transported to the refinery were
lower. The Corpus Christi to Three Rivers crude oil pipeline was
temporarily converted into a refined product pipeline, which increased the
tariff rate temporarily to transport refined product. In addition, the
tariff rate increased effective May 2001 to cover the additional costs
(dockage and wharfage fees) associated with operating a marine crude oil
storage facility;
o revenues for the Hooker to Clawson and the Clawson to McKee crude oil
pipelines increased $298,000 due to an 85% increase in throughput barrels,
resulting from UDS purchasing greater quantities of crude oil from third
parties near Hooker, Oklahoma instead of gathering crude oil barrels near
Dixon and transporting them on the Dixon to McKee crude oil pipeline;
14
o revenues for the Three Rivers to Laredo refined product pipeline decreased
only $57,000 as a result of a 24% decrease in throughput barrels being
offset by an increase in the tariff rate effective July 1, 2001. The tariff
rate was increased due to the economic impact of reduced volumes. The lower
throughput barrels are a result of the expansion of Pemex's Monterrey
refinery that increased the supply of refined products to Nuevo Laredo,
Mexico, which is across the border from Laredo, Texas;
o revenues for other refined product pipelines and refined product terminals
in the Three Rivers refinery network decreased due to the lower volumes
transported from the refinery to San Antonio and Corpus Christi, Texas;
o revenues for the Southlake refined product terminal, acquired on July 2,
2001, increased our revenues by $663,000 and our throughput barrels by
2,261 for the quarter ended September 30, 2001; and
o revenues for the refined product terminals increased $447,000 during the
third quarter of 2001 as compared to the same period in 2000 due to the
additional fee of $0.042 per barrel charged for blending additives into
certain refined products.
Operating expenses increased $1,026,000, or 15%, for the quarter ended September
30, 2001 as compared to the quarter ended September 30, 2000 primarily due to
the following items:
o utility expenses increased by $271,000, or 11%, due to higher electricity
rates in the third quarter of 2001 as a result of higher natural gas costs;
o the acquisition of the Southlake refined product terminal increased
operating expenses by $163,000; and
o employee related expenses increased due to the accrual of incentive
compensation.
General and administrative expenses increased 12% for the quarter ended
September 30, 2001 as compared to 2000 due to general and administrative costs
related to being a publicly-held entity. Prior to July 1, 2000, UDS allocated
approximately 5% of its general and administrative expenses incurred in the
United States to its pipeline, terminalling and storage operations to cover
costs of centralized corporate functions such as legal, accounting, treasury,
engineering, information technology and other corporate services. Effective July
1, 2000, UDS entered into a Services Agreement with us to provide the general
and administrative services noted above for an annual fee of $5,200,000, payable
monthly. This annual fee was in addition to the incremental general and
administrative costs to be incurred from third parties as a result of us being a
publicly-held entity. For the three months ended September 30, 2001, general and
administrative expenses of $1,326,000 reflect $1,300,000, or one-fourth of the
annual fee, less $132,000 reimbursed by partners on jointly-owned pipelines plus
$158,000 of publicly-held company expenses. For the three months ended September
30, 2000, general and administrative expenses of $1,181,000 reflect $1,300,000,
or one-fourth of the annual fee, less $119,000 reimbursed by partners on
jointly-owned pipelines.
Interest expense for the quarter ended September 30, 2001 was $387,000 as
compared to $2,375,000 for the same period in 2000. During the third quarter of
2001, we incurred $257,000 of interest expense related to the borrowings under
the revolving credit facility as compared to the $2,154,000 of interest expense
we incurred related to the debt due to parent in the third quarter 2000.
Equity income from affiliate represents the 50% interest in the net income of
Skelly-Belvieu Pipeline Company, which operates the Skellytown to Mont Belvieu
refined product pipeline. Equity income from affiliate for the quarter ended
September 30, 2001 decreased $390,000, or 35%, as compared to the same period in
2000 due to a 10% decrease in throughput barrels in the Skellytown to Mont
Belvieu refined product pipeline. The decreased throughput in the quarter ended
September 30, 2001 is due to both UDS and Phillips Petroleum Company utilizing
greater quantities of natural gas to run their refining operations instead of
selling the natural gas to third parties in Mont Belvieu.
15
Net income for the quarter ended September 30, 2001 was $13,771,000 as compared
to $11,041,000 for the quarter ended September 30, 2000. The increase of
$2,730,000 is primarily due to lower interest expense in the third quarter of
2001 as a result of repaying the $107,676,000 of debt due to parent in April of
2001 and repaying $5,506,000 of the outstanding borrowings under the revolving
credit facility in August of 2001 and the acquisition of the Southlake refined
product terminal.
Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000
Financial Data:
Successor Predecessor
--------- -----------
Nine Months Ended Nine Months Ended
September 30, September 30,
2001 2000
---- ----
(in thousands)
Statement of Income Data:
Revenues..................................... $ 73,916 $ 69,406
------ ------
Operating costs and expenses:
Operating expenses......................... 23,399 22,465
General and administrative expenses........ 3,829 3,771
Depreciation and amortization.............. 9,941 9,889
Taxes other than income taxes.............. 2,637 3,318
------ ------
Total operating costs and expenses...... 39,806 39,443
------ ------
Operating income............................. 34,110 29,963
Interest expense........................... (3,501) (2,808)
Equity income from affiliate............... 2,304 3,044
------ ------
Income before income taxes .................. 32,913 30,199
Benefit for income taxes................... - 30,812
------ ------
Net income................................... $ 32,913 $ 61,011
====== ======
Successor Predecessor
--------- -----------
September 30, December 31,
2001 2000
---- ----
(in thousands)
Balance Sheet Data:
Net property, plant and equipment............ $ 280,085 $ 280,017
Total assets................................. 323,361 329,484
Long-term debt, including current portion
and debt due to parent.................... 25,461 118,360
Total partnership equity..................... 290,329 204,838
16
Operating Data:
The following table reflects throughput in barrels for our crude oil and refined
product pipelines and the total throughput for all of our refined product
terminals for the nine months ended September 30, 2001 and 2000 (in thousands).
Successor Predecessor
--------- -----------
Nine Months Ended Nine Months Ended
September 30, September 30,
2001 2000
---- ----
Crude oil pipelines:
Dixon to McKee................................... 16,062 17,076
Wasson to Ardmore (both pipelines)............... 22,533 20,978
Ringgold to Wasson............................... 10,443 7,707
Corpus Christi to Three Rivers................... 21,901 23,853
Other crude oil pipelines........................ 13,000 11,603
-------- -------
Total crude oil pipelines...................... 83,939 81,217
------- -------
Refined product pipelines:
McKee to Colorado Springs to Denver.............. 6,997 6,709
McKee to El Paso................................. 18,547 17,428
McKee to Amarillo (both pipelines) to Abernathy.. 10,129 10,117
Amarillo to Albuquerque.......................... 3,589 3,515
McKee to Denver.................................. 3,259 3,266
Ardmore to Wynnewood............................. 15,787 15,347
Three Rivers to Laredo........................... 3,307 4,430
Three Rivers to San Antonio...................... 7,470 7,385
Other refined product pipelines.................. 16,069 18,334
------- -------
Total refined product pipelines................ 85,154 86,531
Refined product terminals........................... 47,114 45,936
------- -------
Total throughput.................................... 216,207 213,684
======= =======
Revenues for the nine months ended September 30, 2001 were $73,916,000 as
compared to $69,406,000 for the nine months ended September 30, 2000, an
increase of 6%, or $4,510,000. This increase in revenues is primarily due to the
following items:
o revenues for the Ringgold to Wasson and the Wasson to Ardmore crude oil
pipelines increased $1,163,000 due to a combined 15% increase in throughput
barrels, resulting from UDS purchasing greater quantities of crude oil from
third parties near Ringgold instead of gathering crude oil barrels near
Wasson. In March 2001, UDS sold its Oklahoma crude oil gathering operation
which was near Wasson;
o revenues for the Corpus Christi to Three Rivers crude oil pipeline
increased $1,055,000 despite the 8% decrease in throughput barrels for the
nine months ended September 30, 2001 as compared to the same period in
2000. The Corpus Christi to Three Rivers crude oil pipeline was temporarily
converted into a refined product pipeline during the third quarter of 2001
during the alkylation unit shut down at UDS' Three Rivers refinery. The
increase in revenues is primarily due to the increased tariff rate to
transport refined products and the increased tariff rate effective May 2001
to cover the additional costs (dockage and wharfage fees) associated with
operating a marine crude oil storage facility;
17
o revenues for the McKee to Colorado Springs to Denver refined product
pipeline increased $789,000 due to a 4% increase in throughput barrels
primarily in the Colorado Springs to Denver segment of the pipeline in the
first quarter of 2001. Since completing the expansion of the McKee to
Colorado Springs segment of the pipeline, UDS has supplied the greater
demand for refined products in Denver from its McKee refinery, especially
turbine fuel which is not produced at the Denver refinery. In the second
and third quarter of 2001, less turbine fuel was transported to Denver as
adequate supplies were on hand at the Denver refined product terminal;
o revenues for the McKee to El Paso refined product pipeline increased
$568,000 primarily due to a 6% increase in throughput barrels resulting
from an increase in UDS' sales into the Arizona market. The McKee to El
Paso refined product pipeline connects with a third party pipeline which
runs to Arizona;
o revenues for the Three Rivers to Laredo refined product pipeline decreased
by $451,000 due to a 25% decrease in throughput barrels partially offset by
an increase in the tariff rate effective July 1, 2001. The lower throughput
barrels are a result of the expansion of Pemex's Monterrey refinery that
increased the supply of refined products to Nuevo Laredo, Mexico, which is
across the border from Laredo, Texas;
o revenues for the Southlake refined product terminal, acquired on July 2,
2001, increased our revenues by $663,000 and our throughput barrels by
2,261 for the quarter ended September 30, 2001; and
o revenues for all refined product terminals, excluding Southlake refined
product terminal, increased $616,000 primarily due to an increase in the
terminalling fee charged at our marine-based refined product terminals to
cover the additional costs (dockage and wharfage fees) associated with
operating a marine refined product terminal and the additional fee of
$0.042 per barrel charged for blending additives into certain refined
products.
Operating expenses increased $934,000, or 4%, for the nine months ended
September 30, 2001 as compared to the nine months ended September 30, 2000
primarily due to the following items:
o during the nine months ending September 30, 2000, the Ultramar Diamond
Shamrock Logistics Business recognized a loss of $916,000 due to the impact
of volumetric expansions, contractions and measurement discrepancies in our
pipelines related to the first six months of 2000. Beginning July 1, 2000,
the impact of volumetric expansions, contractions and measurement
discrepancies in the pipelines is borne by the shippers and is therefore no
longer reflected in operating expenses;
o utility expenses increased by $1,650,000, or 24% due to higher electricity
rates in the first nine months of 2001 as compared to the first nine months
of 2000 resulting from higher natural gas costs;
o the acquisition of the Southlake refined product terminal increased
operating expenses $163,000; and
o employee related expenses increased due to the accrual of incentive
compensation.
General and administrative expenses increased less than 2% for the nine months
ended September 30, 2001 as compared to 2000 due to decreased general and
administrative costs allocated to us from UDS and offset by general and
administrative costs related to being a publicly-held entity. Prior to July 1,
2000, UDS allocated approximately 5% of its general and administrative expenses
incurred in the United States to its pipeline, terminalling and storage
operations to cover costs of centralized corporate functions such as legal,
accounting, treasury, engineering, information technology and other corporate
services. Effective July 1, 2000, UDS entered into a Services Agreement with us
to provide the general and administrative services noted above for an annual fee
of $5,200,000, payable monthly. This annual fee is in addition to the
incremental general and administrative costs to be incurred from third parties
as a result of us being a publicly-held entity. For the nine months ended
September 30, 2001, general and administrative expenses of $3,829,000 reflect
$3,900,000, or three-quarters of the annual fee, less $328,000 reimbursed by
partners on jointly-owned pipelines plus $257,000 of publicly-held company
expenses. For the nine months ended September 30, 2000, general and
administrative expenses of $3,771,000 reflect $2,839,000, or the 5% allocation
of UDS's general and administrative expenses for the first six months of 2000,
plus $1,300,000, or one-fourth of the annual fee, less $368,000 reimbursed by
partners on jointly-owned pipelines.
18
Interest expense for the nine months ended September 30, 2001 was $3,501,000 as
compared to $2,808,000 for the same period in 2000. During the period from
January 1, 2001 to April 15, 2001, we incurred $2,512,000 of interest expense
related to the $107,676,000 of debt due to parent that we assumed on July 1,
2000 and paid off on April 16, 2001. In addition, beginning April 16, 2001,
Shamrock Logistics Operations borrowed $20,506,000 under the revolving credit
facility resulting in $572,000 of interest expense for the five and a half
months ended September 30, 2001. In August 2001, we repaid $5,506,000 of the
borrowing on the revolving credit facility. Interest expense prior to July 1,
2000 relates only to the debt due to the Port of Corpus Christi Authority of
Nueces County, Texas. Interest expense from July 1, 2000 through April 15, 2001
relates to the debt due to parent and the debt due to the Port of Corpus Christi
Authority. Interest expense subsequent to April 16, 2001 relates to the
borrowings under the revolving credit facility and the debt due to the Port of
Corpus Christi Authority
Equity income from affiliate for the nine months ended September 30, 2001
decreased $740,000, or 24% as compared to the same period in 2000 due to a 14%
decrease in throughput barrels in the Skellytown to Mont Belvieu refined product
pipeline. The decreased throughput in the first nine months of 2001 is due to
both UDS and Phillips Petroleum Company utilizing greater quantities of natural
gas to run their refining operations instead of selling the natural gas to third
parties in Mont Belvieu.
Effective July 1, 2000, UDS transferred the assets and certain liabilities of
the Ultramar Diamond Shamrock Logistics Business (predecessor) to Shamrock
Logistics Operations (successor). As a limited partnership, Shamrock Logistics
Operations is not subject to federal or state income taxes. Due to this change
in tax status, the deferred income tax liability of $38,217,000 as of June 30,
2000 was written off in the statement of income of the Ultramar Diamond Shamrock
Logistics Business (predecessor) for the nine months ended September 30, 2000.
The resulting net benefit for income taxes of $30,812,000 for the nine months
ended September 30, 2000, includes the write-off of the deferred income tax
liability less the provision for income taxes of $7,405,000 for the six months
ended June 30, 2000. The income tax provision for the six months ended June 30,
2000 was based upon the effective income tax rate for the Ultramar Diamond
Shamrock Logistics Business of 38%. The effective income tax rate exceeds the
U.S. federal statutory income tax rate due to state income taxes.
Net income for the nine months ended September 30, 2001 was $32,913,000 as
compared to $61,011,000 for the nine months ended September 30, 2000. The
decrease of $28,098,000 is primarily due to the change in tax status effective
July 1, 2000 which is partially offset by the increase in revenues resulting
from higher tariff rates and higher throughput barrels in our pipelines for the
first nine months of 2001 as compared to 2000.
Liquidity and Capital Resources
Financing
On December 15, 2000, Shamrock Logistics Operations entered into a $120,000,000
revolving credit facility with The Chase Manhattan Bank and other lenders. The
revolving credit facility expires on January 15, 2006 and borrowings under the
revolving credit facility bear interest at either the alternative base rate or
the LIBOR rate at the option of Shamrock Logistics Operations. The revolving
credit facility requires that Shamrock Logistics Operations maintain certain
financial ratios and other restrictive covenants, including a prohibition on
distributions by Shamrock Logistics Operations if any default, as defined in the
revolving credit facility, exists or would result from the distribution.
Management believes that Shamrock Logistics Operations is in compliance with all
of these ratios and covenants.
In conjunction with the initial public offering of our common units on April 16,
2001, Shamrock Logistics Operations borrowed $20,506,000 under the revolving
credit facility. In August 2001, we repaid $5,506,000 of the outstanding
borrowings under the revolving credit facility.
19
Our ability to complete future debt and equity offerings and the timing of any
such offerings will depend upon various factors including prevailing market
conditions, interest rates and our financial condition.
Initial Public Offering
On April 16, 2001, we completed our initial public offering of 5,175,000 common
units at a price of $24.50 per unit. Total proceeds for the 5,175,000 common
units were $126,787,000 before offering costs and underwriters' commissions.
A summary of the proceeds received and use of proceeds is as follows:
Proceeds received:
Sale of common units............................ $ 126,787,000
Borrowing under the revolving credit facility... 20,506,000
-----------
Total proceeds............................... 147,293,000
-----------
Use of proceeds:
Underwriters' commissions....................... 8,875,000
Professional fees and other offering costs...... 6,000,000
Debt issuance costs............................. 436,000
Repayment of debt due to parent................. 107,676,000
Reimbursement of capital expenditures........... 20,517,000
-----------
Total use of proceeds........................ 143,504,000
-----------
Net proceeds................................. $ 3,789,000
===========
The net proceeds $3,789,000 were used for working capital and general corporate
purposes.
Equity
On August 14, 2001, we paid the second quarter distribution to unitholders
totalling $9,817,000.
On November 14, 2001, we expect to pay the third quarter distribution to
unitholders totalling $11,754,000.
Capital Requirements
The pipeline, terminalling and storage business is capital-intensive, requiring
significant investments to upgrade or enhance existing operations and to meet
environmental regulations. Our capital expenditures consist primarily of:
o maintenance capital expenditures, such as those required to maintain
equipment reliability and safety and to address environmental regulations;
and
o expansion capital expenditures, such as those to expand and upgrade
pipeline capacity and to construct new pipelines, terminals and storage
facilities to meet UDS' needs. In addition, expansion capital expenditures
will include acquisitions of pipelines, terminals or storage assets owned
by UDS or other third parties.
We expect to fund our capital expenditures from cash provided by operations and
to the extent necessary, from proceeds of borrowings under the revolving credit
facility.
During the nine months ended September 30, 2001, we incurred maintenance capital
expenditures of $2,587,000 primarily related to tank and automation upgrades at
the refined product terminals and cathodic (corrosion) protection and automation
upgrades for both refined product and crude oil pipelines. Also during the nine
months ended September 30, 2001, we incurred $8,887,000 for various expansion
capital expenditures, including $1,813,000 for rights of way related to the
expansion of the Amarillo to Albuquerque refined product pipeline and $5,600,000
for the acquisition of Southlake refined product terminal. The rights of way
amount is net of Phillips Petroleum Company's 50% share of such cost.
20
Currently, we intend to exercise our option to purchase the Ringgold crude oil
storage facility in the fourth quarter of 2001 at a cost of $5,200,000 upon
completion of construction. We intend to fund this acquisition with borrowings
under our revolving credit facility.
We anticipate that we will continue to have adequate liquidity to fund future
recurring operating, investing and financing activities. Cash distributions are
expected to be funded with internally generated cash.
UDS Plan of Merger
On May 7, 2001, UDS announced that it had agreed to be acquired by Valero Energy
Corporation for total consideration of approximately $4.0 billion plus the
assumption of all outstanding debt of approximately $2.0 billion. Under the
terms of the agreement and plan of merger, UDS shareholders will receive, for
each share of UDS common stock they hold, at their election, cash, Valero common
stock or a combination of cash and Valero common stock, having a value equal to
the sum of $27.50 plus 0.614 shares of Valero common stock (based on the average
Valero common stock price over a ten trading-day period ending three days prior
to closing). The merger has been approved by the board of directors and
shareholders of both companies; however, closing of the transaction is subject
to the completion of regulatory reviews. The merger is expected to close in the
fourth quarter of 2001.
Valero Energy Corporation owns and operates seven refineries in Texas,
Louisiana, New Jersey and California with a combined throughput capacity of more
than 1.1 million barrels per day. Valero markets its gasoline, diesel and other
refined products in 34 states through a bulk and rack marketing network and, in
California, through approximately 350 retail locations. Once the merger is
completed, Valero will become the ultimate parent of Riverwalk Logistics, our
general partner. In addition, Valero will become the obligor under the various
agreements UDS has with us, including the Services Agreement and the Pipeline
and Terminals Usage Agreement.
Certain Forward-Looking Statements
This quarterly report on Form 10-Q contains certain "forward-looking" statements
as such term is defined in Section 27A of the Securities Act of 1933 and Section
21E of the Securities Act of 1934, and information relating to us that is based
on the beliefs of management as well as assumptions made by and information
currently available to management. When used in this report, the words
"anticipate," "believe," "estimate," "expect," and "intend" and words or phrases
of similar expressions, as they relate to us or management, identify
forward-looking statements. Such statements reflect the current views of
management with respect to future events and are subject to certain risks,
uncertainties and assumptions relating to the operations and results of
operations, including as a result of competitive factors and pricing pressures,
shifts in market demand and general economic conditions and other factors.
Should one or more of these risks or uncertainties materialize, or should any
underlying assumptions prove incorrect, actual results or outcomes may vary
materially from those described herein as anticipated, believed, estimated,
expected or intended.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The principal market risk (i.e., the risk of loss arising from the adverse
changes in market rates and prices) to which we are exposed is interest rate
risk on our debt. We manage our debt considering various financing alternatives
available in the market. Borrowings under our revolving credit facility do not
give rise to significant interest rate risk because the interest rate on
borrowings under the facility float with market rates. Thus the carrying amount
of outstanding borrowings under the revolving credit facility approximates fair
value. Our remaining debt is fixed rate debt with an 8% interest rate. The
estimated fair value of our fixed rate debt at September 30, 2001 was
$11,190,000 as compared to the carrying value of $10,461,000. The fair value was
estimated using discounted cash flow analysis, based on current incremental
borrowing rates for similar types of borrowing arrangements. Since the total of
this fixed rate debt is not material to our financial position or performance,
there is currently minimal impact to market interest rate risk.
21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
No material litigation has been filed or is pending against Shamrock Logistics
or Shamrock Logistics Operations as of September 30, 2001.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Shamrock
Logistics has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHAMROCK LOGISTICS, L.P.
By: Riverwalk Logistics, L.P., its general partner
By: Shamrock Logistics GP, LLC, its general partner
By: /s/ Steven A. Blank
-----------------------------------------------------------------------
STEVEN A. BLANK
CHIEF FINANCIAL OFFICER
November 13, 2001
22