ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
RESULTS OF OPERATIONS - (CONTINUED)
LPGs transportation revenues decreased $3.2 million for the quarter ended
March 31, 1997, compared with the first quarter of 1996, due primarily to a 12%
decrease in propane deliveries in the Midwest and Northeast market areas
attributable to warmer winter weather in 1997. Additionally, butane deliveries
decreased 27% during the 1997 first quarter as a result of increased Canadian
imports into the Midwest as well as lower Gulf Coast supply. These decreases
were partially offset by higher petrochemical demand for propane along the
upper Texas Gulf Coast. The decrease in long-haul propane deliveries to the
Northeast, coupled with the increase in short-haul Gulf Coast deliveries,
resulted in the 6% decrease in the LPGs average system tariff per barrel.
Revenues generated from Mont Belvieu operations decreased slightly during
the first quarter of 1997, compared with the first quarter of 1996, due
primarily to lower storage revenues attributable to lower shipper inventory
levels, partially offset by a 25% increase in shuttle deliveries. The Mont
Belvieu operations average tariff per barrel for shuttle deliveries decreased
during 1997 as a result of higher contract deliveries, which generally carry
Operating, general and administrative expenses decreased $0.8 million
during the quarter ended March 31, 1997, compared with the prior-year quarter,
due primarily to decreased product measurement losses, decreased expenses for
legal services and lower insurance premiums. These decreases were partially
offset by increased expenses for pensions and benefits costs.
Interest expense decreased $0.3 million during the first quarter of 1997,
compared with 1996, due to principal payments on the First Mortgage Notes of
$10.0 million and $13.0 million during March 1996 and March 1997, respectively.
Capitalized interest increased $0.5 million over the prior year quarter as a
result of increased capitalized spending during 1997. Lower interest expense
was partially offset by a $0.5 million decrease in other income as a result of
lower interest income earned on cash investments.
FINANCIAL CONDITION AND LIQUIDITY
Net cash from operations for the three months ended March 31, 1997 totaled
$12.7 million, compared with $17.0 million for the corresponding period in
1996. The decrease resulted from a $2.5 million decrease in income before
charges for depreciation and amortization, and a $1.8 million decrease in other
working capital changes. The decrease in working capital sources of cash was
due primarily to lower accounts receivable balances outstanding at the
beginning of 1997, partially offset by lower cash payments for accrued expenses
during the first quarter of 1997. Net cash from operations for the three months
ended March 31, 1997 and 1996 reflect semi-annual interest payments related to
the Notes of $17.1 million and $17.6 million, respectively.
Cash flows from investing activities during the first quarter of 1997
included proceeds from investments of $8.0 million and insurance proceeds of
$1.0 million, offset by $8.1 million of capital expenditures. The insurance
proceeds received during the first quarter of 1997 relate to the replacement
value of a 20-inch diameter auxiliary pipeline at the Red River in central
Louisiana, which was damaged in 1994 and subsequently removed from service.
Cash flows from investing activities during the first quarter of 1996 included
proceeds from investments of $4.9 million, offset by $5.8 million of additional
investments and capital expenditures of $4.1 million. The increase in capital
expenditures in 1997 reflects the continuation of construction projects which
commenced during the later part of 1996. The Partnership revises capital
spending periodically in response to changes in cash flows and operations.
The Partnership paid the fourth quarter 1996 cash distribution of $11.8
million ($0.75 per Unit) on February 7, 1997. Additionally, on April 11, 1997,
the Partnership declared a cash distribution of $0.75 per Unit for the three
months ended March 31, 1997. The distribution is payable on May 9, 1997 to
Unitholders of record on April 30, 1997.