SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 1-10311
KANEB PIPE LINE PARTNERS, L.P.
(Exact name of Registrant as specified in its Charter)
Delaware 75-2287571
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2435 North Central Expressway
Richardson, Texas 75080
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (972) 699-4062
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Units New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Subsection 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. ____
Aggregate market value of the voting Units held by non-affiliates of the
registrant: $607,829,927. This figure is estimated as of March 8, 2002, at which
date the closing price of the Registrant's Units on the New York Stock Exchange
was $37.57 per Unit and assumes that only the General Partner of the Registrant
(the "General Partner"), officers and directors of the General Partner and its
parent and wholly owned subsidiaries of the General Partner and its parent were
affiliates.
Number of Units of the Registrant outstanding at March 8, 2002: 21,535,090.
PART I
Item 1. Business
GENERAL
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Kaneb Pipe Line Partners, L.P., a Delaware limited partnership (the
"Partnership"), is engaged in the refined petroleum products pipeline business
and the terminaling of petroleum products and specialty liquids. The Partnership
was formed in September 1989 to acquire, own and operate the pipeline system and
operations that had been previously conducted by Kaneb Pipe Line Company LLC, a
Delaware limited liability company ("KPL"), since 1953. KPL owns a combined 2%
interest as general partner of the Partnership and of Kaneb Pipe Line Operating
Partnership, L.P., a Delaware limited partnership ("KPOP"). The Partnership's
pipeline operations are conducted through KPOP, of which the Partnership is the
sole limited partner and KPL is the sole general partner. The terminaling
business of the Partnership is conducted through Support Terminals Operating
Partnership, L.P. ("STOP"), and its affiliated partnerships and corporate
entities, which operate under the trade names "ST Services" and "StanTrans,"
among others. KPOP and STOP are, collectively with their subsidiaries, referred
to as the "Operating Partnerships." KPL is a wholly-owned subsidiary of Kaneb
Services LLC, a Delaware limited liability company ("KSL") (NYSE: KSL).
PRODUCTS PIPELINE BUSINESS
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Introduction
The Partnership's pipeline business consists primarily of the
transportation of refined petroleum products as a common carrier in Kansas,
Nebraska, Iowa, South Dakota, North Dakota, Colorado and Wyoming. The
Partnership owns and operates two common carrier pipelines (the "Pipelines")
described below.
East Pipeline
Construction of the East Pipeline commenced in the 1950s with a line from
southern Kansas to Geneva, Nebraska. During the 1960s, the East Pipeline was
extended north to its present terminus at Jamestown, North Dakota. In the
1980's, the 8" line from Geneva, Nebraska to North Platte, Nebraska and the 16"
line from McPherson, Kansas to Geneva, Nebraska were built and the Partnership
acquired a 6" pipeline from Champlin Oil Company, a portion of which originally
ran south from Geneva, Nebraska through Windom, Kansas terminating in
Hutchinson, Kansas. In 1997, the Partnership completed construction of a new 6"
pipeline from Conway, Kansas to Windom, Kansas (approximately 22 miles north of
Hutchinson) that allows the Hutchinson terminal to be supplied directly from
McPherson; a significantly shorter route than was previously used. As a result
of this pipeline becoming operational, a 158 mile segment of the former Champlin
line was shut down, including a terminal located at Superior, Nebraska. The
other end of the line runs northeast approximately 175 miles, crossing the main
pipeline near Osceola, Nebraska, continuing through a terminal at Columbus,
Nebraska, and later interconnecting with the Partnership's Yankton/Milford line
to terminate at Rock Rapids, Iowa. In December 1998, KPOP acquired from Amoco
Oil Company a 175 mile pipeline that runs from Council Bluffs, Iowa to Sioux
Falls, South Dakota and the terminal at Sioux Falls. On December 31, 1998 KPOP,
pursuant to its option, purchased the 203 mile North Platte line for
approximately $5 million at the end of a lease. In January 1999, a connection
was completed to service the Sioux Falls terminal through the main East
Pipeline.
The East Pipeline system also consists of 17 product terminals in Kansas,
Nebraska, Iowa, South Dakota and North Dakota with total storage capacity of
approximately 3.5 million barrels and an additional 22 product tanks with total
storage capacity of approximately 1,006,000 barrels at its tank farm
installations at McPherson and El Dorado, Kansas. The system also has six origin
pump stations in Kansas and 38 booster pump stations throughout the system.
Additionally, the system maintains various office and warehouse facilities, and
an extensive quality control laboratory. KPOP owns the entire 2,090 mile East
Pipeline. KPOP leases office space for its operating headquarters in Wichita,
Kansas.
The East Pipeline transports refined petroleum products, including propane,
received from refineries in southeast Kansas and other connecting pipelines to
its terminals along the system and to receiving pipeline connections in Kansas.
Shippers on the East Pipeline obtain refined petroleum products from refineries
connected to the East Pipeline or through other pipelines directly connected to
the pipeline system. Five connecting pipelines can deliver propane for shipment
through the East Pipeline from gas processing plants in Texas, New Mexico,
Oklahoma and Kansas.
West Pipeline
KPOP acquired the West Pipeline in February 1995, increasing the
Partnership's pipeline business in South Dakota and expanding it into Wyoming
and Colorado. The West Pipeline system includes approximately 550 miles of
pipeline in Wyoming, Colorado and South Dakota, four truck loading terminals and
numerous pump stations situated along the system. The system's four product
terminals have a total storage capacity of over 1.7 million barrels.
The West Pipeline originates at Casper, Wyoming and travels east to the
Strouds Station, where it serves as a connecting point with Sinclair's Little
America Refinery and the Seminoe Pipeline that transports product from Billings,
Montana area refineries. From Strouds, the West Pipeline continues easterly
through its 8" line to Douglas, Wyoming, where a 6" pipeline branches off to
serve the Partnership's Rapid City, South Dakota terminal approximately 190
miles away. The Rapid City terminal has a three bay, bottom-loading truck rack
and storage tank capacity of 256,000 barrels. The 6" pipeline also receives
product from Wyoming Refining's pipeline at a connection located near the
Wyoming/South Dakota border, approximately 30 miles south of Wyoming Refining's
Newcastle, Wyoming Refinery. From Douglas, the Partnership's 8" pipeline
continues southward through a delivery point at the Burlington Northern junction
to the terminal at Cheyenne, Wyoming. The Cheyenne terminal has a two bay,
bottom-loading truck rack, storage tank capacity of 345,000 barrels and serves
as a receiving point for products from the Frontier Oil & Refining Company
refinery at Cheyenne, as well as a product delivery point to Conoco's Cheyenne
Pipeline. From the Cheyenne terminal, the 8" pipeline extends south into
Colorado to the Dupont Terminal located in the Denver metropolitan area. The
Dupont Terminal is the largest terminal on the West Pipeline system, with a six
bay, bottom-loading truck rack and tankage capacity of 692,000 barrels. The 8"
pipeline continues to the Commerce City Station, where the West Pipeline can
receive from and transfer product to the Ultramar Diamond Shamrock and Conoco
refineries and the Phillips Petroleum Terminal. From Commerce City, a 6" line
continues south 90 miles where the system terminates at the Fountain, Colorado
Terminal serving the Colorado Springs area. The Fountain Terminal has a five
bay, bottom-loading truck rack and storage tank capacity of 366,000 barrels.
The West Pipeline system parallels the Partnership's East Pipeline to the
west. The East Pipeline's North Platte line terminates in western Nebraska,
approximately 200 miles east of the West Pipeline's Cheyenne, Wyoming Terminal.
Conoco's Cheyenne Pipeline runs from west to east from the Cheyenne Terminal to
near the East Pipeline's North Platte Terminal, although a portion of the line
from Sidney, Nebraska (approximately 100 miles from Cheyenne) to North Platte
has been deactivated. The West Pipeline serves Denver and other eastern Colorado
markets and supplies jet fuel to Ellsworth Air Force Base at Rapid City, South
Dakota, as compared to the East Pipeline's largely agricultural service area.
The West Pipeline has a relatively small number of shippers, who, with few
exceptions, are also shippers on the Partnership's East Pipeline system.
Other Systems
The Partnership also owns three single-use pipelines, located near
Umatilla, Oregon; Rawlins, Wyoming and Pasco, Washington, each of which supplies
diesel fuel to a railroad fueling facility. The Oregon and Washington lines are
fully automated, however the Wyoming line utilizes a coordinated startup
procedure between the refinery and the railroad. For the year ended December 31,
2001, these three systems combined transported a total of 3.2 million barrels of
diesel fuel, representing an aggregate of $1.3 million in revenues.
Pipelines Products and Activities
The Pipelines' revenues are based upon volumes and distances of product
shipped. The following table reflects the total volume and barrel miles of
refined petroleum products shipped and total operating revenues earned by the
Pipelines for each of the periods indicated:
Year Ended December 31,
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2001 2000 1999 1998 1997
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Volume (1).................. 92,116 89,192 85,356 77,965 69,984
Barrel miles (2)............ 18,567 17,843 18,440 17,007 16,144
Revenues (3)................ $74,976 $70,685 $67,607 $63,421 $61,320
(1) Volumes are expressed in thousands of barrels of refined petroleum product.
(2) Barrel miles are shown in millions. A barrel mile is the movement of one
barrel of refined petroleum product one mile.
(3) Revenues are expressed in thousands of dollars.
The following table sets forth volumes of propane and various types of
other refined petroleum products transported by the Pipelines during each of the
periods indicated:
Year Ended December 31,
(thousands of barrels)
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2001 2000 1999 1998 1997
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Gasoline.................... 46,268 44,215 41,472 37,983 32,237
Diesel and fuel oil......... 42,354 41,087 40,435 36,237 33,541
Propane..................... 3,494 3,890 3,449 3,745 4,206
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Total....................... 92,116 89,192 85,356 77,965 69,984
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Diesel and fuel oil are used in farm machinery and equipment, over-the-road
transportation, railroad fueling and residential fuel oil. Gasoline is primarily
used in over-the-road transportation and propane is used for crop drying,
residential heating and to power irrigation equipment. The mix of refined
petroleum products delivered varies seasonally, with gasoline demand peaking in
early summer, diesel fuel demand peaking in late summer and propane demand
higher in the fall. In addition, weather conditions in the areas served by the
East Pipeline affect both the demand for and the mix of the refined petroleum
products delivered through the East Pipeline, although historically any overall
impact on the total volumes shipped has been short-term. Tariffs charged to
shippers for transportation of products do not vary according to the type of
product delivered.
Maintenance and Monitoring
The Pipelines have been constructed and are maintained in a manner
consistent with applicable Federal, state and local laws and regulations,
standards prescribed by the American Petroleum Institute and accepted industry
practice. Further, protective measures are taken and routine preventive
maintenance is performed on the Pipelines in order to prolong the useful lives
of the Pipelines. Such measures include cathodic protection to prevent external
corrosion, inhibitors to prevent internal corrosion and periodic inspection of
the Pipelines. Additionally, the Pipelines are patrolled at regular intervals to
identify equipment or activities by third parties that, if left unchecked, could
result in encroachment upon the Pipeline's rights-of-way and possible damage to
the Pipelines.
The Partnership uses a state-of-the-art Supervisory Control and Data
Acquisition remote supervisory control software program to continuously monitor
and control the Pipelines from the Wichita, Kansas headquarters. The system
monitors quantities of refined petroleum products injected in and delivered
through the Pipelines and automatically signals the Wichita headquarters
personnel upon deviations from normal operations that requires attention.
Pipeline Operations
Both the East Pipeline and the West Pipeline are interstate pipelines and
thus subject to Federal regulation by such governmental agencies as the Federal
Energy Regulatory Commission ("FERC"), the Department of Transportation, and the
Environmental Protection Agency. Additionally, the West Pipeline is subject to
state regulation of certain intrastate rates in Colorado and Wyoming and the
East Pipeline is subject to state regulation in Kansas. See "Regulation."
Except for the three single-use pipelines and certain ethanol facilities,
all of the Partnership's pipeline operations constitute common carrier
operations and are subject to Federal tariff regulation. In May 1998, KPOP was
authorized by the FERC to adopt market-based rates in approximately one-half of
its markets. Also, certain of its intrastate common carrier operations are
subject to state tariff regulation. Common carrier activities are those under
which transportation through the Pipelines is available at published tariffs
filed, in the case of interstate shipments, with the FERC, or in the case of
intrastate shipments in Kansas, Colorado and Wyoming, with the relevant state
authority, to any shipper of refined petroleum products who requests such
services and satisfies the conditions and specifications for transportation.
In general, a shipper on one of the Pipelines delivers products to the
pipeline from refineries or third party pipelines that connect to the Pipelines.
The Pipelines' operations also include 21 truck loading terminals through which
refined petroleum products are delivered to storage tanks and then loaded into
petroleum transport trucks. Five of the 20 terminals also receive propane into
storage tanks and then load it into transport trucks. Tariffs for transportation
are charged to shippers based upon transportation from the origination point on
the pipeline to the point of delivery. Such tariffs also include charges for
terminaling and storage of product at the Pipeline's terminals. Pipelines are
generally the lowest cost method for intermediate and long-haul overland
transportation of refined petroleum products.
Each shipper transporting product on a pipeline is required to supply KPOP
with a notice of shipment indicating sources of products and destinations. All
shipments are tested or receive refinery certifications to ensure compliance
with KPOP's specifications. Shippers are generally invoiced by KPOP immediately
upon the product entering one of the Pipelines.
The following table shows the number of tanks owned by KPOP at each
terminal location at December 31, 2001, the storage capacity in barrels and
truck capacity of each terminal location.
Location of Number Tankage Truck
Terminals of Tanks Capacity Capacity(a)
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Colorado:
Dupont 18 692,000 6
Fountain 13 366,000 5
Iowa:
LeMars 9 103,000 2
Milford(b) 11 172,000 2
Rock Rapids 12 366,000 2
Kansas:
Concordia(c) 7 79,000 2
Hutchinson 9 162,000 2
Salina 10 98,000 3
Nebraska:
Columbus(d) 12 191,000 2
Geneva 39 678,000 8
Norfolk 16 187,000 4
North Platte 22 198,000 5
Osceola 8 79,000 2
North Dakota:
Jamestown 13 188,000 2
South Dakota:
Aberdeen 12 181,000 2
Mitchell 8 72,000 2
Rapid City 13 256,000 3
Sioux Falls 9 394,000 2
Wolsey 21 149,000 4
Yankton 25 246,000 4
Wyoming:
Cheyenne 15 345,000 2
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Totals 302 5,202,000
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(a) Number of trucks that may be simultaneously loaded.
(b) This terminal is situated on land leased through August 7, 2007 at an
annual rental of $2,400. KPOP has the right to renew the lease upon its
expiration for an additional term of 20 years at the same annual rental
rate.
(c) This terminal is situated on land leased through the year 2060 for a total
rental of $2,000.
(d) Also loads rail tank cars.
The East Pipeline also has intermediate storage facilities consisting of 12
storage tanks at El Dorado, Kansas and 10 storage tanks at McPherson, Kansas,
with aggregate capacities of approximately 472,000 and 534,000 barrels,
respectively. During 2001, approximately 53.3% and 92.2% of the deliveries of
the East Pipeline and the West Pipeline, respectively, were made through their
terminals, and the remainder of the respective deliveries of such lines were
made to other pipelines and customer owned storage tanks.
Storage of product at terminals pending delivery is considered by the
Partnership to be an integral part of the product delivery service of the
Pipelines. Shippers generally store refined petroleum products for less than one
week. Ancillary services, including injection of shipper-furnished and generic
additives, are available at each terminal.
Demand for and Sources of Refined Petroleum Products
The Partnership's pipeline business depends in large part on (i) the level
of demand for refined petroleum products in the markets served by the Pipelines
and (ii) the ability and willingness of refiners and marketers having access to
the Pipelines to supply such demand by deliveries through the Pipelines.
Most of the refined petroleum products delivered through the East Pipeline
are ultimately used as fuel for railroads or in agricultural operations,
including fuel for farm equipment, irrigation systems, trucks used for
transporting crops and crop drying facilities. Demand for refined petroleum
products for agricultural use, and the relative mix of products required, is
affected by weather conditions in the markets served by the East Pipeline. The
agricultural sector is also affected by government agricultural policies and
crop prices. Although periods of drought suppress agricultural demand for some
refined petroleum products, particularly those used for fueling farm equipment,
the demand for fuel for irrigation systems often increases during such times.
While there is some agricultural demand for the refined petroleum products
delivered through the West Pipeline, as well as military jet fuel volumes, most
of the demand is centered in the Denver and Colorado Springs area. Because
demand on the West Pipeline is significantly weighted toward urban and suburban
areas, the product mix on the West Pipeline includes a substantially higher
percentage of gasoline than the product mix on the East Pipeline.
The Pipelines are also dependent upon adequate levels of production of
refined petroleum products by refineries connected to the Pipelines, directly or
through connecting pipelines. The refineries are, in turn, dependent upon
adequate supplies of suitable grades of crude oil. The refineries connected
directly to the East Pipeline obtain crude oil from producing fields located
primarily in Kansas, Oklahoma and Texas, and, to a much lesser extent, from
other domestic or foreign sources. In addition, refineries in Kansas, Oklahoma
and Texas are also connected to the East Pipeline through other pipelines. These
refineries obtain their supplies of crude oil from a variety of sources. The
refineries connected directly to the West Pipeline are located in Casper and
Cheyenne, Wyoming and Denver, Colorado. Refineries in Billings and Laurel,
Montana are connected to the West Pipeline through other pipelines. These
refineries obtain their supplies of crude oil primarily from Rocky Mountain
sources. If operations at any one refinery were discontinued, the Partnership
believes (assuming unchanged demand for refined petroleum products in markets
served by the Pipelines) that the effects thereof would be short-term in nature,
and the Partnership's business would not be materially adversely affected over
the long term because such discontinued production could be replaced by other
refineries or by other sources.
The majority of the refined petroleum product transported through the East
Pipeline in 2001 was produced at three refineries located at McPherson and El
Dorado, Kansas and Ponca City, Oklahoma, and operated by National Cooperative
Refining Association ("NCRA"), Frontier Refining and Conoco, Inc. respectively.
The NCRA and Frontier Refining refineries are connected directly to the East
Pipeline. The McPherson, Kansas refinery operated by NCRA accounted for
approximately 30.6% of the total amount of product shipped over the East
Pipeline in 2001. The East Pipeline also has direct access by third party
pipelines to four other refineries in Kansas, Oklahoma and Texas and to Gulf
Coast supplies of products through connecting pipelines that receive products
from pipelines originating on the Gulf Coast. Five connecting pipelines can
deliver propane from gas processing plants in Texas, New Mexico, Oklahoma and
Kansas to the East Pipeline for shipment.
The majority of the refined petroleum products transported through the West
Pipeline is produced at the Frontier Refinery located at Cheyenne, Wyoming, the
Ultramar Diamond Shamrock and Conoco Refineries located at Denver, Colorado, and
Sinclair's Little America Refinery located at Casper, Wyoming, all of which are
connected directly to the West Pipeline. The West Pipeline also has access to
three Billings, Montana, area refineries through a connecting pipeline.
Principal Customers
KPOP had a total of approximately 46 shippers in 2001. The principal
shippers include four integrated oil companies, three refining companies, two
large farm cooperatives and one railroad. Transportation revenues attributable
to the top 10 shippers of the Pipelines were $51.5 million, $48.7 million and
$42.7 million, which accounted for 69%, 69% and 63% of total revenues shipped
for each of the years 2001, 2000 and 1999, respectively.
Competition and Business Considerations
The East Pipeline's major competitor is an independent, regulated common
carrier pipeline system owned by The Williams Companies, Inc. ("Williams") that
operates approximately 100 miles east of and parallel to the East Pipeline. The
Williams system is a substantially more extensive system than the East Pipeline.
Furthermore, Williams and its affiliates have capital and financial resources
that are substantially greater than those of the Partnership. Competition with
Williams is based primarily on transportation charges, quality of customer
service and proximity to end users, although refined product pricing at either
the origin or terminal point on a pipeline may outweigh transportation costs.
Sixteen of the East Pipeline's 17 delivery terminals are located within 2 to 145
miles of, and in direct competition with Williams' terminals.
The West Pipeline competes with the truck loading racks of the Cheyenne and
Denver refineries and the Denver terminals of the Chase Terminal Company and
Phillips Petroleum Company. Ultramar Diamond Shamrock terminals in Denver and
Colorado Springs, connected to a Ultramar Diamond Shamrock pipeline from their
Texas Panhandle Refinery, are major competitors to the West Pipeline's Denver
and Fountain Terminals, respectively.
Because pipelines are generally the lowest cost method for intermediate and
long-haul movement of refined petroleum products, the Pipelines' more
significant competitors are common carrier and proprietary pipelines owned and
operated by major integrated and large independent oil companies and other
companies in the areas where the Pipelines deliver products. Competition between
common carrier pipelines is based primarily on transportation charges, quality
of customer service and proximity to end users. The Partnership believes high
capital costs, tariff regulation, environmental considerations and problems in
acquiring rights-of-way make it unlikely that other competing pipeline systems
comparable in size and scope to the Pipelines will be built in the near future,
provided the Pipelines have available capacity to satisfy demand and its tariffs
remain at reasonable levels.
The costs associated with transporting products from a loading terminal to
end users limit the geographic size of the market that can be served
economically by any terminal. Transportation to end users from the loading
terminals of the Partnership is conducted principally by trucking operations of
unrelated third parties. Trucks may competitively deliver products in some of
the areas served by the Pipelines. However, trucking costs render that mode of
transportation not competitive for longer hauls or larger volumes. The
Partnership does not believe that trucks are, or will be, effective competition
to its long-haul volumes over the long term.
LIQUIDS TERMINALING BUSINESS
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Introduction
The Partnership's Support Terminal Services operation ("ST Services" or
"ST") is one of the largest independent petroleum products and specialty liquids
terminaling companies in the United States. For the year ended December 31,
2001, the Partnership's terminaling business accounted for approximately 64% of
the Partnership's revenues. As of December 31, 2001, ST operated 41 facilities
in 20 states and the District of Columbia, with a total storage capacity of
approximately 33.5 million barrels. ST also owns and operates six terminals
located in the United Kingdom, having a total capacity of approximately 5.5
million barrels. ST Services and its predecessors have a long history in the
terminaling business and handle a wide variety of liquids from petroleum
products to specialty chemicals to edible liquids.
On January 3, 2001, the Partnership completed the acquisition of Shore
Terminals LLC. Shore Terminals owns seven terminals, four in California (three
in the San Francisco Bay area and one in Los Angeles) and one each in Tacoma,
Washington, Portland, Oregon and Reno, Nevada, with a total storage capacity of
7.8 million barrels. All of the terminals handle petroleum products and, with
the exception of the Nevada terminal, have deep water access. The purchase price
was approximately $107,000,000 in cash and 1,975,090 units of limited
partnership in the Partnership (valued at $56.5 million on the date of agreement
and its announcement). The acquisition, which became a part of the ST Services
terminaling operations, significantly increased ST Services' presence on the
West Coast.
ST's terminal facilities provide storage and handling services on a fee
basis for petroleum products, specialty chemicals and other liquids. ST's six
largest domestic terminal facilities are located in Piney Point, Maryland;
Linden, New Jersey (50% owned joint venture); Crockett, California; Martinez,
California; Jacksonville, Florida and Texas City, Texas. These facilities
accounted for approximately 44.5% of ST's revenues and 49.2% of its tankage
capacity in 2001.
Description of Largest Domestic Terminal Facilities
Piney Point, Maryland
The largest terminal currently owned by ST is located on approximately 400
acres on the Potomac River. The facility was acquired as part of the purchase of
the liquids terminaling assets of Steuart Petroleum Company and certain of its
affiliates (collectively "Steuart") in December 1995. The Piney Point terminal
has approximately 5.4 million barrels of storage capacity in 28 tanks and is the
closest deep water facility to Washington, D.C. This terminal competes with
other large petroleum terminals in the East Coast water-borne market extending
from New York Harbor to Norfolk, Virginia. The terminal currently stores
petroleum products consisting primarily of fuel oils and asphalt. The terminal
has a dock with a 36-foot draft for tankers and four berths for barges. It also
has truck loading facilities, product blending capabilities and is connected to
a pipeline which supplies residual fuel oil to two power generating stations.
Linden, New Jersey
In October 1998, ST entered into a joint venture relationship with
Northville Industries Corp. ("Northville") to acquire a 50% ownership interest
in and the management of the terminal facility at Linden, New Jersey that was
previously owned by Northville. The 44 acre facility provides ST with deep-water
terminaling capabilities at New York Harbor and primarily stores petroleum
products, including gasoline, jet fuel and fuel oils. The facility has a total
capacity of approximately 3.9 million barrels in 22 tanks, can receive products
via ship, barge and pipeline and delivers product by ship, barge, pipeline and
truck. The terminal owns two docks and leases a third with draft limits of 35,
24 and 24 feet, respectively.
Crockett, California
The Crockett Terminal was acquired in January 2001 as a part of the Shore
acquisition. The terminal has approximately 3 million barrels of tankage and is
located in the San Francisco Bay area. The facility provides deep-water access
for handling petroleum products and gasoline additives such as ethanol. The
terminal offers pipeline connections to various refineries and pipelines. It
receives and delivers product by vessel, barge, pipeline and truck-loading
facilities. The terminal also has railroad tank car unloading capability.
Martinez, California
The Martinez Terminal, also acquired in January 2001 as a part of the Shore
acquisition, is located in the refinery area of San Francisco Bay. It has
approximately 2.8 million barrels of tankage and handles refined petroleum
products as well as crude oil. The terminal is connected to a pipeline and to
area refineries by pipelines and can also receive and deliver products by vessel
or barge. It also has a truck rack for product delivery.
Jacksonville, Florida
The Jacksonville terminal, also acquired as part of the Steuart transaction
in 1995, is located on approximately 86 acres on the St. John's River and
consists of a main terminal and two annexes with combined storage capacity of
approximately 2.1 million barrels in 30 tanks. The terminal is currently used to
store petroleum products including gasoline, No. 2 oil, No. 6 oil, diesel,
kerosene and asphalt. This terminal has a tanker berth with a 38-foot draft,
four barge berths and also offers truck and rail car loading facilities and
facilities to blend residual fuels for ship bunkering.
Texas City, Texas
The Texas City facility is situated on 39 acres of land leased from the
Texas City Terminal Railway Company ("TCTRC") with long-term renewal options.
Located on Galveston Bay near the mouth of the Houston Ship Channel,
approximately sixteen miles from open water, the Texas City terminal consists of
124 tanks with a total capacity of approximately 2 million barrels. The eastern
end of the Texas City site is adjacent to three deep-water docking facilities,
which are also owned by TCTRC. The three deep-water docks include two 36-foot
draft docks and a 40-foot draft dock. The docking facilities can accommodate any
ship or barge capable of navigating the 40-foot draft of the Houston Ship
Channel. ST is charged dockage and wharfage fees on a per vessel and per unit
basis, respectively, by TCTRC, which it passes on to its customers.
The Texas City facility is designed to accommodate a diverse product mix,
including specialty chemicals, such as petrochemicals and has tanks equipped for
the specific storage needs of the various products handled; piping and pumping
equipment for moving the product between the tanks and the transportation modes;
and, an extensive infrastructure of support equipment. ST receives and delivers
the majority of the specialty chemicals that it handles via ship or barge at
Texas City. ST also receives and delivers liquids via rail tank cars and
transport trucks and has direct pipeline connections to refineries in Texas
City.
ST's facilities have been designed with engineered structural measures to
minimize the possibility of the occurrence and the level of damage in the event
of a spill or fire. All loading areas, tanks, pipes and pumping areas are
"contained" to collect any spillage and insure that only properly treated water
is discharged from the site.
Other Terminal Sites
In addition to the six major facilities described above, ST now has 35
other terminal facilities located throughout the United States and six
facilities in the United Kingdom. These other facilities represented
approximately 50.8% of ST's total tankage capacity and approximately 55.5% of
its total revenue for 2001. With the exception of the facilities in Columbus,
Georgia, which handles aviation gasoline and specialty chemicals; Winona,
Minnesota, which handles nitrogen fertilizer solutions; Savannah, Georgia, which
handles chemicals and caustic solutions, as well as petroleum products;
Vancouver, Washington, which handles chemicals and bulk fertilizer; Eastham,
United Kingdom which handles chemicals and animal fats; and Runcorn, United
Kingdom, which handles molten sulphur, these facilities primarily store
petroleum products for a variety of customers. Overall, these facilities provide
ST locations which are diverse geographically, in products handled and in
customers served.
The following table outlines ST's terminal locations, capacities, tanks and
primary products handled:
Tankage No. of Primary Products
Facility Capacity Tanks Handled
-----------------------------------------------------------------------------------------------------
Major U. S. Terminals:
Piney Point, MD 5,403,000 28 Petroleum
Linden, NJ(a) 3,884,000 22 Petroleum
Crockett, CA 3,048,000 24 Petroleum
Martinez, CA 2,800,000 16 Petroleum
Jacksonville, FL 2,066,000 30 Petroleum
Texas City, TX 2,002,000 124 Chemicals and Petrochemicals
Other U. S. Terminals:
Montgomery, AL(b) 162,000 7 Petroleum, Jet Fuel
Moundville, AL(b) 310,000 6 Jet Fuel
Tuscon, AZ(a) 181,000 7 Petroleum
Los Angeles, CA 597,000 20 Petroleum
Richmond, CA 617,000 25 Petroleum
Stockton, CA 706,000 32 Petroleum
M Street, DC 133,000 3 Petroleum
Homestead, FL(b) 72,000 2 Jet Fuel
Augusta, GA 110,000 8 Petroleum
Bremen, GA 180,000 8 Petroleum, Jet Fuel
Brunswick, GA 302,000 3 Petroleum, Pulp Liquor
Columbus, GA 180,000 25 Petroleum, Chemicals
Macon, GA(b) 307,000 10 Petroleum, Jet Fuel
Savannah, GA 861,000 19 Petroleum, Chemicals
Blue Island, IL 752,000 19 Petroleum
Chillicothe, IL(a) 270,000 6 Petroleum
Peru, IL 221,000 8 Petroleum, Fertilizer
Indianapolis, IN 410,000 18 Petroleum
Westwego, LA 849,000 53 Molasses, Fertilizer, Caustic
Andrews AFB Pipeline, MD(b) 72,000 3 Jet Fuel
Baltimore, MD 832,000 50 Chemicals, Asphalt, Jet Fuel
Salisbury, MD 177,000 14 Petroleum
Winona, MN 229,000 7 Fertilizer
Reno, NV 107,000 7 Petroleum
Paulsboro, NJ 1,580,000 18 Petroleum
Alamogordo, NM(b) 120,000 5 Jet Fuel
Drumright, OK 315,000 4 Petroleum, Jet Fuel
Portland, OR 1,119,000 31 Petroleum
Philadelphia, PA 894,000 11 Petroleum
San Antonio, TX 207,000 4 Jet Fuel
Dumfries, VA 554,000 16 Petroleum, Asphalt
Virginia Beach, VA(b) 40,000 2 Jet Fuel
Tacoma, WA 377,000 15 Petroleum
Vancouver, WA 166,000 42 Chemicals, Fertilizer
Milwaukee, WI 308,000 7 Petroleum
Foreign Terminals:
Grays, England 1,945,000 53 Petroleum
Eastham, England 2,185,000 162 Chemicals, Petroleum, Animal Fats
Runcorn, England 146,000 4 Molten sulphur
Glasgow, Scotland 344,000 16 Petroleum
Leith, Scotland 459,000 34 Petroleum, Chemicals
Belfast, Northern Ireland 407,000 41 Petroleum
--------------- --------------
39,006,000 1,069
=============== ==============
(a) The terminal is 50% owned by ST.
(b) Facility also includes pipelines to U.S. government military base
locations.
Customers
The storage and transport of jet fuel for the U.S. Department of Defense is
an important part of ST's business. Eleven of ST's terminal sites are involved
in the terminaling or transport (via pipeline) of jet fuel for the Department of
Defense and six of the eleven locations have been utilized solely by the U.S.
Government. One of these locations is presently without government business. Of
the eleven locations, five include pipelines which deliver jet fuel directly to
nearby military bases, while another location supplies Andrews Air Force Base,
Maryland and consists of a barge receiving dock, and an 11.3 mile pipeline, with
three 24,000 barrel double-bottomed tanks and an administration building located
on the base.
Competition and Business Considerations
In addition to the terminals owned by independent terminal operators, such
as ST, many major energy and chemical companies own extensive terminal storage
facilities. Although such terminals often have the same capabilities as
terminals owned by independent operators, they generally do not provide
terminaling services to third parties. In many instances, major energy and
chemical companies that own storage and terminaling facilities are also
significant customers of independent terminal operators, such as ST. Such
companies typically have strong demand for terminals owned by independent
operators when independent terminals have more cost effective locations near key
transportation links, such as deep-water ports. Major energy and chemical
companies also need independent terminal storage when their owned storage
facilities are inadequate, either because of size constraints, the nature of the
stored material or specialized handling requirements.
Independent terminal owners generally compete on the basis of the location
and versatility of terminals, service and price. A favorably located terminal
will have access to various cost effective transportation modes both to and from
the terminal. Possible transportation modes include waterways, railroads,
roadways and pipelines. Terminals located near deep-water port facilities are
referred to as "deep-water terminals" and terminals without such facilities are
referred to as "inland terminals"; though some inland facilities are served by
barges on navigable rivers.
Terminal versatility is a function of the operator's ability to offer
handling for diverse products with complex handling requirements. The service
function typically provided by the terminal includes, among other things, the
safe storage of the product at specified temperature, moisture and other
conditions, as well as receipt at and delivery from the terminal, all of which
must be in compliance with applicable environmental regulations. A terminal
operator's ability to obtain attractive pricing is often dependent on the
quality, versatility and reputation of the facilities owned by the operator.
Although many products require modest terminal modification, operators with a
greater diversity of terminals with versatile storage capabilities typically
require less modification prior to usage, ultimately making the storage cost to
the customer more attractive.
Several companies offering liquid terminaling facilities have significantly
more capacity than ST. However, much of ST's tankage can be described as "niche"
facilities that are equipped to properly handle "specialty" liquids or provide
facilities or services where management believes they enjoy an advantage over
competitors. Most of the larger operators have facilities used primarily for
petroleum related products. As a result, many of ST's terminals compete against
other large petroleum products terminals, rather than specialty liquids
facilities. Such specialty or "niche" tankage is less abundant in the U.S. and
"specialty" liquids typically command higher terminal fees than lower-price bulk
terminaling for petroleum products.
RECENT DEVELOPMENTS
- -------------------
On February 28, 2002, the Partnership acquired all of the liquids
terminaling subsidiaries of Statia Terminals Group NV ("Statia") for
approximately $194 million in cash. The acquired Statia subsidiaries have
approximately $107 million in outstanding debt, including $101 million of 11.75%
notes due in November 2003. The cash portion of the purchase price was funded by
the Partnership's $275 million revolving credit agreement and proceeds from
KPOP's February 2002 public debt offering. On March 1, 2002, the Partnership
announced that it had commenced the procedure to redeem all of Statia's 11.75%
notes at 102.938% of the principal amount, plus accrued interest. The redemption
is expected to be funded by the Partnership's $275 million revolving credit
facility.
Statia's terminaling operations encompass two world-class, strategically
located facilities. The storage and transshipment facility on the island of St.
Eustatius, which is located east of Puerto Rico, has tankage capacity of 11.3
million barrels. The facility located at Point Tupper, Nova Scotia, Canada has
tankage capacity of 7.4 million barrels. Both facilities produce a broad range
of products and services, including storage and throughput, marine services and
product sales of bunker fuels and bulk oil products.
CAPITAL EXPENDITURES
- --------------------
Capital expenditures by the Pipelines, excluding acquisitions, were $4.3
million, $3.4 million and $3.6 million for 2001, 2000 and 1999, respectively.
During these periods, adequate capacity existed on the Pipelines to accommodate
volume growth, and the expenditures required for environmental and safety
improvements were not material in amount. Capital expenditures, excluding
acquisitions, by ST were $12.9 million, $6.1 million and $11.0 million for 2001,
2000 and 1999, respectively.
Capital expenditures of the Partnership during 2002 are expected to be
approximately $15 million to $20 million, excluding capital expenditures
relating to Statia. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
Additional expansion-related capital expenditures will depend on future
opportunities to expand the Partnership's operations. KPL intends to finance
future expansion capital expenditures primarily through Partnership borrowings.
Such future expenditures, however, will depend on many factors beyond the
Partnership's control, including, without limitation, demand for refined
petroleum products and terminaling services in the Partnership's market areas,
local, state and Federal governmental regulations, fuel conservation efforts and
the availability of financing on acceptable terms. No assurance can be given
that required capital expenditures will not exceed anticipated amounts during
the year or thereafter or that the Partnership will have the ability to finance
such expenditures through borrowings or choose to do so.
REGULATION
- ----------
Interstate Regulation
The interstate common carrier pipeline operations of the Partnership are
subject to rate regulation by FERC under the Interstate Commerce Act. The
Interstate Commerce Act provides, among other things, that to be lawful the
rates of common carrier petroleum pipelines must be "just and reasonable" and
not unduly discriminatory. New and changed rates must be filed with the FERC,
which may investigate their lawfulness on protest or its own motion. The FERC
may suspend the effectiveness of such rates for up to seven months. If the
suspension expires before completion of the investigation, the rates go into
effect, but the pipeline can be required to refund to shippers, with interest,
any difference between the level the FERC determines to be lawful and the filed
rates under investigation. Rates that have become final and effective may be
challenged by a complaint to FERC filed by a shipper or on the FERC's own
initiative. Reparations may be recovered by the party filing the complaint for
the two-year period prior to the complaint, if FERC finds the rate to be
unlawful.
The FERC allows for a rate of return for petroleum products pipelines
determined by adding (i) the product of a rate of return equal to the nominal
cost of debt multiplied by the portion of the rate base that is deemed to be
financed with debt and (ii) the product of a rate of return equal to the real
(i.e., inflation-free) cost of equity multiplied by the portion of the rate base
that is deemed to be financed with equity. The appropriate rate of return for a
petroleum pipeline is determined on a case-by-case basis, taking into account
cost of capital, competitive factors and business and financial risks associated
with pipeline operations.
Under Title XVIII of the Energy Policy Act of 1992 (the "EP Act"), rates
that were in effect on October 24, 1991 that were not subject to a protest,
investigation or complaint are deemed to be just and reasonable. Such rates,
commonly referred to as grandfathered rates, are subject to challenge only for
limited reasons. Any relief granted pursuant to such challenges may be
prospective only. Because the Partnership's rates that were in effect on October
24, 1991, were not subject to investigation and protest at that time, those
rates could be deemed to be just and reasonable pursuant to the EP Act. The
Partnership's current rates became final and effective in July 2000, and the
Partnership believes that its currently effective tariffs are just and
reasonable and would withstand challenge under the FERC's cost-based rate
standards. Because of the complexity of rate making, however, the lawfulness of
any rate is never assured.
On October 22, 1993, the FERC issued Order No. 561 which adopted a
simplified rate making methodology for future oil pipeline rate changes in the
form of indexation. Indexation, which is also known as price cap regulation,
establishes ceiling prices on oil pipeline rates based on application of a
broad-based measure of inflation in the general economy to existing rates. Rate
increases up to the ceiling level are to be discretionary for the pipeline, and,
for such rate increases, there will be no need to file cost-of-service or
supporting data. Moreover, so long as the ceiling is not exceeded, a pipeline
may make a limitless number of rate change filings. This indexing mechanism
calculates a ceiling rate. Rate decreases are required if the indexing mechanism
operates to reduce the ceiling rate below a pipeline's existing rates. The
pipeline may increase its rates to this calculated ceiling rate without filing a
formal cost based justification and with limited risk of shipper protests.
The indexation method is to serve as the principal basis for the
establishment of oil pipeline rate changes in the future. However, the FERC
determined that a pipeline may utilize any one of the following alternative
methodologies to indexing: (i) a cost-of-service methodology may be utilized by
a pipeline to justify a change in a rate if a pipeline can demonstrate that its
increased costs are prudently incurred and that there is a substantial
divergence between such increased costs and the rate that would be produced by
application of the index; and (ii) a pipeline may base its rates upon a
"light-handed" market-based form of regulation if it is able to demonstrate a
lack of significant market power in the relevant markets.
On September 15, 1997, the Partnership filed an Application for Market
Power Determination with the FERC seeking market based rates for approximately
half of its markets. In May 1998, the FERC granted the Partnership's application
and approximately half of the Pipelines markets subsequently became subject to
market force regulation.
In the FERC's Lakehead decision issued June 15, 1995, the FERC partially
disallowed Lakehead's inclusion of income taxes in its cost of service.
Specifically, the FERC held that Lakehead was entitled to receive an income tax
allowance with respect to income attributable to its corporate partners, but was
not entitled to receive such an allowance for income attributable to the
partnership interests held by individuals. Lakehead's motion for rehearing was
denied by the FERC and Lakehead appealed the decision to the U.S. Court of
Appeals. Subsequently, the case was settled by Lakehead and the appeal was
withdrawn. In another FERC proceeding involving a different oil pipeline limited
partnership, various shippers challenged such pipeline's inclusion of an income
tax allowance in its cost of service. The FERC decided this case on the same
basis as its holding in the Lakehead case. If the FERC were to partially or
completely disallow the income tax allowance in the cost of service of the
Pipelines on the basis set forth in the Lakehead order, KPL believes that the
Partnership's ability to pay distributions to the holders of the Units would not
be impaired; however, in view of the uncertainties involved in this issue, there
can be no assurance in this regard.
Intrastate Regulation
The intrastate operations of the East Pipeline in Kansas are subject to
regulation by the Kansas Corporation Commission, and the intrastate operations
of the West Pipeline in Colorado and Wyoming are subject to regulation by the
Colorado Public Utility Commission and the Wyoming Public Service Commission,
respectively. Like the FERC, the state regulatory authorities require that
shippers be notified of proposed intrastate tariff increases and have an
opportunity to protest such increases. KPOP also files with such state
authorities copies of interstate tariff changes filed with the FERC. In addition
to challenges to new or proposed rates, challenges to intrastate rates that have
already become effective are permitted by complaint of an interested person or
by independent action of the appropriate regulatory authority.
ENVIRONMENTAL MATTERS
- ---------------------
General
The operations of the Partnership are subject to Federal, state and local
laws and regulations relating to the protection of the environment in the United
States and, since February 1999, the environmental laws and regulations of the
United Kingdom in regard to the terminals acquired from GATX Terminals, Limited,
in the United Kingdom. Although the Partnership believes that its operations are
in general compliance with applicable environmental regulations, risks of
substantial costs and liabilities are inherent in pipeline and terminal
operations, and there can be no assurance that significant costs and liabilities
will not be incurred by the Partnership. Moreover, it is possible that other
developments, such as increasingly strict environmental laws, regulations and
enforcement policies thereunder, and claims for damages to property or persons
resulting from the operations of the Partnership, past and present, could result
in substantial costs and liabilities to the Partnership.
See "Item 3 - Legal Proceedings" for information concerning two lawsuits
against certain subsidiaries of the Partnership involving claims for
environmental damages.
Water
The Oil Pollution Act ("OPA") was enacted in 1990 and amends provisions of
the Federal Water Pollution Control Act of 1972 and other statutes as they
pertain to prevention and response to oil spills. The OPA subjects owners of
facilities to strict, joint and potentially unlimited liability for removal
costs and certain other consequences of an oil spill, where such spill is into
navigable waters, along shorelines or in the exclusive economic zone. In the
event of an oil spill into such waters, substantial liabilities could be imposed
upon the Partnership. Regulations concerning the environment are continually
being developed and revised in ways that may impose additional regulatory
burdens on the Partnership.
Contamination resulting from spills or releases of refined petroleum
products is not unusual within the petroleum pipeline and liquids terminaling
industries. The East Pipeline and ST Services have experienced limited
groundwater contamination at various terminal and pipeline sites resulting from
various causes including activities of previous owners. Remediation projects are
underway or under construction using various remediation techniques. The costs
to remediate contamination at several ST terminal locations are being borne by
the former owners under indemnification agreements. Although no assurances can
be made, the Partnership believes that the aggregate cost of these remediation
efforts will not be material.
Groundwater remediation efforts are ongoing at all four of the West
Pipeline's terminals and at a Wyoming pump station. Regulatory officials have
been consulted in the development of remediation plans. In connection with the
purchase of the West Pipeline, KPOP agreed to implement remediation plans at
these specific sites over the succeeding five years following the acquisition in
return for the payment by the seller, Wyco Pipe Line Company, of $1,312,000 to
KPOP to cover the discounted estimated future costs of these remediations. The
Partnership has accrued $2.1 million for these future remediation expenses.
In May 1998, the West Pipeline, at a point between Dupont, Colorado and
Fountain, Colorado ruptured, and approximately 1,000 barrels of product was
released. Containment and remedial action was immediately commenced. Upon
investigation, it appeared that the failure of the pipeline was due to damage
caused by third party excavations. The Partnership has made claim to the third
party as well as to its insurance carriers. The Partnership has entered into a
Compliance Order on Consent with the State of Colorado with respect to the
remediation. As of December 31, 2001, the Partnership has incurred $1.2 million
of costs in connection with this incident. Future costs are not anticipated to
be significant. The Partnership has recovered substantially all of its costs
from its insurance carrier.
The EPA has promulgated regulations that may require the Partnership to
apply for permits to discharge storm water runoff. Storm water discharge permits
also may be required in certain states in which the Partnership operates. Where
such requirements are applicable, the Partnership has applied for such permits
and, after the permits are received, will be required to sample storm water
effluent before releasing it. The Partnership believes that effluent limitations
could be met, if necessary, with minor modifications to existing facilities and
operations. Although no assurance in this regard can be given, the Partnership
believes that the changes will not have a material effect on the Partnership's
financial condition or results of operations.
Aboveground Storage Tank Acts
A number of the states in which the Partnership operates in the United
States have passed statutes regulating aboveground tanks containing liquid
substances. Generally, these statutes require that such tanks include secondary
containment systems or that the operators take certain alternative precautions
to ensure that no contamination results from any leaks or spills from the tanks.
Although there is not currently a Federal statute regulating these above ground
tanks, there is a possibility that such a law will be passed in the United
States within the next few years. The Partnership is in substantial compliance
with all above ground storage tank laws in the states with such laws. Although
no assurance can be given, the Partnership believes that the future
implementation of above ground storage tank laws by either additional states or
by the Federal government will not have a material adverse effect on the
Partnership's financial condition or results of operations.
Air Emissions
The operations of the Partnership are subject to the Federal Clean Air Act
and comparable state and local statutes. The Partnership believes that the
operations of the Pipelines and Terminals are in substantial compliance with
such statutes in all states in which they operate.
Amendments to the Federal Clean Air Act enacted in 1990 require or will
require most industrial operations in the United States to incur future capital
expenditures in order to meet the air emission control standards that have been
and are to be developed and implemented by the EPA and state environmental
agencies. Pursuant to these Clean Air Act Amendments, those Partnership
facilities that emit volatile organic compounds ("VOC") or nitrogen oxides are
subject to increasingly stringent regulations, including requirements that
certain sources install maximum or reasonably available control technology. In
addition, the 1999 Federal Clean Air Act Amendments include a new operating
permit for major sources ("Title V Permits"), which applies to some of the
Partnership's facilities. Additionally, new dockside loading facilities owned or
operated by the Partnership in the United States will be subject to the New
Source Performance Standards that were proposed in May 1994. These regulations
require control of VOC emissions from the loading and unloading of tank vessels.
Although the Partnership is in substantial compliance with applicable air
pollution laws, in anticipation of the implementation of stricter air control
regulations, the Partnership is taking actions to substantially reduce its air
emissions. The Partnership plans to install bottom loading and vapor recovery
equipment on the loading racks at selected terminal sites along the East
Pipeline that do not already have such emissions control equipment. These
modifications will substantially reduce the total air emissions from each of
these facilities. Having begun in 1993, this project is being phased in over a
period of years.
Solid Waste
The Partnership generates non-hazardous solid waste that is subject to the
requirements of the Federal Resource Conservation and Recovery Act ("RCRA") and
comparable state statutes in the United States. The EPA is considering the
adoption of stricter disposal standards for non-hazardous wastes. RCRA also
governs the disposal of hazardous wastes. At present, the Partnership is not
required to comply with a substantial portion of the RCRA requirements because
the Partnership's operations generate minimal quantities of hazardous wastes.
However, it is anticipated that additional wastes, which could include wastes
currently generated during pipeline operations, will in the future be designated
as "hazardous wastes". Hazardous wastes are subject to more rigorous and costly
disposal requirements than are non-hazardous wastes. Such changes in the
regulations may result in additional capital expenditures or operating expenses
by the Partnership.
At the terminal sites at which groundwater contamination is present, there
is also limited soil contamination as a result of the aforementioned spills. The
Partnership is under no present requirements to remove these contaminated soils,
but the Partnership may be required to do so in the future. Soil contamination
also may be present at other Partnership facilities at which spills or releases
have occurred. Under certain circumstances, the Partnership may be required to
clean up such contaminated soils. Although these costs should not have a
material adverse effect on the Partnership, no assurance can be given in this
regard.
Superfund
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or "Superfund") imposes liability, without regard to fault or the
legality of the original act, on certain classes of persons that contributed to
the release of a "hazardous substance" into the environment. These persons
include the owner or operator of the site and companies that disposed or
arranged for the disposal of the hazardous substances found at the site. CERCLA
also authorizes the EPA and, in some instances, third parties to act in response
to threats to the public health or the environment and to seek to recover from
the responsible classes of persons the costs they incur. In the course of its
ordinary operations, the Partnership may generate waste that may fall within
CERCLA's definition of a "hazardous substance". The Partnership may be
responsible under CERCLA for all or part of the costs required to clean up sites
at which such wastes have been disposed.
Environmental Impact Statement
The United States National Environmental Policy Act of 1969 (the "NEPA")
applies to certain extensions or additions to a pipeline system. Under NEPA, if
any project that would significantly affect the quality of the environment
requires a permit or approval from any United States Federal agency, a detailed
environmental impact statement must be prepared. The effect of the NEPA may be
to delay or prevent construction of new facilities or to alter their location,
design or method of construction.
Indemnification
KPL has agreed to indemnify the Partnership against liabilities for damage
to the environment resulting from operations of the East Pipeline prior to
October 3, 1989. Such indemnification does not extend to any liabilities that
arise after such date to the extent such liabilities result from change in
environmental laws or regulations. Under such indemnity, KPL is presently liable
for the remediation of contamination at certain East Pipeline sites. In
addition, both KPOP and ST were wholly or partially indemnified under certain
acquisition contracts for some environmental costs. Most of such contracts
contain time and amount limitations on the indemnities. To the extent that
environmental liabilities exceed the amount of such indemnity, KPOP has
affirmatively assumed the excess environmental liabilities.
SAFETY REGULATION
- -----------------
The Pipelines are subject to regulation by the United States Department of
Transportation (the "DOT") under the Hazardous Liquid Pipeline Safety Act of
1979 ("HLPSA") relating to the design, installation, testing, construction,
operation, replacement and management of their pipeline facilities. The HLPSA
covers petroleum and petroleum products pipelines and requires any entity that
owns or operates pipeline facilities to comply with such safety regulations and
to permit access to and copying of records and to make certain reports and
provide information as required by the Secretary to Transportation. The Federal
Pipeline Safety Act of 1992 amended the HLPSA to include requirements of the
future use of internal inspection devices. The Partnership does not believe that
it will be required to make any substantial capital expenditures to comply with
the requirements of HLPSA as so amended.
On November 3, 2000, the DOT issued new regulations intended by the DOT to
assess the integrity of hazardous liquid pipeline segments that, in the event of
a leak or failure, could adversely affect highly populated areas, areas
unusually sensitive to environmental impact and commercially navigable
waterways. Under the regulations, an operator is required, among other things,
to conduct baseline integrity assessment tests (such as internal inspections)
within seven years, conduct future integrity tests at typically five year
intervals and develop and follow a written risk-based integrity management
program covering the designated high consequence areas. KPL does not believe
that any increased costs of compliance with these regulations will materially
affect the Partnership's results of operations.
The Partnership is subject to the requirements of the United States Federal
Occupational Safety and Health Act ("OSHA") and comparable state statutes that
regulate the protection of the health and safety of workers. In addition, the
OSHA hazard communication standard requires that certain information be
maintained about hazardous materials used or produced in operations and that
this information be provided to employees, state and local authorities and
citizens. The Partnership believes that it is in general compliance with OSHA
requirements, including general industry standards, record keeping requirements
and monitoring of occupational exposure to benzene.
The OSHA hazard communication standard, the EPA community right-to-know
regulations under Title III of the Federal Superfund Amendment and
Reauthorization Act, and comparable state statutes require the Partnership to
organize information about the hazardous materials used in its operations.
Certain parts of this information must be reported to employees, state and local
governmental authorities, and local citizens upon request. In general, the
Partnership expects to increase its expenditures during the next decade to
comply with higher industry and regulatory safety standards such as those
described above. Such expenditures cannot be accurately estimated at this time,
although they are not expected to have a material adverse impact on the
Partnership.
EMPLOYEES
- ---------
The Partnership has no employees. The business of the Partnership is
conducted by the General Partner, KPL, which at December 31, 2001, employed
approximately 605 persons. Approximately 115 of the persons employed by KPL were
subject to representation by unions for collective bargaining purposes; however,
only 91 persons employed at 5 of KPL's terminal unit locations were subject to
collective bargaining or similar contracts at that date. Union contracts
regarding conditions of employment for 21, 29, 16, 19 and 6 employees are in
effect through March 31, 2002, June 28, 2002, November 1, 2003, June 30, 2004
and September 30, 2005, respectively. All such contracts are subject to
automatic renewal for successive one year periods unless either party provides
written notice in a timely manner to terminate or modify such agreement.
Item 2. Properties
The properties owned or utilized by the Partnership and its subsidiaries
are generally described in Item 1 of this Report. Additional information
concerning the obligations of the Partnership and its subsidiaries for lease and
rental commitments is presented under the caption "Commitments and
Contingencies" in Note 6 to the Partnership's consolidated financial statements.
Such descriptions and information are hereby incorporated by reference into this
Item 2.
The properties used in the operations of the Pipelines are owned by the
Partnership, through its subsidiary entities, except for KPL's operational
headquarters, located in Wichita, Kansas, which is held under a lease that
expires in 2004. The majority of ST's facilities are owned, while the remainder,
including most of its terminal facilities located in port areas and its
operational headquarters, located in Dallas, Texas, are held pursuant to lease
agreements having various expiration dates, rental rates and other terms.
Item 3. Legal Proceedings
Grace Litigation. Certain subsidiaries of the Partnership were sued in a
Texas state court in 1997 by Grace Energy Corporation ("Grace"), the entity from
which the Partnership acquired ST Services in 1993. The lawsuit involves
environmental response and remediation costs allegedly resulting from jet fuel
leaks in the early 1970's from a pipeline. The pipeline, which connected a
former Grace terminal with Otis Air Force Base in Massachusetts (the "Otis
pipeline" or the "pipeline"), ceased operations in 1973 and was abandoned not
later than 1976, when the connecting terminal was sold to an unrelated entity.
Grace alleged that subsidiaries of the Partnership acquired the abandoned
pipeline, as part of the acquisition of ST Services in 1993 and assumed
responsibility for environmental damages allegedly caused by the jet fuel leaks.
Grace sought a ruling from the Texas court that these subsidiaries are
responsible for all liabilities, including all present and future remediation
expenses, associated with these leaks and that Grace has no obligation to
indemnify these subsidiaries for these expenses. In the lawsuit, Grace also
sought indemnification for expenses of approximately $3.5 million that it
incurred since 1996 for response and remediation required by the State of
Massachusetts and for additional expenses that it expects to incur in the
future. The consistent position of the Partnership's subsidiaries has been that
they did not acquire the abandoned pipeline as part of the 1993 ST Services
transaction, and therefore did not assume any responsibility for the
environmental damage nor any liability to Grace for the pipeline.
At the end of the trial, the jury returned a verdict including findings
that (1) Grace had breached a provision of the 1993 acquisition agreement by
failing to disclose matters related to the pipeline, and (2) the pipeline was
abandoned before 1978 -- 15 years before the Partnership's subsidiaries acquired
ST Services. On August 30, 2000, the Judge entered final judgment in the case
that Grace take nothing from the subsidiaries on its claims seeking recovery of
remediation costs. Although the Partnership's subsidiaries have not incurred any
expenses in connection with the remediation, the court also ruled, in effect,
that the subsidiaries would not be entitled to indemnification from Grace if any
such expenses were incurred in the future. Moreover, the Judge let stand a prior
summary judgment ruling that the pipeline was an asset acquired by the
Partnership's subsidiaries as part of the 1993 ST Services transaction and that
any liabilities associated with the pipeline would have become liabilities of
the subsidiaries. Based on that ruling, the Massachusetts Department of
Environmental Protection and Samson Hydrocarbons Company (successor to Grace
Petroleum Company) wrote letters to ST Services alleging its responsibility for
the remediation, and ST Services responded denying any liability in connection
with this matter. The Judge also awarded attorney fees to Grace of more than
$1.5 million. Both the Partnership's subsidiaries and Grace have appealed the
trial court's final judgment to the Texas Court of Appeals in Dallas. In
particular, the subsidiaries have filed an appeal of the judgement finding that
the Otis pipeline and any liabilities associated with the pipeline were
transferred to them as well as the award of attorney fees to Grace.
On April 2, 2001, Grace filed a petition in bankruptcy, which created an
automatic stay against actions against Grace. This automatic stay covers the
appeal of the Dallas litigation, and the Texas Court of Appeals has issued an
order staying all proceedings of the appeal because of the bankruptcy. Once that
stay is lifted, the Partnership's subsidiaries that are party to the lawsuit
intend to resume vigorous prosecution of the appeal.
The Otis Air Force Base is a part of the Massachusetts Military Reservation
("MMR Site"), which has been declared a Superfund Site pursuant to CERCLA. The
MMR Site contains nine groundwater contamination plumes, two of which are
allegedly associated with the Otis pipeline, and various other waste management
areas of concern, such as landfills. The United States Department of Defense and
the United States Coast Guard, pursuant to a Federal Facilities Agreement, have
been responding to the Government remediation demand for most of the
contamination problems at the MMR Site. Grace and others have also received and
responded to formal inquiries from the United States Government in connection
with the environmental damages allegedly resulting from the jet fuel leaks. The
Partnership's subsidiaries voluntarily responded to an invitation from the
Government to provide information indicating that they do not own the pipeline.
In connection with a court-ordered mediation between Grace and the Partnership's
subsidiaries, the Government advised the parties in April 1999 that it has
identified two spill areas that it believes to be related to the pipeline that
is the subject of the Grace suit. The Government at that time advised the
parties that it believed it had incurred costs of approximately $34 million, and
expected in the future to incur costs of approximately $55 million, for
remediation of one of the spill areas. This amount was not intended to be a
final accounting of costs or to include all categories of costs. The Government
also advised the parties that it could not at that time allocate its costs
attributable to the second spill area.
By letter dated July 26, 2001, the United States Department of Justice
("DOJ") advised ST Services that the Government intends to seek reimbursement
from ST Services under the Massachusetts Oil and Hazardous Material Release
Prevention and Response Act and the Declaratory Judgment Act for the
Government's response costs at the two spill areas discussed above. The DOJ
relied in part on the judgment by the Texas state court that, in the view of the
DOJ, held that ST Services was the current owner of the pipeline and the
successor-in-interest of the prior owner and operator. The Government advised ST
Services that it believes it has incurred costs exceeding $40 million, and
expects to incur future costs exceeding an additional $22 million, for
remediation of the two spill areas. The Partnership believes that its
subsidiaries have substantial defenses. ST Services responded to the DOJ on
September 6, 2001, contesting the Government's positions and declining to
reimburse any response costs. ST Services and the Government have continued to
exchange correspondence and documents on the matter. The DOJ has not filed a
lawsuit against ST Services seeking cost recovery for its environmental
investigation and response costs.
PEPCO Litigation. On April 7, 2000, a fuel oil pipeline in Maryland owned
by Potomac Electric Power Company ("PEPCO") ruptured. The pipeline was operated
by a partnership of which ST Services is general partner. PEPCO has reported
that it expects to incur total cleanup costs of $70 million to $75 million.
Since May 2000, ST Services has provisionally contributed a minority share of
the cleanup expense, which has been funded by ST Services' insurance carriers.
The Partnership and PEPCO have not, however, reached a final agreement regarding
our proportionate responsibility for this cleanup effort and have reserved all
rights to assert claims for contribution against each other. The Partnership
cannot predict the amount, if any, that ultimately may be determined to be ST
Services' share of the remediation expense, but it believes that such amount
will be covered by insurance and will not materially adversely affect the
Partnership's financial condition.
As a result of the rupture, purported class actions have been filed against
PEPCO and ST Services in federal and state court in Maryland by property and/or
business owners alleging damages in unspecified amounts under various theories,
including under the Oil Pollution Act ("OPA"). The court consolidated all of
these cases in a case styled as In re Swanson Creek Oil Spill Litigation. The
trial judge recently granted preliminary approval of a $2,250,000 class
settlement, with ST Services and PEPCO each contributing half of the settlement
fund. Notice of the proposed settlement will be sent to putative class members
and putative class members have until March 26, 2002 to opt out. ST Services or
PEPCO can void the settlement if too many putative class members opt out and
elect to pursue separate litigation. A hearing on final settlement will be held
on April 15, 2002. If the settlement is finally approved, this litigation should
be concluded in 2002. It is expected that most class members will elect to
participate in the class settlement, but it is possible that even if the In re
Swanson Creek Oil Spill Litigation settlement becomes final, ST Services may
still face litigation from opt-out plaintiffs. ST Services' insurance carriers
have assumed the defense of these actions. While the Partnership cannot predict
the amount, if any, of any liability it may have in these suits, it believes
that such amounts will be covered by insurance and that these actions will not
have a material adverse effect on our financial condition.
PEPCO and ST Services have agreed with the State of Maryland to pay costs
of assessing natural resource damages arising from the Swanson Creek oil spill
under OPA, but they cannot predict at this time the amount of any damages that
may be claimed by Maryland. The Partnership believes that both the assessment
costs and such damages are covered by insurance and will not materially
adversely affect the Partnership's financial condition.
The U.S. Department of Transportation ("DOT") has issued a Notice of
Proposed Violation to PEPCO and ST Services alleging violations over several
years of pipeline safety regulations and proposing a civil penalty of $674,000.
ST Services and PEPCO have contested the DOT allegations and the proposed
penalty. A hearing was held before the DOT in late 2001, and ST Services
anticipates that the DOT will rule during the first quarter of 2002. In
addition, by letter dated January 4, 2002, the Attorney General's Office for the
State of Maryland advised ST Services that it plans to exercise its right to
seek penalties from ST Services in connection with the April 7, 2000 spill. The
ultimate amount of any penalty attributable to ST Services cannot be determined
at this time, but the Partnership believes that this matter will not have a
material adverse effect on its financial condition.
The Partnership has other contingent liabilities resulting from litigation,
claims and commitments incident to the ordinary course of business. Management
believes, based on the advice of counsel, that the ultimate resolution of such
contingencies will not have a materially adverse effect on the financial
position or results of operations of the Partnership.
Item 4. Submission of Matters to a Vote of Security Holders
The Partnership did not hold a meeting of Unitholders or otherwise submit
any matter to a vote of security holders in the fourth quarter of 2001.
PART II
Item 5. Market for the Registrant's Units and Related Unitholder Matters
The Partnership's limited partnership interests ("Units") are listed and
traded on the New York Stock Exchange (the "NYSE"), under the symbol "KPP." At
March 8, 2002, there were approximately 1,000 unitholders of record. Set forth
below are prices on the NYSE and cash distributions for the periods indicated
for such Units.
Unit Prices Cash
Year High Low Distributions
------------------------------ ----------- ------- -------------
2000:
First Quarter $ 28.25 $ 24.19 $.70
Second Quarter 27.13 23.38 .70
Third Quarter 29.94 24.69 .70
Fourth Quarter 31.75 26.06 .70
2001:
First Quarter 31.81 27.75 .70
Second Quarter 36.00 30.00 .70
Third Quarter 40.44 34.13 .75
Fourth Quarter 42.19 37.83 .75
2002:
First quarter
(through March 8, 2002) 43.80 35.95
Under the terms of its financing agreements, the Partnership is prohibited
from declaring or paying any distribution if a default exists thereunder.
Item 6. Summary Historical Financial and Operating Data
The following table sets forth, for the periods and at the dates indicated,
selected historical financial and operating data for Kaneb Pipe Line Partners,
L.P. and subsidiaries (the "Partnership"). The data in the table (in thousands,
except per unit amounts) is derived from the historical financial statements of
the Partnership and should be read in conjunction with the Partnership's audited
financial statements. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Year Ended December 31,
--------------------------------------------------------------------
2001(a) 2000 1999 1998 1997
---------- ---------- --------- --------- ----------
Income Statement Data:
Revenues.............................. $ 207,796 $ 156,232 $ 158,028 $ 125,812 $ 121,156
--------- ---------- --------- ---------- ----------
Operating costs....................... 90,632 69,653 69,148 52,200 50,183
Depreciation and amortization......... 23,184 16,253 15,043 12,148 11,711
General and administrative............ 11,889 11,881 9,424 6,261 5,793
Gain on sale of assets................ - (1,126) - - -
--------- ---------- --------- ---------- ----------
Total costs and expenses.......... 125,705 96,661 93,615 70,609 67,687
--------- ---------- --------- ---------- ----------
Operating income...................... 82,091 59,571 64,413 55,203 53,469
Interest and other income............. 4,277 316 408 626 562
Interest expense...................... (14,783) (12,283) (13,390) (11,304) (11,332)
Minority interest in net income....... (706) (467) (499) (441) (420)
--------- ---------- --------- ---------- -----------
Income before income taxes............ 70,879 47,137 50,932 44,084 42,279
Income tax provision.................. (981) (943) (1,496) (418) (718)
--------- ---------- --------- ---------- ----------
Income before extraordinary item...... 69,898 46,194 49,436 43,666 41,561
Extraordinary item - loss on debt
extinguishment, net of minority
interest and income taxes......... (5,757) - - - -
--------- ---------- --------- ---------- ----------
Net income............................ $ 64,141 $ 46,194 $ 49,436 $ 43,666 $ 41,561
========= ========== ========= ========== ==========
Allocation of net income per unit:
Before extraordinary item......... $ 3.32 $ 2.43 $ 2.81 $ 2.67 $ 2.55
Extraordinary item................ (.29) - - - -
--------- ---------- --------- ---------- ----------
$ 3.03 $ 2.43 $ 2.81 $ 2.67 $ 2.55
========= ========== ========= ========== ==========
Cash distributions declared per unit $ 2.90 $ 2.80 $ 2.80 $ 2.60 $ 2.50
========= ========== ========= ========== ==========
Balance Sheet Data (at year end):
Property and equipment, net........... $ 481,274 $ 321,355 $ 316,883 $ 268,626 $ 247,132
Total assets.......................... 548,371 375,063 365,953 308,432 269,032
Long-term debt........................ 262,624 166,900 155,987 153,000 132,118
Partners' capital..................... 219,517 160,767 168,288 105,388 104,196
(a) Includes the operations of Shore Terminals LLC from January 3, 2001 (See
Note 3 to Consolidated Financial Statements).
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion should be read in conjunction with the consolidated
financial statements of Kaneb Pipe Line Partners, L.P. (the "Partnership") and
notes thereto and the summary historical financial and operating data included
elsewhere in this report.
GENERAL
- -------
In September 1989, Kaneb Pipe Line Company LLC ("KPL"), now a wholly-owned
subsidiary of Kaneb Services LLC ("Kaneb"), formed the Partnership to own and
operate its refined petroleum products pipeline business. KPL manages and
controls the operations of the Partnership through its general partner interest
and a 25% limited partner interest. The Partnership operates through Kaneb Pipe
Line Operating Partnership, L.P. ("KPOP"), a limited partnership in which the
Partnership holds a 99% interest as limited partner and KPL owns a combined 2%
interest as general partner of the Partnership and KPOP. The Partnership is
engaged through operating subsidiaries in the refined petroleum products
pipeline business and, since 1993, terminaling and storage of petroleum products
and specialty liquids.
The Partnership's pipeline business consists primarily of the
transportation through the East Pipeline and the West Pipeline (collectively
referred to as the "Pipelines"), as common carriers, of refined petroleum
products. Common carrier activities are those under which transportation through
the pipelines is available at published tariffs filed, in the case of interstate
shipments, with the Federal Energy Regulatory Commission (the "FERC"), or in the
case of intrastate shipments in Kansas, Colorado and Wyoming, with the relevant
state authority, to any shipper of refined petroleum products who requests such
services and satisfies the conditions and specifications for transportation. The
Pipelines primarily transport gasoline, diesel oil, fuel oil and propane. The
products are transported from refineries connected to the Pipeline, directly or
through other pipelines, to agricultural users, railroads and wholesale
customers in the states in which the Pipelines are located and in portions of
other states. Substantially all of the Pipelines' operations constitute common
carrier operations that are subject to Federal or state tariff regulations. The
Partnership has not engaged, nor does it currently intend to engage, in the
merchant function of buying and selling refined petroleum products. The
Partnership's business of terminaling petroleum products and specialty liquids
is conducted under the name ST Services ("ST").
On January 3, 2001, the Partnership, through a wholly-owned subsidiary,
acquired Shore Terminals LLC ("Shore") for $107 million in cash and 1,975,090
Partnership units (valued at $56.5 million on the date of agreement and its
announcement). Financing for the cash portion of the purchase price was supplied
under a $275 million unsecured revolving credit agreement with a group of banks.
See "Liquidity and Capital Resources". Shore owns seven terminals, located in
four states, with a total tankage capacity of 7.8 million barrels. All of the
terminals handle petroleum products and, with the exception of one, have deep
water access.
On February 1, 1999, the Partnership, through two wholly-owned indirect
subsidiaries, acquired six terminals in the United Kingdom from GATX Terminal
Limited for (pound)22.6 million (approximately $37.2 million) plus transaction
costs and the assumption of certain liabilities. The acquisition of the six
locations, which have an aggregate tankage capacity of 5.4 million barrels, was
initially financed by term loans from a bank. $13.3 million of the term loans
were repaid in July 1999 with the proceeds from a public unit offering. See
"Liquidity and Capital Resources". Three of the terminals, handling petroleum
products, chemicals and molten sulfur, respectively, operate in England. The
remaining three facilities, two in Scotland and one in Northern Ireland, are
primarily petroleum terminals. All six terminals are served by deepwater marine
docks.
The Partnership is the third largest independent liquids terminaling
company in the United States. At December 31, 2001, ST operated 41 facilities in
20 states, the District of Columbia and six facilities in the United Kingdom
with an aggregate tankage capacity of approximately 39.0 million barrels.
PIPELINE OPERATIONS
- -------------------
Year Ended December 31,
---------------------------------------------------
2001 2000 1999
----------- ----------- -----------
(in thousands)
Revenues............................................. $ 74,976 $ 70,685 $ 67,607
Operating costs...................................... 28,844 25,223 23,579
Depreciation and amortization........................ 5,478 5,180 5,090
General and administrative........................... 3,881 4,069 3,102
----------- ----------- -----------
Operating income..................................... $ 36,773 $ 36,213 $ 35,836
=========== =========== ===========
Pipelines revenues are based on volumes shipped and the distances over
which such volumes are transported. For the year ended December 31, 2001,
revenues increased by $4.3 million, compared to 2000, due to increases in barrel
miles shipped and increases in terminaling charges. For the year ended December
31, 2000, revenues increased by $3.1 million, compared to 1999, due to an
increase in terminaling charges. Because tariff rates are regulated by the FERC,
the Pipelines compete primarily on the basis of quality of service, including
delivering products at convenient locations on a timely basis to meet the needs
of its customers. Barrel miles totaled 18.6 billion, 17.8 billion and 18.4
billion for the years ended December 31, 2001, 2000 and 1999, respectively.
Operating costs, which include fuel and power costs, materials and
supplies, maintenance and repair costs, salaries, wages and employee benefits,
and property and other taxes, increased by $3.6 million in 2001 and $1.6 million
in 2000. The increase in 2001 was due to increases in fuel and power costs and
expenses from pipeline relocation projects. The increase in 2000 was due to
increases in materials and supplies costs, including additives, that are volume
related. General and administrative costs, which include managerial, accounting
and administrative personnel costs, office rental expense, legal and
professional costs and other non-operating costs, decreased by $0.2 million in
2001 and increased by $1.0 million in 2000, compared to the respective prior
year. The increase in 2000 was the result of a one-time benefit resulting from
the favorable elimination of a contingency in 1999.
TERMINALING OPERATIONS
- ----------------------
Year Ended December 31,
---------------------------------------------------
2001 2000 1999
----------- ----------- -----------
(in thousands)
Revenues............................................. $ 132,820 $ 85,547 $ 90,421
Operating costs...................................... 61,788 44,430 45,569
Depreciation and amortization........................ 17,706 11,073 9,953
General and administrative........................... 8,008 7,812 6,322
Gain on sale of assets............................... - (1,126) -
----------- ----------- -----------
Operating income..................................... $ 45,318 $ 23,358 $ 28,577
=========== =========== ===========
For the year ended December 31, 2001, revenues increased by $47.3 million,
compared to 2000, due to the Shore acquisition and overall increases in
utilization at existing locations, the result of relatively favorable market
conditions. Approximately $36.0 million of the 2001 revenue increase was a
result of the Shore acquisition. 2000 revenues decreased by $4.9 million,
compared to 1999, as revenue increases resulting from the United Kingdom and
other 1999 terminal acquisitions were more than offset by decreases in tank
utilization due to unfavorable domestic market conditions resulting from
declines in forward product pricing. Average annual tankage utilized for the
years ended December 31, 2001, 2000 and 1999 aggregated 30.1 million barrels,
21.0 million barrels and 22.6 million barrels, respectively. The 2001 increase
in average annual tankage utilized resulted from the Shore acquisition and the
favorable market conditions. The 2000 decrease resulted from the unfavorable
domestic market conditions. Average revenues per barrel of tankage utilized for
the years ended December 31, 2001, 2000 and 1999 was $4.41, $4.12 and $4.00,
respectively. The increase in 2001 average revenues per barrel of tankage
utilized was due to favorable market conditions, when compared to 2000. The 2000
increase, when compared to 1999, was due to the storage of a larger
proportionate volume of specialty chemicals, which are historically at higher
per barrel rates than petroleum products.
In 2001 operating costs increased by $17.4 million, when compared to 2000,
due to the Shore acquisition and increases in volumes stored. 2000 operating
costs decreased by $1.1 million, when compared to 1999, due to lower costs
resulting from the overall decline in volumes stored. General and administrative
expense increased by $0.2 million in 2001 and by $1.5 million in 2000. The
increase in general and administrative costs in 2001, compared to 2000, is due
to the Shore acquisition partially offset by the extraordinary high litigation
costs in 2000. The increase in 2000, compared to 1999, was due entirely to the
extraordinarily high litigation costs. In 2000 the Partnership sold land and
other terminaling business assets for approximately $2.0 million in net
proceeds, recognizing a gain on disposition of assets of $1.1 million.
Total tankage capacity (39.0 million barrels at December 31, 2001) has
been, and is expected to remain, adequate to meet existing customer storage
requirements. Customers consider factors such as location, access to cost
effective transportation and quality of service, in addition to pricing, when
selecting terminal storage.
INTEREST AND OTHER INCOME
- -------------------------
In March of 2001, a wholly-owned subsidiary of the Partnership entered into
two contracts for the purpose of locking in interest rates on $100 million of
anticipated ten-year public debt offerings. As the interest rate locks were not
designated as hedging instruments pursuant to the requirements of Statement of
Financial Accounting Standards ("SFAS") No. 133, increases or decreases in the
fair value of the contracts are included as a component of interest and other
income, net. On May 22, 2001, the contracts were settled resulting in a gain of
$3.8 million.
INTEREST EXPENSE
- ----------------
For the year ended December 31, 2001, interest expense increased by $2.5
million, compared to 2000, due to increases in debt resulting from the Shore
acquisition (see "Liquidity and Capital Resources"), partially offset by
declines in interest rates on variable rate debt. For the year ended December
31, 2000, interest expense decreased by $1.1 million, compared to 1999, due to
repayments of debt from a portion of the 1999 unit offering proceeds (see
"Liquidity and Capital Resources").
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash provided by operating activities was $102.2 million, $62.0 million and
$63.6 million for the years 2001, 2000 and 1999, respectively. The increase in
2001, compared to 2000, is due to increases in terminaling revenues and
operating income, a result of the Shore acquisition, and increases in
utilization at existing terminaling locations. The decrease in 2000, compared to
1999, is a result of the decrease in terminaling revenues and operating income
due to unfavorable domestic market conditions.
Capital expenditures, excluding expansion capital expenditures, were $17.2
million, $9.5 million and $14.6 million for 2001, 2000 and 1999, respectively.
During all periods, adequate pipeline capacity existed to accommodate volume
growth, and the expenditures required for environmental and safety improvements
were not, and are not expected in the future to be, significant. Environmental
damages caused by sudden and accidental occurrences are included under the
Partnership's insurance coverages (subject to deductibles and limits). The
Partnership anticipates that routine maintenance capital expenditures (excluding
acquisitions) will total approximately $15 million to $20 million in 2002. Such
future expenditures, however, will depend on many factors beyond the
Partnership's control, including, without limitation, demand for refined
petroleum products and terminaling services in the Partnership's market areas,
local, state and Federal governmental regulations, fuel conservation efforts and
the availability of financing on acceptable terms. No assurance can be given
that required capital expenditures will not exceed anticipated amounts during
the year or thereafter or that the Partnership will have the ability to finance
such expenditures through borrowings, or choose to do so.
The Partnership expects to fund future cash distributions and maintenance
capital expenditures with existing cash and cash flows from operating
activities. Expansionary capital expenditures are expected to be funded through
additional Partnership bank borrowings and/or future public unit or debt
offerings.
The Partnership makes quarterly distributions of 100% of its available
cash, as defined in the Partnership agreement, to holders of limited partnership
units and KPL. Available cash consists generally of all the cash receipts less
all cash disbursements and reserves. Distributions of $2.90, $2.80 and $2.80 per
unit were declared to unitholders in 2001, 2000 and 1999, respectively.
In December 2000, the Partnership entered into a credit agreement with a
group of banks that provides for a $275 million unsecured revolving credit
facility through December 2003. The credit facility bears interest at variable
rates and has a variable commitment fee on unutilized amounts. The credit
facility contains certain financial and operational covenants, including
limitations on investments, sales of assets and transactions with affiliates,
and, absent an event of default, the covenants do not restrict distributions to
unitholders. In January 2001, proceeds from the facility were used to repay in
full the Partnership's $128 million of mortgage notes and $15 million
outstanding under its $25 million revolving credit facility. An additional $107
million was used to finance the cash portion of the Shore acquisition. Under the
provisions of the mortgage notes, the Partnership incurred a $6.5 million
prepayment penalty before minority interest and income taxes, which was
recognized as an extraordinary expense in the first quarter of 2001. At December
31, 2001, $238.9 million was drawn on the facility, at an interest rate of
2.69%, which is due in December of 2003.
In January 1999, the Partnership, through two wholly-owned subsidiaries,
entered into a credit agreement with a bank that provided for the issuance of
$39.2 million of term loans in connection with the United Kingdom terminal
acquisition and $5.0 million for general Partnership purposes. $18.3 million of
the term loans were repaid in July 1999 with the proceeds from the public unit
offering. The remaining portion ($23.7 million at December 31, 2001), with a
fixed rate of 7.25%, is due in December 2003. The term loans under the credit
agreement, as amended, are unsecured and are pari passu with the $275 million
revolving credit facility. The term loans also contain certain financial and
operational covenants.
In July 1999, the Partnership issued 2.25 million limited partnership units
in a public offering at $30.75 per unit, generating approximately $65.6 million
in net proceeds. A portion of the proceeds was used to repay in full the
Partnership's $15.0 million promissory note, the $25.0 million revolving credit
facility and $18.3 million in term loans (including $13.3 million in term loans
resulting from the United Kingdom terminal acquisition).
In January of 2002, the Partnership issued 1.25 million limited partnership
units in a public offering at $41.65 per unit, generating approximately $49.7
million in net proceeds. The proceeds were used to reduce the amount of
indebtedness outstanding under the Partnership's $275 million revolving credit
facility.
In February 2002, KPOP issued $250 million of 7.75% senior unsecured notes
due February 15, 2012. The net proceeds from the public offering, $248.2
million, were used to repay the $188.9 million outstanding under the $275
million revolving credit agreement and to partially fund the acquisition of all
of the liquids terminaling subsidiaries of Statia Terminals Group NV ("Statia").
On February 28, 2002, the Partnership acquired Statia for approximately
$194 million in cash. The acquired Statia subsidiaries have approximately $107
million in outstanding debt, including $101 million of 11.75% notes due in
November 2003. The cash portion of the purchase price was funded by the
Partnership's $275 million revolving credit agreement and proceeds from KPOP's
February 2002 public debt offering. On March 1, 2002, the Partnership announced
that it had commenced the procedure to redeem all of Statia's 11.75% notes at
102.938% of the principal amount, plus accrued interest. The redemption is
expected to be funded by the Partnership's $275 million revolving credit
facility.
See also "Item 1 - Regulation", regarding the FERC's Lakehead decision.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The carrying value of property and equipment is periodically evaluated
using management's estimates of undiscounted future cash flows, or, in some
cases, third-party appraisals, as the basis of determining if impairment exists
under the provisions of SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-lived Assets to be Disposed Of". To the extent
that impairment is indicated to exist, an impairment loss is recognized under
SFAS No. 121 based on fair value. The application of SFAS No. 121 did not have a
material impact on the results of operations of the Partnership for the years
ended December 31, 2001, 2000 or 1999. However, future evaluations of carrying
value are dependent of many factors, some of which are out of the Partnership's
control, including demand for refined petroleum products and terminaling
services in the Partnership's market areas, and local, state and Federal
governmental regulations. To the extent that such factors or conditions change,
it is possible that future impairments might occur, which could have a material
effect on the results of operations of the Partnership.
Environmental expenditures that relate to current operations are expensed
or capitalized, as appropriate. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current or
future revenue generation, are expensed. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable, and the costs
can be reasonably estimated. Generally, the timing of these accruals coincides
with the completion of a feasibility study or the Partnership's commitment to a
formal plan of action. The application of the Partnership's environmental
accounting policies did not have a material impact on the results of operations
of the Partnership for the years ended December 31, 2001, 2000 or 1999. Although
the Partnership believes that its operations are in general compliance with
applicable environmental regulations, risks of substantial costs and liabilities
are inherent in pipeline and terminaling operations. Moreover, it is possible
that other developments, such as increasingly strict environmental laws,
regulations and enforcement policies thereunder, and legal claims for damages to
property or persons resulting from operations of the Partnership could result in
substantial costs and liabilities, any of which could have a material effect on
the results of operations of the Partnership.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In July of 2001, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 141 "Business Combinations", which requires that all business
combinations initiated after June 30, 2001 be accounted for under the purchase
method of accounting. SFAS No. 141 also specifies the criteria for recording
intangible assets other than goodwill in a business combination. The Partnership
is currently assessing the impact of SFAS No. 141 on its financial statements.
Additionally, in July of 2001, the FASB issued SFAS No. 142 "Goodwill and
Other Intangible Assets", which requires that goodwill no longer be amortized to
earnings, but instead be reviewed for impairment. The Partnership is currently
assessing the impact of SFAS No. 142, which must be adopted in the first quarter
of 2002.
Also, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations", which establishes requirements for the removal-type costs
associated with asset retirements. The Partnership is currently assessing the
impact of SFAS No. 143, which must be adopted in the first quarter of 2003.
On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144, which supercedes SFAS No. 121, is effective for fiscal years
beginning after December 15, 2001 and interim periods within those fiscal years
with earlier application encouraged. The Partnership is currently assessing the
impact on its financial statements.
Item 7(a). Quantitative and Qualitative Disclosure About Market Risk
The principal market risks (i.e., the risk of loss arising from the adverse
changes in market rates and prices) to which the Partnership is exposed are
interest rates on the Partnership's debt and investment portfolios. The
Partnership centrally manages its debt and investment portfolios considering
investment opportunities and risks and overall financing strategies. The
Partnership's investment portfolio consists of cash equivalents; accordingly,
the carrying amounts approximate fair value. The Partnership's investments are
not material to its financial position or performance. Assuming variable rate
debt of $238.9 million at December 31, 2001, a one percent increase in interest
rates would increase net interest expense by approximately $2.4 million.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data of the Partnership begin on
page F-1 of this report. Such information is hereby incorporated by reference
into this Item 8.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership is a limited partnership and has no directors. The
Partnership is managed by KPL as general partner. Set forth below is certain
information concerning the directors and executive officers of KPL. All
directors of KPL are elected annually by KSL, as its sole stockholder. All
officers serve at the discretion of the Board of Directors of KPL.
Position with Years of Service % of
Name Age KPL With KPL Units(m) O/S
- ------------------------ ------- ---------------------------------- ------------------------- --------------- ----------
Edward D. Doherty 66 Chairman of the Board and 12 (a) 86,700 *
Chief Executive Officer
Leon E. Hutchens 67 President (retired) 42 (b) 500 *
Jimmy L. Harrison 48 President 9 (d) -0- *
Ronald D. Scoggins 47 Senior Vice President 5 (c) 1,692 *
Howard C. Wadsworth 57 Vice President, Treasurer 8 (e) -0- *
and Secretary
Sangwoo Ahn 63 Director 13 (f) 38,000 *
John R. Barnes 57 Director 15 (g) 92,100 *
Murray R. Biles 71 Director 48 (h) 500 *
Frank M. Burke, Jr. 62 Director 5 (i) -0- *
Charles R. Cox 59 Director 7 (j) 8,500 *
Hans Kessler 52 Director 5 (k) -0- *
James R. Whatley 75 Director 12 (l) 33,000 *
------- ------
All Officers and Directors as a group (12 persons) 260,992 1.21%
*Less than one percent
(a) Mr. Doherty has been Chairman of the Board and Chief Executive Officer of
KPL since September 1989.
(b) Mr. Hutchens became President of KPL in January 1994, having been with KPL
since January 1960. Mr. Hutchens retired on December 31, 2001.
(c) Mr. Scoggins became an executive officer of KPL in August 1997, prior to
which he served in senior level positions for ST for more than 10 years.
(d) Mr. Harrison was named President of KPL on January 1, 2002. Prior to
assuming his present position he served as Vice President from July 1998,
prior to which he served as Controller of the Company. Before joining the
Company, he served in a variety of financial positions including Assistant
Secretary and Treasurer with ARCO Pipe Line Company for approximately 19
years.
(e) Mr. Wadsworth also serves as Vice President, Treasurer and Secretary of
Kaneb Services LLC. Mr. Wadsworth joined Kaneb in October 1990.
(f) Mr. Ahn, a director of KPL since July 1989, is also a director of Kaneb
Services LLC. Mr. Ahn, a founding partner of Morgan Lewis Githens & Ahn, an
investment banking firm since 1982, currently serves as a director of
Xanser Corporation, PAR Technology Corporation and Quaker Fabric
Corporation.
(g) Mr. Barnes, a director of KPL, is also Chairman of the Board, President and
Chief Executive Officer of Kaneb Services LLC. Mr. Barnes also serves as a
director of Xanser Corporation.
(h) Mr. Biles, a director of KPL since 1989, is also a director of Kaneb
Services LLC. Mr. Biles joined KPL in November 1953 and served as President
from January 1985 until his retirement at the close of 1993.
(i) Mr. Burke, a director of KPL since January 1997, is also a director of
Kaneb Services LLC. Mr. Burke has been Chairman and Managing General
Partner of Burke, Mayborn Company, Ltd., a private investment company, for
more than the past five years. Mr. Burke also currently serves as a
director of Xanser Corporation, AVIDYN, Inc. and Arch Coal, Inc.
(j) Mr. Cox, a director of KPL since September 1995, is also a director of
Kaneb Services LLC. Mr. Cox has been Chairman of the Board and Chief
Executive Officer of WRS Infrastructure and Environment, Inc., a technical
services company, since March 2001. He served as a private business
consultant following his retirement in January 1998, from Fluor Daniel,
Inc., where he served in senior executive level positions during a 29 year
career with that organization. Mr. Cox also currently serves as a director
of Xanser Corporation.
(k) Mr. Kessler, elected to the Board on February 19, 1998, is also a director
of Kaneb Services LLC. Mr. Kessler has served as Chairman and Managing
Director of KMB Kessler + Partner GmbH since 1992. He was previously a
Managing Director and Vice President of a European Division of Tyco
International Ltd. Mr. Kessler also currently serves as a director of
Xanser Corporation.
(l) Mr. Whatley, a director of KPL since July 1989, is also a director of Kaneb
Services LLC. Mr. Whatley served as Chairman of the Board of Directors of
Xanser Corporation (formerly Kaneb Services, Inc.) from February 1981 until
April 1989, and continues to serve as a member of the Board.
(m) Partnership Units listed are those beneficially owned by the person
indicated, his spouse or children living at home and do not include Units
in which the person has disclaimed any beneficial interest.
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
- ----------------------------------------------
KPL's Board of Directors does not have a compensation committee or any
other committee that performs the equivalent functions. During the fiscal year
ended December 31, 2001, none of KPL's officers or employees participated in the
deliberations of KPL's Board of Directors concerning executive officer
compensation.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE STATEMENT
- -----------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Section
16(a)") requires KPL's executive officers and directors, among others, to file
reports of ownership and changes of ownership in the Partnership's equity
securities with the Securities and Exchange Commission and the New York Stock
Exchange. Such persons are also required by related regulations to furnish KPL
with copies of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by it, KPL
believes that, during the year ended December 31, 2001, its officers and
directors have complied with all applicable filing requirements with respect to
the Partnership's equity securities.
Item 11. Executive Compensation
The Partnership has no executive officers, but is obligated to reimburse
KPL for compensation paid to KPL's executive officers in connection with their
operation of the Partnership's business.
The following table sets forth information with respect to the aggregate
compensation paid or accrued by KPL during the fiscal years 2001, 2000 and 1999,
to the Chief Executive Officer and each of the other most highly compensated
executive officers of KPL.
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Principal ------------------------------ All Other
Position Year Salary(a) Bonus(b) Compensation(c)
------------------------ ------ -------------- --------- ---------------
Edward D. Doherty 2001 $ 243,400 $233,333 $ 8,410
Chairman of the 2000 234,392 -0- 6,787
Board and Chief 1999 225,375 -0- 6,249
Executive Officer
Leon E. Hutchens 2001 219,835 -0- 8,152
President (retired) 2000 203,383 -0- 7,443
1999 195,550 13,600 7,336
Jimmy L. Harrison 2001 153,590 -0- 4,245
President 2000 128,820 -0- 2,666
1999 123,720 6,800 3,844
Ronald D. Scoggins 2001 187,313(d) 116,667 7,610
Senior Vice President 2000 164,658(d) -0- 6,457
1999 159,441(d) -0- 6,343
(a) Amounts for 2001, 2000 and 1999, respectively, include deferred
compensation for Mr. Doherty ($4,404, $6,762 and $14,720); Mr. Hutchens
($2,082, $1,608 and $8,416); and Mr. Scoggins ($11,464, $11,464 and
$11,212).
(b) Amounts earned in year shown and paid the following year.
(c) Represents KPL's contributions to Kaneb Services LLC's and Kaneb Services,
Inc.'s Savings Investment Plans (a 401(k) plan) and the imputed value of
company-paid group term life insurance.
(d) Amount for 2001 includes $37,013 in the form of 2,132 Kaneb Services LLC
Common Shares. Amounts for 2000 and 1999, respectively, include, $24,058
and $24,016 in the form of Partnership Units (434 and 378) and Kaneb
Services, Inc. Common Stock (1,314 and 969).
DIRECTOR'S FEES
- ---------------
During 2001, each member of KPL's Board of Directors who was not also an
employee of KPL or Kaneb Services LLC was paid an annual retainer of $13,750 in
lieu of all attendance fees.
Item 12. Security Ownership of Certain Beneficial Owners and Management
At March 2002, KPL owned a combined 2% General Partner interest in the
Partnership and KPOP and, together with its affiliates, owned Units representing
an aggregate limited partner interest of approximately 25%.
The following table sets forth information with respect to the Units owned
of record or beneficially as of March 8, 2002, by all persons other than
Directors and executive officers of the Company who own of record or are known
by Kaneb to own beneficially more than 5% of such class of securities:
Name and Address Type of Number Percent
of Stockholder Ownership of Units of Class
------------------------------- ---------- ---------- ----------
Wachovia Corporation (1) Beneficial 1,653,468 8.15%
One Wachovia Center
Charlotte, North Carolina 28288
(1) The information included herein was obtained from information contained in
Schedule 13G, dated February 13, 2002, filed by the unitholder with the
Securities and Exchange Commission, pursuant to the Securities Exchange Act
of 1934, as amended.
Item 13. Certain Relationships and Related Transactions
KPL is entitled to certain reimbursements under the Partnership Agreement.
For additional information regarding the nature and amount of such
reimbursements, see Note 7 to the Partnership's consolidated financial
statements.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements Beginning Page
Set forth below is a list of financial statements appearing in this report.
Kaneb Pipe Line Partners, L.P. and Subsidiaries Financial Statements:
Independent Auditors' Report............................................................. F - 1
Consolidated Statements of Income - Three Years Ended December 31, 2001................... F - 2
Consolidated Balance Sheets - December 31, 2001 and 2000.................................. F - 3
Consolidated Statements of Cash Flows - Three Years Ended December 31, 2001............... F - 4
Consolidated Statements of Partners' Capital - Three Years ended December 31, 2001........ F - 5
Notes to Consolidated Financial Statements............................................... F - 6
(a)(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been
omitted.
(a)(3) List of Exhibits
3.1 Amended and Restated Agreement of Limited Partnership dated September 27,
1989, as revised July 23, 1998, filed as Exhibit 3.1 to Registrant's Form
10-K for the year ended December 31, 2000, which exhibit is hereby
incorporated by reference.
10.1 ST Agreement and Plan of Merger dated December 21, 1992 by and between
Grace Energy Corporation, Support Terminal Services, Inc., Standard
Transpipe Corp., and Kaneb Pipe Line Operating Partnership, NSTS, Inc.
and NSTI, Inc. as amended by Amendment of STS Merger Agreement dated
March 2, 1993, filed as Exhibit 10.1 of the exhibits to Registrant's
Current Report on Form 8-K ("Form 8-K"), dated March 16, 1993, which
exhibit is hereby incorporated by reference.
10.2 Agreement for Sale and Purchase of Assets between Wyco Pipe Line Company
and KPOP, dated February 19, 1995, filed as Exhibit 10.1 of the exhibits
to the Registrant's March 1995 Form 8-K, which exhibit is hereby
incorporated by reference.
10.3 Asset Purchase Agreements between and among Steuart Petroleum Company,
SPC Terminals, Inc., Piney Point Industries, Inc., Steuart Investment
Company, Support Terminals Operating Partnership, L.P. and KPOP, as
amended, dated August 27, 1995, filed as Exhibits 10.1, 10.2, 10.3, and
10.4 of the exhibits to Registrant's Current Report on Form 8-K dated
January 3, 1996, which exhibits are hereby incorporated by reference.
10.4 Formation and Purchase Agreement, between and among Support Terminal
Operating Partnership, L.P., Northville Industries Corp. and AFFCO,
Corp., dated October 30, 1998, filed as exhibit 10.9 to the Registrant's
Form 10-K for the year ended December 31, 1998, which exhibit is hereby
incorporated by reference.
10.5 Agreement, between and among, GATX Terminals Limited, ST Services, Ltd.,
ST Eastham, Ltd., GATX Terminals Corporation, Support Terminals Operating
Partnership, L.P. and Kaneb Pipe Line Partners, L.P., dated January 26,
1999, filed as Exhibit 10.10 to the Registrant's Form 10-K for the year
ended December 31, 1998, which exhibit is hereby incorporated by
reference.
10.6 Credit Agreement, between and among, Kaneb Pipe Line Operating
Partnership, L.P., ST Services, Ltd. and SunTrust Bank, Atlanta, dated
January 27, 1999, filed as Exhibit 10.11 to the Registrant's Form 10-K
for the year ended December 31, 1998, which exhibit is hereby
incorporated by reference.
10.7 Revolving Credit Agreement, dated as of December 28, 2000 among Kaneb
Pipe Line Operating Partnership, L.P., Kaneb Pipe Line Partners, L.P.,
The Lenders From Time To Time Party Hereto, and SunTrust Bank, as
Administrative Agent, filed herewith.
10.8 Securities Purchase Agreement Among Shore Terminals LLC, Kaneb Pipe Line
Partners, L.P. and the Sellers Named Therein, dated as of September 22,
2000, Amendment No. 1 To Securities Purchase Agreement, dated as of
November 28, 2000 and Registration Rights Agreement, dated as of January
3, 2001, filed as Exhibits 10.1, 10.2 and 10.3 of the exhibits to
Registrant's Current Report on Form 8-K dated January 3, 2001, which
exhibits are hereby incorporated by reference.
10.9 Stock Purchase Agreement, dated as of November 12, 2001, by and between
Kaneb Pipe Line Operating Partnership, L.P., and Statia Terminals Group
NV, a public company with limited liability organized under the laws of
the Netherlands Antilles, filed as Exhibit 10.1 to the exhibits to
Registrant's Current Report on Form 8-K, dated January 11, 2002, and
incorporated herein by reference.
10.10 Voting and Option Agreement dated as of November 12, 2001, by and between
Kaneb Pipe Line Operating Partnership, L.P., and Statia Terminals
Holdings N.V., a Netherlands Antilles company and a shareholder of Statia
Terminals Group NV, a Netherlands Antilles company filed as Exhibit 10.1
to the exhibits to Registrant's Current Report on Form 8-K, dated January
11, 2002, and incorporated herein by reference.
21 List of Subsidiaries, filed herewith.
23 Consent of KPMG LLP, filed herewith.
24 Powers of Attorney (included in this report and incorporated herein by
reference.)
(b) Reports on Form 8-K
None.
INDEPENDENT AUDITORS' REPORT
To the Partners of
Kaneb Pipe Line Partners, L.P.
We have audited the consolidated financial statements of Kaneb Pipe Line
Partners, L.P. and its subsidiaries (the "Partnership") as listed in the index
appearing under Item 14(a)(1). These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Partnership and
its subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Dallas, Texas
February 11, 2002
F - 1
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
-----------------------------------------------------------
2001 2000 1999
----------------- ----------------- -----------------
Revenues.............................................. $ 207,796,000 $ 156,232,000 $ 158,028,000
--------------- ---------------- -----------------
Costs and expenses:
Operating costs.................................... 90,632,000 69,653,000 69,148,000
Depreciation and amortization...................... 23,184,000 16,253,000 15,043,000
General and administrative......................... 11,889,000 11,881,000 9,424,000
Gain on sale of assets............................. - (1,126,000) -
------------- ------------- --------------
Total costs and expenses........................ 125,705,000 96,661,000 93,615,000
------------- ------------- --------------
Operating income...................................... 82,091,000 59,571,000 64,413,000
Interest and other income............................. 4,277,000 316,000 408,000
Interest expense...................................... (14,783,000) (12,283,000) (13,390,000)
------------- ------------- --------------
Income before minority interest, income taxes
and extraordinary item............................. 71,585,000 47,604,000 51,431,000
Minority interest in net income....................... (706,000) (467,000) (499,000)
Income tax provision.................................. (981,000) (943,000) (1,496,000)
------------- ------------- --------------
Income before extraordinary item...................... 69,898,000 46,194,000 49,436,000
Extraordinary item - loss on debt
extinguishment, net of minority
interest and income taxes.......................... (5,757,000) - -
------------- ------------- --------------
Net income............................................ 64,141,000 46,194,000 49,436,000
General partner's interest
in net income...................................... (2,774,000) (1,639,000) (1,640,000)
------------- ------------- --------------
Limited partners' interest
in net income...................................... $ 61,367,000 $ 44,555,000 $ 47,796,000
============= ============= ==============
Allocation of net income per unit:
Before extraordinary item.......................... $ 3.32 $ 2.43 $ 2.81
Extraordinary item................................. (.29) - -
------------- ------------- --------------
$ 3.03 $ 2.43 $ 2.81
============= ============= ==============
Weighted average number of Partnership
units outstanding.................................. 20,285,090 18,310,000 16,997,500
============= ============= ==============
See notes to consolidated financial statements.
F - 2
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-----------------------------------
2001 2000
------------- --------------
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 7,903,000 $ 4,758,000
Accounts receivable..................................................... 24,005,000 21,091,000
Prepaid expenses........................................................ 2,721,000 5,291,000
------------- --------------
Total current assets................................................. 34,629,000 31,140,000
------------- --------------
Property and equipment..................................................... 639,084,000 458,926,000
Less accumulated depreciation.............................................. 157,810,000 137,571,000
------------- --------------
Net property and equipment........................................... 481,274,000 321,355,000
------------- --------------
Investments in affiliates.................................................. 22,252,000 22,568,000
Excess of cost over fair value of net assets of acquired business and
other assets............................................................ 10,216,000 -
------------- --------------
$ 548,371,000 $ 375,063,000
============= ==============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable........................................................ $ 6,541,000 $ 3,706,000
Accrued expenses........................................................ 9,963,000 7,705,000
Accrued distributions payable........................................... 16,263,000 13,372,000
Accrued taxes, other than income taxes.................................. 2,635,000 2,363,000
Deferred terminaling fees............................................... 6,503,000 3,717,000
Payable to general partner.............................................. 4,701,000 1,889,000
------------- --------------
Total current liabilities............................................ 46,606,000 32,752,000
------------- --------------
Long-term debt............................................................. 262,624,000 166,900,000
Other liabilities and deferred taxes....................................... 18,614,000 13,676,000
Minority interest.......................................................... 1,010,000 968,000
Commitments and contingencies
Partners' capital:
Limited partners........................................................ 220,336,000 161,307,000
General partner......................................................... 1,027,000 981,000
Accumulated other comprehensive income (loss)
- foreign currency translation adjustment............................ (1,846,000) (1,521,000)
------------- --------------
Total partners' capital.............................................. 219,517,000 160,767,000
------------- --------------
$ 548,371,000 $ 375,063,000
============= ==============
See notes to consolidated financial statements.
F - 3
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
---------------------------------------------------------
2001 2000 1999
------------- ------------- --------------
Operating activities:
Net income ........................................ $ 64,141,000 $ 46,194,000 $ 49,436,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................... 23,184,000 16,253,000 15,043,000
Minority interest............................... 706,000 467,000 499,000
Equity in earnings of affiliates, net of
distributions................................. (5,000) (154,000) (1,072,000)
Gain on sale of assets.......................... - (1,126,000) -
Deferred income taxes........................... 981,000 943,000 1,487,000
Extraordinary item.............................. 5,757,000 - -
Other liabilities............................... (5,422,000) 841,000 -
Changes in working capital components:
Accounts receivable........................... (824,000) (4,162,000) (3,012,000)
Prepaid expenses.............................. 1,601,000 (255,000) (995,000)
Accounts payable and accrued expenses......... 6,512,000 1,869,000 3,028,000
Deferred terminaling fees..................... 2,786,000 642,000 (451,000)
Payable to general partner.................... 2,812,000 478,000 (374,000)
-------------- ------------- --------------
Net cash provided by operating activities.. 102,229,000 61,990,000 63,589,000
-------------- ------------- --------------
Investing activities:
Acquisitions of terminals, net of cash acquired.... (111,562,000) (12,053,000) (44,390,000)
Capital expenditures............................... (17,246,000) (9,483,000) (14,568,000)
Proceeds from sale of assets....................... 2,807,000 1,961,000 -
Other, net......................................... (111,000) (212,000) (2,064,000)
-------------- ------------- --------------
Net cash used in investing activities...... (126,112,000) (19,787,000) (61,022,000)
-------------- ------------- --------------
Financing activities:
Issuance of debt................................... 260,500,000 14,613,000 51,319,000
Payments of debt................................... (171,316,000) (3,700,000) (58,332,000)
Distributions, including minority interest......... (62,156,000) (53,485,000) (51,850,000)
Changes in payable to general partner.............. - - (5,000,000)
Net proceeds from issuance of limited
partnership units............................... - - 65,574,000
-------------- ------------- --------------
Net cash provided by (used in) financing
activities............................. 27,028,000 (42,572,000) 1,711,000
-------------- ------------- --------------
Increase (decrease) in cash and cash equivalents...... 3,145,000 (369,000) 4,278,000
Cash and cash equivalents at beginning of period...... 4,758,000 5,127,000 849,000
-------------- ------------- --------------
Cash and cash equivalents at end of period............ $ 7,903,000 $ 4,758,000 $ 5,127,000
============== ============= ==============
Supplemental cash flow information:
Cash paid for interest............................. $ 14,028,000 $ 12,438,000 $ 12,881,000
============== ============= ==============
Non-cash investing and financing activities -
Issuance of units in connection with
acquisition of terminals........................ $ 56,488,000 $ - $ -
============== ============= ==============
See notes to consolidated financial statements.
F - 4
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
Accumulated
Other
Limited General Comprehensive Comprehensive
Partners Partner (a) Income (Loss) Total Income
-------------- ----------- ------------- -------------- ---------------
Partners' capital at January 1, 1999..... $ 104,342,000 $ 1,046,000 $ - $ 105,388,000
1999 income allocation................. 47,796,000 1,640,000 - 49,436,000 $ 49,436,000
Distributions declared................. (49,693,000) (1,649,000) - (51,342,000) -
Issuance of units...................... 65,574,000 - - 65,574,000 -
Foreign currency translation adjustment - - (768,000) (768,000) (768,000)
-------------- ----------- ----------- -------------- ---------------
Comprehensive income for the year...... $ 48,668,000
===============
Partners' capital at December 31, 1999... 168,019,000 1,037,000 (768,000) 168,288,000
2000 income allocation................. 44,555,000 1,639,000 - 46,194,000 $ 46,194,000
Distributions declared................. (51,267,000) (1,695,000) - (52,962,000) -
Foreign currency translation adjustment - - (753,000) (753,000) (753,000)
-------------- ----------- ----------- -------------- ---------------
Comprehensive income for the year...... $ 45,441,000
===============
Partners' capital at December 31, 2000... 161,307,000 981,000 (1,521,000) 160,767,000
2001 income allocation................. 61,367,000 2,774,000 - 64,141,000 $ 64,141,000
Distributions declared................. (58,826,000) (2,728,000) - (61,554,000) -
Issuance of units...................... 56,488,000 - - 56,488,000 -
Foreign currency translation adjustment - - (325,000) (325,000) (325,000)
-------------- ----------- ----------- -------------- ---------------
Comprehensive income for the year...... $ 63,816,000
===============
Partners' capital at December 31, 2001... $ 220,336,000 $ 1,027,000 $(1,846,000) $ 219,517,000
============== ============ =========== ==============
Limited partnership units outstanding at
December 31, 1999 and 2000 18,310,000 (a) _ 18,310,000
Units issued in 2001..................... 1,975,090 - - 1,975,090
-------------- ----------- ----------- --------------
Limited partnership units outstanding at
December 31, 2001...................... 20,285,090 (a) - 20,285,090
============== =========== =========== ==============
(a) KPL owns a combined 2% interest in the Partnership as General Partner.
See notes to consolidated financial statements.
F - 5
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PARTNERSHIP ORGANIZATION
Kaneb Pipe Line Partners, L.P. (the "Partnership"), a master limited
partnership, owns and operates a refined petroleum products pipeline business
and a petroleum products and specialty liquids storage and terminaling business.
The Partnership operates through Kaneb Pipe Line Operating Partnership, L.P.
("KPOP"), a limited partnership in which the Partnership holds a 99% interest as
limited partner. Kaneb Pipe Line Company LLC ("KPL"), a wholly-owned subsidiary
of Kaneb Services LLC ("KSL"), as general partner, holds a 1% general partner
interest in both the Partnership and KPOP. KPL's 1% interest in KPOP is
reflected as the minority interest in the financial statements. At December 31,
2001, KPL, together with its affiliates, owned an approximate 25% interest as a
limited partner and as a general partner owned a combined 2% interest.
In July 1999, the Partnership issued 2.25 million limited partnership
units in a public offering at $30.75 per unit, generating approximately $65.6
million in net proceeds. A portion of the proceeds was used to repay in full the
Partnership's $15.0 million promissory note, the $25.0 million revolving credit
facility and $18.3 million in term loans (including $13.3 million in term loans
resulting from the United Kingdom terminal acquisition referred to in Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are followed by the
Partnership in the preparation of the consolidated financial statements.
Cash and Cash Equivalents
The Partnership's policy is to invest cash in highly liquid investments
with original maturities of three months or less. Accordingly, uninvested cash
balances are kept at minimum levels. Such investments are valued at cost, which
approximates market, and are classified as cash equivalents. The Partnership
does not have any derivative financial instruments.
Property and Equipment
Property and equipment are carried at historical cost. Additions of new
equipment and major renewals and replacements of existing equipment are
capitalized. Repairs and minor replacements that do not materially increase
values or extend useful lives are expensed. Depreciation of property and
equipment is provided on a straight-line basis at rates based upon expected
useful lives of various classes of assets, as disclosed in Note 4. The rates
used for pipeline and storage facilities of KPOP are the same as those which
have been promulgated by the Federal Energy Regulatory Commission.
The carrying value of property and equipment is periodically evaluated
using undiscounted future cash flows as the basis for determining if impairment
exists under the provisions of Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". To the extent impairment is indicated to
exist, an impairment loss will be recognized under SFAS No. 121 based on fair
value.
Revenue and Income Recognition
KPOP provides pipeline transportation of refined petroleum products and
liquified petroleum gases. Pipeline revenues are recognized as services are
provided. The Partnership's Support Terminal Services operation ("ST Services")
provides terminaling and other ancillary services. Storage fees are billed one
month in advance and are reported as deferred income. Terminaling revenues are
recognized in the month services are provided.
Foreign Currency Translation
The Partnership translates the balance sheet of its foreign subsidiary
using year-end exchange rates and translates income statement amounts using the
average exchange rates in effect during the year. The gains and losses resulting
from the change in exchange rates from year to year have been reported
separately as a component of accumulated other comprehensive income (loss) in
Partners' Capital. Gains and losses resulting from foreign currency transactions
are included in the statements of income.
F - 6
Excess of Cost Over Fair Value of Net Assets of Acquired Business
The excess of cost over the fair value of net assets acquired is being
amortized on a straight-line basis over a period of 20 years. The Partnership
periodically evaluates the proprietary of the carrying amount of the excess of
cost over fair value of net assets of the acquired business, as well as the
amortization period, to determine whether current events or circumstances
warrant adjustments to the carrying value and/or revised estimates of the
amortization period. The Partnership believes that no such impairment has
occurred and that no reduction in the amortization period is warranted.
Environmental Matters
Environmental expenditures that relate to current operations are expensed
or capitalized, as appropriate. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current or
future revenue generation, are expensed. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable, and the costs
can be reasonably estimated. Generally, the timing of these accruals coincides
with the completion of a feasibility study or the Partnership's commitment to a
formal plan of action.
Comprehensive Income
The Partnership follows the provisions of SFAS No. 130, "Reporting
Comprehensive Income", for the reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. SFAS No.
130 only requires additional disclosure and does not affect the Partnership's
financial position or results of operations.
Income Tax Considerations
Income before income tax expense and extraordinary item is made up of the
following components:
Year Ended December 31,
---------------------------------------------------------
2001 2000 1999
------------- ------------- --------------
Partnership operations........................ $ 66,413,000 $ 43,071,000 $ 46,242,000
Corporate operations:
Domestic................................. 477,000 510,000 501,000
Foreign.................................. 3,989,000 3,556,000 4,189,000
------------- ------------- --------------
$ 70,879,000 $ 47,137,000 $ 50,932,000
============= ============= ==============
Partnership operations are not subject to Federal or state income taxes.
However, certain operations of ST Services are conducted through wholly-owned
corporate subsidiaries which are taxable entities. The provision for income
taxes for the periods ended December 31, 2001, 2000 and 1999 primarily consists
of deferred U.S. and foreign income taxes of $1.0 million, $0.9 million and $1.5
million, respectively. The net deferred tax liability of $6.1 million and $5.9
million at December 31, 2001 and 2000, respectively, consists of deferred tax
liabilities of $12.5 million and $12.0 million, respectively, and deferred tax
assets of $6.4 million and $6.1 million, respectively. The deferred tax
liabilities consist primarily of tax depreciation in excess of book depreciation
and the deferred tax assets consist primarily of net operating losses. The U.S.
corporate operations have net operating loss carryforwards for tax purposes
totaling approximately $20.7 million which expire in years 2008 through 2021.
Additionally, the Partnership's foreign operations have net operating loss
carryforwards for tax purposes totaling approximately $2.7 million which do not
have an expiration date.
Since the income or loss of the operations which are conducted through
limited partnerships will be included in the tax returns of the individual
partners of the Partnership, no provision for income taxes has been recorded in
the accompanying financial statements on these earnings. The tax returns of the
Partnership are subject to examination by Federal and state taxing authorities.
If any such examination results in adjustments to distributive shares of taxable
income or loss, the tax liability of the partners would be adjusted accordingly.
The tax attributes of the Partnership's net assets flow directly to each
individual partner. Individual partners will have different investment bases
depending upon the timing and prices of acquisition of Partnership units.
Further, each partner's tax accounting, which is partially dependent upon their
individual tax position, may differ from the accounting followed in the
financial statements. Accordingly, there could be significant differences
between each individual partner's tax basis and their proportionate share of the
net assets reported in the financial statements. SFAS No. 109, "Accounting for
Income Taxes," requires disclosure by a publicly held partnership of the
aggregate difference in the basis of its net assets for financial and tax
reporting purposes. Management does not believe that, in the Partnership's
circumstances, the aggregate difference would be meaningful information.
Cash Distributions
The Partnership makes quarterly distributions of 100% of its available
cash, as defined in the Partnership agreement, to holders of limited partnership
units and KPL. Available cash consists generally of all the cash receipts of the
Partnership plus the beginning cash balance less all of its cash disbursements
and reserves. The Partnership expects to make distributions of all available
cash within 45 days after the end of each quarter to unitholders of record on
the applicable record date. Distributions of $2.90, $2.80 and $2.80 per unit
were declared in 2001, 2000 and 1999, respectively.
Allocation of Net Income and Earnings
Net income or loss is allocated between limited partner interests and the
general partner pro rata based on the aggregate amount of cash distributions
declared (including general partner incentive distributions). Beginning in 1997,
distributions by the Partnership of Available Cash reached the Second Target
Distribution, as defined in the Partnership Agreement, which entitled the
general partner to certain incentive distributions at different levels of cash
distributions. Earnings per unit shown on the consolidated statements of income
are calculated by dividing the amount of limited partners' interest in net
income, by the weighted average number of units outstanding.
Derivative Instruments
Effective January 1, 2001, the Partnership adopted the provisions of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
establishes the accounting and reporting standards for such activities. Under
SFAS No. 133, companies must recognize all derivative instruments on their
balance sheet at fair value. Changes in the value of derivative instruments,
which are considered hedges, are offset against the change in fair value of the
hedged item through earnings, or recognized in other comprehensive income until
the hedged item is recognized in earnings, depending on the nature of the hedge.
SFAS No. 133 requires that unrealized gains and losses on derivatives not
qualifying for hedge accounting be recognized currently in earnings. On January
1, 2001, the Partnership was not a party to any derivative contracts;
accordingly, initial adoption of SFAS No. 133 at that date did not have any
effect on the Partnership's result of operations or financial position.
In March of 2001, a wholly-owned subsidiary of the Partnership entered
into two contracts for the purpose of locking in interest rates on $100 million
of anticipated ten-year public debt offerings. As the interest rate locks were
not designated as hedging instruments pursuant to the requirements of SFAS No.
133, increases or decreases in the fair value of the contracts were included as
a component of interest and other income, net. On May 22, 2001, the contracts
were settled resulting in a gain of $3.8 million.
Change in Presentation
Certain prior year financial statement items have been reclassified to
conform with the 2001 presentation.
Estimates
The preparation of the Partnership's financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In July of 2001, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 141 "Business Combinations", which requires that all business
combinations initiated after June 30, 2001 be accounted for under the purchase
method of accounting. SFAS No. 141 also specifies the criteria for recording
intangible assets other than goodwill in a business combination. The Partnership
is currently assessing the impact of SFAS No. 141 on its financial statements.
Additionally, in July of 2001, the FASB issued SFAS No. 142 "Goodwill and
Other Intangible Assets", which requires that goodwill no longer be amortized to
earnings, but instead be reviewed for impairment. The Partnership is currently
assessing the impact of SFAS No. 142, which must be adopted in the first quarter
of 2002.
Also, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations", which establishes requirements for the removal-type costs
associated with asset retirements. The Partnership is currently assessing the
impact of SFAS No. 143, which must be adopted in the first quarter of 2003.
On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144, which supercedes SFAS No. 121, is effective for fiscal years
beginning after December 15, 2001 and interim periods within those fiscal years
with earlier application encouraged. The Partnership is currently assessing the
impact on its financial statements.
3. ACQUISITIONS
On January 3, 2001, the Partnership, through a wholly-owned subsidiary,
acquired Shore Terminals LLC ("Shore") for $107 million in cash and 1,975,090
Partnership units (valued at $56.5 million on the date of agreement and its
announcement). Financing for the cash portion of the purchase price was supplied
under a $275 million unsecured revolving credit agreement with a group of banks
(see Note 5). The acquisition has been accounted for using the purchase method
of accounting. Assuming the acquisition occurred at January 1, 2000, unaudited
pro forma 2000 revenues, net income and net income per unit would be $189.6
million, $49.2 million and $2.34, respectively.
On February 1, 1999, the Partnership, through two wholly-owned indirect
subsidiaries, acquired six terminals in the United Kingdom from GATX Terminal
Limited for (pound)22.6 million (approximately $37.2 million) plus transaction
costs and the assumption of certain liabilities. The acquisition, which was
initially financed with term loans from a bank, has been accounted for using the
purchase method of accounting. $13.3 million of the term loans were repaid in
July 1999 with the proceeds from a public unit offering (see Notes 1 and 5).
4. PROPERTY AND EQUIPMENT
The cost of property and equipment is summarized as follows:
Estimated
Useful December 31,
Life -------------------------------------
(Years) 2001 2000
-------------- --------------- --------------
Land...................................... - $ 43,005,000 $ 23,360,000
Buildings................................. 35 10,834,000 9,144,000
Furniture and fixtures.................... 16 3,900,000 3,445,000
Transportation equipment.................. 6 5,092,000 4,469,000
Machinery and equipment................... 20 - 40 32,750,000 32,996,000
Pipeline and terminaling equipment........ 20 - 40 534,292,000 378,123,000
Construction work-in-progress............. - 9,211,000 7,389,000
--------------- --------------
Total property and equipment.............. 639,084,000 458,926,000
Less accumulated depreciation........... 157,810,000 137,571,000
--------------- --------------
Net property and equipment................ $ 481,274,000 $ 321,355,000
=============== ==============
5. LONG-TERM DEBT
Long-term debt is summarized as follows:
December 31,
-------------------------------------
2001 2000
--------------- --------------
$275 million revolving credit facility, due in December 2003... $ 238,900,000 $ -
Term loan, due in December 2003................................ 23,724,000 23,900,000
First mortgage notes, repaid in January 2001................... - 128,000,000
$25 million revolving credit facility, repaid in January 2001.. - 15,000,000
--------------- --------------
Total long-term debt........................................... $ 262,624,000 $ 166,900,000
=============== ==============
In December 2000, the Partnership entered into a credit agreement with a
group of banks that provides for a $275 million unsecured revolving credit
facility through December 2003. The facility bears interest at variable interest
rates and has a variable commitment fee on the unutilized amounts. The credit
facility contains certain financial and operational covenants, including certain
limitations on investments, sales of assets and transactions with affiliates
and, absent an event of default, such covenants do not restrict distributions to
unitholders. In January 2001, proceeds from the facility were used to repay in
full the Partnership's $128 million of mortgage notes and $15 million
outstanding under its $25 million revolving credit facility. An additional $107
million was used to finance the cash portion of the Shore acquisition. Under the
provisions of the mortgage notes, the Partnership incurred $6.5 million in
prepayment penalties which, before minority interest and income taxes, was
recognized as an extraordinary expense in the first quarter of 2001. At December
31, 2001, $238.9 million was drawn on the facility at an interest rate of 2.69%,
which is due in December of 2003.
In January 1999, the Partnership, through two wholly-owned subsidiaries,
entered into a credit agreement with a bank that provided for the issuance of
$39.2 million in term loans in connection with the United Kingdom terminal
acquisition and $5.0 million for general Partnership purposes. $18.3 million of
the term loans were repaid in July 1999 with the proceeds from the public unit
offering. The remaining portion ($23.7 million at December 31, 2001), with a
fixed rate of 7.25%, is due in December 2003. The term loans under the credit
agreement, as amended, are unsecured and are pari passu with the $275 million
revolving credit facility. The term loans also contain certain financial and
operational covenants.
6. COMMITMENTS AND CONTINGENCIES
The following is a schedule by years of future minimum lease payments
under operating leases as of December 31, 2001:
Year ending December 31:
2002...................................... $ 2,664,000
2003...................................... 2,433,000
2004...................................... 1,979,000
2005...................................... 1,411,000
2006...................................... 1,383,000
-------------
Total minimum lease payments.............. $ 9,870,000
=============
Total rent expense under operating leases amounted to $4.2 million, $3.1
million and $2.2 million for the years ended December 31, 2001, 2000 and 1999,
respectively.
The operations of the Partnership are subject to Federal, state and local
laws and regulations in the United States and the United Kingdom relating to
protection of the environment. Although the Partnership believes its operations
are in general compliance with applicable environmental regulations, risks of
additional costs and liabilities are inherent in pipeline and terminal
operations, and there can be no assurance that significant costs and liabilities
will not be incurred by the Partnership. 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 of the Partnership, could result in substantial
costs and liabilities to the Partnership. The Partnership has recorded an
undiscounted reserve for environmental claims in the amount of $13.5 million at
December 31, 2001, including $12.8 million related to acquisitions of pipelines
and terminals. During 2001 and 2000, respectively, the Partnership incurred $5.2
million and $2.3 million of costs related to such acquisition reserves and
reduced the liability accordingly.
KPL has indemnified the Partnership against liabilities for damage to the
environment resulting from operations of the pipeline prior to October 3, 1989
(the date of formation of the Partnership). The indemnification does not extend
to any liabilities that arise after such date to the extent that the liabilities
result from changes in environmental laws and regulations.
In December 1995, the Partnership acquired the liquids terminaling assets
of Steuart Petroleum Company and certain of its affiliates. The asset purchase
agreement includes a provision for an earn-out payment based upon revenues of
one of the terminals exceeding a specified amount for a seven-year period ending
in December 2002. No amount was payable under the earn-out provision in 1999,
2000 or 2001.
Certain subsidiaries of the Partnership were sued in a Texas state court
in 1997 by Grace Energy Corporation ("Grace"), the entity from which the
Partnership acquired ST Services in 1993. The lawsuit involves environmental
response and remediation costs allegedly resulting from jet fuel leaks in the
early 1970's from a pipeline. The pipeline, which connected a former Grace
terminal with Otis Air Force Base in Massachusetts (the "Otis pipeline" or the
"pipeline"), ceased operations in 1973 and was abandoned not later than 1976,
when the connecting terminal was sold to an unrelated entity. Grace alleged that
subsidiaries of the Partnership acquired the abandoned pipeline, as part of the
acquisition of ST Services in 1993 and assumed responsibility for environmental
damages allegedly caused by the jet fuel leaks. Grace sought a ruling from the
Texas court that these subsidiaries are responsible for all liabilities,
including all present and future remediation expenses, associated with these
leaks and that Grace has no obligation to indemnify these subsidiaries for these
expenses. In the lawsuit, Grace also sought indemnification for expenses of
approximately $3.5 million that it incurred since 1996 for response and
remediation required by the State of Massachusetts and for additional expenses
that it expects to incur in the future. The consistent position of the
Partnership's subsidiaries has been that they did not acquire the abandoned
pipeline as part of the 1993 ST Services transaction, and therefore did not
assume any responsibility for the environmental damage nor any liability to
Grace for the pipeline.
At the end of the trial, the jury returned a verdict including findings
that (1) Grace had breached a provision of the 1993 acquisition agreement by
failing to disclose matters related to the pipeline, and (2) the pipeline was
abandoned before 1978 -- 15 years before the Partnership's subsidiaries acquired
ST Services. On August 30, 2000, the Judge entered final judgment in the case
that Grace take nothing from the subsidiaries on its claims seeking recovery of
remediation costs. Although the Partnership's subsidiaries have not incurred any
expenses in connection with the remediation, the court also ruled, in effect,
that the subsidiaries would not be entitled to indemnification from Grace if any
such expenses were incurred in the future. Moreover, the Judge let stand a prior
summary judgment ruling that the pipeline was an asset acquired by the
Partnership's subsidiaries as part of the 1993 ST Services transaction and that
any liabilities associated with the pipeline would have become liabilities of
the subsidiaries. Based on that ruling, the Massachusetts Department of
Environmental Protection and Samson Hydrocarbons Company (successor to Grace
Petroleum Company) wrote letters to ST Services alleging its responsibility for
the remediation, and ST Services responded denying any liability in connection
with this matter. The Judge also awarded attorney fees to Grace of more than
$1.5 million. Both the Partnership's subsidiaries and Grace have appealed the
trial court's final judgment to the Texas Court of Appeals in Dallas. In
particular, the subsidiaries have filed an appeal of the judgement finding that
the Otis pipeline and any liabilities associated with the pipeline were
transferred to them as well as the award of attorney fees to Grace.
On April 2, 2001, Grace filed a petition in bankruptcy, which created an
automatic stay against actions against Grace. This automatic stay covers the
appeal of the Dallas litigation, and the Texas Court of Appeals has issued an
order staying all proceedings of the appeal because of the bankruptcy. Once that
stay is lifted, the Partnership's subsidiaries that are party to the lawsuit
intend to resume vigorous prosecution of the appeal.
The Otis Air Force Base is a part of the Massachusetts Military
Reservation ("MMR Site"), which has been declared a Superfund Site pursuant to
CERCLA. The MMR Site contains nine groundwater contamination plumes, two of
which are allegedly associated with the Otis pipeline, and various other waste
management areas of concern, such as landfills. The United States Department of
Defense and the United States Coast Guard, pursuant to a Federal Facilities
Agreement, have been responding to the Government remediation demand for most of
the contamination problems at the MMR Site. Grace and others have also received
and responded to formal inquiries from the United States Government in
connection with the environmental damages allegedly resulting from the jet fuel
leaks. The Partnership's subsidiaries voluntarily responded to an invitation
from the Government to provide information indicating that they do not own the
pipeline. In connection with a court-ordered mediation between Grace and the
Partnership's subsidiaries, the Government advised the parties in April 1999
that it has identified two spill areas that it believes to be related to the
pipeline that is the subject of the Grace suit. The Government at that time
advised the parties that it believed it had incurred costs of approximately $34
million, and expected in the future to incur costs of approximately $55 million,
for remediation of one of the spill areas. This amount was not intended to be a
final accounting of costs or to include all categories of costs. The Government
also advised the parties that it could not at that time allocate its costs
attributable to the second spill area.
By letter dated July 26, 2001, the United States Department of Justice
("DOJ") advised ST Services that the Government intends to seek reimbursement
from ST Services under the Massachusetts Oil and Hazardous Material Release
Prevention and Response Act and the Declaratory Judgment Act for the
Government's response costs at the two spill areas discussed above. The DOJ
relied in part on the judgment by the Texas state court that, in the view of the
DOJ, held that ST Services was the current owner of the pipeline and the
successor-in-interest of the prior owner and operator. The Government advised ST
Services that it believes it has incurred costs exceeding $40 million, and
expects to incur future costs exceeding an additional $22 million, for
remediation of the two spill areas. The Partnership believes that its
subsidiaries have substantial defenses. ST Services responded to the DOJ on
September 6, 2001, contesting the Government's positions and declining to
reimburse any response costs. The DOJ has not filed a lawsuit against ST
Services seeking cost recovery for its environmental investigation and response
costs.
On April 7, 2000, a fuel oil pipeline in Maryland owned by Potomac
Electric Power Company ("PEPCO") ruptured. The pipeline was operated by a
partnership of which ST Services is general partner. PEPCO has reported that it
expects to incur total cleanup costs of $70 million to $75 million. Since May
2000, ST Services has provisionally contributed a minority share of the cleanup
expense, which has been funded by ST Services' insurance carriers. The
Partnership and PEPCO have not, however, reached a final agreement regarding our
proportionate responsibility for this cleanup effort and have reserved all
rights to assert claims for contribution against each other. The Partnership
cannot predict the amount, if any, that ultimately may be determined to be ST
Services' share of the remediation expense, but it believes that such amount
will be covered by insurance and will not materially adversely affect the
Partnership's financial condition.
As a result of the rupture, purported class actions have been filed
against PEPCO and ST Services in federal and state court in Maryland by property
and/or business owners alleging damages in unspecified amounts under various
theories, including under the Oil Pollution Act ("OPA"). The court consolidated
all of these cases in a case styled as In re Swanson Creek Oil Spill Litigation.
The trial judge recently granted preliminary approval of a $2,250,000 class
settlement, with ST Services and PEPCO each contributing half of the settlement
fund. Notice of the proposed settlement will be sent to putative class members
and putative class members have until March 26, 2002 to opt out. ST Services or
PEPCO can void the settlement if too many putative class members opt out and
elect to pursue separate litigation. A hearing on final settlement will be held
on April 15, 2002. If the settlement is finally approved, this litigation should
be concluded in 2002. It is expected that most class members will elect to
participate in the class settlement, but it is possible that even if the In re
Swanson Creek Oil Spill Litigation settlement becomes final, ST Services may
still face litigation from opt-out plaintiffs. ST Services' insurance carriers
have assumed the defense of these actions. While the Partnership cannot predict
the amount, if any, of any liability it may have in these suits, it believes
that such amounts will be covered by insurance and that these actions will not
have a material adverse effect on our financial condition.
PEPCO and ST Services have agreed with the State of Maryland to pay costs
of assessing natural resource damages arising from the Swanson Creek oil spill
under OPA, but they cannot predict at this time the amount of any damages that
may be claimed by Maryland. The Partnership believes that both the assessment
costs and such damages are covered by insurance and will not materially
adversely affect the Partnership's financial condition.
The U.S. Department of Transportation ("DOT") has issued a Notice of
Proposed Violation to PEPCO and ST Services alleging violations over several
years of pipeline safety regulations and proposing a civil penalty of $674,000.
ST Services and PEPCO have contested the DOT allegations and the proposed
penalty. A hearing was held before the DOT in late 2001, and ST Services
anticipates that the DOT will rule during the first quarter of 2002. In
addition, by letter dated January 4, 2002, the Attorney General's Office for the
State of Maryland advised ST Services that it plans to exercise its right to
seek penalties from ST Services in connection with the April 7, 2000 spill. The
ultimate amount of any penalty attributable to ST Services cannot be determined
at this time, but the Partnership believes that this matter will not have a
material adverse effect on its financial condition.
The Partnership has other contingent liabilities resulting from
litigation, claims and commitments incident to the ordinary course of business.
Management believes, based on the advice of counsel, that the ultimate
resolution of such contingencies will not have a materially adverse effect on
the financial position or results of operations of the Partnership.
7. RELATED PARTY TRANSACTIONS
The Partnership has no employees and is managed and controlled by KPL.
KPL and KSL are entitled to reimbursement of all direct and indirect costs
related to the business activities of the Partnership. These costs, which
totaled $18.1 million, $17.8 million and $14.2 million for the years ended
December 31, 2001, 2000 and 1999, respectively, include compensation and
benefits paid to officers and employees of KPL and KSL, insurance premiums,
general and administrative costs, tax information and reporting costs, legal and
audit fees. Included in this amount is $14.3 million, $12.3 million and $11.6
million of compensation and benefits, paid to officers and employees of KPL and
KSL for the years ended December 31, 2001, 2000 and 1999, respectively. In
addition, the Partnership paid $0.5 million in 2001 and $0.2 million in 2000 and
1999 for an allocable portion of KPL's overhead expenses. At December 31, 2001
and 2000, the Partnership owed KPL and KSL $4.7 million and $1.9 million,
respectively, for these expenses which are due under normal invoice terms.
8. BUSINESS SEGMENT DATA
The Partnership conducts business through two principal operations; the
"Pipeline Operations," which consists primarily of the transportation of refined
petroleum products in the Midwestern states as a common carrier, and the
"Terminaling Operations," which provide storage for petroleum products,
specialty chemicals and other liquids.
The Partnership measures segment profit as operating income. Total assets
are those assets controlled by each reportable segment.
Year Ended December 31,
------------------------------------------------------
2001 2000 1999
---------------- --------------- --------------
Business segment revenues:
Pipeline operations.................................. $ 74,976,000 $ 70,685,000 $ 67,607,000
Terminaling operations............................... 132,820,000 85,547,000 90,421,000
---------------- --------------- --------------
$ 207,796,000 $ 156,232,000 $ 158,028,000
================ =============== ==============
Business segment profit:
Pipeline operations.................................. $ 36,773,000 $ 36,213,000 $ 35,836,000
Terminaling operations............................... 45,318,000 23,358,000 28,577,000
---------------- --------------- --------------
Operating income.................................. 82,091,000 59,571,000 64,413,000
Interest expense..................................... (14,783,000) (12,283,000) (13,390,000)
Interest and other income ........................... 4,277,000 316,000 408,000
---------------- --------------- --------------
Income before minority interest,
income taxes and extraordinary item............. $ 71,585,000 $ 47,604,000 $ 51,431,000
================ =============== ==============
Business segment assets:
Depreciation and amortization:
Pipeline operations............................... $ 5,478,000 $ 5,180,000 $ 5,090,000
Terminaling operations............................ 17,706,000 11,073,000 9,953,000
---------------- --------------- --------------
$ 23,184,000 $ 16,253,000 $ 15,043,000
================ =============== ==============
Capital expenditures (excluding acquisitions):
Pipeline operations.................................. $ 4,309,000 $ 3,439,000 $ 3,547,000
Terminaling operations............................... 12,937,000 6,044,000 11,021,000
---------------- --------------- --------------
$ 17,246,000 $ 9,483,000 $ 14,568,000
================ =============== ==============
December 31,
------------------------------------------------------
2001 2000 1999
---------------- --------------- --------------
Total assets:
Pipeline operations.................................. $ 105,156,000 $ 102,656,000 $ 104,774,000
Terminaling operations............................... 443,215,000 272,407,000 261,179,000
---------------- --------------- --------------
$ 548,371,000 $ 375,063,000 $ 365,953,000
================ =============== ==============
The following geographical area data includes revenues based on location
of the operating segment and net property and equipment based on physical
location.
Year Ended December 31,
------------------------------------------------------
2001 2000 1999
---------------- --------------- --------------
Geographical area revenues:
United States........................................ $ 186,734,000 $ 136,729,000 $ 136,197,000
United Kingdom....................................... 21,062,000 19,503,000 21,831,000
---------------- --------------- --------------
$ 207,796,000 $ 156,232,000 $ 158,028,000
================ =============== ==============
Geographical area operating income:
United States........................................ $ 76,575,000 $ 55,122,000 $ 58,539,000
United Kingdom....................................... 5,516,000 4,449,000 5,874,000
---------------- --------------- --------------
$ 82,091,000 $ 59,571,000 $ 64,413,000
================ =============== ==============
Geographical area net property and equipment:
United States........................................ $ 440,104,000 $ 282,685,000 $ 275,178,000
United Kingdom....................................... 41,170,000 38,670,000 41,705,000
---------------- --------------- --------------
$ 481,274,000 $ 321,355,000 $ 316,883,000
================ =============== ==============
9. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The estimated fair value of debt as of December 31, 2001 and 2000 was
approximately $263 million and $174 million, as compared to the carrying value
of $263 million and $167 million, respectively. These fair values were estimated
using discounted cash flow analysis, based on the Partnership's current
incremental borrowing rates for similar types of borrowing arrangements. These
estimates are not necessarily indicative of the amounts that would be realized
in a current market exchange. The Partnership has no derivative financial
instruments.
The Partnership markets and sells its services to a broad base of
customers and performs ongoing credit evaluations of its customers. The
Partnership does not believe it has a significant concentration of credit risk
at December 31, 2001. No customer constituted 10 percent or more of consolidated
revenues in 2001, 2000 and 1999.
10. QUARTERLY FINANCIAL DATA (unaudited)
Quarterly operating results for 2001 and 2000 are summarized as follows:
Quarter Ended
--------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
---------------- ---------------- --------------- --------------
2001:
Revenues....................... $ 48,069,000 $ 52,952,000 $ 53,403,000 $ 53,372,000
================ ================ =============== ==============
Operating income............... $ 18,335,000 $ 21,871,000 $ 22,076,000 $ 19,809,000
================ ================ =============== ==============
Net income..................... $ 8,189,000(a) $ 20,933,000(b) $ 18,338,000 $ 16,681,000
================ ================ =============== ==============
Allocation of net income
per unit..................... $ .38 $ 1.01 $ .86 $ .78
================ ================ =============== ==============
2000:
Revenues....................... $ 36,680,000 $ 38,438,000 $ 41,051,000 $ 40,063,000
================ ================ =============== ==============
Operating income............... $ 12,922,000 $ 14,959,000 $ 17,466,000 $ 14,224,000
================ ================ =============== ==============
Net income..................... $ 9,567,000 $ 11,882,000 $ 14,119,000 $ 10,626,000 (c)
================ ================ =============== ==============
Allocation of net income
per unit..................... $ .50 $ .63 $ .75 $ .55
================ ================ =============== ==============
(a) Includes extraordinary item - loss on debt extinguishment, net of
minority interest and income taxes, of approximately $5.8 million and
gain on interest rate lock transaction of approximately $0.6 million.
(b) Includes gain on interest rate lock transaction of approximately $3.2
million.
(c) Includes approximately $1.9 million of accrued litigation costs.
11. SUBSEQUENT EVENTS (unaudited)
In January of 2002, the Partnership issued 1.25 million limited
partnership units in a public offering at $41.65 per Unit, generating
approximately $49.7 million in net proceeds. The proceeds were used to reduce
the amount of indebtedness outstanding under the Partnership's $275 million
revolving credit facility.
In February 2002, KPOP issued $250 million of 7.75% senior unsecured
notes due February 15, 2012. The net proceeds from the public offering, $248.2
million, were used to repay the $188.9 million outstanding under the $275
million revolving credit agreement and to partially fund the acquisition of all
of the liquids terminaling subsidiaries of Statia Terminals Group NV ("Statia").
On February 28, 2002, the Partnership acquired Statia for approximately
$194 million in cash. The acquired Statia subsidiaries have approximately $107
million in outstanding debt, including $101 million of 11.75% notes due in
November 2003. The cash portion of the purchase price was funded by the
Partnership's $275 million revolving credit agreement and proceeds from KPOP's
February 2002 public debt offering. On March 1, 2002, the Partnership announced
that it had commenced the procedure to redeem all of Statia's 11.75% notes at
102.938% of the principal amount, plus accrued interest. The redemption is
expected to be funded by the Partnership's $275 million revolving credit
facility.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Kaneb Pipe Line Partners, L.P. has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
KANEB PIPE LINE PARTNERS, L.P.
By: Kaneb Pipe Line Company LLC
General Partner
By: EDWARD D. DOHERTY
-------------------------------------
Chairman of the Board and
Chief Executive Officer
Date: March 15, 2002
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints each of Edward D. Doherty and Howard C.
Wadsworth his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this report, and to
file the same and all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of Kaneb
Pipe Line Partners, L.P. and in the capacities with Kaneb Pipe Line Company LLC
and on the date indicated.
Signature Title Date
- ---------------------------------------- ------------------------------ --------------
Principal Executive Officer
EDWARD D. DOHERTY Chairman of the Board March 15, 2002
- ---------------------------------------- and Chief Executive Officer
Principal Accounting Officer
HOWARD C. WADSWORTH Vice President March 15, 2002
- ---------------------------------------- Treasurer & Secretary
Directors
SANGWOO AHN Director March 15, 2002
- ----------------------------------------
JOHN R. BARNES Director March 15, 2002
- ----------------------------------------
MURRAY R. BILES Director March 15, 2002
- ----------------------------------------
FRANK M. BURKE, JR. Director March 15, 2002
- ----------------------------------------
CHARLES R. COX Director March 15, 2002
- ----------------------------------------
HANS KESSLER Director March 15, 2002
- ----------------------------------------
JAMES R. WHATLEY Director March 15, 2002
- ----------------------------------------