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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
Commission File Number 333-44634
KANEB PIPE LINE OPERATING PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2287683
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2435 North Central Expressway
Richardson, Texas 75080
(Address of principal executive offices, including zip code)
(972) 699-4062
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes X No
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KANEB PIPE LINE OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2003
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Page No.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income - Three Months Ended
March 31, 2003 and 2002 1
Condensed Consolidated Balance Sheets - March 31, 2003
and December 31, 2002 2
Condensed Consolidated Statements of Cash Flows - Three
Months Ended March 31, 2003 and 2002 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosure About Market Risk 19
Item 4. Controls and Procedures 19
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 20
KANEB PIPE LINE OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
(Unaudited)
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Three Months Ended
March 31,
----------------------------
2003 2002
------------ -------------
Revenues:
Services $ 86,694 $ 59,088
Products 54,063 8,554
------------ -------------
Total revenues 140,757 67,642
------------ -------------
Costs and expenses:
Cost of products sold 47,886 7,829
Operating costs 40,458 25,139
Depreciation and amortization 13,022 7,113
General and administrative 5,793 4,336
------------ -------------
Total costs and expenses 107,159 44,417
------------ -------------
Operating income 33,598 23,225
Interest and other income 88 71
Interest expense (8,615) (5,277)
Loss on debt extinguishment - (155)
------------ -------------
Income before income taxes and cumulative effect
of change in accounting principle 25,071 17,864
Income tax expense (1,429) (448)
------------ -------------
Income before cumulative effect of change in accounting
principle 23,642 17,416
Cumulative effect of change in accounting principle - adoption
of new accounting standard for asset retirement obligations (1,593) -
------------ -------------
Net income $ 22,049 $ 17,416
============ =============
See notes to consolidated financial statements.
1
KANEB PIPE LINE OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
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March 31, December 31,
2003 2002
----------------- ------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 32,339 $ 22,028
Accounts receivable 53,077 48,926
Inventories 5,783 4,922
Prepaid expenses and other 11,019 8,498
--------------- ---------------
Total current assets 102,218 84,374
--------------- ---------------
Property and equipment 1,306,798 1,288,762
Less accumulated depreciation 209,581 196,570
--------------- ---------------
Net property and equipment 1,097,217 1,092,192
--------------- ---------------
Investment in affiliates 25,901 25,604
Excess of cost over fair value of net assets of
acquired businesses and other assets 13,034 13,240
--------------- ---------------
$ 1,238,370 $ 1,215,410
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of long-term debt $ 25,843 $ -
Accounts payable 22,824 22,064
Accrued expenses 32,416 32,937
Accrued distributions payable 25,130 21,639
Accrued interest payable 3,040 7,896
Deferred terminaling fees 6,693 6,246
Payable to general partner 4,647 5,403
--------------- ---------------
Total current liabilities 120,593 96,185
--------------- ---------------
Long-term debt 577,000 694,330
Other liabilities and deferred taxes 38,668 31,581
Commitments and contingencies
Partners' capital 502,109 393,314
--------------- ---------------
$ 1,238,370 $ 1,215,410
=============== ===============
See notes to consolidated financial statements.
2
KANEB PIPE LINE OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
----------------------------
2003 2002
------------ -------------
Operating activities:
Net income $ 22,049 $ 17,416
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 13,022 7,113
Equity in earnings of affiliates, net of distributions (297) 10
Deferred income taxes 1,049 374
Cumulative effect of change in accounting principle 1,593 -
Changes in working capital components (7,273) (7,020)
------------ -------------
Net cash provided by operating activities 30,143 17,893
------------ -------------
Investing activities:
Acquisitions, net of cash acquired - (177,692)
Capital expenditures (11,734) (5,164)
Other (229) (127)
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Net cash used in investing activities (11,963) (182,983)
------------ -------------
Financing activities:
Issuance of debt 14,000 388,375
Payments of debt (105,000) (245,148)
Distributions (21,639) (16,263)
Net proceeds from issuance of units by KPP 104,770 49,650
------------ -------------
Net cash provided by (used in) financing activities (7,869) 176,614
------------ -------------
Increase in cash and cash equivalents 10,311 11,524
Cash and cash equivalents at beginning of period 22,028 7,903
------------ -------------
Cash and cash equivalents at end of period $ 32,339 $ 19,427
============ =============
Supplemental cash flow information:
Cash paid for interest $ 13,280 $ 2,254
============ =============
See notes to consolidated financial statements.
3
KANEB PIPE LINE OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
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1. SIGNIFICANT ACCOUNTING POLICIES
The unaudited condensed consolidated financial statements of Kaneb Pipe
Line Operating Partnership, L.P. and its subsidiaries (the "Partnership")
for the three month periods ended March 31, 2003 and 2002, have been
prepared in accordance with accounting principles generally accepted in the
United States of America. Significant accounting policies followed by the
Partnership are disclosed in the notes to the consolidated financial
statements included in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 2002. In the opinion of the Partnership's
management, the accompanying condensed consolidated financial statements
contain all of the adjustments, consisting of normal recurring accruals,
necessary to present fairly the consolidated financial position of the
Partnership and its consolidated subsidiaries at March 31, 2003 and the
consolidated results of their operations and cash flows for the periods
ended March 31, 2003 and 2002. Operating results for the three months ended
March 31, 2003 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2003.
2. ACQUISITIONS AND FINANCINGS
In January of 2002, Kaneb Pipe Line Partners, L.P. ("KPP"), which holds a
99% interest in the Partnership, issued 1,250,000 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 revolving credit
agreement.
On February 28, 2002, the Partnership acquired all of the liquids
terminaling subsidiaries of Statia Terminals Group NV ("Statia") for
approximately $178 million in cash (net of acquired cash). The acquired
Statia subsidiaries had 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 revolving
credit agreement and proceeds from its February 2002 public debt offering.
In April of 2002, the Partnership redeemed all of Statia's 11.75% notes at
102.938% of the principal amount, plus accrued interest. The redemption was
funded by the Partnership's revolving credit facility. Assuming the
acquisition occurred on January 1, 2002, unaudited pro forma revenues and
net income would have been $92.3 million and $16.4 million, respectively,
for the three months ended March 31, 2002.
In May of 2002, KPP issued 1,565,000 limited partnership units in a public
offering at a price of $39.60 per unit, generating approximately $59.1
million in net proceeds. A portion of the offering proceeds were used to
fund its September 2002 acquisition of the Australia and New Zealand
terminals.
On September 18, 2002, the Partnership acquired eight bulk liquid storage
terminals in Australia and New Zealand from Burns Philp & Co. Ltd. for
approximately $47 million in cash. The results of operations and cash flows
of the acquired business are included in the consolidated financial
statements of the Partnership since the date of acquisition. At March 31,
2003, the final valuation of the acquired assets and liabilities has not
been completed and, accordingly, the Partnership has recorded a preliminary
allocation of the purchase price based on the estimated fair value. Based
on the preliminary purchase price allocation, no amounts are assigned to
goodwill or to other intangible assets.
On November 1, 2002, the Partnership acquired an approximately 2,000-mile
anhydrous ammonia pipeline system from Koch Pipeline Company, L.P. for
approximately $139 million in cash. This fertilizer pipeline system
originates in southern Louisiana, proceeds north through Arkansas and
Missouri, and then branches east into Illinois and Indiana and north and
west into Iowa and Nebraska. The acquisition was financed by bank debt. The
results of operations and cash flows of the acquired business are included
in the consolidated financial statements of the Partnership since the date
of acquisition. At March 31, 2003, the final valuation of the acquired
assets and liabilities has not been completed and, accordingly, the
Partnership has recorded a preliminary allocation of the purchase price
based on the estimated fair value. Based on the preliminary purchase price
allocation, no amounts are assigned to goodwill or to other intangible
assets.
In November of 2002, KPP issued 2,095,000 limited partnership units in a
public offering at $33.36 per unit, generating approximately $66.7 million
in net proceeds. The offering proceeds were used to reduce bank borrowings
for the fertilizer pipeline acquisition.
On December 24, 2002, the Partnership acquired a 400-mile petroleum
products pipeline and four terminals in North Dakota and Minnesota from
Tesoro Refining and Marketing Company for approximately $100 million in
cash. The acquisition was funded with bank debt. The results of operations
and cash flows of the acquired business are included in the consolidated
financial statements of the Partnership since the date of acquisition. At
March 31, 2003, the final valuation of the acquired assets and liabilities
has not been completed and, accordingly, the Partnership has recorded a
preliminary allocation of the purchase price based on the estimated fair
value. Based on the preliminary purchase price allocation, no amounts are
assigned to goodwill or to other intangible assets.
In March of 2003, KPP issued 3,122,500 limited partnership units in a
public offering at $36.54 per unit, generating approximately $109.1 million
in net proceeds. The proceeds were used to reduce the amount of
indebtedness under the Partnership's bridge facility.
On April 24, 2003, the Partnership entered into a new credit agreement with
a group of banks that provides for a $400 million unsecured revolving
credit facility through April of 2006. The credit facility, which provides
for an increase in the commitment up to an aggregate of $450 million by
mutual agreement between the Partnership and the banks, bears interest at
variable rates and has a variable commitment fee on unused amounts. The
credit facility contains certain financial and operating covenants,
including limitations on investments, sales of assets and transactions with
affiliates and, absent an event of default, do not restrict distributions
to partners. Proceeds from the initial draw on the credit agreement ($324.2
million) were used to repay all amounts outstanding under the Partnership's
$275 million credit agreement and $175 million bridge loan agreement.
3. COMPREHENSIVE INCOME
Comprehensive income for the three months ended March 31, 2003 and 2002 is
as follows:
Three Months Ended
March 31,
---------------------------------
2003 2002
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(in thousands)
Net income $ 22,049 $ 17,416
Other comprehensive income (loss)
- foreign currency translation adjustment 2,820 (411)
------------- --------------
Comprehensive income $ 24,869 $ 17,005
============= ==============
Accumulated other comprehensive income aggregated $4.2 million and $1.4
million at March 31, 2003 and December 31, 2002, respectively.
4. CASH DISTRIBUTIONS
The Partnership makes regular cash distributions in accordance with its
Partnership agreement within 45 days after the end of each quarter to
holders of limited partner and general partner interests. Aggregate cash
distributions of $25.1 million and $18.5 million were declared with respect
to limited partner and general partner interests for the three month
periods ended March 31, 2003 and 2002, respectively.
5. CONTINGENCIES
The operations of the Partnership are subject to Federal, state and local
laws and regulations in the United States and various foreign locations
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.
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 before 1978, 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 judgment 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 a number of 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, pursuant to a Federal Facilities Agreement, has 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 Texas state court judgment, which in
the DOJ's view, 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. Representatives of ST
Services have met with representatives of the Government on several
occasions since September 6, 2001 to discuss the Government's claims and to
exchange information related to such claims. Additional exchanges of
information are expected to occur in the future and additional meetings may
be held to discuss possible resolution of the Government's claims without
litigation.
On April 7, 2000, a fuel oil pipeline in Maryland owned by Potomac Electric
Power Company ("PEPCO") ruptured. Work performed with regard to the
pipeline was conducted by a partnership of which ST Services is general
partner. PEPCO has reported that it has incurred total cleanup costs of $70
million to $75 million. PEPCO probably will continue to incur some cleanup
related costs for the foreseeable future, primarily in connection with EPA
requirements for monitoring the condition of some of the impacted areas.
Since May 2000, ST Services has provisionally contributed a minority share
of the cleanup expense, which has been funded by ST Services' insurance
carriers. ST Services and PEPCO have not, however, reached a final
agreement regarding ST Services' proportionate responsibility for this
cleanup effort, if any, and cannot predict the amount, if any, that
ultimately may be determined to be ST Services' share of the remediation
expense, but ST believes that such amount will be covered by insurance and
therefore will not materially adversely affect the Partnership's financial
condition.
As a result of the rupture, purported class actions were filed against
PEPCO and ST Services in federal and state court in Maryland by property
and business owners alleging damages in unspecified amounts under various
theories, including under the Oil Pollution Act ("OPA") and Maryland common
law. The federal court consolidated all of the federal cases in a case
styled as In re Swanson Creek Oil Spill Litigation. A settlement of the
consolidated class action, and a companion state-court class action, was
reached and approved by the federal judge. The settlement involved creation
and funding by PEPCO and ST Services of a $2,250,000 class settlement fund,
from which all participating claimants would be paid according to a
court-approved formula, as well as a court-approved payment to plaintiffs'
attorneys. The settlement has been consummated and the fund, to which PEPCO
and ST Services contributed equal amounts, has been distributed.
Participating claimants' claims have been settled and dismissed with
prejudice. A number of class members elected not to participate in the
settlement, i.e., to "opt out," thereby preserving their claims against
PEPCO and ST Services. All non-participant claims except one have been
settled for immaterial amounts with ST Services' portion of such
settlements provided by its insurance carrier. ST Services' insurance
carrier has assumed the defense of the continuing action and ST Services
believes that the carrier would assume the defense of any new litigation by
a non-participant in the settlement, should any such litigation be
commenced. While the Partnership cannot predict the amount, if any, of any
liability it may have in the continuing action or in other potential suits
relating to this matter, it believes that the current and potential
plaintiffs' claims will be covered by insurance and therefore these actions
will not have a material adverse effect on its financial condition.
PEPCO and ST Services agreed with the federal government and the State of
Maryland to pay costs of assessing natural resource damages arising from
the Swanson Creek oil spill under OPA and of selecting restoration
projects. This process was completed in mid-2002. ST Services' insurer has
paid ST Services' agreed 50 percent share of these assessment costs. In
late November 2002, PEPCO and ST Services entered into a Consent Decree
resolving the federal and state trustees' claims for natural resource
damages. The decree required payments by ST Services and PEPCO of a total
of approximately $3 million to fund the restoration projects and for
remaining damage assessment costs. The federal court entered the Consent
Decree as a final judgment on December 31, 2002. PEPCO and ST have each
paid their 50% share and thus fully performed their payment obligations
under the Consent Decree. ST Services' insurance carrier funded ST
Services' payment.
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 $647,000 jointly against the two companies. ST Services and PEPCO have
contested the DOT allegations and the proposed penalty. A hearing was held
before the Office of Pipeline Safety at the DOT in late 2001. ST Services
does not anticipate any further hearings on the subject and is still
awaiting the DOT's ruling.
By letter dated January 4, 2002, the Attorney General's Office for the
State of Maryland advised ST Services that it intended to seek penalties
from ST Services in connection with the April 7, 2000 spill. The State of
Maryland subsequently asserted that it would seek penalties against ST
Services and PEPCO totaling up to $12 million. A settlement of this claim
was reached in mid-2002 under which ST Services' insurer will pay a total
of slightly more than $1 million in installments over a five year period.
PEPCO has also reached a settlement of these claims with the State of
Maryland. Accordingly, the Partnership believes that this matter will not
have a material adverse effect on its financial condition.
On December 13, 2002, ST Services sued PEPCO in the Superior Court,
District of Columbia, seeking, among other causes of action, a declaratory
judgment as to ST Services' legal obligations, if any, to reimburse PEPCO
for costs of the oil spill. On December 16, 2002, PEPCO sued ST Services in
the United States District Court for the District of Maryland, seeking
recovery of all its costs for remediation of the oil spill. Both parties
have pending motions to dismiss the other party's suit. The Partnership
believes that any costs or damages resulting from these lawsuits will be
covered by insurance and therefore will not materially adversely affect the
Partnership's financial condition.
The Partnership has other contingent liabilities resulting from litigation,
claims and commitments incident to the ordinary course of business.
Management of the Partnership 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.
6. BUSINESS SEGMENT DATA
The Partnership conducts business through three principal operations; the
"Pipeline Operations," which consists primarily of the transportation of
refined petroleum products and fertilizer in the Midwestern states as a
common carrier, the "Terminaling Operations," which provides storage for
petroleum products, specialty chemicals and other liquids, and the "Product
Sales Operations", which delivers bunker fuels to ships in the Caribbean
and Nova Scotia, Canada and sells bulk petroleum products to various
commercial interests.
The Partnership measures segment profit as operating income. Total assets
are those controlled by each reportable segment. Business segment data is
as follows:
Three Months Ended
March 31,
---------------------------------
2003 2002
------------- --------------
(in thousands)
Business segment revenues:
Pipeline operations $ 28,008 $ 17,626
Terminaling operations 58,686 41,462
Product sales operations 54,063 8,554
------------- -------------
$ 140,757 $ 67,642
============= =============
Business segment profit:
Pipeline operations $ 11,977 $ 8,451
Terminaling operations 18,040 14,636
Product sales operations 3,581 138
------------- -------------
Operating income 33,598 23,225
Interest and other income 88 71
Interest expense (8,615) (5,277)
Loss on debt extinguishment - (155)
------------- -------------
Income before income taxes and cumulative
effect of change in accounting principle $ 25,071 $ 17,864
============= =============
March 31, December 31,
2003 2002
------------- -------------
(in thousands)
Total assets:
Pipeline operations $ 355,762 $ 352,657
Terminaling operations 836,361 844,321
Product sales 46,247 18,432
------------- -------------
$ 1,238,370 $ 1,215,410
============= =============
7. ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2003, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 143 "Accounting for Asset Retirement
Obligations", which establishes requirements for the removal-type costs
associated with asset retirements. At the initial adoption date of SFAS No.
143, the Partnership recorded an asset retirement obligation of
approximately $6.7 million and recognized a cumulative effect of change in
accounting principle of $1.6 million, for its legal obligations to
dismantle, dispose of, and restore certain leased pipeline and terminaling
facilities, including petroleum and chemical storage tanks, terminaling
facilities and barges. At March 31, 2003, the Partnership had no assets
which were legally restricted for purposes of settling asset retirement
obligations. The effect of adopting SFAS No. 143 was not material to the
results of operations of the Partnership for the three month periods ended
March 31, 2003 and 2002, respectively.
Effective January 1, 2003 the Partnership adopted SFAS No. 146 "Accounting
for Costs Associated with Exit or Disposal Activities", which requires all
restructurings initiated after December 31, 2002 be recorded when they are
incurred and can be measured at fair value. The initial adoption of SFAS
No. 146 had no effect on the consolidated financial statements of the
Partnership.
The Partnership has adopted the provisions of FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements of Guarantees,
Including Indirect Guarantees of Indebtedness to Others, an interpretation
of FASB Statements No. 5, 57, and 107, and a rescission of FASB
Interpretation No. 34." This interpretation elaborates on the disclosures
to be made by a guarantor in its interim and annual financial statements
about its obligations under guarantees issued. The interpretation also
clarifies that a guarantor is required to recognize, at inception of a
guarantee, a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions of the interpretation are
applicable to guarantees issued or modified after December 31, 2002. The
initial application of this interpretation had no effect on the
consolidated financial statements of the Partnership.
The Partnership has adopted the provisions of FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities, an interpretation of ARB No.
51." This interpretation addressed the consolidation by business
enterprises of variable interest entities as defined in the interpretation.
The interpretation applies immediately to variable interests in variable
interest entities created after January 31, 2003, and to variable interests
in variable interest entities obtained after January 31, 2003. The
interpretation requires certain disclosures in financial statements issued
after January 31, 2003. The initial application of this interpretation had
no effect on the consolidated financial statements of the Partnership.
KANEB PIPE LINE OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
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 Operating Partnership, L.P. (the
"Partnership") and notes thereto included elsewhere in this report.
Operating Results:
Pipeline Operations
Three Months Ended
March 31,
---------------------------------
2003 2002
------------- --------------
(in thousands)
Revenues $ 28,008 $ 17,626
Operating costs 11,241 6,476
Depreciation and amortization 3,497 1,373
General and administrative 1,293 1,326
------------- --------------
Operating income $ 11,977 $ 8,451
============= ==============
Pipeline revenues are based on volumes shipped and the distances over which
such volumes are transported. For the three months ended March 31, 2003,
revenues increased by $10.4 million, or 59%, compared to the same 2002
period, due to the November and December 2002 pipeline acquisitions (see
"Liquidity and Capital Resources"). Because tariff rates are regulated, the
pipelines compete primarily on the basis of quality of services, including
delivering products at convenient locations on a timely basis to meet the
needs of its customers. Barrel miles on petroleum pipelines totaled 5.4
billion for the three months ended March 31, 2003, compared to 4.2 billion
for the three months ended March 31, 2002.
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 $4.8 million for the
three months ended March 31, 2003, when compared to the three months ended
March 31, 2002, due to the pipeline acquisitions and increases in power and
fuel costs. For the three months ended March 31, 2003, depreciation and
amortization increased by $2.1 million, when compared to the same 2002
period, due primarily to the pipeline acquisitions. General and
administrative costs include managerial, accounting, and administrative
personnel costs, office rental and expense, legal and professional costs
and other non-operating costs.
Terminaling Operations
Three Months Ended
March 31,
---------------------------------
2003 2002
------------- --------------
(in thousands)
Revenues $ 58,686 $ 41,462
Operating costs 27,277 18,318
Depreciation and amortization 9,244 5,673
General and administrative 4,125 2,835
------------- --------------
Operating income $ 18,040 $ 14,636
============= ==============
Terminaling revenues for the three month period ended March 31, 2003
increased by $17.2 million, or 42%, when compared to the same 2002 period,
due to the 2002 terminal acquisitions (see "Liquidity and Capital
Resources") and overall increases in utilization at existing locations.
Approximately $15.4 million of the revenue increase was a result of the
terminal acquisitions. Average annual tankage utilized for the three months
ended March 31, 2003 increased to 47.4 million barrels, up from 39.0
million barrels for the three months ended March 31, 2002. For the three
months ended March 31, 2003, average annualized revenues per barrel of
tankage utilized increased to $5.02 per barrel, compared to $4.32 per
barrel for the three months ended March 31, 2002, due to changes in product
mix resulting from the terminal acquisitions and more favorable domestic
market conditions.
For the three month period ended March 31, 2003, operating costs increased
by $9.0 million, when compared to the same 2002 period, the result of the
terminal acquisitions and increases in volumes stored at existing
locations. For the three months ended March 31, 2003, depreciation and
amortization increased by $3.6 million, when compared to the same 2002
period, due primarily to the terminal acquisitions. General and
administrative costs for the three month period ended March 31, 2003,
increased by $1.3 million, when compared to the same 2002 period, also a
result of the terminal acquisitions.
Product Sales
Three Months Ended
March 31,
---------------------------------
2003 2002
------------- --------------
(in thousands)
Revenues $ 54,063 $ 8,554
Cost of products sold 47,886 7,829
------------- --------------
Gross margin $ 6,177 $ 725
============= ==============
Operating income $ 3,581 $ 138
============= ==============
The product sales business, which was acquired with Statia (see "Liquidity
and Capital Resources"), delivers bunker fuels to ships in the Caribbean
and Nova Scotia, Canada and sells bulk petroleum products to various
commercial interests. For the three months ended March 31, 2003, product
sales revenues, gross margin and operating income increased by $45.5
million, $5.5 million and $3.4 million, respectively, when compared to the
same 2002 period. The results of operations for the comparative 2002 period
includes the operations of the product sales business since the date of
acquisition, February 28, 2002.
Product inventories are maintained at minimum levels to meet customers'
needs; however, market prices for petroleum products can fluctuate
significantly in short periods of time.
Interest Expense
For the three months ended March 31, 2003, interest expense increased by
$3.3 million, compared to the same 2002 period, due to increases in debt
resulting from the 2002 pipeline and terminal acquisitions (see "Liquidity
and Capital Resources"), partially offset by overall declines in interest
rates on variable rate debt.
Income Taxes
Certain operations are conducted through separate taxable wholly-owned
corporate subsidiaries. The income tax expense for these subsidiaries for
the three months ended March 31, 2003 and 2002 was $1.4 million and $0.4
million, respectively.
Liquidity and Capital Resources
Cash provided by operations was $30.1 million and $17.9 million for the
three months ended March 31, 2003 and 2002, respectively. The increase in
cash provided by operations for the three months ended March 31, 2003,
compared to the same 2002 period, was due to the 2002 pipeline and terminal
acquisitions, partially offset by changes in working capital components
resulting from the timing of cash receipts and disbursements.
Capital expenditures, including routine maintenance and expansion
expenditures but excluding acquisitions, were $11.7 million for the three
months ended March 31, 2003, compared to $5.2 million during the same 2002
period. The increase in capital expenditures for the three months ended
March 31, 2003, when compared to the same 2002 period, is the result
planned maintenance and expansion capital expenditures related to the
pipeline and terminaling operations acquired in 2002 and higher maintenance
capital expenditures in the existing pipeline and terminaling businesses.
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. The Partnership anticipates that capital expenditures
(including routine maintenance and expansion expenditures, but excluding
acquisitions) will total approximately $40 million in 2003. 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 government 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 will choose to do so.
The Partnership makes regular cash distributions in accordance with its
Partnership agreement within 45 days after the end of each quarter to
holders of limited partner and general partner interests. Aggregate cash
distributions of $25.1 million and $18.5 million were declared with respect
to limited partner and general partner interests for the three month
periods ended March 31, 2003 and 2002, respectively.
The Partnership expects to fund future cash distributions and maintenance
capital expenditures with existing cash and anticipated cash flows from
operations. Expansionary capital expenditures are expected to be funded
through additional Partnership bank borrowings and/or future debt offerings
or public equity offerings by Kaneb Pipe Line Partners, L.P. ("KPP"), which
holds a 99% interest in the Partnership.
On April 24, 2003, the Partnership entered into a new credit agreement with
a group of banks that provides for a $400 million unsecured revolving
credit facility through April of 2006. The credit facility, which provides
for an increase in the commitment up to an aggregate of $450 million by
mutual agreement between the Partnership and the banks, bears interest at
variable rates and has a variable commitment fee on unused amounts. The
credit facility contains certain financial and operating covenants,
including limitations on investments, sales of assets and transactions with
affiliates and, absent an event of default, do not restrict distributions
to partners. Proceeds from the initial draw on the credit agreement ($324.2
million) were used to repay all amounts outstanding under the Partnership's
$275 million credit agreement and $175 million bridge loan agreement.
The Partnership had a credit agreement with a group of banks that, as
amended, provided for $275 million unsecured revolving credit facility
through January 2, 2004. At March 31, 2003, $257.0 million was drawn on the
facility, at an average annual interest rate of 2.07%. The credit agreement
was repaid in April of 2003 with proceeds from the Partnership's new $400
million credit agreement.
On December 24, 2002, the Partnership entered into a $175 million unsecured
bridge loan agreement with a bank in connection with its 2002 pipeline
acquisitions. The bridge loan agreement, as amended, was scheduled to
expire in January of 2004. At March 31, 2003, $70.0 million was outstanding
on the bridge agreement, at an average annual interest rate of 2.84%. The
bridge loan was repaid in April of 2003 with proceeds from the
Partnership's new $400 million credit agreement.
In January of 2002, KPP issued 1,250,000 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 revolving credit
agreement.
In February of 2002, the Partnership 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 Partnership's revolving
credit agreement and to partially fund the acquisition of all of the
liquids terminaling subsidiaries of Statia Terminals Group NV ("Statia").
Under the note indenture, interest is payable semi-annually in arrears on
February 15 and August 15 of each year. The notes are redeemable, as a
whole or in part, at the option of the Partnership, at any time, at a
redemption price equal to the greater of 100% of the principal amount of
the notes, or the sum of the present value of the remaining scheduled
payments of principal and interest, discounted to the redemption date at
the applicable U.S. Treasury rate, as defined in the indenture, plus 30
basis points. The note indenture 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 partners. At March 31, 2003, the
Partnership was in compliance with all covenants.
On February 28, 2002, the Partnership acquired Statia for approximately
$178 million in cash (net of acquired cash). The acquired Statia
subsidiaries had 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 revolving credit agreement
and proceeds from its February 2002 public debt offering. In April of 2002,
the Partnership redeemed all of Statia's 11.75% notes at 102.938% of the
principal amount, plus accrued interest. The redemption was funded by the
Partnership's revolving credit facility.
In May of 2002, KPP issued 1,565,000 limited partnership units in a public
offering at a price of $39.60 per unit, generating approximately $59.1
million in net proceeds. A portion of the offering proceeds were used to
fund its September 2002 acquisition of the Australia and New Zealand
terminals.
On September 18, 2002, the Partnership acquired eight bulk liquid storage
terminals in Australia and New Zealand from Burns Philp & Co. Ltd. for
approximately $47 million in cash.
On November 1, 2002, the Partnership acquired an approximately 2,000-mile
anhydrous ammonia pipeline system from Koch Pipeline Company, L.P. for
approximately $139 million in cash. This fertilizer pipeline system
originates in southern Louisiana, proceeds north through Arkansas and
Missouri, and then branches east into Illinois and Indiana and north and
west into Iowa and Nebraska. The acquisition was financed by bank debt.
In November of 2002, KPP issued 2,095,000 limited partnership units in a
public offering at $33.36 per unit, generating approximately $66.7 million
in net proceeds. The offering proceeds were used to reduce bank borrowings
for the fertilizer pipeline acquisition.
On December 24, 2002, the Partnership acquired a 400-mile petroleum
products pipeline and four terminals in North Dakota and Minnesota from
Tesoro Refining and Marketing Company for approximately $100 million in
cash. The acquisition was funded with bank debt.
In March of 2003, KPP issued 3,122,500 limited partnership units in a
public offering at $36.54 per unit, generating approximately $109.1 million
in net proceeds. The proceeds were used to reduce the amount of
indebtedness under the Partnership's bridge facility.
Additional information relative to sources and uses of cash is presented in
the financial statements included in this report.
Information regarding the Partnership's Critical Accounting Policies is
included in Item 7 of the Partnership's Annual Report on Form 10-K for the
year ended December 31, 2002.
KANEB PIPE LINE OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The principal market risks (i.e., the risk of loss arising from adverse changes
in market rates and prices) to which the Partnership is exposed are interest
rates on the Partnership's debt and investment portfolios and fluctuations of
petroleum product prices on inventories held for resale.
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 $327 million at March 31, 2003, a one percent increase in
interest rates would increase annual net interest expense by approximately $3.3
million.
The product sales business periodically purchases refined petroleum products for
resale as bunker fuel, for small volume sales to commercial interests and to
maintain an inventory of blendstocks for customers. Such petroleum inventories
are generally held for short periods of time, not exceeding 90 days. As the
Partnership does not engage in derivative transactions to hedge the value of the
inventory, it is subject to market risk from changes in global oil markets.
Increases or decreases in the market value of inventory are reflected in the
product sales operations cost of products sold.
Item 4. Controls and Procedures.
Included in its Release No. 34-46427, effective August 29, 2002, the Securities
and Exchange Commission adopted rules requiring reporting companies to maintain
disclosure controls and procedures to provide reasonable assurance that a
registrant is able to record, process, summarize and report the information
required in the registrant's quarterly and annual reports under the Securities
Exchange Act of 1934 (the "Exchange Act"). While management believes that the
Partnership's existing disclosure controls and procedures have been effective to
accomplish these objectives, it intends to continue to examine, refine and
formalize the Partnership's disclosure controls and procedures and to monitor
ongoing developments in this area.
Kaneb Pipe Line Company LLC's principal executive officer and principal
financial officer, after evaluating the effectiveness of the Partnership's
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c)
and Rule 15d-14(c)) as of a date within 90 days before the filing date of this
Report, have concluded that, as of such date, the Partnership's disclosure
controls and procedures are adequate and effective to ensure that material
information relating to the Partnership and its consolidated subsidiaries would
be made known to them by others within those entities.
There have been no changes in the Partnership's internal controls or in other
factors known to management that could significantly affect those internal
controls subsequent to the date of the evaluation, nor were there any
significant deficiencies or material weaknesses in the Partnership's internal
controls. As a result, no corrective actions were required or undertaken.
KANEB PIPE LINE OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
3.1 Amended and Restated Agreement of Limited Partnership, dated
September 27, 1989, filed as Exhibit 3.1 to the Registrant's Form
10-K for the year ended December 31, 2001, 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 KPP'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 the Partnership, dated February 19, 1995, filed as
Exhibit 10.1 of the exhibits to KPP'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 the Partnership, as amended, dated August
27, 1995, filed as Exhibits 10.1, 10.2, 10.3, and 10.4 of the
exhibits to KPP'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 KPP'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
KPP'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 KPP'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 as Exhibit 10.7 to
KPP's Form 10-K for the year ended December 31, 2000, which
exhibit is hereby incorporated by reference.
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 KPP'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 24, 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 24, 2002,
and incorporated herein by reference.
10.11 Revolving Credit Agreement, dated as of April 24, 2003 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.
99.1 Certification of Chief Executive Officer, Pursuant to Section
906(a) of the Sarbanes-Oxley Act of 2002, dated as of May 14,
2003, filed herewith.
99.2 Certification of Chief Financial Officer, Pursuant to Section
906(a) of the Sarbanes-Oxley Act of 2002, dated as of May 14,
2003, filed herewith.
(b) Reports on Form 8-K
Current Report on Form 8-K, filed January 8, 2003
Current Report on Form 8-K, filed March 18, 2003
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned.
KANEB PIPE LINE OPERATING
PARTNERSHIP, L.P.
(Registrant)
By KANEB PIPE LINE COMPANY LLC
(General Partner)
Date: May 15, 2003 //s//
-----------------------------------------
Howard C. Wadsworth
Vice President, Treasurer and Secretary
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Edward D. Doherty, Chief Executive Officer of Kaneb Pipe Line Company LLC, as
General Partner for Kaneb Pipe Line Operating Partnership, L.P. certify that:
1. I have reviewed this quarterly report on Form 10-Q of Kaneb Pipe Line
Operating Partnership, L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003
//s//
----------------------------------------
Edward D. Doherty
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Howard C. Wadsworth, Chief Financial Officer of Kaneb Pipe Line Company LLC,
as General Partner for Kaneb Pipe Line Operating Partnership, L.P. certify that:
1. I have reviewed this quarterly report on Form 10-Q of Kaneb Pipe Line
Operating Partnership, L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003
//s//
----------------------------------------
Howard C. Wadsworth
Chief Financial Officer