Equity income from Skelly-Belvieu Pipeline Company represents the Partnership's
50% interest in the net income of Skelly-Belvieu Pipeline Company, which
operates the Skellytown to Mont Belvieu refined product pipeline. Equity income
from Skelly-Belvieu Pipeline Company for the quarter ended March 31, 2002
approximated the amount of equity income recognized in the first quarter of 2001
as throughput volumes did not change significantly. Distributions from the
Skelly-Belvieu Pipeline Company totaled $771,000 for the first quarter of 2002
as compared to $639,000 in the first quarter of 2001.
Interest expense for the quarter ended March 31, 2002 was $556,000, net of
interest income of $19,000, as compared to $2,244,000 of interest expense for
the same period in 2001. Interest expense decreased due to the payoff of the
debt due to parent in April 2001 with proceeds from the Partnership's initial
public offering. During the first quarter of 2002, the Partnership incurred
$447,000 of interest expense related to borrowings under the revolving credit
facility and $128,000 of interest expense related to the Port of Corpus Christi
note payable. The acquisition of the Wichita Falls Business from Valero Energy
on February 1, 2002 was funded with $64,000,000 of borrowings under the
revolving credit facility.
Income tax expense for the first quarter of 2002 represents income taxes
incurred by the Wichita Falls Business during the month ended January 31, 2002,
prior to the transfer of the Business to the Partnership.
Outlook for the Second Quarter and Remainder of 2002
So far during the second quarter of 2002, throughput levels in the Partnership's
pipelines and terminals have returned to more normal levels since Valero Energy
increased production at the McKee, Three Rivers and Ardmore refineries. With
supply and demand fundamentals in the refining and marketing industry becoming
more balanced, the Partnership anticipates that throughput levels will continue
at normal levels for the balance of 2002; however, there can be no assurance
that throughput will stay at these levels.
Based on the throughput improvements, the additional cash flow generated from
the Wichita Falls Business acquired on February 1, 2002 and the additional cash
flow anticipated from a crude hydrogen pipeline to be acquired in late May 2002,
the Partnership expects to generate higher levels of distributable cash flow for
the balance of 2002.
Liquidity and Capital Resources
As of March 31, 2002, the Partnership had $80,000,000 outstanding under its
$120,000,000 revolving credit facility. During the first quarter of 2002, the
Partnership borrowed $64,000,000 under the revolving credit facility to purchase
the Wichita Falls Business from Valero Energy. In addition, the Partnership
expects to fund the acquisition of an $11,000,000 crude hydrogen pipeline from
Praxair, Inc. in May 2002 with borrowings under the revolving credit facility.
The revolving credit facility expires on January 15, 2006 and borrowings under
the revolving credit facility bear interest at either an alternative base rate
or the LIBOR rate at the option of the Partnership.
The revolving credit facility requires that the Partnership maintain certain
financial ratios and includes other restrictive covenants, including a
prohibition on distributions by the Partnership if any default, as defined in
the revolving credit facility, exists or would result from the distribution.
Management believes that the Partnership is in compliance with all of these
ratios and covenants.
The Partnership's ability to complete future debt and equity offerings and the
timing of any such offerings will depend upon various factors including
prevailing market conditions, interest rates and the Partnership's financial