SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 September 30, 1998 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 1-9356
BUCKEYE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 23-2432497
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5 Radnor Corporate Center, Suite 500
100 Matsonford Road
Radnor, PA 19087
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: 610-254-4600
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report).
Indicate by check mark whether the registran (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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at October 15, 1998
Limited Partnership Units 26,742,306 Units
<PAGE>
<TABLE>
<CAPTION>
BUCKEYE PARTNERS, L.P.
INDEX
Page No.
<S> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Statements of Income 1
for the three months and nine months
ended September 30, 1998 and 1997
Consolidated Balance Sheets 2
September 30, 1998 and December 31, 1997
Consolidated Statements of Cash Flows 3
for the nine months ended September 30, 1998
and 1997
Notes to Consolidated Financial Statements 4-7
Item 2. Management's Discussion and Analysis 7-11
of Financial Condition and Results
of Operations
Part II. Other Information
Item 4. Submission of Matters to a Vote of 12
Security Holders
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
<PAGE>
Part I - Financial Information
Item 1. Consolidated Financial Statements
Buckeye Partners, L.P.
Consolidated Statements of Income
(In thousands, except per Unit amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
- ------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<C> <C> <S> <C> <C>
$47,716 $47,333 Revenue $137,798 $137,546
- ------- ------- -------- --------
Costs and expenses
20,440 22,318 Operating expenses 59,353 66,371
4,123 3,467 Depreciation and amortization 12,307 9,160
3,065 2,955 General and administrative expenses 10,826 9,932
- ------- ------- -------- --------
27,628 28,740 Total costs and expenses 82,486 85,463
- ------- ------- -------- --------
20,088 18,593 Operating income 55,312 52,083
- ------- ------- -------- --------
Other income (expenses)
56 407 Interest income 209 1,484
(3,942) (5,366) Interest and debt expense (11,760) (16,124)
(1,766) (904) Minority interests and other (4,963) (1,806)
- ------- ------- -------- --------
(5,652) (5,863) Total other income (expenses) (16,514) (16,446)
- ------- ------- -------- --------
$14,436 $12,730 Net income $ 38,798 $ 35,637
======= ======= ======== ========
Net income allocated to General
$ 131 $ 121 Partner $ 351 $ 350
Net income allocated to Limited
$14,305 $12,609 Partner $ 38,447 $ 35,287
Earnings per Partnership Unit:
Net income allocated to General
and Limited Partners per
$ 0.53 $ 0.49 Partnership Unit $ 1.44 $ 1.43
Earnings per Partnership Unit -
assuming dilution:
Net income allocated to General
and Limited Partners per
$ 0.53 $ 0.49 Partnership Unit $ 1.43 $ 1.43
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Buckeye Partners, L.P.
Consolidated Balance Sheets
(In thousands)
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 6,023 $ 7,349
Temporary investments - 2,854
Trade receivables 8,927 10,195
Inventories 2,834 2,087
Prepaid and other current assets 8,406 7,297
-------- --------
Total current assets 26,190 29,782
Property, plant and equipment, net 529,944 520,941
Other non-current assets 61,181 64,339
-------- --------
Total assets $617,315 $615,062
======== ========
Liabilities and partners' capital
Current liabilities
Accounts payable $ 2,907 $ 3,664
Accrued and other current liabilities 26,435 21,073
-------- --------
Total current liabilities 29,342 24,737
Long-term debt 240,000 240,000
Minority interests 2,509 2,535
Other non-current liabilities 46,026 45,012
Commitments and contingent liabilities - -
-------- --------
Total liabilities 317,877 312,284
-------- --------
Partners' capital
General Partner 2,399 2,432
Limited Partners 297,039 300,346
-------- --------
Total partners' capital 299,438 302,778
-------- --------
Total liabilities and partners' capital $617,315 $615,062
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Buckeye Partners, L.P.
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
---------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $38,798 $35,637
------- -------
Adjustments to reconcile income to net cash
provided by operating activities:
Gain on sale of property, plant and equipment (196) (11)
Depreciation and amortization 12,307 9,160
Minority interests 442 375
Distributions to minority interests (468) (318)
Changes in assets and liabilities:
Temporary investments 2,854 2,199
Trade receivables 1,268 2,912
Inventories (747) (121)
Prepaid and other current assets (1,109) 1,168
Accounts payable (757) (2,574)
Accrued and other current liabilities 5,362 2,584
Other non-current assets (365) 240
Other non-current liabilities 1,014 (2,381)
------- -------
Total adjustments 19,605 13,233
------- -------
Net cash provided by operating activities 58,403 48,870
------- -------
Cash flows from investing activities:
Capital expenditures (17,231) (14,150)
Expenditures for disposal of property,
plant and equipment, net (360) (421)
------- -------
Net cash used in investing activities (17,591) (14,571)
------- -------
Cash flows from financing activities:
Capital contribution - 5
Proceeds from exercise of unit options 359 497
Payment of long-term debt - (8,925)
Distributions to unitholders (42,497) (30,149)
------- -------
Net cash used in financing activities (42,138) (38,572)
------- -------
Net decrease in cash and cash equivalents (1,326) (4,273)
Cash and cash equivalents at beginning of period 7,349 17,416
------- -------
Cash and cash equivalents at end of period $ 6,023 $13,143
======= =======
Supplemental cash flow information:
Cash paid during the period for interest
(net of amount capitalized) $11,795 $16,396
Non-cash change from issuance of LP Units
(including $59,502 in other non-current assets) - $64,200
</TABLE>
See notes to consolidated financial statements.
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.BASIS OF PRESENTATION
In the opinion of management, the accompanying financial statements of Buckeye
Partners, L.P. (the "Partnership"), which are unaudited except that the Balance
Sheet as of December 31, 1997 is derived from audited financial statements,
include all adjustments necessary to present fairly the Partnership's financial
position as of September 30, 1998 and the results of operations for the three
month and nine month periods ended September 30, 1998 and 1997 and cash flows
for the nine month periods ended September 30, 1998 and 1997.
The American Institute of Certified Public Accountants issued Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use," which provides guidance on accounting for the
costs of computer software developed or obtained for internal use. The
Partnership adopted SOP 98-1 on January 1, 1998 with no significant impact on
the Partnership's operating results or financial condition.
The Financial Accounting Standards Board issued Statement No. 130, "Reporting
Comprehensive Income," which establishes standards for the reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general purpose financial statements. The
Partnership has not reported comprehensive income due to the absence of items
of other comprehensive income in any period presented.
The Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way that those business enterprises report
selected information about operating segments in annual financial statements
and requires that those enterprises report selected information about operating
segments in the interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This standard will be effective for the
Partnership's 1998 Annual Report.
In February 1998, the Financial Accounting Standards Board issued Statement No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits."
This standard revises employers' disclosures about pension and other
postretirement plans but does not change the measurement or recognition of
those plans. This standard will be effective for the Partnership's 1998 Annual
Report.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. This standard is effective for the Partnership's
financial statements for all quarters beginning in the year 2000.
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the financial statements do not include all of the information and
notes normally included with financial statements prepared in accordance with
generally accepted accounting principles. These financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Partnership's Annual Report on Form 10-K/A for the year
ended December 31, 1997.
Reclassifications
Certain amounts in the consolidated financial statements for the periods prior
to 1998 have been reclassified to conform to the current presentation.
2. CONTINGENCIES
The Partnership and its subsidiaries (the "Operating Partnerships"), in the
ordinary course of business, are involved in various claims and legal
proceedings, some of which are covered in whole or in part by insurance.
Buckeye Management Company (the "General Partner") is unable to predict the
timing or outcome of these claims and proceedings. Although it is possible
that one or more of these claims or proceedings, if adversely determined,
could, depending on the relative amounts involved, have a material effect on
the Partnership's results of operations for a future period, the General
Partner does not believe that their outcome will have a material effect on the
Partnership's consolidated financial condition or results of operations.
Environmental
Certain Operating Partnerships (or their predecessors) have been named as a
defendant in lawsuits or have been notified by federal or state authorities
that they are a potentially responsible party ("PRP") under federal laws or a
respondent under state laws relating to the generation, disposal, or release of
hazardous substances into the environment. These proceedings generally relate
to potential liability for clean-up costs. The total potential remediation
costs relating to these clean-up sites cannot be reasonably estimated.
With respect to each site, however, the Operating Partnership involved is one
of several or as many as several hundred PRPs that would share in the total
costs of clean-up under the principle of joint and several liability. The
General Partner believes that the generation, handling and disposal of
hazardous substances by the Operating Partnerships and their predecessors have
been in material compliance with applicable environmental and regulatory
requirements. Additional claims for the cost of cleaning up releases of
hazardous substances and for damage to the environment resulting from the
activities of the Operating Partnerships or their predecessors may be asserted
in the future under various federal and state laws.
Guaranteed Investment Contract
The Buckeye Pipe Line Company Retirement and Savings Plan (the "Plan") held a
guaranteed investment contract ("GIC") issued by Executive Life Insurance
Company ("Executive Life"), which entered conservatorship proceedings in the
state of California in April 1991. The GIC was purchased in July 1989, with an
initial principal investment of $7.4 million earning interest at an effec tive
rate per annum of 8.98 percent through June 30, 1992. Pursuant to the
Executive Life Plan of Rehabilitation, the Plan received an interest only
contract from Aurora National Life Assurance Company (the "Aurora GIC")in
substitution for its Executive Life GIC. The contract provided for semi-annual
interest payments at a rate of 5.61 percent per annum through September 1998,
the maturity date of the contract. In addition, the Plan has received certain
additional cash payments through the maturity date of the contract and may
receive some additional payments after the maturity date pursuant to the Plan
of Rehabilitation. The Plan also received a payment of approximately $2
million in March, 1998, from the Pennsylvania Life and Health Insurance
Guaranty Association for partial reimbursement of losses of Plan participants
who were Pennsylvania residents on December 6, 1991. The timing and amount of
any additional reimbursements cannot be estimated accurately at this time.
In May 1991, the General Partner, in order to safeguard the basic retirement
and savings benefits of its employees, announced its intention to enter an
arrangement with the Plan that would guarantee that the Plan would receive at
least its initial principal investment of $7.4 million plus interest at an
effective rate per annum of 5 percent from July 1, 1989. On September 3, 1998,
the Aurora GIC matured and the plan received $5.6 million. With the receipt of
these funds, the General Partner has now met its guaranty obligation to the
Plan. Total costs accrued by the Partnership in prior periods in connection
with the guaranty were approximately $0.4 million.
3. PARTNERS' CAPITAL
Partners' capital consists of the following:
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- --------
(In thousands)
<S> <C> <C> <C>
Partners' Capital - 1/1/98 $2,432 $300,346 $302,778
Net Income 351 38,447 38,798
Distributions (384) (42,113) (42,497)
Exercise of unit options - 359 359
------ -------- --------
Partners' Capital - 9/30/98 $2,399 $297,039 $299,438
====== ======== ========
</TABLE>
The following is a reconciliation of basic and dilutive income per Partnership
Unit for the three and nine month periods ended September 30:
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------------------
1998 1997
----------------------- -----------------------
Income Units Per Income Units Per
(Numer- (Denomi- Unit (Numer- (Denomi- Unit
ator) nator) Amount ator) nator) Amount
------ ------ ------ ------ ------ ------
(in thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C> <C>
Net income $14,436 $12,730
------- -------
Basic earnings
per Partnership Unit 14,436 26,986 $0.53 12,730 25,789 $0.49
Effect of dilutive
securities - options - 97 - - 82 -
------- ------ ----- ------- ------ -----
Diluted earnings per
Partnership Unit $14,436 27,083 $0.53 $12,730 25,871 $0.49
======= ====== ===== ======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------------------------
1998 1997
----------------------- -----------------------
Income Units Per Income Units Per
(Numer- (Denomi- Unit (Numer- (Denomi- Unit
ator) nator) Amount ator) nator) Amount
------ ------ ------ ------ ------ ------
(in thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C> <C>
Net income $38,798 $35,637
------- -------
Basic earnings
per Partnership Unit 38,798 26,981 $1.44 35,637 24,853 $1.43
Effect of dilutive
securities - options - 100 (0.01) - 85 -
------- ------ ----- ------- ------ -----
Diluted earnings per
Partnership Unit $38,798 27,081 $1.43 $35,637 24,938 $1.43
======= ====== ===== ======= ====== =====
</TABLE>
Options reported as dilutive securities are related to unexercised options
outstanding under the Option Plan.
4. CASH DISTRIBUTIONS
The Partnership will generally make quarterly cash distributions of
substantially all of its available cash, generally defined as consolidated cash
receipts less consolidated cash expenditures and such retentions for working
capital, anticipated cash expenditures and contingencies as the General Partner
deems appropriate.
The Partnership has declared a cash distribution of $0.525 per unit payable on
November 30, 1998 to unitholders of record on November 4, 1998. The total
distribution will amount to approximately $14,168,000.
5. SUBSEQUENT EVENTS
On October 19, 1998, the General Partner announced a cost reduction program and
performance improvement initiative that will be phased in beginning with the
fourth quarter of 1998 and will extend through the year 2001. The program will
involve salaried position eliminations, reductions in the number of hourly
positions through pipeline automation, and other cost savings initiatives in
areas such as operating power, field maintenance, and purchasing.
In connection with the position eliminations projected for 1998 and 1999, the
General Partner anticipates incurring a charge of approximately $2 million in
the fourth quarter of 1998 for severance payments and relocation costs.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Amounts in the following discussion and analysis of financial condition and
results of operations relate to continuing operations unless otherwise
indicated.
RESULTS OF OPERATIONS
Third Quarter
Revenue for the third quarter 1998 was $47.7 million or 0.8 percent greater
than revenue of $47.3 million for the third quarter 1997. Volumes for the
third quarter 1998 were 1,042,600 barrels per day, 300 barrels per day greater
than third quarter 1997 volumes. Gasoline volumes were 2.1 percent greater
than 1997 levels primarily due to increased deliveries to western Pennsylvania
as a result of two new connections to customer facilities. Distillate volumes
declined by 6.2 percent from 1997 levels as demand remained weak throughout
most areas as a result of warmer than normal weather and relatively high field
inventory levels. Turbine fuel volumes were 0.7 percent less than 1997 levels.
Declines in deliveries to J. F. Kennedy, Miami, Pittsburgh and Detroit Metro
airports were partially offset by volume gains at Newark Airport. Liquified
petroleum gas volumes increased by 32.9 percent over 1997 levels as a result of
capturing new business in Ohio following the modification of a pipeline segment
to handle these volumes. Tariff increases instituted during the first quarter
1998 contributed approximately $0.7 million of additional revenue over the
third quarter of 1998.
Costs and expenses for the third quarter 1998 were $27.6 million or 3.8 percent
less than costs and expenses of $28.7 million for the third quarter 1998.
Declines in payroll benefits, outside services and operating power were
partially offset by the amortization of the deferred charge related to the ESOP
restructuring that occurred during the third quarter 1997.
Other income (expenses), which is the net of non-operating income and expenses,
was a net expense of $5.7 million during the third quarter 1998 compared to a
net expense of $5.9 million during the third quarter 1997. Higher incentive
compensation paid to the General Partner, due to an increase in per unit
distributions, was offset by a decline in interest expense related to a debt
refinancing in December 1997.
First Nine Months
Revenue for the first nine months of 1998 was $137.8 million or 0.2 percent
greater than revenue of $137.5 million for the first nine months of 1997.
Volumes for the first nine months of 1998 were 1,028,400 barrels per day,
11,200 barrels per day or 1.1 percent greater than volumes of 1,017,200 barrels
per day for the first nine months of 1997. Gasoline volumes were 2.3 percent
greater than 1997 levels. Strong volumes to the Pittsburgh, Pennsylvania area
and Long Island were offset by declines in other market areas. Distillate
volumes declined by 3.6 percent from 1997 levels primarily as a result of mild
winter weather experienced throughout a majority of Partnership's systems,
partially offset by favorable heating oil prices during the second quarter that
led to some inventory building. Turbine fuel volumes increased by 1.7 percent
from 1997 levels. Demand was strong at most airports served by the Partnership
particularly at Newark airport where a combination of new business and
increased international air traffic led to increased volumes. Liquified
petroleum gas volumes increased by 32.2 percent over 1997 levels as a result of
capturing new business following the modification of a pipeline segment to
handle these volumes. Tariff increases instituted during the first quarter 1998
contributed approximately $2.1 million of additional revenue during the first
nine months of 1998.
Costs and expenses for the first nine months of 1998 were $82.5 million or 3.5
percent less than costs and expenses of $85.5 million for the first nine months
of 1997. Declines in payroll benefits, outside services, operating power and
property tax expense were partially offset by the amortization of the deferred
charge related to the ESOP restructuring.
Other income (expenses), which is the net of non-operating income and expenses,
was a net expense of $16.5 million during the first nine months of 1998
compared to a net expense of $16.4 million during the first nine months of
1997. Higher incentive compensation paid to the General Partner due to an
increase in per unit distributions was partially offset by a decline in
interest expense related to a debt refinancing in December 1997.
Competition and Other Business Conditions
In 1997, BP America ("BP") announced that it planned to shut down its Lima,
Ohio refinery in 1998 and to supply its marginal refined petroleum product
requirements via pipeline from sources outside Ohio. In August 1998, however,
Clark Refining and Marketing announced that it had purchased the Lima refinery
from BP and planned to continue to operate the refinery. The continued
operation of the Lima refinery will avoid any potential negative impact on
Buckeye's Midwest volumes and revenue that might have been caused by a shutdown
of the refinery.
Several major refiners and marketers of petroleum products announced strategic
alliances or mergers in 1997 and 1998. These alliances or mergers have the
potential to alter refined product supply and distribution patterns within the
Operating Partnerships' market area. Based on information currently available,
it is not possible to predict the impact these alliances or mergers would have
on the Operating Partnerships' business, although it is anticipated that on
balance, the impact in the Partnership's Midwest service area will be more
negative than positive. The General Partner does not believe, however, that
these alliances or mergers will have a material adverse effect on the
Partnership's results of operations or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financial condition at September 30, 1998 is highlighted in
the following comparative summary:
Liquidity and Capital Indicators
<TABLE>
<CAPTION>
As of
-----------------------
9/30/98 12/31/97
------- --------
<S> <C> <C>
Current ratio 0.9 to 1 1.2 to 1
Ratio of cash and cash equivalents,
temporary investments and trade
receivables to current liabilities 0.5 to 1 0.8 to 1
Working (deficit)/capital-in thousands $(3,152) $ 5,045
Ratio of total debt to total capital .44 to 1 .44 to 1
Book value (per Unit) $11.10 $11.23
</TABLE>
The Partnership's cash flow from operations is generally sufficient to meet
current working capital requirements. In addition, the Partnership maintains
$6.0 million in short-term credit facilities under which there are no current
outstanding borrowings.
Cash Provided by Operations
For the nine months ended September 30, 1998, cash provided by operations of
$58.4 million was derived principally from $51.1 million of income before
depreciation and amortization. Depreciation and amortization of $12.3 million
increased by $3.1 million over the first nine months of 1997 as a result of the
amortization of a deferred charge associated with the ESOP restructuring that
occurred in August 1997. Changes in current assets and current liabilities
resulted in a net cash source of $6.9 million, resulting primarily from
maturities of temporary investments, the continued improvement in the
collection of trade receivables and an increase in outstanding liabilities.
Cash provided by operations was used to pay distributions to Unitholders of
$42.5 million, an increase of $12.3 million over the first nine months of 1997,
and capital expenditures of $17.2 million. Changes in non-current assets and
liabilities resulted in a net cash source of $0.6 million.
Debt Obligation and Credit Facilities
At September 30, 1998, the Partnership had $240.0 million in outstanding long-
term debt representing the Senior Notes of Buckeye Pipe Line Company, L.P.
("Buckeye") which are scheduled to mature in the period 2020 through 2024. The
indenture pursuant to which the Senior Notes were issued (the "Senior Note
Indenture") contains covenants which affect Buckeye, Laurel Pipe Line Company,
L.P. and Buckeye Pipe Line Company of Michigan, L.P. (the "Indenture Parties").
Generally, the Senior Note Indenture (a) limits outstanding indebtedness of
Buckeye based upon certain financial ratios of the Indenture Parties, (b)
prohibits the Indenture Parties from creating or incurring certain liens on
their property, (c) prohibits the Indenture Parties from disposing of property
which is material to their operations, and (d) limits consolidation, merger and
asset transfers of the Indenture Parties.
Buckeye has a $6 million short-term line of credit secured by accounts
receivable. At September 30, 1998, there were no outstanding borrowings under
these facilities.
At September 30, 1998, the ratio of total debt to total capital was 44 percent.
For purposes of the calculation of this ratio, total capital consists of long-
term debt, minority interests in subsidiaries and partners' capital.
Capital Expenditures
At September 30, 1998, approximately 86 percent of total consolidated assets
consisted of property, plant and equipment.
Capital expenditures during the nine months ended September 30, 1998 totaled
$17.2 million compared to $14.2 million during the nine months ended September
30, 1997. This increase in capital expenditures reflects continued progress in
the Partnership's plan to automate certain facilities which commenced in 1997.
During both periods, capital expenditures were paid from internally generated
funds.
OTHER MATTERS
Cost Reduction Program
In October, 1998, the Partnership commenced implementation of a cost reduction
program and performance improvement initiative that will be phased in beginning
with the fourth quarter of 1998 and will extend through the year 2001. The
program will involve salaried position eliminations, reductions in the number
of hourly positions through pipeline automation, and other cost savings
initiatives in areas such as operating power, field maintenance, and
purchasing. It is estimated that the initial impact of the program will be to
reduce annual baseline operating expenses by approximately $4 million in 1999.
Accounting Pronouncements
The American Institute of Certified Public Accountants issued Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use," which provides guidance on accounting for the
costs of computer software developed or obtained for internal use. The
Partnership adopted SOP 98-1 on January 1, 1998 with no significant impact on
the Partnership's operating results or financial condition.
The Financial Accounting Standards Board issued Statement No. 130, "Reporting
Comprehensive Income," which establishes standards for the reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general purpose financial statements. The
Partnership has not reported comprehensive income due to the absence of items
of other comprehensive income in any period presented.
The Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way that those business enterprises report
selected information about operating segments in annual financial statements
and requires that those enterprises report selected information about operating
segments in the interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This standard will be effective for the
Partnership's 1998 Annual Report.
In February 1998, the Financial Accounting Standards Board issued Statement No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits."
This standard revises employers' disclosures about pension and other
postretirement plans but does not change the measurement or recognition of
those plans. This standard will be effective for the Partnership's 1998 Annual
Report.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. This standard is effective for the Partnership's
financial statements for all quarters beginning in the year 2000.
Year 2000 Compliance
In 1998, the Partnership established a comprehensive plan to assess the impact
of the Year 2000 issue on the software and hardware utilized by the
Partnership's internal operations and pipeline control systems. As part of
that assessment, a team is in the process of reviewing and documenting the
status of the Partnership's systems for Year 2000 compliance. The key
information systems under review include financial systems, pipeline operating
systems, and the Partnership's SCADA (Supervisory Control and Data Acquisition)
system. In connection with each of these areas, consideration is being given
to hardware, operating systems, applications, data base management, system
interfaces, electronic transmission, and outside vendors.
The Partnership relies on third-party suppliers for certain systems, products
and services including telecommunications. The Partnership has received some
preliminary information concerning Year 2000 status from a group of critical
suppliers and vendors, and anticipates receiving additional information in the
near future that will assist the Partnership in determining the extent to which
the Partnership may be vulnerable to those third parties' failure to remediate
their year 2000 issues.
At this time, the Partnership believes that the total cost for known or
anticipated remediation of its information systems to make them Year 2000
compliant will not be material.
Management of the Partnership believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. Completion of the plan and
testing of replacement or modified systems is anticipated for the third quarter
of 1999. Nevertheless, since it is not possible to anticipate all possible
future outcomes, especially when third parties are involved, there could be
circumstances in which the Partnership would be unable to take customer orders,
ship petroleum products, invoice customers or collect payments. The amount of
potential liability and lost revenue has not been estimated.
The Company has contingency plans for some pipeline critical applications,
involving manual operations, and is working on additional contingency plans to
address unavoided or unavoidable risks associated with Year 2000 issues.
Forward Looking Statements
This SEC Form 10-Q includes forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the General Partner believes that its
expectations are based on reasonable assumptions, it can give no assurance that
such assumptions will materialize. In particular, the General Partner's
estimate of cost savings to be realized in connection with its cost reduction
program is dependent upon, among other things, its field automation project
being implemented effectively and on time, achieving substantial economies in
purchasing and supply management, and its ability to take advantage of electric
power savings that may result from the deregulation and changing dynamics of
the electric utility industry.
Item 4. Submission of Matters to a Vote of Security Holders
On May 22, 1998, the Partnership commenced a consent solicitation seeking
Unitholder approval of certain amendments to the Partnership Agreement. The
solicitation of consents expired on July 17, 1998.
The consent solicitation sought Unitholder approval to:
(1) remove the limitation on the number of limited
partnership units of the Partnership that may be issued
without the approval of the Unitholders;
(2) eliminate the restrictions on the amount of debt
that can be incurred by the Partnership or its four
operating limited partnerships and
(3) remove the limitations on the amount of capital
expenditures that can be made by the Partnership and the
Operating Partnerships in any calendar year.
Adoption of the proposed amendments required the affirmative vote of
Unitholders holding two-thirds of the LP Units outstanding.
The proposed amendments were approved by the Unitholders. Holders of
approximately 70 percent of the Units outstanding voted in favor of the
proposed amendment. The Unitholders voted 18,757,548 Units in the affirmative
and 1,467,513 in the negative. Of those who voted, 92.7 percent of the
Unitholders voted in favor of the proposal and 7.3 percent voted against the
proposal. The Partnership Agreement was amended effective July 17, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Buckeye Partners, L.P. filed a Current Report on Form 8-K on July 20, 1998
announcing the approval by the Unitholders of the consent solicitation
seeking approval of certain amendments to the Partnership Agreement.
<PAGE>
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 thereunto duly authorized.
BUCKEYE PARTNERS, L.P.
(Registrant)
By: Buckeye Management Company,
as General Partner
Dated: October 22, 1998 By: /s/ Steven C. Ramsey
Steven C. Ramsey
Senior Vice President, Finance
and Chief Financial Officer
(Principal Accounting and
Financial Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,023
<SECURITIES> 0
<RECEIVABLES> 8,927
<ALLOWANCES> 0
<INVENTORY> 2,834
<CURRENT-ASSETS> 26,190
<PP&E> 595,286
<DEPRECIATION> 65,342
<TOTAL-ASSETS> 617,315
<CURRENT-LIABILITIES> 29,342
<BONDS> 240,000
0
0
<COMMON> 0
<OTHER-SE> 299,438
<TOTAL-LIABILITY-AND-EQUITY> 617,315
<SALES> 0
<TOTAL-REVENUES> 137,798
<CGS> 0
<TOTAL-COSTS> 82,486
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,760
<INCOME-PRETAX> 38,798
<INCOME-TAX> 0
<INCOME-CONTINUING> 38,798
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,798
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.43
</TABLE>
