<PAGE>
UNITED STATES
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 March 31, 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 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 21, 1998
Limited Partnership Units 26,735,506 Units
<PAGE>
BUCKEYE PARTNERS, L.P.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Statements of Income
for the three months
ended March 31, 1998 and 1997 1
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 2
Consolidated Statements of Cash Flows
for the three months ended March 31, 1998
and 1997 3
Notes to Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7-9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
</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
March 31,
-------------------
1998 1997
---- ----
<S> <C> <C>
Revenue $43,048 $43,815
------- -------
Costs and expenses
Operating expenses 18,348 20,885
Depreciation and amortization 4,102 2,851
General and administrative expenses 4,237 3,235
------- -------
Total costs and expenses 26,687 26,971
------- -------
Operating income 16,361 16,844
------- -------
Other income (expenses)
Investment income 20 549
Interest and debt expense (3,934) (5,415)
Minority interests and other (1,531) (452)
------- -------
Total other income (expenses) (5,445) (5,318)
------- -------
Net income $10,916 $11,526
======= =======
Net income allocated to General Partner $ 99 $ 115
Net income allocated to Limited Partners $10,817 $11,411
Earnings per Partnership Unit:
Net income allocated to General and
Limited Partners per Partnership Unit $ 0.40 $ 0.47
Earnings per Partnership Unit - assuming dilution:
Net income allocated to General and
Limited Partners per Partnership Unit $ 0.40 $ 0.47
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Buckeye Partners, L.P.
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 7,707 $ 7,349
Temporary investments - 2,854
Trade receivables 8,293 10,195
Inventories 2,409 2,087
Prepaid and other current assets 7,310 7,297
-------- --------
Total current assets 25,719 29,782
Property, plant and equipment, net 522,621 520,941
Other non-current assets 63,870 64,339
-------- --------
Total assets $612,210 $615,062
======== ========
Liabilities and partners' capital
Current liabilities
Accounts payable $ 2,107 $ 3,664
Accrued and other current liabilities 22,815 21,073
-------- --------
Total current liabilities 24,922 24,737
Long-term debt 240,000 240,000
Minority interests 2,507 2,535
Other non-current liabilities 45,012 45,012
Commitments and contingent liabilities - -
-------- --------
Total liabilities 312,441 312,284
-------- --------
Partners' capital
General Partner 2,403 2,432
Limited Partners 297,366 300,346
-------- --------
Total partners' capital 299,769 302,778
-------- --------
Total liabilities and partners' capital $612,210 $615,062
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Buckeye Partners, L.P.
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $10,916 $11,526
------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of property, plant and equipment (196) -
Depreciation and amortization 4,102 2,851
Minority interests 126 121
Distributions to minority interests (154) (96)
Changes in assets and liabilities:
Temporary investments 2,854 1,535
Trade receivables 1,902 4,292
Inventories (322) (20)
Prepaid and other current assets (13) 789
Accounts payable (1,557) (3,889)
Accrued and other current liabilities 1,742 486
Other non-current assets (705) 80
Other non-current liabilities - (34)
------- -------
Total adjustments 7,779 6,115
------- -------
Net cash provided by operating activities 18,695 17,641
------- -------
Cash flows from investing activities:
Capital expenditures (4,467) (3,670)
Net proceeds from (expenditures for) disposal of
property, plant and equipment 55 (6)
------- -------
Net cash used in investing activities (4,412) (3,676)
------- -------
Cash flows from financing activities:
Capital contribution - 3
Proceeds from exercise of unit options 237 254
Payment of long-term debt - (2,975)
Distributions to Unitholders (14,162) (9,141)
------- -------
Net cash used in financing activities (13,925) (11,859)
------- -------
Net increase in cash and cash equivalents 358 2,106
Cash and cash equivalents at beginning of period 7,349 17,416
------- -------
Cash and cash equivalents at end of period $ 7,707 $19,522
======= =======
Supplemental cash flow information:
Cash paid during the period for interest
(net of amount capitalized) $ 3,931 $ 5,431
</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 state-ments,
include all adjustments necessary to present fairly the Partnership's financial
position as of March 31, 1998 and the results of operations and cash flows for
the three month periods ended March 31, 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.
Pursuant to the rules and regulations of the Securities and Exchange Commis-
sion, 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 for the year
ended December 31, 1997.
2. CONTINGENCIES
The Partnership and its subsidiaries (the "Operating Partnerships"), in the
ordinary course of business, are involved in various claims and legal proceed-
ings, 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 reme-diation
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 hazard-
ous substances by the Operating Partnerships and their predecessors have been
in material compliance with applicable environmental and regulatory require-
ments. 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 has received an interest only
contract from Aurora National Life Assurance Company in substitution for its
Executive Life GIC. The contract provides 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 and will receive certain additional
cash payments through the maturity date of the contract 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. The General Partner's
present intention is to effectuate its commitment no later than September 1998.
The costs and expenses of the General Partner's employee benefit plans are
reimbursable by the Partnership under the applicable limited partnership and
management agreements. The General Partner believes that an adequate provision
has been made for costs which may be incurred by the Partnership in connection
with the guarantee.
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 99 10,817 10,916
Distributions (128) (14,034) (14,162)
Exercise of unit options and
capital contributions - 237 237
------ -------- --------
Partners' Capital - 3/31/98 $2,403 $297,366 $299,769
====== ======== ========
</TABLE>
The following is a reconciliation of basic and dilutive income per Partnership
Unit for the periods ended March 31:
<TABLE>
<CAPTION>
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 $10,916 $11,526
------- -------
Basic earnings
per Partnership
Unit 10,916 26,972 $0.40 11,526 24,372 $0.47
Effect of
dilutive
securities
options - 103 - - 60 -
------- ------ ----- ------- ------ -----
Diluted
earnings per
Partnership
Unit $10,916 27,075 $0.40 $11,526 24,432 $0.47
======= ====== ===== ======= ====== =====
</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
May 29, 1998 to unitholders of record on May 6, 1998. The total distribution
will amount to approximately $14,164,000.
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 indi-
cated.
RESULTS OF OPERATIONS
First Quarter
Revenue for the first quarter of 1998 was $43.0 million or 1.8 percent less
than revenue of $43.8 million for the first quarter 1997. Volumes for the
first quarter 1998 were 997,900 barrels per day, 11,300 barrels per day or 1.1
percent greater than volumes of 986,600 barrels per day for the first quarter
1997. Despite the increase in overall volumes, revenue was lower due primarily
to the decline in long-haul/higher tariff distillate volume. Distillate
volumes declined by 3.9 percent from 1997 levels primarily as the result of the
extremely mild winter weather experienced throughout the majority of our
system. Temperatures were 17.4 percent above normal and 11 percent above last
year. Gasoline volumes during the first quarter 1998 were 3.4 percent greater
than gasoline volumes during the first quarter 1997. Gasoline volumes were
higher in the East primarily in the Harrisburg and Pittsburgh areas. Long
Island volumes were also higher as the closure of a barge terminal led to
increased pipeline volumes. Offsetting these increases to some extent was the
loss of some business to a competing pipeline and trucking operations on
deliveries to upstate New York. Gasoline volumes in the Midwest were lower due
to loss of business due to a shipper connection to another pipeline. Turbine
fuel volumes during the first quarter 1998 were 2.5 percent greater than
turbine fuel volumes during the first quarter 1997. Deliveries to Newark and
J.F. Kennedy Airports increased significantly while shipments to Miami Airport
reached record highs. Offsetting these increases were decreased deliveries to
Pittsburgh area airports on declines in both commercial and military shipments.
Tariff increases instituted during the first quarter 1998 contributed
approximately $0.7 million of additional revenue over the first quarter of
1997.
Costs and expenses for the first quarter 1998 were $26.6 million or 1.5 percent
less than costs and expenses of $27.0 million for the first quarter 1997.
Declines in payroll benefits, outside service, operating power and property tax
expense were partially offset by amortization of the deferred charge related to
the ESOP restructuring and payroll expense provisions with respect to the
realignment of senior management.
Other income (expenses), which is the net of non-operating income and expenses,
was a net expense of $5.4 million during the first quarter 1998 compared to a
net expense of $5.3 million during the first quarter 1997. Higher incentive
compensation paid to the General Partner due to increased distributions per
unit was partially offset by a decline in interest expense related to a debt
refinancing in December 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financial condition at March 31, 1998 is highlighted in the
following comparative summary:
Liquidity and Capital Indicators
<TABLE>
<CAPTION>
As of
--------------------
3/31/98 12/31/97
------- --------
<S> <C> <C>
Current ratio 1.0 to 1 1.2 to 1
Ratio of cash and cash equivalents,
temporary investments and trade
receivables to current liabilities 0.6 to 1 0.8 to 1
Working capital (in thousands) $ 797 $ 5,045
Ratio of total debt to total capital .44 to 1 .44 to 1
Book value (per Unit) $11.11 $11.23
</TABLE>
The Partnership's cash flow from operations is generally sufficient to meet
current working capital requirements. In addition, the Partnership maintains
$10.0 million in short-term credit facilities under which there are no current
outstanding borrowings.
Cash Provided by Operations
For the three months ended March 31, 1998, cash provided by operations of $18.7
million was derived principally from $15.0 million of income before
depreciation and amortization. Depreciation and amortization of $4.1 million
increased by $1.2 million over the first quarter 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 $4.6 million, resulting primarily from
maturities of temporary investments and the continued improvement in the
collection of trade receivables. Cash provided by operations was used to pay
distributions to Unitholders of $14.2 million, an increase of $5.0 million over
the first quarter of 1997, and capital expenditures of $4.5 million. Changes in
non-current assets and liabilities resulted in a net cash use of $0.7 million.
Debt Obligation and Credit Facilities
At March 31, 1998, the Partnership had $240.0 million in outstanding long-term
debt representing the Senior Notes of Buckeye Pipe Line Company, L.P.
("Buckeye"). 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. In
addition, the Amended and Restated Agreement of Limited Partnership contains
certain restrictions which limit the incurrence of debt to (a) any future debt
of Buckeye permitted by the Senior Note Indenture and (b) other debt not in
excess of an aggregate principal amount of $25 million plus the aggregate
proceeds from the sale of additional Partnership Units.
Buckeye has a $10 million short-term line of credit secured by accounts
receivable. At March 31, 1998, there were no outstanding borrowings under these
facilities.
At March 31, 1998, the ratio of total debt to total capital was 44 percent.
For purposes of the calculation of this ratio, total capital consists of cur-
rent and long-term debt, minority interests in subsidiaries and partners'
capital.
Capital Expenditures
At March 31, 1998, approximately 85 percent of total consolidated assets con-
sisted of property, plant and equipment.
Capital expenditures during the three months ended March 31, 1998 totaled $4.5
million compared to $3.7 million during the three months ended March 31, 1997.
During both periods, capital expenditures were paid from internally generated
funds.
The Partnership Agreement provides that the consolidated capital expenditures
of the Partnership and the Operating Partnerships in any calendar year may not
exceed an amount equal to 20 percent of the sum of consolidated operating
income and depreciation and amortization for such calendar year unless, in the
good faith opinion of the General Partner, capital expenditures in excess of
such amount are required to sustain or improve the existing pipeline operations
of the Operating Partnerships. If capital expenditures in excess of the 20
percent limit are incurred, the General Partner will use its best efforts to
finance the amount of such excess within six months after its incurrence
through additional permitted indebtedness, the sale of additional partnership
interests, or both. This provision may be waived by a majority of the holders
of limited partnership interests as to particular capital expenditures.
OTHER MATTERS
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.
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.
Part II - Other Information
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 January 21,
1998 announcing that the General Partner of the Partnership had approved,
on January 20, 1998, a two-for-one split of the units of the Partnership,
distributable to all holders of units of record at the close of business
on January 29, 1998.
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: April 27, 1998 By: /s/ Steven C. Ramsey
Steven C. Ramsey
Senior Vice President, Finance
and Chief Financial Officer
(Principal Accounting and
Financial Officer)
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description Page
<C> <S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,707
<SECURITIES> 0
<RECEIVABLES> 8,293
<ALLOWANCES> 0
<INVENTORY> 2,409
<CURRENT-ASSETS> 25,719
<PP&E> 582,989
<DEPRECIATION> 60,368
<TOTAL-ASSETS> 612,210
<CURRENT-LIABILITIES> 24,922
<BONDS> 240,000
0
0
<COMMON> 0
<OTHER-SE> 299,769
<TOTAL-LIABILITY-AND-EQUITY> 612,210
<SALES> 0
<TOTAL-REVENUES> 43,048
<CGS> 0
<TOTAL-COSTS> 26,687
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,934
<INCOME-PRETAX> 10,916
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,916
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,916
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
