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, 1999 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 20, 1999
- ------------------------- ------------------------------
Limited Partnership Units 26,757,206 Units
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BUCKEYE PARTNERS, L.P.
INDEX
Page No.
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Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Statements of Income 1
for the three months ended
March 31, 1999 and 1998
Consolidated Balance Sheets 2
March 31, 1999 and December 31, 1998
Consolidated Statements of Cash Flows 3
for the three months ended
March 31, 1999 and 1998
Notes to Consolidated Financial Statements 4-8
Item 2. Management's Discussion and Analysis 9-12
of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures 12
about Market Risk
Part II. Other Information
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
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Part I - Financial Information
Buckeye Partners, L.P.
Consolidated Statements of Income
(In thousands, except per Unit amounts)
(Unaudited)
Three Months Ended
March 31,
---------------------
1999 1998
---- ----
<S> <C> <C>
Revenue
Transportation $46,881 $43,048
Refining 6,741 -
------- -------
Total Revenue 53,622 43,048
------- -------
Costs and expenses
Cost of refined products sold 6,119 -
Operating expenses 18,976 18,348
Depreciation and amortization 4,207 4,102
General and administrative expenses 4,507 4,237
------- -------
Total costs and expenses 33,809 26,687
------- -------
Operating income 19,813 16,361
------- -------
Other income (expenses)
Interest income 14 20
Interest and debt expense (4,057) (3,934)
Minority interests and other (1,763) (1,531)
------- -------
Total other income (expenses) (5,806) (5,445)
------- -------
Net income $14,007 $10,916
======= =======
Net income allocated to General Partner $ 127 $ 99
Net income allocated to Limited Partners $13,880 $10,817
Earnings per Partnership Unit:
Net income allocated to General and
Limited Partners per Partnership Unit $ 0.52 $ 0.40
Earnings per Partnership Unit -
assuming dilution:
Net income allocated to General and
Limited Partners per Partnership Unit $ 0.52 $ 0.40
</TABLE>
See notes to consolidated financial statements.
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[CAPTION]
<TABLE>
Buckeye Partners, L.P.
Consolidated Balance Sheets
(In thousands)
March 31, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 11,388 $ 8,341
Trade receivables 10,582 7,578
Inventories 8,886 2,988
Prepaid and other current assets 5,853 5,320
-------- --------
Total current assets 36,709 24,227
Property, plant and equipment, net 544,466 532,696
Other non-current assets 63,356 61,176
-------- --------
Total assets $644,531 $618,099
======== ========
Liabilities and partners' capital
Current liabilities
Accounts payable $ 7,412 $ 4,369
Accrued and other current liabilities 22,843 26,124
-------- --------
Total current liabilities 30,255 30,493
Long-term debt 266,000 240,000
Minority interests 2,503 2,501
Other non-current liabilities 47,189 46,620
Commitments and contingent liabilities - -
-------- --------
Total liabilities 345,947 319,614
-------- --------
Partners' capital
General Partner 2,389 2,390
Limited Partners 296,195 296,095
-------- --------
Total partners' capital 298,584 298,485
-------- --------
Total liabilities and partners' capital $644,531 $618,099
======== ========
</TABLE>
See notes to consolidated financial statements.
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<CAPTION>
Buckeye Partners, L.P.
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
(Unaudited)
Three Months Ended
March 31,
----------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $14,007 $10,916
------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of property, plant and
equipment - (196)
Depreciation and amortization 4,207 4,102
Minority interests 161 126
Distributions to minority interests (159) (154)
Changes in assets and liabilities,
net of acquisitions:
Temporary investments - 2,854
Trade receivables (2,149) 1,902
Inventories (1,796) (322)
Prepaid and other current assets (533) (13)
Accounts payable 3,043 (1,557)
Accrued and other current liabilities (3,321) 1,742
Other non-current assets 246 (705)
Other non-current liabilities 569 -
------- -------
Total adjustments 268 7,779
------- -------
Net cash provided by operating activities 14,275 18,695
------- -------
Cash flows from investing activities:
Capital expenditures (4,543) (4,467)
Acquisitions (18,740) -
Expenditures for disposal of property,
plant and equipment, net (37) 55
------- -------
Net cash used in investing activities (23,320) (4,412)
------- -------
Cash flows from financing activities:
Proceeds from exercise of unit options 263 237
Borrowings 26,000 -
Distributions to Unitholders (14,171) (14,162)
------- -------
Net cash provided by (used in)
financing activities 12,092 (13,925)
------- -------
Net increase in cash and cash equivalents 3,047 358
Cash and cash equivalents at beginning of
period 8,341 7,349
------- -------
Cash and cash equivalents at end of period $11,388 $ 7,707
======= =======
Supplemental cash flow information:
Cash paid during the period for interest
(net of amount capitalized) $ 4,021 $ 3,931
</TABLE>
See notes to consolidated financial statements.
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, 1998 is derived from audited financial
statements, include all adjustments necessary to present fairly the
Partnership's financial position as of March 31, 1999 and the results of
operations for the three month periods ended March 31, 1999 and 1998 and cash
flows for the three month periods ended March 31, 1999 and 1998. The results
of operations for the three months ended March 31, 1999 are not necessarily
indicative of the results to be expected for the full year ending December 31,
1999.
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 for the year
ended December 31, 1998.
2. ACQUISITIONS
On March 4, 1999, the Partnership acquired the fuels division of American
Refining Group, Inc. ("ARG") for a total purchase price of $12,990,000. The
assets acquired included a refined petroleum products terminal and a transmix
processing facility located in Indianola, Pennsylvania, a transmix processing
facility located in Hartford, Illinois, and related assets, which included
trade receivables and inventory valued at net realizable value. The
acquisition was recorded under the purchase method of accounting and,
accordingly, the results of operations of the acquired operations are included
in the financial statements of the Partnership beginning on March 4, 1999.
The Partnership will operate the former ARG processing business under the name
of Buckeye Refining Company, LLC ("BRC"). The initial purchase price has been
allocated on a preliminary basis, pending a final determination, to assets
acquired based on estimated fair value. The initial allocated fair value of
assets acquired is summarized as follows:
<TABLE>
<S> <C>
Trade receivables $ 815,000
Oil inventory 4,102,000
Property, plant and equipment 8,073,000
-----------
Total $12,990,000
===========
</TABLE>
In connection with the acquisition of the ARG assets, the Partnership is
obligated to pay additional consideration, not to exceed $5,000,000 in the
aggregate over a six-year period, if BRC's gross profits and cash flows exceed
certain levels.
On March 31, 1999, the Partnership acquired certain assets from Seagull
Products Pipeline Corporation and Seagull Energy Corporation ("Seagull") for a
total purchase price of $5,750,000. The assets acquired consist primarily of
six pipeline operating agreements for major chemical companies in the Gulf
Coast area, a 16-mile pipeline (a portion of which is leased to a chemical
company), and related assets. The acquisition was recorded under the purchase
method of accounting and, accordingly, the results of operations of the
acquired operations are included in the financial statements of the
Partnership beginning on March 31, 1999. The Partnership will operate the
former Seagull pipeline assets under the name of Buckeye Gulf Coast Pipe
Lines, LLC. The initial purchase price has been allocated on a preliminary
basis, pending a final determination, to assets acquired based on estimated
fair value. The initial allocated fair value of assets acquired is summarized
as follows:
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<S> <C>
Property, plant and equipment $2,150,000
Other non-current assets 3,600,000
----------
Net cost of acquisition $5,750,000
==========
</TABLE>
Pro forma results of operations for the Partnership, assuming the acquisition
of the ARG and Seagull assets had occurred at the beginning of the periods
indicated below, are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1999 1998
---- ----
(In thousands, except per Unit amounts)
<S> <C> <C>
Revenue $64,422 $66,812
Net income $13,275 $10,067
Earnings per Unit $ 0.49 $ 0.37
</TABLE>
The unaudited pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have resulted had the combinations been in effect at the
beginning of each period presented, or of future results of operations of the
entities.
3. SEGMENT INFORMATION
The Partnership has two reportable segments, the transportation segment and
the refining segment, which are organized on the basis of products and
service. The transportation segment derives its revenues from the
transportation of refined petroleum products that it receives from refineries,
connecting pipelines and marine terminals. The refining segment derives its
revenues from the refining of transmix and the marketing of the resulting
product to others for distribution to consumers. Transmix, generally, is
various grades and types of refined petroleum products that, during the
handling or transportation thereof, have been commingled. In addition, the
refining segment owns equipment and operates four retail service stations in
the Pittsburgh, Pennsylvania area and may purchase certain quantities of
finished product, mainly premium unleaded gasoline and No. 2 diesel fuel, for
resale.
The Partnership evaluates performance on the basis of operating income before
interest income, interest expense and minority interests and other. The
Partnership accounts for intersegment sales and transfers as if the sales or
transfers were to third parties at current market prices. Such intersegment
sales and transfers are eliminated in consolidation.
The Partnership's reportable segments are distinct business enterprises that
offer different products or services. Revenues from the transportation
segment are generally subject to regulation or are under contract and tend to
be less variable than revenues from the refining segment. The refining
segment's revenues, to a large extent, are dependent on the market price of
refined petroleum products that, for the most part, are beyond the control of
management. The segments also require different technology, marketing and risk
management strategies.
The following is a summary of each reportable segment's profit and loss and
the segment's assets. The refining segment's results of operations include the
period from the March 4, 1999 (date of acquisition) through March 31, 1999.
<TABLE>
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Trans- Inter-
portation Refining company Total
--------- -------- ------- -----
(In thousands)
<S> <C> <C> <C> <C>
Revenues $47,061 $6,741 $ (180) $53,622
Intersegment revenues 180 - - 180
Operating income 19,780 33 - 19,813
Segment assets 626,415 21,628 (3,512) 644,531
Expenditures for property,
plant and equipment 4,543 - - 4,543
</TABLE>
All revenues are from sources within the United States.
4. 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 Pipe Line 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.
5. INVENTORIES
As a result of the BRC acquisition, inventories now consist of transmix, fuel
oils, gasolines and other specialty products, as well as pipeline materials
and supplies which includes pipe, valves, pumps, electrical/electronic
components, drag reducing agent and other miscellaneous items. Inventories
are valued at the lower of cost or market on the first-in first-out method.
Inventories consisted of the following:
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<CAPTION>
March 31, December 31,
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Raw materials $4,138 $ -
Finished goods 1,392 -
Additives and other supplies 16 -
Pipeline materials and supplies 3,340 2,988
------ ------
Total $8,886 $2,988
====== ======
</TABLE>
6. LONG-TERM DEBT
The Partnership borrowed $26.0 million under its $100 million Credit Agreement
during the first quarter 1999 which was used to finance acquisitions of $18.7
million and for working capital purposes. The weighted average interest for
the debt was 5.93 percent at March 31, 1999.
7. PARTNERS' CAPITAL
Partners' capital consists of the following:
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General Limited
Partner Partners Total
------- -------- -----
(In thousands)
<S> <C> <C> <C>
Partners' Capital - 1/1/99 $2,390 $296,095 $298,485
Net Income 127 13,880 14,007
Distributions (128) (14,043) (14,171)
Exercise of unit options - 263 263
------ -------- --------
Partners' Capital - 3/31/99 $2,389 $296,195 $298,584
====== ======== ========
</TABLE>
The following is a reconciliation of basic and dilutive income per Partnership
Unit for the three month periods ended March 31:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------------
1999 1998
--------------------- ---------------------
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 $14,007 $10,916
------- -------
Basic earnings per
Partnership Unit 14,007 26,993 $0.52 10,916 26,972 $0.40
Effect of dilutive
securities - options - 94 - - 103 -
------- ------ ----- ------ ------ -----
Diluted earnings per
Partnership Unit $14,007 27,087 $0.52 $10,916 27,075 $0.40
======= ====== ===== ======= ====== =====
</TABLE>
Options reported as dilutive securities are related to unexercised options
outstanding under the Partnerships' Unit Option Plan.
8. 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 $0.55 per unit payable on
May 28, 1999 to unitholders of record on May 7, 1999. The cash distribution
represents a quarterly increase of $0.025 per unit to an indicated annual cash
distribution level of $2.20 per unit. The total distribution will amount to
approximately $14,851,000.
9. ACCOUNTING PRONOUNCEMENTS
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. The General
Partner has not yet assessed the impact of this standard on the Partnership's
financial statements.
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
First Quarter
Revenue for the first three months of 1999 from the transportation of refined
petroleum products, excluding $0.2 million of intercompany sales, was $46.9
million or 9.1 percent greater than revenue of $43.0 million for the first
three months of 1998. Volumes for the first three months of 1999 were
1,050,900 barrels per day, 53,000 barrels per day or 5.3 percent greater than
volumes of 997,900 barrels per day for the first three months of 1998.
Gasoline volumes were 2.9 percent greater than 1998 levels. Strong growth
continued in the Pittsburgh, Pennsylvania market area due to increase in
demand and new business gained at Midland, Pennsylvania as a result of a new
connection. Demand was also strong at Toledo, Ohio and in the Connecticut,
Massachusetts, and Long Island market areas. Distillate volumes were 12.7
percent greater than 1998 levels. In the East, volumes were sharply higher in
all markets as degree days were 17 percent higher than in 1998. In the
Midwest, revenues were slightly higher primarily on increased demand in the
Lima and Toledo, Ohio areas. New business at Springfield, Massachusetts also
added to the favorable variance. Turbine fuel volumes increased by 4.0
percent from 1998 levels. The increase in volumes was related to growth at
Newark Airport in the East and increased demand at Detroit, Michigan and
Toledo, Ohio in the Midwest.
Refining operation revenue for the period March 4, 1999 (date of acquisition)
through March 31, 1999 was derived from the sale of 7.3 million gallons of
gasoline and 9.0 million gallons of distillate products. Revenue from the
sale of gasoline was $3.1 million while revenue from the sale of distillates
was $3.6 million.
Costs and expenses for the first three months of 1999 were $33.8 million
including $6.7 million in expenses related to BRC's operations.
Transportation expenses were $0.4 million or 1.5 percent above 1998 costs and
expenses of $26.7 million. Increases in supplies, operating power,
professional fees and payroll benefits expense offset declines in payroll
expense related to staff reduction programs. The $6.7 million of refining
operating expense is related to $6.1 million in cost of refining products
sold, depreciation and other operating expenses.
Other expenses were a net expense of $5.8 million during the first three
months of 1999 compared to a net expense of $5.4 million during the first
three months of 1998.
Competition and Other Business Conditions
With the acquisition of BRC, the Partnership's refining segment is subject to
competition from other refiners and marketers of refined petroleum products
and subject to market price risks representing the difference between the
purchase cost of transmix and the market price of refined petroleum products
at the time of resale. In order to reduce the level of market price risk the
General Partner has adopted a policy of hedging a substantial portion of BRC's
refined product sales through the sale of gasoline and heating oil contracts
on the New York Mercantile Exchange.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financial condition at March 31, 1999 is highlighted in the
following comparative summary:
Liquidity and Capital Indicators
<TABLE>
<CAPTION>
As of
------------------------
3/31/99 12/31/98
------- --------
<S> <C> <C>
Current ratio 1.2 to 1 0.8 to 1
Ratio of cash and cash equivalents,
and trade receivables to
current liabilities 0.7 to 1 0.5 to 1
Working capital/(deficit)-in thousands $6,454 $(6,266)
Ratio of total debt to total capital .47 to 1 .44 to 1
Book value (per Unit) $11.06 $11.06
</TABLE>
The Partnership's cash flows from operations are generally sufficient to meet
current working capital requirements. In addition, the Partnership has a $100
million credit agreement (the "Credit Agreement") which expires on December
16, 2003. At March 31, 1999 there was $26.0 million borrowed under the Credit
Agreement.
Cash Provided by Operations
For the three months ended March 31, 1999, cash provided by operations of
$14.3 million was derived principally from $18.2 million of income before
depreciation and amortization. Changes in current assets and current
liabilities resulted in a net cash use of $4.8 million. Increases in
inventories and accounts receivable are attributable to the acquisition of BRC
and were offset by a corresponding increase in BRC's accounts payable. Cash
provided by operations was used to pay distributions to Unitholders of $14.2
million. During the quarter the Partnership borrowed $26.0 million under its
Credit Agreement which was used to finance acquisitions of $18.7 million and
for working capital purposes. Changes in non-current assets and liabilities
resulted in a net cash source of $0.8 million.
Debt Obligation and Credit Facilities
At March 31, 1999, the Partnership had $266.0 million in outstanding long-term
debt representing $240.0 million of Senior Notes and $26.0 million of
borrowings under the Credit Facility.
The indenture pursuant to which the Senior Notes were issued (the "Senior Note
Indenture") contains covenants which affect Buckeye Pipe Line Company, L.P.
("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.
The Credit Agreement permits borrowings of up to $100 million and contains
covenants, which affect Buckeye and the Partnership. Generally, the Credit
Agreement (a) limits outstanding indebtedness of Buckeye based upon certain
financial ratios contained in the Credit Agreement, (b) prohibits Buckeye from
creating or incurring certain liens on its property, (c) prohibits the
Partnership or Buckeye from disposing of property which is material to its
operations, and (d) limits consolidation, merger and asset transfers by
Buckeye and the Partnership.
At March 31, 1999, the ratio of total debt to total capital was 47 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 March 31, 1999, approximately 84 percent of total consolidated assets
consisted of property, plant and equipment.
Capital expenditures during the three months ended March 31, 1999 totaled $4.5
million and was equivalent to capital expenditures for the three months ended
March 31, 1998. The Partnership continues to make capital expenditures in
connection with the automation of its facilities and improvements to its
facilities in order to increase capacity, reliability, integrity and
efficiency.
Property Tax Settlement
In February 1999, the General Partner entered into a stipulation and order of
settlement with the New York State Office of Real Property Services and the
City of New York settling various real property tax certiorari proceedings.
The Partnership had challenged its real property tax assessments for a number
of past tax years on that portion of its pipeline that is located in public
right-of-way in New York City. The settlement agreement is expected to result
in a gain of approximately $11.0 million, including a cash refund of $6.0
million, for the Partnership in the second quarter of 1999. The settlement is
contingent upon various conditions set forth in the stipulation and order of
settlement.
OTHER MATTERS
Accounting Pronouncements
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. The General
Partner has not yet assessed the impact of this standard on the Partnership's
financial statements.
Information Systems-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, database 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
certain 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
remedy 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 effect on the Partnership's liabilities
and revenues due to a failure of its systems or a third-party system cannot be
predicted.
The Company has contingency plans for 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.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
The Partnership uses derivative financial instruments to manage price risk
associated with the market price of refined petroleum products. The
derivative instruments that the Partnership selects are negatively correlated
to the market price of petroleum products. The intent is to protect operating
margins and the overall profitability of the refining segment from adverse
changes in refined petroleum product prices. At March 31, 1999 the Partnership
had hedged approximately 60 percent of its petroleum product inventory and had
approximately $0.3 million of unrealized losses related to futures contracts
held. The results of operations for the quarter ended March 31, 1999 include
approximately $0.8 million in realized losses related to investments in
futures contracts. However, this loss was offset by gains in refined product
sales by BRC.
Part II - Other Information
Item 1. Legal Proceedings
On March 29, 1999, the complaint in the action Shakerdge v. Martinelli,
et al., a putative class action pending in the Delaware Court of Chancery, was
dismissed without prejudice by stipulation among the parties. For additional
information concerning this litigation and other legal proceedings, see Item 3
of the Partnership's Form 10-K for the fiscal year ended December 31, 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 January 8,
1999 announcing that, effective December 31, 1998, Buckeye Management
Company had transferred its general partnership interest in the
Partnership to Buckeye Pipe Line Company, a wholly owned subsidiary of
Buckeye Management Company.
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, 1999 By: /s/ Steven C. Ramsey
---------------------------
Steven C. Ramsey
Senior Vice President, Finance
and Chief Financial Officer
(Principal Accounting and
Financial Officer)
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