<PAGE>
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 June 30, 2000 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 July 19, 2000
------------------------- -----------------------------
Limited Partnership Units 26,818,506 Units
<PAGE>
<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 six months ended
June 30, 2000 and 1999
Consolidated Balance Sheets 2
June 30, 2000 and December 31, 1999
Consolidated Statements of Cash Flows 3
for the six months ended
June 30, 2000 and 1999
Notes to Consolidated Financial Statements 4-9
Item 2. Management's Discussion and Analysis 10-14
of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures 14-15
about Market Risk
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
<PAGE>
Item 1. Consolidated Financial Statements
<TABLE>
<CAPTION>
Buckeye Partners, L.P.
Consolidated Statements of Income
(In thousands, except per Unit amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2000 1999 2000 1999
---- ---- ---- ----
<C> <C> <S> <C> <C>
Revenue
$49,508 $50,461 Transportation $ 98,784 $ 97,342
44,690 26,106 Refining 91,534 32,847
------- ------- -------- --------
94,198 76,567 Total Revenue 190,318 130,189
------- ------- -------- --------
Costs and expenses
42,267 21,650 Cost of refined products sold 85,350 27,769
23,185 13,633 Operating expenses 45,675 32,609
4,449 5,040 Depreciation and amortization 8,891 9,247
3,298 4,128 General and administrative expenses 7,272 8,635
------- ------- -------- --------
73,199 44,451 Total costs and expenses 147,188 78,260
------- ------- -------- --------
20,999 32,116 Operating income 43,130 51,929
------- ------- -------- --------
Other income (expenses)
118 41 Investment income 483 55
(4,549) (4,217) Interest and debt expense (9,008) (8,274)
(2,132) (2,143) Minority interests and other (4,559) (3,906)
------- ------- -------- --------
(6,563) (6,319) Total other income (expenses) (13,084) (12,125)
------- ------- -------- --------
$14,436 $25,797 Net income $ 30,046 $ 39,804
======= ======= ======== ========
Net income allocated to General
$ 130 $ 233 Partner $ 271 $ 360
Net income allocated to Limited
$14,306 $25,564 Partners $ 29,775 $ 39,444
Earnings per Partnership Unit:
Net income allocated to General and
$ 0.53 $ 0.96 Limited Partners per Partnership Unit $ 1.11 $ 1.47
Earnings per Partnership Unit -
assuming dilution:
Net income allocated to General and
$ 0.53 $ 0.95 Limited Partners per Partnership Unit $ 1.11 $ 1.47
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Buckeye Partners, L.P.
Consolidated Balance Sheets
(In thousands)
June 30, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 9,263 $ 22,003
Trade receivables 14,391 9,718
Inventories 23,057 18,397
Prepaid and other current assets 5,053 5,509
-------- --------
Total current assets 51,764 55,627
Property, plant and equipment, net 578,081 556,904
Other non-current assets 71,347 61,754
-------- --------
Total assets $701,192 $674,285
======== ========
Liabilities and partners' capital
Current liabilities
Accounts payable $ 21,242 $ 18,961
Accrued and other current liabilities 17,941 23,517
-------- --------
Total current liabilities 39,183 42,478
Long-term debt 297,000 266,000
Minority interests 2,671 2,853
Other non-current liabilities 47,354 45,965
Commitments and contingent liabilities - -
-------- --------
Total liabilities 386,208 357,296
-------- --------
Partners' capital
General Partner 2,526 2,548
Limited Partners 312,458 314,441
-------- --------
Total partners' capital 314,984 316,989
-------- --------
Total liabilities and partners' capital $701,192 $674,285
======== ========
</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)
Six Months Ended
June, 30
----------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $30,046 $39,804
------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of land (432) -
Depreciation and amortization 8,891 9,247
Minority interests 192 480
Changes in assets and liabilities,
net of acquisitions:
Trade receivables (4,673) (2,169)
Inventories (4,519) (7,376)
Prepaid and other current assets 456 (1,075)
Accounts payable 2,281 5,891
Accrued and other current liabilities (5,576) (5,799)
Other non-current assets (657) 252
Other non-current liabilities 1,389 1,863
------- -------
Total adjustments (2,648) 1,314
------- -------
Net cash provided by operating activities 27,398 41,118
------- -------
Cash flows from investing activities:
Capital expenditures (19,759) (10,302)
Acquisitions (19,251) (18,740)
Proceeds from disposal of property,
plant and equipment, net 297 74
------- -------
Net cash used in investing activities (38,713) (28,968)
------- -------
Cash flows from financing activities:
Proceeds from exercise of unit options 410 558
Distributions to minority interests (374) (328)
Borrowings 31,000 26,000
Distributions to Unitholders (32,461) (29,021)
------- -------
Net cash used in financing activities (1,425) (2,791)
------- -------
Net (decrease) increase in cash and cash
equivalents (12,740) 9,359
Cash and cash equivalents at beginning of
period 22,003 8,341
------- -------
Cash and cash equivalents at end of period $ 9,263 $17,700
======= =======
Supplemental cash flow information:
Cash paid during the period for interest
(net of amount capitalized) $ 8,921 $ 7,913
</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, 1999 is derived from audited financial
statements, include all adjustments necessary to present fairly the
Partnership's financial position as of June 30, 2000 and the results of
operations for the six month periods ended June 30, 2000 and 1999 and cash
flows for the six month periods ended June 30, 2000 and 1999. The results of
operations for the six months ended June 30, 2000 are not necessarily
indicative of the results to be expected for the full year ending December 31,
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 for the year
ended December 31, 1999.
2. ACQUISITIONS
On March 4, 1999, the Partnership acquired the fuels division of American
Refining Group, Inc. ("ARG") for an initial purchase price of $12,990,000. In
January 2000, the Partnership made an additional payment of $747,000 pursuant
to a contingent payment agreement. 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. The Partnership operates the former ARG processing business under
the name of Buckeye Refining Company, LLC ("BRC").
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 consisted 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 Partnership operates the pipeline assets
acquired from Seagull under the name of Buckeye Gulf Coast Pipe Lines, LLC
("BGC").
On June 30, 2000, the Partnership acquired six petroleum products terminals
from Agway Energy Products LLC ("Agway") for a total purchase price of
$19,000,000. Additional costs incurred in connection with the acquisition for
gasoline and diesel fuel additives and closing adjustments amounted to
$251,000. The terminals are located in Brewerton, Geneva, Marcy, Rochester
and Vestal, New York and Macungie, Pennsylvania. The terminals have an
aggregate capacity of approximately two million barrels of petroleum product.
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>
Fuel additive inventory $ 141,000
Property, plant and equipment 7,680,000
Goodwill 11,430,000
-----------
Total $19,251,000
===========
</TABLE>
Pro forma results of operations for the Partnership, assuming the acquisition
of the ARG, Seagull and Agway assets had occurred at the beginning of the
periods indicated below, are as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999
---- ----
(In thousands,
except per Unit amounts)
<S> <C> <C>
Revenue $192,107 $142,778
Net income $ 29,953 $ 38,379
Earnings per unit $ 1.11 $ 1.42
</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 the 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 through its pipelines that it
receives from refineries, connecting pipelines and marine terminals and from
the storage and throughput of refined petroleum products at its terminals.
The refining segment derives its revenues from the refining of transmix and
the wholesale marketing of the resulting product to others for distribution to
consumers. Transmix generally consists of various grades and types of refined
petroleum products that are commingled during handling or transportation by a
pipeline system.
Management evaluates its performance on the basis of operating income. 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 as of and for the period ended June 30, 2000.
<TABLE>
<CAPTION>
Trans- Inter-
portation Refining company Total
--------- -------- ------- -----
(In thousands)
<S> <C> <C> <C> <C>
Revenues from external
customers $ 99,927 $91,557 $(1,166) $190,318
Intersegment revenues 1,143 23 (1,166) -
Operating income 41,480 1,650 - 43,130
Segment assets 672,809 31,761 (3,378) 701,192
Expenditures for property,
plant and equipment 19,296 463 - 19,759
</TABLE>
The following is a summary of each reportable segment's profit and loss and
the segment's assets as of and for the period ended June 30, 1999. The
refining segment's results of operations include the period from the March 4,
1999 (date of acquisition) through June 30, 1999. The transportation segment
results of operations include BGC's results of operations for the period March
31, 1999 through June 30, 1999.
<TABLE>
<CAPTION>
Trans- Inter-
portation Refining company Total
--------- -------- ------- -----
(In thousands)
<S> <C> <C> <C> <C>
Revenues from external
customers $ 98,381 $32,847 $(1,039) $130,189
Intersegment revenues 1,039 - (1,039) -
Operating income 49,586 2,343 - 51,929
Segment assets 639,460 26,041 (7,914) 657,587
Expenditures for property,
plant and equipment 10,213 89 - 10,302
</TABLE>
All revenues are from sources within the United States.
The following is a summary of each reportable segment's assets as of
December 31, 1999.
<TABLE>
<CAPTION>
Trans- Inter-
portation Refining company Total
--------- -------- ------- -----
(In thousands)
<S> <C> <C> <C> <C>
Segment assets $647,519 $30,615 $(3,849) $674,285
</TABLE>
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. Typically, an Operating
Partnership is one of many PRP's for a particular site and its contribution of
total waste at the site is minimal. However, because CERCLA and similar
statutes impose liability without regard to fault and on a joint and several
basis, the liability of an Operating Partnership in connection with such
proceedings could be material. The total potential remediation costs relating
to these clean-up sites cannot be reasonably estimated. During the period
ended June 30, 2000, there were no notifications of any new proceedings.
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
Inventories consist of transmix, fuel oils, gasoline and other specialty
products, as well as pipeline materials and supplies which include 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:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Transmix $13,900 $12,319
Gasoline, distillates and jet fuel 4,008 1,664
Pipeline materials and supplies 5,149 4,414
------- -------
Total $23,057 $18,397
======= =======
</TABLE>
The Partnership hedges a substantial portion of its exposure to inventory
price fluctuations with commodity futures contracts for the sale of gasoline
and fuel oil. At June 30, 2000 the Partnership had hedged approximately 52
percent of its petroleum product inventory and had approximately $0.4 million
of unrealized losses related to futures contracts held on June 30, 2000.
During the six month period ended June 30, 2000, BRC's operations generated
$6.6 million in operating profit offset by $4.9 million in realized losses
related to investment in futures contracts resulting in $1.7 million of
operating income.
6. LONG-TERM DEBT
As of June 30, 2000, the Partnership had $240.0 million of Senior Notes
outstanding. The Senior Notes are scheduled to mature in the period 2020 to
2024 and bear interest from 6.89 percent to 6.98 percent. In addition, the
Partnership had $57.0 million of its $100 million Credit Agreement
outstanding. The weighted average interest rate for the $57.0 million debt
was 7.02 percent at June 30, 2000.
7. PARTNERS' CAPITAL
Partners' capital consists of the following:
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
(In thousands)
<S> <C> <C> <C>
Partners' Capital - 1/1/00 $2,548 $314,441 $316,989
Net Income 271 29,775 30,046
Distributions (293) (32,168) (32,461)
Exercise of unit options - 410 410
------ -------- --------
Partners' Capital - 6/30/00 $2,526 $312,458 $314,984
====== ======== ========
</TABLE>
The following is a reconciliation of basic and dilutive income per Partnership
Unit for the three month and six month periods ended June 30:
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------------------------
2000 1999
--------------------- ---------------------
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 $25,797
------- -------
Basic earnings per
Partnership Unit 14,436 27,054 $0.53 25,797 27,003 $0.96
Effect of dilutive
securities - options - 68 - - 89 (0.01)
------- ------ ----- ------ ------ -----
Diluted earnings per
Partnership Unit $14,436 27,122 $0.53 $25,797 27,092 $0.95
======= ====== ===== ======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------------------------
2000 1999
--------------------- ---------------------
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 $30,046 $39,804
------- -------
Basic earnings per
Partnership Unit 30,046 27,048 $1.11 39,804 26,998 $1.47
Effect of dilutive
securities - options - 71 - - 91 -
------- ------ ----- ------ ------ -----
Diluted earnings per
Partnership Unit $30,046 27,119 $1.11 $39,804 27,089 $1.47
======= ====== ===== ======= ====== =====
</TABLE>
Options reported as dilutive securities are related to unexercised options
outstanding under the Partnership's 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 declared a cash distribution of $0.60 per unit payable on
August 31, 2000 to unitholders of record on August 4, 2000. The total
distribution will amount to approximately $16,237,000.
9. ACCOUNTING PRONOUNCEMENTS
In November 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
Recognition" ("SAB 101"). SAB 101 sets forth the SEC Staff's position
regarding the point at which it is appropriate to recognize revenue. The
Staff believes that revenue is realizable and earned when (i) persuasive
evidence of an arrangement exists, (ii) delivery has occurred or service has
been rendered, (iii) the seller's price to the buyer is fixed or determinable,
and (iv) collection is reasonably assured. The Partnership uses the above
criteria to determine when revenue should be recognized and therefore the
issuance of SAB 101 is not expected to have a material impact on its financial
statements.
In June 1999, the Financial Accounting Standards Board issued Statement No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral
of Effective Date of FASB Statement No. 133." This statement defers the
effective date of FASB Statement No. 133 to fiscal quarters of fiscal years
beginning after June 15, 2000. Management has not completed its evaluation of
the effect of SFAS No. 133 on the Partnership's financial statements.
10. OTHER EVENTS
In April 2000, the Partnership announced that it entered into non-exclusive
agreements that provide for the Partnership to receive a 3.5 percent equity
interest in Aerie Networks, Inc. ("Aerie") in exchange for assisting Aerie
with its development of a fiber optics network along a portion of the
Partnership's pipeline rights-of-way. No cash investment or expense is
required by the Partnership. The Partnership, and 11 other natural gas, oil
and liquid petroleum pipeline companies and telecommunications affiliates, are
providing Aerie with rights in over 14,500 miles of rights-of-way on which to
build a large capacity broadband fiber optics network. The pipeline rights-
of-way will serve as the foundation for Aerie's planned 20,000 mile broadband
fiber optic network that will connect 194 cities. The Partnership's agreement
to provide access to its rights-of-way is contingent on Aerie's success in
raising additional capital. At this time, it is not possible to estimate the
value of the Partnership's equity interest in Aerie, however, such investment
may be material to the Partnership's financial position in the future. The
interest in Aerie will be accounted for on the cost basis.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Second Quarter
Revenue from the transportation of refined petroleum products for the second
quarter 2000 was $49.5 million or 2.0 percent less than revenue of $50.5
million for the second quarter 1999. Volumes for the second quarter of 2000
were 1,041,400 barrels per day, 12,700 barrels per day or 1.2 percent less
than volumes of 1,054,100 barrels per day for the second quarter 1999.
Average transportation revenue was 49.7 cents per barrel during the second
quarter 2000 as compared to 50.7 cents per barrel during the second quarter
1999. Gasoline volumes were 1.8 percent lower during the second quarter 2000
than in the second quarter 1999. In the East, the largest declines were in
deliveries to the upstate New York area. Other declines occurred in the
Midwest at Dearborn, Michigan and Aurora, Ohio. These declines were partially
offset by increased deliveries to Detroit and Bay City, Michigan where volumes
have been strong since the closure of a regional refinery in Alma, Michigan.
Distillate volumes during the second quarter 2000 declined by 5.0 percent from
second quarter 1999 levels. In the East, the largest declines were in
deliveries to the upstate New York area. In the Midwest, the largest decline
was at Toledo, Ohio where volumes declined by over 5,000 barrels per day.
Partially offsetting these declines was increased business at Bay City,
Michigan and new business in the Indianapolis, Indiana area due to a new
connection. Turbine fuel volumes were 4.2 percent greater during the second
quarter 2000 than the second quarter 1999. Increased demand at Detroit,
Pittsburgh and J.F.K. airports was the primary reason for the increase.
Refining operating revenue for second quarter 2000 was $44.7 million compared
to $26.1 million for the second quarter 1999. BRC's revenue during the second
quarters of 2000 and 1999 was derived from the sale of 54.3 and 53.0 million
gallons of refined petroleum products respectively. During the second quarter
2000, revenue from the sale of gasoline was $20.6 million while revenue from
the sale of distillate products was $24.1 million. During the second quarter
1999, revenue from the sale of gasoline was $12.4 million while revenue from
the sale of distillate products was $13.7 million. In November 1999, BRC
entered into a contract with a major integrated oil company to sell all the
refined product produced at its Indianola, Pennsylvania facility to such
company. Total revenue under the contract for the second quarter 2000 was
approximately $25.0 million.
Costs and expenses for the second quarter 2000 were $73.2 million compared to
$44.5 million for the second quarter 1999. Refining cost of goods sold was up
$20.6 million dollars primarily due to higher costs of transmix. In addition,
an $11.0 million one-time favorable settlement of a property tax dispute with
the City of New York occurred during the second quarter of 1999 and resulted
in a reduction of property tax expense. Other operating expenses declined by
$2.9 million primarily as a result of a $2.0 million non-recurring casualty
loss expense in 1999 and declines in payroll benefit expense.
Other expenses totaled $6.6 million during the second quarter 2000 as compared
to $6.3 million during the second quarter 1999. Interest expense increased
due to additional borrowings incurred in 2000. In addition, incentive
compensation payments to the General Partner increased during the second
quarter 2000 as compared to the second quarter 1999 due to an increase in the
level of cash distributions paid to limited partners.
First Six Months
Revenue from the transportation of refined petroleum products for the first
six months of 2000 was $98.8 million or 1.5 percent greater than revenue of
$97.3 million for the first six months of 1999. Revenue under BGC operating
contracts was $1.9 million higher in 2000 as BGC did not begin operations
until March 31, 1999. Volumes for the first six months of 2000 were 1,042,800
barrels per day, 9,700 barrels per day or 0.9 percent less than volumes of
1,052,500 barrels per day for the first six months of 1999. Gasoline volumes
were 0.6 percent less during the first six months of 2000 than the first six
months of 1999. In the East, volumes declined to the upstate New York and
Pittsburgh, Pennsylvania areas and were partially offset by modest volume
gains in the Altoona, Pennsylvania area. In the Midwest, volumes were
relatively flat although revenue was up as longer-haul moves to Bay City,
Michigan more than offset declines in volume to the Toledo and Cleveland, Ohio
areas. Distillate volumes were 3.2 percent less during the first six months of
2000 than the first six months of 1999. In the East, volumes fell to the
upstate New York area and most of the Pennsylvania market area with the
exception of Pittsburgh where volumes and revenues were up slightly. In the
Midwest, revenue grew on essentially flat volumes due to a shift to long-haul
moves to Bay City, Michigan and new business in the Indianapolis, Indiana area
resulting from a new connection. Turbine fuel volumes increased by 2.1
percent during the first six months of 2000 as compared to the first six
months of 1999. Increased demand at Detroit Airport and J.F.K. Airport was
the primary reason for the increase.
Refining operating revenue for the first six months of 2000 was $91.5 million
compared to $32.8 million for the period March 4, 1999 (date of acquisition)
through June 30, 1999. BRC's revenue for the first six months of 2000 and 1999
was derived from the sale of 90.2 and 69.0 million gallons of refined
petroleum products respectively. During the first six months of 2000, revenue
from the sale of gasoline was $40.6 million while revenue from the sale of
distillate products was $50.9 million. During the first six months of 1999,
revenue from the sale of gasoline was $15.5 million while revenue from the
sale of distillate products was $17.3 million. In November 1999, BRC entered
into a contract with a major integrated oil company to sell all the refined
product produced at its Indianola, Pennsylvania facility to such company.
Total revenue under the contract for the first six months of 2000 was
approximately $55.0 million.
Costs and expenses for the first six months of 2000 were $147.2 million
including $89.9 million in expenses related to the refining operations of BRC
and $3.0 million in expenses related to BGC's operations. Costs and expenses
for the first six months of 1999 were $78.3 million including $30.0 million in
expenses related to the refining operations of BRC and $1.6 million in
expenses related to BGC's operations. Excluding the expenses of BRC and BGC,
costs and expenses of $54.3 million for the first six months of 2000 were $7.6
million above costs and expenses incurred during the first six months of 1999.
During the first six months of 1999, the Partnership settled a real property
tax dispute with the City and State of New York, which resulted in a one-time
expense reduction of $11.0 million in 1999. Expenses related to casualty
losses and payroll benefits were lower during the first six months of 2000
compared to 1999.
Other expenses totaled $13.1 million during the first six months of 2000 as
compared to $12.1 million during the first six months of 1999. Interest
expense increased due to additional borrowings in 2000 and due to the fact
that borrowings incurred during March of 1999 to finance acquisitions were
outstanding for the full first six months of 2000. In addition, incentive
compensation payments to the General Partner increased during the first six
months of 2000 as compared to the first six months of 1999 due to an increase
in the level of cash distributions paid to limited partners.
Competition and Other Business Conditions
The Partnership's refining segment is subject to competition from other
refiners and marketers of refined petroleum products and is 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 exposure to inventory price
fluctuations with commodity futures contracts for the sale of gasoline and
fuel oil.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financial condition at June 30, 2000 is highlighted in the
following comparative summary:
<TABLE>
<CAPTION>
Liquidity and Capital Indicators
As of
-----------------------
6/30/00 12/31/99
------- --------
<S> <C> <C>
Current ratio 1.3 to 1 1.3 to 1
Ratio of cash and cash equivalents,
and trade receivables to
current liabilities 0.6 to 1 0.7 to 1
Working capital - in thousands $12,581 $13,149
Ratio of total debt to total capital .48 to 1 .45 to 1
Book value (per Unit) $11.64 $11.72
</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 June 30, 2000 there was $57.0 million borrowed under the Credit
Agreement.
Cash Provided by Operations
For the six months ended June 30, 2000, cash provided by operations of $27.4
million was derived principally from $38.9 million of income before
depreciation and amortization. Changes in current assets and current
liabilities resulted in a net cash use of $12.0 million. Increases in trade
receivables are related to BRC's operations and were partially offset by a
corresponding increase in BRC's accounts payable. Accrued and other current
liabilities declined primarily as a result of payments to the general partner
for its services. Cash provided by operations was used to pay distributions
to Unitholders of $32.5 million. Changes in non-current assets and
liabilities resulted in a net cash source of $0.7 million.
Debt Obligation and Credit Facilities
At June 30, 2000, the Partnership had $297.0 million in outstanding long-term
debt representing $240.0 million of Senior Notes and $57.0 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 that 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 June 30, 2000, the ratio of total debt to total capital was 48 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 June 30, 2000, approximately 82 percent of total consolidated assets
consisted of property, plant and equipment.
Capital expenditures during the six months ended June 30, 2000 totaled $19.8
million and were $9.5 million greater than capital expenditures for the six
months ended June 30, 1999. Of the $19.8 million in capital expenditures,
$19.3 million was related to the transportation segment and $0.5 million was
related to the refining segment. The Partnership continues to make capital
expenditures in connection with the automation of its pipeline facilities and
improvements to its facilities in order to increase capacity, reliability,
integrity and efficiency. Estimated total capital expenditures for 2000,
exclusive of acquisitions, amount to $39.3 million.
In March 2000, the Partnership purchased a petroleum products terminal from BP
Amoco at a cost of $3.0 million. The terminal is located in Taylor, Michigan,
near the Detroit airport, and has a capacity of approximately 280,000 barrels
of petroleum product. In June 2000, the Partnership acquired six petroleum
products terminals from Agway Energy Products LLC at a total cost of $19.3
million. The terminals are located in Brewerton, Geneva, Marcy, Rochester and
Vestal, New York and Macungie, Pennsylvania. The terminals have an aggregate
capacity of approximately 2.0 million barrels of petroleum product. The
Partnership is currently expanding its pipeline from East Chicago, Indiana to
Lima, Ohio. The capacity expansion will enable the Partnership to transport
additional petroleum products anticipated to be shipped in connection with a
major pipeline project under construction by a third party. Of the $6.0
million total estimated cost of this expansion, $2.9 million was spent during
the first six months of 2000.
The Partnership continues to make capital expenditures for, among other
things, various facility improvements that facilitate increased pipeline
volumes, facility automation, renewal and replacement of several tank roofs,
upgrades to field instrumentation and cathodic protection systems and the
installation and replacement of mainline pipe and valves. The Partnership is
also constructing additional office space that will replace currently leased
facilities.
OTHER MATTERS
Accounting Pronouncements
In November 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
Recognition" ("SAB 101"). SAB 101 sets forth the SEC Staff's position
regarding the point at which it is appropriate to recognize revenue. The
Staff believes that revenue is realizable and earned when (i) persuasive
evidence of an arrangement exists, (ii) delivery has occurred or service has
been rendered, (iii) the seller's price to the buyer is fixed or determinable,
and (iv) collection is reasonably assured. The Partnership uses the above
criteria to determine when revenue should be recognized and therefore the
issuance of SAB 101 is not expected to have a material impact on its financial
statements.
In June 1999, the Financial Accounting Standards Board issued Statement No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral
of Effective Date of FASB Statement No. 133." This statement defers the
effective date of FASB Statement No. 133 to fiscal quarters of fiscal years
beginning after June 15, 2000. Management has not completed its evaluation of
the effect of this statement on the Partnership's financial statements.
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. For instance, cost savings to be
realized in connection with the automation of pipeline facilities depend upon,
among other things, the field automation projects being implemented
effectively and on time. Similarly, increased revenues anticipated to be
realized in connection with pipeline expansion projects are dependent upon,
among other things, the expansion projects being implemented effectively and
on time, and the use of the increased capacity by shippers on the pipeline
systems.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
The Partnership is exposed to market risks resulting from changes in interest
rates and commodity prices. Market risk represents the risk of loss that may
impact the Partnership's results of operations, the consolidated financial
position or operating cash flows. The Partnership is not exposed to any
market risk due to rate changes on its Senior Notes but is exposed to market
risk related to the interest rate on its Credit Agreement. The Partnership is
also exposed to market risk on commodity futures contracts that it holds for
the sale of gasoline and fuel oil.
Market Risk - Other than Trading Instruments
The Partnership has market risk exposure on its Credit Agreement due to its
variable rate pricing that is based on the bank's base rate or at a rate based
on LIBOR. As of June 30, 2000, a 1 percent increase or decrease in the
applicable rate under the Credit Agreement will result in an interest expense
fluctuation of approximately $0.6 million.
Market Risk - Trading Instruments
The Partnership hedges a substantial portion of its exposure to inventory
price fluctuations related to its BRC business with commodity futures
contracts for the sale of gasoline and fuel oil. At June 30, 2000 the
Partnership had hedged approximately 52 percent of BRC's inventory and held
commodity futures contracts for the sale of 9.87 million gallons of fuel oil.
No commodity futures contracts for the sale of gasoline were outstanding. A
$0.01 per gallon increase in the market price of gasoline would result in a
loss of approximately $0.1 million in the futures contracts. A $0.01 per
gallon decrease in the market price of gasoline would result in a gain of
approximately $0.1 million in the futures contracts.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended June 30, 2000.
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 Pipe Line Company,
as General Partner
Dated: July 19, 2000 By: /s/ Steven C. Ramsey
Steven C. Ramsey
Senior Vice President, Finance
and Chief Financial Officer
(Principal Accounting and
Financial Officer)
