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SECURITIES AND EXCHANGE COMMISSION
Wsahington, D.C. 20549
FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 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 number)
5 Radnor Corporate Center
100 Matsonford Road
Radnor, Pennsylvania 19087
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 770-4000
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange on
Title of each class which registered
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LP Units representing limited partnership interests ......... New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
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 / /
At March 17, 2000, the aggregate market value of the registrant's LP Units
held by non-affiliates was $621 million. The calculation of such market value
should not be construed as an admission or conclusion by the registrant that
any person is in fact an affiliate of the registrant.
LP Units outstanding as of March 17, 2000: 26,799,906
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TABLE OF CONTENTS
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PART I
Item 1. Business .................................................................. 2
Item 2. Properties ................................................................ 13
Item 3. Legal Proceedings ......................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders ....................... 14
PART II
Item 5. Market for the Registrant's LP Units and Related Unitholder Matters. 15
Item 6. Selected Financial Data ................................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................... 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................ 23
Item 8. Financial Statements and Supplementary Data ............................... 24
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ..................................................... 49
PART III
Item 10. Directors and Executive Officers of the Registrant ........................ 49
Item 11. Executive Compensation .................................................... 51
Item 12. Security Ownership of Certain Beneficial Owners and Management ............ 53
Item 13. Certain Relationships and Related Transactions ............................ 53
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .......... 57
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PART I
Item 1. Business
Introduction
Buckeye Partners, L.P. (the "Partnership"), the Registrant, is a limited
partnership organized in 1986 under the laws of the state of Delaware.
The Partnership conducts all its operations through subsidiary entities.
These operating subsidiaries are Buckeye Pipe Line Company, L.P. ("Buckeye"),
Laurel Pipe Line Company, L.P. ("Laurel"), Everglades Pipe Line Company, L.P.
("Everglades") and Buckeye Tank Terminals Company, L.P. ("BTT"). (Each of
Buckeye, Laurel, Everglades and BTT is referred to individually as an
"Operating Partnership" and collectively as the "Operating Partnerships"). The
Partnership owns approximately a 99 percent interest in each of the Operating
Partnerships. BTT owns a 100 percent interest in each of Buckeye Refining
Company, LLC ("BRC") and Buckeye Gulf Coast Pipelines, LLC ("BGC") and also
owns a 75 percent interest in WesPac Pipelines-Reno Ltd. and related WesPac
entities.
Buckeye is one of the largest independent pipeline common carriers of
refined petroleum products in the United States, with 2,970 miles of pipeline
serving 9 states. Laurel owns a 345-mile common carrier refined products
pipeline located principally in Pennsylvania. Everglades owns 37 miles of
refined petroleum products pipeline in Florida. Buckeye, Laurel and Everglades
conduct the Partnership's refined products pipeline business. BTT provides bulk
storage service through leased facilities with an aggregate capacity of 257,000
barrels of refined petroleum products. BRC refines transmix at its Indianola,
Pennsylvania and Hartford, Illinois refineries. BGC is a contract operator of
pipelines owned by major chemical companies in the Gulf Coast area.
The Partnership acquired its interests in the Operating Partnerships from
The Penn Central Corporation, now American Financial Group, Inc. ("American
Financial"), on December 23, 1986 (the "1986 Acquisition"). The Operating
Partnerships (other than Laurel) were organized by American Financial in
November 1986 and succeeded to the operations of predecessor companies owned by
American Financial, including Buckeye Pipe Line Company, an Ohio corporation,
and its subsidiaries ("Pipe Line"). Laurel was formed in October 1992 and
succeeded to the operations of Laurel Pipe Line Company, an Ohio corporation,
which was a majority owned corporate subsidiary of the Partnership until the
minority interest was acquired in December 1991. In March 1999, the Partnership
acquired the fuels division of American Refining Group, Inc. ("ARG"). The
Partnership operates the former ARG processing business as BRC. On March 31,
1999, the Partnership acquired certain assets from Seagull Products Pipeline
Corporation and Seagull Energy Corporation ("Seagull"). The Partnership
operates the assets acquired from Seagull as BGC. See Item 8, "Financial
Statements and Supplementary Data," for the Partnership's financial segment
information.
During March 1996, BMC Acquisition Company ("BAC"), a Delaware corporation
organized in 1996, acquired all of the common stock of Buckeye Management
Company ("BMC") for $63 million in cash from a subsidiary of American Financial
(the "Acquisition"). At the time of the Acquisition, BMC served as general
partner of the Partnership. BAC, which subsequently changed its name to
Glenmoor, Ltd. ("Glenmoor"), is owned by certain directors and officers of BMC
and trusts for the benefit of their families and certain employees of Buckeye
Pipe Line Services Company, a Pennsylvania corporation ("Services Company").
Glenmoor currently provides management services to BMC, Buckeye Pipe Line
Company (the "General Partner") and Services Company. See "Certain
Relationships and Related Transactions."
On August 12, 1997, as part of a restructuring (the "ESOP Restructuring")
of the BMC Acquisition Company Employee Stock Ownership Plan (the "ESOP"), all
of the General Partner's employees were transferred to Services Company, which
is wholly owned by the ESOP. See
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Employee Stock Ownership Plan." Services Company also entered into
a Services Agreement with BMC and the General Partner to provide services to
the Partnership and the Operating Partnerships for a 13.5 year term. Under the
terms of the Service Agreement, Services Company is reimbursed by BMC or the
General Partner for its direct and indirect expenses. BMC and the General
Partner are in turn reimbursed by the Partnership and the Operating
Partnerships for such expenses other than certain executive compensation and
fringe benefit costs. See "Certain Relationships and Related Transactions."
In connection with an internal restructuring, effective December 31, 1998,
BMC transferred its general partnership interest in the Partnership, as well as
certain other assets and liabilities, to its wholly-owned subsidiary, Buckeye
Pipe Line Company. Buckeye Pipe Line Company currently serves as sole general
partner of the Partnership and as sole general partner of each Operating
Partnership. As of December 31, 1999, the General Partner owned approximately a
1 percent general partnership interest in the Partnership and approximately a 1
percent general partnership interest in each Operating Partnership.
Effective for the December 31, 1998 financial statements, the Partnership
adopted Financial Accounting Standards Board Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information." In 1999, the
Partnership had two segments, the refined products transportation segment and
the refining segment. Prior to 1999 the Partnership had only one segment,
namely, the refined products transportation segment.
Refined Products Transportation Segment
The Partnership receives petroleum products from refineries, connecting
pipelines and marine terminals, and transports those products to other
locations. In 1999, refined petroleum products transportation accounted for
approximately 65 percent of the Partnership's consolidated revenues and
approximately 95 percent of consolidated operating income. See Item 8,
"Financial Statements and Supplementary Data," for the Partnership's financial
segment information.
The Partnership transported an average of approximately 1,056,100 barrels
per day of refined products in 1999. The following table shows the volume and
percentage of refined petroleum products transported over the last three years.
Volume and Percentage of Refined Petroleum Products Transported (1)
(Volume in thousands of barrels per day)
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Year ended December 31,
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1999 1998 1997
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Volume Percent Volume Percent Volume Percent
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Gasoline ....................... 531.9 50% 518.8 50% 507.8 50%
Jet Fuels ...................... 265.9 25 257.2 25 255.4 25
Middle Distillates (2) ......... 240.2 23 230.3 23 238.8 23
Other Products ................. 18.1 2 24.9 2 22.0 2
------- -- ------- -- ------- --
Total .......................... 1,056.1 100% 1,031.2 100% 1,024.0 100%
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(1) Excludes local product transfers.
(2) Includes diesel fuel, heating oil, kerosene and other middle distillates.
The Partnership provides service in the following states: Pennsylvania,
New York, New Jersey, Indiana, Ohio, Michigan, Illinois, Connecticut,
Massachusetts and Florida.
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Pennsylvania--New York--New Jersey
Buckeye serves major population centers in the states of Pennsylvania, New
York and New Jersey through 1,004 miles of pipeline. Refined petroleum products
are received at Linden, New Jersey. Products are then transported through two
lines from Linden, New Jersey to Allentown, Pennsylvania. From Allentown, the
pipeline continues west, through a connection with Laurel, to Pittsburgh,
Pennsylvania (serving Reading, Harrisburg, Altoona/Johnstown and Pittsburgh)
and north through eastern Pennsylvania into New York (serving
Scranton/Wilkes-Barre, Binghamton, Syracuse, Utica and Rochester and, via a
connecting carrier, Buffalo). Products received at Linden, New Jersey are also
transported through one line to Newark International Airport and through two
additional lines to J. F. Kennedy International and LaGuardia airports and to
commercial bulk terminals at Long Island City and Inwood, New York. These
pipelines presently supply J. F. Kennedy, LaGuardia and Newark airports with
substantially all of each airport's jet fuel requirements.
Laurel transports refined petroleum products through a 345-mile pipeline
extending westward from five refineries in the Philadelphia area to Pittsburgh,
Pennsylvania.
Indiana--Ohio--Michigan--Illinois
Buckeye transports refined petroleum products through 1,854 miles of
pipeline (of which 246 miles are jointly owned with other pipeline companies)
in southern Illinois, central Indiana, eastern Michigan, western and northern
Ohio and western Pennsylvania. A number of receiving lines and delivery lines
connect to a central corridor which runs from Lima, Ohio, through Toledo, Ohio
to Detroit, Michigan. Products are received at East Chicago, Indiana; Robinson,
Illinois and at the refinery and other pipeline connection points near Detroit,
Toledo and Lima. Major market areas served include Huntington/Fort Wayne,
Indiana; Bay City, Detroit and Flint, Michigan; Cleveland, Columbus, Lima and
Toledo, Ohio; and Pittsburgh, Pennsylvania.
Other Refined Products Pipelines
Buckeye serves Connecticut and Massachusetts through 112 miles of pipeline
that carry refined products from New Haven, Connecticut to Hartford,
Connecticut and Springfield, Massachusetts.
Everglades carries primarily jet fuel on a 37-mile pipeline from Port
Everglades, Florida to Hollywood-Ft. Lauderdale International Airport and Miami
International Airport. Everglades presently supplies Miami International
Airport with substantially all of its jet fuel requirements.
Other Business Activities--Transportation
BTT provides bulk storage services through leased facilities located in
Pittsburgh, Pennsylvania which have the capacity to store up to an aggregate of
approximately 257,000 barrels of refined petroleum products. This facility,
which is served by Buckeye and Laurel, provides bulk storage and loading
facilities for shippers and other customers.
BGC is a contract operator of pipelines owned by major chemical companies
in the state of Texas. BGC currently has six contracts in place, each with
different chemical companies. BGC also owns a 16-mile pipeline located in the
state of Texas that it leases to a third-party chemical company.
WesPac Pipelines-Reno Ltd., a joint venture between BTT and Kealine
Partners, completed a 2.5-mile pipeline in November 1999 serving the Reno/Tahoe
International Airport. BTT has a 75 percent interest in the joint venture.
Competition and Other Business Considerations--Transportation
The Operating Partnerships conduct business without the benefit of
exclusive franchises from government entities. In addition, the Operating
Partnerships generally operate as common carriers, providing transportation
services at posted tariffs and without long-term contracts. The Operating
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Partnerships do not own the products they transport. Demand for the service
provided by the Operating Partnerships derives from demand for petroleum
products in the regions served and the ability and willingness of refiners,
marketers and end-users to supply such demand by deliveries through the
Operating Partnerships' pipelines. Demand for refined petroleum products is
primarily a function of price, prevailing general economic conditions and
weather. The Operating Partnerships' businesses are, therefore, subject to a
variety of factors partially or entirely beyond their control. Multiple sources
of pipeline entry and multiple points of delivery, however, have historically
helped maintain stable total volumes even when volumes at particular source or
destination points have changed.
The Partnership's business may in the future be affected by changing oil
prices or other factors affecting demand for oil and other fuels. The
Partnership's business may also be affected by energy conservation, changing
sources of supply, structural changes in the oil industry and new energy
technologies. The General Partner is unable to predict the effect of such
factors.
A substantial portion of the refined petroleum products transported by the
Partnership's pipelines is ultimately used as fuel for motor vehicles and
aircraft. Changes in transportation and travel patterns in the areas served by
the Partnership's pipelines could adversely affect the Partnership's results of
operations and financial condition.
In 1999, the transportation business had approximately 90 customers, most
of which were either major integrated oil companies or large refined product
marketing companies. The largest two customers accounted for 4.8 percent and
4.7 percent, respectively, of transportation revenues, while the 20 largest
customers accounted for 45.4 percent of consolidated transportation revenues.
Generally, pipelines are the lowest cost method for long-haul overland
movement of refined petroleum products. Therefore, the Operating Partnerships'
most significant competitors for large volume shipments are other pipelines,
many of which are owned and operated by major integrated oil companies.
Although it is unlikely that a pipeline system comparable in size and scope to
the Operating Partnerships' pipeline system will be built in the foreseeable
future, new pipelines (including pipeline segments that connect with existing
pipeline systems) could be built to effectively compete with the Operating
Partnerships in particular locations.
The Operating Partnerships compete with marine transportation in some
areas. Tankers and barges on the Great Lakes account for some of the volume to
certain Michigan, Ohio and upstate New York locations during the approximately
eight non-winter months of the year. Barges are presently a competitive factor
for deliveries to the New York City area, the Pittsburgh area, Connecticut and
Ohio.
Trucks competitively deliver product in a number of areas served by the
Operating Partnerships. While their costs may not be competitive for longer
hauls or large volume shipments, trucks compete effectively for incremental and
marginal volumes in many areas served by the Operating Partnerships. The
availability of truck transportation places a significant competitive
constraint on the ability of the Operating Partnerships to increase their
tariff rates.
Privately arranged exchanges of product between marketers in different
locations are an increasing but unquantified form of competition. Generally,
such exchanges reduce both parties' costs by eliminating or reducing
transportation charges. In addition, consolidation among refiners and marketers
that has accelerated in recent years has altered distribution patterns,
reducing demand for transportation services in some markets and increasing them
in other markets.
Distribution of refined petroleum products depends to a large extent upon
the location and capacity of refineries. In recent years, domestic refining
capacity has both increased and decreased as a result of refinery expansions
and shutdowns. Because the Partnership's business is largely driven by the
consumption of fuel in its delivery areas and the Operating Partnerships'
pipelines have numerous source points, the General Partner does not believe
that the expansion or shutdown
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of any particular refinery would have a material effect on the business of the
Partnership. However, the General Partner is unable to determine whether
additional expansions or shutdowns will occur or what their specific effect
would be. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations--Competition and Other Business
Conditions."
The Operating Partnerships' mix of products transported tends to vary
seasonally. Declines in demand for heating oil during the summer months are, to
a certain extent, offset by increased demand for gasoline and jet fuel.
Overall, operations have been only moderately seasonal, with somewhat lower
than average volume being transported during March, April and May as compared
to the rest of the year.
Neither the Partnership nor any of the Operating Partnerships, other than
BTT's subsidiaries, have any employees. The Operating Partnerships'
transportation segment operations are managed and operated by employees of
Services Company and BGC. In addition, Glenmoor provides certain management
services to BMC, the General Partner and Services Company. At December 31,
1999, Services Company had a total of 492 full-time employees, 12 of whom were
represented by two labor unions. At December 31, 1999, BGC had a total on 28
full-time, non-union employees. The Operating Partnerships (and their
predecessors) have never experienced any significant work stoppages or other
significant labor problems.
Capital Expenditures--Transportation
The General Partner anticipates that the Partnership will continue to make
ongoing capital expenditures to maintain and enhance its assets and properties,
including improvements to meet customers' needs and those required to satisfy
new environmental and safety standards. In 1999, total capital expenditures
related to the transportation business were $26.7 million. Projected capital
expenditures for the transportation business in 2000 amount to approximately
$35.5 million and are expected to be funded from cash generated by operations
and Buckeye's existing credit facility. Planned capital expenditures in 2000
include, 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, installation and replacement of mainline pipe and valves and
construction of additional office space. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Capital Expenditures."
Regulation--Transportation
General
Buckeye is an interstate common carrier subject to the regulatory
jurisdiction of the Federal Energy Regulatory Commission ("FERC") under the
Interstate Commerce Act and the Department of Energy Organization Act. FERC
regulation requires that interstate oil pipeline rates be posted publicly and
that these rates be "just and reasonable" and non-discriminatory. FERC
regulation also enforces common carrier obligations and specifies a uniform
system of accounts. In addition, Buckeye, and the other Operating Partnerships,
are subject to the jurisdiction of certain other federal agencies with respect
to environmental and pipeline safety matters.
The Operating Partnerships are also subject to the jurisdiction of various
state and local agencies, including, in some states, public utility commissions
which have jurisdiction over, among other things, intrastate tariffs, the
issuance of debt and equity securities, transfers of assets and pipeline
safety.
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FERC Rate Regulation
Buckeye's rates are governed by a market-based rate regulation program
initially approved by FERC in March 1991 for three years and subsequently
extended. Under this program, in markets where Buckeye does not have
significant market power, individual rate increases: (a) will not exceed a real
(i.e., exclusive of inflation) increase of 15 percent over any two-year period
(the "rate cap"), and (b) will be allowed to become effective without
suspension or investigation if they do not exceed a "trigger" equal to the
change in the Gross Domestic Product implicit price deflator since the date on
which the individual rate was last increased, plus 2 percent. Individual rate
decreases will be presumptively valid upon a showing that the proposed rate
exceeds marginal costs. In markets where Buckeye was found to have significant
market power and in certain markets where no market power finding was made: (i)
individual rate increases cannot exceed the volume weighted average rate
increase in markets where Buckeye does not have significant market power since
the date on which the individual rate was last increased, and (ii) any volume
weighted average rate decrease in markets where Buckeye does not have
significant market power must be accompanied by a corresponding decrease in all
of Buckeye's rates in markets where it does have significant market power.
Shippers retain the right to file complaints or protests following notice of a
rate increase, but are required to show that the proposed rates violate or have
not been adequately justified under the market-based rate regulation program,
that the proposed rates are unduly discriminatory, or that Buckeye has acquired
significant market power in markets previously found to be competitive.
The Buckeye program is an exception to the generic oil pipeline
regulations issued under the Energy Policy Act of 1992. The generic rules rely
primarily on an index methodology, whereby a pipeline is allowed to change its
rates in accordance with an index that FERC believes reflects cost changes
appropriate for application to pipeline rates. In the alternative, a pipeline
is allowed to charge market-based rates if the pipeline establishes that it
does not possess significant market power in a particular market. In addition,
the rules provide for the rights of both pipelines and shippers to demonstrate
that the index should not apply to an individual pipeline's rates in light of
the pipeline's costs. The final rules became effective on January 1, 1995.
The Buckeye program will be subject to reevaluation at the same time FERC
reviews the index selected in the generic oil pipeline regulations, which is
anticipated to occur by July 2000. At this time, the General Partner cannot
predict the impact, if any, that a change to Buckeye's rate program would have
on Buckeye's operations. Independent of regulatory considerations, it is
expected that tariff rates will continue to be constrained by competition and
other market factors.
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Refining Segment
BTT, through its subsidiary BRC, owns and operates two transmix processing
refineries. The refineries are located in Indianola, Pennsylvania and Hartford,
Illinois. These facilities refine pipeline transmix, which represents the
commingling of refined petroleum products, primarily fuel oil and gasoline,
that occurs as a result of pipeline operations. Separate quantities of fuel
oil, kerosene and gasoline are produced from the refining process. In some
instances, BRC blends purchased product with the processed refined products in
order to meet minimum specifications. The refined products are marketed at the
wholesale level. In November 1999, BRC entered into a contract with a major
integrated oil company that requires BRC to sell all of the refined product
produced at its Indionala refinery to such company. The selling price of the
refined product under the terms of the contract is based on a formula that is
related to market indices. The initial term of the contract is for five years.
BRC's Indianola, Pennsylvania facilities include the refinery and a truck
loading terminal. The maximum processing capability of the refinery is
approximately 11,500 barrels per day of transmix. The products produced are
fuel oil, kerosene and gasoline. BRC's Indianola refinery receives its supply
of transmix from pipelines, barges and trucks. For the 10 months ended December
31, 1999, the Indianola refinery processed approximately 2.4 million barrels of
transmix from which it produced 1.54 million barrels of fuel oil, 0.03 million
barrels of kerosene and 0.83 million barrels of gasoline.
BRC's Hartford, Illinois refinery has maximum processing capability of
approximately 5,000 barrels per day of transmix. The products produced are fuel
oil, kerosene and gasoline. BRC's Hartford refinery receives its supply of
transmix from pipelines. For the 10 months ended December 31, 1999, the
Hartford refinery processed approximately 1.0 million barrels of transmix from
which it produced 0.7 million barrels of fuel oil and 0.3 million barrels of
gasoline.
Competition and Other Business Considerations--Refining
In 1999, the refining business had approximately 95 customers. The largest
customer was Marathon Ashland Petroleum who accounted for 30.1 percent of
consolidated refining revenue. The second largest customer accounted for 6.6
percent of consolidated refining revenue while the 10 largest customers
accounted for 60.3 percent of consolidated refining revenue.
The profitability of the refining business is affected by the cost of the
transmix, the cost to refine the transmix and the market price at which the
refined transmix products can be sold. In order to reduce the market price
risk, BRC hedges a substantial portion of its exposure with gasoline and fuel
oil futures contracts. In addition, BRC has entered into a processing
arrangement at Hartford, Illinois with a major petroleum pipeline and a
wholesale marketing agreement at Indianola, Pennsylvania with a major
integrated oil company each of which reduces the impact of market price
fluctuation. See Item 8, "Financial Statements and Supplementary Data," for the
Partnership's financial data.
At December 31, 1999, BRC had a total of 34 full-time employees, 19 of
whom were represented by a labor union.
Capital Expenditures--Refining
The General Partner anticipates that the Partnership will continue to make
ongoing capital expenditures to maintain and enhance its refining assets and
properties, including improvements to meet customers' needs and those required
to satisfy new environmental and safety standards. In 1999, total capital
expenditures related to the refining segment were $0.3 million. Projected
capital expenditures for 2000 amount to approximately $0.8 million and are
expected to be funded from cash generated by operations. Planned capital
expenditures in 2000 include, among other things, a truck rack and terminal
expansion and a heat exchange upgrade.
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Environmental Matters
The Operating Partnerships are subject to federal, state and local laws
and regulations relating to the protection of the environment. Although the
General Partner believes that the operations of the Operating Partnerships
comply in all material respects with applicable environmental laws and
regulations, risks of substantial liabilities are inherent in pipeline
operations, and there can be no assurance that material environmental
liabilities will not be incurred. Moreover, it is possible that other
developments, such as increasingly rigorous environmental laws, regulations and
enforcement policies thereunder, and claims for damages to property or persons
resulting from the operations of the Operating Partnerships, could result in
substantial costs and liabilities to the Partnership. See "Legal Proceedings"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources--Environmental Matters."
As a refiner of petroleum products, BRC is subject to the Environmental
Protection Agency regulations. The Clean Air Act requires refiners to change
the composition of refined products in order to reduce the amount of pollutants
released into the environment. To date, such regulations have not had a
material adverse effect on the refining business. It is possible, however, that
new or more stringent environmental controls could have a material impact on
the refining business and the products it produces.
The Oil Pollution Act of 1990 ("OPA") amended certain provisions of the
federal Water Pollution Control Act of 1972, commonly referred to as the Clean
Water Act ("CWA"), and other statutes as they pertain to the prevention of and
response to oil spills into navigable waters. The OPA subjects owners of
facilities to strict joint and several liability for all containment and
clean-up costs and certain other damages arising from a spill. The CWA provides
penalties for any discharges of petroleum products in reportable quantities and
imposes substantial liability for the costs of removing a spill. State laws for
the control of water pollution also provide varying civil and criminal
penalties and liabilities in the case of releases of petroleum or its
derivatives into surface waters or into the ground. Regulations are currently
being developed under OPA and state laws that may impose additional regulatory
burdens on the Partnership.
Contamination resulting from spills or releases of refined petroleum
products is not unusual in the petroleum pipeline industry. The Partnership's
pipelines cross numerous navigable rivers and streams. Although the General
Partner believes that the Operating Partnerships comply in all material
respects with the spill prevention, control and countermeasure requirements of
federal laws, any spill or other release of petroleum products into navigable
waters may result in material costs and liabilities to the Partnership.
The Resource Conservation and Recovery Act ("RCRA"), as amended,
establishes a comprehensive program of regulation of "hazardous wastes."
Hazardous waste generators, transporters, and owners or operators of treatment,
storage and disposal facilities must comply with regulations designed to ensure
detailed tracking, handling and monitoring of these wastes. RCRA also regulates
the disposal of certain non-hazardous wastes. As a result of these regulations,
certain wastes previously generated by pipeline operations are considered
"hazardous wastes" which are subject to rigorous disposal requirements.
The Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA"), also known as "Superfund," governs the release or threat of
release of a "hazardous substance." Disposal of a hazardous substance, whether
on or off-site, may subject the generator of that substance to liability under
CERCLA for the costs of clean-up and other remedial action. Pipeline
maintenance and other activities in the ordinary course of business generate
"hazardous substances." As a result, to the extent a hazardous substance
generated by the Operating Partnerships or their predecessors may have been
released or disposed of in the past, the Operating Partnerships may in the
future be required to remedy contaminated property. Governmental authorities
such as the Environmental Protection Agency, and in some instances third
parties, are
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authorized under CERCLA to seek to recover remediation and other costs from
responsible persons, without regard to fault or the legality of the original
disposal. In addition to its potential liability as a generator of a "hazardous
substance," the property or right-of-way of the Operating Partnerships may be
adjacent to or in the immediate vicinity of Superfund and other hazardous waste
sites. Accordingly, the Operating Partnerships may be responsible under CERCLA
for all or part of the costs required to cleanup such sites, which costs could
be material.
The Clean Air Act, amended by the Clean Air Act Amendments of 1990 (the
"Amendments"), imposes controls on the emission of pollutants into the air. The
Amendments required states to develop facility-wide permitting programs over
the past several years to comply with new federal programs. Existing operating
and air-emission requirements like those currently imposed on the Operating
Partnerships are being reviewed by appropriate state agencies in connection
with the new facility-wide permitting program. It is possible that new or more
stringent controls will be imposed upon the Operating Partnerships through this
permit review process.
The Operating Partnerships are also subject to environmental laws and
regulations adopted by the various states in which they operate. In certain
instances, the regulatory standards adopted by the states are more stringent
than applicable federal laws.
In connection with the 1986 Acquisition, Pipe Line entered into an
Administrative Consent Order ("ACO") with the New Jersey Department of
Environmental Protection and Energy under the New Jersey Environmental Cleanup
Responsibility Act of 1983 ("ECRA") relating to all six of Pipe Line's
facilities in New Jersey. The ACO permitted the 1986 Acquisition to be
completed prior to full compliance with ECRA, but required Pipe Line to conduct
in a timely manner a sampling plan for environmental conditions at the New
Jersey facilities and to implement any required clean-up plan. Sampling
continues in an effort to identify areas of contamination at the New Jersey
facilities, while clean-up operations have begun and have been completed at
certain of the sites. The obligations of Pipe Line were not assumed by the
Partnership or by BAC in the Acquisition, and the costs of compliance have been
and will continue to be paid by American Financial. Through December 1999,
Buckeye's costs of approximately $2,546,000 have been paid by American
Financial.
Safety Matters
The Operating Partnerships are subject to regulation by the United States
Department of Transportation ("DOT") under the Hazardous Liquid Pipeline Safety
Act of 1979 ("HLPSA") relating to the design, installation, testing,
construction, operation, replacement and management of their pipeline
facilities. HLPSA covers petroleum and petroleum products and requires any
entity which owns or operates pipeline facilities to comply with applicable
safety standards, to establish and maintain a plan of inspection and
maintenance and to comply with such plans.
The Pipeline Safety Reauthorization Act of 1988 requires coordination of
safety regulation between federal and state agencies, testing and certification
of pipeline personnel, and authorization of safety-related feasibility studies.
The General Partner has initiated drug and alcohol testing programs to comply
with the regulations promulgated by the Office of Pipeline Safety and DOT.
HLPSA requires, among other things, that the Secretary of Transportation
consider the need for the protection of the environment in issuing federal
safety standards for the transportation of hazardous liquids by pipeline. The
legislation also requires the Secretary of Transportation to issue regulations
concerning, among other things, the identification by pipeline operators of
environmentally sensitive areas; the circumstances under which emergency flow
restricting devices should be required on pipelines; training and qualification
standards for personnel involved in maintenance and operation of pipelines; and
the periodic integrity testing of pipelines in environmentally sensitive and
high-density population areas by internal inspection devices or by hydrostatic
testing. Significant expenses would be incurred if, for instance, additional
valves were required, if leak detection standards were amended to exceed the
current control system capabilities
10
<PAGE>
of the Operating Partnerships or additional integrity testing of pipeline
facilities were to be required. The General Partner believes that the Operating
Partnerships' operations comply in all material respects with HLPSA. However,
the industry, including the Partnership, could be required to incur substantial
additional capital expenditures and increased operating costs depending upon
the requirements of final regulations issued by DOT pursuant to HLPSA, as
amended.
The Operating Partnerships are also subject to the requirements of the
Federal Occupational Safety and Health Act ("OSHA") and comparable state
statutes. The General Partner believes that the Operating Partnerships'
operations comply in all material respects with OSHA requirements, including
general industry standards, recordkeeping, hazard communication requirements
and monitoring of occupational exposure to benzene and other regulated
substances.
The General Partner cannot predict whether or in what form any new
legislation or regulatory requirements might be enacted or adopted or the costs
of compliance. In general, any such new regulations would increase operating
costs and impose additional capital expenditure requirements on the
Partnership, but the General Partner does not presently expect that such costs
or capital expenditure requirements would have a material adverse effect on the
Partnership.
Tax Treatment of Publicly Traded Partnerships under the Internal Revenue Code
The Internal Revenue Code of 1986, as amended (the "Code"), imposes
certain limitations on the current deductibility of losses attributable to
investments in publicly traded partnerships and treats certain publicly traded
partnerships as corporations for federal income tax purposes. The following
discussion briefly describes certain aspects of the Code that apply to
individuals who are citizens or residents of the United States without
commenting on all of the federal income tax matters affecting the Partnership
or the holders of LP units ("Unitholders"), and is qualified in its entirety by
reference to the Code. UNITHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISOR
ABOUT THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF AN
INVESTMENT IN THE PARTNERSHIP.
Characterization of the Partnership for Tax Purposes
The Code treats a publicly traded partnership that existed on December 17,
1987, such as the Partnership, as a corporation for federal income tax
purposes, unless, for each taxable year of the Partnership, under Section
7704(d) of the Code, 90 percent or more of its gross income consists of
"qualifying income." Qualifying income includes interest, dividends, real
property rents, gains from the sale or disposition of real property, income and
gains derived from the exploration, development, mining or production,
processing, refining, transportation (including pipelines transporting gas, oil
or products thereof), or the marketing of any mineral or natural resource
(including fertilizer, geothermal energy and timber), and gain from the sale or
disposition of capital assets that produce such income. Because the Partnership
is engaged primarily in the refined products pipeline transportation business,
the General Partner believes that 90 percent or more of the Partnership's gross
income has been qualifying income. If this continues to be true and no
subsequent legislation amends that provision, the Partnership will continue to
be classified as a partnership and not as a corporation for federal income tax
purposes.
Passive Activity Loss Rules
The Code provides that an individual, estate, trust or personal service
corporation generally may not deduct losses from passive business activities,
to the extent they exceed income from all such passive activities, against
other (active) income. Income that may not be offset by passive activity losses
includes not only salary and active business income, but also portfolio income
such as interest, dividends or royalties or gain from the sale of property that
produces portfolio income. Credits from passive activities are also limited to
the tax attributable to any income from passive
11
<PAGE>
activities. The passive activity loss rules are applied after other applicable
limitations on deductions, such as the at-risk rules and basis limitations.
Certain closely held corporations are subject to slightly different rules that
can also limit their ability to offset passive losses against certain types of
income.
Under the Code, net income from publicly traded partnerships is not
treated as passive income for purposes of the passive loss rule, but is treated
as non-passive income. Net losses and credits attributable to an interest in a
publicly traded partnership are not allowed to offset a partner's other income.
Thus, a Unitholder's proportionate share of the Partnership's net losses may be
used to offset only Partnership net income from its trade or business in
succeeding taxable years or, upon a complete disposition of a Unitholder's
interest in the Partnership to an unrelated person in a fully taxable
transaction, may be used to (i) offset gain recognized upon the disposition,
and (ii) then against all other income of the Unitholder. In effect, net losses
are suspended and carried forward indefinitely until utilized to offset net
income of the Partnership from its trade or business or allowed upon the
complete disposition to an unrelated person in a fully taxable transaction of
the Unitholder's interest in the Partnership. A Unitholder's share of
Partnership net income may not be offset by passive activity losses generated
by other passive activities. In addition, a Unitholder's proportionate share of
the Partnership's portfolio income, including portfolio income arising from the
investment of the Partnership's working capital, is not treated as income from
a passive activity and may not be offset by such Unitholder's share of net
losses of the Partnership.
Deductibility of Interest Expense
The Code generally provides that investment interest expense is deductible
only to the extent of a non- corporate taxpayer's net investment income. In
general, net investment income for purposes of this limitation includes gross
income from property held for investment, gain attributable to the disposition
of property held for investment (except for net capital gains for which the
taxpayer has elected to be taxed at special capital gains rates) and portfolio
income (determined pursuant to the passive loss rules) reduced by certain
expenses (other than interest) which are directly connected with the production
of such income. Property subject to the passive loss rules is not treated as
property held for investment. However, the IRS has issued a Notice which
provides that net income from a publicly traded partnership (not otherwise
treated as a corporation) may be included in net investment income for purposes
of the limitation on the deductibility of investment interest. A Unitholder's
investment income attributable to its interest in the Partnership will include
both its allocable share of the Partnership's portfolio income and trade or
business income. A Unitholder's investment interest expense will include its
allocable share of the Partnership's interest expense attributable to portfolio
investments.
Unrelated Business Taxable Income
Certain entities otherwise exempt from federal income taxes (such as
individual retirement accounts, pension plans and charitable organizations) are
nevertheless subject to federal income tax on net unrelated business taxable
income and each such entity must file a tax return for each year in which it
has more than $1,000 of gross income from unrelated business activities. The
General Partner believes that substantially all of the Partnership's gross
income will be treated as derived from an unrelated trade or business and
taxable to such entities. The tax-exempt entity's share of the Partnership's
deductions directly connected with carrying on such unrelated trade or business
are allowed in computing the entity's taxable unrelated business income.
ACCORDINGLY, INVESTMENT IN THE PARTNERSHIP BY TAX-EXEMPT ENTITIES SUCH AS
INDIVIDUAL RETIREMENT ACCOUNTS, PENSION PLANS AND CHARITABLE TRUSTS MAY NOT BE
ADVISABLE.
State Tax Treatment
During 1999, the Partnership owned property or conducted business in the
states of Pennsylvania, New York, New Jersey, Indiana, Ohio, Michigan,
Illinois, Connecticut, Massachusetts,
12
<PAGE>
Florida, Texas and Nevada. A Unitholder will likely be required to file state
income tax returns and to pay applicable state income taxes in many of these
states and may be subject to penalties for failure to comply with such
requirements. Some of the states have proposed that the Partnership withhold a
percentage of income attributable to Partnership operations within the state
for Unitholders who are non-residents of the state. In the event that amounts
are required to be withheld (which may be greater or less than a particular
Unitholder's income tax liability to the state), such withholding would
generally not relieve the non-resident Unitholder from the obligation to file a
state income tax return.
Certain Tax Consequences to Unitholders
Upon formation of the Partnership in 1986, the General Partner elected
twelve-year straight-line depreciation for tax purposes. For this reason,
starting in 1999, the amount of depreciation available to the Partnership has
been reduced significantly and taxable income has increased accordingly.
Unitholders, however, will continue to offset Partnership income with
individual LP Unit depreciation under their IRC section 754 election. Each
Unitholder's tax situation will differ depending upon the price paid and when
LP Units were purchased. Generally, those who purchased LP Units in the past
few years will have adequate depreciation to offset a considerable portion of
Partnership income, while those who purchased LP Units more than several years
ago will experience the full increase in taxable income. Unitholders are
reminded that, in spite of the additional taxable income beginning in 1999, the
current level of cash distributions exceed expected tax payments. Furthermore,
sale of LP Units will result in taxable ordinary income recapture. UNITHOLDERS
ARE ENCOURAGED TO CONSULT THEIR PROFESSIONAL TAX ADVISORS REGARDING THE TAX
IMPLICATIONS TO THEIR INVESTMENT IN LP UNITS.
Item 2. Properties
As of December 31, 1999, the principal facilities of the Operating
Partnership's transportation segment included 3,368 miles of 6-inch to 24-inch
diameter pipeline, 34 pumping stations, 84 delivery points and various sized
tanks having an aggregate capacity of approximately 9.2 million barrels. At
December 31, 1999, the principal facilities of the Operating Partnership's
refining segment included a transmix refinery located in Indianola,
Pennsylvania with a maximum processing capacity of 11,500 barrels per day and a
transmix refinery located in Hartford, Illinois with a maximum processing
capacity of 5,000 barrels per day. The Operating Partnerships own substantially
all of their facilities.
In general, the Operating Partnerships' pipelines are located on land
owned by others pursuant to rights granted under easements, leases, licenses
and permits from railroads, utilities, governmental entities and private
parties. Like other pipelines, certain of the Operating Partnerships' rights
are revocable at the election of the grantor or are subject to renewal at
various intervals, and some require periodic payments. Certain portions of
Buckeye's pipeline in Connecticut and Massachusetts are subject to security
interests in favor of the owners of the right-of-way to secure future lease
payments. The Operating Partnerships have not experienced any revocations or
lapses of such rights which were material to its business or operations, and
the General Partner has no reason to expect any such revocation or lapse in the
foreseeable future. Most pumping stations and terminal facilities are located
on land owned by the Operating Partnerships.
The General Partner believes that the Operating Partnerships have
sufficient title to their material assets and properties, possess all material
authorizations and franchises from state and local governmental and regulatory
authorities and have all other material rights necessary to conduct their
business substantially in accordance with past practice. Although in certain
cases the Operating Partnerships' title to assets and properties or their other
rights, including their rights to occupy the land of others under easements,
leases, licenses and permits, may be subject to encumbrances, restrictions and
other imperfections, none of such imperfections are expected by the General
Partner to interfere materially with the conduct of the Operating Partnerships'
businesses.
13
<PAGE>
Item 3. Legal Proceedings
The Partnership, in the ordinary course of business, is involved in
various claims and legal proceedings, some of which are covered in whole or in
part by insurance. 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.
With respect to environmental litigation, certain Operating Partnerships
(or their predecessors) have been named as defendants in several 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. Typically, an Operating Partnership is one of many PRPs 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.
In July 1994, Buckeye was named as a defendant in an action filed by the
Michigan Department of Natural Resources ("MDNR") in Circuit Court, Oakland
County, Michigan. The complaint also names three individuals and three other
corporations as defendants. The complaint alleges that under the Michigan
Environmental Response Act, the Michigan Water Resource Commission Act and the
Leaking Underground Storage Tank Act, the defendants are liable to the state of
Michigan for remediation expenses in connection with alleged groundwater
contamination in the vicinity of Sable Road, Oakland County, Michigan. The
complaint asserts that contaminated groundwater has infiltrated drinking water
wells in the area. The complaint seeks past response costs in the amount of
approximately $2.0 million and a declaratory judgment that the defendants are
liable for future response costs and remedial activities at the site.
In October, 1999, the parties reached a settlement agreement. The
defendants agreed to pay the state of Michigan $1.1 million for past costs
incurred in connection with site activities, and to conduct certain
investigation and remediation activities in the future. The Partnership's share
of the settlement payment will be less than $0.4 million.
The parties are in the process of negotiating a Consent Decree to be
entered by the Court to confirm the settlement. In addition, the defendants are
in the process of negotiating a Site Participation Agreement to confirm the
agreed upon funding arrangements among the defendants for future costs at the
site. Although the cost of the future remediation costs to be undertaken by the
defendants cannot be determined at this time, Buckeye expects that its portion
of any such liability will not be material.
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, but the amount of such claims or the
potential liability, if any, cannot be estimated. See
"Business--Regulation--Environmental Matters."
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 a public
right-of-way in New York City. The settlement agreement resulted in a one-time
property tax reduction of $11.0 million for the Partnership in the second
quarter of 1999.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the holders of LP Units during the
fourth quarter of the fiscal year ended December 31, 1999.
14
<PAGE>
PART II
Item 5. Market for the Registrant's LP Units and Related Unitholder Matters
The LP Units of the Partnership are listed and traded principally on the
New York Stock Exchange. In January 1998, the General Partner approved a
two-for-one unit split that became effective February 13, 1998. All unit and
per unit information contained in this filing, unless otherwise noted, has been
adjusted for the two for one split. The high and low sales prices of the LP
Units in 1999 and 1998, as reported on the New York Stock Exchange Composite
Tape, were as follows:
1999 1998
Quarter High Low High Low
- ------- ---- --- ---- ---
First .......... 29.2500 25.7500 30.0625 27.5000
Second ......... 29.3750 25.2500 29.8750 27.0000
Third .......... 29.5000 26.5000 30.2500 26.0000
Fourth ......... 28.3750 25.0000 31.1250 26.0625
During the months of December 1999 and January 2000, the Partnership
gathered tax information from its known LP Unitholders and from
brokers/nominees. Based on the information collected, the Partnership estimates
its number of beneficial LP Unitholders to be approximately 18,000.
Cash distributions paid during 1998 and 1999 were as follows:
Amount
Record Date Payment Date Per Unit
- ----------- ------------ --------
February 23, 1998 ......... February 27, 1998 $ 0.525
May 6, 1998 ............... May 29, 1998 $ 0.525
August 5, 1998 ............ August 31, 1998 $ 0.525
November 4, 1998 .......... November 30, 1998 $ 0.525
February 16, 1999 ......... February 26, 1999 $ 0.525
May 5, 1999 ............... May 28, 1999 $ 0.550
August 4, 1999 ............ August 31, 1999 $ 0.550
November 1, 1999 .......... November 30, 1999 $ 0.550
In general, the Partnership makes quarterly cash distributions of
substantially all of its available cash less such retentions for working
capital, anticipated expenditures and contingencies as the General Partner
deems appropriate.
On January 20, 2000, the Partnership announced a quarterly distribution of
$0.60 per LP Unit payable on February 29, 2000 to Unitholders of record on
February 4, 2000.
Item 6. Selected Financial Data
The following tables set forth, for the period and at the dates indicated,
the Partnership's income statement and balance sheet data for the years ended
December 31, 1999, 1998, 1997, 1996 and 1995. The tables should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this Report.
15
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(In thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue:
Transportation (1) ....................... $ 198,297 $ 184,477 $ 184,981 $ 182,955 $ 183,462
Refining (2) ............................. 107,489 -- -- -- --
Total revenue (1)(2) ...................... 305,786 184,477 184,981 182,955 183,462
Depreciation and amortization (3) ......... 17,475 16,432 13,177 11,333 11,202
Operating income (1)(2) ................... 101,029 74,358 72,075 68,784 71,504
Interest and debt expense (4)(5) .......... 16,854 15,886 21,187 21,854 21,710
Income from continuing operations before
extraordinary loss ....................... 76,283 52,007 48,807 49,337 49,840
Net income ................................ 76,283 52,007 6,383 49,337 49,840
Income per unit from continuing opera-
tions before extraordinary loss .......... 2.82 1.93 1.92 2.03 2.05
Net income per unit ....................... 2.82 1.93 0.25 2.03 2.05
Distributions per unit .................... 2.18 2.10 1.72 1.50 1.40
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets .............................. $674,285 $618,099 $615,062 $567,837 $552,646
Long-term debt (4) ........................ 266,000 240,000 240,000 202,100 214,000
General Partner's capital ................. 2,548 2,390 2,432 2,760 2,622
Limited Partners' capital ................. 314,441 296,095 300,346 273,219 259,563
</TABLE>
(1) Transportation revenue and operating income for 1999 include BGC revenue of
$3,715,000 and operating income of $488,000 for the period March 31, 1999
through December 31, 1999.
(2) Refining revenue and operating income for 1999 include BRC revenue of
$107,489,000 and operating income of $5,093,000 for the period March 4,
1999 through December 31, 1999.
(3) Depreciation and amortization includes $4,698,000 in each of 1999 and 1998
and $1,806,000 in 1997 for amortization of a deferred charge related to
the ESOP Restructuring.
(4) In December 1997 Buckeye issued $240,000,000 of Senior Notes bearing
interest ranging from 6.39 percent to 6.98 percent. Concurrently with the
issuance of the Senior Notes, Buckeye extinguished $202,100,000 of First
Mortgage Notes bearing interest ranging from 7.11 percent to 11.18
percent.
(5) In February and March 1999, Buckeye borrowed a total of $26,000,000 under a
Credit Agreement. Borrowings under the Credit Agreement bear interest at
the bank's base rate or at a rate based on the London interbank rate.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is a discussion of the liquidity and capital resources and
the results of operations of the Partnership for the periods indicated below.
This discussion should be read in conjunction with the consolidated financial
statements and notes thereto, which are included elsewhere in this Report.
Results of Operations
Through its Operating Partnerships and their subsidiaries, the Partnership
is principally engaged in the pipeline transportation of refined petroleum
products and the refining of transmix.
16
<PAGE>
Products transported via pipeline include gasoline, jet fuel, diesel fuel,
heating oil and kerosene. The Partnership's revenues derived from the
transportation of refined petroleum products are principally a function of the
volumes of refined petroleum products transported by the Partnership, which are
in turn a function of the demand for refined petroleum products in the regions
served by the Partnership's pipelines, and the tariffs or transportation fees
charged for such transportation. The Partnership's revenues derived from the
refining of transmix are principally a function of the wholesale market price
of the refined products produced and the number of barrels of refined products
sold. Results of operations are affected by factors that include general
economic conditions, weather, competitive conditions, demand for refined
petroleum products, seasonal factors and regulation. See "Business--Competition
and Other Business Considerations."
1999 Compared With 1998
Revenue from the transportation of refined petroleum products for the year
ended December 31, 1999 was $198.3 million, $13.8 million or 7.5 percent
greater than revenue of $184.5 million in 1998. Volumes delivered during 1999
averaged 1,056,100 barrels per day, 24,900 barrels per day or 2.4 percent
greater than volume of 1,031,200 barrels per day delivered in 1998. Revenue
from the transportation of gasoline increased by $4.7 million, or 4.8 percent,
over 1998 levels. The revenue increase is primarily related to gasoline volume
increases of 13,100 barrels per day, or 2.5 percent more than 1998 volumes.
Deliveries to the upstate New York area, which are longer haul and at higher
tariff rates, were the primary cause of the increased gasoline revenue and
volumes. Demand in the Pittsburgh, Pennsylvania, Toledo, Ohio and Inwood, New
York areas also increased over 1998 levels. Offsetting these increases were
declines in volume to eastern and central Ohio locations. Revenue from the
transportation of distillate volumes increased by $4.3 million, or 9.1 percent,
over 1998 levels. The revenue increase is primarily related to distillate
volume increases of 9,900 barrels per day, or 4.3 percent more than 1998
volumes. In the East, volumes were higher throughout most market areas as
degree days were 17 percent higher during the first quarter of 1999 than the
first quarter of 1998. In the Midwest, distillate revenues were up slightly
despite declines in volumes due to the expiration of an incentive tariff early
in the year. The Long Island, Connecticut and Massachusetts markets experienced
modest growth in distillate revenues and volumes during 1999. Revenue from the
transportation of jet fuel volumes increased by $1.3 million, or 3.8 percent,
over 1998 levels. The revenue increase is primarily related to jet fuel volume
increases of 8,700 barrels per day, which were 3.4 percent greater than 1998
volumes. These increases are related to increased demand at Pittsburgh,
Pennsylvania, J.F. Kennedy, New York and Newark, New Jersey airports in the
East and at Detroit, Michigan airport in the Midwest. In addition, new jet fuel
business at Huntington, Indiana added to the favorable variance. Revenue from
the transportation of LPG volumes and other petroleum products declined by $0.6
million, or 15.9 percent, from 1998 levels with most of the decline occurring
at Toledo, Ohio. Transportation revenue from BGC's operations beginning March
31, 1999 (date of acquisition) through December 31, 1999 amounted to $3.7
million.
Refining revenue beginning March 4, 1999 (date of acquisition) through
December 31, 1999 was $107.5 million. Revenue was derived from the sale of 85.8
million gallons of gasoline and 102.1 million gallons of distillate products.
Revenue from the sale of gasoline was $51.6 million while revenue from the sale
of distillate products was $55.9 million.
Costs and expenses for 1999 were $204.8 million and included $102.4
million in expenses related to the refining operations of BRC and $3.2 million
in expenses related to BGC's operations. Excluding the expenses of BRC and BGC,
operating expenses were $99.2 million, $10.9 million or 9.9 percent below costs
and expenses of $110.1 million incurred during 1998. During 1999, the
Partnership settled a real property tax dispute with the City and State of New
York, which resulted in a one-time property tax expense reduction of $11.0
million. Payroll costs also declined as severance related provisions and costs
associated with the realignment of senior management occurring in 1998 did not
recur in 1999. Outside service costs and maintenance material expense also
declined in 1999. Offsetting these decreases were increases in provisions for
environmental costs and increased power costs associated with the higher level
of volumes delivered.
17
<PAGE>
Other expenses for 1999 were $24.7 million compared to $22.4 million in
1998. Interest expense increased due to additional borrowings used to finance
acquisitions. In addition, incentive compensation payments to the General
Partner that are based on the level of Partnership distributions were
approximately $0.8 million greater during 1999 than 1998.
1998 Compared With 1997
Revenue for the year ended December 31, 1998 was $184.5 million, $0.5
million or 0.3 percent less than revenue of $185.0 million for 1997. Volumes
delivered during 1998 averaged 1,031,200 barrels per day, 7,200 barrels per day
or 0.7 percent greater than volume of 1,024,000 barrels per day delivered in
1997. The combination of higher volumes and lower revenues in 1998 as compared
to 1997 is the result of several factors. In 1998, the Partnership experienced
a slight shift in deliveries from longer-haul, higher tariff movements to
shorter-haul, lower tariff movements. In addition, certain tariffs designed to
recover capital costs expired in 1998 and were replaced by lower tariffs. The
Partnership also had greater costs associated with product downgrades resulting
from normal operating activities. Gasoline volumes and revenue increased over
1997 levels. New business was gained at Midland, Pennsylvania as a result of a
new connection, and market share throughout Pennsylvania continued to grow in
1998. In addition, increased volumes in the Detroit and Flint, Michigan areas
added to the favorable variance. Offsetting these increases were declines in
volume to the upstate New York area. Distillate volumes and revenue declined
over 1997 levels. Demand was weak throughout most areas due to abnormally warm
weather primarily during the first quarter of 1998. Jet fuel volume increased
slightly over 1997 levels although overall revenue declined. Demand was strong
at Newark Airport but was offset by declines at Pittsburgh due to reductions in
both military and commercial airline activity. LPG volumes and revenue
increased over 1997 levels due to the capture of new business in Ohio. Tariff
rate increases implemented in 1998 also had a favorable impact on 1998
revenues. See "Tariff Changes."
Costs and expenses during 1998 were $110.1 million, $2.8 million or 2.5
percent less than costs and expenses of $112.9 million during 1997. During
1998, as part of a restructuring, the Partnership incurred severance and
related expenses of $2.1 million and an additional $1.3 million expense
associated with the realignment of senior management. Payroll overhead expenses
declined as a result of the ESOP Restructuring in 1997 and a full year effect
of the elimination of certain executive compensation costs formerly charged to
the Partnership. Such senior executive compensation costs have not been charged
to the Partnership since August 12, 1997. See "Executive Compensation." The
Partnership also realized cost reductions in outside service expense and
incurred less power expense during 1998. Partially offsetting these reductions
was the full year effect of amortization of the deferred charge related to the
issuance of LP Units under the ESOP restructuring.
Other income (expenses) consist of interest income, interest and debt
expense, minority interests and other. Total other expenses decreased by $0.9
million. Interest expense declined by $5.3 million due to the early
extinguishment of higher interest rate debt with the proceeds of lower interest
rate debt during December 1997. Partially offsetting these declines in expenses
were increased incentive compensation payments to BMC as a result of greater
cash distributions to Unitholders (see "Certain Relationships and Related
Transactions") and an increase in minority interest expense related to greater
net income. Income from invested cash also declined from 1997 levels.
Tariff Changes
Effective January 1, 1998 certain of the Operating Partnerships
implemented tariff increases that were expected to generate approximately $2.5
million in additional revenue per year. The Operating Partnerships did not file
any general tariff rate increases that became effective during 1999 or 1997.
18
<PAGE>
Competition and Other Business Conditions
Several major refiners and marketers of petroleum products announced
strategic alliances or mergers in recent years. These alliances or mergers have
the potential to alter refined product supply and distribution patterns within
the Operating Partnerships' market area resulting in both gains and losses of
volume and revenue. While the General Partner believes that individual delivery
locations within its market area may have significant gains or losses, it is
not possible to predict the overall impact these alliances or mergers would
have on the Operating Partnerships' business. However, the General Partner does
not believe that these alliances or mergers will have a material adverse effect
on the Partnership's results of operations or financial condition.
Liquidity and Capital Resources
The Partnership's financial condition at December 31, 1999, 1998 and 1997
is highlighted in the following comparative summary:
Liquidity and Capital Indicators
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------
1999 1998 1997
------------- ------------ -------------
<S> <C> <C> <C>
Current ratio .................................... 1.3 to 1 0.8 to 1 1.2 to 1
Ratio of cash and temporary investments and trade
receivables to current liabilities ............. 0.7 to 1 0.5 to 1 0.8 to 1
Working capital (deficit) (in thousands) ......... $13,149 ($ 6,266) $5,045
Ratio of total debt to total capital ............. .45 to 1 .44 to 1 .44 to 1
Book value (per Unit) ............................ $ 11.72 $ 11.06 $ 11.23
</TABLE>
Cash Provided by Operations
During 1999, cash provided by operations of $91.5 million was derived
principally from $93.8 million of income before depreciation and amortization.
Changes in current assets and current liabilities resulted in a net cash use of
$0.8 million. Increases in inventories and trade receivables are attributable
to the acquisition of BRC and were partially offset by a corresponding increase
in BRC's accounts payable. During the year the Partnership borrowed $26.0
million under its Credit Agreement which was used to finance acquisitions of
$19.5 million and for working capital purposes. Changes in non-current assets
and liabilities resulted in a net cash use of $1.8 million. Distributions paid
to Unitholders in 1999 amounted to $58.8 million, an increase of $2.1 million
over 1998, and capital expenditures were $27.0 million, an increase of $4.2
million over 1998.
During 1998, cash provided by operations of $80.6 million was derived
principally from $68.4 million of net income before depreciation and
amortization. Depreciation and amortization increased by $3.3 million as a
result of the amortization for a full year of a deferred charge associated with
the ESOP Restructuring and depreciation related to capital additions. Changes
in current assets and current liabilities resulted in a net cash source of
$12.3 million. The cash source from the change in current assets and
liabilities resulted primarily from maturities of temporary investments,
continued improvement in the collection of trade receivables, a reduction in
prepaid and other current assets and an increase in current liabilities payable
to the General Partner. Distributions paid to Unitholders in 1998 amounted to
$56.7 million, an increase of $12.4 million over 1997, and capital expenditures
were $22.8 million, an increase of $3.0 million over 1997.
During 1997, cash provided by operations of $28.4 million was derived
principally from $62.0 million of income before extraordinary loss and
depreciation and amortization reduced by an extraordinary loss of $42.4 million
on the early extinguishment of debt. Depreciation and amortization increased by
$1.8 million as a result of the amortization of a deferred charge associated
19
<PAGE>
with the ESOP Restructuring. Changes in current assets and current liabilities
resulted in a net cash source of $10.4 million, resulting primarily from the
elimination of the current portion of long term debt and continued improvement
in the collection of trade receivables, offset by the net payment of $3.0
million of accrued and other current liabilities. Cash and cash equivalents
declined by $10.1 million and temporary investments declined by $11.7 million
during the year. Distributions paid to Unitholders in 1997 amounted to $44.3
million, an increase of $7.8 million over 1996, and capital expenditures were
$19.8 million, an increase of $5.0 million from 1996.
Also, during 1997, cash provided from the issuance of $240 million of
Senior Notes and an additional $4.5 million provided from operations was used
to pay the remaining $202.1 million due under the First Mortgage Notes and
$42.4 million in prepayment penalty and related refinancing costs. Changes in
non-current assets and liabilities resulted in a net use of cash of $1.6
million, including a decline of minority interests of $0.4 million.
Debt Obligations and Credit Facilities
At December 31, 1999, the Partnership had $266.0 million in outstanding
long-term debt representing $240.0 million of Senior Notes (Series 1997A
through 1997D) (the "Senior Notes") and $26.0 million of borrowings under the
Credit Agreement.
During December 1997, Buckeye issued the Senior Notes, which are due 2024
and accrue interest at an average annual rate of 6.94 percent. The proceeds
from the issuance of the Senior Notes, plus $4.5 million of additional cash,
were used to purchase and retire all of Buckeye's outstanding First Mortgage
Notes (the "First Mortgage Notes") which accrued interest at an average annual
rate of 10.3 percent. In connection with the purchase of the First Mortgage
Notes in 1997, Buckeye was required to pay to the holders of the First Mortgage
Notes a prepayment premium equal to the difference between the cash flows under
the First Mortgage Notes, discounted at current U. S. Treasury rates, and the
book value of the principal due under the First Mortgage Notes. The prepayment
premium amounted to $41.4 million. In addition, debt refinancing costs totaling
$1.0 million were incurred. The total costs of $42.4 million were recorded on
the 1997 income statement as an extraordinary loss. In connection with the
issuance of the Senior Notes, the indenture (the "Indenture") pursuant to which
the First Mortgage Notes were issued was amended and restated in its entirety
to eliminate the collateral requirements and to impose certain financial
covenants.
The Indenture, as amended in connection with the issuance of the Senior
Notes, contains covenants, which affect Buckeye, Laurel and Buckeye Pipe Line
Company of Michigan, L.P. (the "Indenture Parties"). Generally, the 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.
During December 1998, Buckeye established a line of credit from commercial
banks (the "Credit Agreement") which permits borrowings of up to $100 million
subject to certain limitations contained in the Credit Agreement. Borrowings
bear interest at the bank's base rate or at a rate based on the London
interbank rate (LIBOR) at the option of Buckeye. The Credit Agreement expires
December 16, 2003. At December 31, 1999 there were $26.0 million of borrowings
outstanding under the Credit Agreement. Of the $26.0 million in borrowings,
$3.0 million occurred in February 1999 and $23.0 million occurred in March
1999. Proceeds from the borrowings were used to finance the purchase of BRC and
BGC and for working capital purposes.
The Credit Agreement 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.
20
<PAGE>
The ratio of total debt to total capital was 45 percent at December 31,
1999 and 44 percent at December 31, 1998 and 1997. For purposes of the
calculation of this ratio, total capital consists of current and long-term
debt, minority interests and partners' capital.
Capital Expenditures
At December 31, 1999, property, plant and equipment was approximately 83
percent of total consolidated assets. This compares to 86 percent and 85
percent for the years ended December 31, 1998 and 1997, respectively. Capital
expenditures are generally for expansion of the Operating Partnerships' service
capabilities and sustaining the Operating Partnerships' existing operations.
Capital expenditures by the Partnership were $27.0 million, $22.8 million
and $19.8 million for 1999, 1998 and 1997, respectively. Projected capital
expenditures for 2000 of approximately $36.3 million, including approximately
$12.4 million of maintenance capital and $23.9 million of expansion capital,
are expected to be funded from cash generated by operations and Buckeye's bank
line of credit. Planned capital expenditures of $35.5 million related to the
transportation segment include, 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, installation and replacement
of mainline pipe and valves and construction of additional office space.
Planned capital expenditures of $0.8 million related to the refining segment
include, among other things, a truck rack and terminal expansion and a heat
exchange upgrade.
Environmental Matters
The Operating Partnerships are subject to federal, state and local laws
and regulations relating to the protection of the environment. These laws and
regulations, as well as the Partnership's own standards relating to protection
of the environment, cause the Operating Partnerships to incur current and
ongoing operating and capital expenditures. During 1999, the Operating
Partnerships incurred operating expenses of $3.2 and capital expenditures of
$1.4 million for environmental matters. Capital expenditures of $1.9 million
for environmental related projects are included in the Partnership's plans for
2000. Expenditures, both capital and operating, relating to environmental
matters are expected to continue due to the Partnership's commitment to
maintain high environmental standards and to increasingly rigorous
environmental laws.
Various 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 have been asserted and may be
asserted in the future under various federal and state laws. 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.
The total potential remediation costs to be borne by the Operating Partnerships
relating to these clean-up sites cannot be reasonably estimated and could be
material. 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. Although the Partnership has made a provision for certain legal
expenses relating to these matters, the General Partner is unable to determine
the timing or outcome of any pending proceedings or of any future claims and
proceedings. See "Business--Regulation--Environmental Matters" and "Legal
Proceedings."
Employee Stock Ownership Plan
In connection with the Acquisition, the ESOP was formed for the benefit of
employees of BMC, the General Partner and the shareholders of BMC. BMC borrowed
$63 million pursuant to a 15-year term loan from a third-party lender. BMC then
loaned $63 million to the ESOP, which used the loan proceeds to purchase $63
million of Series A Convertible Preferred Stock of BAC ("BAC Preferred Stock").
21
<PAGE>
In December 1996, the Board of Directors of BMC approved the ESOP
Restructuring. The ESOP Restructuring was approved by the required majority of
holders of the LP Units at a special meeting held on August 11, 1997. On August
12, 1997, in connection with the ESOP Restructuring, the Partnership issued an
additional 2,573,146 LP Units (adjusted for a two-for-one split) which are
beneficially owned by the ESOP through Services Company. The market value of
the LP Units issued to Services Company was approximately $64.2 million. As a
result of the Partnership's issuance of the LP Units, the Partnership's
obligation to reimburse BMC for certain executive compensation costs was
permanently released, the incentive compensation formula was reduced, and other
changes were implemented to make the ESOP a less expensive fringe benefit for
the Partnership. The $64.2 million market value of the LP Units issued to
Services Company was recorded as a deferred charge relating to the ESOP
Restructuring and is being amortized over 13.5 years. As part of the ESOP
Restructuring, the $63 million loan from the third party lender became a direct
obligation of the ESOP which is secured by the stock of Services Company and
guaranteed by BMC and certain of its affiliates.
Total ESOP related costs charged to earnings were $1.3 million in 1999 and
$1.2 million in 1998. The ESOP costs represent a non-cash accrual of the
estimated difference between distributions to be paid on the LP Units and the
total debt service requirements under the ESOP loan (the "top-up provision").
Total ESOP related costs charged to earnings through August 12, 1997, the
date of the ESOP Restructuring, were $5.0 million, which included $2.8 million
of interest expense with respect to the ESOP loan, $2.0 million based upon the
value of 1,976 shares of BAC Preferred Stock released and allocated to
employees accounts through August 12, 1997, and administrative costs of $0.2
million. Subsequent to August 12, 1997, ESOP related costs charged to the
Partnership in 1997 were $0.1 million in administrative costs and an additional
$0.4 million for a top-up provision. The 1,976 shares of BAC Preferred Stock
that were released and allocated to employees' accounts were exchanged for
40,354 shares of Services Company stock during 1997.
As a result of the ESOP Restructuring, the Partnership will not incur any
additional charges related to interest expense and shares released to
employees' accounts under the ESOP. The Partnership will, however, incur
ESOP-related costs to the extent that required contributions to the ESOP are in
excess of distributions received on the LP Units owned by Services Company, for
taxes associated with the sale of the LP Units and for routine administrative
costs.
Accounting Statements Not Yet Adopted
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which
established 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.
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
financial statements.
Year 2000 Compliance
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. The Partnership also had in
place contingency plans, involving manual operation, for
22
<PAGE>
critical pipeline applications. The Partnership also tried to assess the
preparedness of critical suppliers and vendors in dealing with the Year 2000
issue. The total cost related to the investigation, research and update of
critical areas related to the Year 2000 issue was not material.
The Partnership has not experienced any material problems or incurred any
significant losses related to the Year 2000 issue from its own operations, nor
has it experienced any material problems or incurred any significant losses as
the result of third-party operations.
Forward-Looking Statements
Information contained above in this Management's Discussion and Analysis
and elsewhere in this Report on Form 10-K with respect to expected financial
results and future events is forward-looking, based on our estimates and
assumptions and subject to risk and uncertainties. For those statements, we
claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.
The following important factors could affect our future results and could
cause those results to differ materially from those expressed in our
forward-looking statements: (1) adverse weather conditions resulting in reduced
demand; (2) changes in laws and regulations, including safety, tax and
accounting matters; (3) competitive pressures from alternative energy sources;
(4) liability for environmental claims; (5) improvements in energy efficiency
and technology resulting in reduced demand; (6) labor relations; (7) changes in
real property tax assessments, (8) regional economic conditions; (9) market
prices of petroleum products and the demand for those products in the
Partnership's service territory; and (10) interest rate fluctuations and other
capital market conditions.
These factors are not necessarily all of the important factors that could
cause actual results to differ materially from those expressed in any of our
forward-looking statements. Other unknown or unpredictable factors could also
have material adverse effects on future results. We undertake no obligation to
update publicly any forward-looking statement whether as a result of new
information or future events.
Item 7A. Quantitative and Qualitative 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 December 31, 1999, a 1 percent increase or decrease in
the applicable rate under the Credit Agreement will result in an interest
expense fluctuation of approximately $0.3 million. As of December 31, 1998, the
Partnership did not have any debt outstanding that was subject to variable rate
pricing.
Market Risk--Trading Instruments
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 December 31, 1999, the Partnership had hedged approximately 56
percent of BRC's inventory and held commodity futures contracts for the sale of
6.3 million gallons of gasoline and 6.7 million gallons of fuel oil. A $0.01
per gallon increase in the market price of gasoline and fuel oil would result
in a loss of approximately $130,000 in the futures contracts. A $0.01 per
gallon decrease in the market price of gasoline and fuel oil would result in a
gain of approximately $130,000 in the futures contracts.
23
<PAGE>
Item 8. Financial Statements and Supplementary Data
BUCKEYE PARTNERS, L.P.
Index to Financial Statements and Financial Statement Schedules
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Financial Statements and Independent Auditors' Report:
Independent Auditors' Report ...................................... 25
Consolidated Statements of Income--For the years ended December 31,
1999, 1998 and 1997 .............................................. 26
Consolidated Balance Sheets--December 31, 1999 and 1998 ........... 27
Consolidated Statements of Cash Flows--For the years ended Decem-
ber 31, 1999, 1998 and 1997 ...................................... 28
Notes to Consolidated Financial Statements ........................ 29
Financial Statement Schedules and Independent Auditors' Report:
Independent Auditors' Report ...................................... S-1
Schedule I--Registrant's Condensed Financial Statements ........... S-2
</TABLE>
Schedules other than those listed above are omitted because they are
either not applicable or not required or the information required is included
in the consolidated financial statements or notes thereto.
24
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of Buckeye Partners, L.P.:
We have audited the accompanying consolidated balance sheets of Buckeye
Partners, L.P. and its subsidiaries (the "Partnership") as of December 31, 1999
and 1998, and the related consolidated statements of income and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Partnership as of December 31, 1999 and 1998, and the results of its operations
and cash flows for each of the three years in the period ended December 31,
1999 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
January 28, 2000
25
<PAGE>
BUCKEYE PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per unit amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
Notes 1999 1998 1997
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue
Transportation ........................................... 2,4 $ 198,297 $ 184,477 $ 184,981
Refining ................................................. 2,4 107,489 -- --
--------- --------- ---------
Total Revenue ........................................... 305,786 184,477 184,981
--------- --------- ---------
Costs and expenses
Cost of product sold ..................................... 2 94,702 -- --
Operating expenses ....................................... 5,17 77,611 79,439 86,833
Depreciation and amortization ............................ 2,8,9 17,475 16,432 13,177
General and administrative expenses ...................... 17 14,969 14,248 12,896
--------- --------- ---------
Total costs and expenses ................................ 204,757 110,119 112,906
--------- --------- ---------
Operating income ........................................... 101,029 74,358 72,075
--------- --------- ---------
Other income (expenses)
Investment income ........................................ 140 251 2,046
Interest and debt expense ................................ (16,854) (15,886) (21,187)
Minority interests and other ............................. 17 (8,032) (6,716) (4,127)
--------- --------- ---------
Total other income (expenses) ........................... (24,746) (22,351) (23,268)
--------- --------- ---------
Income before extraordinary loss ........................... 76,283 52,007 48,807
Extraordinary loss on early extinguishment of debt ......... 11 -- -- (42,424)
--------- --------- ---------
Net income ................................................. $ 76,283 $ 52,007 $ 6,383
========= ========= =========
Net income allocated to General Partner .................... 18 $ 689 $ 470 $ 85
Net income allocated to Limited Partners ................... 18 $ 75,594 $ 51,537 $ 6,298
Earnings per Partnership Unit
Income allocated to General and Limited Partners per
Partnership Unit:
Income before extraordinary loss ........................ $ 2.82 $ 1.93 $ 1.92
Extraordinary loss on early extinguishment of
debt .................................................. -- -- ( 1.67)
--------- --------- ---------
Net income ................................................. $ 2.82 $ 1.93 $ 0.25
========= ========= =========
Earnings per Partnership Unit -- assuming dilution
Income allocated to General and Limited Partners per
Partnership Unit:
Income before extraordinary loss ........................ $ 2.81 $ 1.92 $ 1.91
Extraordinary loss on early extinguishment of
debt .................................................. -- -- ( 1.66)
--------- --------- ---------
Net income ................................................. $ 2.81 $ 1.92 $ 0.25
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
BUCKEYE PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------
Notes 1999 1998
---------- ----------- ------------
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents ......................... 2 $ 22,003 $ 8,341
Trade receivables ................................. 2 9,718 7,578
Inventories ....................................... 2,6 18,397 2,988
Prepaid and other current assets .................. 7 5,509 5,320
--------- ---------
Total current assets ............................ 55,627 24,227
Property, plant and equipment, net ................. 2,4,8 556,904 532,696
Other non-current assets ........................... 9,15 61,754 61,176
--------- ---------
Total assets .................................... $ 674,285 $ 618,099
========= =========
Liabilities and partners' capital
Current liabilities
Accounts payable .................................. $ 18,961 $ 4,369
Accrued and other current liabilities ............. 5,10,17 23,517 26,124
--------- ---------
Total current liabilities ....................... 42,478 30,493
Long-term debt .................................... 11 266,000 240,000
Minority interests ................................ 2,853 2,501
Other non-current liabilities ..................... 12,13,17 45,965 46,620
Commitments and contingent liabilities ............ 5 -- --
--------- ---------
Total liabilities ............................... 357,296 319,614
--------- ---------
Partners' capital
General Partner .................................... 18 2,548 2,390
Limited Partner .................................... 18 314,441 296,095
--------- ---------
Total partners' capital ......................... 316,989 298,485
--------- ---------
Total liabilities and partners' capital ......... $ 674,285 $ 618,099
========= =========
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
BUCKEYE PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
Notes 1999 1998 1997
------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Income before extraordinary loss ....................... $ 76,283 $ 52,007 $ 48,807
--------- --------- ----------
Adjustments to reconcile income to net cash
provided by operating activities:
Extraordinary loss on early extinguishment of
debt ................................................ 11 -- -- (42,424)
Gain on sale of property, plant and equipment ......... -- (195) (11)
Depreciation and amortization ......................... 8,9 17,475 16,432 13,177
Minority interests .................................... 1,011 594 96
Distributions to minority interests ................... (659) (628) (474)
Change in assets and liabilities:
Temporary investments ............................... -- 2,854 11,674
Trade receivables ................................... (1,285) 2,617 2,341
Inventories ......................................... (11,307) (901) (355)
Prepaid and other current assets .................... (189) 1,977 418
Accounts payable .................................... 14,592 705 (615)
Accrued and other current liabilities ............... (2,647) 5,051 (3,015)
Other non-current assets ............................ (1,150) (1,535) 319
Other non-current liabilities ....................... (655) 1,608 (1,566)
--------- --------- ----------
Total adjustments from operating activities ........ 15,186 28,579 (20,435)
--------- --------- ----------
Net cash provided by operating activities .......... 91,469 80,586 28,372
--------- --------- ----------
Cash flows from investing activities:
Capital expenditures ................................... (27,018) (22,750) (19,841)
Acquisitions ........................................... (19,487) -- --
Net proceeds from (expenditures for) disposal of
property, plant and equipment ......................... 477 (544) (814)
--------- --------- ----------
Net cash used in investing activities .............. (46,028) (23,294) (20,655)
--------- --------- ----------
Cash flows from financing activities:
Capital contribution ................................... -- -- 5
Proceeds from exercise of unit options ................. 978 366 516
Proceeds from issuance of long-term debt ............... 11 26,000 -- 240,000
Payment of long-term debt .............................. 11 -- -- (214,000)
Distributions to Unitholders ........................... 18,19 (58,757) (56,666) (44,305)
--------- --------- ----------
Net cash used in financing activities .............. (31,779) (56,300) (17,784)
--------- --------- ----------
Net increase (decrease) in cash and cash equivalents ..... 13,662 992 (10,067)
Cash and cash equivalents at beginning of year ........... 8,341 7,349 17,416
--------- --------- ----------
Cash and cash equivalents at end of year ................. $ 22,003 $ 8,341 $ 7,349
========= ========= ==========
Supplemental cash flow information:
Cash paid during the year for interest (net of
amount capitalized) ................................... $ 16,912 $ 15,918 $ 21,432
Non-cash change in financing activities:
Issuance of LP Units in exchange for BAC stock ......... -- -- $ 64,200
Non-cash change in operating activities:
Deferred charge from issuance of LP Units .............. -- -- $ 64,200
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998 AND
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. ORGANIZATION
Buckeye Partners, L.P. (the "Partnership") is a limited partnership
organized in 1986 under the laws of the state of Delaware. The Partnership owns
approximately 99 percent limited partnership interests in Buckeye Pipe Line
Company, L.P. ("Buckeye"), Laurel Pipe Line Company, L.P. ("Laurel"),
Everglades Pipe Line Company, L.P. ("Everglades") and Buckeye Tank Terminals
Company, L.P. ("BTT"). These entities are hereinafter referred to as the
"Operating Partnerships." BTT owns a 100 percent interest in each of Buckeye
Refining Company, LLC and Buckeye Gulf Coast Pipelines, LLC and also owns a 75
percent interest in WesPac Pipelines-Reno Ltd. and related WesPac entities.
In connection with an internal restructuring, effective December 31, 1998,
Buckeye Management Company ("BMC") transferred its general partnership interest
in the Partnership, as well as certain other assets and liabilities, to its
wholly-owned subsidiary, Buckeye Pipe Line Company (the "General Partner").
Buckeye Pipe Line Company serves as sole general partner of the Partnership and
as the sole general partner of each Operating Partnership. As of December 31,
1998, the General Partner owned approximately a 1 percent general partnership
interest in the Partnership and approximately a 1 percent general partnership
interest in each Operating Partnership, for an effective 2 percent interest in
the Partnership.
Buckeye is one of the largest independent pipeline common carriers of
refined petroleum products in the United States, with 2,970 miles of pipeline
serving 9 states. Laurel owns a 345-mile common carrier refined products
pipeline located principally in Pennsylvania. Everglades owns 37 miles of
refined products pipeline in Florida. Buckeye, Laurel and Everglades conduct
the Partnership's refined products pipeline business. BTT provides bulk storage
service through leased facilities with an aggregate capacity of 257,000 barrels
of refined petroleum products.
On March 4, 1999, the Partnership acquired the fuels division of American
Refining Group, Inc. ("ARG"). The Partnership operates the former ARG
processing business under the name of Buckeye Refining Company, LLC ("BRC").
BRC re-refines transmix at its Indianola, Pennsylvania and Hartford, Illinois
refineries. Transmix represents refined petroleum products, primarily fuel oil
and gasoline, that become commingled during normal pipeline operations. The
refining process produces separate quantities of fuel oil, kerosene and
gasoline that BRC then markets at the wholesale level.
On March 31, 1999, the Partnership acquired pipeline operating contracts
and a 16-mile pipeline from Seagull Products Pipeline Corporation and Seagull
Energy Corporation ("Seagull"). The Partnership operates the assets acquired
from Seagull under the name of Buckeye Gulf Coast Pipe Lines, LLC ("BGC"). BGC
is an owner and contract operator of pipelines owned by major chemical
companies in the Gulf Coast area. BGC also leases the 16- mile pipeline to a
chemical company.
During March 1996, BMC Acquisition Corp. ("BAC"), a corporation organized
in 1996 under the laws of the state of Delaware, acquired all of the common
stock of BMC from a subsidiary of American Financial Group, Inc. ("American
Financial") (the "Acquisition"). BAC, which subsequently changed its name to
Glenmoor, Ltd. ("Glenmoor"), is owned by certain directors and members of
senior management of the General Partner and trusts for the benefit of their
families and by certain other management employees of Buckeye Pipe Line
Services Company ("Services Company").
On August 12, 1997, the General Partner's employees were transferred to
Services Company, a newly formed corporation wholly owned by the ESOP. Services
Company employs all of the employees previously employed by the General Partner
and became the sponsor of all of the employee benefit plans previously
maintained by the General Partner. Services Company also
29
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
entered into a Services Agreement with BMC and the General Partner to provide
services to the Partnership and the Operating Partnerships for a 13.5 year
term. Services Company is reimbursed by BMC or the General Partner for its
direct and indirect expenses, which in turn are reimbursed by the Partnership,
except for certain executive compensation costs which after August 12, 1997 are
no longer reimbursed (See Note 17).
The Partnership maintains its accounts in accordance with the Uniform
System of Accounts for Pipeline Companies, as prescribed by the Federal Energy
Regulatory Commission ("FERC"). Reports to FERC differ from the accompanying
consolidated financial statements, which have been prepared in accordance with
generally accepted accounting principles, generally in that such reports
calculate depreciation over estimated useful lives of the assets as prescribed
by FERC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements include the accounts of the Operating
Partnerships on a consolidated basis. All significant intercompany transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of the Partnership's consolidated financial statements in
conformity with generally accepted accounting principles necessarily requires
management to make estimates and assumptions. These estimates and assumptions,
which may differ from actual results, will affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts of
revenue and expense during the reporting period.
Financial Instruments
The fair values of financial instruments are determined by reference to
various market data and other valuation techniques as appropriate. Unless
otherwise disclosed, the fair values of financial instruments approximate their
recorded values (see Note 11).
Cash and Cash Equivalents
All highly liquid debt instruments purchased with a maturity of three
months or less are classified as cash equivalents.
Temporary Investments
The Partnership's temporary investments that are bought and held
principally for the purpose of selling them in the near term are classified as
trading securities. Trading securities are recorded at fair value as current
assets on the balance sheet, with the change in fair value during the period
included in earnings.
Revenue Recognition
Substantially all revenue is derived from interstate and intrastate
transportation of petroleum products and the sale of re-refined transmix
products at the wholesale level. Such revenue is recognized as products are
delivered to customers. Such customers include major integrated oil companies,
major refiners and large regional marketing companies. The consolidated
Partnership's customer base was approximately 170 in 1999. During 1999, sales
of $46.6 million to one customer
30
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
represented approximately 15% of consolidated revenue. Of the $46.6 million in
sales, $32.3 million was related to the refining segment and $14.3 million was
related to the transportation segment. The Partnership does not maintain an
allowance for doubtful accounts.
Inventories
Inventories, consisting of petroleum products, materials and supplies, are
carried at the lower of cost or market based on the first-in first-out method.
Property, Plant and Equipment
Property, plant and equipment consist primarily of pipeline and related
transportation facilities and equipment. For financial reporting purposes,
depreciation is calculated primarily using the straight-line method over the
estimated useful life of 50 years. Additions and betterments are capitalized
and maintenance and repairs are charged to income as incurred. Generally, upon
normal retirement or replacement, the cost of property (less salvage) is
charged to the depreciation reserve, which has no effect on income.
Goodwill
The Partnership amortizes goodwill on the straight-line basis over a
period of fifteen years.
Long-Lived Assets
The Partnership regularly assesses the recoverability of its long-lived
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
Income Taxes
For federal and state income tax purposes, the Partnership and Operating
Partnerships are not taxable entities. Accordingly, the taxable income or loss
of the Partnership and Operating Partnerships, which may vary substantially
from income or loss reported for financial reporting purposes, is generally
includable in the federal and state income tax returns of the individual
partners. As of December 31, 1999 and 1998, the Partnership's reported amount
of net assets for financial reporting purposes exceeded its tax basis by
approximately $290 million and $285 million, respectively.
Environmental Expenditures
Environmental expenditures that relate to current or future revenues are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations, and do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or clean-ups are probable, and the costs can be reasonably
estimated. Generally, the timing of these accruals coincides with the
Partnership's commitment to a formal plan of action. In 1997, the Partnership
adopted the American Institute of Certified Public Accountants Statement of
Position ("SOP") 96-1, "Environmental Remediation Liabilities." SOP 96-1
prescribes that accrued environmental remediation related expenses include
direct costs of remediation and indirect costs related to the remediation
effort. Although the Partnership previously accrued for direct costs of
remediation and certain indirect costs, additional indirect costs were required
to be accrued by the Partnership at the time of adopting SOP 96-1, such as
compensation and benefits for employees directly involved in the remediation
activities and fees paid to outside engineering, consulting and law firms. The
effect of initially applying the provisions of SOP 96-1 has been treated as a
change in accounting estimate and is not material to the accompanying financial
statements.
31
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Pensions
Services Company maintains a defined contribution plan, defined benefit
plans (see Note 13) and an employee stock ownership plan (see Note 15) which
provide retirement benefits to substantially all of its regular full-time
employees. Certain hourly employees of Services Company are covered by a
defined contribution plan under a union agreement.
Postretirement Benefits Other Than Pensions
Services Company provides postretirement health care and life insurance
benefits for certain of its retirees (see Note 13). Certain other retired
employees are covered by a health and welfare plan under a union agreement.
Comprehensive Income
The Partnership has not reported comprehensive income due to the absence
of items of other comprehensive income in any period presented.
Segment Reporting and Related Information
Effective for the December 31, 1998 financial statements, the Partnership
adopted Financial Accounting Standards Board Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information." The Partnership has
two reportable segments, transportation of refined petroleum products and
refining of petroleum products.
Accounting for Derivative Instruments and Hedging Activities
The Partnership hedges a substantial portion of its exposure to inventory
price fluctuations with commodity futures contracts in gasoline and fuel oil.
To qualify for hedge accounting, the contracts must meet defined correlation
and effectiveness criteria, be designated as hedges and result in cash flows
and financial statement effects which substantially offset those of the
position being hedged. Amounts receivable or payable under such contracts are
reported on the consolidated balance sheet as current receivables or
liabilities. Realized gains and losses arising from such hedging transactions
are recorded in cost of goods sold when the hedged inventory is sold.
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which
established 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.
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
financial statements.
3. ACQUISITIONS
On March 4, 1999, the Partnership acquired the fuels division of American
Refining Group, Inc. for an initial purchase price of $12,990,000. In December
1999, the Partnership accrued 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,
32
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 operates the former ARG processing
business under the name of Buckeye Refining Company, LLC. The purchase price
has been allocated to assets acquired based on estimated fair value. The
allocated fair value of assets acquired is summarized as follows:
Trade receivables ..................... $ 815,000
Petroleum products inventory .......... 4,102,000
Property, plant and equipment ......... 8,073,000
Goodwill .............................. 747,000
-----------
Total ................................. $13,737,000
===========
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,
calculated on an annual basis, exceed certain levels.
On March 31, 1999, the Partnership acquired certain assets from Seagull
Products Pipeline Corporation and Seagull Energy Corporation 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 operates the pipeline assets
acquired from Seagull under the name of Buckeye Gulf Coast Pipe Lines, LLC. The
purchase price has been allocated to assets acquired based on estimated fair
value. The allocated fair value of assets acquired is summarized as follows:
Property, plant and equipment ......... $2,150,000
Goodwill .............................. 3,600,000
----------
Total ................................. $5,750,000
==========
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:
Twelve Months Ended
December 31,
-----------------------------
1999 1998
------------- -------------
(In thousands,
except per Unit amounts)
Revenue ................... $ 316,585 $ 276,414
Net income ................ $ 75,585 $ 51,614
Earnings per Unit ......... $ 2.80 $ 1.91
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.
33
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. SEGMENT INFORMATION
The Partnership has two reportable segments, the transportation segment
and the refining segment, which are organized on the basis of products and
services. 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 pipeline transmix and the wholesale marketing of
the resulting products 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 segment 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 December 31, 1999. The
refining segment's results of operations include the period from the March 4,
1999 (date of acquisition) through December 31, 1999. The transportation
segment results of operations include BGC's results of operations for the
period March 31, 1999 through December 31, 1999.
<TABLE>
<CAPTION>
Trans- Inter-
portation Refining company Total
----------- ---------- ------------ -----------
(In thousands)
<S> <C> <C> <C> <C>
Revenues from external customers ......... $200,828 $107,489 $ (2,531) $305,786
Intersegment revenues .................... 2,531 -- -- 2,531
Operating income ......................... 95,936 5,093 -- 101,029
Segment assets ........................... 647,519 30,615 (3,849) 674,285
Expenditures for property, plant and
equipment .............................. 26,731 287 -- 27,018
</TABLE>
All revenues are from sources within the United States.
5. CONTINGENCIES
The Partnership and 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. 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 annual results of
operations.
34
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Environmental
In accordance with its accounting policy on environmental expenditures,
the Partnership recorded operating expenses of $3.2 million, $1.8 million and
$2.7 million for 1999, 1998 and 1997, respectively, which were related to the
environment. Expenditures, both capital and operating, relating to
environmental matters are expected to continue due to the Partnership's
commitment to maintain high environmental standards and to increasingly strict
environmental laws and government enforcement policies.
Various 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 have been asserted and may be
asserted in the future under various federal and state laws. 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.
The total potential remediation costs to be borne by the Operating Partnerships
relating to these clean-up sites cannot be reasonably estimated and could be
material. With respect to each site, however, the Operating Partnership
involved is one of several or as many as several hundred potentially
responsible parties that would share in the total costs of clean-up under the
principle of joint and several liability. Although the Partnership has made a
provision for certain legal expenses relating to these matters, the General
Partner is unable to determine the timing or outcome of any pending proceedings
or of any future claims and proceedings.
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
effective rate per annum of 8.98 percent through June 30, 1992. Pursuant to the
Executive Life Plan of Rehabilitation, the Plan received an interest only
contract from Aurora National Life Assurance Company (the "Aurora GIC") in
substitution for its Executive Life GIC. The Aurora GIC provided for
semi-annual interest payments at a rate of 5.61 percent per annum through
September 1998, the maturity date of the contract. In addition, the Plan
received certain additional cash payments through the maturity date of the
contract as a result of the liquidation of the Executive Life assets. 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.
In May 1991, in order to safeguard the basic retirement and savings
benefits of its employees, BMC (as General Partner) entered into an arrangement
with the Plan that would guarantee the Plan would receive at least its initial
principal investment of $7.4 million plus interest at an effective rate per
annum of 5 percent from July 1, 1989. On September 3, 1998, the Aurora GIC
matured and BMC has met its guaranty obligation to the Plan. Total costs
incurred in connection with the guaranty obligation were approximately $0.4
million and were reimbursed by the Partnership.
6. INVENTORIES
As a result of the BRC acquisition, inventories now consist of transmix,
fuel oils, gasoline 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.
35
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Inventories are valued at the lower of cost or market on the first-in first-out
method. Inventories consisted of the following:
December 31,
---------------------
1999 1998
---------- --------
(In thousands)
Transmix ................................... $12,319 $ --
Gasoline, distillates and jet fuel ......... 1,664 --
Pipeline materials and supplies ............ 4,414 2,988
------- ------
Total ..................................... $18,397 $2,988
======= ======
The Partnership uses derivative financial instruments to manage price risk
associated with the market price of refined petroleum products. At December 31,
1999 the Partnership had hedged approximately 56 percent of its petroleum
product inventory and had approximately $0.1 million of unrealized gains
related to futures contracts held. BRC's operating income of $5.1 million for
the 10 months ended December 31, 1999 is net of $4.4 million in realized losses
related to investments in futures contracts.
7. PREPAID AND OTHER CURRENT ASSETS
Prepaid and other current assets consist primarily of receivables from
third parties for pipeline relocations and other work either completed or
in-progress. Prepaid and other current assets also include prepaid insurance,
prepaid taxes and other miscellaneous items.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
----------- -----------
(In thousands)
<S> <C> <C>
Land ................................................ $ 9,846 $ 9,498
Buildings and leasehold improvements ................ 29,892 27,569
Machinery, equipment and office furnishings ......... 545,355 533,063
Construction in progress ............................ 51,985 30,676
-------- --------
637,078 600,806
Less accumulated depreciation ..................... 80,174 68,110
-------- --------
Total ............................................. $556,904 $532,696
======== ========
</TABLE>
Depreciation expense was $12,556,000, $11,734,000 and $11,371,000 for the
years 1999, 1998 and 1997, respectively.
9. OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following:
December 31,
-----------------------
1999 1998
---------- ----------
(In thousands)
Deferred charge (see Note 15) ......... $52,999 $57,696
Goodwill .............................. 4,126 --
Other ................................. 4,629 3,480
------- -------
Total ................................ $61,754 $61,176
======= =======
36
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The $64.2 million market value of the LP Units issued in connection with
the restructuring of the ESOP in August 1997 (the "ESOP Restructuring") was
recorded as a deferred charge and is being amortized on the straight-line basis
over 13.5 years (See Note 15). Amortization of the deferred charge related to
the ESOP Restructuring was $4,698,000 in 1999 and 1998. Goodwill is amortized
on a straight-line basis over a period of fifteen years. Amortization of
goodwill was $221,000 in 1999.
10. ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other current liabilities consist of the following:
December 31,
---------------------
1999 1998
--------- ---------
(In thousands)
Taxes--other than income .................... $ 5,483 $ 8,729
Accrued charges due General Partner ......... 6,690 8,724
Environmental liabilities ................... 3,588 2,121
Interest .................................... 756 699
Accrued operating power ..................... 1,242 1,080
Other ....................................... 5,758 4,771
------- -------
Total ...................................... $23,517 $26,124
======= =======
11. LONG-TERM DEBT AND CREDIT FACILITIES
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
----------- -----------
(In thousands)
<S> <C> <C>
Senior Notes:
6.98% Series 1997A due December 16, 2024 (subject to
$25.0 million annual sinking fund requirement
commencing December 16, 2020) .......................... $125,000 $125,000
6.89% Series 1997B due December 16, 2024 (subject to
$20.0 million annual sinking fund requirement
commencing December 16, 2020) .......................... 100,000 100,000
6.95% Series 1997C due December 16, 2024 (subject to
$2.0 million annual sinking fund requirement
commencing December 16, 2020) .......................... 10,000 10,000
6.96% Series 1997D due December 16, 2024 (subject to
$1.0 million annual sinking fund requirement
commencing December 16, 2020) .......................... 5,000 5,000
Credit Agreement due December 16, 2003 (variable rates;
average weighted rate at December 31, 1999 was
6.32%) ................................................. 26,000 --
-------- --------
Total ................................................ $266,000 $240,000
======== ========
</TABLE>
At December 31, 1999, a total of $26.0 million of debt was scheduled to
mature in December 2003. A total of $240,000,000 of debt is scheduled to mature
in the period 2020 through 2024.
The fair value of the Partnership's debt is estimated to be $234 million
and $241 million as of December 31, 1999 and 1998, respectively. The values at
December 31, 1999 and 1998 were calculated using interest rates currently
available to the Partnership for issuance of debt with similar terms and
remaining maturities.
37
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In December 1997, Buckeye entered into an agreement to issue $240.0
million of Senior Notes (Series 1997A through 1997D) bearing interest ranging
from 6.89 percent to 6.98 percent. The proceeds from the issuance of the Senior
Notes, plus additional amounts approximating $4.5 million, were used to
extinguish all of the First Mortgage Notes outstanding, totaling $202.1 million
bearing interest ranging from 7.11 percent to 11.18 percent. This debt
extinguishment resulted in an extraordinary loss of $42.4 million in 1997
consisting of $41.4 million of prepayment premium and $1.0 million in fees and
expenses.
The indenture, as amended in connection with the issuance of the Senior
Notes (the "Indenture") contains covenants that affect Buckeye, Laurel and
Buckeye Pipe Line Company of Michigan, L.P. (the "Indenture Parties").
Generally, the 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.
During December 1998, Buckeye established a line of credit from commercial
banks (the "Credit Agreement") that permits borrowings of up to $100 million
subject to certain limitations contained in the Credit Agreement. Borrowings
bear interest at the bank's base rate or at a rate based on the London
interbank rate at the option of Buckeye. The Credit Agreement expires December
16, 2003. At December 31, 1999 a total of $26.0 million in borrowings, at a
weighted average rate of 6.32 percent, was outstanding under the Credit
Agreement.
The Credit Agreement contains certain 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.
12. OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consist of the following:
December 31,
-----------------------
1999 1998
---------- ----------
(In thousands)
Accrued employee benefit liabilities ......... $36,491 $36,919
Accrued top-up reserve ....................... 2,998 1,656
Accrued non-current taxes .................... 91 2,450
Other ........................................ 6,385 5,595
------- -------
Total ....................................... $45,965 $46,620
======= =======
13. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Services Company provides retirement benefits, primarily through
noncontributory pension plans, for substantially all of its regular full-time
employees, except those covered by certain labor contracts, under which
Services Company contributes 5 percent of each covered employee's salary.
Services Company also sponsors a retirement income guarantee plan (a defined
benefit plan) which generally guarantees employees hired before January 1,
1986, a retirement benefit at least equal to the benefit they would have
received under a previously terminated defined benefit plan. Services Company's
policy is to fund amounts as are necessary to at least meet the minimum funding
requirements of ERISA.
38
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Services Company also provides postretirement health care and life
insurance benefits to certain of its retirees. To be eligible for these
benefits an employee had to be hired prior to January 1, 1991 and has to meet
certain service requirements. Services Company does not pre-fund this
postretirement benefit obligation.
A reconciliation of the beginning and ending balances of the benefit
obligations under the noncontributory pension plans and the postretirement
health care and life insurance plan is as follows:
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Benefits
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of
year ................................. $ 15,122 $ 14,469 $ 29,393 $ 24,943
Service cost .......................... 492 511 509 540
Interest cost ......................... 742 888 1,688 1,707
Actuarial (gain) loss ................. (466) (1,353) (3,732) 3,317
Change in assumptions ................. (171) 1,229 -- --
Adjusted benefit payments ............. (3,424) (622) (1,510) (1,114)
-------- -------- -------- --------
Benefit obligation at end of year ..... $ 12,295 $ 15,122 $ 26,348 $ 29,393
======== ======== ======== ========
</TABLE>
A reconciliation of the beginning and ending balances of the fair value of
plan assets under the noncontributory pension plans and the postretirement
health care and life insurance plan is as follows:
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Benefits
-------------------------- -----------------------------
1999 1998 1999 1998
----------- ------------ ------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Change in plan assets
Fair value of plan assets at
beginning of year .................. $ 8,864 $ 6,993 $ -- $ --
Actuarial return on plan assets ..... 1,713 1,264 -- --
Revaluation of asset ................ -- 951 -- --
Employer contribution ............... 1,184 270 1,510 1,114
Benefits paid ....................... (3,424) (614) (1,510) (1,114)
-------- -------- --------- ---------
Fair value of plan assets at end
of year ............................ $ 8,337 $ 8,864 $ -- $ --
======== ======== ========= =========
Funded status ....................... $ (3,958) $ (6,258) $ (26,348) $ (29,393)
Unrecognized prior service cost ..... (665) (751) (2,318) (2,898)
Unrecognized actuarial (gain)
loss ............................... (1,007) 945 (1,927) 1,832
Unrecognized net asset at
transition ......................... (623) (782) -- --
-------- -------- --------- ---------
Accrued benefit cost ................ $ (6,253) $ (6,846) $ (30,593) $ (30,459)
======== ======== ========= =========
</TABLE>
39
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The weighted average assumptions used in accounting for the
noncontributory pension plans and the postretirement health care and life
insurance plan were as follows:
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Benefits
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Weighted-average assumptions
as of December 31
Discount rate ...................... 7.75% 6.50% 7.75% 6.50%
Expected return on plan assets ..... 8.50% 8.50% N/A N/A
Rate of compensation increase ...... 5.25% 4.50% N/A N/A
</TABLE>
The assumed rate of cost increase in the postretirement health care and
life insurance plan in 1999 was 7.0 percent and 7.75 percent for non-Medicare
eligible and Medicare eligible retirees, respectively. The assumed annual rates
of cost increase decline each year through 2005 to a rate of 5.5 percent, and
remain at 5.5 percent thereafter for both non-Medicare eligible and Medicare
eligible retirees.
Assumed healthcare cost trend rates have a significant effect on the
amounts reported for the healthcare plans. The effect of a 1 percent change in
the health care cost trend rate for each future year would have had the
following effects on 1999 results:
<TABLE>
<CAPTION>
1-Percentage 1-Percentage
Point Increase Point Decrease
---------------- ---------------
(In thousands)
<S> <C> <C>
Effect on total service cost and interest cost
components ........................................ $ 377 $ (320)
Effect on postretirement benefit obligation ......... $4,086 $ (3,520)
</TABLE>
The components of the net periodic benefit cost recognized for the
noncontributory pension plans and the postretirement health care and life
insurance plan were as follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
------------------------------- ---------------------------------
1999 1998 1997 1999 1998 1997
--------- --------- --------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost
Service cost ..................... $ 492 $ 511 $ 291 $ 509 $ 540 $ 507
Interest cost .................... 742 888 819 1,688 1,707 1,720
Expected return on plan assets ... (655) (656) (531) -- -- --
Amortization of unrecognized
transition asset ................ (160) (160) (160) -- -- --
Amortization of prior service
cost ............................ (86) (86) (70) (580) (580) (580)
Amortization of unrecognized
losses .......................... 258 189 68 26 18 5
------ ------ ------ ------ ------ ------
Net periodic benefit cost ........ $ 591 $ 686 $ 417 $1,643 $1,685 $1,652
====== ====== ====== ====== ====== ======
</TABLE>
Services Company also participates in a multi-employer retirement income
plan that provides benefits to employees covered by certain labor contracts.
Pension expense for the plan was $140,000, $126,000 and $129,000 for 1999, 1998
and 1997, respectively.
40
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In addition, Services Company contributes to a multi-employer
postretirement benefit plan that provides health care and life insurance
benefits to employees covered by certain labor contracts. The cost of providing
these benefits was approximately $103,000, $106,000 and $110,000 for 1999, 1998
and 1997, respectively.
14. UNIT OPTION AND DISTRIBUTION EQUIVALENT PLAN
Effective January 1, 1996, the Partnership adopted Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," which requires expanded disclosures of stock-based compensation
arrangements with employees. SFAS 123 encourages, but does not require,
compensation cost to be measured based on the fair value of the equity
instrument awarded. It allows the Partnership to continue to measure
compensation cost for these plans using the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). The Partnership has
elected to continue to recognize compensation cost based on the intrinsic value
of the equity instrument awarded as promulgated in APB 25.
The Partnership has a Unit Option and Distribution Equivalent Plan (the
"Option Plan"), which was approved by the Board of Directors of the General
Partner on April 25, 1991 and by holders of the LP Units on October 22, 1991.
The Option Plan was amended and restated on July 14, 1998. The Option Plan
authorizes the granting of options (the "Options") to acquire LP Units to
selected key employees (the "Optionees") of Services Company not to exceed
720,000 LP Units in the aggregate. The price at which each LP Unit may be
purchased pursuant to an Option granted under the Option Plan is generally
equal to the market value on the date of the grant. Options granted prior to
1998 were granted with a feature that allows Optionees to apply accrued credit
balances (the "Distribution Equivalents") as an adjustment to the aggregate
purchase price of such Options. The Distribution Equivalents are an amount
equal to (i) the Partnership's per LP Unit regular quarterly distribution,
multiplied by (ii) the number of LP Units subject to such Options that have not
vested. Options granted after 1997 do not have a Distribution Equivalent
feature. Vesting in the Options is determined by the number of anniversaries
the Optionee has remained in the employ of Services Company following the date
of the grant of the Option. Options granted prior to 1998 vested in varying
amounts beginning generally three years after the date of grant. Options
granted after 1997 vest in three years. Options granted in 1998 are exercisable
for a period of seven years following the date on which they vest. Options
granted prior to 1998 are exercisable for a period of five years following the
date on which they vest. The Partnership recorded compensation expense related
to the Option Plan of $33,000 in 1999, $34,000 in 1998 and $179,000 in 1997.
Compensation and benefit costs of executive officers were not charged to the
Partnership after August 12, 1997 (See Note 17). If compensation cost for the
Option Plan had been determined based on the fair value at the time of the
grant dates for awards consistent with SFAS 123, the Partnership's net income
and earnings per share would have been as indicated by the proforma amounts
below:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -----------
(In thousands
except per Unit amounts)
<S> <C> <C> <C>
Net income
As reported ....................... $ 76,283 $ 52,007 $ 6,383
Pro forma ......................... $ 76,258 $ 52,006 $ 6,387
Basic earnings per unit
As reported and Pro forma ......... $ 2.82 $ 1.93 $ 0.25
Diluted earnings per unit
As reported and Pro forma ......... $ 2.81 $ 1.92 $ 0.25
</TABLE>
41
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Options granted in 1999 and 1998 vest after 3 years following the date of
the grant. The fair value of each option is estimated on the date of grant
using the Black-Scholes option-pricing model. A portion of each option granted
prior to 1998 vests after three, four and five years following the date of the
grant. The assumptions used for options granted in 1999, 1998 and 1997 are
indicated below.
<TABLE>
<CAPTION>
Risk-free Interest Rate Expected Life (Years)
------------------------------- ------------------------------
Year of Dividend Vesting Period Vesting Period
Option Grant Yield Volatility 3 Years 4 Years 5 Years 3 Years 4 Years 5 Years
- -------------- ---------- ------------ --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 7.7% 20.1% 5.6% N/A N/A 3.50 N/A N/A
1998 7.1% 24.7% 5.5% N/A N/A 3.50 N/A N/A
1997 0.0% 19.6% 6.4% 6.4% 6.5% 3.25 4.25 5.25
</TABLE>
Options granted in 1999 and 1998 assume a dividend yield of 7.7 percent
and 7.1 percent, respectively. No dividend yield was assumed on options granted
prior to 1998 as the exercise price of the option is adjusted downward during
the term of the option to take account of the dividends paid on the underlying
LP units.
A summary of the changes in the LP Unit options outstanding under the
Option Plan as of December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ -------------------------
Weighted Weighted Weighted
Units Average Units Average Units Average
Under Exercise Under Exercise Under Exercise
Option Price Option Price Option Price
------------ ---------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year ...... 220,440 $ 15.71 221,140 $ 15.51 197,340 $ 15.36
Granted ............................... 37,400 28.50 20,300 29.50 51,900 21.07
Exercised ............................. (53,800) 12.53 (21,000) 11.78 (28,100) 13.74
------- ------- -------
Outstanding at end of year ............ 204,040 17.86 220,440 15.71 221,140 15.51
======= ======= =======
Options exercisable at year-end ....... 68,240 49,540 20,140
Weighted average fair value of
options granted during the year ..... $ 2.66 $ 3.75 $ 5.62
</TABLE>
The following table summarizes information relating to LP Unit options
outstanding under the Option Plan at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ -------------------------
Weighted
Average Weighted Weighted
Range of Options Remaining Average Options Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/99 Life Price at 12/31/99 Price
- ------------------ ------------- ------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
$6.00 to $10.00 10,140 4.8 Years $ 8.40 1,340 $ 9.06
$10.01 to $15.00 79,000 4.4 Years 12.57 55,200 12.71
$15.01 to $20.00 57,200 5.9 Years 15.75 11,700 15.59
$20.01 to $30.00 57,700 9.2 Years 28.85 -- --
------- ------
Total 204,040 6.2 Years 17.86 68,240 13.13
======= ======
</TABLE>
At December 31, 1999, there were 292,700 LP Units available for future
grants under the Option Plan.
42
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
15. EMPLOYEE STOCK OWNERSHIP PLAN
In connection with the Acquisition, the ESOP was formed for the benefit of
employees of BMC, the General Partner and shareholders of BMC. BMC borrowed $63
million pursuant to a 15-year term loan from a third-party lender. BMC then
loaned $63 million to the ESOP, which used the loan proceeds to purchase $63
million of Series A Convertible Preferred Stock of BAC ("BAC Preferred Stock").
The BAC Preferred Stock had a 7.5% cumulative dividend rate and a conversion
rate of approximately 7.7 shares of BAC common stock per share of BAC Preferred
Stock.
In December 1996, the Board of Directors of BMC approved a restructuring
of the ESOP (the "ESOP Restructuring"). The ESOP Restructuring was approved by
a majority of the holders of the LP Units at a special meeting held on August
11, 1997. On August 12, 1997, in connection with the ESOP Restructuring, the
Partnership issued an additional 2,573,146 LP Units that are beneficially owned
by the ESOP through Services Company. The market value of the LP Units issued
to Services Company was approximately $64.2 million. As a result of the
Partnership's issuance of the LP Units, the Partnership's obligation to
reimburse BMC for certain executive compensation costs was permanently
released, the incentive compensation paid by the Partnership to BMC under the
existing incentive compensation agreement was reduced, and other changes were
implemented to make the ESOP a less expensive fringe benefit for the
Partnership. The $64.2 million market value of the LP Units issued was recorded
as a deferred charge relating to the ESOP Restructuring and is being amortized
over 13.5 years. As a result of the ESOP Restructuring, the $63 million loan
from the third party lender became a direct obligation of the ESOP and is
secured by the stock of Services Company and guaranteed by BMC and certain of
its affiliates.
Total ESOP related costs charged to earnings were $1,341,000 during 1999
and $1,196,000 during 1998, representing a non-cash accrual of the current
year's portion of the estimated difference between the total distributions to
be received on the LP Units and the total debt service requirements under the
ESOP loan (the "top- up provision").
Total ESOP related costs charged to earnings during 1997 were $5,241,000
which included $2,805,000 of interest expense with respect to the ESOP loan,
$1,976,000 based upon the value of 1,976 shares of BAC Preferred Stock released
and allocated to employee accounts through August 12, 1997 and the accrual of a
$460,000 top-up provision. The 1,976 shares of BAC Preferred Stock that were
released and allocated to employees' accounts were subsequently exchanged for
40,354 shares of Services Company stock during 1997.
As a result of the ESOP Restructuring the Partnership will not incur any
additional charges related to interest expense and shares released to employee
accounts under the ESOP. The Partnership will, however, incur ESOP-related
costs to the extent that required contributions to the ESOP are in excess of
distributions received on the LP Units owned by Services Company, for taxes
associated with the sale and annual taxable income of the LP Units and for
routine administrative costs.
Services Company stock is released to employee accounts in the proportion
that current payments of principal and interest on the ESOP loan bear to the
total of all principal and interest payments due under the ESOP loan.
Individual employees are allocated shares based upon the ratio of their
eligible compensation to total eligible compensation. Eligible compensation
generally includes base salary, overtime payments and certain bonuses. Services
Company stock allocated to employees receives stock dividends in lieu of cash,
while cash dividends are used to pay principal and interest on the ESOP loan.
43
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
16. LEASES AND COMMITMENTS
The Operating Partnerships lease certain land and rights-of-way. Minimum
future lease payments for these leases as of December 31, 1999 are
approximately $2.9 million for each of the next five years. Substantially all
of these lease payments can be canceled at any time should they not be required
for operations.
The General Partner leases space in an office building and certain copying
equipment and charges these costs to the Operating Partnerships. Buckeye leases
certain computing equipment and automobiles. BRC leases tanks. Future minimum
lease payments under these noncancelable operating leases at December 31, 1999
were as follows: $1,519,000 for 2000, $1,497,000 for 2001, $1,357,000 for 2002,
$1,239,000 for 2003, $1,253,000 for 2004 and $2,187,000 thereafter.
Buckeye entered into an energy services agreement for certain main line
pumping equipment and the natural gas requirements to fuel this equipment at
its Linden, New Jersey facility. Under the energy services agreement, which is
designed to reduce power costs at the Linden facility, Buckeye is required to
pay a minimum of $1,743,000 annually over the next twelve years. This minimum
payment is based on an annual minimum usage requirement of the natural gas
engines at the rate of $0.049 per kilowatt hour equivalent. In addition to the
annual usage requirement, Buckeye is subject to minimum usage requirements
during peak and off-peak periods. Buckeye's use of the natural gas engines has
exceeded the minimum requirement in 1998 and 1999.
Rent expense for all operating leases was $8,448,000, $7,192,000 and
$6,606,000 for 1999, 1998 and 1997, respectively.
17. RELATED PARTY TRANSACTIONS
The Partnership and the Operating Partnerships are managed by the General
Partner. Under certain partnership agreements and management agreements, BMC,
the General Partner, Services Company and certain related parties are entitled
to reimbursement of all direct and indirect costs related to the business
activities of the Partnership and the Operating Partnerships.
In connection with the ESOP Restructuring in August 1997, the Unitholders
approved an amendment to the Partnership Agreement to (i) relieve the General
Partner of any obligation to make an additional capital contribution to the
Partnership upon the issuance of additional LP Units if the General Partner
receives a legal opinion that such additional capital contribution is not
required for the Partnership or any of its Operating Partnerships to avoid
being treated as an association taxable as a corporation for federal income tax
purposes and (ii) obligate any successor general partner, upon removal and
replacement of the General Partner by the holders of the LP Units, to the
obligations of the General Partner and its affiliates under the Exchange
Agreement and to consider this obligation in determining the value of the
general partnership interest which must be acquired by a successor general
partner.
Also in connection with the ESOP Restructuring, the General Partner's
employees were transferred to Services Company. Services Company employs all of
the employees previously employed by the General Partner and has become the
sponsor of all of the employee benefit plans previously maintained by the
General Partner. Services Company also entered into a Services Agreement with
BMC and the General Partner to provide services to the Partnership and the
Operating Partnerships over a 13.5 year term. Services Company is reimbursed by
BMC or the General Partner for its direct and indirect expenses, other than as
described below with respect to certain executive compensation. BMC and the
General Partner are reimbursed by the Partnership and the Operating
Partnerships. Costs reimbursed to BMC, the General Partner or Services Company
44
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
by the Partnership and the Operating Partnerships totaled $54.3 million, $54.4
million and $57.2 million in 1999, 1998 and 1997, respectively. The
reimbursable costs include insurance, general and administrative costs,
compensation and benefits payable to officers and employees of BMC, the General
Partner and Services Company, tax information and reporting costs, legal and
audit fees and an allocable portion of overhead expenses. Compensation and
benefit costs of the executive officers of BMC were not charged to the
Partnership after August 12, 1997 pursuant to the Exchange Agreement entered
into among BMC, the Partnership and the Operating Partnerships. Services
Company, which is beneficially owned by the ESOP, owns 2,534,157 LP Units
(approximately 9.5 percent of the LP Units outstanding). Distributions received
by Services Company on such LP Units are used to fund obligations of the ESOP.
Distributions paid to Services Company totaled $5,533,000 during 1999,
$5,390,000 during 1998 and $2,483,000 for the period August 12, 1997 through
December 31, 1997.
In August 1997, the Incentive Compensation Agreement was further amended
to exclude the LP Units held by Services Company from the incentive
compensation calculation and to reduce the amount of incentive compensation
payable to the General Partner by at least $121,000 per year at annual
distribution levels below $2.10 and to increase incentive compensation at
annual distribution levels above $2.20. Included in minority interests and
other expenses are incentive compensation payments of $7.2 million, $6.4
million and $3.0 million in 1999, 1998 and 1997, respectively.
The management agreements between the General Partner and the Operating
Partnerships were amended in August 1997 to include the provisions of the
Exchange Agreement dated August 12, 1997 among the Partnership, the General
Partner and certain of their affiliates. The amended and restated agreements of
limited partnership of each of the Operating Partnerships were also amended as
of August 12, 1997 to exclude from the definition of reimbursable costs any
cost or expense for which BMC and its affiliates are not entitled to be
reimbursed pursuant to the terms of the Exchange Agreement.
In July 1998, through a consent solicitation approved by more than
two-thirds of the LP Unitholders, amendments to the Partnership Agreement were
adopted to (i) remove the limitation on the number of limited partnership units
of the Partnership that may be issued without the approval of the Unitholders;
(ii) eliminate the restrictions on the amount of debt that can be incurred by
the Partnership or its Operating Partnerships; and (iii) remove the limitations
on the amount of capital expenditures that can be made by the Partnership or
the Operating Partnerships in any calendar year.
In December 1998, the Partnership Agreement was amended and restated to
reflect the transfer of the general partnership interest in the Partnership
from BMC to the General Partner.
45
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
18. PARTNERS' CAPITAL
Changes in partners' capital for the years ended December 31, 1997, 1998,
and 1999 were as follows:
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
----------- -------------- --------------
(In thousands, except for Units)
<S> <C> <C> <C>
Partners' capital at January 1, 1997 ........... $ 2,760 $ 273,219 $ 275,979
Net income ..................................... 85 6,298 6,383
Distributions .................................. (418) (43,887) (44,305)
Value of Units issued in connection with ESOP
Restructuring ................................ -- 64,200 64,200
Proceeds from exercise of unit options and
capital contributions ........................ 5 516 521
-------- ----------- -----------
Partners' capital at December 31, 1997 ......... 2,432 300,346 302,778
Net income ..................................... 470 51,537 52,007
Distributions .................................. (512) (56,154) (56,666)
Proceeds from exercise of unit options ......... -- 366 366
-------- ----------- -----------
Partners' capital December 31, 1998 ............ 2,390 296,095 298,485
Net income ..................................... 689 75,594 76,283
Distributions .................................. (531) (58,226) (58,757)
Proceeds from exercise of unit options ......... -- 978 978
-------- ----------- -----------
Partners' capital December 31, 1999 ............ $ 2,548 $ 314,441 $ 316,989
======== =========== ===========
Units outstanding at January 1, 1997 ........... 243,640 24,120,360 24,364,000
Units issued in connection with ESOP
Restructuring ................................ -- 2,573,146 2,573,146
Units issued pursuant to the unit option and
distribution equivalent plan and capital
contributions ................................ 274 28,100 28,374
-------- ----------- -----------
Units outstanding at December 31, 1997 ......... 243,914 26,721,606 26,965,520
Units issued pursuant to the unit option and
distribution equivalent plan ................. -- 21,000 21,000
-------- ----------- -----------
Units outstanding at December 31, 1998 ......... 243,914 26,742,606 26,986,520
Units issued pursuant to the unit option and
distribution equivalent plan ................. -- 53,800 53,800
-------- ----------- -----------
Units outstanding at December 31, 1999 ......... 243,914 26,796,406 27,040,320
======== =========== ===========
</TABLE>
Historical LP Unit information has been restated to reflect a two-for-one
unit split approved effective February 13, 1998.
The net income per unit for 1999, 1998 and 1997 was calculated using the
weighted average outstanding LP Units of 27,014,429, 26,982,099 and 25,385,402,
respectively.
The Partnership Agreement provides that without prior approval of limited
partners of the Partnership holding an aggregate of at least two-thirds of the
outstanding LP Units, the Partnership cannot issue any additional LP Units of a
class or series having preferences or other special or senior rights over the
LP Units.
46
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
19. CASH DISTRIBUTIONS
The Partnership makes quarterly cash distributions to Unitholders 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. In 1999, quarterly distributions of $0.525 per GP and LP
Unit were paid in February and $0.55 per GP and LP Unit were paid in May,
August and November. In 1998, quarterly distributions of $0.525 per GP and LP
Unit were paid in February, May, August and November. In 1997, quarterly
distributions of $0.375 in February and May, $0.44 in August and $0.525 in
November were paid per GP and LP Unit. All such distributions were paid on the
then outstanding GP and LP Units. Cash distributions aggregated $58,757,000 in
1999, $56,666,000 in 1998 and $44,305,000 in 1997.
20. QUARTERLY FINANCIAL DATA (NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
Summarized quarterly financial data for 1999 and 1998 are set forth below.
Quarterly results were influenced by seasonal factors inherent in the
Partnership's business.
<TABLE>
<CAPTION>
1st 2nd 3rd
Quarter Quarter Quarter
-------------------------- -------------------------- --------------------------
1999 1998 1999 1998 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
(In thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Transportation .......... $ 46,881 $ 43,048 $ 50,461 $ 47,034 $ 48,966 $ 47,716
Refining* ............... 6,741 -- 26,106 -- 36,314 --
-------- -------- -------- -------- -------- --------
Total revenue .......... 53,622 43,048 76,567 47,034 85,280 47,716
Operating income ......... 19,813 16,361 32,116 18,863 22,872 20,088
Net income ............... 14,007 10,916 25,797 13,446 16,625 14,436
Earnings per Partner-
ship Unit:
Net income per Unit...... 0.52 0.40 0.96 0.50 0.62 0.53
Earnings per Partner-
ship Unit: assuming
dilution:
Net income per
Unit ................. 0.52 0.40 0.95 0.50 0.61 0.53
<CAPTION>
4th
Quarter Total
-------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------- -------------
(In thousands, except per unit amounts)
<S> <C> <C> <C> <C>
Revenue:
Transportation .......... $ 51,989 $ 46,679 $ 198,297 $ 184,477
Refining* ............... 38,328 -- 107,489 --
-------- -------- --------- ---------
Total revenue .......... 90,317 46,679 305,786 184,477
Operating income ......... 26,228 19,046 101,029 74,358
Net income ............... 19,854 13,209 76,283 52,007
Earnings per Partner-
ship Unit:
Net income per Unit...... 0.73 0.49 2.82 1.93
Earnings per Partner-
ship Unit: assuming
dilution:
Net income per
Unit ................. 0.73 0.49 2.81 1.92
</TABLE>
The earnings per LP Unit presented above reflect a two-for-one unit split
effective February 13, 1998.
* Operations acquired in March 1999.
47
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
21. EARNINGS PER UNIT
The following is a reconciliation of basic and dilutive income before
extraordinary loss per LP Unit for the years ended December 31, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------- -------------------------------- --------------------------------
Income Units Per Income Units Per Income Units Per
(Numer- (Denom- Unit (Numer- (Denom- Unit (Numer- (Denom- Unit
ator inator) Amt. ator) inator) Amt. ator) inator) Amt.
--------- --------- ---------- --------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income before
extraordinary loss ...... $76,283 $52,007 $48,807
------- ------- -------
Basic earnings per
Partnership Unit ........ 76,283 27,014 $ 2.82 52,007 26,982 $ 1.93 $48,807 25,385 $ 1.92
====== ====== ======
Effect of dilutive
securities--options ..... -- 85 -- 104 -- 107
------- ------ ------- ------ ------- ------
Diluted earnings per
Partnership Unit ........ $76,283 27,099 $ 2.81 $52,007 27,086 $ 1.92 $48,807 25,492 $ 1.91
======= ====== ====== ======= ====== ====== ======= ====== ======
</TABLE>
Options reported as dilutive securities are related to unexercised options
outstanding under the Option Plan (see Note 14).
22. PROPERTY TAX SETTLEMENT
In February 1999, the Partnership 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 a public
right-of-way in New York City. The settlement agreement resulted in a one-time
reduction of operating expenses of $11.0 million, including a cash refund of
$6.0 million, for the Partnership in the second quarter of 1999.
48
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership does not have directors or officers. The executive
officers of the General Partner perform all management functions for the
Partnership and the Operating Partnerships in their capacities as officers and
directors of the General Partner and Services Company. Directors and officers
of the General Partner are selected by BMC. See "Certain Relationships and
Related Transactions."
Directors of the General Partner
Set forth below is certain information concerning the directors of the
General Partner.
<TABLE>
<CAPTION>
Name, Age and Present Business Experience During
Position with General Partner Past Five Years
- ------------------------------- --------------------------
<S> <C>
Alfred W. Martinelli, 72 Mr. Martinelli has been Chairman of the Board and Chief
Chairman of the Board, Executive Officer of the General Partner and BMC since April
Chief Executive Officer 1987. He has been a Director of the General Partner and BMC
and Director* since October 1986. Mr. Martinelli was Chairman and Chief
Executive Officer of Penn Central Energy Management Com-
pany ("PCEM") from April 1987 until his resignation in March
1996. He was also Vice Chairman and a director of American
Financial and a director of American Annuity Group, Inc., for
more than five years until his resignation in March 1996.
C. Richard Wilson, 55 Mr. Wilson became Vice Chairman of the Board of the General
Vice Chairman Partner on December 31, 1998. He has been a director of the
and Director* General Partner since October 1986. Mr. Wilson was Chief Oper-
ating Officer of the General Partner from January 1987 until
July 1998 and President from February 1991 until July 1998. He
was elected Vice Chairman of the Board of BMC in July 1998.
Mr. Wilson served as Chief Operating Officer of BMC from
January 1997 until July 1998 and as President of BMC from
March 1996 until July 1998. He has been a director of BMC
since February 1995.
Brian F. Billings, 61 Mr. Billings became a director of the General Partner on
Director December 31, 1998. Mr. Billings was a director of BMC from
October 1986 to December 1998. He served as Chairman of the
General Partner from February 1991 until February 1995. Mr.
Billings was President of PCEM from December 1986 to 1995.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Name, Age and Present Business Experience During
Position with General Partner Past Five Years
- ------------------------------- --------------------------
<S> <C>
Neil M. Hahl, 51 Mr. Hahl became a director of the General Partner and BMC in
Director* September 1997. He is President of The Weitling Group, a busi-
ness consulting firm and a director of American Capital Strate-
gies, Ltd., a specialty finance firm. Mr. Hahl was previously a
director of BMC from February 1989 until March, 1996 and
served as President of BMC from February 1992 until March
1996. From January 1993 to August 1996, he was a Senior Vice
President of American Financial Group and its predecessor,
The Penn Central Corporation.
Edward F. Kosnik, 55 Mr. Kosnik became a director of the General Partner on Decem-
Director ber 31, 1998. Mr. Kosnik was a director of BMC from October
1986 to December 1998. Since December 1999, he has been
President and Chief Executive Officer of Berwind Corporation,
a diversified company. Mr. Kosnik was President and Chief
Operating Officer of Berwind Corporation from June 1997 to
December 1999. He was Senior Executive Vice President and
Chief Operating Officer of Alexander & Alexander Services, Inc.
from May 1996 until January 1997. Mr. Kosnik was Executive
Vice President and Chief Financial Officer of Alexander & Alex-
ander Services, Inc. from August 1994 to April 1996.
Jonathan O'Herron, 70 Mr. O'Herron became a director of the General Partner on
Director December 31, 1998. Mr. O'Herron was a director of BMC from
September 1997 to December 1998. He has been Managing
Director of Lazard Freres & Company, LLC for more than five
years.
Ernest R. Varalli, 69 Mr. Varalli has been a director of the General Partner and BMC
Director* since July 1987. He was Executive Vice President, Chief Finan-
cial Officer and Treasurer for more than five years until 1996.
Mr. Varalli also served as Executive Vice President, Chief Finan-
cial Officer and Treasurer of PCEM for more than five years
until his resignation in March 1996. He had been a consultant to
American Financial from September 1986 until March 1996.
</TABLE>
- ---------------
* Also a director of Services Company.
The General Partner has an Audit Committee, which currently consists of
three directors: Brian F. Billings, Neil M. Hahl and Edward F. Kosnik. Messrs.
Billings, Hahl and Kosnik are neither officers nor employees of the General
Partner or any of its affiliates.
In addition, the General Partner has a Finance Committee, which currently
consists of five directors: Neil M. Hahl, Edward F. Kosnik, Jonathan O'Herron,
Ernest R. Varalli and C. Richard Wilson. The Finance Committee provides
oversight and advice with respect to the capital structure of the Partnership.
50
<PAGE>
Executive Officers of the General Partner
Set forth below is certain information concerning the executive officers
of the General Partner who also serve in similar positions in BMC and Services
Company.
<TABLE>
<CAPTION>
Name, Age and Present Business Experience During
Position Past Five Years
--------------------- --------------------------
<S> <C>
William H. Shea, Jr., 45 Mr. Shea was named President and Chief Operating Officer of
President and Chief the General Partner in July 1998. Mr. Shea had been named
Operating Officer Executive Vice President of the General Partner in September
1997 and previously served as Vice President of Marketing and
Business Development of the General Partner from March 1996
to September 1997. Mr. Shea was Vice President--West Central
Region of Laidlaw Environmental Services from 1994 until
1995. Mr. Shea is the son-in-law of Mr. Alfred W. Martinelli.
Stephen C. Muther, 50 Mr. Muther has been Senior Vice President--Administration,
Senior Vice President- General Counsel and Secretary of the General Partner since
Administration, February 1995. Mr. Muther served as General Counsel, Vice
General Counsel President--Administration and Secretary of the General Part-
and Secretary ner from May 1990 to February 1995.
Steven C. Ramsey, 45 Mr. Ramsey has been Senior Vice President--Finance and Chief
Senior Vice President-Finance Financial Officer of the General Partner since February 1995.
and Chief Financial Officer Mr. Ramsey served as Vice President and Treasurer of the Gen-
eral Partner from February 1991 to February 1995.
David J. Martinelli, 39 Mr. Martinelli was named Senior Vice President--Corporate
Senior Vice President- Development and Treasurer of the General Partner in Decem-
Corporate Development ber 1999. He served as Senior Vice President and Treasurer of
and Treasurer the General Partner from July 1998 to December 1999 and pre-
viously served as Vice President and Treasurer of the General
Partner from June 1996. Mr. Martinelli served as Assistant Trea-
surer of the General Partner from March 1996 to June 1996. He
was employed in a corporate financial position with Salomon
Brothers Inc from 1993 until 1996. He is the son of Mr. Alfred
W. Martinelli.
</TABLE>
Item 11. Executive Compensation
Director Compensation
The fee schedule for directors of the General Partner is as follows:
annual fee, $15,000; attendance fee for each Board of Directors meeting,
$1,000; and attendance fee for each committee meeting, $750. Messrs.
Martinelli, Varalli and Wilson do not receive any fees as directors. Directors'
fees paid by General Partner in 1999 to its directors amounted to $114,500. In
addition, Mr. Hahl received $69,400 for consulting services. Each of these
payments were reimbursed by the Partnership. Members of the Board of Directors
of BMC and Services Company are not compensated for their services as
directors.
Executive Compensation
Prior to the consummation of the ESOP Restructuring on August 12, 1997,
executive officers of the General Partner and other employees of the General
Partner received compensation and benefits
51
<PAGE>
that were reimbursed by the Partnership and the Operating Partnerships. As part
of the ESOP Restructuring, the Partnership and the Operating Partnerships were
permanently released from their obligation to reimburse the General Partner for
certain compensation and fringe benefit costs for executive level duties
performed by the General Partner with respect to operations, finance, legal,
marketing and business development, and treasury, as well as the President of
the General Partner. See "Certain Relationships and Related Transactions."
Executive Officer Severance Agreements
BMC, Services Company and Glenmoor entered into severance agreements in
May 1997 with four executive officers of the General Partner providing for the
payment of severance compensation equal to the amount of annual base salary and
incentive compensation then being paid to such individuals (the "Severance
Compensation Amount"). Such officers were C. Richard Wilson, then President and
Chief Operating Officer; Michael P. Epperly, then Senior Vice
President--Operations; Steven C. Ramsey, Senior Vice President--Finance; and
Stephen C. Muther, Senior Vice President--Administration, General Counsel and
Secretary. The severance agreements provide for 1.5 times the Severance
Compensation Amount upon termination of such individual's employment without
"cause" under certain circumstances not involving a "change of control" of the
Partnership, and 2.99 times such individual's Severance Compensation Amount
(subject to certain limitations) following a "change of control." For purposes
of the severance agreements, a "change of control" is defined as the
acquisition (other than by the General Partner and its affiliates) of 80
percent or more of the LP Units of the Partnership. Any costs incurred under
the severance agreements was to be reimbursed by the Partnership.
In April 1998, in connection with the realignment of senior management,
Mr. Wilson was named Vice Chairman and was succeeded as President and Chief
Operating Officer of the General Partner by William H. Shea, Jr. Mr. Epperly's
position was eliminated, and his responsibilities were assigned to other
officers. The General Partner entered into agreements with each of Messrs.
Wilson and Epperly under which they would receive the equivalent of the
Severance Compensation Amount and certain additional compensation pending their
retirement. Thereafter, each of Messrs. Wilson and Epperly agreed to provide
certain consulting services to the General Partner for a period of 60 months
for a fixed annual fee. Total costs incurred in 1999 and 1998 under Messrs.
Wilson's and Epperly's severance agreements amounted to $0.1 million and $0.9
million, respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations."
In December 1999, the severance agreements for Messrs. Muther and Ramsey
were amended to modify the definition of "change of control" to include the
acquisition (other than by the General Partner and its affiliates) of 80
percent or more of the LP Units, 51 percent or more of the general partnership
interests owned by the General Partner, or 50 percent or more of the voting
equity interests of the Partnership and the General Partner on a combined
basis.
Director Recognition Program
The General Partner has adopted the Director Recognition Program (the
"Recognition Program") that had been instituted by BMC in September 1997. The
Recognition Program provides that, upon retirement or death and subject to
certain conditions, directors receive a recognition benefit of up to three
times their annual director's fees (excluding attendance and committee fees)
based upon their years of service as a member of the Board of Directors of the
General Partner or BMC. A minimum of three full years of service as a member of
the Board of Directors is required for eligibility under the Recognition
Program. Members of the Board of Directors who are concurrently serving as an
officer or employee of the General Partner or its affiliates are not eligible
52
<PAGE>
for the Recognition Program. In 1999, the Partnership recorded expenses of
$180,000 under the Recognition Program. Mr. William C. Pierce and Mr. Robert H.
Young, former members of the Board of Directors who resigned in July 1999, were
paid $45,000 each in 1999 under the Recognition Program.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Services Company owns approximately 9.5 percent of the outstanding LP
Units as of March 15, 2000. No other person or group is known to be the
beneficial owner of more than 5 percent of the LP Units as of March 15, 2000.
The following table sets forth certain information, as of March 15, 2000,
concerning the beneficial ownership of LP Units by each director of the General
Partner, the Chief Executive Officer of the General Partner, the four most
highly compensated officers of the General Partner and by all directors and
executive officers of the General Partner as a group. Such information is based
on data furnished by the persons named. Based on information furnished to the
General Partner by such persons, no director or executive officer of the
General Partner owned beneficially, as of March 15, 2000, more than 1 percent
of any class of equity securities of the Partnership or any of its subsidiaries
outstanding at that date.
<TABLE>
<CAPTION>
Name Number of LP Units (1)
---- ----------------------
<S> <C>
Brian F. Billings ............................................... 15,000(2)
Neil M. Hahl .................................................... 2,000(2)
Edward F. Kosnik ................................................ 10,000(2)
Alfred W. Martinelli ............................................ 9,000(2)
David J. Martinelli ............................................. 1,800
Stephen C. Muther ............................................... 17,500
Jonathan O'Herron ............................................... 14,800
Steven C. Ramsey ................................................ 19,400
William H. Shea, Jr. ............................................ 9,600(2)
Ernest R. Varalli ............................................... 13,000(2)
C. Richard Wilson ............................................... 5,000
All directors and executive officers as a group (consisting of 11
persons named above ........................................... 117,100
</TABLE>
- ---------------
(1) Unless otherwise indicated, the persons named above have sole voting and
investment power over the LP Units reported.
(2) The LP Units owned by the persons indicated have shared voting and
investment power with their respective spouses.
Item 13. Certain Relationships and Related Transactions
The Partnership and the Operating Partnerships are managed by the General
Partner pursuant to the Amended and Restated Agreement of Limited Partnership
(the "Partnership Agreement"), the several Amended and Restated Agreements of
Limited Partnership of the Operating Partnerships (the "Operating Partnership
Agreements") and the several Management Agreements between the General Partner
and the Operating Partnerships (the "Management Agreements"). BMC, which had
been general partner of the Partnership, contributed its general partnership
interest and certain other assets to the General Partner effective December 31,
1998. The General Partner is a wholly-owned subsidiary of BMC.
Under the Partnership Agreement and the Operating Partnership Agreements,
as well as the Management Agreements, the General Partner and certain related
parties are entitled to
53
<PAGE>
reimbursement of all direct and indirect costs and expenses related to the
business activities of the Partnership and the Operating Partnerships, except
as otherwise provided by the Exchange Agreement (as discussed below). These
costs and expenses include insurance fees, consulting fees, general and
administrative costs, compensation and benefits payable to employees of the
General Partner (other than certain executive officers), tax information and
reporting costs, legal and audit fees and an allocable portion of overhead
expenses. Such reimbursed amounts constitute a substantial portion of the
revenues of the General Partner.
On March 22, 1996, BAC, now Glenmoor, acquired all of the common stock of
BMC from a subsidiary of American Financial for $63 million. The purchase price
was financed in part through the ESOP. Glenmoor is owned by certain directors
and members of senior management of the General Partner or trusts for the
benefit of their families and certain director-level employees of Services
Company.
Glenmoor and BMC are entitled to receive an annual management fee for
certain management functions it provides to the General Partner pursuant to a
Management Agreement among Glenmoor, BMC and the General Partner. The amount is
approved each year by the disinterested directors of the General Partner. The
management fee includes a Senior Administrative Charge of not less than
$975,000 and reimbursement for certain costs and expenses. Amounts paid to
Glenmoor and BMC in 1999 for management fees equaled $2.3 million, including
$1.0 million for the Senior Administrative Charge and $1.3 million of
reimbursed expenses. Amounts paid to Glenmoor and BMC in 1998 for management
fees equaled $2.1 million, including $1.0 million for the Senior Administrative
Charge and $1.1 million of reimbursed expenses. Amounts paid to Glenmoor and
BMC in 1997 for management fees equaled $3.1 million, including $1.0 million
for the Senior Administrative Charge and $2.1 million of reimbursed expenses.
On August 12, 1997, with approval of a majority interest of Unitholders at
a special meeting held on August 11, 1997, the Partnership restructured the
ESOP by replacing the ESOP's investment in BAC with a beneficial ownership
interest in LP Units. The Partnership issued 2,573,146 LP Units to Services
Company in consideration for, among other things, (i) the permanent release of
the Partnership's obligation to reimburse the General Partner and its
affiliates for certain senior executive compensation costs, and (ii) the
reduction of the General Partner's incentive compensation formula under the
Incentive Compensation Agreement (as discussed below).
In connection with the ESOP Restructuring, the ESOP Loan was also
restructured. The amount, term and interest rate applicable to the ESOP Loan
were not changed, but the ESOP became the direct borrower under the ESOP Loan.
The ESOP secured the ESOP Loan with, among other things, a pledge of the LP
Units held by Services Company. The ESOP Loan is guaranteed by Glenmoor, BMC,
the General Partner and Services Company. The distributions on the LP Units
held by the ESOP will be used to pay the principal and interest on the ESOP
Loan. The General Partner will make an additional contribution to the ESOP (the
"top-up provision"), if necessary, to pay any balance due under the ESOP Loan.
The top-up contribution will be reimbursed by the Partnership to the extent it
exceeds certain reserves established by the General Partner for that purpose.
In connection with the ESOP Restructuring, the General Partner's employees
were transferred to Services Company. Services Company employs all of the
employees previously employed by the General Partner and has become the sponsor
of all of the employee benefit plans previously maintained by the General
Partner. Services Company also entered into a Services Agreement with BMC and
the General Partner to provide services to the Partnership and the Operating
Partnerships over a 13.5 year term. Services Company is reimbursed by BMC or
the General Partner for its direct and indirect expenses which in turn are
reimbursed by the Operating Partnerships other than certain executive
compensation and fringe benefit costs. Costs reimbursed to BMC, the General
Partner or Services Company by the Partnership and the Operating Partnerships
totaled $54.3 million, $54.4 million and $57.2 million in 1999, 1998 and 1997,
respectively. Compensation and benefit costs of certain executive officers of
BMC or the General Partner were not charged to the Partnership after August 12,
1997 pursuant to the Exchange Agreement.
54
<PAGE>
The following chart depicts the ownership relationships among the
Partnership, the General Partner and various other parties:
____________ ____________ _____________________
| | | | | |
| Public | | | | |
|Unitholders | | ESOP | | Glenmoor, Ltd. |
|____________| |____________| |_____________________|
| | |
| | 100% | 100%
| | |
| ____________ _____________________
| | | | |
| | Buckeye | | Buckeye |
| | Pipe Line | | Management |
| | Services | | Company |
| |____________| |_____________________|
| | |
90% | | 9% | 100%
| | |
| ______________ _____________________
| | | | |
| | | 1% | Buckeye |
|______________________| Buckeye |___ | Pipe Line Co. |_____|
|Partners, L.P.| | (General Partner) | |
|______________| |_____________________| |
| | |
| 99% | 1% |
| | |
_______________________________________________________________ |
| | | | |
| | | | |
_______________ _______________ _________________ __________________ |
| | | | | | | | |
| Buckey | | Buckeye | | Everglades | | Buckeye | |
| Pipe Line | | Tank | | Pipe Line | | Pipe Line Co. | |
| Company, L.P. | |Terminals, L.P.| | Company, L.P. | |(General Partner) | |2%
|_______________| |_______________| |_________________| |__________________| |
| | |
| | |
________________________________________ | |
| | | | |
| 100% | 100% | 75% | 98% |
_______________ _______________ _________________ __________________ |
| | | | | | | | |
|Buckey Refining| | Buckeye | |WesPac Pipelines-| | Buckeye | |
| Company, L.P. | | Gulf Coast | | Reno Ltd. and | | Pipe Line Company|_|
| | |Pipelines, LLC | | related entities| | of Michigan, L.P.|
|_______________| |_______________| |_________________| |__________________|
As part of the ESOP Restructuring, the Incentive Compensation Agreement
was amended to change the target and payment thresholds, and the General
Partner also agreed not to receive any incentive compensation in respect of
distributions on the LP Units issued pursuant to the ESOP Restructuring. The
Incentive Compensation Agreement, as subsequently amended to reflect the
two-for-one LP Unit split effective on February 13, 1998, provides that,
subject to certain limitations and adjustments, if a quarterly cash
distribution exceeds a target of $0.325 per LP Unit, the Partnership will pay
the General Partner, in respect of each outstanding LP Unit, incentive
compensation equal to (i) 15 percent of that portion of the distribution per LP
Unit which exceeds the target quarterly amount of $0.325 but is not more than
$0.35, plus (ii) 25 percent of the amount, if any, by which the quarterly
distribution per LP Unit exceeds $0.35 but is not more than $0.375, plus (iii)
30 percent of the amount, if any, by which the quarterly distribution per LP
Unit exceeds $0.375 but is not more than $0.40, plus (iv) 35 percent of the
amount, if any, by which the quarterly distribution per LP Unit exceeds $0.40
but is not more than $0.425, plus (v) 40 percent of the amount, if any, by which
the quarterly distribution per LP Unit exceeds $0.425 but is not more than
$0.525, plus (vi) 45 percent of the amount, if any, by which the quarterly
distribution per LP Unit exceeds $0.525. the General Partner is also entitled to
incentive compensation, under a comparable formula, in respect of special cash
distributions exceeding a target special distribution amount per LP Unit. The
target special distribution amount generally means the amount which, together
with all
55
<PAGE>
amounts distributed per LP Unit prior to the special distribution compounded
quarterly at 13 percent per annum, would equal $10.00 (the initial public
offering price of the LP Units split two-for-one) compounded quarterly at 13
percent per annum from the date of the closing of the initial public offering
in December 1986. Incentive compensation paid by the Partnership for quarterly
cash distributions totaled $7,229,000, $6,405,000 and $3,042,000 in 1999, 1998
and 1997, respectively. No special cash distributions have ever been paid by
the Partnership.
On December 31, 1998, BMC transferred its general partnership interest and
certain other assets relating to the Partnership to the General Partner, and
the General Partner assumed certain liabilities and obligations of BMC,
including the liabilities and obligations of BMC under the Exchange Agreement,
the Services Agreement and the Incentive Compensation Agreement.
On January 20, 2000, the General Partner announced a quarterly
distribution of $0.60 per GP and LP Unit payable on February 29, 2000. As such
distribution exceeds a target of $0.325 per LP Unit, the Partnership will pay
the General Partner incentive compensation aggregating $2.4 million as a result
of this distribution.
56
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as a part of this Report:
(1) and (2) Financial Statements and Financial Statement Schedule-see
Index to Financial Statements and Financial Statement Schedule appearing on
page 24.
(3) Exhibits, including those incorporated by reference. The following
is a list of exhibits filed as part of this Annual Report on Form 10-K. Where
so indicated by footnote, exhibits which were previously filed are incorporated
by reference. For exhibits incorporated by reference, the location of the
exhibit in the previous filing is indicated in parentheses.
<TABLE>
<CAPTION>
Exhibit Number
(Referenced to
Item 601 of
Regulation S-K)
- ----------------
<S> <C>
3.1 -- Amended and Restated Agreement of Limited Partnership of the
Partnership, dated as of December 31, 1998.(9) (Exhibit 3.1)
3.2 -- Certificate of Amendment to Amended and Restated Certificate of
Limited Partnership of the Partnership, dated as of December 31, 1998.
(9) (Exhibit 3.2)
4.1 -- Amended and Restated Indenture of Mortgage and Deed of Trust and
Security Agreement, dated as of December 16, 1997, by Buckeye to
PNC Bank, National Association, as Trustee. (8) (Exhibit 4.1)
4.2 -- Note Agreement, dated as of December 16, 1997, between Buckeye
and The Prudential Insurance Company of America. (8) (Exhibit 4.2)
4.3 -- Defeasance Trust Agreement, dated as of December 16, 1997, between
and among PNC Bank, National Association, and Douglas A. Wilson, as
Trustees. (8) (Exhibit 4.3)
4.4 -- Certain instruments with respect to long-term debt of the Operating
Partnerships which relate to debt that does not exceed 10 percent of
the total assets of the Partnership and its consolidated subsidiaries are
omitted pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K, 17
C.F.R. ss.229.601. The Partnership hereby agrees to furnish
supplementally to the Securities and Exchange Commission a copy of
each such instrument upon request.
10.1 -- Amended and Restated Agreement of Limited Partnership of Buckeye,
dated as of December 23, 1986. (1)(2) (Exhibit 10.1)
10.2 -- Amendment No. 1 to the Amended and Restated Agreement of Limited
Partnership of Buckeye, dated as of August 12, 1997. (8) (Exhibit 10.2)
10.3 -- Management Agreement, dated November 18, 1986, between the
Manager and Buckeye. (1)(3) (Exhibit 10.4)
10.4 -- Amended and Restated Management Agreement, dated November 18,
1986, between the General Partner, Buckeye and Glenmoor. (7)
(Exhibit 10.2)
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number
(Referenced to
Item 601 of
Regulation S-K)
- ------------------
<S> <C>
10.5 -- Amendment to Management Agreement dated as of August 12, 1997,
between the General Partner, Buckeye and Glenmoor. (8) (Exhibit
10.5)
10.6 -- Amended and Restated Incentive Compensation Agreement, dated as
of March 22, 1996, between the General Partner and the Partnership.
(7) (Exhibit 10.4)
10.7 -- Amendment No. 1 to Amended and Restated Incentive Compensation
Agreement dated as of March 22, 1997 between the General Partner
and the Partnership. (8) (Exhibit 10.7)
10.8 -- Amendment No. 2 to Amended and Restated Incentive Compensation
Agreement dated as of January 20, 1998 between the General Partner
and the Partnership. (8) (Exhibit 10.8)
10.9 -- Services Agreement, dated as of August 12, 1997, among the General
Partner, the Manager and Services Company. (8) (Exhibit 10.9)
10.10 -- Exchange Agreement, dated as of August 12, 1997, among the General
Partner, the Manager the Partnership and the Operating Partnership.
(8) (Exhibit 10.10)
10.11 -- Unit Option and Distribution Equivalent Plan of Buckeye Partners, L.P.
(4)(5) (Exhibit 10.10)
10.12 -- Buckeye Management Company Unit Option Loan Program. (4)(5)
(Exhibit 10.11)
10.13 -- Form of Executive Officer Severance Agreement. (8) (Exhibit 10.13)
10.14 -- Contribution, Assignment and Assumption Agreement, dated as of
December 31, 1998, between Buckeye Management Company and
Buckeye Pipe Line Company. (9) (Exhibit 10.14)
10.15 -- Director Recognition Program of the General Partner. (4) (9) (Exhibit
10.15)
10.16 -- Credit Agreement dated as of December 16, 1998 among Buckeye Pipe
Line Company, L.P., Buckeye Partners, L.P., First Union National Bank
as Agent, The First National Bank of Chicago as Documentation Agent
and the Lenders party thereto. (9) (Exhibit 10.16)
10.17 -- Guaranty Agreement dated December 16, 1998 by Buckeye Partners,
L.P. in favor of First Union National Bank, as agent for the lenders that
are or become parties to the Credit Agreement dated as of December
16, 1998 among Buckeye Pipe Line Company, L.P., Buckeye Partners,
L.P. First Union National Bank as Agent, The First National Bank of
Chicago as Documentation Agent and the Lenders party thereto. (9)
(Exhibit 10.17)
*10.18 -- Form of Amendment No. 1 to Executive Officer Severance Agreement.
(Exhibit 10.18)
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number
(Referenced to
Item 601 of
Regulation S-K)
- ----------------
<S> <C>
21.1 -- List of subsidiaries of the Partnership. (7) (Exhibit 21.1)
*27 -- Financial Data Schedule.
</TABLE>
- ---------------
(1) Previously filed with the Securities and Exchange Commission as the Exhibit
to the Buckeye Partners, L.P. Annual Report on Form 10-K for the year
1986.
(2) The Amended and Restated Agreements of Limited Partnership of the other
Operating Partnerships are not filed because they are identical to Exhibit
10.1 except for the identity of the partnership.
(3) The Management Agreements of the other Operating Partnerships are not filed
because they are identical to Exhibit 10.4 except for the identity of the
partnership.
(4) Represents management contract or compensatory plan or arrangement.
(5) Previously filed with the Securities and Exchange Commission as the Exhibit
to the Buckeye Partners, L.P. Quarterly Report on Form 10-Q for the
quarter ended September 30, 1991.
(6) Previously filed with the Securities and Exchange Commission as the Exhibit
to the Buckeye Partners, L.P. Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995.
(7) Previously filed with the Securities and Exchange Commission as the Exhibit
to the Buckeye Partners, L.P. Annual Report on Form 10-K for the year
1995.
(8) Previously filed with the Securities and Exchange Commission as the Exhibit
to the Buckeye Partners, L.P. Annual Report on Form 10-K for the year
1997.
(9) Previously filed with the Securities and Exchange Commission as the Exhibit
to the Buckeye Partners, L.P. Annual Report on Form 10-K for the year
1998.
* Filed herewith
(b) Reports on Form 8-K filed during the quarter ended December 31, 1999:
Buckeye Partners, L.P. filed a Current Report on Form 8-K on November
12, 1999 announcing that, effective with the fourth quarter 1999
distribution to be paid in February 2000, it had increased the annual
distribution by $0.20 per LP Unit ($0.05 per quarter) to an indicated
annual distribution of $2.40.
59
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) 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: March 15, 2000 By: /s/ ALFRED W. MARTINELLI
-------------------------------------
Alfred W. Martinelli
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: March 15, 2000 By: /s/ BRIAN F. BILLINGS
-------------------------------------
Brian F. Billings
Director
Dated: March 15, 2000 By: /s/ NEIL M. HAHL
-------------------------------------
Neil M. Hahl
Director
Dated: March 15, 2000 By: /s/ EDWARD F. KOSNIK
------------------------------------
Edward F. Kosnik
Director
Dated: March 15, 2000 By: /s/ ALFRED W. MARTINELLI
-------------------------------------
Alfred W. Martinelli
Chairman of the Board and Director
(Principal Executive Officer)
Dated: March 15, 2000 By: /s/ JONATHAN O'HERRON
-------------------------------------
Jonathan O'Herron
Director
Dated: March 15, 2000 By: /s/ STEVEN C. RAMSEY
-------------------------------------
Steven C. Ramsey
(Principal Financial Officer and
Principal Accounting Officer)
Dated: March 15, 2000 By: /s/ ERNEST R. VARALLI
-------------------------------------
Ernest R Varalli
Director
Dated: March 15, 2000 By: /s/ C. RICHARD WILSON
-------------------------------------
C. Richard Wilson
Director
60
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of Buckeye Partners, L.P.:
We have audited the consolidated financial statements of Buckeye Partners,
L.P. and its subsidiaries as of December 31, 1999 and 1998, and for each of the
three years in the period ended December 31, 1999, and have issued our report
thereon dated January 28, 2000; such report is included elsewhere in this Form
10-K. Our audits also included the consolidated financial statement schedule of
Buckeye Partners, L.P. and subsidiaries referred to in Item 14. This
consolidated financial statement schedule is the responsibility of the
Partnership's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
January 28, 2000
S-1
<PAGE>
SCHEDULE I
BUCKEYE PARTNERS, L.P.
Registrant's Condensed Financial Statements
(In thousands)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Assets
Curent assets
Cash and cash equivalents ....................................... $ 171 $ 30
Other current assets ............................................ 135 44
--------- ---------
Total current assets .......................................... 306 74
Investments in and advances to subsidiaries (at equity) ......... 317,117 298,566
--------- ---------
Total assets .................................................. $ 317,423 $ 298,640
========= =========
Liabilities and partners' capital
Current liabilities .............................................. $ 434 $ 155
--------- ---------
Partners' capital
General Partner ................................................. 2,548 2,390
Limited Partners ................................................ 314,441 296,095
--------- ---------
Total partners' capital ....................................... 316,989 298,485
--------- ---------
Total liabilities and partners' capital ....................... $ 317,423 $ 298,640
========= =========
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
----------- -------------- ----------
<S> <C> <C> <C>
Equity in income of subsidiaries .................. $ 83,791 $ 58,415 $ 9,418
Operating (expenses) credits ...................... (301) (6) 17
Interest income ................................... -- 3 48
Interest and debt expense ......................... 22 -- (58)
Incentive compensation to General Partner ......... (7,229) (6,405) (3,042)
-------- --------- --------
Net income .................................. $ 76,283 $ 52,007 $ 6,383
======== ========= ========
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................. $ 76,283 $ 52,007 $ 6,383
Adjustments to reconcile net income to net cash provided by
operating activities:
Decrease (increase) in investment in subsidiaries ......... (18,551) 3,699 37,555
Change in assets and liabilities:
Temporary investments ................................... -- 740 4,533
Other current assets .................................... (91) 510 (481)
Current liabilities ..................................... 279 (1,095) (4,947)
--------- --------- ---------
Net cash provided by operating activities ............... 57,920 55,861 43,043
Cash flows from financing activities:
Capital contributions ...................................... -- -- 5
Proceeds from exercise of unit options ..................... 978 366 516
Distributions to Unitholders ............................... (58,757) (56,666) (44,305)
--------- --------- ---------
Net decrease in cash and cash equivalents .................. 141 (439) (741)
Cash and cash equivalents at beginning of period ........... 30 469 1,210
--------- --------- ---------
Cash and cash equivalents at end of period ................. $ 171 $ 30 $ 469
========= ========= =========
Supplemental cash flow information:
Non-cash change from issuance of LP Units ................. -- -- $ 64,200
Non-cash change in investments in subsidiaries ............ -- -- $ 64,200
</TABLE>
See footnotes to consolidated financial statements of Buckeye Partners, L.P.
S-2
<PAGE>
EXHIBIT 10.18
AMENDMENT NO. 1 TO SEVERANCE AGREEMENT
(This Amendment was signed in its final form by Stephen C. Muther and Steven C.
Ramsey.)
This Amendment No. 1 (this "Amendment") to the Severance Agreement (the
"Severance Agreement"), dated as of December 8, 1997, among Buckeye Pipe Line
Company, a Delaware corporation ("BPL"), as the assignee of Buckeye Management
Company, a Delaware corporation ("BMC"), Buckeye Pipe Line Services Company, a
Delaware corporation ("BPLSC") (BPL, BMC and BPLSC are hereinafter collectively
referred to as the "Company"), Glenmoor, Ltd., a Delaware corporation formerly
known as BMC Acquisition Company and the owner of BMC ("Glenmoor"), and
___________ ("__________"), is dated as of December __, 1999.
WHEREAS, BMC has transferred its general partnership interest in BPLP
to BPL (the "General Partner");
WHEREAS, _________ serves in an executive capacity for the General
Partner; and
WHEREAS, the parties believe that a change of control of the General
Partner implicates the same issues as a change of control of BPLP and desire to
amend the Severance Agreement to provide for severance payments to _________
under certain circumstances following a change of control of the General
Partner.
NOW, THEREFORE, intending to be legally bound, the Severance Agreement
is hereby amended as follows:
1. All terms used in this Amendment but not otherwise defined in this
Amendment shall have the meaning set forth for such terms in the Severance
Agreement.
2. Section 1(c) of the Severance Agreement is hereby amended and
restated in its entirety to read as follows:
(c) "Change of Control" shall be deemed to have taken place upon
the occurrence of any of the following events:
(i) any Person, except the Company or any employee benefit plan
of the Company (or of any Affiliate or Associate, or any Person
or entity organized, appointed or established by the Company for
or pursuant to the terms of any such employee benefit plan),
together with all Affiliates and Associates of such Person, shall
become the Beneficial Owner, or the holder of proxies, in the
aggregate of 80% or more of the limited partnership units (the
"Units") of BPLP then outstanding; provided, however, that no
"Change of Control" shall be deemed to occur
<PAGE>
for purposes of clause (i) hereof during any period in which any
such Person, and its Affiliates and Associates, are bound by the
terms of a standstill agreement under which such parties have
agreed not to acquire more than 79% of the Units then outstanding
or to solicit proxies; or
(ii) any Person, except one or more of the stockholders of
Glenmoor as of the date hereof or any employee benefit plan of
the Company (or of any Affiliate or Associate or any Person or
entity organized, appointed or established by the Company for or
pursuant to the terms of any such employee benefit plan),
together with all Affiliates and Associates of such Person, shall
become the Beneficial Owner, or the holder of proxies, in the
aggregate of 51% or more of the general partnership interests of
BPLP; or
(iii) if BPLP and the General Partner are combined into a single
entity (the "Successor"), any Person, except one or more of the
stockholders of Glenmoor as of the date hereof or any employee
benefit plan of the Company (or of any Affiliate or Associate or
any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such employee benefit
plan), together with all Affiliates and Associates of such
Person, shall become the Beneficial Owner, or the holder of
proxies, in the aggregate of 50% or more of the voting equity
interests of the Successor then outstanding; provided, however,
that no "Change of Control" shall be deemed to occur for purposes
of clause (iii) hereof during any period in which any such
Person, and its Affiliates and Associates, are bound by the terms
of a standstill agreement under which such parties have agreed
not to acquire more than 49% of the voting equity interests of
the Successor then outstanding or to solicit proxies.
For purposes of this Agreement, the term "Person" shall have the same
meaning as in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"); the terms "Affiliate" and "Associate" are used
as defined in Rule 12b-2 of the Exchange Act.
3. All references in the Severance Agreement to BAC are hereby amended
to refer to Glenmoor and all references to the Company in the Severance
Agreement shall be deemed to include BPL, as well as BMC and BPLP.
-2-
<PAGE>
4. Any provision of the Severance Agreement which is inconsistent with
the provisions of this Amendment shall be deemed amended to effectuate the
intention expressed herein. Except as hereby amended, the Severance Agreement
shall remain unchanged and in full force and effect.
5. This Amendment shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware, without giving effect to the
conflicts of laws principles thereof.
IN WITNESS WHEREOF, this Amendment has been executed as of the day and
year first above written.
BUCKEYE PIPE LINE SERVICES COMPANY
By
---------------------------------------
Name:
Title:
GLENMOOR, LTD.
By
---------------------------------------
Name:
Title:
BUCKEYE MANAGEMENT COMPANY
By
---------------------------------------
Name:
Title:
BUCKEYE PIPE LINE COMPANY
By
---------------------------------------
Name:
Title:
-3-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 22,003
<SECURITIES> 0
<RECEIVABLES> 9,718
<ALLOWANCES> 0
<INVENTORY> 18,397
<CURRENT-ASSETS> 55,627
<PP&E> 637,078
<DEPRECIATION> 80,174
<TOTAL-ASSETS> 674,285
<CURRENT-LIABILITIES> 42,478
<BONDS> 266,000
0
0
<COMMON> 0
<OTHER-SE> 316,989
<TOTAL-LIABILITY-AND-EQUITY> 674,285
<SALES> 107,489
<TOTAL-REVENUES> 305,786
<CGS> 94,702
<TOTAL-COSTS> 204,757
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,854
<INCOME-PRETAX> 76,283
<INCOME-TAX> 0
<INCOME-CONTINUING> 76,283
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,283
<EPS-BASIC> 2.82
<EPS-DILUTED> 2.81
</TABLE>
