<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000 or
_____ Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _______________ to _______________
Commission file number 1-9356
BUCKEYE PARTNERS, L.P.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2432497
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5 Radnor Corporate Center, Suite 500
100 Matsonford Road
Radnor, PA 19087
--------------------------------- ----------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: 610-254-4600
Not Applicable
-----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report).
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at October 31,2000
------------------------- ------------------------------
Limited Partnership Units 26,837,906 Units
<PAGE>
<TABLE>
<CAPTION>
BUCKEYE PARTNERS, L.P.
INDEX
Page No.
<S> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Statements of Income 1
for the three months and nine months ended
September 30, 2000 and 1999
Consolidated Balance Sheets 2
September 30, 2000 and December 31, 1999
Consolidated Statements of Cash Flows 3
for the nine months ended
September 30, 2000 and 1999
Notes to Consolidated Financial Statements 4-11
Item 2. Management's Discussion and Analysis 12-17
of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures 17
about Market Risk
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
<PAGE>
Part I - Financial Information
Item 1. Consolidated Financial Statements
<TABLE>
<CAPTION>
Buckeye Partners, L.P.
Consolidated Statements of Income
(In thousands, except per Unit amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
<C> <C> <S> <C> <C>
$52,567 $49,886 Transportation revenue $152,518 $148,268
------- ------- -------- --------
Costs and expenses
23,226 21,480 Operating expenses 66,706 53,152
4,525 3,584 Depreciation and amortization 13,126 12,619
2,752 2,829 General and administrative expenses 9,142 10,918
------- ------- -------- --------
30,503 27,893 Total costs and expenses 88,974 76,689
------- ------- -------- --------
22,064 21,993 Operating income 63,544 71,579
------- ------- -------- --------
Other income (expenses)
(129) 138 Investment income 267 189
(4,855) (4,352) Interest and debt expense (13,863) (12,626)
(2,609) (2,055) Minority interests and other (7,169) (5,961)
------- ------- -------- --------
(7,593) (6,269) Total other income (expenses) (20,765) (18,398)
------- ------- -------- --------
14,471 15,724 Income from continuing operations 42,779 53,181
3,465 901 Income from discontinued operations 5,203 3,248
------- ------- -------- --------
$17,936 $16,625 Net income $ 47,982 $ 56,429
======= ======= ======== ========
Net income allocated to General
$ 164 $ 150 Partner $ 435 $ 510
Net income allocated to Limited
$17,772 $16,475 Partners $ 47,547 $ 55,919
Earnings per Partnership Unit:
Income from continuing operations
allocated to General and Limited
$ 0.53 $ 0.59 Partners per Partnership Unit $ 1.58 $ 1.97
Income from discontinued operations
allocated to General and Limited
0.13 0.03 Partners per Partnership Unit 0.19 0.12
------- ------- -------- --------
$ 0.66 $ 0.62 Earnings per Partnership Unit $ 1.77 $ 2.09
======= ======= ======== ========
Earnings per Partnership Unit -
assuming dilution
Income from continuing operations
allocated to General and Limited
$ 0.53 $ 0.58 Partners per Partnership Unit $ 1.58 $ 1.96
Income from discontinued operations
allocated to General and Limited
0.13 0.03 Partners per Partnership Unit 0.19 0.12
-------- ------- -------- --------
$ 0.66 $ 0.61 Earnings per Partnership Unit $ 1.77 $ 2.08
======== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Buckeye Partners, L.P.
Consolidated Balance Sheets
(In thousands)
September 30, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 15,681 $ 22,003
Trade receivables 16,919 9,718
Inventories 18,733 18,397
Prepaid and other current assets 8,220 5,509
-------- --------
Total current assets 59,553 55,627
Property, plant and equipment, net 584,632 556,904
Other non-current assets 70,299 61,754
-------- --------
Total assets $714,484 $674,285
======== ========
Liabilities and partners' capital
Current liabilities
Accounts payable $ 15,504 $ 18,961
Accrued and other current liabilities 22,589 23,517
-------- --------
Total current liabilities 38,093 42,478
Long-term debt 309,000 266,000
Minority interests 2,766 2,853
Other non-current liabilities 47,569 45,965
Commitments and contingent liabilities - -
-------- --------
Total liabilities 397,428 357,296
-------- --------
Partners' capital
General Partner 2,544 2,548
Limited Partners 314,512 314,441
-------- --------
Total partners' capital 317,056 316,989
-------- --------
Total liabilities and partners' capital $714,484 $674,285
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Buckeye Partners, L.P.
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
----------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income from continuing operations $42,779 $53,181
------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of land (432) -
Depreciation and amortization 13,563 13,020
Minority interests 477 707
Changes in assets and liabilities,
net of acquisitions:
Trade receivables (7,201) (3,468)
Inventories (195) (10,293)
Prepaid and other current assets (2,711) (322)
Accounts payable (3,457) 7,493
Accrued and other current liabilities (928) (5,886)
Other non-current assets (1,324) 291
Other non-current liabilities 1,604 1,708
------- -------
Total adjustments (604) 3,250
------- -------
Net cash provided by operating activities 42,175 56,431
Income from discontinued operations 5,203 3,248
------- -------
Net cash from continuing and discontinued
operations 47,378 59,679
------- -------
Cash flows from investing activities:
Capital expenditures (29,113) (17,562)
Acquisitions (19,251) (18,740)
Proceeds from disposal of property,
plant and equipment, net 143 (1)
------- -------
Net cash used in investing activities (48,221) (36,303)
------- -------
Cash flows from financing activities:
Proceeds from exercise of unit options 784 762
Distributions to minority interests (564) (497)
Borrowings 43,000 26,000
Distributions to Unitholders (48,699) (43,887)
------- -------
Net cash used in financing activities (5,479) (17,622)
------- -------
Net (decrease) increase in cash and cash
equivalents (6,322) 5,754
Cash and cash equivalents at beginning of
period 22,003 8,341
------- -------
Cash and cash equivalents at end of period $15,681 $14,095
======= =======
Supplemental cash flow information:
Cash paid during the period for interest
(net of amount capitalized) $13,325 $12,423
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.BASIS OF PRESENTATION
In the opinion of management, the accompanying financial
statements of Buckeye Partners, L.P. (the "Partnership"), which are unaudited
except that the Balance Sheet as of December 31, 1999 is derived from audited
financial statements, include all adjustments necessary to present fairly the
Partnership's financial position as of September 30, 2000 and the results of
operations for the nine month periods ended September 30, 2000 and 1999 and
cash flows for the nine month periods ended September 30, 2000 and 1999. The
results of operations for the nine months ended September 30, 2000 are not
necessarily indicative of the results to be expected for the full year ending
December 31, 2000.
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the financial statements do not include all of the information and
notes normally included with financial statements prepared in accordance with
generally accepted accounting principles. These financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1999.
Certain amounts in the financial statements for 1999 have been reclassified to
conform to the current presentation.
2.ACQUISITIONS AND DIVESTITURES
On March 4, 1999, the Partnership acquired the fuels division of American
Refining Group, Inc. ("ARG") for an initial purchase price of $12,990,000. In
January 2000, the Partnership made an additional payment of $747,000 pursuant
to a contingent payment agreement with ARG. The maximum amount of additional
payments that could be due under this agreement is $4.2 million. The assets
acquired included a refined petroleum products terminal and a transmix
processing facility located in Indianola, Pennsylvania, a transmix processing
facility located in Hartford, Illinois. The Partnership operates the former
ARG processing business under the name of Buckeye Refining Company, LLC
("BRC"). The Partnership subsequently sold its investment in BRC on October
25, 2000 for an aggregate purchase price of approximately $45,000,000.
On March 31, 1999, the Partnership acquired certain assets from Seagull
Products Pipeline Corporation and Seagull Energy Corporation ("Seagull") for a
total purchase price of $5,750,000. The assets acquired consisted primarily
of nine pipeline operating agreements for major chemical companies in the Gulf
Coast area, a 16-mile pipeline (a portion of which is leased to a chemical
company), and related assets. The Partnership operates the pipeline assets
acquired from Seagull under the name of Buckeye Gulf Coast Pipe Lines, LLC
("BGC").
On June 30, 2000, the Partnership acquired six petroleum products terminals
from Agway Energy Products LLC ("Agway") for a total purchase price of
$19,000,000. Additional costs incurred in connection with the acquisition for
gasoline and diesel fuel additives and closing adjustments amounted to
$251,000. The terminals are located in Brewerton, Geneva, Marcy, Rochester
and Vestal, New York and Macungie, Pennsylvania. The terminals have an
aggregate capacity of approximately two million barrels of petroleum product.
The initial purchase price has been allocated on a preliminary basis, pending
a final determination, to assets acquired based on estimated fair value. The
initial allocated fair value of assets acquired is summarized as follows:
<TABLE>
<S> <C>
Fuel additive inventory $ 141,000
Property, plant and equipment 7,963,000
Goodwill 11,147,000
-----------
Total $19,251,000
===========
</TABLE>
Pro forma results of operations for the Partnership, assuming the acquisition
of the Seagull and Agway assets had occurred at the beginning of the periods
indicated below, are as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
---- ----
(In thousands,
except per Unit amounts)
<S> <C> <C>
Revenue $152,338 $152,331
Income from continuing
operations $ 42,794 $ 53,155
Earnings per Unit from
continuing operations $ 1.58 $ 1.97
</TABLE>
The unaudited pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have resulted had the combinations been in effect at the
beginning of the period presented, or of future results of operations of the
entities.
3. SEGMENT INFORMATION
The Partnership had two reportable segments, the transportation segment and
the refining segment, which were organized on the basis of products and
service. The refining segment was sold on October 25, 2000. The results of
operations for the refining segment are reported on the consolidated income
statement as income from discontinued operations (see Note 11). The assets and
liabilities of the refining segment are included in the consolidated balance
sheet.
The transportation segment derives its revenues from the transportation of
refined petroleum products through its pipelines that it receives from
refineries, connecting pipelines and marine terminals and from the storage and
throughput of refined petroleum products at its terminals. All transportation
revenues are from sources within the United States.
The following is a summary of each reportable segment's assets as of and for
the period ended September 30, 2000.
<TABLE>
<CAPTION>
Trans- Inter-
portation Refining company Total
--------- -------- ------- -----
(In thousands)
<S> <C> <C> <C> <C>
Segment assets $684,639 $37,613 $(7,768) $714,484
Expenditures for property,
plant and equipment 28,448 665 - 29,113
</TABLE>
The following is a summary of each reportable segment's assets as of and for
the period ended September 30, 1999.
<TABLE>
<CAPTION>
Trans- Inter-
portation Refining company Total
--------- -------- ------- -----
(In thousands)
<S> <C> <C> <C> <C>
Segment assets $41,024 $29,406 $(9,462) $660,968
Expenditures for property,
plant and equipment 17,392 170 - 17,562
</TABLE>
The following is a summary of each reportable segment's assets as of
December 31, 1999.
<TABLE>
<CAPTION>
Trans- Inter-
portation Refining company Total
--------- -------- ------- -----
(In thousands)
<S> <C> <C> <C> <C>
Segment assets $647,519 $30,615 $(3,849) $674,285
4. CONTINGENCIES
The Partnership and its subsidiaries (the "Operating Partnerships"), in the
ordinary course of business, are involved in various claims and legal
proceedings, some of which are covered in whole or in part by insurance.
Buckeye Pipe Line Company (the "General Partner") is unable to predict the
timing or outcome of these claims and proceedings. Although it is possible
that one or more of these claims or proceedings, if adversely determined,
could, depending on the relative amounts involved, have a material effect on
the Partnership's results of operations for a future period, the General
Partner does not believe that their outcome will have a material effect on the
Partnership's consolidated financial condition or results of operations.
Environmental
Certain Operating Partnerships (or their predecessors) have been named as a
defendant in lawsuits or have been notified by federal or state authorities
that they are a potentially responsible party ("PRP") under federal laws or a
respondent under state laws relating to the generation, disposal, or release
of hazardous substances into the environment. These proceedings generally
relate to potential liability for clean-up costs. Typically, an Operating
Partnership is one of many PRP's for a particular site and its contribution of
total waste at the site is minimal. However, because CERCLA and similar
statutes impose liability without regard to fault and on a joint and several
basis, the liability of an Operating Partnership in connection with such
proceedings could be material. The total potential remediation costs relating
to these clean-up sites cannot be reasonably estimated. During the period
ended September 30, 2000, there were no notifications of any new proceedings.
The General Partner believes that the generation, handling and disposal of
hazardous substances by the Operating Partnerships and their predecessors have
been in material compliance with applicable environmental and regulatory
requirements. Additional claims for the cost of cleaning up releases of
hazardous substances and for damage to the environment resulting from the
activities of the Operating Partnerships or their predecessors may be asserted
in the future under various federal and state laws.
5. INVENTORIES
Inventories consist of transmix, fuel oils, gasoline and other specialty
products, as well as pipeline materials and supplies that include pipe,
valves, pumps, electrical/electronic components, drag reducing agent and other
miscellaneous items. Inventories are valued at the lower of cost or market on
the first-in first-out method. Inventories consisted of the following:
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Transmix $10,850 $12,319
Gasoline, distillates and jet fuel 1,929 1,664
Pipeline materials and supplies 5,954 4,414
------- ------
Total $18,733 $18,397
======= =======
</TABLE>
The Partnership hedged a substantial portion of its exposure to inventory
price fluctuations with commodity futures contracts for the sale of gasoline
and fuel oil. At September 30, 2000 the Partnership had hedged approximately
54 percent of its petroleum product inventory and had approximately $0.2
million of unrealized gains related to futures contracts held on September 30,
2000. These futures contracts were terminated prior to October 25, 2000 in
anticipation of the sale of BRC (see Note 2). During the nine month period
ended September 30, 2000, BRC's discontinued operations generated $11.6
million in operating profit offset by $6.5 million in realized losses related
to investment in futures contracts resulting in $5.1 million of operating
income from discontinued operations.
6. LONG-TERM DEBT
As of September 30, 2000, the Partnership had $240.0 million of Senior Notes
outstanding. The Senior Notes are scheduled to mature in the period 2020 to
2024 and bear interest from 6.89 percent to 6.98 percent. In addition, the
Partnership had $69.0 million of its $100 million Credit Agreement
outstanding. The weighted average interest rate for the $69.0 million debt
was 7.11 percent at September 30, 2000.
7. PARTNERS' CAPITAL
Partners' capital consists of the following:
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
(In thousands)
<S> <C> <C> <C>
Partners' Capital - 1/1/00 $2,548 $314,441 $316,989
Net Income 435 47,547 47,982
Distributions (439) (48,260) (48,699)
Exercise of unit options - 784 784
------ -------- --------
Partners' Capital - 9/30/00 $2,544 $314,512 $317,056
====== ======== ========
</TABLE>
The following is a reconciliation of basic and dilutive income from continuing
operations per Partnership Unit for the three month and nine month periods
ended September 30:
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------------------
2000 1999
--------------------- ---------------------
Income Units Per Income Units Per
(Numer- (Denomi- Unit (Numer- (Denomi- Unit
ator) nator) Amount ator) nator) Amount
------- -------- ------ ------- -------- ------
(in thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C> <C>
Income from continuing
operations $14,471 $15,724
------- -------
Basic earnings per
Partnership Unit 14,471 27,069 $0.53 15,724 27,024 $0.59
Effect of dilutive
securities - options - 68 - - 82 (0.01)
------- ------ ----- ------ ------ -----
Diluted earnings per
Partnership Unit $14,471 27,137 $0.53 $15,724 27,106 $0.58
======= ====== ===== ======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------------------------
2000 1999
--------------------- ---------------------
Income Units Per Income Units Per
(Numer- (Denomi- Unit (Numer- (Denomi- Unit
ator) nator) Amount ator) nator) Amount
------- -------- ------ ------- -------- ------
(in thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C> <C>
Income from continuing
operations $42,779 $53,181
------- -------
Basic earnings per
Partnership Unit 42,779 27,055 $1.58 53,181 27,007 $1.97
Effect of dilutive
securities - options - 76 - - 91 (.01)
------- ------ ----- ------ ------ -----
Diluted earnings per
Partnership Unit $42,779 27,131 $1.58 $53,181 27,098 $1.96
======= ====== ===== ======= ====== =====
</TABLE>
Options reported as dilutive securities are related to unexercised options
outstanding under the Partnership's Unit Option Plan.
8. CASH DISTRIBUTIONS
The Partnership will generally make quarterly cash distributions of
substantially all of its available cash, generally defined as consolidated
cash receipts less consolidated cash expenditures and such retentions for
working capital, anticipated cash expenditures and contingencies as the
General Partner deems appropriate.
The Partnership declared a cash distribution of $0.60 per unit payable on
November 30, 2000 to unitholders of record on November 6, 2000. The total
distribution will amount to approximately $16,249,000.
9. ACCOUNTING PRONOUNCEMENTS
In November 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
Recognition" ("SAB 101"). SAB 101 sets forth the SEC Staff's position
regarding the point at which it is appropriate to recognize revenue. The
Staff believes that revenue is realizable and earned when (i) persuasive
evidence of an arrangement exists, (ii) delivery has occurred or service has
been rendered, (iii) the seller's price to the buyer is fixed or determinable,
and (iv) collection is reasonably assured. The Partnership uses the above
criteria to determine when revenue should be recognized and therefore the
issuance of SAB 101 is not expected to have a material impact on its financial
statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 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. In June 2000, the FASB issued
SFAS No. 138, which amends certain provisions of SFAS 133 to clarify four
areas causing difficulties in implementation. The amendment included
expanding the normal purchase and sale exemption for supply contracts,
permitting the offsetting of certain intercompany foreign currency derivatives
thereby reducing the number of third party derivatives, permitting hedge
accounting for foreign-currency denominated assets and liabilities and
redefining interest rate risk to reduce sources of ineffectiveness. The
Partnership will adopt SFAS 133 and the corresponding amendments under SFAS
138 on January 1, 2001. Management has not completed its evaluation of the
effect of SFAS 133 and 138 on the Partnership's financial statements.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" which
replaces SFAS No. 125. This Statement revises the standards for accounting
for securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of Statement No. 125's
provisions. This Statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. In addition, this Statement is effective for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
Management does not expect the adoption of SFAS 140 to have a significant
effect on the Partnership.
10. OTHER EVENTS
In April 2000, the Partnership announced that it entered into non-exclusive
agreements that provide for the Partnership to receive a 3.5 percent equity
interest in Aerie Networks, Inc. ("Aerie") in exchange for assisting Aerie
with its development of a fiber optics network along a portion of the
Partnership's pipeline rights-of-way. No cash investment or expense is
required by the Partnership. The Partnership, and 11 other natural gas, oil
and liquid petroleum pipeline companies and telecommunications affiliates, are
providing Aerie with rights in over 14,500 miles of rights-of-way on which to
build a large capacity broadband fiber optics network. The pipeline rights-
of-way will serve as the foundation for Aerie's planned 20,000 mile broadband
fiber optic network that will connect 194 cities. The Partnership's agreement
to provide access to its rights-of-way was contingent on Aerie's success in
raising additional capital. On September 1, 2000, Aerie completed its minimum
financing requirement and the Partnership received preferred stock in Aerie
Networks, Inc. in exchange for 1,026 miles of right-of-way occupancy rights
for fiber optic cable. At this time, it is not possible to estimate the value
of the Partnership's equity interest in Aerie, however, such investment may be
material to the Partnership's financial position in the future. The interest
in Aerie will be accounted for on the cost basis.
On July 27, 2000, the Partnership entered into a joint venture with PetroNet
Corporation. The Partnership received 49.99 percent of PetroNet common stock
in exchange for granting PetroNet the right to construct a next generation
fiber optics network within the Partnership's pipeline rights-of-way.
Buckeye's right-of-way will serve as the foundation for PetroNet's 13,500 mile
national fiber optics network, the first stage of which will serve 22 cities
in the Northeast and Midwest United States. PetroNet is currently seeking
first-stage financing in the form of equity and debt. At this time it is not
possible to estimate the value of the Partnership's investment in PetroNet
stock.
11. SUBSEQUENT EVENTS
On October 13, 2000, the Partnership announced that it had entered into a
purchase agreement to sell BRC's transmix refining business to Kinder Morgan
Energy Partners, L.P. ("Kinder Morgan") for $37 million in cash plus net
working capital on the closing date of the transaction. BRC was sold to
Kinder Morgan on October 25, 2000 for an aggregate purchase price of
approximately $45,000,000, subject to post-closing working capital
adjustments. The gain on the sale of BRC is expected to approximate
$29,000,000, exclusive of any conditional payments to ARG (see Note 2). The
Partnership and Kinder Morgan also entered into a long-term agreement whereby
Kinder Morgan will purchase from the Partnership transmix generated in
connection with the Partnership's pipeline operations.
The assets and liabilities of BRC, net of intercompany items, included in the
consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 9,254 $ 6,272
Trade receivables 6,522 1,771
Inventories 12,779 13,806
Prepaid and other current assets 844 775
-------- --------
Total current assets 29,399 22,624
Property, plant and equipment, net 7,539 7,278
Other non-current assets 675 713
-------- --------
Total assets $ 37,613 $ 30,615
======== ========
Liabilities
Current liabilities
Accounts payable $ 10,828 $ 12,456
Accrued and other current liabilities 365 752
-------- --------
Total current liabilities $ 11,193 $ 13,208
======== ========
</TABLE>
Refining revenue included in discontinued operations for the third quarter
2000 was $66.7 million compared to $36.3 million for the third quarter 1999.
Operating expenses of discontinued operations were $63.3 million for the third
quarter 2000 compared to $35.4 million for the third quarter 1999.
Depreciation and amortization expense of discontinued operations was $0.1
million for third quarter 2000 compared to $0.2 million for the third quarter
1999.
Refining revenue included in discontinued operations for the first nine months
of 2000 was $158.3 million compared to $69.2 million for the period March 4,
1999 (date of acquisition) through September 30, 1999. Operating expenses of
discontinued operations were $153.2 million for the first nine months of 2000
compared to $65.9 million for the partial period in 1999. Depreciation and
amortization expense of discontinued operations was $0.4 million for the first
nine months of 2000 as well as for the partial period in 1999.
Transportation revenue, as reported on the consolidated statements of income,
includes revenue from BRC for the transportation of transmix to BRC. For the
quarters ended September 30, 2000 and 1999, such transportation revenue was
$0.8 million and $0.9 million, respectively. For the nine months ended
September 30, 2000 and for the period March 4, 1999 (date of
acquisition)through September 30, 1999, transportation revenue was $2.0
million. The Partnership anticipates it will continue to receive revenue from
the transportation of transmix to BRC subsequent to the sale of BRC to Kinder
Morgan.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Third Quarter
Revenue from the transportation of refined petroleum products for the third
quarter 2000 was $52.6 million or 5.4 percent greater than revenue of $49.9
million for the third quarter 1999. Volumes for the third quarter of 2000 were
1,051,600 barrels per day, 15,700 barrels per day or 1.5 percent greater than
volumes of 1,035,900 barrels per day for the third quarter 1999. Average
transportation revenue was 50.9 cents per barrel during the third quarter 2000
as compared to 50.4 cents per barrel during the third quarter 1999. Gasoline
volumes were 3.5 percent lower during the third quarter 2000 than in the third
quarter 1999. In the East, the largest declines were in deliveries to the
upstate New York and Pittsburgh, Pennsylvania areas. Demand was up slightly
in the Midwest partially offsetting declines in the East. Distillate volumes
during the third quarter 2000 increased by 16.8 percent from third quarter
1999 levels. In the East, the largest increase in deliveries was to the
upstate New York area where distillate volumes had been below 1999 levels in
previous quarters. In the Midwest, revenue for the third quarter 2000 was
approximately $1.0 million greater than the third quarter 1999. Demand was
strong throughout most areas with the most significant increases occurring in
the Indianapolis, Indiana area due to a new connection and at Bay City,
Michigan where volumes have been strong since the closure of a regional
refinery in Alma, Michigan. Turbine fuel volumes were 2.3 percent greater
during the third quarter 2000 than the third quarter 1999. Demand was up at
most airports with the largest increase occurring at Pittsburgh airport.
Costs and expenses for the third quarter 2000 were $30.5 million compared to
$27.9 million for the third quarter 1999. The operating expenses increase of
$2.6 million is primarily related to an increase in the costs associated with
additional contract services provided by BGC, additional outside services and
an increase in depreciation expense. These cost increases were partially
offset by declines in rental, payroll benefit and casualty loss expense.
Other expenses totaled $7.6 million during the third quarter 2000 as compared
to $6.3 million during the third quarter 1999. Interest expense increased due
to additional borrowings incurred in 2000. In addition, incentive
compensation payments to the General Partner increased during the third
quarter 2000 as compared to the third quarter 1999 due to an increase in the
level of cash distributions paid to limited partners.
Discontinued Operations
Refining revenue included in discontinued operations for third quarter 2000
was $66.7 million compared to $36.3 million for the third quarter 1999. BRC's
revenue during the third quarters of 2000 and 1999 was derived from the sale
of 72 million and 60 million gallons of refined petroleum products,
respectively. During the third quarter 2000, revenue from the sale of
gasoline was $31.3 million while revenue from the sale of distillate products
was $35.4 million. During the third quarter 1999, revenue from the sale of
gasoline was $18.8 million while revenue from the sale of distillate products
was $17.5 million. In November 1999, BRC entered into a contract with a major
integrated oil company to sell all the refined petroleum products produced at
its Indianola, Pennsylvania facility to such company. Total revenue under the
contract for the third quarter 2000 was approximately $42.7 million.
Operating expenses of discontinued operations were $63.3 million for the third
quarter 2000 compared to $35.4 million for the third quarter 1999. The
increase is attributable to an increase in the cost of goods sold of $28.2
million dollars due primarily to higher costs of transmix.
First Nine Months
Revenue from the transportation of refined petroleum products for the first
nine months of 2000 was $152.5 million or 2.8 percent greater than revenue of
$148.3 million for the first nine months of 1999. Revenue of $5.3 million
under Buckeye Gulf Coast Pipe Lines, LLC ("BGC") operating contracts was $2.8
million higher in 2000 due to additional contract services provided by BGC, as
well as the fact that BGC did not begin operations until March 31, 1999.
Volumes for the first nine months of 2000 were 1,045,700 barrels per day,
1,200 barrels per day or 0.1 percent less than volumes of 1,046,900 barrels
per day for the first nine months of 1999. Gasoline volumes were 1.6 percent
less during the first nine months of 2000 than the first nine months of 1999.
In the East, volumes declined in most markets as high prices dampened demand
and encouraged reduced inventories. In the Midwest, revenue grew despite flat
volumes as increased revenue under longer-haul moves more than offset declines
in shorter-haul movements. Distillate volumes were 2.6 percent greater during
the first nine months of 2000 than the first nine months of 1999. In the
East, deliveries declined as normal summer restocking was deferred due to high
product prices and market volatility. The Midwest gained on increased
deliveries to Bay City, Michigan and new business in the Indianapolis, Indiana
area resulting from a new connection. Turbine fuel volumes increased by 2.1
percent during the first nine months of 2000 as compared to the first nine
months of 1999. Increased demand at Detroit Airport and J.F.K. Airport was the
primary reason for the increase.
Costs and expenses for the first nine months of 2000 were $89.0 million
including $4.8 million in expenses related to BGC's operations. Costs and
expenses for the first nine months of 1999 were $76.7 million including $2.1
million in expenses related to BGC's operations. Excluding the expenses of
BGC, costs and expenses of $84.2 million for the first nine months of 2000
were $9.6 million above costs and expenses incurred during the first nine
months of 1999. During the first nine months of 1999, the Partnership settled
a real property tax dispute with the City and State of New York, which
resulted in a one-time expense reduction of $11.0 million in 1999. Expenses
related to casualty losses and payroll benefits were lower during the first
nine months of 2000 compared to 1999.
Other expenses totaled $20.8 million during the first nine months of 2000 as
compared to $18.4 million during the first nine months of 1999. Interest
expense increased due to additional borrowings in 2000 and due to borrowings
incurred in March 1999 to finance acquisitions that were outstanding for the
full first nine months of 2000. In addition, incentive compensation payments
to the General Partner increased during the first nine months of 2000 as
compared to the first nine months of 1999 due to an increase in the level of
cash distributions paid to limited partners.
Discontinued Operations
Refining revenue included in discontinued operations for the first nine months
of 2000 was $158.3 million compared to $69.2 million for the period March 4,
1999 (date of acquisition) through September 30, 1999. BRC's revenue for the
first nine months of 2000 and from the date of acquisition through September
30, 1999 was derived from the sale of 183 million and 130 million gallons of
refined petroleum products, respectively. During the first nine months of
2000, revenue from the sale of gasoline was $72 million while revenue from the
sale of distillate products was $86.2 million. During the partial period in
1999, revenue from the sale of gasoline was $35.0 million while revenue from
the sale of distillate products was $34.2 million. In November 1999, BRC
entered into a contract with a major integrated oil company to sell all the
refined product produced at its Indianola, Pennsylvania facility to such
company. Total revenue under the contract for the first nine months of 2000
was approximately $98 million.
Operating expenses of discontinued operations were $153.2 million for the
first nine months of 2000 compared to $65.9 million for the partial period in
1999. The increase is attributable to a full year's operations of BRC and an
increase in the cost of goods sold due primarily to higher costs of transmix.
Competition and Other Business Conditions
The Partnership's refining segment, reported as discontinued operations, is
subject to competition from other refiners and marketers of refined petroleum
products and is subject to market price risks representing the difference
between the purchase cost of transmix and the market price of refined
petroleum products at the time of resale. In order to reduce the level of
market price risk the General Partner had adopted a policy of hedging a
substantial portion of BRC's exposure to inventory price fluctuations with
commodity futures contracts for the sale of gasoline and fuel oil. Just prior
to the sale of BRC on October 25, 2000, the Partnership liquidated its futures
contracts with respect to BRC's inventory.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financial condition at September 30, 2000 is highlighted in
the following comparative summary:
Liquidity and Capital Indicators
<TABLE>
<CAPTION>
As of
-----------------------
9/30/00 12/31/99
------- --------
<S> <C> <C>
Current ratio 1.6 to 1 1.3 to 1
Ratio of cash and cash equivalents,
and trade receivables to
current liabilities 0.9 to 1 0.7 to 1
Working capital - in thousands $21,460 $13,149
Ratio of total debt to total capital .49 to 1 .45 to 1
Book value (per Unit) $11.71 $11.72
</TABLE>
The Partnership's cash flows from operations are generally sufficient to meet
current working capital requirements. In addition, the Partnership has a $100
million credit agreement (the "Credit Agreement") which expires on December
16, 2003. At September 30, 2000 there was $69.0 million borrowed under the
Credit Agreement.
Cash Provided by Operations
For the nine months ended September 30, 2000, cash provided by operations of
$42.2 million was derived principally from $56.3 million of income from
continuing operations before depreciation and amortization. Changes in
current assets and current liabilities resulted in a net cash use of $14.5
million. Increases in trade receivables are related to BRC's operations.
Accrued and other current liabilities declined primarily as a result of
payments to the general partner for its services. Changes in non-current
assets and liabilities resulted in a net cash source of $0.3 million. Cash
provided by operations was used to pay distributions to Unitholders of $48.7
million.
Debt Obligation and Credit Facilities
At September 30, 2000, the Partnership had $309.0 million in outstanding long-
term debt representing $240.0 million of Senior Notes and $69.0 million of
borrowings under the Credit Facility.
The indenture pursuant to which the Senior Notes were issued (the "Senior Note
Indenture") contains covenants which affect Buckeye Pipe Line Company, L.P.
("Buckeye"), Laurel Pipe Line Company, L.P. and Buckeye Pipe Line Company of
Michigan, L.P. (the "Indenture Parties"). Generally, the Senior Note
Indenture (a) limits outstanding indebtedness of Buckeye based upon certain
financial ratios of the Indenture Parties, (b) prohibits the Indenture Parties
from creating or incurring certain liens on their property, (c) prohibits the
Indenture Parties from disposing of property which is material to their
operations, and (d) limits consolidation, merger and asset transfers of the
Indenture Parties.
The Credit Agreement permits borrowings of up to $100 million and contains
covenants that affect Buckeye and the Partnership. Generally, the Credit
Agreement (a) limits outstanding indebtedness of Buckeye based upon certain
financial ratios contained in the Credit Agreement, (b) prohibits Buckeye from
creating or incurring certain liens on its property, (c) prohibits the
Partnership or Buckeye from disposing of property which is material to its
operations, and (d) limits consolidation, merger and asset transfers by
Buckeye and the Partnership.
At September 30, 2000, the ratio of total debt to total capital was 49
percent. For purposes of the calculation of this ratio, total capital
consists of long-term debt, minority interests in subsidiaries and partners'
capital.
Capital Expenditures
At September 30, 2000, approximately 82 percent of total consolidated assets
consisted of property, plant and equipment.
Capital expenditures during the nine months ended September 30, 2000 totaled
$29.1 million and were $11.5 million greater than capital expenditures for the
nine months ended September 30, 1999. Of the $29.1 million in capital
expenditures, $28.4 million was related to the transportation segment and $0.7
million was related to the refining segment. The Partnership continues to
make capital expenditures in connection with the automation of its pipeline
facilities and improvements to its facilities in order to increase capacity,
reliability, integrity and efficiency. Estimated total capital expenditures
for 2000, exclusive of acquisitions, amount to $39.3 million.
In March 2000, the Partnership purchased a petroleum products terminal from BP
Amoco at a cost of $3.0 million. The terminal is located in Taylor, Michigan,
near the Detroit airport, and has a capacity of approximately 280,000 barrels
of petroleum product. In June 2000, the Partnership acquired six petroleum
products terminals from Agway Energy Products LLC at a total cost of $19.3
million. The terminals are located in Brewerton, Geneva, Marcy, Rochester and
Vestal, New York and Macungie, Pennsylvania. The terminals have an aggregate
capacity of approximately 2.0 million barrels of petroleum product. The
Partnership is currently expanding its pipeline from East Chicago, Indiana to
Lima, Ohio. This capacity expansion will enable the Partnership to transport
additional petroleum products anticipated to be shipped in connection with a
major pipeline project under construction by a third party. Of the $6.0
million total estimated cost of this expansion, $4.4 million was spent during
the first nine months of 2000.
In addition, the Partnership continues to make capital expenditures for, among
other things, various improvements that facilitate increased pipeline volumes,
facility automation, renewal and replacement of several tank roofs, upgrades
to field instrumentation and cathodic protection systems and the installation
and replacement of mainline pipe and valves. The Partnership has also
constructed additional office space that will replace currently leased
facilities.
OTHER MATTERS
Accounting Pronouncements
In November 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
Recognition" ("SAB 101"). SAB 101 sets forth the SEC Staff's position
regarding the point at which it is appropriate to recognize revenue. The
Staff believes that revenue is realizable and earned when (i) persuasive
evidence of an arrangement exists, (ii) delivery has occurred or service has
been rendered, (iii) the seller's price to the buyer is fixed or determinable,
and (iv) collection is reasonably assured. The Partnership uses the above
criteria to determine when revenue should be recognized and therefore the
issuance of SAB 101 is not expected to have a material impact on its financial
statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 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. In June 2000, the FASB issued
SFAS No. 138, which amends certain provisions of SFAS 133 to clarify four
areas causing difficulties in implementation. The amendment included
expanding the normal purchase and sale exemption for supply contracts,
permitting the offsetting of certain intercompany foreign currency derivatives
thereby reducing the number of third party derivatives, permitting hedge
accounting for foreign-currency denominated assets and liabilities and
redefining interest rate risk to reduce sources of ineffectiveness. The
Partnership will adopt SFAS 133 and the corresponding amendments under SFAS
138 on January 1, 2001. Management has not completed its evaluation of the
effect of SFAS 133 and 138 on the Partnership's financial statements.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" which
replaces SFAS No. 125. This Statement revises the standards for accounting
for securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of Statement No. 125's
provisions. This Statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. In addition, this Statement is effective for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
Management does not expect the adoption of SFAS 140 to have a significant
effect on the Partnership.
Forward Looking Statements
This SEC Form 10-Q includes forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the General Partner believes that its
expectations are based on reasonable assumptions, it can give no assurance
that such assumptions will materialize. For instance, cost savings to be
realized in connection with the automation of pipeline facilities depend upon,
among other things, the field automation projects being implemented
effectively and on time. Similarly, increased revenues anticipated to be
realized in connection with pipeline expansion projects are dependent upon,
among other things, the expansion projects being implemented effectively and
on time, and the use of the increased capacity by shippers on the pipeline
systems.
Item 3. 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 September 30, 2000, a 1 percent increase or decrease in the
applicable rate under the Credit Agreement will result in an interest expense
fluctuation of approximately $0.7 million.
Market Risk - Trading Instruments
The Partnership hedged a substantial portion of its exposure to inventory
price fluctuations related to its BRC business with commodity futures
contracts for the sale of gasoline and fuel oil. At September 30, 2000 the
Partnership had hedged approximately 54 percent of BRC's inventory and held
commodity futures contracts for the sale of 4.6 million gallons of fuel oil
and for the sale of 2.1 million gallons of gasoline. A $0.01 per gallon
decrease in the market price of fuel oil would result in a gain of
approximately $46,000 in the futures contracts. A $0.01 per gallon increase in
the market price of fuel oil would result in a loss of approximately $46,000
in the futures contracts. A $0.01 per gallon increase in the market price of
gasoline would result in a loss of approximately $21,000 in the futures
contracts. A $0.01 per gallon decrease in the market price of gasoline would
result in a gain of approximately $21,000 in the futures contracts. These
futures contracts were terminated prior to October 25, 2000 in anticipation of
the sale of BRC.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended September 30,
2000.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUCKEYE PARTNERS, L.P.
(Registrant)
By: Buckeye Pipe Line Company,
as General Partner
Dated: October 31, 2000 By: /s/ Steven C. Ramsey
Steven C. Ramsey
Senior Vice President, Finance
and Chief Financial Officer
(Principal Accounting and
Financial Officer)
