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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2002 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: 484-232-4000
Not Applicable
- -----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report).
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at July 18, 2002
- ------------------------- ---------------------------
Limited Partnership Units 26,926,046 Units
BUCKEYE PARTNERS, L.P.
INDEX
Page No.
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Income 1
(unaudited) for the three months and six months
ended June 30, 2002 and 2001
Condensed Consolidated Balance Sheets (unaudited) 2
June 30, 2002 and December 31, 2001
Condensed Consolidated Statements of Cash Flows 3
(unaudited)for the six months ended
June 30, 2002 and 2001
Notes to Condensed Consolidated Financial Statements 4-10
Item 2.Management's Discussion and Analysis 11-15
of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures 15
about Market Risk
Part II. Other Information
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Buckeye Partners, L.P.
Condensed Consolidated Statements of Income
(In thousands, except per Unit amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
- ------------------ -----------------
2002 2001 2002 2001
---- ---- ---- ----
$61,061 $56,867 Revenue $117,952 $111,284
- ------- ------- -------- --------
Costs and expenses
28,019 25,917 Operating expenses 53,957 50,637
5,136 4,887 Depreciation and amortization 10,283 9,726
3,242 3,051 General and administrative expenses 7,001 6,056
- ------- ------- -------- --------
36,397 33,855 Total costs and expenses 71,241 66,419
- ------- ------- -------- --------
24,664 23,012 Operating income 46,711 44,865
- ------- ------- -------- --------
Other income (expenses)
151 127 Investment income 689 398
(5,337) (4,157) Interest and debt expense (10,577) (8,703)
(2,969) (2,932) Minority interests and other (5,889) (5,587)
- ------- ------- -------- --------
(8,155) (6,962) Total other income (expenses) (15,777) (13,892)
- ------- ------- -------- --------
$16,509 $16,050 Net income $ 30,934 $ 30,973
======= ======= ======== ========
Net income allocated to General
$ 148 $ 145 Partner $ 278 $ 279
Net income allocated to Limited
$16,361 $15,905 Partners $ 30,656 $ 30,694
Earnings per Partnership Unit - basic:
Net income allocated to General
and Limited Partners per
$ 0.61 $ 0.59 Partnership Unit $ 1.14 $ 1.14
======= ======= ======= =======
Earnings per Partnership Unit -
assuming dilution:
Net income allocated to General
and Limited Partners per
$ 0.61 $ 0.59 Partnership Unit $ 1.14 $ 1.14
======== ======= ======== ========
See notes to condensed consolidated financial statements.
Buckeye Partners, L.P.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
June 30, December 31,
2002 2001
---- ----
Assets
Current assets
Cash and cash equivalents $ 13,253 $ 12,946
Trade receivables 15,391 13,753
Inventories 8,179 7,591
Prepaid and other current assets 14,441 13,441
-------- --------
Total current assets 51,264 47,731
Property, plant and equipment, net 674,765 670,439
Other non-current assets 87,696 89,390
-------- --------
Total assets $813,725 $807,560
======== ========
Liabilities and partners' capital
Current liabilities
Accounts payable $ 3,590 $ 7,416
Accrued and other current liabilities 27,310 24,885
-------- --------
Total current liabilities 30,900 32,301
Long-term debt 383,000 373,000
Minority interests 3,378 3,307
Other non-current liabilities 46,236 46,056
-------- --------
Total liabilities 463,514 454,664
-------- --------
Commitments and contingent liabilities - -
Partners' capital
General Partner 2,807 2,834
Limited Partners 348,206 351,057
Receivable from exercise of options (802) (995)
-------- --------
Total partners' capital 350,211 352,896
-------- --------
Total liabilities and partners' capital $813,725 $807,560
======== ========
See notes to condensed consolidated financial statements.
Buckeye Partners, L.P.
Condensed Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
(Unaudited)
Six Months Ended
June 30,
----------------------
2002 2001
---- ----
Cash flows from operating activities:
Net income $30,934 $30,973
------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 10,283 9,726
Minority interests 468 555
Change in assets and liabilities:
Trade receivables (1,638) (1,097)
Inventories (588) (678)
Prepaid and other current assets (1,000) 553
Accounts payable (3,826) (2,302)
Accrued and other current liabilities 2,425 (2,619)
Other non-current assets (775) 42
Other non-current liabilities 180 661
-------- -------
Total adjustments from operating
activities 5,529 4,841
-------- -------
Net cash provided by operating activities 36,463 35,814
-------- -------
Cash flows from investing activities:
Capital expenditures (11,968) (15,669)
Net (expenditures) proceeds for disposal
of property, plant and equipment (172) (217)
-------- -------
Net cash used in investing activities (12,140) (15,886)
-------- -------
Cash flows from financing activities:
Proceeds from exercise of unit options 340 853
Distributions to minority interests (397) (378)
Proceeds from issuance of long-term debt 10,000 5,000
Payment of long-term debt - (15,000)
Distributions to Unitholders (33,959) (32,517)
-------- -------
Net cash used in financing activities (24,016) (42,042)
-------- -------
Net increase (decrease) in cash and cash
equivalents 307 (22,114)
Cash and cash equivalents at beginning of
period 12,946 32,216
-------- -------
Cash and cash equivalents at end of period $ 13,253 $ 10,102
======== =======
Supplemental cash flow information:
Cash paid during the period for interest
(net of amount capitalized) $ 10,372 $ 9,544
See notes to condensed consolidated financial statements.
BUCKEYE PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.BASIS OF PRESENTATION
In the opinion of management, the accompanying condensed consolidated
financial statements of Buckeye Partners, L.P. (the "Partnership"), which
are unaudited except that the Balance Sheet as of December 31, 2001 is
derived from audited financial state ments, include all adjustments
necessary to present fairly the Partnership's financial position as of June
30, 2002 and the results of operations for the three and six month periods
ended June 30, 2002 and 2001 and cash flows for the six month periods ended
June 30, 2002 and 2001. The results of operations for the three and six
months ended June 30, 2002 are not necessarily indicative of the results to
be expected for the full year ending December 31, 2002.
Buckeye Pipe Line Company, L.P., Laurel Pipe Line Company, L.P, Everglades
Pipe Line Company, L.P. and Buckeye Pipe Line Holdings, L.P. (formerly
Buckeye Tank Terminals, L.P.). are referred to collectively as the
"Operating Partnerships."
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the condensed consolidated financial statements do not include
all of the information and notes normally included with financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America. These condensed consolidated 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, 2001.
2. ACQUISITIONS
On July 31, 2001, the Partnership acquired a pipeline system and related
terminals from affiliates of TransMontaigne Inc. for a total purchase price
of $61,750,000. Additional costs incurred in connection with the
acquisition amounted to $533,000. The assets included a 482-mile refined
petroleum products pipeline that runs from Hartsdale, Indiana west to Fort
Madison, Iowa and east to Toledo, Ohio, with an 11-mile pipeline connection
between major storage terminals in Hartsdale and East Chicago, Indiana. The
assets also included 3.2 million barrels of pipeline storage and trans-
shipment facilities in Hartsdale and East Chicago, Indiana and Toledo, Ohio;
and four truck rack product terminals located in Bryan, Ohio; South Bend and
Indianapolis, Indiana; and Peoria, Illinois. The pipeline system is
operated under the name of Norco Pipe Line Co., LLC ("Norco"). The terminal
assets became part of the operations of of the Partnership's wholly-owned
subsidiary, Buckeye Terminals, LLC. The pipeline system and related
terminals are collectively referred to as the "Norco Assets" or "Norco
Operations". The allocated fair value of assets acquired is summarized as
follows:
(In thousands)
Pipe inventory $ 688
Property, plant and equipment 61,595
-------
Total $62,283
=======
Pro forma results of operations for the Partnership, assuming the
acquisition of the Norco Assets had occurred at the beginning of the period
indicated below, are as follows:
(Unaudited) (Unaudited)
Three Months Six Months
Ended Ended
June 30, 2001 June 30, 2001
------------- -------------
(In thousands,
except per Unit amounts)
Revenue $61,131 $119,409
Net income $16,795 $ 32,174
Earnings per Partnership Unit $ 0.62 $ 1.19
Earnings per Partnership
Unit - excluding
amortization of goodwill $ 0.63 $ 1.20
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 combination been in effect at the
beginning of the periods presented, or of future results of operations of
the entities. The Norco acquisition was accounted for under the purchase
method of accounting.
3. SEGMENT INFORMATION
During the three and six month periods ended June 30, 2002 and 2001, the
Partnership had one business segment, the transportation segment. The
transportation segment derives its revenues primarily from the
transportation of refined petroleum products that it receives from
refineries, connecting pipelines and marine terminals. Other revenues are
received from storage and terminal throughput services of refined petroleum
products and contract operation of petrochemical pipelines. Revenues from
the transportation segment are, for the most part, subject to regulation by
the Federal Energy Regulatory Commission or are under contract.
4. 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. 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 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.
Environmental
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 certain sites, 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. The General
Partner is unable to determine the timing or outcome of pending proceedings.
5. LONG-TERM DEBT
As of June 30, 2002, the Partnership had $240 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.
During September and October 2001, the Partnership entered into a $277.5
million 5-year Revolving Credit Agreement and an $92.5 million 364-day
Revolving Credit Agreement (the "Credit Facilities") with a syndicate of
banks led by SunTrust Bank. These Credit Facilities permit borrowings of up
to $370 million subject to certain limitations contained in the Credit
Facility agreements. Borrowings bear interest at the bank's base rate or at
a rate based on the London interbank offered rate ("LIBOR") at the option of
the Partnership. At June 30, 2002, the Partnership had borrowed $143
million under the 5-year Revolving Credit Agreement at an average weighted
LIBOR pricing option rate of 2.96 percent. The Credit Facility agreements
contain certain covenants that affect the Partnership. Generally, the
Credit Facility (a) limits outstanding indebtedness of the Partnership based
upon certain financial ratios contained in the Credit Facility agreements
(b) prohibit the Partnership from creating or incurring certain liens on its
property, (c) prohibit the Partnership from disposing of property which is
material to its operations, (d) limits consolidation, merger and asset
transfers by the Partnership and (e) requires the Partnership to maintain at
least one investment grade credit rating (BBB-, Baa3 or greater) from
Standard and & Poor's ("S&P") or Moody's Investor Services ("Moody's"). The
Partnership currently maintains credit ratings of A and Baa2 from S&P and
Moody's, respectively. Concurrent with the execution of the Credit
Facilities, Buckeye repaid all borrowings outstanding under its $100 million
Credit Agreement with First Union National Bank ("First Union") and its $30
million Loan Agreement with First Union. Those agreements were terminated
with the repayment of the borrowings.
The fair value of the Partnership's debt is estimated to be $385 million and
$372 million as of June 30, 2002 and December 31, 2001, respectively. The
values at June 30, 2002 and December 31, 2001 were calculated using interest
rates currently available to the Partnership for issuance of debt with
similar terms and remaining maturities.
6. GOODWILL AND INTANGIBLE ASSETS
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets," which establishes financial accounting and reporting for acquired
goodwill and other intangible assets. Under SFAS No. 142, goodwill and
indefinite-lived intangible assets are no longer amortized but are reviewed
at least annually for impairment. Intangible assets that have finite useful
lives will continue to be amortized over their useful lives.
SFAS No. 142 requires that goodwill be tested for impairment at least
annually utilizing a two-step methodology. The initial step requires the
Partnership to determine the fair value of each of its reporting units and
compare it to the carrying value, including goodwill, of such reporting
unit. If the fair value exceeds the carrying value, no impairment loss is
recognized. However, a carrying value that exceeds its fair value, may be
an indication of impaired goodwill. The amount, if any, of the impairment
would then be measured and an impairment loss would be recognized.
The Partnership has completed the transitional impairment test required upon
adoption of SFAS No. 142. The transitional test, which involved the use of
estimates related to the fair market value of the business operations
associated with the goodwill, did not result in an impairment loss. The
Partnership will continue to evaluate its goodwill, at least annually, and
will reflect the impairment of goodwill, if any, in operating income in the
income statement.
The following represents a pro-forma restatement of 2001 as if SFAS No. 142
had been adopted at the beginning of the year and that goodwill amortization
had been eliminated. The impact on net income, and basic and diluted
earnings per share for the periods indicated below are as follows:
Three Months Six Months
Ended Ended
June 30, 2001 June 30, 2001
------------- -------------
Reported net income $16,050 $30,973
Adjustment for amortization of
goodwill 210 412
------- -------
Adjusted net income $16,260 $31,385
======= =======
Reported basic earnings per Unit $ 0.59 $ 1.14
Adjustment for amortization of
goodwill 0.01 0.02
------- -------
Adjusted basic earnings per Unit $ 0.60 $ 1.16
======= =======
Reported diluted earnings per Unit $ 0.59 $ 1.14
Adjustment for amortization of
goodwill 0.01 0.01
------- -------
Adjusted diluted earnings per Unit $ 0.60 $ 1.15
======= =======
The Partnership's amortizable intangible assets consist of pipeline rights-
of-way and contracts. The contracts were acquired in connection with the
acquisition of Buckeye Gulf Coast Pipe Lines, LLC in March 1999. At June
30, 2002, the gross carrying amount of the pipeline rights-of-way was
$25,447,000 and accumulated amortization was $2,863,000. At June 30, 2002,
the gross carrying amount of the contracts was $3,600,000 and accumulated
amortization was $780,000. For the six month periods ended June 30, 2002
and 2001, amortization expense related to amortizable intangible assets was
$374,000 and $352,000, respectively. For the three month periods ended June
30, 2002 and 2001, amortization expense related to amortizable intangible
assets was $187,000 and $176,000, respectively. Estimated aggregate
amortization expense related to amortizable intangible assets is estimated
to be $748,000 per year for each of the next five years.
The Partnership's only intangible asset not subject to amortization is
goodwill that was recorded in connection with the acquisition of Buckeye
Terminals, LLC in June 2000. The carrying amount of the goodwill is
$11,355,000 at June 30, 2002.
7. PARTNERS' CAPITAL
Partners' capital consists of the following:
Receivable
General Limited from Exercise
Partner Partners of Options Total
------- -------- ------------- -----
(In thousands)
Partners' Capital - 1/1/02 $2,834 $351,057 $(995) $352,896
Net Income 278 30,656 - 30,934
Distributions (305) (33,654) - (33,959)
Payments on unit option loans - - 204 204
Exercise of unit options - 147 (11) 136
------ -------- ----- --------
Partners' Capital - 6/30/02 $2,807 $348,206 $(802) $350,211
====== ======== ===== ========
The following is a reconciliation of basic and dilutive diluted net income
per Partnership Unit for the three month and six month period ended June 30:
Three Months Ended June 30,
-------------------------------------------------
2002 2001
--------------------- ---------------------
Income Units Per Income Units Per
(Numer- (Denomi- Unit (Numer- (Denomi- Unit
ator) nator) Amount ator) nator) Amount
------- -------- ------ ------- -------- ------
(in thousands, except per unit amounts)
Net income $16,509 $16,050
------- -------
Basic earnings per
Partnership Unit 16,509 27,169 $0.61 16,050 27,117 $0.59
Effect of dilutive
securities - options - 53 - - 65 -
------- ------ ----- ------ ------ -----
Diluted earnings per
Partnership Unit $16,509 27,222 $0.61 $16,050 27,182 $0.59
======= ====== ===== ======= ====== =====
Six Months Ended June 30,
-------------------------------------------------
2002 2001
--------------------- ---------------------
Income Units Per Income Units Per
(Numer- (Denomi- Unit (Numer- (Denomi- Unit
ator) nator) Amount ator) nator) Amount
------- -------- ------ ------- -------- ------
(in thousands, except per unit amounts)
Net income $30,934 $30,973
------- -------
Basic earnings per
Partnership Unit 30,934 27,168 $1.14 30,973 27,106 $1.14
Effect of dilutive
securities - options - 57 - - 72 -
------- ------ ----- ------ ------ -----
Diluted earnings per
Partnership Unit $30,934 27,225 $1.14 $30,973 27,178 $1.14
======= ====== ===== ======= ====== =====
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.
On July 24, 2002, the Partnership declared a cash distribution of $0.625 per
unit payable on August 31, 2002 to Unitholders of record on August 6, 2002.
The total distribution will amount to approximately $16,982,000.
9. RELATED PARTY ACCRUED CHARGES
Accrued and other current liabilities include $3,267,000 and $6,552,000 due
the General Partner for payroll and other reimbursable costs as of June 30,
2002 and December 31, 2001, respectively.
10. ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued two new pronouncements: SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS 141 prohibits the use of the pooling-of-interest method for
business combinations initiated after June 30, 2001 and also applies to all
business combinations accounted for by the purchase method that are
completed after June 30, 2001. The Norco acquisition was accounted for in
accordance with the provisions of SFAS 141. SFAS 142 is effective for
fiscal years beginning after December 15, 2001 with respect to all goodwill
and other intangible assets recognized in an entity's statement of financial
position at that date, regardless of when those assets were initially
recognized. The Partnership's goodwill of $11,355,000 has no longer been
subject to amortization beginning in 2002. (See Note 6)
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations". SFAS No. 143, addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets
and the associated asset retirement costs. SFAS No. 143 is effective for
fiscal years beginning after June 15, 2002. The Partnership is currently
evaluating the provisions of SFAS 143.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS 144 addresses the financial
accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 is effective for fiscal years beginning after December 15,
2001. The adoption of SFAS 144 did not have a material impact on the
Partnership's financial statements.
In May 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". SFAS 145 rescinds the automatic treatment of gains or losses
from extinguishments of debt as extraordinary unless they meet the criteria
for extraordinary items as outlined in APB No. 30, "Reporting the Results of
Operations, Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions". SFAS No. 145 also requires sale-leaseback accounting for
certain lease modifications that have economic effects similar to a sale-
leaseback transaction and makes various technical corrections to existing
pronouncements. SFAS No. 145 is effective for all financial statements
issued by the Partnership in 2003. The Partnership does not expect the
adoption of SFAS No. 145 to have a material effect on its consolidated
financial position or results of operations.
11. OTHER EVENTS
On May 1, 2002, an Amended and Restated Exchange Agreement (the "Amended
Exchange Agreement"), among the Partnership, the Operating Partnerships, the
General Partner, Buckeye Management Company and Glenmoor, Ltd., ("Glenmoor")
was approved in accordance with the terms of the Partnership's Limited
Partnership Agreement. The Amended Exchange Agreement was approved by the
Board of Directors of the General Partner based upon a recommendation of a
special committee of disinterested directors of the Board. The principal
change reflected in the Amended Exchange Agreement was the elimination of
the forfeiture payment provision contained in the original Exchange
Agreement. The Amended Exchange Agreement also includes certain
definitional and other minor changes.
As a condition of entering into the Amended Exchange Agreement, Glenmoor,
the parent corporation of the General Partner, and the Partnership entered
into an Acknowledgement and Agreement under which Glenmoor acknowledged and
agreed that any tax liabilities of Glenmoor and associated transaction costs
resulting from the Amended Exchange Agreement were the responsibility of
Glenmoor and its subsidiaries and not the Partnership. Furthermore,
Glenmoor agreed that any funds borrowed by Glenmoor from third party lenders
to pay those tax liabilities and related costs would be the responsibility
of Glenmoor and its subsidiaries and not the Partnership.
The foregoing description is qualified entirely by reference to the Amended
Exchange Agreement and the Acknowledgement and Agreement, each dated as of
May 6, 2002, and attached as Exhibits to the Form 10Q filed for the period
ended March 31, 2002
Separately, on April 24, 2002, the Board of Directors of the General Partner
approved an Amended and Restated Limited Partnership Agreement for the
Partnership reflecting a change in the Partnership's principal office,
certain recent Delaware law developments relating to the resolution of
conflicts of interest, and revisions to the indemnification provisions. The
amendments were approved by Buckeye Pipe Line Company as General Partner of
the Partnership in accordance with the Partnership's Limited Partnership
Agreement. In addition, the Board approved an Amended and Restated Unit
Option and Distribution Equivalent Plan to extend the original ten-year term
thereof for an additional ten years and to make certain administrative
changes in the Plan, the Unit Option Loan Program of the General Partner and
related documents.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Second Quarter
Revenue for the second quarter 2002 was $61.1 million or 7.4 percent greater
than revenue of $56.9 million for the second quarter 2001. Included in
second quarter 2002 revenue is $3.9 million from Norco Operations. The
Norco Operations were acquired in July 2001. Volumes for the second quarter
of 2002 were 1,104,700 barrels per day, 24,200 barrels per day or 2.2
percent greater than volumes of 1,080,500 barrels per day for the second
quarter 2001. Included in second quarter volumes are three months of Norco
volumes of 40,700 barrels per day. Average transportation revenue was 53.3
cents per barrel during the second quarter 2002 as compared to 51.4 cents
per barrel during the second quarter 2001.
Gasoline volumes of 576,800 barrels per day during the second quarter of
2002, including 16,800 barrels per day of Norco volumes, were 4.7 percent
greater than the second quarter 2001. In the East, gasoline volumes
increased by approximately 9,700 barrels per day, or 3.8 percent, as demand
increased throughout most of the eastern region. In the Midwest, gasoline
volumes of 164,400 barrels per day were 3.5 percent less than the second
quarter 2001. Demand for gasoline was generally lower throughout all areas
of the midwest region.
Distillate volumes of 241,800 barrels per day during the second quarter of
2002, including 14,000 barrels per day of Norco volumes, were 5.1 percent
greater than the second quarter 2001. In the East, distillate volumes
declined by 400 barrels per day, or 0.3 percent, while in the Midwest,
distillate volumes declined by 200 barrels per day, or 0.3 percent. Jet
Lines and Long Island system distillate volumes declined by a combined 1,600
barrels per day. Demand for distillate product was flat compared to the
prior year's quarter throughout most areas served.
Turbine fuel volumes of 249,600 barrels per day were 9.8 percent lower
during the second quarter 2002 than the second quarter 2001. Norco does not
transport turbine fuel. WesPac Pipeline Ltd. ("WesPac") volumes increased
by 4,100 barrels per day on deliveries to San Diego Airport where
transportation service commenced in May 2001. Deliveries to New York City
airports declined by 23,200 barrels per day, or 15.4 percent. Deliveries to
Pittsburgh declined by 1,200 barrels per day, or 10.2 percent, while
deliveries to Miami airport declined 8,200 barrels per day, or 14.3 percent.
Volumes to all major airports declined as a result of reduced airline travel
following the terrorist attacks on September 11, 2001. The outlook for
recovery of turbine fuel volumes is uncertain due to airline schedule
reductions and reduced consumer air travel. Turbine fuel revenue
constitutes approximately 15 percent of the Partnership's revenues.
Costs and expenses for the second quarter 2002 were $36.4 million compared
to $33.9 million for the second quarter 2001. Costs and expenses related to
Norco Operations were $2.2 million for the second quarter 2002. During the
second quarter of 2002, expense increases were primarily related to
increases in payroll and payroll benefits.
First Six Months
Revenue for the first six months 2002 was $118.0 million or 6.0 percent
greater than revenue of $111.3 million for the first six months 2001.
Included in first six months 2002 revenue is $7.9 million from Norco
Operations. Volumes for the first six months of 2002 were 1,081,100 barrels
per day, 5,100 barrels per day or 0.5 percent less than volumes of 1,086,200
barrels per day for the first six months 2001. Included in first six months
2002 volumes are Norco volumes of 38,900 barrels per day. Average
transportation revenue was 52.8 cents per barrel during the first six months
of 2002 compared to 51.0 cents per barrel during the first six months of
2001.
Gasoline volumes of 546,500 barrels per day during the first six months of
2002, including 16,800 barrels per day of Norco gasoline volumes, were 4.1
percent greater than the first six months of 2001. In the East, gasoline
volumes increased by approximately 8,900 barrels per day, or 3.9 percent,
primarily due to increases in deliveries to the upstate New York areas and
increases in demand throughout most of the eastern region. In the Midwest,
gasoline volumes of 160,500 barrels per day were 5.3 percent less than the
first six months of 2001. Demand for gasoline was generally lower
throughout the region with the largest declines occurring in the Detroit and
Bay City, Michigan areas.
Distillate volumes of 263,500 barrels per day during the first six months of
2002, including 14,900 barrels per day of Norco volumes, were 2.6 percent
less than the first six months of 2001. In the East, distillate volumes
declined by 13,600 barrels per day, or 9.0 percent, while in the Midwest,
distillate volumes declined by 3,500 barrels per day, or 5.0 percent. Jet
Lines and Long Island system distillate volumes declined by a combined 4,900
barrels per day. Demand was weak throughout all systems due to the
unseasonably warm weather experienced during the winter heating season.
Turbine fuel volumes of 242,000 barrels per day were 11.2 percent lower
during the first six months of 2002 than the first six months of 2001.
Norco does not transport turbine fuel. WesPac volumes increased by 5,900
barrels per day on deliveries to San Diego Airport where transportation
service commenced in May 2001. Deliveries to New York City airports
declined by 24,600 barrels per day. or 16.6 percent. Deliveries to
Pittsburgh declined by 1,500 barrels per day, or 13.0 percent, while
deliveries to Miami airport declined 7,800 barrels per day, or 13.2 percent.
Volumes to all major airports declined as a result of reduced airline travel
following the terrorist attacks on September 11, 2001. The outlook for
recovery of turbine fuel volumes is uncertain due to airline schedule
reductions and reduced consumer air travel.
Costs and expenses for the first six months of 2002 were $71.2 million
compared to $66.4 million for the first six months 2001. Costs and expenses
related to Norco Operations were $4.4 million for the first six months 2002.
During the first six months 2002, increases in payroll and payroll benefits,
outside services and property tax expenses were partially offset by declines
in operating power and casualty loss expense.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financial condition at June 30, 2002 and December 31, 2001
is highlighted in the following comparative summary:
Liquidity and Capital Indicators
As of
-----------------------
6/30/02 12/31/01
------- --------
Current ratio 1.7 to 1 1.5 to 1
Ratio of cash and cash equivalents,
and trade receivables to
current liabilities 0.9 to 1 0.8 to 1
Working capital - in thousands $20,364 $15,430
Ratio of total debt to total capital .52 to 1 .51 to 1
Book value (per Unit) $12.89 $12.98
The Partnership's cash flows from operations are generally sufficient to
meet current working capital requirements. In addition, the Partnership has
the ability to borrow up to $370 million under a $277.5 million 5-year
Revolving Credit Agreement and a $92.5 million 364-day Revolving Credit
Agreement (the "Credit Facilities"). The $370 million is available under
the Credit Facilities until September 2002 with $277.5 million available
thereafter until September 2006. The Partnership anticipates renewing the
364-day facility prior to its expiration in September 2002. At June 30,
2002 there was $143.0 million borrowed under the Credit Facilities.
Cash Provided by Operations
For the six months ended June 30, 2002, net cash provided by operations of
$36.5 million was principally derived from $41.2 million of net income
before depreciation and amortization. Changes in current assets and current
liabilities resulted in a net cash use of $4.6 million. Increases in
prepaid and other current assets are related to work performed by Buckeye
Gulf Coast Pipe Lines, L.P. ("BGC") under a letter agreement to construct a
90-mile petrochemical pipeline (see "Capital Expenditures" below). Accounts
payable declined due to the payment of outstanding invoices while accrued
and other current liabilities increased primarily as a result of increases
in accrued expenses and cash received in advance of services offset by
payments to the General Partner for its services. Changes in non-current
assets and liabilities resulted in a net cash use of $0.6 million.
Debt Obligation and Credit Facilities
In September and October 2001, the Partnership entered into the Credit
Facilities with a syndicate of banks led by SunTrust Bank. These Credit
Facilities permit borrowings of up to $370 million subject to certain
limitations contained in the Credit Facilities agreements. Borrowings bear
interest at the bank's base rate or at a rate based on the London interbank
offered rate ("LIBOR") at the option of the Partnership. At June 30, 2002,
the Partnership had borrowed $143.0 million under the 5-Year Revolving
Credit Agreement at a weighted average LIBOR pricing option rate of 2.92
percent. Also in September 2001 and concurrent with the above transaction,
Buckeye repaid all borrowings outstanding under its $100 million Credit
Agreement with First Union National Bank ("First Union") and its $30 million
Loan Agreement with First Union. These agreements were terminated with the
repayment of the borrowings.
At June 30, 2002, the Partnership had $383.0 million in outstanding long-
term debt representing $240.0 million of Senior Notes and $143.0 million of
borrowings under the 5-year Revolving Credit Agreement. The weighted
average interest rate on all debt outstanding at June 30, 2002 was 5.45
percent.
Capital Expenditures
At June 30, 2002 approximately 83 percent of total consolidated assets
consisted of property, plant and equipment.
Capital expenditures during the six months ended June 30, 2002 totaled $12.0
million and were $3.7 million less than capital expenditures for the six
months ended June 30, 2001. Projected capital expenditures for 2002 are
approximately $30 million, including approximately $25 million of
maintenance capital and $5 million of expansion capital, and are expected to
be funded from cash generated by operations and the Credit Facilities.
Planned capital expenditures will enhance pipeline integrity and facilitate
increased pipeline volumes and include, among other things, the renewal and
replacement of tank floors and roofs, upgrades to field instrumentation and
cathodic protection systems and installation and replacement of mainline
pipe and valves.
In addition to the above planned 2002 capital expenditures, BGC has entered
into a letter agreement with three major petrochemical companies to
construct a 90-mile pipeline. At June 30, 2002, the project was in the
right-of-way acquisition and design stage. Construction is expected to
begin during the third quarter 2002 and to be completed during 2002. Under
terms of the letter agreement, as of June 30, 2002, the Partnership has
invested $9.2 million (after reimbursements of $9.5 million from two of the
three petrochemical companies) in the pipeline project. This investment is
reflected in prepaid and other assets. The Partnership investment in the
project has been funded by $10.0 million of borrowings under the Credit
Facilities. Depending upon the final terms and conditions of the definitive
agreements among the parties to the project, the Partnership expects to be a
co-owner of the pipeline with a potential capital investment of up to $30
million. It is anticipated that upon execution of definitive agreements the
prepaid and other current assets with respect to this project will be
reclassified as property, plant and equipment. It is expected that the
definitive agreements will provide for throughput payments to the project on
a long-term basis. Additional expenditures on this project will continue to
be funded by the Partnership's existing Credit Facilities.
OTHER MATTERS
Accounting Pronouncements
In June 2001, the FASB issued two new pronouncements: SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS 141 prohibits the use of the pooling-of-interest method for
business combinations initiated after June 30, 2001 and also applies to all
business combinations accounted for by the purchase method that are
completed after June 30, 2001. The Norco acquisition was accounted for in
accordance with the provisions of SFAS 141. SFAS 142 is effective for
fiscal years beginning after December 15, 2001 with respect to all goodwill
and other intangible assets recognized in an entity's statement of financial
position at that date, regardless of when those assets were initially
recognized. The Partnership's goodwill of $11,355,000 will no longer be
subject to amortization beginning in 2002.
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations". SFAS No. 143, addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets
and the associated asset retirement costs. SFAS No. 143 is effective for
fiscal years beginning after June 15, 2002. The Partnership is currently
evaluating the provisions of SFAS 143.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS 144 addresses the financial
accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 is effective for fiscal years beginning after December 15,
2001. The adoption of SFAS 144 did not have a material impact on the
Partnership's financial statements.
In May 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". SFAS 145 rescinds the automatic treatment of gains or losses
from extinguishments of debt as extraordinary unless they meet the criteria
for extraordinary items as outlined in APB No. 30, "Reporting the Results of
Operations, Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions". SFAS No. 145 also requires sale-leaseback accounting for
certain lease modifications that have economic effects similar to a sale-
leaseback transaction and makes various technical corrections to existing
pronouncements. SFAS No. 145 is effective for all financial statements
issued by the Partnership in 2003. The Partnership does not expect the
adoption of SFAS No. 145 to have a material effect on its consolidated
financial position or results of operations.
Forward Looking Statements
Information contained above in this Management's Discussion and Analysis and
elsewhere in this Report on Form 10-Q 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,
the Partnership and the General Partner 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; (10) disruptions to the air
travel system; (11) security issues relating to the Partnership's assets;
and (12) 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 a material adverse effect 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 3. Quantitative and Qualitative Disclosures about Market
Risk
The Operating Partnerships generate revenue primarily from the
transportation of refined petroleum products for third-party customers. The
Operating Partnerships do not own the product they transport, and,
therefore, the Partnership is not exposed to fluctuation in commodity prices
and is not engaged in hedge transactions to manage commodity price risk.
The Partnership is also not engaged in any other type of energy trading or
derivative activity.
The Partnership is exposed to market risks resulting from changes in
interest rates. Market risk represents the risk of loss that may impact the
Partnership's results of operations, consolidated financial position or
operating cash flows. The Partnership is not exposed to any market risk due
to rate changes on its fixed-rate Senior Notes but is exposed to market risk
related to the interest rate on its Credit Facilities.
Market Risk - Trading Instruments
The Partnership is not exposed to market risk from trading instruments.
Market Risk - Other than Trading Instruments
The Partnership has market risk exposure on its Credit Facilities due to its
variable rate pricing that is based on the bank's base rate or at a rate
based on LIBOR. At June 30, 2002, the Partnership had $143.0 million in
outstanding debt under its Credit Facilities that was subject to market
risk. A 1.0 percent increase or decrease in the applicable rate under the
Credit Facilities will result in an interest expense fluctuation of
approximately $1.4 million per year. As of December 31, 2001, the
Partnership had $133.0 million in outstanding debt under the Credit
Facilities that was subject to market risk.
Part II - Other Information
Item 5. Other Information
On May 1, 2002, an Amended and Restated Exchange Agreement (the "Amended
Exchange Agreement"), among the Partnership, the Operating Partnerships, the
General Partner, Buckeye Management Company and Glenmoor, Ltd., ("Glenmoor")
was approved in accordance with the terms of the Partnership's Limited
Partnership Agreement. The Amended Exchange Agreement was approved by the
Board of Directors of the General Partner based upon a recommendation of a
special committee of disinterested directors of the Board. The principal
change reflected in the Amended Exchange Agreement was the elimination of
the forfeiture payment provision contained in the original Exchange
Agreement. The Amended Exchange Agreement also includes certain
definitional and other minor changes.
As a condition of entering into the Amended Exchange Agreement, Glenmoor,
the parent corporation of the General Partner, and the Partnership entered
into an Acknowledgement and Agreement under which Glenmoor acknowledged and
agreed that any tax liabilities of Glenmoor and associated transaction costs
resulting from the Amended Exchange Agreement were the responsibility of
Glenmoor and its subsidiaries and not the Partnership. Furthermore,
Glenmoor agreed that any funds borrowed by Glenmoor from third party lenders
to pay those tax liabilities and related costs would be the responsibility
of Glenmoor and its subsidiaries and not the Partnership.
The foregoing description is qualified entirely by reference to the Amended
Exchange Agreement and the Acknowledgement and Agreement, each dated as of
May 6, 2002, and attached as Exhibits to the Form 10Q filed for the period
ended March 31, 2002.
Separately, on April 24, 2002, the Board of Directors of the General Partner
approved an Amended and Restated Limited Partnership Agreement for the
Partnership reflecting a change in the Partnership's principal office,
certain recent Delaware law developments relating to the resolution of
conflicts of interest, and revisions to the indemnification provisions. The
amendments were approved by Buckeye Pipe Line Company as General Partner of
the Partnership in accordance with the Partnership's Limited Partnership
Agreement. In addition, the Board approved an Amended and Restated Unit
Option and Distribution Equivalent Plan to extend the original ten-year term
thereof for an additional ten years and to make certain administrative
changes in the Plan, the Unit Option Loan Program of the General Partner and
related documents.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) No reports on Form 8-K were filed during the quarter ended June 30,
2002.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUCKEYE PARTNERS, L.P.
(Registrant)
By: Buckeye Pipe Line Company,
as General Partner
Dated: July 25, 2002 By: /s/ Steven C. Ramsey
------------------------
Steven C. Ramsey
Senior Vice President, Finance
and Chief Financial Officer
(Principal Accounting and
Financial Officer)