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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 March 31, 2003 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.)
5002 Buckeye Rd.
P. O. Box 368
Emmaus, Pennsylvania 18049
- --------------------------------- ----------
(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 by check mark whether the registrant is an accel-
erated filer (as defined in Exchange Act 12b-2). Yes X No
--- ---
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at April 16, 2003
- ------------------------- -------------------------------
Limited Partnership Units 28,702,346 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
ended March 31, 2003 and 2002
Condensed Consolidated Balance Sheets (unaudited) 2
March 31, 2003 and December 31, 2002
Condensed Consolidated Statements of Cash Flows 3
(unaudited) for the three months ended
March 31, 2003 and 2002
Notes to Condensed Consolidated Financial Statements 4-8
Item 2.Management's Discussion and Analysis 9-14
of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures 14
about Market Risk
Item 4. Controls and Procedures 14-15
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Buckeye Partners, L.P.
Condensed Consolidated Statements of Income
(In thousands, except per unit amounts)
(Unaudited)
Three Months Ended
March 31,
--------------------
2003 2002
---- ----
Revenue $65,827 $56,891
------- -------
Costs and expenses
Operating expenses 31,156 25,938
Depreciation and amortization 5,495 5,147
General and administrative expenses 4,372 3,759
------- -------
Total costs and expenses 41,023 34,844
------- -------
Operating income 24,804 22,047
------- -------
Other income (expenses)
Investment income 503 538
Interest expense (5,232) (5,240)
Minority interests and other (3,348) (2,920)
------- -------
Total other income (expenses) (8,077) (7,622)
------- -------
Net income $16,727 $14,425
======= =======
Net income allocated to General
Partner $ 147 $ 130
Net income allocated to Limited
Partners $16,580 $14,295
Earnings per Partnership Unit -
basic:
Net income allocated to General
and Limited Partners
per Partnership Unit $ 0.60 $ 0.53
Earnings per Partnership Unit -
Assuming dilution:
Net income allocated to General
and Limited Partners per
Partnership Unit $ 0.60 $ 0.53
See notes to condensed consolidated financial statements.
Buckeye Partners, L.P.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
March 31, December 31,
2003 2002
---- ----
Assets
Current assets
Cash and cash equivalents $ 7,475 $ 11,208
Trade receivables 16,436 17,203
Inventories 8,674 8,424
Prepaid and other current assets 10,552 7,007
-------- --------
Total current assets 43,137 43,842
Property, plant and equipment, net 730,391 727,450
Goodwill 11,355 11,355
Other non-current assets 72,761 73,524
-------- --------
Total assets $857,644 $856,171
======== ========
Liabilities and partners' capital
Current liabilities
Accounts payable $ 4,190 $ 8,062
Accrued and other current liabilities 22,509 22,688
-------- --------
Total current liabilities 26,699 30,750
Long-term debt 350,000 405,000
Minority interests 19,023 3,498
Other non-current liabilities 45,133 59,491
-------- --------
Total liabilities 440,855 498,739
-------- --------
Commitments and contingent liabilities - -
Partners' capital
General Partner 2,865 2,870
Limited Partners 415,189 355,475
Receivable from exercise of options (913) (913)
Accumulated other comprehensive income (352) -
-------- --------
Total partners' capital 416,789 357,432
-------- --------
Total liabilities and partners'
capital $857,644 $856,171
======== ========
See notes to condensed consolidated financial statements.
Buckeye Partners, L.P.
Condensed Consolidated Statements of Cash Flows
Decrease in Cash and Cash Equivalents
(In thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------
2003 2002
---- ----
Cash flows from operating activities:
Net income $16,727 $14,425
------- -------
Adjustments to reconcile net income to net
cash
provided by operating activities:
Depreciation and amortization 5,495 5,147
Minority interests 614 211
Change in assets and liabilities:
Trade receivables 767 (279)
Inventories (250) (198)
Prepaid and other current assets (3,545) (4,032)
Accounts payable (3,872) (4,805)
Accrued and other current liabilities (179) (2,961)
Other non-current assets (471) (384)
Other non-current liabilities 548 192
------- -------
Total adjustments from operating
activities (893) (7,109)
------- -------
Net cash provided by operating
activities 15,834 7,316
------- -------
Cash flows from investing activities:
Capital expenditures (7,220) (5,366)
Net proceeds from disposal of
property, plant and equipment 18 12
------- -------
Net cash used in investing activities (7,202) (5,354)
------- -------
Cash flows from financing activities:
Net proceeds from issuance of Partnership
units 59,979 -
Proceeds from exercise of unit options - 115
Distributions to minority interests (347) (199)
Proceeds from issuance of long-term debt 12,000 10,000
Payment of long-term debt (67,000) -
Distributions to Unitholders (16,997) (16,978)
------- -------
Net cash used in financing activities (12,365) (7,062)
------- -------
Net decrease in cash and cash equivalents (3,733) (5,100)
Cash and cash equivalents at beginning of
period 11,208 12,946
------- -------
Cash and cash equivalents at end of period $ 7,475 $ 7,846
======= =======
Supplemental cash flow information:
Cash paid during the period for interest
(net of amount capitalized) $ 5,438 $5,268
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, 2002 is derived
from audited financial state ments, include all adjustments necessary to
present fairly the Partnership's financial position as of March 31, 2003, the
results of operations for the three month period ended March 31, 2003 and 2002
and cash flows for the three month period ended March 31, 2003 and 2002. The
results of operations for the three month period ended March 31, 2003 are not
necessarily indicative of the results to be expected for the full year ending
December 31, 2003.
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. 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, 2002.
2. SEGMENT INFORMATION
During the three month period ended March 31, 2003 and 2002, 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 transportation segment revenues are received from
storage and terminal throughput services of refined petroleum products and the
lease 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.
3. 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 of the Partnership, (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.
4. LONG-TERM DEBT
As of March 31, 2003, 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.
The Partnership has a $277.5 million Revolving Credit Agreement with a
syndicate of banks led by SunTrust Bank that expires in September 2006 and an
$85.0 million 364-day Revolving Credit Agreement with another syndicate of
banks also led by SunTrust Bank that expires in September 2003 (the "Credit
Facilities"). Together, the Credit Facilities permit borrowings up to a
maximum of $362.5 million subject to certain limitations contained in the
Credit Facilities. Borrowings bear interest at SunTrust Bank's base rate or
at a rate based on the London Interbank Offered Rate ("LIBOR") at the option
of the Partnership. At March 31, 2003, the Partnership had borrowed $110
million under the Credit Facilities at a weighted average LIBOR pricing option
rate of 2.22 percent.
The Credit Facilities contain certain covenants that affect the Partnership.
Generally, the Credit Facilities (a) limit outstanding indebtedness of the
Partnership based on certain financial ratios contained in the Credit
Facilities, (b) prohibit the Partnership from creating or incurring certain
liens on its property, (c) prohibit the Partnership from disposing of property
that is material to its operations and (d) limit consolidations, mergers and
asset transfers by the Partnership. At March 31, 2003, the Partnership was in
compliance with the covenants contained in the Credit Facilities.
The fair value of the Partnership's debt is estimated to be $378 million and
$429 million as of March 31, 2003 and December 31, 2002, respectively. The
values at March 31, 2003 and December 31, 2002 were calculated using interest
rates currently available to the Partnership for issuance of debt with similar
terms and remaining maturities.
5. PARTNERS' CAPITAL
Partners' capital consists of the following:
Accumulated
Receivable Other
General Limited from Exercise Comprehensive
Partner Partners of Options Income Total
------- -------- ------------- ------------- -----
(In thousands)
Partners' Capital - 1/1/03 $2,870 $355,475 $(913) $ - $357,432
Net Income 147 16,580 - - 16,727
Distributions (152) (16,845) - - (16,997)
Net Proceeds from issuance of
1,750,000 Limited Partnership
units - 59,979 - - 59,979
Minimum pension liability - - - (352) (352)
------ -------- ----- ----- --------
Partners' Capital - 3/31/03 $2,865 $415,189 $(913) $(352) $416,789
====== ======== ===== ===== ========
The following is a reconciliation of basic and diluted net income per
Partnership Unit:
Three Months Ended March 31,
-------------------------------------------------
2003 2002
--------------------- ---------------------
Income Units Per Income Units Per
(Numer- (Denomi- Unit (Numer- (Denomi- Unit
ator) nator) Amount ator) nator) Amount
------- -------- ------ ------- -------- ------
(in thousands, except per unit amounts)
Income from continuing
operations $16,727 $14,425
------- -------
Basic earnings per
Partnership Unit 16,727 27,814 $0.60 14,425 27,167 $0.53
Effect of dilutive
securities - options - 46 - - 62 -
------- ------ ----- ------- ------ -----
Diluted earnings per
Partnership Unit $16,727 27,860 $0.60 $14,425 27,229 $0.53
======= ====== ===== ======= ====== =====
Options reported as dilutive securities are related to unexercised options
outstanding under the Partnership's Unit Option Plan.
6. 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 April 24, 2003 the Partnership declared a cash distribution of $0.6375 per
unit payable on May 30, 2003 to Unitholders of record on May 6, 2003. The
total distribution will amount to approximately $18,453,000.
7. RELATED PARTY ACCRUED CHARGES
Accrued and other current liabilities include $3,145,000 and $4,478,000 due to
the General Partner for payroll and other reimbursable costs at March 31, 2003
and December 31, 2002, respectively.
8. UNIT OPTION AND DISTRIBUTION EQUIVALENT PLAN
The Partnership has adopted Statement of Financial Accounting Standards No.
123 ("SFAS 123"), "Accounting for Stock-Based Compensation," which requires
expanded disclosures of stock-based compensation arrangements with employees.
SFAS 123 encourages, but does not require, compensation cost to be measured
based on the fair value of the equity instrument awarded. It allows the
Partnership to continue to measure compensation cost for these plans using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
The Partnership has elected to continue to recognize compensation cost based
on the intrinsic value of the equity instrument awarded as promulgated in
APB 25.
If compensation cost had been determined based on the fair value at the time
of the grant dates for awards consistent with SFAS 123, the Partnership's net
income and earnings per share would have been as indicated by the proforma
amounts below:
Three Months Ended
March 31,
(In thousands,
except per Unit
amounts)
-------------------
2003 2002
---- ----
Net income as reported $16,727 $14,425
Stock-based employee compensation
cost included in net income - 2
Stock-based employee compensation
cost that would have been
included in net income under
the fair value method (50) (39)
------- -------
Pro forma net income as if the fair
value method had been applied to
all awards $16,677 $14,388
======= =======
Basic earnings per unit As reported $0.60 $0.53
Pro forma $0.60 $0.53
Diluted earnings per unit As reported $0.60 $0.53
Pro forma $0.60 $0.53
9. ACCOUNTING PRONOUNCEMENTS
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 adoption of SFAS No. 143 did not
have a material effect on the Partnership's consolidated financial position or
results of operations.
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 fiscal years beginning after
December 31, 2002. The adoption of SFAS No. 145 did not have a material
effect on the Partnership's consolidated financial position or results of
operations.
In June 2002 the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 nullifies the guidance
provided in Emerging Issues Task Force ("EITF") Issue 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)." Generally,
SFAS No. 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred, rather than
when management commits to a plan of exit or disposal as is called for by EITF
Issue No. 94-3. SFAS No. 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. The adoption of SFAS No. 146 did
not have a material effect on the Partnership's financial statements.
In November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 established
requirements for accounting and disclosure of guarantees issued to third
parties for various transactions. The accounting requirements of FIN 45 are
applicable to guarantees issued after December 31, 2002. The disclosure
requirements of FIN 45 are applicable to financial statements issued for
periods ending after December 15, 2002. The adoption of FIN 45 did not have a
material impact on the Partnership's financial statements.
In December 2002 the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure", SFAS 148 amended the implementation
provisions of SFAS 123 and required changes in disclosures in financial
statements. The provisions of SFAS 148 were applicable for years ending after
December 15, 2002 except for certain quarterly disclosures, which were
applicable for interim periods beginning after December 15, 2002. The Company
has not changed its method of accounting for stock-based compensation and,
therefore, is subject only to the revised disclosure provisions of SFAS 148.
Such quarterly disclosures have been provided commencing in the first quarter
of 2003.
In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities ("FIN 46"). FIN 46 establishes accounting and
disclosure requirements for ownership interests in entities that have certain
financial or ownership characteristics (sometimes known as Special Purpose
Entities). FIN 46 is applicable for variable interest entities created after
January 31, 2003 and becomes effective in the first fiscal year or interim
accounting period beginning after June 15, 2003 for variable interest entities
created before February 1, 2003. The Partnership does not anticipate that the
provisions of FIN 46 will have a material impact on its financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Through its Operating Partnerships and their subsidiaries, the Partnership is
principally engaged in the pipeline transportation of refined petroleum
products. Products transported via pipeline include gasoline, jet fuel, diesel
fuel, heating oil, kerosene and liquid propane gases ("LPGs"). The
Partnership's revenues derived from the transportation of refined petroleum
products are principally a function of the volumes of refined petroleum
products transported by the Partnership, which are in turn a function of the
demand for refined petroleum products in the regions served by the
Partnership's pipelines, and the tariffs or transportation fees charged for
such transportation.
The Partnership is also engaged, through Buckeye Pipe Line Holdings, L.P.
("BPH"), Buckeye Terminals, LLC ("BT") and Buckeye Gulf Coast Pipe Lines, L.P.
("BGC"), in the terminalling and storage of petroleum products and in the
lease and contract operation of pipelines for third parties. Revenues for the
quarters ended March 31, 2003 and 2002 were as follows:
Revenues
(in thousands)
-------------------
March 31,
------------
2003 2002
---- ----
Pipeline transportation $55,013 $49,858
Terminalling, storage and rentals 6,516 4,477
Contract operations 4,298 2,556
------- -------
Total $65,827 $56,891
======= =======
Results of operations are affected by factors that include general economic
conditions, weather, competitive conditions, demand for refined petroleum
products, seasonal factors and regulation.
Total revenue for the quarter ended March 31, 2003 was $65.8 million, $8.9
million, or 15.6 percent, greater than revenue of $56.9 million in 2002.
Revenue from pipeline transportation was $55.0 million in the first three
months of 2003 compared to $49.9 million in the first three months of 2002.
The $5.1 million increase in pipeline transportation revenue is primarily due
to an increase in volumes delivered during the first quarter of 2003. Volumes
delivered during the first quarter 2003 averaged 1,119,800 barrels per day,
62,600 barrels per day, or 5.9 percent, greater than volumes of 1,057,200
barrels per day delivered during the first quarter of 2002.
Revenue from the transportation of gasoline of $26.3 million increased by $0.9
million, or 3.6 percent, from the first three months of 2002. Total gasoline
volumes of 528,800 barrels per day in the first three months of 2003 were
13,000 barrels per day, or 2.5 percent, greater than first quarter 2002
volumes of 515,800 barrels per day. In the East, gasoline volumes of 228,200
barrels per day were approximately 14,500 barrels per day, or 6.8 percent,
greater than 2002 volumes. The increase was primarily due to greater
deliveries to the upstate New York and Pittsburgh, Pennsylvania areas. In the
Midwest, gasoline volumes of 155,800 barrels per day were 900 barrels per day,
or 0.6 percent, less than gasoline volumes delivered during the first quarter
of 2002. Demand for gasoline transportation was generally lower throughout
the region with the largest declines occurring in deliveries to the Detroit
and Bay City, Michigan areas. In addition, approximately 4,200 barrels per
day that were delivered to the Pittsburgh, Pennsylvania area from the Midwest
in the first three months of 2002 were supplied from the East in the first
three months of 2003. Long Island System gasoline volumes of 112,200 barrels
per day were up 3,200 barrels per day, or 2.9 percent, from deliveries in the
first quarter of 2002. On the Jet Lines system, gasoline volumes of 16,000
barrels per day were 3,600 barrels per day, or 18.3 percent, less than 2002
volumes in the first quarter of 2002 due to lower gasoline transportation
demand in the Hartford, Connecticut area.
Revenue from the transportation of distillate of $17.1 million increased by
$2.2 million, or 14.8 percent, from first quarter 2002 levels. Total volumes
of 321,400 barrels per day in the first three months of 2003 were 36,000
barrels per day, or 12.6 percent, greater than 2002 distillate volumes of
285,400 barrels per day. In the East, distillate volumes of 171,000 barrels
per day were approximately 22,300 barrels per day, or 15.0 percent, greater
than first quarter 2002 volumes. In the Midwest, distillate volumes of 74,200
barrels per day were 8,700 barrels per day, or 13.3 percent, greater than
volumes delivered during the first quarter of 2002. Long Island System
distillate volumes of 31,500 barrels per day were 3,900 barrels per day, or
14.0 percent, greater than volumes delivered during the first quarter of 2002.
On the Jet Lines system, distillate volumes of 37,100 barrels per day were
9,900 barrels per day, or 36.4 percent, greater than first quarter 2002
volumes. These distillate volume increases are due to greater heating fuel
requirements in response to significantly colder winter temperatures during
the first quarter of 2003. On the other hand, Norco Pipe Line Company, LLC
("Norco") distillate volumes were 7,600 barrels per day, or 52.9 percent, less
than first quarter 2002 volumes due to the loss of a pipeline customer which
entered into a product exchange with a local refiner.
Revenue from the transportation of jet fuel of $9.4 million increased by $1.0
million, or 12.1 percent, from first quarter 2002 levels. Total jet fuel
volumes of 251,300 barrels per day in the first three months of 2003 were
16,900 barrels per day, or 7.2 percent greater, than 2002 jet fuel volumes of
234,400 barrels per day. Deliveries to the New York City airports (LaGuardia,
JFK and Newark) increased by 7,100 barrels per day, or 6.0 percent. Deliveries
to Pittsburgh International Airport and Miami International Airport were
slightly lower than 2002 levels. WesPac's jet fuel volumes of 11,100 barrels
per day were up 1,100 barrels per day as deliveries to both Reno/Tahoe
International Airport and San Diego International Airport increased. Although
deliveries to major airports have improved from the dramatic decline
immediately following September 11, 2001, the outlook for further recovery of
jet fuel volumes to pre-September 11, 2001 levels is uncertain due to airline
schedule reductions, reduced consumer air travel and the threat of further
terrorist attacks.
Terminalling, storage and rental revenues of $6.5 million for the three months
ended March 31, 2003 increased by $2.0 million from the comparable period in
2002. Approximately $1.5 million of this increase reflects lease revenue with
respect to a 90-mile crude butadiene pipeline that was completed in March
2003. Approximately $534,000 of this lease revenue was distributed to
minority interest partners in the pipeline project. Although the pipeline was
completed in March 2003, lease payments commenced as of January 1, 2003. The
crude butadiene pipeline originates at a Shell Chemicals, L.P. facility in
Deer Park, Texas and terminates at a chemical plant owned by Sabina
Petrochemicals, LLC in Port Arthur, Texas. Subsidiaries of BGC hold an
approximate 63% interest in two partnerships (the "Pipeline Partnerships")
that own the pipeline. Two petrochemical companies own the remaining 37%
minority interest in the Pipeline Partnerships. Concurrent with the
completion of the pipeline, advances totaling $15.2 million from the two
minority interest partners were reclassified from noncurrent liabilities on
the Partnership's balance sheet to minority interest. The Pipeline
Partnerships have entered into a long-term agreement with Sabina
Petrochemicals, LLC to provide pipeline transportation throughput services.
Separately, BGC entered into an agreement to operate and maintain the pipeline
for the Pipeline Partnerships.
Contract operations services revenues of $4.3 million for the three months
ended March 31, 2003 increased by $1.7 million compared to the first quarter
of 2002. The increase in contract services revenues was due to increased
operations services provided by BGC as a result of additional contracts
obtained during 2002, as well as the commencement of the crude butadiene
pipeline operation and maintenance agreement as of January 1, 2003. Contract
operations revenues typically consist of costs reimbursable under the
contracts plus an operator's fee. Accordingly, revenues from these operations
carry a lower gross profit percentage than revenues from pipeline
transportation or terminalling, storage and rentals.
The Partnership's costs and expenses for the first three months of 2003 were
$41.0 million compared to $34.8 million for the first three months of 2002.
BGC's costs and expenses increased by $1.8 million over 2002 as a result of
additional contract services provided. Other increases of $4.4 million are
primarily related to increases in power costs due to additional pipeline
volumes, and general wage and employee benefit cost increases. Additionally,
a casualty loss recovery payment of approximately $0.5 million received in the
final quarter of 2002 did not recur in the first quarter of 2003.
Other income and expense for the first three months of 2003 was a net cost of
$8.1 million compared to $7.6 million for the first three months of 2002. The
increase is primarily due to increased minority interest and other expense,
which includes increased incentive payments due to the general partner as well
as additional minority interest expense related to the 90-mile crude butadiene
pipeline.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financial condition at March 31, 2003 and December 31, 2002
is highlighted in the following comparative summary:
Liquidity and Capital Indicators
As of
-----------------------
3/31/03 12/31/02
------- --------
Current ratio (1) 1.6 to 1 1.4 to 1
Ratio of cash and cash equivalents,
and trade receivables to
current liabilities 0.9 to 1 0.9 to 1
Working capital - in thousands (2) $16,438 $13,092
Ratio of total debt to total capital (3) .54 to 1 .51 to 1
Book value (per Unit) (4) $14.40 $13.15
(1) current assets divided by current liabilities
(2) current assets minus current liabilities
(3) long-term debt divided by long-term debt plus total
partners' capital
(4) total partners' capital divided by Units outstanding at the
end of the period.
The Partnership's principal sources of liquidity typically are cash from
operations and borrowings under its revolving credit facilities. The
Partnership's principal uses of cash are capital expenditures, investments and
acquisitions and distributions to Unitholders. During the first quarter of
2003, the Partnership also issued 1,750,000 Limited Partnership ("LP") units
in an underwritten public offering.
Cash Flows from Operations
Cash flows from operations were $15.8 million for the first three months of
2003 compared to $7.3 million for the first three months of 2001. Net income
for the first three months of 2003 was $16.7 million. Net income, before
depreciation and amortization of $5.5 million, increased by $2.6 million to
$22.2 million for the first three months of 2003 from $19.6 million (which
included depreciation and amortization of $5.1 million) for the first three
months of 2002. Changes in current assets and liabilities resulted in a net
use of cash of $7.1 million for the first three months of 2003 compared to a
net cash use of $12.3 million for the first three months of 2002. For the
first three months of 2002 and 2003, increases in prepaid and other assets
were coupled with declines in accounts payable and accrued and other current
liabilities. Changes in other non-current assets and liabilities resulted in
a net cash source of $0.1 million for the first three months of 2003 compared
to a net cash use of $0.2 million for the first three months of 2002.
Cash Flows from Investing Activities
Net cash used in investing activities totaled $7.2 million in the first three
months of 2003 compared to $5.4 million in the comparable period last year.
Substantially all of the first three months of 2003 and 2002 investing
activities relate to capital expenditures. The Partnership made no investments
or acquisitions in either three month period.
Cash Flows from Financing Activities
On February 28, 2003, the Partnership issued 1,750,000 LP units in an
underwritten public offering at $36.01 per LP unit. Net proceeds to the
Partnership, after underwriters' discount of $1.62 per LP unit and estimated
offering, costs were approximately $60.0 million. The net proceeds from the
offering were used to reduce amounts outstanding under the Partnership's
$277.5 million Revolving Credit Agreement.
The Partnership has a $277.5 million Revolving Credit Agreement with a
syndicate of banks led by SunTrust Bank that expires in September 2006 and an
$85.0 million 364-day Revolving Credit Agreement with another syndicate of
banks also led by SunTrust Bank that expires in September 2003 (the "Credit
Facilities"). Together, the Credit Facilities permit borrowings up to a
maximum of $362.5 million subject to certain limitations contained in the
Credit Facilities. Borrowings bear interest at SunTrust Bank's base rate or
at a rate based on the London Interbank Offered Rate ("LIBOR") at the option
of the Partnership. At March 31, 2003, the Partnership had borrowed $110
million under the Credit Facilities at a weighted average LIBOR pricing option
rate of 2.22 percent.
The Credit Facilities contain certain covenants that affect the Partnership.
Generally, the Credit Facilities (a) limit outstanding indebtedness of the
Partnership based on certain financial ratios contained in the Credit
Facilities, (b) prohibit the Partnership from creating or incurring certain
liens on its property, (c) prohibit the Partnership from disposing of property
that is material to its operations and (d) limit consolidations, mergers and
asset transfers by the Partnership. At March 31, 2003, the Partnership was in
compliance with the covenants contained in the Credit Facilities.
On February 28, 2003, the Partnership paid a quarterly distribution to
Unitholders of $0.625 per unit. Total distributions were $17.0 million. On
April 24, 2003, the Board of Directors of the General Partner declared a
quarterly distribution of $0.6375 per unit to be payable on May 30, 2003 to
Unitholders of record on May 6, 2003.
OTHER MATTERS
Accounting Pronouncements
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 adoption of SFAS No. 143 did not
have a material effect on the Partnership's consolidated financial position or
results of operations.
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 fiscal years beginning after
December 31, 2002. The adoption of SFAS No. 145 did not have a material
effect on the Partnership's consolidated financial position or results of
operations.
In June 2002 the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 nullifies the guidance
provided in Emerging Issues Task Force ("EITF") Issue 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)." Generally,
SFAS No. 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred, rather than
when management commits to a plan of exit or disposal as is called for by EITF
Issue No. 94-3. SFAS No. 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. The adoption of SFAS No. 146 did
not have a material effect on the Partnership's financial statements.
In November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 established
requirements for accounting and disclosure of guarantees issued to third
parties for various transactions. The accounting requirements of FIN 45 are
applicable to guarantees issued after December 31, 2002. The disclosure
requirements of FIN 45 are applicable to financial statements issued for
periods ending after December 15, 2002. The adoption of FIN 45 did not have a
material impact on the Partnership's financial statements.
In December 2002 the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure", SFAS 148 amended the implementation
provisions of SFAS 123 and required changes in disclosures in financial
statements. The provisions of SFAS 148 were applicable for years ending after
December 15, 2002 except for certain quarterly disclosures, which were
applicable for interim periods beginning after December 15, 2002. The Company
has not changed its method of accounting for stock-based compensation and,
therefore, is subject only to the revised disclosure provisions of SFAS 148.
Such quarterly disclosures have been provided commencing in the first quarter
of 2003.
In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities ("FIN 46"). FIN 46 establishes accounting and
disclosure requirements for ownership interests in entities that have certain
financial or ownership characteristics (sometimes known as Special Purpose
Entities). FIN 46 is applicable for variable interest entities created after
January 31, 2003 and becomes effective in the first fiscal year or interim
accounting period beginning after June 15, 2003 for variable interest entities
created before February 1, 2003. The Partnership does not anticipate that the
provisions of FIN 46 will have a material impact on its financial statements.
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' 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 material adverse effects on future results. We undertake no obligation
to update publicly any forward-looking statement whether as a result of new
information or future events.
Item 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 interest rate risks resulting from changes in
interest rates. Interest rate 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 interest rate risk
due to rate changes on its fixed-rate Senior Notes but is exposed to interest
rate 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 March 31, 2003, the Partnership had $110.0 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
$1.1 million per year. As of December 31, 2002, the Partnership had $165.0
million in outstanding debt under the Credit Facilities that was subject to
market risk.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
The General Partner's principal executive officer and its principal
financial officer, after evaluating the effectiveness of the Partnership's
disclosure controls and procedures (as defined in Exchange Act Rules 13a -
14 and 15d - 14) as of a date within 90 days prior to the filing of this
report (the "Evaluation Date"), have concluded that, as of the Evaluation
Date, the Partnership's disclosure controls and procedures were adequate
and effective to ensure that material information relating to the
Partnership and its consolidated subsidiaries would be made known to them
by others within those entities.
(b) Changes in internal controls.
There were no significant changes in the Partnership's internal controls or
in other factors that could significantly affect the Partnership's
disclosure controls and procedures subsequent to the date of their
evaluation, nor were there any significant deficiencies or material
weaknesses in the Partnership's internal controls. As a result, no
corrective actions were required or undertaken.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, As adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) On February 26, 2003, the Partnership filed a Current
Report on Form 8-K which included the Underwriting Agreement
related to the Partnership's public offering of LP units.
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
Date: April 29, 2003 By: /s/ Steven C. Ramsey
Steven C. Ramsey
Senior Vice President,
Finance
and Chief Financial Officer
(Principal Accounting and
Financial Officer)
CERTIFICATIONS
I, William H. Shea, Jr. certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Buckeye Partners, L.P.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: April 29, 2003 /s/ William H. Shea, Jr.
William H. Shea, Jr.
President and Chief Executive Officer
Buckeye Pipe Line Company
as General Partner of Buckeye Partners, L.P.
I, Steven C. Ramsey certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Buckeye Partners, L.P.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors.
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: April 29, 2003 /s/ Steven C. Ramsey
Steven C. Ramsey
Senior Vice President, Finance
and Chief Financial Officer
Buckeye Pipe Line Company
as General Partner of Buckeye Partners, L.P.