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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9356
BUCKEYE PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 23-2432497
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3900 HAMILTON BOULEVARD
ALLENTOWN, PENNSYLVANIA 18103
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 820-8300
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
LP Units representing
limited partnership in-
terests................ New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(TITLE OF CLASS)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
At March 3, 1994, the aggregate market value of the registrant's LP Units
held by non-affiliates was $460 million. The calculation of such market value
should not be construed as an admission or conclusion by the registrant that
any person is in fact an affiliate of the registrant.
LP Units outstanding as of March 3, 1994: 12,000,000
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TABLE OF CONTENTS
PAGE
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PART I
ITEM 1. BUSINESS.................................................................... 1
ITEM 2. PROPERTIES.................................................................. 11
ITEM 3. LEGAL PROCEEDINGS........................................................... 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................... 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S LP UNITS AND RELATED UNITHOLDER MATTERS......... 14
ITEM 6. SELECTED FINANCIAL DATA .................................................... 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................................. 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................. 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE................................................................. 38
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................... 38
ITEM 11. EXECUTIVE COMPENSATION ..................................................... 40
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............. 46
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................. 47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K............ 48
PART I
ITEM 1. BUSINESS
INTRODUCTION
Buckeye Partners, L.P. (the "Partnership"), the Registrant, is a limited
partnership organized in 1986 under the laws of the State of Delaware.
The Partnership conducts all its operations through subsidiary entities.
These operating subsidiaries are Buckeye Pipe Line Company, L.P. ("Buckeye"),
Laurel Pipe Line Company, L.P. ("Laurel"), Everglades Pipe Line Company, L.P.
("Everglades") and Buckeye Tank Terminals Company, L.P. ("BTT"), each of which
is 99 percent owned. (Each of Buckeye, Laurel, Everglades and BTT is referred
to as an "Operating Partnership" and collectively as the "Operating
Partnerships"). Through Laurel, the Partnership owns a 98.01 percent limited
partnership interest in Buckeye Pipe Line Company of Michigan, L.P. ("BPL
Michigan"), which discontinued operations in 1993. See "--Other Business
Activities" below.
Buckeye is one of the largest independent pipeline common carriers of refined
petroleum products in the United States, with 3,387 miles of pipeline serving
10 states. Laurel owns a 346-mile common carrier refined products pipeline
located principally in Pennsylvania. Everglades owns 37 miles of refined
products pipeline in Florida. Buckeye, Laurel and Everglades conduct the
Partnership's refined products pipeline business. BTT provides bulk storage
service through leased facilities with an aggregate capacity of 305,000 barrels
of refined petroleum products.
The Partnership acquired its interests in the Operating Partnerships from The
Penn Central Corporation ("Penn Central") on December 23, 1986 (the
"Acquisition"). The Operating Partnerships (other than Laurel) had been
organized by Penn Central for purposes of the Acquisition and succeeded to the
operations of predecessor companies owned by Penn Central, including Buckeye
Pipe Line Company (an Ohio corporation) and its subsidiaries ("Pipe Line"), in
November 1986. Laurel was formed in October 1992 and succeeded to the
operations of Laurel Pipe Line Company ("Laurel Corp") (an Ohio corporation)
which was a majority owned corporate subsidiary of the Partnership until the
minority interest was acquired in December 1991.
Buckeye Management Company (the "General Partner"), a wholly owned subsidiary
of Penn Central formed in 1986, owns a 1 percent general partnership interest
in, and serves as sole general partner of, the Partnership. A corporate
subsidiary of the General Partner, Buckeye Pipe Line Company (a Delaware
corporation) (the "Manager"), owns a 1 percent general partnership interest in,
and serves as sole general partner and manager of, each Operating Partnership.
REFINED PRODUCTS BUSINESS
The Partnership receives petroleum products from refineries, connecting
pipelines and marine terminals, and transports those products to other
locations. In 1993, refined products accounted for substantially all of the
Partnership's consolidated revenues, consolidated operating income and
consolidated property, plant and equipment.
The Partnership transported an average of approximately 981,100 barrels per
day of refined products in 1993. The following table shows the volume and
percentage of refined products transported over the last three years.
1
VOLUME AND PERCENTAGE OF REFINED PRODUCTS TRANSPORTED(1)(2)
(VOLUME IN THOUSANDS OF BARRELS PER DAY)
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1992 1991
-------------- -------------- --------------
VOLUME PERCENT VOLUME PERCENT VOLUME PERCENT
------ ------- ------ ------- ------ -------
Gasoline........................... 503.6 51% 458.0 50% 442.7 51%
Jet Fuels.......................... 234.1 24 227.7 25 218.6 25
Middle Distillates (3)............. 223.0 23 205.4 23 192.6 22
Other Products..................... 20.4 2 21.4 2 17.1 2
----- --- ----- --- ----- ---
Total.............................. 981.1 100% 912.5 100% 871.0 100%
===== === ===== === ===== ===
- --------
(1) Excludes crude oil volumes of 2.2 and 0.7 thousand barrels per day for the
years ended December 31, 1991 and 1992, respectively. No crude oil volumes
were transported during 1993.
(2) Excludes local product transfers.
(3) Includes diesel fuel, heating oil, kerosene and other middle distillates.
The Partnership provides service in the following states: Pennsylvania, New
York, New Jersey, Indiana, Ohio, Michigan, Illinois, Connecticut,
Massachusetts, Washington and Florida.
Pennsylvania--New York--New Jersey
Buckeye serves major population centers in the states of Pennsylvania, New
York and New Jersey through 1,170 miles of pipeline. Refined products are
received at Linden, New Jersey. Products are then transported through two lines
from Linden, New Jersey to Allentown, Pennsylvania. From Allentown, the
pipeline continues west to Pittsburgh, Pennsylvania (serving Reading,
Harrisburg, Altoona/Johnstown and Pittsburgh) and north through eastern
Pennsylvania into New York State (serving Scranton/Wilkes-Barre, Binghamton,
Syracuse, Utica and Rochester and, via a connecting carrier, Buffalo). Products
received at Linden, New Jersey are also transported through two lines to John
F. Kennedy International and LaGuardia Airports and to commercial bulk
terminals at Long Island City and Inwood, New York. The pipeline presently
supplies Kennedy, LaGuardia and Newark International airports with
substantially all of each airport's jet fuel requirements.
Laurel transports refined products through a 346-mile pipeline extending
westward from five refineries in the Philadelphia area to Pittsburgh,
Pennsylvania.
Indiana--Ohio--Michigan--Illinois
Buckeye transports refined products through 2,092 miles of pipeline (of which
246 miles are jointly owned with other pipeline companies) in southern
Illinois, central Indiana, eastern Michigan, western and northern Ohio and
western Pennsylvania. A number of receiving lines and delivery lines connect to
a central corridor which runs from Lima, Ohio, through Toledo, Ohio to Detroit,
Michigan. Products are received at East Chicago, Indiana; Robinson, Illinois
and at the corridor connection points of Detroit, Toledo and Lima. Major areas
served include Huntington/Fort Wayne, Indiana; Bay City, Detroit and Flint,
Michigan; Cleveland, Columbus, Lima and Toledo, Ohio; and Pittsburgh,
Pennsylvania.
Other Refined Products Pipelines
Buckeye serves Connecticut and Massachusetts through 111 miles of pipeline
that carry refined products from New Haven, Connecticut to Hartford,
Connecticut and Springfield, Massachusetts.
2
Everglades carries primarily jet fuel on a 37-mile pipeline from Port
Everglades, Florida to Hollywood-Ft. Lauderdale International Airport and Miami
International Airport.
Buckeye carries jet fuel on a 14-mile pipeline from Tacoma, Washington to
McChord Air Force Base.
OTHER BUSINESS ACTIVITIES
Crude oil transportation services provided by BPL Michigan using 126 miles of
16-inch pipeline between Marysville (Port Huron), Michigan and Toledo, Ohio
terminated on February 1, 1993 upon the sale of this pipeline to Sun Pipe Line
Company. The remaining 38 miles of pipeline and all remaining property, plant
and equipment which had been owned by BPL Michigan was transferred to Buckeye
on June 1, 1993. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--
Discontinued Operations."
BTT provides bulk storage services through leased facilities located in
Pittsburgh, Pennsylvania and Bay City, Michigan, which have the capacity to
store up to an aggregate of approximately 305,000 barrels of refined petroleum
products. Each facility is served by Buckeye and provides bulk storage and
loading facilities for shippers or other customers.
COMPETITION AND OTHER BUSINESS CONSIDERATIONS
The Operating Partnerships do business without the benefit of exclusive
franchises from government entities. In addition, the Operating Partnerships
generally operate as common carriers, providing transportation services at
posted tariffs and without long-term contracts. As providers of such service,
the Operating Partnerships do not own the products they transport. Demand for
such service arises, ultimately, from demand for petroleum products in the
regions served and the ability and willingness of refiners, marketers and end-
users to supply such demand by deliveries through the Partnership's pipelines.
Demand for refined petroleum products is primarily a function of price,
prevailing economic conditions and weather. The Operating Partnerships'
businesses are, therefore, subject to a variety of factors partially or
entirely beyond their control. Multiple sources of pipeline entry and multiple
points of delivery, however, have historically helped maintain stable total
volumes even when volumes at particular source or destination points have
changed.
The Partnership's business may in the future be affected by changing prices
or demand for oil and for other fuels. The Partnership may also be affected by
energy conservation, changing sources of supply, structural changes in the oil
industry and new energy technologies. The General Partner is unable to predict
the effect of such factors.
A substantial portion of the refined petroleum products transported by the
Partnership's pipelines are ultimately used as fuel for motor vehicles and
aircraft. Changes in transportation and travel patterns in the areas served by
the Partnership's pipelines could adversely affect the Partnership's results of
operations.
In 1993, the Operating Partnerships had approximately 120 customers, most of
which were either major integrated oil companies or smaller marketing
companies. The largest two customers accounted for 7.2 percent and 6.5 percent,
respectively, of consolidated revenues, while the 20 largest customers
accounted for 74.2 percent of consolidated revenues.
Generally, pipelines are the lowest cost method for long-haul overland
movement of refined petroleum products. Therefore, the Operating Partnership's
most significant competitors for large
3
volume shipments are other pipelines, many of which are owned and operated by
major integrated oil companies. Although it is unlikely that a pipeline system
comparable in size and scope to the Operating Partnership's will be built in
the foreseeable future, new pipelines (including pipeline segments that connect
with existing pipeline systems) could be built to effectively compete with the
Operating Partnerships in particular locations.
In some areas, the Operating Partnerships compete with marine transportation.
Tankers and barges on the Great Lakes account for some of the volume to certain
Michigan, Ohio and upstate New York locations during the approximately eight
non-winter months of the year. Barges are presently a competitive factor for
deliveries to the New York City area, the Pittsburgh area, Connecticut and
Ohio.
Trucks competitively deliver product in a number of areas served by the
Operating Partnerships. While their costs may not be competitive for longer
hauls or large volume shipments, trucks compete effectively with the Operating
Partnerships in many areas. The availability of truck transportation places a
significant competitive constraint on the ability of the Operating Partnerships
to increase their tariff rates.
Privately arranged exchanges of product between marketers in different
locations are an increasing but unquantified form of competition. Generally,
such exchanges reduce both parties' costs by eliminating or reducing
transportation charges.
In recent years, a large quantity of domestic refining capacity has been
temporarily or permanently shut down. To date, the aggregate impact of these
shut-downs has affected the Operating Partnerships' volumes favorably, as these
shut-downs have resulted in the transportation of product over longer distances
to certain locations. Because the Operating Partnerships' pipelines have
numerous source points, the General Partner does not believe that the shut-down
of any particular refinery would have a material adverse effect on the
Partnership. However, the General Partner is unable to determine whether
additional shut-downs will occur or what their effects might be.
The Operating Partnerships' mix of products transported tends to vary
seasonally. Declines in demand for heating oil during the summer months are, to
a certain extent, offset by increased demand for gasoline and jet fuels.
Overall, operations have been only moderately seasonal, with somewhat lower
than average volume being transported during March, April and May as compared
to the rest of the year.
Neither the Partnership nor any of the Operating Partnerships have any
employees. All of the operations of the Operating Partnerships are managed and
operated by employees of the Manager. At December 31, 1993, the Manager had 611
full-time employees, 161 of whom were represented by two labor unions. The
collective bargaining agreement with each of these unions is subject to renewal
in 1996. The Operating Partnerships (and their predecessors) have never
experienced any significant work stoppages or other significant labor problems.
CAPITAL EXPENDITURES
The General Partner anticipates that the Partnership will continue to make
ongoing capital expenditures to maintain and enhance its assets and properties,
including improvements to meet customers' needs and those required to satisfy
new environmental and safety standards. In 1993, total capital expenditures
were $13.3 million. Projected capital expenditures for 1994 amount to $12.8
million. Planned capital expenditures in 1994 include, among other things,
renewal and replacement
4
of pipe, construction of containment facilities, new valves, metering systems,
field instrumentation, communications facilities and testing equipment. Capital
expenditures are expected to increase over time primarily in response to
increasingly rigorous governmental safety and environmental requirements as
well as industry standards. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
REGULATION
General
Two of the Operating Partnerships (Buckeye and Laurel) are interstate common
carriers (the "FERC Carriers") subject to the regulatory jurisdiction of the
Federal Energy Regulatory Commission ("FERC") under the Interstate Commerce Act
and the Department of Energy Organization Act. FERC regulation requires that
interstate oil pipeline rates be posted publicly and that these rates be "just
and reasonable" and non-discriminatory. FERC regulation also enforces common
carrier obligations and specifies a uniform system of accounts. In addition,
the FERC Carriers are subject to the jurisdiction of certain other federal
agencies with respect to environmental and pipeline safety matters.
The Interstate Commerce Act permits challenges to proposed new or changed
rates and to rates that are already effective by protest or complaint by an
interested party or upon FERC's own motion, and upon an appropriate showing, a
complainant may obtain reparations for damages sustained for a period of up to
two years prior to the filing of a complaint and a reduction of rates in the
future.
The FERC Carriers are also subject to the jurisdiction of various state and
local agencies, including, in some states, public utility commissions which
have jurisdiction over, among other things, intrastate tariffs, the issuance of
debt and equity securities, transfers of assets and pipeline safety.
Tariffs
FERC has jurisdiction over the FERC Carriers' interstate tariffs. In July
1988, in the midst of a rate proceeding involving Buckeye, FERC issued an order
that provided Buckeye with the opportunity to qualify for an unspecified
alternative form of "light-handed" rate regulation if Buckeye could establish
that it lacked significant market power. On December 31, 1990, after extensive
testimony and hearings, FERC issued an opinion which found that in most of its
relevant market areas, Buckeye operated in a competitive environment in which
it could not exercise significant market power and that Buckeye's tariff rates
in those markets were just and reasonable. Based on these findings, FERC
permitted Buckeye to implement a "light-handed" rate regulation program on an
experimental basis for three years beginning in March 1991. Under the program,
in markets where Buckeye does not have significant market power, individual
rate increases: (a) will not exceed a real (i.e., exclusive of inflation)
increase of 15 percent over any two-year period (the "rate cap"), and (b) will
be allowed to become effective without suspension or investigation if they do
not exceed a "trigger" equal to the change in the GNP implicit price deflator
since the date on which the individual rate was last increased, plus 2 percent.
Individual rate decreases will be presumptively valid upon a showing that the
proposed rate exceeds marginal costs. In markets where Buckeye was found to
have significant market power and in certain markets where no market power
finding was made: (i) individual rate increases cannot exceed the volume
weighted average rate increase in markets where Buckeye does not have
significant market power since the date on which the individual rate was last
increased, and (ii) any volume weighted average rate decrease in markets where
Buckeye does not have significant market power must be accompanied by a
corresponding decrease in all of Buckeye's rates in markets where it does have
significant market power. Shippers
5
retain the right to file complaints or protests following notice of a rate
increase, but are required to show that the proposed rates violate or have not
been adequately justified under the experimental program, that the proposed
rates are unduly discriminatory, or that Buckeye has acquired significant
market power in markets previously found to be competitive.
The Buckeye "light-handed" rate regulation program is subject to review by
FERC after three years of operation, which will be in early 1994. On February
22, 1994, Buckeye filed a tariff seeking to continue its rate regulation
program on a permanent basis. The filing is presently under consideration by
FERC. At this time, the General Partner cannot predict whether the program will
be extended, modified or terminated, or the effect of any such action on the
Partnership.
In October 1992, the Energy Policy Act of 1992 (the "Policy Act") was
enacted. Title XVIII of the Policy Act, "Oil Pipeline Regulatory Reform,"
provides, among other things, that certain tariff rates that were in effect on
October 25, 1991 are deemed "just and reasonable, " and that FERC is directed
by October 24, 1993 to promulgate a rule establishing a simplified and
generally applicable ratemaking methodology for oil pipelines. FERC was also
directed to issue a rule streamlining certain procedural aspects of its
proceedings.
On October 22, 1993, FERC issued a final rule pursuant to the Policy Act with
respect to rate regulation of oil pipelines. The rule relies primarily on an
index methodology, whereby a pipeline would be allowed to change its rates in
accordance with an index that FERC believes reflects cost changes appropriate
for application to pipeline rates. In the alternative, a pipeline is allowed to
charge market-based rates if the pipeline establishes that it does not possess
significant market power in a particular market. In addition, the rule provides
for the rights of both pipelines and shippers to demonstrate that the index
should not apply to an individual pipeline's rates in light of the pipeline's
costs. Requests for rehearing of the rule are pending with FERC. Subject to any
modifications resulting from the requests for rehearing, the final rule will
become effective on January 1, 1995. Concurrently, with the promulgation of the
final rule, FERC also commenced an inquiry into its market-based rate policy,
seeking comments on whether market-based rates should be allowed and how they
should be implemented and supported. FERC intends to issue a new rule in this
regard by January 1, 1995.
At this time, the General Partner cannot predict the impact, if any, that any
new rule promulgated by FERC may have on Buckeye's current "light-handed"
regulatory program or on Buckeye's tariff rates generally. Independent of
regulatory considerations, it is expected that tariff rates will continue to be
constrained by competition and other market factors.
In June 1993, Buckeye filed changes in certain FERC tariff rates applying the
principles of the experimental "light-handed" rate regulation program. Such
changes represented an average increase of 1.4 percent for the rates involved
and were projected to generate approximately $1.5 million in additional
revenues per year. The new tariff rates became effective on August 1, 1993,
without investigation or suspension.
Environmental Matters
The Operating Partnerships are subject to federal and state laws and
regulations relating to the protection of the environment. Although the General
Partner believes that the operations of the Operating Partnerships comply in
all material respects with applicable environmental regulations, risks of
substantial liabilities are inherent in pipeline operations, and there can be
no assurance that material environmental liabilities will not be incurred.
Moreover, it is possible that other developments, such as increasingly rigorous
environmental laws, regulations and enforcement
6
policies thereunder, and claims for damages to property or persons resulting
from the operations of the Operating Partnerships, could result in substantial
costs and liabilities to the Partnership. See "Legal Proceedings" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Environmental Matters."
The Oil Pollution Act of 1990 ("OPA") amends certain provisions of the
federal Water Pollution Control Act of 1972, commonly referred to as the Clean
Water Act ("CWA") and other statutes as they pertain to the prevention of and
response to oil spills into navigable waters. The OPA subjects owners of
facilities to strict joint and several liability for all containment and
clean-up costs and certain other damages arising from a spill. The CWA
provides penalties for any discharges of petroleum products in reportable
quantities and imposes substantial liability for the costs of removing a
spill. State laws for the control of water pollution also provide varying
civil and criminal penalties and liabilities in the case of releases of
petroleum or its derivatives into surface waters or into the ground.
Regulations are currently being developed under OPA and state laws which may
impose additional regulatory burdens on the Partnership.
Contamination resulting from spills or releases of refined petroleum
products are not unusual in the petroleum pipeline industry. The Partnership's
pipelines cross numerous navigable rivers and streams. Although the General
Partner believes that the Operating Partnerships comply in all material
respects with the spill prevention, control and countermeasure requirements of
federal laws, any spill or other release of petroleum products into navigable
waters may result in material costs and liabilities to the Partnership.
The Resource Conservation and Recovery Act ("RCRA"), as amended, establishes
a comprehensive program of regulation of "hazardous wastes." Hazardous waste
generators, transporters, and owners or operators of treatment, storage and
disposal facilities must comply with regulations designed to ensure detailed
tracking, handling and monitoring of these wastes. RCRA also regulates the
disposal of certain non-hazardous wastes. As a result of recently issued
regulations, many previously non-hazardous wastes generated by pipeline
operations have become "hazardous wastes" which are subject to more rigorous
and costly disposal requirements.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"), also known as "Superfund," governs the release or threat of
release of a "hazardous substance." Disposal of a hazardous substance, whether
on or off-site, may subject the generator of that substance to liability under
CERCLA for the costs of clean-up and other remedial action. Pipeline
maintenance and other activities in the ordinary course of business could
subject the Operating Partnerships to the requirements of these statutes. As a
result, to the extent hydrocarbons or other petroleum waste may have been
released or disposed of in the past, the Operating Partnerships may in the
future be required to remediate contaminated property. Governmental
authorities such as the Environmental Protection Agency ("EPA"), and in some
instances third parties, are authorized under CERCLA to seek to recover
remediation and other costs from responsible persons, without regard to fault
or the legality of the original disposal. In addition to its potential
liability as a generator of a "hazardous substance," the property or right-of-
way of the Operating Partnerships may be adjacent to or in the immediate
vicinity of Superfund and other hazardous waste sites. Accordingly, the
Operating Partnerships may be responsible under CERCLA for all or part of the
costs required to cleanup such sites, which costs could be material.
The Clean Air Act, amended by the Clean Air Act Amendments of 1990 (the
"Amendments"), imposes controls on the emission of pollutants into the air.
The Operating Partnerships may be affected in several ways by the Amendments,
including required changes in operating procedures and increased capital
expenditures. The Amendments require states to develop permitting programs
over the next several years to comply with new federal programs. Existing
operating and air-emission permits like
7
those held by the Operating Partnerships will have to be reviewed to determine
compliance with the new programs. It is possible that new or more stringent
controls will be imposed upon the Operating Partnerships through this permit
review. In addition, the Amendments impose new requirements on the composition
of fuels transported by the Operating Partnerships. While the principal impact
of these new requirements will be on refiners and marketers of such fuels, the
Operating Partnerships may have to institute additional quality control
procedures and provide additional tankage in order to satisfy customer needs
for segregated storage of these reformulated fuels.
The Operating Partnerships are also subject to environmental laws and
regulations adopted by the various states in which they operate. In certain
instances, the regulatory standards adopted by the states are more stringent
than applicable federal laws.
In connection with the Acquisition, Pipe Line obtained an Administrative
Consent Order ("ACO") from the New Jersey Department of Environmental
Protection and Energy ("NJDEPE") under the New Jersey Environmental Cleanup
Responsibility Act of 1983 ("ECRA") for all six of Pipe Line's facilities in
New Jersey. The ACO permitted the Acquisition to be completed prior to full
compliance with ECRA, but required Pipe Line to conduct in a timely manner a
sampling plan for environmental contamination at the New Jersey facilities and
to implement any required clean-up plan. Sampling continues in an effort to
identify areas of contamination at the New Jersey facilities, while clean-up
operations have begun at certain of the sites. The obligations of Pipe Line
were not assumed by the Partnership, and the costs of compliance will be paid
by Penn Central. Through December 1993, Buckeye's costs of approximately
$2,286,000 have been funded by Penn Central.
Safety Matters
The Operating Partnerships are subject to regulation by the United States
Department of Transportation ("DOT") under the Hazardous Liquid Pipeline
Safety Act of 1979 ("HLPSA") relating to the design, installation, testing,
construction, operation, replacement and management of their pipeline
facilities. HLPSA covers petroleum and petroleum products and requires any
entity which owns or operates pipeline facilities to comply with applicable
safety standards, to establish and maintain a plan of inspection and
maintenance and to comply with such plans.
The Pipeline Safety Reauthorization Act of 1988 required increased
coordination of safety regulation between federal and state agencies, testing
and certification of pipeline personnel, and authorization of safety-related
feasibility studies. During 1990, the Manager initiated a random drug testing
program to comply with the regulations promulgated by the Office of Pipeline
Safety, DOT. Federal legislation enacted in October 1991 contained a provision
requiring alcohol testing for workers with certain safety-sensitive duties in
various transportation industries. Regulations issued pursuant to the
legislation, effective January 1, 1995, provide that pipeline personnel, in
certain circumstances, will be subject to alcohol testing requirements. The
regulations also require alcohol testing, in certain circumstances, of
pipeline personnel who maintain commercial drivers' licenses. The Manager
intends to institute an alcohol testing program for covered employees in
accordance with the regulations.
In October 1992, HLPSA was amended by the Pipeline Safety Act of 1992 to
provide, among other things, that the Secretary of Transportation shall
consider the need for the protection of the environment in issuing federal
safety standards for the transportation of hazardous liquids by pipeline. The
amended legislation also requires the Secretary of Transportation to issue
regulations concerning, among other things, the identification by pipeline
operators of environmentally sensitive areas; the circumstances under which
emergency flow restricting devices should be required on
8
pipelines; training and qualification standards for personnel involved in
maintenance and operation of pipelines; and the periodic integrity testing of
pipelines in environmentally sensitive and high-density population areas by
internal inspection devices or by hydrostatic testing. Significant expenses
would be incurred if, for instance, additional valves were required or if leak
detection standards exceeded the current control system capabilities of the
Operating Partnerships. The General Partner believes that the Operating
Partnerships' operations comply in all material respects with HLPSA, but the
industry, including the Partnership, could be required to incur substantial
additional capital expenditures and increased operating costs depending upon
the requirements of final regulations issued by DOT pursuant to HLPSA, as
amended.
The Operating Partnerships are also subject to the requirements of the
Federal Occupational Safety and Health Act ("OSHA") and comparable state
statutes. The General Partner believes that the Operating Partnerships'
operations comply in all material respects with OSHA requirements, including
general industry standards, recordkeeping, hazard communication requirements
and monitoring of occupational exposure to benzene and other regulated
substances.
The General Partner cannot predict whether or in what form any new
legislation or regulatory requirements might be enacted or adopted or the costs
of compliance. In general, any such new regulations would increase operating
costs and impose additional capital expenditure requirements on the
Partnership, but the General Partner does not presently expect that such costs
or capital expenditure requirements would have a material adverse effect on the
Partnership.
TAX TREATMENT OF PUBLICLY TRADED PARTNERSHIPS UNDER THE INTERNAL REVENUE CODE
The Internal Revenue Code of 1986, as amended (the "Code"), imposes certain
limitations on the current deductibility of losses attributable to investments
in publicly traded partnerships and treats certain publicly traded partnerships
as corporations for federal income tax purposes. The following discussion
briefly describes certain aspects of the Code that apply to individuals who are
citizens or residents of the United States without commenting on all of the
federal income tax matters affecting the Partnership or its unitholders (the
"Unitholders"), and is qualified in its entirety by reference to the Code.
UNITHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISOR ABOUT THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE
PARTNERSHIP.
Characterization of the Partnership for Tax Purposes
The Code treats a publicly traded partnership that existed on December 17,
1987, such as the Partnership, as a corporation for federal income tax purposes
beginning in the earlier of (i) 1998 or (ii) the year in which it adds a
substantial new line of business unless, for each taxable year of the
Partnership beginning in the earlier of such years, 90 percent or more of its
gross income consists of qualifying income. Qualifying income includes
interest, dividends, real property rents, gains from the sale or disposition of
real property, income and gains derived from the exploration, development,
mining or production, processing, refining, transportation (including pipelines
transporting gas, oil or products thereof), or the marketing of any mineral or
natural resource (including fertilizer, geothermal energy and timber), and gain
from the sale or disposition of capital assets that produced such income.
Because the Partnership is engaged primarily in the refined products pipeline
transportation business, the General Partner believes that 90 percent or more
of the Partnership's gross income has been qualifying income. If this continues
to be true and no subsequent legislation amends this provision, the Partnership
would continue to be classified as a partnership and not as a corporation for
federal income tax purposes.
9
Passive Activity Loss Rules
The Code provides that an individual, estate, trust or personal service
corporation generally may not deduct losses from passive business activities,
to the extent they exceed income from all such passive activities, against
other income. Income which may not be offset by passive activity "losses"
includes not only salary and active business income, but also portfolio income
such as interest, dividends or royalties or gain from the sale of property that
produces portfolio income. Credits from passive activities are also limited to
the tax attributable to any income from passive activities. The passive
activity loss rules are applied after other applicable limitations on
deductions, such as the at-risk rules and the basis limitation. Certain closely
held corporations are subject to slightly different rules, which can also limit
their ability to offset passive losses against certain types of income.
Under the Code, net income from publicly traded partnerships is not treated
as passive income for purposes of the passive loss rule, but is treated as
portfolio income. Net losses and credits attributable to an interest in a
publicly traded partnership are not allowed to offset a partner's other income.
Thus, a Unitholder's proportionate share of the Partnership's net losses may be
used to offset only Partnership net income from its trade or business in
succeeding taxable years or, upon a complete disposition of a Unitholder's
interest in the Partnership to an unrelated person in a fully taxable
transaction, may be used to (i) offset gain recognized upon the disposition,
and (ii) then against all other income of the Unitholder. In effect, net losses
are suspended and carried forward indefinitely until utilized to offset net
income of the Partnership from its trade or business or allowed upon the
complete disposition to an unrelated person in a fully taxable transaction of a
Unitholder's interest in the Partnership. A Unitholder's share of Partnership
net income may not be offset by passive activity losses generated by other
passive activities. In addition, a Unitholder's proportionate share of the
Partnership's portfolio income, including portfolio income arising from the
investment of the Partnership's working capital, is not treated as income from
a passive activity and may not be offset by such Unitholder's share of net
losses of the Partnership.
Deductibility of Interest Expense
The Code generally provides that investment interest expense is deductible
only to the extent of a non-corporate taxpayer's net investment income. In
general, net investment income for purposes of this limitation includes gross
income from property held for investment, gain attributable to the disposition
of property held for investment (except for net capital gains for which the
taxpayer has elected to be taxed at a maximum rate of 28 percent) and portfolio
income (determined pursuant to the passive loss rules) reduced by certain
expenses (other than interest) which are directly connected with the production
of such income. Property subject to the passive loss rules is not treated as
property held for investment. However, the IRS has issued a Notice which
provides that net income from a publicly traded partnership (not otherwise
treated as a corporation) may be included in net investment income for purposes
of the limitation on the deductibility of investment interest. A Unitholder's
investment income attributable to its interest in the Partnership will include
both its allocable share of the Partnership's portfolio income and trade or
business income. A Unitholder's investment interest expense will include its
allocable share of the Partnership's interest expense attributable to portfolio
investments.
Unrelated Business Taxable Income
Certain entities otherwise exempt from federal income taxes (such as
individual retirement accounts, pension plans and charitable organizations) are
nevertheless subject to federal income tax on net unrelated business taxable
income in excess of $1,000, and each such entity must file a tax return for
each year in which it has more than $1,000 of gross income included in
computing unrelated business taxable income. The General Partner believes that
substantially all of the Partnership's gross income will be treated as derived
from an unrelated trade or business and taxable to such
10
entities. The tax-exempt entity's share of the Partnership's deductions are
allowed in computing the entity's taxable unrelated business income.
ACCORDINGLY, INVESTMENT IN THE PARTNERSHIP BY TAX-EXEMPT ENTITIES SUCH AS
INDIVIDUAL RETIREMENT ACCOUNTS, PENSION PLANS AND CHARITABLE TRUSTS MAY NOT BE
ADVISABLE.
State Tax Treatment
The Partnership owns property or does business in the states of Pennsylvania,
New York, New Jersey, Indiana, Ohio, Michigan, Illinois, Connecticut,
Massachusetts, Washington and Florida. A Unitholder will likely be required to
file state income tax returns and to pay applicable state income taxes in many
of these states and may be subject to penalties for failure to comply with such
requirements. Some of the states have proposed that the Partnership withhold a
percentage of income attributable to Partnership operations within the state
for Unitholders who are non-residents of the state. In the event that amounts
are required to be withheld (which may be greater or less than a particular
Unitholder's income tax liability to the state), such withholding would
generally not relieve the non-resident Unitholder from the obligation to file a
state income tax return.
ITEM 2. PROPERTIES
As of December 31, 1993, the principal facilities of the Operating
Partnerships included 3,770 miles of 6-inch to 24-inch diameter pipeline, 44
pumping stations, 104 delivery points and various sized tanks having an
aggregate capacity of approximately 10.1 million barrels.
The Operating Partnerships own substantially all of their facilities subject,
in the case of Buckeye, to a mortgage and security interest granted to secure
payment of the outstanding balance of Buckeye's First Mortgage Notes due
serially through 2009. See Note 7 to Consolidated Financial Statements of
Buckeye Partners, L.P. In addition, certain portions of Buckeye's pipeline in
Connecticut and Massachusetts are subject to security interests in favor of the
owners of the right-of-way to secure future lease payments.
In general, the Operating Partnerships' pipelines are located on land owned
by others pursuant to rights granted under easements, leases, licenses and
permits from railroads, utilities, governmental entities and private parties.
Like other pipelines, certain of the Operating Partnerships' rights are
revocable at the election of the grantor or are subject to renewal at various
intervals, and some require periodic payments. The Operating Partnerships have
not experienced any revocations or lapses of such rights which were material to
its business or operations, and the General Partner has no reason to expect any
such revocation or lapse in the foreseeable future. Most pumping stations and
terminal facilities are located on land owned by the Operating Partnerships.
The General Partner believes that the Operating Partnerships have sufficient
title to their material assets and properties, possess all material
authorizations and franchises from state and local governmental and regulatory
authorities and have all other material rights necessary to conduct their
business substantially in accordance with past practice. Although in certain
cases the Operating Partnerships' title to assets and properties or their other
rights, including their rights to occupy the land of others under easements,
leases, licenses and permits, may be subject to encumbrances, restrictions and
other imperfections, none of such imperfections are expected by the General
Partner to interfere materially with the conduct of the Operating Partnerships'
businesses.
ITEM 3. LEGAL PROCEEDINGS
The Partnership, in the ordinary course of business, is involved in various
claims and legal proceedings, some of which are covered in whole or in part by
insurance. The General Partner is unable to predict the timing or outcome of
these claims and proceedings. Although it is possible that one or more of these
claims or proceedings, if adversely determined, could, depending on the
relative
11
amounts involved, have a material effect on the Partnership's results of
operations for a future period, the General Partner does not believe that their
outcome will have a material effect on the Partnership's consolidated financial
condition.
FREEPORT LANDSLIDE
On March 30, 1990, a landslide near Freeport, Pennsylvania caused a rupture
to one of the Partnership's pipelines which resulted in the release of
approximately 58,000 gallons of petroleum products. Undetermined amounts of
petroleum products saturated the soils surrounding the landslide area and
flowed into Knapp Run and eventually into the Allegheny River. Buckeye promptly
conducted extensive emergency response and remediation efforts.
Following the release, various agencies and departments of both the federal
and state governments, including the United States Department of Justice, the
Pennsylvania Office of Attorney General, the Pennsylvania Department of
Environmental Resources ("DER"), the Pennsylvania Department of Transportation,
EPA, the National Transportation Safety Board, and DOT, commenced
investigations into the circumstances of the pipeline rupture. The U.S. Justice
Department and the Pennsylvania Attorney General's Office have instituted
criminal investigations, but Buckeye has not been formally advised that it is a
target of those investigations. The other investigations are civil in nature.
As a result of the foregoing investigations, Buckeye may be subject to claims
or charges seeking civil or criminal fines, penalties or assessments from one
or more governmental agencies. At this time, Buckeye has not been charged with
any violations of federal or state law, and it is impossible to predict whether
there will be any such actions brought against Buckeye, the amount of any
fines, penalties or assessments sought to be imposed or the outcome of any such
actions.
After the emergency phase of the clean-up was complete, Buckeye and DER
reached an agreement on remediation and erosion and sedimentation control at
the site. Under this agreement, Buckeye is collecting and treating surface
runoff water from the site and has instituted further erosion and sedimentation
control measures under a DER-approved plan.
In addition to the above governmental investigations, eight civil class
actions against the Partnership, Buckeye and certain affiliates were filed in
four Pennsylvania counties. Plaintiffs in these lawsuits seek both injunctive
and monetary relief, including punitive damages and attorneys' fees, based on a
number of legal theories. The parties have consolidated these actions in a
single class action in the Court of Common Pleas for Allegheny County,
Pennsylvania, but the proposed class has not yet been certified and there has
been no significant activity in the case. At this time, it is not possible to
predict the likely outcome of such actions.
Buckeye maintains insurance in amounts believed by the General Partner to be
adequate covering certain liabilities and claims arising out of pipeline
accidents above a self-insured retention amount. The insurance is written
generally on an indemnity basis, which requires Buckeye to seek reimbursement
from its carriers for covered claims after paying such claims directly. Various
entities that allegedly incurred costs or damages as a result of this incident
have filed claims with Buckeye's insurance adjusters. Certain claims have been
paid by Buckeye and other claims remain outstanding. The insurance carriers are
reimbursing Buckeye for covered claims subject to the terms of the policy.
For the reasons set forth above, Buckeye is unable to estimate the total
amount of environmental clean-up and other costs and liabilities that may be
incurred in connection with this incident. However, based on information
currently available to it, Buckeye believes that its net expense after
insurance recoveries will not be material to its financial condition or results
of operations.
12
OTHER ENVIRONMENTAL PROCEEDINGS
With respect to other environmental litigation, certain Operating
Partnerships (or their predecessors) have been named as a defendant in several
lawsuits or have been notified by federal or state authorities that they are a
potentially responsible party ("PRP") under federal laws or a respondent under
state laws relating to the generation, disposal or release of hazardous
substances into the environment. Typically, an Operating Partnership is one of
many PRPs for a particular site and its contribution of total waste at the site
is minimal. However, because CERCLA and similar statutes impose liability
without regard to fault and on a joint and several basis, the liability of the
Operating Partnerships in connection with these proceedings could be material.
Potentially material proceedings affecting the Operating Partnerships are
described below.
In July 1986, Buckeye was named as one of several PRPs for the Whitmoyer
Laboratories site in Myerstown, Pennsylvania. Buckeye previously owned part of
the site and sold it to a purchaser now believed to be primarily responsible
for the reported substantial chemical contamination at the site. Without
knowledge of the contamination, Buckeye subsequently repurchased a small
portion of the site on which it constructed a pumping station. After completion
of a remedial investigation and feasibility study and consideration of proposed
remediation plans, EPA issued two Records of Decision in December 1990
proposing a clean-up estimated to cost approximately $125 million. In 1992, EPA
entered into an agreement with the estate of one of the PRPs to recover a
portion of EPA's past costs. In addition, EPA entered into a Consent Decree
with the two PRPs that were former owners of Whitmoyer Laboratories. These PRPs
agreed to assume the cost of clean-up at the site, and to reimburse EPA for
future response costs and a portion of its past response costs. These two PRPs
have instituted suit against each other to determine their relative
responsibility for the Whitmoyer Laboratories site clean-up. One of the PRPs
served a third-party complaint against Buckeye for the stated purpose of
tolling the statute of limitations to preserve its rights, if any, against
Buckeye. Buckeye subsequently settled the third-party complaint that had been
filed against it. In consideration of mutual releases and the PRP's agreement
to cleanup Buckeye's portion of the site, Buckeye agreed to remove its booster
pump station, to reroute its pipeline around the site and to reimburse the PRP
for the cost of removing the original pipeline, if such removal is required by
EPA. Buckeye estimates at this time that the costs of complying with the terms
of the settlement agreement will be between $1 million and $2 million. Buckeye
has not entered into any agreements with the EPA or the other PRP involved at
the site, and Buckeye has not waived any rights to recover for any claim
arising out of the PRP's activities at the site or any claims brought by any
governmental agency or third party based upon environmental conditions at the
site. In the event that claims were asserted by any party in connection with
the site, Buckeye believes that it would have meritorious defenses, but its
potential liability, if any, related to such claims, cannot be estimated at
this time.
In July 1987, the NJDEPE ordered Buckeye and 27 other parties to provide site
security and conduct a preliminary clean-up at the Borne Chemical site located
in Elizabeth, New Jersey. Twenty of the parties (including Buckeye) agreed to
provide security and to remove certain materials from the site. Buckeye agreed
to pay approximately $64,000 of the $4 million estimated cost of this activity.
This removal work has been completed. The NJDEPE is requiring that all parties
(including Buckeye) which are alleged to have contributed hazardous substances
to the site, conduct a remedial investigation/feasibility study to determine
the scope of additional contamination, if any, that may exist at the site.
Buckeye's involvement with this site is based on allegations that a small
amount of Buckeye's waste was stored at this site pending its ultimate disposal
elsewhere. Buckeye believes that it has meritorious defenses, but its potential
liability, if any, for future costs cannot be estimated at this time.
In March 1989, the NJDEPE issued a directive to Buckeye and 113 other parties
demanding payment of approximately $9.2 million in remediation costs incurred
by NJDEPE at the Bridgeport Rental & Oil Services Site in Logan Township, New
Jersey. This site is subject to a remediation being
13
conducted by EPA under CERCLA. In March 1992, an action was commenced by
Rollins Environmental Services (NJ), Inc., and others, against the United
States of America and certain additional private parties seeking reimbursement
for remediation expenses incurred by plaintiffs in connection with the site.
In June 1992, the United States of America brought an action against Rollins
Environmental Services (NJ), Inc., and additional private parties, seeking
reimbursement of approximately $29 million for response costs incurred by EPA
at the site. Buckeye has not been designated by EPA as a PRP with respect to
the site, and has not been named as a defendant in any litigation connected
with the site. Buckeye believes that it is, at most, a de minimis contributor
of waste to this site. Although EPA has estimated remediation costs at the
site to be over $100 million, Buckeye expects that its liability, if any, will
not be material.
In May 1993, Buckeye was notified by EPA that EPA had reason to believe that
Buckeye was a PRP under CERCLA regarding certain hazardous substances located
at a former waste processing/management facility located in Niagara Falls, New
York known as the Frontier Chemical Superfund Site. Buckeye is one of several
hundred parties that have been informed by EPA that they are potential PRPs in
connection with the site. In its notification letter, EPA requested the PRPs
to refund approximately $376,000 in costs already incurred by EPA in
connection with the management of the site, and to fund the clean-up and
removal of certain alleged hazardous materials contained in drums and liquid
waste holding tanks at the site. The estimated cost of the removal activity
has been estimated by EPA at approximately $4,700,000. In addition, EPA noted
that certain subsequent clean-up activities may be required at the site, but
that such work would be the subject of a future letter to the PRPs and would
be addressed under a separate administrative order. Buckeye has entered into a
PRP Group Participation Agreement with other PRPs in order to facilitate a
joint approach to EPA and to the clean-up of the site. Buckeye believes that
it is, at most, a de minimis contributor of waste to the site. Although the
cost of the ultimate remediation of the site cannot be determined at this
time, Buckeye expects that its liability, if any, will not be material.
Additional claims for the cost of cleaning up releases of hazardous
substances and for damage to the environment resulting from the activities of
the Operating Partnerships or their predecessors may be asserted in the future
under various federal and state laws, but the amount of such claims or the
potential liability, if any, cannot be estimated. See "Business--Regulation--
Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the holders of LP Units during the
fourth quarter of the fiscal year ended December 31, 1993.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S LP UNITS AND RELATED UNITHOLDER MATTERS
The LP Units of the Partnership are listed and traded principally on the New
York Stock Exchange. The high and low sales prices of the LP Units in 1993 and
1992, as reported on the New York Stock Exchange Composite Tape, were as
follows:
1993 1992
------------- -------------
QUARTER HIGH LOW HIGH LOW
- ------- ------ ------ ------ ------
First............................................... 35 1/2 28 3/4 28 7/8 25 7/8
Second.............................................. 36 7/8 32 1/4 28 1/2 26 7/8
Third............................................... 38 33 1/8 32 1/8 28
Fourth.............................................. 41 5/8 36 1/2 31 5/8 28
During the months of December 1993 and January 1994, the Partnership
gathered tax information from its known LP Unitholders and from
brokers/nominees. Based on the information collected, the Partnership
estimates its number of beneficial LP Unitholders to be approximately 18,000.
14
Cash distributions paid quarterly during 1992 and 1993 were as follows:
RECORD DATE PAYMENT DATE AMOUNT PER UNIT
- ----------- ------------ ---------------
February 7, 1992............................. February 28, 1992 $0.65
May 8, 1992.................................. May 29, 1992 $0.65
August 7, 1992............................... August 31, 1992 $0.65
November 6, 1992............................. November 30, 1992 $0.65
February 23, 1993............................ February 26, 1993 $0.65
May 7, 1993.................................. May 28, 1993 $0.65
August 6, 1993............................... August 31, 1993 $0.65
November 8, 1993............................. November 30, 1993 $0.65
In general, the Partnership makes quarterly cash distributions of
substantially all of its available cash less such retentions for working
capital, anticipated expenditures and contingencies as the General Partner
deems appropriate.
On January 28, 1994, the Partnership announced a quarterly distribution of
$0.70 per LP Unit payable on February 28, 1994.
15
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth, for the period and at the dates indicated,
the Partnership's income statement and balance sheet data for the years ended
December 31, 1993, 1992, 1991, 1990 and 1989. Income statement and balance
sheet data for the year ended December 31, 1989 has been restated to reflect
results of continuing operations. The tables should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
this Report.
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
Income Statement Data:
Revenue......................... $175,495 $163,064 $151,828 $159,253 $158,094
Depreciation and amortization... 11,002 10,745 10,092 9,971 10,187
Operating income................ 66,851 63,236 58,452 63,863 66,602
Interest and debt expense....... 25,871 27,452 27,502 28,767 29,448
Income from continuing opera-
tions before extraordinary
charge and cumulative effect of
change in accounting principle. 41,654 34,546 30,465 34,312 36,178
Net income...................... 39,366 9,002 30,465 15,200 35,580
Income per Unit from continuing
operations before extraordinary
charge and cumulative effect of
change in accounting principle. 3.44 2.85 2.51 2.83 2.99
Net income per Unit............. 3.25 0.74 2.51 1.25 2.94
Distributions per Unit.......... 2.60 2.60 2.60 2.60 2.45
DECEMBER 31,
--------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(IN THOUSANDS)
Balance Sheet Data:
Total assets..................... $543,493 $533,143 $545,281 $551,888 $577,696
Long-term debt................... 224,000 225,000 242,500 260,000 275,000
General Partner's capital........ 2,338 2,259 2,521 2,531 2,694
Limited Partners' capital........ 231,357 223,585 249,533 250,573 266,725
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the liquidity and capital resources and the
results of operations of the Partnership for the periods indicated below.
Amounts in the Management's Discussion and Analysis of Financial Condition and
Results of Operations relate to continuing operations unless otherwise
indicated. This discussion should be read in conjunction with the consolidated
financial statements and notes thereto, which are included elsewhere in this
Report.
Change in Accounting Principle
In December 1992, the Partnership adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" ("SFAS 106") effective as of January 1, 1992. As a result, the
Partnership recorded a one-time, non-cash charge of $25.5 million as of the
first quarter of 1992 to reflect the cumulative effect of the change in
accounting principle for periods prior to 1992. In addition, quarterly results
for 1992 were restated to reflect an additional $1.5 million, or approximately
$0.4 million per quarter, in related operating expenses throughout the year.
16
RESULTS OF OPERATIONS
Through its Operating Partnerships, the Partnership is principally engaged in
the transportation of refined petroleum products including gasoline, jet fuel,
diesel fuel, heating oil and kerosene. The Partnership's revenues 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. Results of
operations are affected by factors which include competitive conditions, demand
for products transported, seasonality and regulation. See "Business--
Competition and Other Business Considerations."
1993 Compared With 1992
Revenue for the year ended December 31, 1993 was $175.5 million, $12.5
million, or 7.7 percent greater than revenue of $163.0 million for 1992. Volume
delivered during 1993 averaged 981,100 barrels per day, 67,900 barrels per day
or 7.4 percent greater than volume of 913,200 barrels per day delivered in
1992. Greater revenue in 1993 was related to increased gasoline, distillate and
turbine fuel deliveries and to the effect of tariff rate increases implemented
in July 1992 and August 1993. Gasoline and distillate volume increases were due
primarily to higher end-use demand in response to moderate economic recovery
and a return to normal winter temperatures. In addition, 1993 volume improved
as a result of new business captured from barge and other pipelines, a decline
in Canadian imports to upstate New York and extended refinery maintenance
activities that required transportation of additional refined products into the
Partnership's service areas. Increased turbine fuel volume was due to a
moderate improvement in domestic and international air travel and continued
growth in air cargo business.
Costs and expenses during 1993 were $108.6 million, $8.8 million or 8.8
percent greater than costs and expenses of $99.8 million during 1992.
Categories of increased expenses included payroll and employee benefits,
maintenance services and power and supplies. A significant portion of these
increased expenses were directly related to the transportation of additional
volume and related maintenance activities.
Other income (expenses) consist of interest income, interest and debt
expense, and minority interests and other. Interest and debt expense of $25.9
million in 1993 was $1.6 million less than interest and debt expense of $27.5
million in 1992 reflecting lower debt outstanding following payment of $16.3
million of Series E First Mortgage Notes in December 1992.
1992 Compared With 1991
Revenue for the year ended December 31, 1992 was $163.0 million, $11.2
million, or 7.4 percent greater than revenue of $151.8 million for 1991. Volume
delivered during 1992 averaged 913,200 barrels per day, 40,000 barrels per day
or 4.6 percent greater than volume of 873,200 barrels per day delivered in
1991. Volume increased in all of the Partnership's product grades. Increased
gasoline volume was primarily related to new business from a reactivated
Midwest refinery and shifts from barge and truck to pipeline delivery following
capital investment during 1991 and early 1992. Distillate volume improved due
to increased heating oil demand resulting from colder weather in the Northeast
compared to 1991. Turbine fuel volume improved in response to increased air
travel, expanding air cargo business and new business due to shifts from barge
to pipeline delivery. Greater revenue in 1992 was also attributable to tariff
rate increases which were implemented in July of 1991 and 1992.
Costs and expenses during 1992 were $99.8 million, $6.4 million or 6.9
percent greater than costs and expenses of $93.4 million during 1991. Greater
costs and expenses during 1992 were primarily
17
due to property and other taxes which increased compared to 1991 due to the
effect of favorable settlements recorded in 1991. Cost and expenses in 1992
were also affected by increased power, supplies and maintenance costs
reflecting improved volume. Depreciation charges increased during 1992
principally due to net additions to Partnership's property, plant and
equipment. Costs and expenses were favorably impacted by reduced rents,
employee benefits and environmental related expenses.
Interest income of $1.0 million during 1992 was $0.9 million less than
interest income during 1991 due to continuing lower interest rates and lower
average invested balances. Interest and debt expense of $27.5 million in 1992
was nearly equal to interest and debt expense in 1991. Lower capitalized
interest and additional commitment and other fees associated with a credit
facility largely offset a reduction in interest following debt repayments.
Minority interests and other was lower in 1992 primarily due to the acquisition
of the remaining stock interest in Laurel Corp in December 1991 and the impact
on minority interest upon adoption of SFAS 106.
Tariff Changes
In July 1993, June 1992 and June 1991, Buckeye filed proposed changes in
certain tariff rates that represented, on average, increases of 1.4 percent,
3.0 percent and 3.7 percent for the rates involved, respectively. The July
1993, June 1992 and June 1991 changes were projected to generate approximately
$1.5 million, $4.0 million and $5.0 million in additional revenue per year,
respectively. Each of these proposed changes became effective during the month
after they were filed.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financial condition at December 31, 1993, 1992 and 1991 is
highlighted in the following comparative summary:
Liquidity and Capital Indicators
AS OF DECEMBER 31,
---------------------------
1993 1992 1991
-------- -------- --------
Current ratio..................................... 1.1 to 1 0.9 to 1 0.9 to 1
Ratio of cash and temporary investments and trade
receivables to current liabilities............... 1.0 to 1 0.8 to 1 0.7 to 1
Working capital (deficiency) (in thousands)....... $ 5,709 $ (4,548) $ (2,877)
Ratio of total debt to total capital.............. .50 to 1 .51 to 1 .50 to 1
Book value (per Unit)............................. $ 19.28 $ 18.63 $ 20.79
Cash Provided by Operations
During 1993, cash provided by operations of $53.2 million was derived
principally from income from continuing operations before an extraordinary
charge of $41.7 million, depreciation of $11.0 million and operating working
capital changes of $3.9 million. Operating working capital changes relate to a
decrease in trade receivables and an increase in accrued and other current
liabilities. Remaining cash uses, totaling $3.4 million, were related to
extraordinary charges on early extinguishment of debt of $2.2 million and
distributions to minority interests and changes in other non-current
liabilities.
During 1992, cash provided by operations of $52.2 million was derived
principally from income from continuing operations before the cumulative effect
of a change in accounting principle of $34.5 million, depreciation of $10.7
million and changes in operating working capital of $3.5 million. Other
18
net cash sources, totaling $3.5 million, were largely provided by discontinued
operations and an increase in other non-current liabilities.
During 1991, cash provided by operations of $42.2 million was derived
principally from income from continuing operations of $30.5 million and
depreciation of $10.1 million. Other net cash sources, totaling $1.6 million,
were provided by discontinued operations and an increase in non-current
liabilities which were offset by changes in operating working capital. The
decrease in working capital during 1991 was primarily due to the increase in
the current portion of long-term debt and a decrease in cash position resulting
from lower earnings from continuing operations and the acquisition of a
minority interest.
Debt Obligation and Credit Facilities
At December 31, 1993, the Partnership had $240.0 million in outstanding
current and long-term debt representing the First Mortgage Notes of Buckeye.
The First Mortgage Notes are collateralized by substantially all of Buckeye's
property, plant and equipment. The $240.0 million of debt outstanding at 1993
year end includes $35 million of additional First Mortgage Notes (Series K, L
and M) bearing interest rates from 7.11 percent to 7.19 percent which were
issued on January 7, 1994 in accordance with an agreement entered into on
December 31, 1993 and excludes $20 million of 9.50 percent First Mortgage Notes
(Series H) due December 1995 that were defeased in-substance with a portion of
the proceeds from such additional First Mortgage Notes. During 1993, the
Partnership paid $17.5 million of principal on the First Mortgage Notes (Series
F) that became due in December 1993. In addition, Buckeye entered into an
agreement with the purchaser of the $35 million of additional First Mortgage
Notes which permits Buckeye, under certain circumstances, to issue up to $40
million of additional First Mortgage Notes to such purchaser. Any issuance of
the additional First Mortgage Notes will require the prior approval by the
holders of the First Mortgage Notes to an amendment to the Mortgage Note
Indenture. Buckeye is currently in the process of seeking such approval.
At December 31, 1992, the Partnership had $242.5 million in outstanding
current and long-term debt representing the First Mortgage Notes of Buckeye.
During 1992, the Partnership paid $16.2 million of remaining principal on the
First Mortgage Notes (Series E) that became due in December 1992. At December
31, 1991, the Partnership had $258.8 million in outstanding current and long-
term debt representing the First Mortgage Notes. During 1991, the Partnership
paid $5.0 million of remaining principal on the First Mortgage Notes (Series D)
that became due in December 1991 and irrevocably deposited $1.3 million in
partial payment of principal on the $17.5 million First Mortgage Notes (Series
E) that became due in December 1992.
The Partnership maintains a $15 million unsecured revolving credit facility
with a commercial bank. This facility, which has options to extend borrowings
up to six years, is available to the Partnership for general purposes including
capital expenditures and working capital. In addition, Buckeye has a $10
million short-term line of credit secured by accounts receivable. Laurel has an
unsecured $1 million line of credit. At December 31, 1993, 1992 and 1991, there
were no outstanding borrowings under these facilities.
The ratio of total debt to total capital was 50 percent, 51 percent, and 50
percent at December 31, 1993, 1992 and 1991, respectively. For purposes of the
calculation of this ratio, total capital consists of current and long-term
debt, minority interests and partners' capital.
Capital Expenditures
At December 31, 1993, property, plant and equipment was approximately 92
percent of total consolidated assets. This compares to 93 percent and 91
percent for the years ended December 31, 1992 and 1991, respectively. Capital
expenditures are generally for expansion of the Operating Partnerships' service
capabilities and sustaining the Operating Partnerships' existing assets.
19
Capital expenditures by the Partnership were $13.3 million, $10.8 million and
$10.9 million for 1993, 1992 and 1991, respectively. Projected capital
expenditures for 1994 amount to $12.8 million. Planned capital expenditures
include, among other things, renewal and replacement of pipe, construction of
containment facilities, new valves, metering systems, field instrumentation,
communication facilities and testing equipment. Capital expenditures are
expected to increase over time primarily in response to increasingly rigorous
governmental safety and environmental requirements as well as industry
standards.
Discontinued Operations
In the fourth quarter of 1990, the Partnership recorded a non-cash charge to
earnings of $19.1 million, net of estimated earnings during phase-out, relating
to the Partnership's decision to discontinue its 16-inch crude oil pipeline and
a refined products terminal. The Partnership closed the sale of the 16-inch
crude oil pipeline, together with associated real and personal property to Sun
Pipe Line Company on February 1, 1993. Proceeds from the sale amounted to $9.2
million. Remaining discontinued operations consisting of petroleum facilities
at a refined products terminal were dismantled and removed during the first
quarter 1993. Disposal of these discontinued operations resulted in a loss of
$127,000.
Environmental Matters
The Operating Partnerships are subject to federal and state laws and
regulations relating to the protection of the environment. These regulations,
as well as the Partnership's own standards relating to protection of the
environment, cause the Operating Partnerships to incur current and ongoing
operating and capital expenditures. During 1993, the Operating Partnerships
incurred operating expenses of $3.0 million and capital expenditures of $4.5
million related to environmental matters. Capital expenditures of $3.2 million
for environmental related projects are included in the Partnership's plans for
1994. Expenditures, both capital and operating, relating to environmental
matters are expected to increase due to the Partnership's commitment to
maintain high environmental standards and to increasingly rigorous
environmental laws.
Certain Operating Partnerships (or their predecessors) have been named as a
defendant in lawsuits or have been notified by federal or state authorities
that they are a PRP under federal laws or a respondent under state laws
relating to the generation, disposal, or release of hazardous substances into
the environment. These proceedings generally relate to potential liability for
clean-up costs. The total potential remediation costs to be borne by the
Operating Partnerships relating to these clean-up sites cannot be reasonably
estimated and could be material. With respect to each site, however, the
Operating Partnership involved is one of several or as many as several hundred
PRPs that would share in the total costs of clean-up under the principle of
joint and several liability. 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.
At the Whitmoyer Laboratories site in Myerstown, Pennsylvania, Buckeye is one
of several PRPs for a clean-up estimated to cost approximately $125 million.
However, in 1992, EPA entered into an agreement with the estate of one of the
PRPs to recover a portion of EPA's past costs and a Consent Decree with the two
PRPs that were former owners of Whitmoyer Laboratories to assume the cost of
clean-up at the site and to reimburse EPA for future response costs and a
portion of its past response costs. These two PRPs have instituted suit against
each other to determine their relative responsibility for the Whitmoyer
Laboratories site clean-up. One of the PRPs served a third-party complaint
against Buckeye for the stated purpose of tolling the statute of limitations to
preserve its rights, if any, against Buckeye. Buckeye subsequently settled the
third-party complaint that had been filed against it. In consideration of
mutual releases and the PRP's agreement to
20
cleanup Buckeye's portion of the site, Buckeye agreed to remove its booster
pump station, to reroute its pipeline around the site and to reimburse the PRP
for the cost of removing the original pipeline, if such removal is required by
EPA. Buckeye has not entered into any agreements with the EPA or the other PRP
involved at the site, and Buckeye has not waived any rights to recover for any
claim arising out of the PRP's activities at the site or any claims brought by
any governmental agency or third party based upon environmental conditions at
the site. Although the exact costs of the settlement are not known, Buckeye
estimates at this time that the costs of complying with the terms of the
settlement agreement will be between $1 million and $2 million.
As previously reported, in March 1990, a landslide near Freeport,
Pennsylvania caused a rupture to one of Buckeye's pipelines which resulted in
the release of approximately 58,000 gallons of petroleum products. During 1993,
Buckeye paid claims and other charges related to this incident in the amount of
$0.3 million. Substantially all of this amount has been reimbursed by Buckeye's
insurance carriers. Buckeye is unable to estimate the total amount of
environmental clean-up and other costs and liabilities that may be incurred in
connection with this incident. However, based on information currently
available to it, Buckeye believes that its net expense after insurance
recoveries will not be material to its financial condition or results of
operations. See "Legal Proceedings--Freeport Landslide".
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. Although the
Partnership has made a provision for certain legal expenses relating to these
matters, the General Partner is unable to determine the timing or outcome of
any pending proceedings or of any future claims and proceedings. See
"Business--Regulation--Environmental Matters" and "Legal Proceedings".
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BUCKEYE PARTNERS, L.P.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE NUMBER
-----------
Financial Statements and Independent Auditors' Report:
Independent Auditors' Report..................................... 23
Consolidated Statements of Income--For the years ended December
31, 1993, 1992 and 1991......................................... 24
Consolidated Balance Sheets--December 31, 1993 and 1992.......... 25
Consolidated Statements of Cash Flows--For the years ended Decem-
ber 31, 1993, 1992 and 1991..................................... 26
Notes to Consolidated Financial Statements....................... 27
Financial Statement Schedules and Independent Auditors' Report:
Independent Auditors' Report..................................... S-1
Schedule II--Amounts Receivable from Related Parties and Under-
writers, Promoters and Employees other than Related Parties..... S-2
Schedule III--Registrant's Condensed Financial Statements........ S-3
Schedule V--Consolidated Property, Plant and Equipment--For the
years ended December 31, 1993, 1992 and 1991.................... S-4
Schedule VI--Consolidated Accumulated Depreciation and Amortiza-
tion of Property, Plant and Equipment--For the years ended De-
cember 31, 1993, 1992 and 1991.................................. S-5
Schedule VIII--Valuation and Qualifying Accounts--For the years
ended December 31, 1993, 1992 and 1991.......................... S-6
Schedule X--Supplementary Consolidated Income Statement Informa-
tion--For the years ended December 31, 1993, 1992 and 1991...... S-7
Schedules other than those listed above are omitted because they are either
not applicable or not required or the information required is included in the
consolidated financial statements or notes thereto.
22
INDEPENDENT AUDITORS' REPORT
To the Partners of Buckeye Partners, L.P.:
We have audited the accompanying consolidated balance sheets of Buckeye
Partners, L.P. and its subsidiaries (the "Partnership") as of December 31, 1993
and 1992, and the related consolidated statements of income and cash flows for
each of the three years in the period ended December 31, 1993. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Partnership as of December 31, 1993 and 1992, and the results of its operations
and cash flows for each of the three years in the period ended December 31,
1993 in conformity with generally accepted accounting principles.
As discussed in Note 10 to the consolidated financial statements, in 1992 the
Partnership changed its method of accounting for postretirement benefits other
than pensions to conform with Statement of Financial Accounting Standards
Number 106.
Deloitte & Touche
Philadelphia, Pennsylvania
February 14, 1994
23
BUCKEYE PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
YEAR ENDED DECEMBER 31,
----------------------------
NOTES 1993 1992 1991
----- -------- -------- --------
Revenue.................................... 2 $175,495 $163,064 $151,828
-------- -------- --------
Costs and expenses
Operating expenses....................... 3,13 87,029 79,111 72,955
Depreciation and amortization............ 2 11,002 10,745 10,092
General and administrative expenses...... 13 10,613 9,972 10,329
-------- -------- --------
Total costs and expenses............... 108,644 99,828 93,376
-------- -------- --------
Operating income........................... 66,851 63,236 58,452
-------- -------- --------
Other income (expenses)
Interest income.......................... 919 960 1,891
Interest and debt expense................ (25,871) (27,452) (27,502)
Minority interests and other............. (245) (129) (1,107)
-------- -------- --------
Total other income (expenses).......... (25,197) (26,621) (26,718)
-------- -------- --------
Income from continuing operations before
income taxes.............................. 41,654 36,615 31,734
Provision for income taxes................. 2 -- (2,069) (1,269)
-------- -------- --------
Income from continuing operations before
extraordinary charge and cumulative effect
of change in accounting principle......... 41,654 34,546 30,465
Loss from discontinued operations.......... 5 (127) -- --
Extraordinary charge on early
extinguishment of debt.................... 11 (2,161) -- --
Cumulative effect of change in accounting
principle................................. 10 -- (25,544) --
-------- -------- --------
Net income................................. $ 39,366 $ 9,002 $ 30,465
======== ======== ========
Net income allocated to General Partner.... 14 $ 394 $ 90 $ 305
Net income allocated to Limited Partners... 14 $ 38,972 $ 8,912 $ 30,160
Income allocated to General and Limited
Partners per Partnership Unit:
Income from continuing operations
before extraordinary charge and
cumulative effect of change in
accounting principle.................. $ 3.44 $ 2.85 $ 2.51
Loss from discontinued operations...... (.01) -- --
Extraordinary charge on early
extinguishment of debt................ (.18) -- --
Cumulative effect of change in
accounting principle.................. -- (2.11) --
-------- -------- --------
Net income............................. $ 3.25 $ 0.74 $ 2.51
======== ======== ========
See notes to consolidated financial statements.
24
BUCKEYE PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
-----------------
NOTES 1993 1992
----- -------- --------
Assets
Current assets
Cash and cash equivalents..................... 2 $ 22,748 $ 9,753
Temporary investments......................... 250 --
Trade receivables............................. 2 15,341 16,838
Inventories................................... 2 1,174 1,021
Prepaids and other current assets............. 4,445 3,256
-------- --------
Total current assets........................ 43,958 30,868
Property, plant and equipment, net.............. 2,4 499,075 495,541
Other non-current assets........................ 460 460
Net assets of discontinued operations........... 2,5 -- 6,274
-------- --------
Total assets................................ $543,493 $533,143
======== ========
Liabilities and partners' capital
Current liabilities
Current portion of long-term debt............. 7 $ 16,000 $ 17,500
Accounts payable.............................. 2,562 1,184
Income taxes payable.......................... 219 977
Accrued and other current liabilities......... 3,6,9,10,13 19,468 15,755
-------- --------
Total current liabilities................... 38,249 35,416
Long-term debt.................................. 7,11 224,000 225,000
Minority interests.............................. 2,492 2,879
Other non-current liabilities................... 3,8,9,10,13 45,057 44,004
Commitments and contingent liabilities.......... 3 -- --
-------- --------
Total liabilities........................... 309,798 307,299
-------- --------
Partners' capital................................. 14
General Partner................................. 2,338 2,259
Limited Partners................................ 231,357 223,585
-------- --------
Total partners' capital..................... 233,695 225,844
-------- --------
Total liabilities and partners' capital..... $543,493 $533,143
======== ========
See notes to consolidated financial statements.
25
BUCKEYE PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------
NOTES 1993 1992 1991
----- -------- -------- --------
Cash flows from operating activities:
Income from continuing operations before
extraordinary charge and cumulative ef-
fect of change in accounting principle... $ 41,654 $ 34,546 $ 30,465
-------- -------- --------
Adjustments to reconcile income to net
cash provided by operating activities:
Extraordinary charge on early extin-
guishment of debt...................... (2,161) -- --
Depreciation and amortization........... 11,002 10,745 10,092
Minority interests...................... 145 29 657
Distributions to minority interests..... (532) (345) (755)
Change in assets and liabilities:
Trade receivables...................... 1,497 (1,834) 134
Inventories............................ (153) 333 (43)
Prepaids and other current assets...... (1,189) 2,894 (2,328)
Accounts payable....................... 1,378 203 (1,064)
Income taxes payable (a)............... (242) (1,076) (594)
Accrued and other current liabilities
(b)................................... 2,636 2,939 2,376
Other non-current assets............... -- (200) --
Other non-current liabilities (b)...... (1,043) 1,313 758
-------- -------- --------
Total adjustments provided by
continuing operating activities....... 11,338 15,001 9,233
-------- -------- --------
Net cash provided by continuing operat-
ing activities......................... 52,992 49,547 39,698
Net cash provided by discontinued opera-
tions (c).............................. 5 206 2,660 2,471
-------- -------- --------
Net cash provided by operating activi-
ties.................................. 53,198 52,207 42,169
-------- -------- --------
Cash flows from investing activities:
Capital expenditures...................... (13,328) (10,789) (10,853)
Acquisitions.............................. -- -- (4,850)
Proceeds from sale of net assets of dis-
continued operations..................... 5 9,200 -- --
Net proceeds from (expenditures for) dis-
posal of property, plant and equipment... (1,810) 713 24
Sales (purchases) of temporary invest-
ments.................................... (250) -- 10,364
Other, net................................ -- -- 92
-------- -------- --------
Net cash used in investing activities.. (6,188) (10,076) (5,223)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.. 7 35,000 -- --
Payment of long-term debt................. 7 (37,500) (16,250) (6,250)
Distributions to Unitholders.............. 14,15 (31,515) (31,515) (31,515)
Increase in minority interests............ -- 555 264
-------- -------- --------
Net cash used in financing activities.. (34,015) (47,210) (37,501)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................... 2 12,995 (5,079) (555)
Cash and cash equivalents at beginning of
year...................................... 2 9,753 14,832 15,387
-------- -------- --------
Cash and cash equivalents at end of year... $ 22,748 $ 9,753 $ 14,832
======== ======== ========
Supplemental cash flow information:
Cash paid during year for:
Interest (net of amount capitalized)..... $ 26,169 $ 27,398 $ 27,541
Income taxes............................. 242 2,632 1,965
Non-cash effect of change in accounting
principle................................ 10 -- 25,544 --
Non-cash changes in property, plant and
equipment................................ 602 -- --
(a) Non-cash changes in income taxes pay-
able...................................... 516 1,160 --
(b) Non-cash changes in accrued and other
liabilities............................... 2,657 9,277 --
(c) Non-cash changes in discontinued opera-
tions..................................... 3,259 2,537 --
See notes to consolidated financial statements.
26
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1993 AND 1992 AND
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1. ORGANIZATION
Buckeye Partners, L.P. (the "Partnership") is a limited partnership organized
in 1986 under the laws of the state of Delaware. The Partnership owns 99
percent limited partnership interests in Buckeye Pipe Line Company, L.P.
("Buckeye"), Laurel Pipe Line Company, L.P. ("Laurel"), Everglades Pipe Line
Company, L.P. ("Everglades") and Buckeye Tank Terminals Company, L.P. ("BTT").
The foregoing entities are hereinafter referred to as the "Operating
Partnerships." Laurel owns a 98.01 percent limited partnership interest in
Buckeye Pipe Line Company of Michigan, L.P. ("BPL Michigan") which discontinued
operations in 1993 (see Note 5).
During December 1986, the Partnership sold 12,000,000 limited partnership
units ("LP Units") in a public offering representing an aggregate 99 percent
limited partnership interest in the Partnership. Concurrently, the Partnership
sold 121,212 units representing a 1 percent general partnership interest in the
Partnership ("GP Units") to Buckeye Management Company (the "General Partner"),
a wholly owned subsidiary of The Penn Central Corporation ("Penn Central"). The
Partnership used the proceeds from such sales to purchase from subsidiaries of
Penn Central the 99 percent limited partnership interests in the then existing
Operating Partnerships and an 83 percent stock interest in Laurel Pipe Line
Company ("Laurel Corp"). In December 1991, the Partnership acquired the
minority interest in Laurel Corp. Laurel was formed in October 1992 and
succeeded to the operations of Laurel Corp.
A subsidiary of the General Partner, Buckeye Pipe Line Company (the
"Manager"), owns a 1 percent general partnership interest in, and serves as
sole general partner and manager of, each Operating Partnership. The Manager
also owns a 1 percent general partnership interest and a 0.99 percent limited
partnership interest in BPL Michigan.
The Partnership maintains its accounts in accordance with the Uniform System
of Accounts for Pipeline Companies, as prescribed by the Federal Energy
Regulatory Commission ("FERC"). Reports to FERC differ from the accompanying
consolidated financial statements, which have been prepared in accordance with
generally accepted accounting principles, generally in that such reports
calculate depreciation over estimated useful lives of the assets as prescribed
by FERC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements of the Partnership have been prepared
using the purchase method of accounting. An allocation of the purchase price to
the net assets acquired was made on their relative fair market values as
appraised. The financial statements include the accounts of the Operating
Partnerships on a consolidated basis. All significant intercompany transactions
have been eliminated in consolidation.
Financial Instruments
The fair value of financial instruments is determined by reference to various
market data and other valuation techniques as appropriate. Unless otherwise
disclosed, the fair values of financial instruments approximate their recorded
values.
27
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents
All highly liquid debt instruments purchased with a maturity of three months
or less are classified as cash equivalents.
Revenue Recognition
Substantially all revenue is derived from interstate and intrastate
transportation of petroleum products. Such revenue is recognized as products
are delivered to customers. Such customers are major integrated oil companies,
major refiners and large regional marketing companies. While the consolidated
Partnership's continuing customer base numbers approximately 120, no customer
during 1993 contributed more than 10 percent of total revenue. The Partnership
does not maintain an allowance for doubtful accounts.
Inventories
Inventories, consisting of materials and supplies, are carried at cost which
does not exceed realizable value.
Property, Plant and Equipment
Property, plant and equipment consist primarily of pipeline and related
transportation facilities and equipment. For financial reporting purposes,
depreciation is calculated primarily using the straight-line method over the
estimated useful life of 50 years. Additions and betterments are capitalized
and maintenance and repairs are charged to income as incurred. Generally, upon
normal retirement or replacement, the cost of property (less salvage) is
charged to the depreciation reserve, which has no effect on income.
Net Assets of Discontinued Operations
Net assets of discontinued operations represented certain assets less
liabilities of operations which were divested by the Partnership and consisted
primarily of property, plant and equipment.
Income Taxes
For federal and state income tax purposes, the Partnership and Operating
Partnerships are not taxable entities. Accordingly, the taxable income or loss
of the Partnership and Operating Partnerships, which may vary substantially
from income or loss reported for financial reporting purposes, is generally
includable in the federal and state income tax returns of the individual
partners. In October 1992 (see Note 1), Laurel Corp and its parent LE Holdings,
Inc. ("LEH") were merged into Laurel. Laurel Corp and its parent, LEH, as
corporations, had been separate taxpaying entities whose taxable income was
included in a consolidated federal income tax return. As a result of the
reorganization, the then existing deferred income taxes of $3,697,000 were
charged directly to the Partnership's capital accounts. The provision for
federal income taxes on operations of Laurel Corp and LEH prior to the
reorganization approximates the statutory tax rate applied to the pretax
accounting income.
Environmental Expenditures
Environmental expenditures that relate to current or future revenues are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past
28
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
operations, and do not contribute to current or future revenue generation, are
expensed. Liabilities are recorded when environmental assessments and/or clean-
ups are probable, and the costs can be reasonably estimated. Generally, the
timing of these accruals coincides with the Partnership's commitment to a
formal plan of action.
Pensions
The Manager maintains a defined contribution plan and a defined benefit plan
(see Note 9) which provide retirement benefits to substantially all of its
regular full-time employees. Certain hourly employees of the Manager are
covered by a defined contribution plan under a union agreement.
Postretirement Benefits Other Than Pensions
The Manager provides postretirement health care and life insurance benefits
for certain of its retirees. In 1992, the Manager adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106") (see Note 10) to
account for the cost of these plans. Certain other retired employees are
covered by a health and welfare plan under a union agreement.
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. The General Partner is unable to
predict the timing or outcome of these claims and proceedings. Although it is
possible that one or more of these claims or proceedings, if adversely
determined, could, depending on the relative amounts involved, have a material
effect on the Partnership's results of operations for a future period, the
General Partner does not believe that their outcome will have a material effect
on the Partnership's consolidated financial condition.
Environmental
In accordance with its accounting policy on environmental expenditures, the
Partnership recorded expenses of $3.0 million, $3.1 million and $4.2 million
for 1993, 1992 and 1991, respectively, which were related to the environment.
Expenditures, both capital and operating, relating to environmental matters are
expected to increase due to the Partnership's commitment to maintain high
environmental standards and to increasingly strict environmental laws and
government enforcement policies.
In addition, certain Operating Partnerships (or their predecessors) have been
named as a defendant in lawsuits or have been notified by federal or state
authorities that they are a potentially responsible party ("PRP") under federal
laws or a respondent under state laws relating to the generation, disposal, or
release of hazardous substances into the environment. These proceedings
generally relate to potential liability for clean-up costs. The total potential
remediation costs relating to these clean-up sites cannot be reasonably
estimated. With respect to each site, however, the Operating Partnership
involved is one of several or as many as several hundred PRPs that would share
in the total costs of clean-up under the principle of joint and several
liability. The General Partner believes that the generation, handling and
disposal of hazardous substances by the Operating Partnerships and their
predecessors have been in material compliance with applicable environmental and
regulatory requirements. Additional claims for the cost of cleaning up releases
of hazardous substances and for damage to the environment resulting from the
activities of the
29
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Operating Partnerships or their predecessors may be asserted in the future
under various federal and state laws. Although the Partnership has made a
provision for certain legal expenses relating to these matters, the General
Partner is unable to determine the timing or outcome of any pending proceedings
or of any future claims and proceedings.
Guaranteed Investment Contract
The Buckeye Pipe Line Company Retirement and Savings Plan (the "Plan") holds
a guaranteed investment contract ("GIC") issued by Executive Life Insurance
Company ("Executive Life"), which entered conservatorship proceedings in the
State of California in April 1991. The GIC was purchased in July 1989, with an
initial principal investment of $7.4 million earning interest at an effective
rate per annum of 8.98 percent through June 30, 1992. As a result of the
conservatorship proceedings, no payment of principal or interest was made on
the maturity date. A Plan of Rehabilitation was approved by the Superior Court
of the State of California, and the Rehabilitation Plan was consummated on
September 3, 1993. Various policy holders and creditors have, however, appealed
certain aspects of the Plan of Rehabilitation, including the priority status of
entities such as the Plan which purchased GICs subsequent to January 1, 1989.
Pursuant to the Plan of Rehabilitation, the Plan will receive an interest only
contract from Aurora National Life Assurance Company in substitution for its
Executive Life GIC. The contract provides for semi-annual interest payments
through the date of maturity of the contract which will be September 1998. In
addition, the Plan is to receive certain additional cash payments, the amounts
of which cannot be accurately estimated at this time, over the next five years
pursuant to the Plan of Rehabilitation. The timing and amount of payment with
respect to the GIC is dependent upon the outcome of the pending appeals as well
as clarification of various provisions of the Rehabilitation Plan. In May 1991,
the General Partner, in order to safeguard the basic retirement and savings
benefits of its employees, announced its intention to enter an arrangement with
the Plan that would guarantee that the Plan would receive at least its initial
principal investment of $7.4 million plus interest at an effective rate per
annum of 5 percent from July 1, 1989. The General Partner intends to effectuate
its commitment through an agreement with the Plan that would provide, under
certain circumstances and subject to Department of Labor approval, for its
purchase of the Plan's rights with respect to the GIC. The costs and expenses
of the General Partner's employee benefit plans are reimbursable by the
Partnership under the applicable limited partnership and management agreements.
The General Partner believes that an adequate provision has been made for costs
which may be incurred by the Partnership in connection with the above mentioned
guarantee.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
DECEMBER 31,
-----------------
1993 1992
-------- --------
(IN THOUSANDS)
Land...................................................... $ 9,978 $ 10,018
Buildings and leasehold improvements...................... 23,667 23,279
Machinery, equipment and office furnishings............... 511,590 500,389
Construction in progress.................................. 2,735 3,185
-------- --------
547,970 536,871
Less accumulated depreciation........................... 48,895 41,330
-------- --------
Total................................................... $499,075 $495,541
======== ========
30
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. DISCONTINUED OPERATIONS
In the fourth quarter of 1990, the Partnership recorded a non-cash charge to
earnings of $19.1 million, net of estimated earnings during phase-out, relating
to the Partnership's decision to discontinue its 16-inch crude oil pipeline and
a refined products terminal. The Partnership closed the sale of the 16-inch
crude oil pipeline, together with associated real and personal property to Sun
Pipe Line Company on February 1, 1993. Proceeds from the sale amounted to $9.2
million. Remaining discontinued operations consisting of petroleum facilities
at the refined products terminal were dismantled and removed during the first
quarter 1993. Disposal of these discontinued operations resulted in a loss of
$127,000.
6. ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other current liabilities consist of the following:
DECEMBER 31,
---------------
1993 1992
------- -------
(IN THOUSANDS)
Taxes -- other than income.................................. $ 7,011 $ 6,793
Accrued charges due Manager................................. 6,037 2,987
Environmental liabilities................................... 2,069 1,719
Interest.................................................... 958 1,256
Other....................................................... 3,393 3,000
------- -------
Total..................................................... $19,468 $15,755
======= =======
7. LONG-TERM DEBT AND CREDIT FACILITIES
Long-term debt (excluding current maturities) consists of the following:
DECEMBER 31,
-----------------
1993 1992
-------- --------
(IN THOUSANDS)
First Mortgage Notes
9.33% Series G due December 15, 1994................... $ -- $ 16,000
9.50% Series H due December 15, 1995 (see Note 11)..... -- 20,000
9.72% Series I due December 15, 1996................... 20,000 20,000
11.18% Series J due December 15, 2006 (Subject to $16.9
million annual sinking fund requirement commencing
December 15, 1997) 169,000 169,000
7.11% Series K due December 15, 2007................... 11,000 --
7.15% Series L due December 15, 2008................... 11,000 --
7.19% Series M due December 15, 2009................... 13,000 --
-------- --------
Total................................................ $224,000 $225,000
======== ========
Maturities of debt outstanding at December 31, 1993 are as follows:
$16,000,000 in 1994 (included in current liabilities); none in 1995;
$20,000,000 in 1996; $16,900,000 in 1997; $16,900,000 in 1998 and a total of
$170,200,000 in the period 1999 through 2009.
The fair value of the Partnership's debt is estimated to be $285 million and
$272 million as of December 31, 1993 and 1992, respectively. These values were
calculated using interest rates currently available to the Partnership for
issuance of debt with similar terms and remaining maturities.
31
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The First Mortgage Notes are collateralized by a mortgage on and a security
interest in substantially all of the currently existing and after-acquired
property, plant and equipment (the "Mortgaged Property") of Buckeye.
The indenture pursuant to which the First Mortgage Notes were issued (the
"Mortgage Note Indenture"), as amended by First, Second and Third Supplemental
Indentures, contains covenants which generally (a) limit the outstanding
indebtedness of Buckeye under the Mortgage Note Indenture to the amount of
First Mortgage Notes currently outstanding plus up to $15 million of short-term
borrowings for working capital purposes and additional debt under the Mortgage
Note Indenture incurred in connection with capitalized additions, repairs and
improvements to the Mortgaged Property, (b) prohibit Buckeye from creating or
incurring additional liens on its property, (c) prohibit Buckeye from disposing
of substantially all of its property or business to another party and (d)
prohibit Buckeye from disposing of any part of the Mortgaged Property unless
the proceeds in excess of $1 million in a fiscal year are available for
reinvestment in assets subject to the lien of the Mortgage Note Indenture.
On December 31, 1993, Buckeye entered into an agreement to issue $35 million
of additional First Mortgage Notes in accordance with provisions under a Third
Supplemental Indenture and as permitted under the Mortgage Note Indenture.
These additional First Mortgage Notes, which were issued on January 7, 1994,
mature from 2007 to 2009 and bear interest at rates from 7.11 percent to 7.19
percent. A portion of the proceeds of these notes was used to complete an in-
substance defeasance of principal and interest with respect to Buckeye's $20
million, 9.50 percent First Mortgage Notes (Series H) due December 1995 (see
Note 11). Remaining proceeds of the additional notes are available for working
capital purposes. In addition, Buckeye entered into an agreement with the
purchaser of the $35 million of additional First Mortgage Notes which permits
Buckeye, under certain circumstances, to issue up to $40 million of additional
First Mortgage Notes to such purchaser. Any issuance of the additional First
Mortgage Notes will require the prior approval of the holders of the First
Mortgage Notes to an amendment to the Mortgage Note Indenture. Buckeye is
currently in the process of seeking such approval.
The Amended and Restated Agreement of Limited Partnership of the Partnership
(the "Partnership Agreement") contains certain restrictions which limit the
incurrence of any debt by the Partnership or any Operating Partnership to the
First Mortgage Notes, any additional debt of Buckeye permitted by the Mortgage
Note Indenture and other debt not in excess of an aggregate consolidated
principal amount of $25 million plus the aggregate proceeds from the sale of
additional partnership interests.
The Partnership maintains a $15 million unsecured revolving credit facility
with a commercial bank which is available to the Partnership for general
purposes including capital expenditures and working capital. Interest on any
borrowings under this facility is calculated on the bank's Alternate Base Rate
("ABR") or LIBOR plus one percent. ABR is defined as the highest of the bank's
prime rate, the three month secondary CD rate plus one percent, and the Federal
Funds Rate plus one-half of one percent. At December 31, 1993, there was no
amount outstanding under this facility.
Buckeye has a line of credit from two commercial banks (the "Working Capital
Facility") which permits short-term borrowings of up to $10 million outstanding
at any time. Borrowings under the Working Capital Facility bear interest at
each bank's prime rate and are secured by the accounts receivable of Buckeye.
The Mortgage Note Indenture contains covenants requiring that, for a period of
45 consecutive days during any year, no indebtedness be outstanding under the
Working Capital Facility. In addition, Laurel has an unsecured line of credit
from a commercial bank which permits short-term borrowings of up to $1 million
outstanding at any time. Borrowings bear interest at the bank's prime rate.
Laurel's unsecured line of credit contains covenants requiring that, for a
period
32
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of 30 consecutive days during any year, no indebtedness be outstanding under
this facility. At December 31, 1993, there were no amounts outstanding under
either of these facilities.
8. OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consist of the following:
DECEMBER 31,
---------------
1993 1992
------- -------
(IN THOUSANDS)
Accrued employee benefit liabilities........................ $33,094 $32,386
Accrued charges due Manager................................. -- 4,719
Other....................................................... 11,963 6,899
------- -------
Total..................................................... $45,057 $44,004
======= =======
9. PENSION PLANS
The Manager provides retirement benefits, primarily through noncontributory
pension plans, for substantially all of its regular full-time employees, except
those covered by certain labor contracts, under which the Manager contributes 5
percent of each covered employee's salary, and a retirement income guarantee
plan (a defined benefit plan) which generally guarantees employees hired before
January 1, 1986 a retirement benefit at least equal to the benefit they would
have received under a previously terminated defined benefit plan. The Manager's
policy is to fund amounts as are necessary to at least meet the minimum funding
requirements of ERISA. All of these plans were assumed by the Manager. Net
pension expense (benefit) for 1993, 1992 and 1991 for the defined benefit plans
included the following components:
1993 1992 1991
------ ----- ------
(IN THOUSANDS)
Service cost.......................................... $ 431 $ 346 $ 373
Interest cost on projected benefit obligation......... 784 664 687
Actual return on assets............................... (1,142) (655) (1,087)
Net amortization and deferral......................... 229 (389) 77
------ ----- ------
Net pension expense (benefit)....................... $ 302 $ (34) $ 50
====== ===== ======
The pension expense for the defined contribution plan included in the
consolidated statements of income approximated $1,403,000, $1,342,000 and
$1,310,000 for 1993, 1992 and 1991, respectively.
The following table sets forth the funded status of the Manager's defined
benefit plans and amounts recognized in the Partnership's consolidated balance
sheets at December 31, 1993 and 1992 related to those plans.
DECEMBER 31,
-----------------
1993 1992
-------- -------
(IN THOUSANDS)
Actuarial present value of benefit obligations
Vested benefit obligations.............................. $ (4,977) $(3,859)
======== =======
Accumulated benefit obligations......................... $ (6,235) $(4,621)
======== =======
Projected benefit obligation............................ $(12,621) $(9,806)
Plan assets at fair value................................. 8,467 7,917
-------- -------
Projected benefit obligation in excess of plan assets..... (4,154) (1,889)
Unrecognized net loss (gain).............................. 78 (1,725)
Unrecognized net asset.................................... (1,582) (1,742)
-------- -------
Pension liability recognized in the balance sheet......... $ (5,658) $(5,356)
======== =======
33
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1993, approximately 29.1 percent of plan assets were
invested in debt securities, 58.9 percent in equity securities and 12.0 percent
in cash equivalents.
The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.25 percent and 5.5 percent, respectively.
The expected long-term rate of return on assets was 9.5 percent as of January
1, 1993 and 8.5 percent as of January 1, 1994.
The Manager also participates in a multi-employer retirement income plan
which provides benefits to employees covered by certain labor contracts.
Pension expense for the plan was $156,000, $137,000 and $131,000 for 1993, 1992
and 1991, respectively.
10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1992, the Partnership adopted SFAS 106. This statement
requires that the cost of postretirement benefits other than pensions be
accrued over the employee's years of service. Prior to the adoption of SFAS
106, the cost of these postretirement benefits was expensed on a "pay as you
go" basis.
The Manager provides postretirement health care and life insurance benefits
to certain of its retirees. To be eligible for these benefits an employee had
to be hired prior to January 1, 1991 and has to meet certain service
requirements. The Manager does not prefund this postretirement benefit
obligation. On January 1, 1992, the accumulated postretirement benefit
obligation ("APBO") amounted to $25,544,000. The Manager chose to recognize
immediately the APBO as expense in 1992 for financial reporting purposes.
Postretirement benefit costs for 1993 and 1992 included the following
components:
1993 1992
------- -------
(IN THOUSANDS)
Service cost............................................... $ 442 $ 548
Interest cost on accumulated postretirement benefit
obligation................................................ 1,673 2,003
Net amortization and deferral.............................. (580) --
------- -------
Net postretirement expense................................. $ 1,535 $ 2,551
======= =======
The following table sets forth the amounts related to postretirement benefit
obligations recognized in the Partnership's consolidated balance sheets as of
December 31, 1993 and 1992:
DECEMBER 31,
------------------
1993 1992
-------- --------
(IN THOUSANDS)
Actuarial present value of accumulated postretirement
benefits
Retirees and dependents............................. $(12,373) $(10,147)
Employees eligible to retire........................ (3,998) (3,348)
Employees ineligible to retire...................... (7,589) (5,892)
-------- --------
Accumulated postretirement benefit obligation....... (23,960) (19,387)
Unamortized gain due to plan amendment................ (5,796) (7,694)
Unrecognized net loss................................. 2,320 51
-------- --------
Postretirement liability recognized in the balance
sheet................................................ $(27,436) $(27,030)
======== ========
34
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The weighted average discount rate used in determining the APBO was 7.25
percent. The assumed rate for plan cost increases in 1993 was 13.1 percent and
10.7 percent for non-Medicare eligible and Medicare eligible retirees,
respectively. The assumed annual rates of cost increase decline each year
through 2005 to a rate of 5.0 percent, and remain at 5.0 percent thereafter for
both non-Medicare eligible and Medicare eligible retirees. The effect of a 1
percent increase in the health care cost trend rate for each future year would
have increased the aggregate of service and interest cost components by
$402,000 in 1993 and the APBO would have increased by $3,953,000 as of December
31, 1993.
The Manager also contributes to a multi-employer postretirement benefit plan
which provides health care and life insurance benefits to employees covered by
certain labor contracts. The cost of providing these benefits was approximately
$123,000, $112,000 and $99,000 for 1993, 1992 and 1991, respectively.
11. EARLY EXTINGUISHMENT OF DEBT
On December 31, 1993, Buckeye entered into an agreement to issue $35 million
of additional First Mortgage Notes (Series K, L and M) bearing interest rates
from 7.11 percent to 7.19 percent (see Note 7). A portion of the proceeds from
the issuance of these First Mortgage Notes were used to purchase approximately
$22.2 million of U.S. Government securities. These securities were deposited
into an irrevocable trust to complete an in-substance defeasance of Buckeye's
9.50 percent, Series H, First Mortgage Notes. The funds in the trust will be
used solely to satisfy the interest due and principle amount of $20,000,000 due
at maturity in December 1995. Accordingly, such U.S. Government securities and
the 9.50 percent, Series H, First Mortgage Notes have been excluded from the
1993 balance sheet. The debt extinguishment resulted in an extraordinary charge
of $2,161,000.
12. LEASES
The Operating Partnerships lease certain land and rights-of-way. Minimum
future lease payments for these leases as of December 31, 1993 are
approximately $2.7 million for each of the next five years. Substantially all
of these lease payments, however, can be cancelled at any time should they not
be required for operations.
The Manager leases space in an office building and certain copying equipment
and Buckeye leases certain computing equipment and automobiles. The rent on
such leases is charged to the Operating Partnerships. Future minimum lease
payments under these noncancellable operating leases at December 31, 1993 were
as follows: $832,000 for 1994, $824,000 for 1995, $611,000 for 1996, $317,000
for 1997, $196,000 for 1998, and $209,000 thereafter.
Rent expense for all operating leases was $4,890,000, $4,417,000 and
$4,496,000 for 1993, 1992 and 1991, respectively.
13. RELATED PARTY TRANSACTIONS
The Partnership and the Operating Partnerships are managed and controlled by
the General Partner and the Manager. Under certain partnership agreements and
management agreements, the General Partner, the Manager, and certain related
parties are entitled to reimbursement of all direct and indirect costs related
to the business activities of the Partnership and the Operating Partnerships.
These costs, which totaled $52.7 million, $46.3 million and $46.1 million in
1993, 1992 and 1991, respectively, include insurance fees, consulting fees,
general and administrative costs, compensation and benefits payable to officers
and employees of the General Partner and Manager, tax information and reporting
costs, legal and audit fees and an allocable portion of overhead expenses.
35
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1986, Buckeye's predecessor (then owned by Penn Central) obtained an
administrative consent order ("ACO") from the New Jersey Department of
Environmental Protection and Energy under the New Jersey Environmental Cleanup
Responsibility Act of 1983 for all six of its facilities in New Jersey. The ACO
required that a sampling plan for environmental contamination be conducted at
the New Jersey facilities and that any required clean-up plan be implemented.
Penn Central has agreed to fund the cost of the sampling plan and any costs of
compliance. Through December 1993, Buckeye's costs of $2,286,000 have been
funded by Penn Central.
14. PARTNERS' CAPITAL
Changes in partners' capital for the years ended December 31, 1991, 1992, and
1993 were as follows:
GENERAL LIMITED
PARTNER PARTNERS TOTAL
---------------------- -----------
(IN THOUSANDS, EXCEPT FOR UNITS)
Partners' capital at December 31, 1990..... $2,531 $250,573 $253,104
Net income............................... 305 30,160 30,465
Distributions............................ (315) (31,200) (31,515)
-------- ----------- -----------
Partners' capital at December 31, 1991..... 2,521 249,533 252,054
Net income............................... 90 8,912 9,002
Distributions............................ (315) (31,200) (31,515)
Reversal of corporate deferred income
taxes................................... (37) (3,660) (3,697)
-------- ----------- -----------
Partners' capital at December 31, 1992..... 2,259 223,585 225,844
Net income............................... 394 38,972 39,366
Distributions............................ (315) (31,200) (31,515)
-------- ----------- -----------
Partners' capital at December 31, 1993..... $2,338 $231,357 $233,695
======== =========== ===========
Units outstanding at December 31, 1993,
1992, and 1991............................ 121,212 12,000,000 12,121,212
======== =========== ===========
The net income per unit for 1993, 1992 and 1991 was calculated using
12,121,212 outstanding units which include 121,212 of outstanding GP Units.
The Partnership Agreement provides that without prior approval of limited
partners of the Partnership holding an aggregate of at least two-thirds of the
outstanding LP Units, the Partnership cannot issue more than 4,800,000
additional LP Units, or issue any additional LP Units of a class or series
having preferences or other special or senior rights over the LP Units.
15. CASH DISTRIBUTIONS
The Mortgage Note Indenture covenants permit cash distributions by Buckeye to
the Partnership so long as no default exists under the Mortgage Note Indenture
and provided that such distributions do not exceed Net Cash Available to
Partners (generally defined to equal net income plus depreciation and
amortization less (a) capital expenditures, (b) payments of principal of debt
and (c) certain other amounts, all on a cumulative basis since the formation of
the Partnership). The maximum amount available for distribution by Buckeye to
the Partnership under the formula as of December 31, 1993 amounted to $18.5
million. The Partnership is also entitled to receive cash distributions from
Everglades, BTT and Laurel.
36
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Partnership makes quarterly cash distributions to Unitholders of
substantially all of its available cash, generally defined as consolidated cash
receipts less consolidated cash expenditures and such retentions for working
capital, anticipated cash expenditures and contingencies as the General Partner
deems appropriate or as are required by the terms of the Mortgage Note
Indenture. In each of 1993, 1992 and 1991, quarterly distributions of $0.65 per
GP and LP Unit paid in February, May, August and November aggregated
$31,515,000. All such distributions were paid on 12,121,212 GP and LP Units
outstanding.
On January 28, 1994, the General Partner announced a quarterly distribution
of $0.70 per GP and LP Unit payable on February 28, 1994.
16. UNIT OPTION AND DISTRIBUTION EQUIVALENT PLAN
The Partnership has a Unit Option and Distribution Equivalent Plan (the
"Option Plan"), which was approved by the Board of Directors of the General
Partner on April 25, 1991 and by holders of the LP Units on October 22, 1991.
The Option Plan authorizes the granting of options (the "Options") to acquire
LP Units to selected key employees (the "Optionees") of the General Partner or
any subsidiary, not to exceed 360,000 LP Units in the aggregate. The price at
which each LP Unit may be purchased pursuant to an Option granted under the
Option Plan is generally equal to the market value on the date of the grant.
Options may be granted with a feature that allows Optionees to apply accrued
credit balances (the "Distribution Equivalents") as an adjustment to the
aggregate purchase price of such Options. The Distribution Equivalents shall be
an amount equal to (i) the Partnership's per LP Unit regular quarterly
distribution, multiplied by (ii) the number of LP Units subject to such Options
that have not vested. Vesting in the Options is determined by the number of
anniversaries the Optionee has remained in the employ of the General Partner or
a subsidiary following the date of the grant of the Option. Options become
vested in varying amounts beginning generally three years after the date of
grant and remain exercisable for a period of five years. At December 31, 1993,
there were 65,650 Options outstanding. Options granted during 1993, 1992 and
1991 aggregated 23,500 units, 22,250 units and 20,100 units, respectively with
a purchase price of $32.75, $27.688 and $25.875, respectively. All such Options
were granted with Distribution Equivalents. As of December 31, 1993, none of
these Options were exercisable and none of these Options had been exercised.
17. QUARTERLY FINANCIAL DATA (NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
Summarized quarterly financial data for 1993 and 1992 are set forth below.
Quarterly results were influenced by seasonal factors inherent in the
Partnership's business. Quarterly financial data for 1992 was previously
restated to reflect adoption of SFAS 106 effective as of January 1, 1992.
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
---------------- --------------- --------------- --------------- -----------------
1993 1992 1993 1992 1993 1992 1993 1992 1993 1992
------- -------- ------- ------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
Revenue................. $41,429 $ 37,183 $42,152 $40,153 $44,394 $41,646 $47,520 $44,082 $175,495 $163,064
Operating income........ 15,734 12,822 15,773 14,669 17,627 16,362 17,717 19,383 66,851 63,236
Income from continuing
operations*............ 9,338 5,754 9,765 7,582 11,190 8,834 11,361 12,376 41,654 34,546
Net income (loss)....... 9,211 (19,790) 9,765 7,582 11,190 8,834 9,200 12,376 39,366 9,002
Income per Unit from
continuing operations*. 0.77 0.47 0.81 0.63 0.92 0.73 0.94 1.02 3.44 2.85
Net income (loss) per
Unit................... 0.76 (1.63) 0.81 0.63 0.92 0.73 0.76 1.02 3.25 0.74
- --------
* Before extraordinary charge and cumulative effect of change in accounting
principle.
37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership does not have directors or officers. The directors and
officers of the General Partner and the Manager perform all management
functions. Directors and officers of the General Partner and the Manager are
selected by Penn Central.
DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER
Set forth below is certain information concerning the directors and executive
officers of the General Partner. All of such persons were elected to their
present positions with the General Partner in October 1986, except as noted
below.
NAME, AGE AND PRESENT
POSITION WITH GENERAL BUSINESS EXPERIENCE DURING
PARTNER PAST FIVE YEARS
--------------------- ---------------------------
Alfred W. Martinelli, 66 Mr. Martinelli has been Chairman of the Board and
Chairman of the Board, Chief Executive Officer of the General Partner for
Chief Executive Officer more than five years. He served as President of the
and Director* General Partner from February 1991 to February 1992.
Mr. Martinelli has been Chairman and Chief Executive
Officer of Penn Central Energy Management Company
("PCEM") for more than five years. He is also Vice
Chairman and a director of Penn Central and a direc-
tor of American Annuity Group, Inc.
Neil M. Hahl, 45 Mr. Hahl was elected President of the General Part-
President and ner in February 1992. He has been a director of the
Director General Partner since February 1989. Mr. Hahl was
elected a director of Penn Central in December 1992
and has been Senior Vice President of Penn Central
for more than five years.
Ernest R. Varalli, 63 Mr. Varalli was elected to his present position in
Executive Vice President, July 1987. He is also Executive Vice President,
Chief Financial Officer, Chief Financial Officer and Treasurer of PCEM. Mr.
Treasurer and Director* Varalli has been a consultant to Penn Central for
more than five years.
Brian F. Billings, 55 Mr. Billings served as President of the General
Director* Partner from October 1986 to December 1990. He was
elected Chairman of the Manager in February 1991.
Mr. Billings was President of the Manager from July
1987 to December 1990. Mr. Billings has been Presi-
dent of PCEM for more than five years.
A. Leon Fergenson, 81 Mr. Fergenson has been a director of the General
Director Partner since December 1986. He is also a director
of American Annuity Group, Inc., Sequa Corporation,
National Benefit Life Insurance Company and various
mutual funds sponsored by Neuberger & Berman.
38
NAME, AGE AND PRESENT
POSITION WITH GENERAL BUSINESS EXPERIENCE DURING
PARTNER PAST FIVE YEARS
- --------------------- ---------------------------
Edward F. Kosnik, 49 Mr. Kosnik has been Chairman of the Board, President
Director and Chief Executive Officer of JWP, Inc. since May
1993. He was Executive Vice President and Chief Fi-
nancial Officer of JWP, Inc. from December 1992 to
April 1993. Mr. Kosnik was President of Sprague
Technologies, Inc. from May 1992 to June 1992 and
President and Chief Executive Officer of Sprague
Technologies, Inc. from July 1987 to May 1992.
William C. Pierce, 53 Mr. Pierce has been a director of the General Part-
Director ner since February 1987. He has been Executive Vice
President and Group Executive of Chemical Bank and
Chemical Banking Corporation since November 1992.
Mr. Pierce was Executive Vice President and Chief
Risk Policy Officer of Chemical Bank and Chemical
Banking Corporation from December 1991 to November
1992. He was Chief Credit Officer of Chemical Bank
and Chemical Banking Corporation from January 1988
to December 1991.
Robert H. Young, 72 Mr. Young has been a director of the General Partner
Director since July 1987. He was Secretary of the General
Partner from July 1987 through October 1991. Since
October 1991, Mr. Young has been Counsel to the law
firm of Morgan, Lewis & Bockius. Prior to October
1991, he was a Senior Partner with that firm for
more than five years. Mr. Young is also Chairman of
the Board of Directors of Independence Blue Cross.
- --------
* Also a director of the Manager.
The General Partner has an Audit Committee, which currently consists of three
directors: A. Leon Fergenson, William C. Pierce and Robert H. Young. Messrs.
Fergenson, Pierce and Young are neither officers nor employees of the General
Partner or any of its affiliates.
The General Partner also has a Compensation Committee, which currently
consists of four directors: Alfred W. Martinelli, Brian F. Billings, Ernest R.
Varalli and Robert H. Young. The Compensation Committee is concerned primarily
with establishing executive compensation policies for officers of the Manager
and administering of the Partnership's Option Plan. See "Executive
Compensation--Compensation Committee Interlocks and Insider Participation in
Compensation Decisions."
39
DIRECTORS AND EXECUTIVE OFFICERS OF THE MANAGER
Set forth below is certain information concerning the directors and executive
officers of the Manager. Mr. Billings was elected Chairman of the Manager in
February 1991, Messrs. Billings and Martinelli were elected as directors of the
Manager in March 1987, and Mr. Varalli was elected as a director in July 1987.
NAME, AGE AND PRESENT BUSINESS EXPERIENCE DURING
POSITION WITH THE MANAGER PAST FIVE YEARS
- ------------------------- --------------------------
C. Richard Wilson, 49 Mr. Wilson was named President and Chief Operating
President, Chief Operat- Officer in February 1991. He was Executive Vice
ing Officer President and Chief Operating Officer from July 1987
and Director to February 1991. Mr. Wilson has been a director of
the Manager since October 1986.
Michael P. Epperly, 50 Mr. Epperly was named Senior Vice President--Opera-
Senior Vice President-- tions in March 1990. He was Vice President--Opera-
Operations tions from October 1986 to February 1990.
Stephen C. Muther, 44 Mr. Muther joined the Manager as General Counsel,
General Counsel, Vice Vice President--Administration and Secretary in May
President-- 1990. From July 1985 to April 1990 Mr. Muther was
Administration and Sec- Associate Litigation and Antitrust Counsel for Gen-
retary* eral Electric Company.
Steven C. Ramsey, 39 Mr. Ramsey was named Vice President and Treasurer in
Vice President and Trea- February 1991. He was elected Treasurer in June
surer 1989. Prior to June 1989, Mr. Ramsey served in vari-
ous positions in the marketing and engineering de-
partments of the Manager.
- --------
* Also Secretary of the General Partner since February 1992.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the total compensation earned by the Chief
Executive Officer of the General Partner and the four most highly compensated
executive officers of the General Partner and the Manager for services rendered
to the Partnership, the General Partner or the Manager for the fiscal year
ended December 31, 1993, as well as the total compensation earned by such
individuals for the two previous fiscal years. Alfred W. Martinelli, Chairman
of the Board, Chief Executive Officer and Director of the General Partner, did
not receive any cash compensation for serving as an officer of the General
Partner in 1993, but received fees for serving as a Director of the General
Partner. See "Director Compensation" below. Executive officers of the Manager,
including Messrs. Wilson, Epperly, Muther and Ramsey, are compensated by the
Manager and, pursuant to management agreements with each of the Operating
Partnerships, such compensation is reimbursed by the Operating Partnerships in
accordance with an allocation formula based upon the results of the prior
year's operations.
40
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------- ---------- ----------
OTHER SECURITIES
ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND BONUS(1) COMPEN- OPTIONS(2) PAYOUTS(3) COMPEN-
PRINCIPAL POSITION YEAR SALARY ($) ($) SATION($) (#) ($) SATION ($)
------------------ ---- ---------- -------- --------- ---------- ---------- ----------
Alfred W. Martinelli... 1993 0 0 5,539(5) 0 0 22,500(7)
Chairman of the Board 1992 218,750(4) 0 (6) 0 0 9,500(7)
and Chief Executive 1991 375,000(4) 0 (6) 0 0
Officer of the General
Partner
C. Richard Wilson...... 1993 206,667 105,000 (6) 7,500 37,050 20,977(8)
President and Chief 1992 188,333 73,101 (6) 7,500 40,400 31,469(8)
Operating Officer of 1991 172,500 52,802 (6) 5,850 39,556
the Manager
Michael P. Epperly..... 1993 143,333 60,000 (6) 3,750 30,729 19,901(8)
Senior Vice 1992 135,833 37,595 (6) 3,750 29,556 17,929(8)
President--Operations 1991 126,250 27,155 (6) 3,750 28,278
of the Manager
Stephen C. Muther...... 1993 144,167 45,000 (6) 3,000 20,000 17,550(8)
General Counsel, Vice 1992 126,667 31,329 (6) 3,000 20,000 14,930(8)
President-- 1991 119,167 22,629 (6) 3,000 15,000
Administration and
Secretary of the
Manager
Steven C. Ramsey....... 1993 126,667 45,000 (6) 2,500 20,377 15,800(8)
Vice President and 1992 108,667 31,329 (6) 2,500 15,750 13,130(8)
Treasurer of the 1991 94,000 22,629 (6) 2,500 5,875
Manager
- --------
(1) Represents amounts awarded by the Compensation Committee as cash bonuses
earned under the Manager's Annual Incentive Compensation Plan ("AIC Plan").
Under the AIC Plan, individual awards are granted to participants based
upon satisfaction of such participant's target award opportunities and such
awards are paid to participants as soon as practicable after they are
granted.
(2) Represents options granted under the Partnership's Unit Option and
Distribution Equivalent Plan (the "Option Plan"). See "Long Term
Compensation--Option Plan" below. Certain officers of the Manager are also
eligible to participate in the Penn Central Stock Option Plan (the "Penn
Central Option Plan"). No cost or expense relating to the Penn Central
Option Plan is borne by the Partnership. No options were awarded in 1992 or
1993 under the Penn Central Option Plan to the Chief Executive Officer of
the General Partner or the four most highly compensated executive officers
of the General Partner and Manager. After taking into account the spinoff
of General Cable Corporation ("General Cable") to Penn Central's
stockholders in June 1992, Mr. Muther received, in 1991, options to
purchase 2,727 shares of Penn Central and 625 shares of General Cable.
(3) Represents payments received during the applicable year under the Manager's
Long Term Incentive Compensation Plans (the "LTIC Plans"). See "Long Term
Compensation--Long Term Incentive Plans" below.
(4) Represents consulting fees paid by PCEM and reimbursed by the Partnership
prior to the termination of Mr. Martinelli's consulting arrangement in July
1992.
(5) Represents lease payments made by the Partnership for an automobile used by
Mr. Martinelli.
(6) During the year indicated, no perquisites or non-cash compensation exceeded
the lesser of $50,000 or an amount equal to 10 percent of such person's
salary and bonus.
41
(7) Represents director fees which commenced in July 1992. See "Director
Compensation" below.
(8) Represents the amount contributed by the Manager to the Manager's defined
contribution retirement plan (the "New Retirement Plan") and Manager's
matching contributions under Manager's Savings Plan and, for Mr. Wilson and
Mr. Epperly an additional $733 and $379, respectively, under the Manager's
Benefit Equalization Plan for 1993. For 1992, Mr. Wilson received an
additional $10,748 under the Manager's Benefit Equalization Plan. In
addition to participation in the New Retirement Plan, Messrs. Wilson,
Epperly and Ramsey are guaranteed certain defined benefits upon retirement
under the Manager's retirement income guarantee plan. See "Retirement and
Savings Plans" below.
LONG TERM COMPENSATION
Option Plan
The following table sets forth additional information regarding options
granted under the Option Plan to the Chief Executive Officer of the General
Partner and the four most highly compensated executive officers of the General
Partner and Manager during 1993.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF LP UNIT
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
------------------------------------------ --------------------------
PERCENT OF
TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES OR BASE
GRANTED (1) IN FISCAL PRICE EXPIRATION
NAME (#) YEAR ($/UNIT) DATE 5% ($) (2) 10% ($) (2)
---- ----------- ---------- -------- ---------- ----------- ------------
Alfred W. Martinelli.... 0 -- -- -- -- --
C. Richard Wilson....... 7,500 31.9% 32.750 2/3/2003 154,500 391,500
Michael P. Epperly...... 3,750 16.0% 32.750 2/3/2003 77,200 195,700
Stephen C. Muther....... 3,000 12.8% 32.750 2/3/2003 61,800 156,600
Steven C. Ramsey........ 2,500 10.6% 32.750 2/3/2003 51,500 130,500
- --------
(1) Represents LP Unit options granted under the Option Plan. Options shown in
the table were granted with a feature that allows optionees to apply
accrued credit balances (the "Distribution Equivalents") as a reduction to
the aggregate purchase price of such options. The Distribution Equivalents
are equal to (i) the Partnership's per LP Unit regular quarterly
distribution as declared from time to time by the Board of Directors of the
General Partner, multiplied by (ii) the number of LP Units subject to
options that have not vested. Vesting in the options is determined by the
number of anniversaries the optionee has remained in the employ of the
General Partner or a subsidiary following the date of the grant of the
option. Vesting shall be at the rate of 0 percent if the number of
anniversaries are less than three, 60 percent if the number of
anniversaries are three but less than four, 80 percent if the number of
anniversaries are four but less than five and 100 percent if the number of
anniversaries are five or more. In addition, the optionee may become fully
vested upon death, retirement, disability or a determination by the Board
of Directors of the General Partner or the Compensation Committee that
acceleration of the vesting in the option would be desirable for the
Partnership. Up to 95 percent of the LP Unit purchase price and up to 100
percent of any taxes required to be withheld in connection with the
purchase of the LP Units pursuant to such options may be financed through a
loan program established by the General Partner.
42
(2) The dollar amounts under these columns are the values of options (not
including accrual of any Distribution Equivalents) at the 5 percent and 10
percent rates set by the Securities and Exchange Commission and therefore
are not intended to forecast possible future appreciation, if any, of the
price of LP Units. No alternative formula for a grant date valuation was
used, as the General Partner is not aware of any formula which will
determine with reasonable accuracy a present value based on future unknown
or volatile factors.
The following table sets forth information regarding options exercised in
1993 and values of unexercised options as of December 31, 1993 for the Chief
Executive Officer of the General Partner and the four most highly compensated
executive officers of the General Partner and the Manager.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1993 (#) DECEMBER 31,1993 ($)(1)
--------------------- -----------------------
LP UNITS ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ----------------- ------------------ --------------------- -----------------------
Alfred W. Martinelli.... 0 -- 0/0 --
C. Richard Wilson....... 0 -- 0/20,850 0/216,300
Michael P. Epperly...... 0 -- 0/11,250 0/119,300
Stephen C. Muther....... 0 -- 0/9,000 0/95,400
Steven C. Ramsey........ 0 -- 0/7,500 0/79,500
- --------
(1) The values of the unexercised options do not include any accrual for
Distribution Equivalents.
In 1993, Messrs. Wilson, Epperly and Muther exercised options to purchase
11,294 shares, 1,636 shares and 1,090 shares of Penn Central, respectively,
acquired pursuant to the Penn Central Option Plan with a net value realized of
$63,559, $22,141 and $8,916, respectively. No cost or expense relating to the
exercise of these options was incurred by the Partnership.
Long-Term Incentive Plans
Prior to 1991 when the Option Plan went into effect, the Manager created an
LTIC Plan each year which permitted the Board of Directors of the General
Partner or the Compensation Committee to grant cash awards to certain
significant employees of the Manager for performance during three-year periods.
Although cash award payments continue under these LTIC Plans through 1994, no
new LTIC plans were established for the period 1991 through 1993, 1992 through
1994 or 1993 through 1995. In addition to the LTIC Plans, the Manager created a
transition plan which grants to each participant an additional cash award in an
amount equal to the difference between the target amount under the 1990-1992
LTIC Plan and the sum of (i) amounts received pursuant to LTIC Plans and (ii)
the value of Distribution Equivalents vested under the Option Plan for each
year from 1992 through 1995.
Awards under LTIC Plans are based on achievement of certain long-term
financial performance goals for the Partnership and may not exceed 150 percent
of the target award opportunity established by the Board of Directors of the
General Partner or the Compensation Committee at the beginning of such period
(or as soon as practicable thereafter) for such period. A participant's target
43
award opportunity under the LTIC Plans may not exceed 25 percent of such
participant's aggregate base salary earned during the three-year period. If the
Partnership meets or exceeds the interim financial performance goals under the
LTIC Plans, cash payments up to the full amount of the target award are made in
the following installments: 10 percent in the second year of the award period,
30 percent in the third year of the award period and 60 percent in the first
year following the award period. Any cash award in excess of the target award
is paid in the second year following the award period with 10 percent simple
interest.
RETIREMENT AND SAVINGS PLANS
Effective December 31, 1985, Pipe Line terminated its defined benefit
retirement plan (the "Retirement Plan") and adopted a new defined contribution
plan (the "New Retirement Program"). Those employees hired prior to January 1,
1986 are covered by a retirement income guarantee plan (the "RIGP"). These
plans were assumed by the Manager.
The Operating Partnerships reimburse the Manager for payments made to
employees pursuant to the New Retirement Program, the RIGP, the Equalization
Plan (described below) and the Savings Plan (described below).
Under the New Retirement Program, the Manager makes contributions equal to 5
percent of an employee's covered compensation, which includes base salary plus
overtime, annual cash bonuses and any periodic salary continuance payments but
does not include extraordinary cash bonuses, deferred awards, other forms of
deferred compensation, lump-sum severance pay, fees or any other kind of
special or extra compensation. Employees may elect to have the Manager's
contributions invested in any of five investment funds.
The RIGP generally provides for an additional retirement benefit equal to the
amount, if any, by which the aggregate of the annuity equivalent of the
employee's accrued benefit under the former Retirement Plan at December 31,
1985 plus the annuity equivalent of the vested portion of employer
contributions under the New Retirement Program for the account of such employee
(plus or minus aggregate investment gains or losses thereon) is less than the
retirement benefit that the employee would have received if the former
Retirement Plan had continued. The vesting formula for the New Retirement
Program and the RIGP provides for 100 percent vesting after 5 years of service.
Service under the former Retirement Plan is carried over to the new plans. The
minimum retirement benefit guaranteed under the RIGP is based on the highest
average compensation during any five consecutive calendar years of employment
within the last ten years of employment preceding retirement ("Highest Average
Compensation"). For purposes of the RIGP, compensation is defined to include
the same components as under the New Retirement Program, except that periodic
salary continuance payments are not included. The former Retirement Plan
benefit, which the RIGP was established to guarantee, provides for a retirement
benefit equal to 1.75 percent per year of service (maximum of 60 percent) of
the Highest Average Compensation, reduced by 1.46 percent for each year of
service (with a maximum offset of 50 percent) of the estimated primary
insurance amount that an employee is entitled to receive upon retirement, other
termination of employment or, if earlier, attainment of age 65 under the Social
Security Act.
The Manager also assumed Pipe Line's Benefit Equalization Plan (the
"Equalization Plan"), which generally makes up the reductions caused by
Internal Revenue Code limitations in the annual retirement benefit determined
pursuant to the RIGP and in the Manager's contributions on behalf of an
employee pursuant to the New Retirement Program and the Savings Plan. Those
amounts not payable under the RIGP (or under affiliated company retirement
plans and employee transfer policies), the New Retirement Program or the
Savings Plan are payable under the Equalization Plan.
44
Estimated annual benefits under the RIGP and the Equalization Plan,
calculated under the single life annuity option form of pension, payable to
participants at the normal retirement age of 65, are illustrated in the
following table.
ESTIMATED ANNUAL RETIREMENT BENEFIT
AVERAGE OF 5 -------------------------------------------
HIGHEST ANNUAL YEARS OF SERVICE
COMPENSATION -------------------------------------------
LEVELS 15 20 25 30 35
-------------- ------- -------- -------- -------- --------
$100,000........................ $23,236 $ 30,981 $ 38,726 $ 46,471 $ 53,117
150,000........................ 36,361 48,481 60,601 72,721 83,121
200,000........................ 49,486 65,981 82,476 98,971 113,124
250,000........................ 62,611 83,481 104,351 125,221 143,128
300,000........................ 75,736 100,981 126,226 151,471 173,132
350,000........................ 88,861 118,481 148,101 177,721 203,136
400,000........................ 101,986 135,981 169,976 203,971 233,140
The amounts shown in the above table have been reduced by the percentage
equal to 1.46 percent for each year of service of the estimated maximum annual
benefits payable under the Social Security Act in respect of each category. The
amounts shown in the table would be further reduced, as described above, by the
accrued benefit under the former Retirement Plan as of December 31, 1985, as
well as by the aggregate amount of vested employer contributions under the New
Retirement Program (plus or minus aggregate investment gains or losses
thereon).
Messrs. Wilson, Epperly and Ramsey have 19, 28 and 12 full credited years of
service with the Manager and its affiliates, respectively, under the New
Retirement Program, the RIGP and the Equalization Plan. Each of them is 100
percent vested under such plans. Mr. Muther has three full years of credited
service with the Manager. He is not covered under the RIGP and is currently
vested under the New Retirement Program.
Officers of the Manager are also eligible to participate on a voluntary basis
in the Manager's Savings Plan (the "Savings Plan"). An employee may elect to
contribute to the Savings Plan annually a specified percentage of his pay,
subject to certain limitations. The Manager will contribute to the Savings
Plan, out of its current or accumulated profits, for the benefit of each
participating employee, an amount equal to his contributions up to a maximum of
5 percent of his pay (6 percent of pay if the employee has completed 20 or more
years of service). Employees may elect to have the Manager's contributions
invested in any of four investment funds. The Manager's contributions vest
immediately for the first 2 percent of the employee's pay and at the rate of 20
percent per year of service (excluding the first year of service) for the
remainder, with 100 percent vesting upon death, disability, retirement or
attainment of age 65. Benefits are payable, at the election of the employee, in
a lump-sum cash distribution after termination of employment or as an annuity
upon retirement or a combination of the two.
DIRECTOR COMPENSATION
The fee schedule for directors of the General Partner other than Messrs.
Martinelli and Hahl is as follows: annual fee, $10,000; attendance fee for each
Board of Directors meeting, $750; and attendance fee for each committee
meeting, $500. Directors' fees paid by the General Partner in 1993 to such
directors amounted to $94,583.
Mr. Martinelli, Chairman of the Board, Chief Executive Officer and Director
of the General Partner is entitled to receive the following fees as Chairman of
the Board of Directors: annual fee $15,000; attendance fee for each Board of
Directors meeting, $1,000; and attendance fee for each committee meeting, $750.
Director's fees paid by the General Partner in 1993 to Mr. Martinelli amounted
to $22,500.
45
Mr. Hahl, President and Director of the General Partner, is an employee of
Penn Central and devotes substantially all of his time to Penn Central rather
than to the General Partner or the Partnership. Consequently, no compensation
or other benefits payable to Mr. Hahl is paid or reimbursed by the Partnership
for Mr. Hahl's services as a director of the General Partner.
Members of the Board of Directors of the Manager were not compensated for
their services as directors, and it is not currently anticipated that any such
compensation will be paid in the future to directors of the Manager who are
full-time employees of the Manager or any of its affiliates.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Compensation Committee consists of Messrs. Martinelli, Varalli, Billings
and Young. Messrs. Martinelli and Varalli are executive officers of the General
Partner and Mr. Billings is a former executive officer of the General Partner.
Mr. Martinelli is on the Penn Central Compensation Committee. The members of
the Board of Directors of the General Partner are chosen by Penn Central, as
beneficial owner of all outstanding capital stock of the General Partner. See
"Certain Relationships and Related Transactions." Mr. Hahl, the President and
Director of the General Partner, also serves as Senior Vice President and
Director of Penn Central, although he does not serve on the Compensation
Committee. Mr. Young, who is also a member of the Compensation Committee, is
counsel to the law firm of Morgan, Lewis and Bockius, which supplies legal
services to the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person or group is known to be the beneficial owner of more than 5 percent
of the LP Units as of February 1, 1994.
On May 25, 1993, Penn Central, the beneficial owner of the General Partner,
sold 2,308,900 LP Units representing all of its interest in LP Units of the
Partnership.
The following table sets forth certain information, as of February 1, 1994,
concerning the beneficial ownership of LP Units by each director of the General
Partner, the Chief Executive Officer of the General Partner, the four most
highly compensated officers of the General Partner and the Manager and by all
directors and executive officers of the General Partner and the Manager as a
group. Such information is based on data furnished by the persons named. Based
on information furnished to the General Partner by such persons, no director or
executive officer of the General Partner or the Manager owned beneficially, as
of February 1, 1994, more than 1 percent of any class of equity securities of
the Partnership or any of its subsidiaries outstanding at that date.
NAME NUMBER OF LP UNITS (1)
---- ----------------------
Brian F. Billings................................... 7,500
Michael P. Epperly.................................. 25(2)
A. Leon Fergenson................................... 200
Neil M. Hahl........................................ 2,500
Edward F. Kosnik.................................... 5,000
Alfred W. Martinelli................................ 4,500
William C. Pierce................................... 800(2)
Steven C. Ramsey.................................... 300(2)
Ernest R. Varalli................................... 6,500
C. Richard Wilson................................... 1,500
Robert H. Young..................................... 2,500
All directors and executive officers as a group
(consisting of 12 persons, including those named
above)............................................. 31,325(2)
46
- --------
(1) Unless otherwise indicated, the persons named above have sole voting and
investment power over the LP Units reported.
(2) The LP Units owned by Messrs Epperly, Pierce and Ramsey have shared voting
and investment power with their respective spouses.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership and the Operating Partnerships are managed and controlled by
the General Partner and the Manager, respectively, pursuant to the Amended and
Restated Agreement of Limited Partnership of the Partnership (the "Partnership
Agreement"), the several Amended and Restated Agreements of Limited Partnership
of the Operating Partnerships (the "Operating Partnership Agreements") and the
several Management Agreements between the Manager and the Operating
Partnerships (the "Management Agreements").
Under the Partnership Agreement and the Operating Partnership Agreements, as
well as the Management Agreements, the General Partner, the Manager and certain
related parties are entitled to reimbursement of all direct and indirect costs
and expenses related to the business activities of the Partnership and the
Operating Partnerships. These costs and expenses include insurance fees,
consulting fees, general and administrative costs, compensation and benefits
payable to officers and other employees of the General Partner and Manager, tax
information and reporting costs, legal and audit fees and an allocable portion
of overhead expenses. Such reimbursed amounts constitute a substantial portion
of the revenues of the General Partner and the Manager. These costs and
expenses reimbursed by the Partnership totaled $52.3 million in 1993.
The Partnership receives management consulting services from PCEM. The cost
of this management consulting service allocated to the Partnership in 1993
totaled $385,900. See "Executive Compensation--Summary Compensation and
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions."
The Partnership and the General Partner have entered into incentive
compensation arrangements which provide for incentive compensation payable to
the General Partner in the event quarterly or special distributions to
Unitholders exceed certain specified targets. In general, subject to certain
limitations and adjustments, if a quarterly cash distribution exceeds a target
of $0.65 per LP Unit, the Partnership will pay the General Partner, in respect
of each outstanding LP Unit, incentive compensation equal to (i) 15 percent of
that portion of the distribution per LP Unit which exceeds the target quarterly
amount of $0.65 but is not more than $0.75 plus (ii) 25 percent of the amount,
if any, by which the quarterly distribution per LP Unit exceeds $0.75. The
General Partner is also entitled to incentive compensation, under a comparable
formula, in respect of special cash distributions exceeding a target special
distribution amount per LP Unit. The target special distribution amount
generally means the amount which, together with all amounts distributed per LP
Unit prior to the special distribution compounded quarterly at 13 percent per
annum, would equal $20.00 (the initial public offering price of the LP Units)
compounded quarterly at 13 percent per annum from the date of the closing of
the initial public offering.
On January 28, 1994, the General Partner announced a quarterly distribution
of $0.70 per GP and LP Unit payable on February 28, 1994. As such distribution
exceeds a target of $0.65 per LP Unit, the Partnership will pay the General
Partner incentive compensation aggregating $90,000 as a result of this
distribution.
47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
(1) and (2) Financial Statements and Financial Statement Schedules--see
Index to Financial Statements and Financial Statement Schedules appearing
on page 22.
(3) Exhibits, including those incorporated by reference. The following is
a list of exhibits filed as part of this Annual Report on Form 10-K. Where
so indicated by footnote, exhibits which were previously filed are
incorporated by reference. For exhibits incorporated by reference, the
location of the exhibit in the previous filing is indicated in parentheses.
EXHIBIT NUMBER
(REFERENCED TO
ITEM 601 OF
REGULATION S-K)
---------------
3.1 --Amended and Restated Agreement of Limited Partnership of the
Partnership, dated as of December 23, 1986.(1) (Exhibit 3.1)
3.2 --Amended and Restated Certificate of Limited Partnership of
the Partnership, dated as of November 18, 1986.(1) (Exhibit
3.1)
4.1 --Indenture of Mortgage and Deed of Trust and Security Agree-
ment, dated as of December 15, 1986, by Buckeye to Pittsburgh
National Bank and J. G. Routh, as Trustees.(1) (Exhibit 4.1)
4.2 --Note Purchase Agreement, dated as of December 15, 1986,
among Buckeye and the several purchasers named therein relat-
ing to $300,000,000 of First Mortgage Notes.(1) (Exhibit 4.2)
4.3 --First Supplemental Indenture of Mortgage and Deed of Trust
and Security Agreement, dated as of December 1, 1987, by
Buckeye Pipe Line Company, L.P., to Pittsburgh National Bank
and J. G. Routh, as Trustees.(2) (Exhibit 4.4)
4.4 --Second Supplemental Indenture and Deed of Trust and Security
Agreement, dated as of November 30, 1992 by Buckeye Pipe Line
Company, L.P. to Pittsburgh National Bank and J. G. Routh, as
Trustees.(3) (Exhibit 4.5)
*4.5 --Third Supplemental Indenture and Deed of Trust and Security
Agreement, dated as of December 31, 1993, by Buckeye Pipe
Line Company, L.P. to Pittsburgh National Bank and J. G.
Routh, as Trustees.
*4.6 --Note Purchase and Private Shelf Agreement, dated as of De-
cember 31, 1993 between Buckeye Pipe Line Company, L.P. and
The Prudential Insurance Company of America.
4.7 --Certain instruments with respect to long-term debt of the
Operating Partnerships which relate to debt that does not ex-
ceed 10 percent of the total assets of the Partnership and
its consolidated subsidiaries are omitted pursuant to Item
601(b) (4) (iii) (A) of Regulation S-K, 17 C.F.R. (S)229.601.
The Partnership hereby agrees to furnish supplementally to
the Securities and Exchange Commission a copy of each such
instrument upon request.
10.1 --Amended and Restated Agreement of Limited Partnership of
Buckeye, dated as of December 23, 1986.(1)(4) (Exhibit 10.1)
10.2 --Purchase Agreement, dated December 23, 1986, between the
Partnership and Marathon Energy Holdings, Inc. providing for
the purchase by the Partnership of the 99 percent limited
partnership interests in Buckeye, BTT and Everglades.(1) (Ex-
hibit 10.2)
48
EXHIBIT NUMBER
(REFERENCED TO
ITEM 601 OF
REGULATION S-K)
---------------
10.3 --Purchase Agreement, dated December 23, 1986, between LEH and
Pennsylvania Company providing for the purchase by LEH of the
83 percent stock interest in Laurel.(1) (Exhibit 10.3)
10.4 --Management Agreement, dated November 18, 1986, between the
Manager and Buckeye.(1)(5) (Exhibit 10.4)
10.5 --Distribution Support, Incentive Compensation and APU Redemp-
tion Agreement, dated as of December 15, 1986, among the Gen-
eral Partner, the Partnership and Penn Central.(1) (Exhibit
10.6)
10.6 --Annual Incentive Compensation Plan for key employees of the
Manager.(1)(6) (Exhibit 10.8)
10.7 --Form of Long-Term Incentive Compensation Plan for key em-
ployees of the Manager.(1)(6) (Exhibit 10.9)
10.8 --Unit Option and Distribution Equivalent Plan of Buckeye
Partners, L.P.(6)(7) (Exhibit 10.10)
10.9 --Buckeye Management Company Unit Option Loan Program.(6)(7)
(Exhibit 10.11)
10.10 --Buckeye Pipe Line Company Benefit Equalization Plan.(3)(6)
(Exhibit 10.10)
*11.1 --Computation of earnings per Unit.
*21.1 --List of subsidiaries of the Partnership.
- --------
(1) Previously filed with the Securities and Exchange Commission as the Exhibit
to the Buckeye Partners, L.P. Annual Report on Form 10-K for the year 1986.
(2) Previously filed with the Securities and Exchange Commission as the Exhibit
to the Buckeye Partners, L.P. Quarterly Report on Form 10-Q for the quarter
ended March 31, 1988.
(3) Previously filed with the Securities and Exchange Commission as the Exhibit
to Buckeye Partners, L.P. Annual Report on Form 10-K for the year 1992.
(4) The Amended and Restated Agreements of Limited Partnership of the other
Operating Partnerships are not filed because they are identical to Exhibit
10.1 except for the identity of the partnership.
(5) The Management Agreements of the other Operating Partnerships are not filed
because they are identical to Exhibit 10.4 except for the identity of the
partnership.
(6) Represents management contract or compensatory plan or arrangement.
(7) Previously filed with the Securities and Exchange Commission as the Exhibit
to the Buckeye Partners, L.P. Quarterly Report on Form 10-Q for the quarter
ended September 30, 1991.
* Filed herewith
(b) Reports on Form 8-K filed during the quarter ended December 31, 1993:
None
49
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Buckeye Partners, L.P.
(Registrant)
By: Buckeye Management Company,
as General Partner
/s/ Alfred W. Martinelli
Dated: March 15, 1994 By: _________________________________
Alfred W. Martinelli
Chairman of the Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
/s/ Brian F. Billings
Dated: March 15, 1994 By: _________________________________
Brian F. Billings
Director
/s/ A. Leon Fergenson
Dated: March 15, 1994 By: _________________________________
A. Leon Fergenson
Director
/s/ Neil M. Hahl
Dated: March 15, 1994 By: _________________________________
Neil M. Hahl
President and Director
/s/ Edward F. Kosnik
Dated: March 15, 1994 By: _________________________________
Edward F. Kosnik
Director
/s/ Alfred W. Martinelli
Dated: March 15, 1994 By: _________________________________
Alfred W. Martinelli
Chairman of the Board and
Director
(Principal Executive Officer)
/s/ William C. Pierce
Dated: March 15, 1994 By: _________________________________
William C. Pierce
Director
/s/ Ernest R. Varalli
Dated: March 15, 1994 By: _________________________________
Ernest R. Varalli
Executive Vice President,
Chief Financial Officer,
Treasurer and Director
(Principal Accounting and
Financial Officer)
/s/ Robert H. Young
Dated: March 15, 1994 By: _________________________________
Robert H. Young
Director
50
INDEPENDENT AUDITORS' REPORT
To the Partners of Buckeye Partners, L.P.:
We have audited the consolidated financial statements of Buckeye Partners,
L.P. and its subsidiaries as of December 31, 1993 and 1992, and for each of the
three years in the period ended December 31, 1993, and have issued our report
thereon dated February 14, 1994; such report is included elsewhere in this Form
10-K. Our audits also included the consolidated financial statement schedules
of Buckeye Partners, L.P. and subsidiaries referred to in Item 14. These
consolidated financial statement schedules are the responsibility of the
Partnership's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such consolidated financial statement schedules,
when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
Deloitte & Touche
Philadelphia, Pennsylvania
February 14, 1994
S-1
SCHEDULE II
BUCKEYE PARTNERS, L.P.
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS
AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
(IN THOUSANDS)
BALANCE AT
DEDUCTIONS END OF PERIOD
BALANCE AT --------------------------- ------------------
BEGINNING OF AMOUNTS AMOUNTS
NAME OF DEBTOR PERIOD ADDITIONS COLLECTED WRITTEN OFF OTHER CURRENT NONCURRENT
-------------- ------------ --------- --------- ----------- ----- ------- ----------
The Penn Central Corpo-
ration
Year ended December
31, 1993............. $207 $127 $282 -- -- $ 52 --
Year ended December
31, 1992............. 234 460 487 -- -- 207 --
Year ended December
31, 1991............. 165 448 379 -- -- 234 --
S-2
SCHEDULE III
BUCKEYE PARTNERS, L.P.
REGISTRANT'S CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS)
BALANCE SHEETS
DECEMBER 31,
-----------------
1993 1992
-------- --------
Assets
Current assets
Cash and cash equivalents................................. $ 1,412 $ 40
Temporary investments.................................. 250 --
Other current assets...................................... 18 360
-------- --------
Total current assets.................................... 1,680 400
Investments in and advances to subsidiaries (at equity)..... 233,707 225,849
-------- --------
Total assets............................................ $235,387 $226,249
======== ========
Liabilities and partners' capital
Current liabilities......................................... $ 1,692 $ 405
-------- --------
Partners' capital
General Partner........................................... 2,338 2,259
Limited Partners.......................................... 231,357 223,585
-------- --------
Total partners' capital................................. 233,695 225,844
-------- --------
Total liabilities and partners' capital................. $235,387 $226,249
======== ========
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
Equity in income of subsidiaries................. $ 39,462 $ 8,484 $ 29,290
Operating expenses............................... (10) (135) (54)
Interest income.................................. -- 780 1,232
Interest and debt expense........................ (86) (127) (3)
-------- -------- --------
Net income................................. $ 39,366 $ 9,002 $ 30,465
======== ======== ========
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
Cash flows from operating activities:
Net income..................................... $ 39,366 $ 9,002 $ 30,465
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of subsidiaries....... (7,858) 22,403 (576)
Change in assets and liabilities:
Other current assets....................... 342 (359) 134
Current liabilities........................ 1,287 (693) (15,228)
-------- -------- --------
Net cash provided by operating activities.. 33,137 30,353 14,795
-------- -------- --------
Cash flows from investing activities:
Sales (purchases) of temporary investments..... (250) 1,139 9,225
-------- -------- --------
Cash flows from financing activities:
Distributions to Unitholders................... (31,515) (31,515) (31,515)
-------- -------- --------
Net increase (decrease) in cash and cash equiv-
alents........................................ 1,372 (23) (7,495)
Cash and cash equivalents at beginning of peri-
od............................................ 40 63 7,558
-------- -------- --------
Cash and cash equivalents at end of period..... $ 1,412 $ 40 $ 63
======== ======== ========
See footnotes to consolidated financial statements of Buckeye Partners, L.P.
S-3
SCHEDULE V
BUCKEYE PARTNERS, L.P.
CONSOLIDATED PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
BALANCE AT OTHER BALANCE
BEGINNING ADDITIONS CHANGES AT END
CLASSIFICATION OF PERIOD AT COST RETIREMENTS ADD(DEDUCT) OF PERIOD
- -------------- ---------- --------- ----------- ----------- ---------
Year ended December 31,
1993
Land..................... $ 10,018 $ -- $ (40) $ -- $ 9,978
Buildings and leasehold
improvements............ 23,279 1,106 (179) (539) 23,667
Machinery, equipment and
office furnishings...... 500,389 12,672 (2,010) 539 511,590
Construction in progress. 3,185 (450) -- -- 2,735
-------- --------- --------- ------ --------
$536,871 $ 13,328 $ (2,229) $ 0 $547,970
======== ========= ========= ====== ========
Year ended December 31,
1992
Land..................... $ 10,018 $ -- $ -- $ -- $ 10,018
Buildings and leasehold
improvements............ 22,554 780 (54) (1) 23,279
Machinery, equipment and
office furnishings...... 489,338 17,151 (6,101) 1 500,389
Construction in progress. 10,327 (7,142) -- -- 3,185
-------- --------- --------- ------ --------
$532,237 $ 10,789 $ (6,155) $ 0 $536,871
======== ========= ========= ====== ========
Year ended December 31,
1991
Land..................... $ 9,992 $ -- $ (7) $ 33 $ 10,018
Buildings and leasehold
improvements............ 22,466 57 (86) 117 22,554
Machinery, equipment and
office furnishings...... 481,965 5,023 (1,401) 3,751 489,338
Construction in progress. 4,554 5,773 -- -- 10,327
-------- --------- --------- ------ --------
$518,977 $ 10,853 $ (1,494) $3,901 (a) $532,237
======== ========= ========= ====== ========
- --------
(a) Increase in property, plant, and equipment upon acquisition of minority
interest in Laurel Corp.
S-4
SCHEDULE VI
BUCKEYE PARTNERS, L.P.
CONSOLIDATED ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY,
PLANT AND EQUIPMENT
(IN THOUSANDS)
BALANCE AT OTHER BALANCE
BEGINNING ADDITIONS CHANGES AT END
CLASSIFICATION OF PERIOD AT COST RETIREMENTS ADD(DEDUCT) OF PERIOD
- -------------- ---------- --------- ----------- ----------- ---------
Year ended December 31,
1993
Buildings and leasehold
improvements............ $ 1,674 $ 457 $ (180) $ (48) $ 1,903
Machinery, equipment and
office furnishings...... 39,656 10,545 (1,447) (1,762) 46,992
------- ------- ------- ------- -------
$41,330 $11,002 $(1,627) $(1,810) (a) $48,895
======= ======= ======= ======= =======
Year ended December 31,
1992
Buildings and leasehold
improvements............ $ 1,276 $ 452 $ (54) $ -- $ 1,674
Machinery, equipment and
office furnishings...... 34,751 10,293 (6,101) 713 39,656
------- ------- ------- ------- -------
$36,027 $10,745 $(6,155) $ 713 (b) $41,330
======= ======= ======= ======= =======
Year ended December 31,
1991
Buildings and leasehold
improvements............ $ 830 $ 448 $ (86) $ 84 $ 1,276
Machinery, equipment and
office furnishings...... 26,575 9,644 (1,401) (67) 34,751
------- ------- ------- ------- -------
$27,405 $10,092 $(1,487) $ 17 $36,027
======= ======= ======= ======= =======
- --------
(a)Represents proceeds from sales of property of $88,000 offset by removal
costs of $1,898,000.
(b)Represents proceeds from sales of property of $905,000 offset by removal
costs of $192,000.
S-5
SCHEDULE VIII
BUCKEYE PARTNERS, L.P.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES, NET ACCOUNTS DEDUCTIONS OF PERIOD
- ----------- ---------- ------------- ---------- ---------- ---------
Year ended December 31,
1993
Reserve for discontinued
operations............. $21,768 $127 $ -- $21,895(a) $ --
======= ==== ====== ======= =======
Year ended December 31,
1992
Reserve for discontinued
operations............. $19,231 $-- $2,537(b) $ -- $21,768
======= ==== ====== ======= =======
Year ended December 31,
1991
Reserve for discontinued
operations............. $19,231 $-- $ -- $ -- $19,231
======= ==== ====== ======= =======
- --------
(a) Represents disposition of discontinued operations upon sale of net assets
of discontinued operations during 1993.
(b) Reversal of corporate deferred income taxes.
S-6
SCHEDULE X
BUCKEYE PARTNERS, L.P.
SUPPLEMENTARY CONSOLIDATED INCOME STATEMENT INFORMATION
(IN THOUSANDS)
The following have been charged to income:
YEAR ENDED
DECEMBER 31,
----------------------
1993 1992 1991
------- ------ -------
1. Maintenance and repairs.............................. $11,481 $9,982 $10,400
2. Depreciation and amortization of intangible assets,
preoperating costs and similar deferrals.............. * * *
3. Taxes, other than payroll and income taxes: Property
and
other................................................. $8,019 $8,717 $ 3,126
4. Advertising costs.................................... * * *
5. Research and development costs....................... None None None
- --------
* Indicates less than one percent of revenue.
S-7
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
4.6 Third Supplemental Indenture and Deed of Trust and Security Agreement, dated
as of December 31, 1993, by Buckeye Pipe Line Company, L.P. to Pittsburgh
National Bank and J.G. Routh, as Trustees.
4.7 Note Purchase and Private Shelf Agreement, dated as of December 31, 1993
between Buckeye Pipe Line Company, L.P. and The Prudential Insurance Company
of America.
11.1 Computation of earnings per Unit.
21.1 List of subsidiaries of the Partnership.