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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, 2000
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from to
Commission file number 1-9356
Buckeye Partners, L.P.
(Exact name of registrant as specified in its charter)
Delaware 23-2432497
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification number)
5 Radnor Corporate Center
100 Matsonford Road
Radnor, Pennsylvania 19087
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (484) 232-4000
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 interests ......... 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 11, 2001, the aggregate market value of the registrant's LP Units
held by non-affiliates was $831 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 11, 2001: 26,854,006
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TABLE OF CONTENTS
Page
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PART I
Item 1. Business ................................................................ 2
Item 2. Properties .............................................................. 12
Item 3. Legal Proceedings ....................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders ..................... 13
PART II
Item 5. Market for the Registrant's LP Units and Related Unitholder Matters...... 14
Item 6. Selected Financial Data ................................................. 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................. 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .............. 22
Item 8. Financial Statements and Supplementary Data ............................. 24
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ................................................... 49
PART III
Item 10. Directors and Executive Officers of the Registrant ...................... 49
Item 11. Executive Compensation .................................................. 51
Item 12. Security Ownership of Certain Beneficial Owners and Management .......... 53
Item 13. Certain Relationships and Related Transactions .......................... 53
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ........ 56
1
PART I
Item 1. Business
Introduction
Buckeye Partners, L.P. (the "Partnership"), the Registrant, is a limited
partnership organized in 1986 under the laws of the state of Delaware.
The Partnership conducts all its operations through subsidiary entities.
These operating subsidiaries are Buckeye Pipe Line Company, L.P. ("Buckeye"),
Laurel Pipe Line Company, L.P. ("Laurel"), Everglades Pipe Line Company, L.P.
("Everglades") and Buckeye Tank Terminals Company, L.P. ("BTT"). (Each of
Buckeye, Laurel, Everglades and BTT is referred to individually as an
"Operating Partnership" and collectively as the "Operating Partnerships"). The
Partnership owns approximately a 99 percent interest in each of the Operating
Partnerships. BTT owns a 100 percent interest in each of Buckeye Terminals, LLC
("BT") and Buckeye Gulf Coast Pipe Lines, LLC ("BGC") and also owns a 75
percent interest in WesPac Pipelines-Reno Ltd. ("WesPac") and related WesPac
entities. The Partnership also owns a 99 percent interest in Buckeye Telecom,
L.P. ("Telecom").
Buckeye Pipe Line Company (the "General Partner") serves as the general
partner to the Partnership. As of December 31, 2000, the General Partner owned
approximately a 1 percent general partnership interest in the Partnership and
approximately a 1 percent general partnership interest in each Operating
Partnership, for an effective 2 percent interest in the Partnership. The
General Partner is a wholly-owned subsidiary of Buckeye Management Company
("BMC"). BMC is a wholly-owned subsidiary of Glenmoor, Ltd ("Glenmoor").
Glenmoor is owned by certain directors and members of senior management of the
General Partner and trusts for the benefit of their families and by certain
other management employees of Buckeye Pipe Line Services Company ("Services
Company").
Services Company employs all of the employees that work for the Operating
Partnerships. Services Company entered into a Services Agreement with BMC and
the General Partner in August 1997 to provide services to the Partnership and
the Operating Partnerships for a 13.5 year term. Services Company is reimbursed
by BMC or the General Partner for its direct and indirect expenses, which in
turn are reimbursed by the Partnership, except for certain executive
compensation costs.
Buckeye is one of the largest independent pipeline common carriers of
refined petroleum products in the United States, with 2,970 miles of pipeline
serving 9 states. Laurel owns a 345-mile common carrier refined products
pipeline located principally in Pennsylvania. Everglades owns 37 miles of
refined petroleum products pipeline in Florida. Buckeye, Laurel and Everglades
conduct the Partnership's refined products pipeline business. BTT, through
facilities it owns in Taylor, Michigan, provides bulk storage service with an
aggregate capacity of 256,000 barrels of refined petroleum products. BT, with
facilities located in New York and Pennsylvania, provides bulk storage services
with an aggregate capacity of 1,346,000 barrels of refined petroleum products.
BGC is a contract operator of pipelines owned by major chemical companies in
the Gulf Coast area. BGC also provides engineering and construction management
services to major chemical companies in the Gulf Coast area. WesPac provides
transportation services to the Reno/Tahoe International airport through a
2.5-mile pipeline. Telecom owns the shares that the Partnership received from
Aerie Networks, Inc. ("Aerie") in exchange for providing Aerie with the right
to build a large capacity broadband fiber optics network over 1,000 miles of
the Partnership's right-of-way.
In March 1999, the Partnership acquired the fuels division of American
Refining Group, Inc. ("ARG"). The Partnership operated the former ARG
processing business under the name of Buckeye Refining Company, LLC ("BRC").
BRC was sold to Kinder Morgan Energy Partners, L.P. ("Kinder Morgan") on
October 25, 2000. BRC processed transmix at its Indianola, Pennsylvania and
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Hartford, Illinois refineries. Transmix represents refined petroleum products,
primarily fuel oil and gasoline that becomes commingled during normal pipeline
operations. The refining process produced separate quantities of fuel oil,
kerosene and gasoline that BRC then marketed at the wholesale level.
In March 1999, the Partnership acquired pipeline operating contracts and a
16-mile pipeline from Seagull Products Pipeline Corporation and Seagull Energy
Corporation ("Seagull"). The Partnership operates the assets acquired from
Seagull under the name of Buckeye Gulf Coast Pipe Lines, LLC. BGC is an owner
and contract operator of pipelines owned by major chemical companies in the
Gulf Coast area. BGC also leases the 16-mile pipeline to a chemical company.
In June 2000, the Partnership acquired six petroleum products terminals
from Agway Energy Products LLC. The terminals acquired had an aggregate
capacity of approximately 1.8 million barrels and are located in Brewerton,
Geneva, Marcy, Rochester and Vestal, New York and Macungie, Pennsylvania. The
Partnership operates the assets acquired from Agway under the name of Buckeye
Terminals, LLC.
In 1999, the Partnership had two segments, the refined products
transportation segment and the refining segment. Prior to 1999 the Partnership
had only one segment, namely, the refined products transportation segment. The
refining segment was disposed of in October 2000. The refining segment's
results of operations are now being reported as discontinued operations in 1999
and 2000. Consequently, the Partnership has only the refined products
transportation segment remaining.
The Partnership receives petroleum products from refineries, connecting
pipelines and marine terminals, and transports those products to other
locations. In 2000, refined petroleum products transportation accounted for
substantially all of the Partnership's consolidated revenues and consolidated
operating income.
The Partnership transported an average of approximately 1,061,500 barrels
per day of refined products in 2000. The following table shows the volume and
percentage of refined petroleum products transported over the last three years.
Volume and Percentage of Refined Petroleum Products Transported (1)
Volume and Percentage of Refined Petroleum
Year ended December 31,
-----------------------------------------------------------------------
2000 1999 1998
---------------------- ---------------------- ---------------------
Volume Percent Volume Percent Volume Percent
---------- --------- ---------- --------- ---------- --------
Gasoline ....................... 526.7 50 531.9 50 518.8 50
Jet Fuels ...................... 270.9 26 265.9 25 257.2 25
Middle Distillates (2) ......... 248.6 23 240.2 23 230.3 23
Other Products ................. 15.3 1 18.1 2 24.9 2
------- -- ------- -- ------- --
Total .......................... 1,061.5 100 1,056.1 100 1,031.2 100
======= === ======= === ======= ===
- ---------------
(1) Excludes local product transfers.
(2) Includes diesel fuel, heating oil, kerosene and other middle distillates.
The Partnership provides service in the following states: Pennsylvania,
New York, New Jersey, Indiana, Ohio, Michigan, Illinois, Connecticut,
Massachusetts and Florida.
Pennsylvania--New York--New Jersey
Buckeye serves major population centers in the states of Pennsylvania, New
York and New Jersey through 1,004 miles of pipeline. Refined petroleum products
are received at Linden, New
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Jersey. Products are then transported through two lines from Linden, New Jersey
to Allentown, Pennsylvania. From Allentown, the pipeline continues west,
through a connection with Laurel, to Pittsburgh, Pennsylvania (serving Reading,
Harrisburg, Altoona/Johnstown and Pittsburgh) and north through eastern
Pennsylvania into New York (serving Scranton/Wilkes-Barre, Binghamton,
Syracuse, Utica and Rochester and, via a connecting carrier, Buffalo). Products
received at Linden, New Jersey are also transported through one line to Newark
International Airport and through two additional lines to J. F. Kennedy
International and LaGuardia airports and to commercial bulk terminals at Long
Island City and Inwood, New York. These pipelines supply J. F. Kennedy,
LaGuardia and Newark airports with substantially all of each airport's jet fuel
requirements.
Laurel transports refined petroleum products through a 345-mile pipeline
extending westward from five refineries in the Philadelphia area to Pittsburgh,
Pennsylvania.
Indiana--Ohio--Michigan--Illinois
Buckeye transports refined petroleum products through 1,854 miles of
pipeline (of which 246 miles are jointly owned with other pipeline companies)
in southern Illinois, central Indiana, eastern Michigan, western and northern
Ohio and western Pennsylvania. A number of receiving lines and delivery lines
connect to a central corridor which runs from Lima, Ohio, through Toledo, Ohio
to Detroit, Michigan. Products are received at East Chicago, Indiana, Robinson,
Illinois and at the refinery and other pipeline connection points near Detroit,
Toledo and Lima. Major market areas served include Huntington/Fort Wayne,
Indiana; Bay City, Detroit and Flint, Michigan; Cleveland, Columbus, Lima and
Toledo, Ohio; and Pittsburgh, Pennsylvania.
Other Refined Products Pipelines
Buckeye serves Connecticut and Massachusetts through 112 miles of pipeline
that carry refined products from New Haven, Connecticut to Hartford,
Connecticut and Springfield, Massachusetts.
Everglades carries primarily jet fuel on a 37-mile pipeline from Port
Everglades, Florida to Hollywood-Ft. Lauderdale International Airport and Miami
International Airport. Everglades supplies Miami International Airport with
substantially all of its jet fuel requirements.
Other Business Activities
BTT provides bulk storage services through facilities located in Taylor,
Michigan that have the capacity to store an aggregate of approximately 256,000
barrels of refined petroleum products.
BGC is a contract operator of pipelines owned by major chemical companies
in the state of Texas. BGC currently has six contracts in place, each with
different chemical companies. BGC also owns a 16-mile pipeline located in the
state of Texas that it leases to a third-party chemical company. BGC also
provides engineering and construction management services to major chemical
companies in the Gulf Coast area.
BT, with facilities located in New York and Pennsylvania, provides bulk
storage services that have the capacity to store an aggregate of approximately
1,402,000 barrels of refined petroleum products.
WesPac Pipelines-Reno Ltd., a joint venture between BTT and Kealine
Partners, completed a 2.5-mile pipeline in November 1999 serving the Reno/Tahoe
International Airport. BTT has a 75 percent interest in the joint venture.
Competition and Other Business Considerations
The Operating Partnerships conduct business without the benefit of
exclusive franchises from government entities. In addition, the Operating
Partnerships generally operate as common carriers, providing transportation
services at posted tariffs and without long-term contracts. The Operating
4
Partnerships do not own the products they transport. Demand for the service
provided by the Operating Partnerships derives from demand for petroleum
products in the regions served and the ability and willingness of refiners,
marketers and end-users to supply such demand by deliveries through the
Operating Partnerships' pipelines. Demand for refined petroleum products is
primarily a function of price, prevailing general economic conditions and
weather. The Operating Partnerships' businesses are, therefore, subject to a
variety of factors partially or entirely beyond their control. Multiple sources
of pipeline entry and multiple points of delivery, however, have historically
helped maintain stable total volumes even when volumes at particular source or
destination points have changed.
The Partnership's business may in the future be affected by changing oil
prices or other factors affecting demand for oil and other fuels. The
Partnership's business may also be affected by energy conservation, changing
sources of supply, structural changes in the oil industry and new energy
technologies. The General Partner is unable to predict the effect of such
factors.
A substantial portion of the refined petroleum products transported by the
Partnership's pipelines is ultimately used as fuel for motor vehicles and
aircraft. Changes in transportation and travel patterns in the areas served by
the Partnership's pipelines could adversely affect the Partnership's results of
operations and financial condition.
In 2000, the transportation business had approximately 90 customers, most
of which were either major integrated oil companies or large refined product
marketing companies. The largest two customers accounted for 8.0 percent and
7.4 percent, respectively, of transportation revenues, while the 20 largest
customers accounted for 66.7 percent of consolidated transportation revenues.
Generally, pipelines are the lowest cost method for long-haul overland
movement of refined petroleum products. Therefore, the Operating Partnerships'
most significant competitors for large volume shipments are other pipelines,
many of which are owned and operated by major integrated oil companies.
Although it is unlikely that a pipeline system comparable in size and scope to
the Operating Partnerships' pipeline system will be built in the foreseeable
future, new pipelines (including pipeline segments that connect with existing
pipeline systems) could be built to effectively compete with the Operating
Partnerships in particular locations.
The Operating Partnerships compete with marine transportation in some
areas. Tankers and barges on the Great Lakes account for some of the volume to
certain Michigan, Ohio and upstate New York locations during the approximately
eight non-winter months of the year. Barges are presently a competitive factor
for deliveries to the New York City area, the Pittsburgh area, Connecticut and
Ohio.
Trucks competitively deliver product in a number of areas served by the
Operating Partnerships. While their costs may not be competitive for longer
hauls or large volume shipments, trucks compete effectively for incremental and
marginal volumes in many areas served by the Operating Partnerships. The
availability of truck transportation places a significant competitive
constraint on the ability of the Operating Partnerships to increase their
tariff rates.
Privately arranged exchanges of product between marketers in different
locations are an increasing but unquantified form of competition. Generally,
such exchanges reduce both parties' costs by eliminating or reducing
transportation charges. In addition, consolidation among refiners and marketers
that has accelerated in recent years has altered distribution patterns,
reducing demand for transportation services in some markets and increasing them
in other markets.
Distribution of refined petroleum products depends to a large extent upon
the location and capacity of refineries. In recent years, domestic refining
capacity has both increased and decreased as a result of refinery expansions
and shutdowns. Because the Partnership's business is largely driven by the
consumption of fuel in its delivery areas and the Operating Partnerships'
pipelines have numerous source points, the General Partner does not believe
that the expansion or shutdown
5
of any particular refinery would have a material effect on the business of the
Partnership. However, the General Partner is unable to determine whether
additional expansions or shutdowns will occur or what their specific effect
would be. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations--Competition and Other Business
Conditions."
The Operating Partnerships' mix of products transported tends to vary
seasonally. Declines in demand for heating oil during the summer months are, to
a certain extent, offset by increased demand for gasoline and jet fuel.
Overall, operations have been only moderately seasonal, with somewhat lower
than average volume being transported during March, April and May as compared
to the rest of the year.
Neither the Partnership nor any of the Operating Partnerships, other than
BTT's subsidiaries, have any employees. The Operating Partnerships'
transportation segment operations are managed and operated by employees of
Services Company and BGC. In addition, Glenmoor provides certain management
services to BMC, the General Partner and Services Company. At December 31,
2000, Services Company had a total of 492 full-time employees, 12 of whom were
represented by two labor unions. At December 31, 2000, BGC had a total of 51
full-time, non-union employees and BT had a total of 14 full-time, non-union
employees. The Operating Partnerships (and their predecessors) have never
experienced any significant work stoppages or other significant labor problems.
Capital Expenditures
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 2000, total capital expenditures
related to the transportation business were $40.3 million. Projected capital
expenditures for the transportation business in 2001 amount to approximately
$27.7 million and are expected to be funded from cash generated by operations
and Buckeye's existing credit facility. Planned capital expenditures in 2001
include, among other things, various improvements that facilitate increased
pipeline volumes, facility automation, renewal and replacement of several tank
roofs, upgrades to field instrumentation and cathodic protection systems and
installation and replacement of mainline pipe and valves. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Capital Expenditures."
Regulation
General
Buckeye is an interstate common carrier subject to the regulatory
jurisdiction of the Federal Energy Regulatory Commission ("FERC") under the
Interstate Commerce Act and the Department of Energy Organization Act. FERC
regulation requires that interstate oil pipeline rates be posted publicly and
that these rates be "just and reasonable" and non-discriminatory. FERC
regulation also enforces common carrier obligations and specifies a uniform
system of accounts. In addition, Buckeye and the other Operating Partnerships
are subject to the jurisdiction of certain other federal agencies with respect
to environmental and pipeline safety matters.
The Operating Partnerships are also subject to the jurisdiction of various
state and local agencies, including, in some states, public utility commissions
which have jurisdiction over, among other things, intrastate tariffs, the
issuance of debt and equity securities, transfers of assets and pipeline
safety.
6
FERC Rate Regulation
Buckeye's rates are governed by a market-based rate regulation program
initially approved by FERC in March 1991 for three years and subsequently
extended. Under this program, in markets where Buckeye does not have
significant market power, individual rate increases: (a) will not exceed a real
(i.e., exclusive of inflation) increase of 15 percent over any two-year period
(the "rate cap"), and (b) will be allowed to become effective without
suspension or investigation if they do not exceed a "trigger" equal to the
change in the Gross Domestic Product implicit price deflator since the date on
which the individual rate was last increased, plus 2 percent. Individual rate
decreases will be presumptively valid upon a showing that the proposed rate
exceeds marginal costs. In markets where Buckeye was found to have significant
market power and in certain markets where no market power finding was made: (i)
individual rate increases cannot exceed the volume weighted average rate
increase in markets where Buckeye does not have significant market power since
the date on which the individual rate was last increased, and (ii) any volume
weighted average rate decrease in markets where Buckeye does not have
significant market power must be accompanied by a corresponding decrease in all
of Buckeye's rates in markets where it does have significant market power.
Shippers retain the right to file complaints or protests following notice of a
rate increase, but are required to show that the proposed rates violate or have
not been adequately justified under the market-based rate regulation program,
that the proposed rates are unduly discriminatory, or that Buckeye has acquired
significant market power in markets previously found to be competitive.
The Buckeye program is an exception to the generic oil pipeline
regulations issued under the Energy Policy Act of 1992. The generic rules rely
primarily on an index methodology, whereby a pipeline is allowed to change its
rates in accordance with an index that FERC believes reflects cost changes
appropriate for application to pipeline rates. In the alternative, a pipeline
is allowed to charge market-based rates if the pipeline establishes that it
does not possess significant market power in a particular market. In addition,
the rules provide for the rights of both pipelines and shippers to demonstrate
that the index should not apply to an individual pipeline's rates in light of
the pipeline's costs. The final rules became effective on January 1, 1995.
The Buckeye program was subject to review by FERC in 2000 when FERC
reviewed the index selected in the generic oil pipeline regulations. The FERC
has decided to continue the generic oil pipeline regulations with no material
changes and Buckeye has received no notice from FERC that it intends to modify
or discontinue Buckeye's program. The General Partner cannot predict the
impact, if any, that a change to Buckeye's rate program would have on Buckeye's
operations. Independent of regulatory considerations, it is expected that
tariff rates will continue to be constrained by competition and other market
factors.
Environmental Matters
The Operating Partnerships are subject to federal, state and local laws
and regulations relating to the protection of the environment. Although the
General Partner believes that the operations of the Operating Partnerships
comply in all material respects with applicable environmental laws and
regulations, risks of substantial liabilities are inherent in pipeline
operations, and there can be no assurance that material environmental
liabilities will not be incurred. Moreover, it is possible that other
developments, such as increasingly rigorous environmental laws, regulations and
enforcement policies thereunder, and claims for damages to property or persons
resulting from the operations of the Operating Partnerships, could result in
substantial costs and liabilities to the Partnership. See "Legal Proceedings"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Environmental Matters."
The Oil Pollution Act of 1990 ("OPA") amended certain provisions of the
federal Water Pollution Control Act of 1972, commonly referred to as the Clean
Water Act ("CWA"), and other statutes as they pertain to the prevention of and
response to oil spills into navigable waters. The
7
OPA subjects owners of facilities to strict joint and several liability for all
containment and clean-up costs and certain other damages arising from a spill.
The CWA provides penalties for any discharges of petroleum products in
reportable quantities and imposes substantial liability for the costs of
removing a spill. State laws for the control of water pollution also provide
varying civil and criminal penalties and liabilities in the case of releases of
petroleum or its derivatives into surface waters or into the ground.
Regulations are currently being developed under OPA and state laws that may
impose additional regulatory burdens on the Partnership.
Contamination resulting from spills or releases of refined petroleum
products is not unusual in the petroleum pipeline industry. The Partnership's
pipelines cross numerous navigable rivers and streams. Although the General
Partner believes that the Operating Partnerships comply in all material
respects with the spill prevention, control and countermeasure requirements of
federal laws, any spill or other release of petroleum products into navigable
waters may result in material costs and liabilities to the Partnership.
The Resource Conservation and Recovery Act ("RCRA"), as amended,
establishes a comprehensive program of regulation of "hazardous wastes."
Hazardous waste generators, transporters, and owners or operators of treatment,
storage and disposal facilities must comply with regulations designed to ensure
detailed tracking, handling and monitoring of these wastes. RCRA also regulates
the disposal of certain non-hazardous wastes. As a result of these regulations,
certain wastes previously generated by pipeline operations are considered
"hazardous wastes" which are subject to rigorous disposal requirements.
The Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA"), also known as "Superfund," governs the release or threat of
release of a "hazardous substance." Disposal of a hazardous substance, whether
on or off-site, may subject the generator of that substance to liability under
CERCLA for the costs of clean-up and other remedial action. Pipeline
maintenance and other activities in the ordinary course of business generate
"hazardous substances." As a result, to the extent a hazardous substance
generated by the Operating Partnerships or their predecessors may have been
released or disposed of in the past, the Operating Partnerships may in the
future be required to remedy contaminated property. Governmental authorities
such as the Environmental Protection Agency, and in some instances third
parties, are authorized under CERCLA to seek to recover remediation and other
costs from responsible persons, without regard to fault or the legality of the
original disposal. In addition to its potential liability as a generator of a
"hazardous substance," the property or right-of-way of the Operating
Partnerships may be adjacent to or in the immediate vicinity of Superfund and
other hazardous waste sites. Accordingly, the Operating Partnerships may be
responsible under CERCLA for all or part of the costs required to cleanup such
sites, which costs could be material.
The Clean Air Act, amended by the Clean Air Act Amendments of 1990 (the
"Amendments"), imposes controls on the emission of pollutants into the air. The
Amendments required states to develop facility-wide permitting programs over
the past several years to comply with new federal programs. Existing operating
and air-emission requirements like those currently imposed on the Operating
Partnerships are being reviewed by appropriate state agencies in connection
with the new facility-wide permitting program. It is possible that new or more
stringent controls will be imposed upon the Operating Partnerships through this
permit review process.
The Operating Partnerships are also subject to environmental laws and
regulations adopted by the various states in which they operate. In certain
instances, the regulatory standards adopted by the states are more stringent
than applicable federal laws.
In 1986, certain predecessor companies acquired by the Partnership, namely
Buckeye Pipe Line Company and its subsidiaries ("Pipe Line") entered into an
Administrative Consent Order ("ACO") with the New Jersey Department of
Environmental Protection and Energy under the New Jersey Environmental Cleanup
Responsibility Act of 1983 ("ECRA") relating to all six of Pipe Line's
8
facilities in New Jersey. The ACO permitted the 1986 acquisition of Pipe Line
to be completed prior to full compliance with ECRA, but required Pipe Line to
conduct in a timely manner a sampling plan for environmental conditions at the
New Jersey facilities and to implement any required clean-up plan. Sampling
continues in an effort to identify areas of contamination at the New Jersey
facilities, while clean-up operations have begun and have been completed at
certain of the sites. The obligations of Pipe Line were not assumed by the
Partnership and the costs of compliance have been and will continue to be paid
by American Financial Group, Inc. ("American Financial"). Through December
2000, Buckeye's costs of approximately $2,546,000 have been paid by American
Financial.
Safety Matters
The Operating Partnerships are subject to regulation by the United States
Department of Transportation ("DOT") under the Hazardous Liquid Pipeline Safety
Act of 1979 ("HLPSA") relating to the design, installation, testing,
construction, operation, replacement and management of their pipeline
facilities. HLPSA covers petroleum and petroleum products and requires any
entity that owns or operates pipeline facilities to comply with applicable
safety standards, to establish and maintain a plan of inspection and
maintenance and to comply with such plans.
The Pipeline Safety Reauthorization Act of 1988 requires coordination of
safety regulation between federal and state agencies, testing and certification
of pipeline personnel, and authorization of safety-related feasibility studies.
The General Partner has initiated drug and alcohol testing programs to comply
with the regulations promulgated by the Office of Pipeline Safety and DOT.
HLPSA requires, among other things, that the Secretary of Transportation
consider the need for the protection of the environment in issuing federal
safety standards for the transportation of hazardous liquids by pipeline. The
legislation also requires the Secretary of Transportation to issue regulations
concerning, among other things, the identification by pipeline operators of
environmentally sensitive areas; the circumstances under which emergency flow
restricting devices should be required on pipelines; training and qualification
standards for personnel involved in maintenance and operation of pipelines; and
the periodic integrity testing of pipelines in environmentally sensitive and
high-density population areas by internal inspection devices or by hydrostatic
testing. In this connection, effective in August 1999, the DOT issued its
Operator Qualification Rule, which requires a written program by April 27, 2001
for ensuring operators are qualified to perform tasks covered by the pipeline
safety rules (49CFR195). All persons performing covered tasks must have been
qualified under the program by October 28, 2002. The General Partner has
identified the tasks that must be performed to comply with this rule and will
have its written plan in place as required. In addition, on December 1, 2000,
DOT published notice of final rulemaking for Pipeline Integrity Management in
High Consequence Areas (Hazardous Liquid Operators with 500 or more Miles of
Pipeline). This rule sets forth regulations that require pipeline operators to
assess, evaluate, repair and validate the integrity of hazardous liquid
pipeline segments that, in the event of a leak or failure, could affect
populated areas, areas unusually sensitive to environmental damage or
commercially navigable waterways. The effective date of the rule has been
delayed to May 28, 2001 by Executive Order of the Bush Administration. Under
the rule, pipeline operators will be required to identify line segments which
could impact high consequence areas by December 31, 2001, develop "Baseline
Assessment Plans" for evaluating the integrity of each pipeline segment by
March 31, 2002 and complete an assessment of the highest risk 50 percent of
line segments by September 30, 2004, with full assessment of the remaining 50
percent by March 31, 2008. Pipeline operators will thereafter be required to
re-assess each affected segment in five-year intervals. The General Partner
believes that the Operating Partnerships' operations comply in all material
respects with HLPSA. However, the industry, including the Partnership, could be
required to incur substantial additional maintenance capital expenditures and
will incur increased operating costs based on these and other regulations that
could be issued by DOT pursuant to HLPSA. It is not possible to estimate the
impact that these requirements will have, if any, on the Partnership's results
of operations or financial position.
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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, record keeping, hazard communication requirements
and monitoring of occupational exposure to benzene and other regulated
substances.
The General Partner cannot predict whether or in what form any new
legislation or regulatory requirements might be enacted or adopted or the costs
of compliance. In general, any such new regulations would increase operating
costs and impose additional capital expenditure requirements on the
Partnership, but the General Partner does not presently expect that such costs
or capital expenditure requirements would have a material adverse effect on the
Partnership.
Tax Treatment of Publicly Traded Partnerships under the Internal Revenue Code
The Internal Revenue Code of 1986, as amended (the "Code"), imposes
certain limitations on the current deductibility of losses attributable to
investments in publicly traded partnerships and treats certain publicly traded
partnerships as corporations for federal income tax purposes. The following
discussion briefly describes certain aspects of the Code that apply to
individuals who are citizens or residents of the United States without
commenting on all of the federal income tax matters affecting the Partnership
or the holders of LP units ("Unitholders"), and is qualified in its entirety by
reference to the Code. UNITHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISOR
ABOUT THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF AN
INVESTMENT IN THE PARTNERSHIP.
Characterization of the Partnership for Tax Purposes
The Code treats a publicly traded partnership that existed on December 17,
1987, such as the Partnership, as a corporation for federal income tax
purposes, unless, for each taxable year of the Partnership, under Section
7704(d) of the Code, 90 percent or more of its gross income consists of
"qualifying income." Qualifying income includes interest, dividends, real
property rents, gains from the sale or disposition of real property, income and
gains derived from the exploration, development, mining or production,
processing, refining, transportation (including pipelines transporting gas, oil
or products thereof), or the marketing of any mineral or natural resource
(including fertilizer, geothermal energy and timber), and gain from the sale or
disposition of capital assets that produce such income. Because the Partnership
is engaged primarily in the refined products pipeline transportation business,
the General Partner believes that 90 percent or more of the Partnership's gross
income has been qualifying income. If this continues to be true and no
subsequent legislation amends that provision, the Partnership will continue to
be classified as a partnership and not as a corporation for federal income tax
purposes.
Passive Activity Loss Rules
The Code provides that an individual, estate, trust or personal service
corporation generally may not deduct losses from passive business activities,
to the extent they exceed income from all such passive activities, against
other (active) income. Income that may not be offset by passive activity losses
includes not only salary and active business income, but also portfolio income
such as interest, dividends or royalties or gain from the sale of property that
produces portfolio income. Credits from passive activities are also limited to
the tax attributable to any income from passive activities. The passive
activity loss rules are applied after other applicable limitations on
deductions, such as the at-risk rules and basis limitations. Certain closely
held corporations are subject to slightly different rules that can also limit
their ability to offset passive losses against certain types of income.
Under the Code, net income from publicly traded partnerships is not
treated as passive income for purposes of the passive loss rule, but is treated
as non-passive income. Net losses and credits
10
attributable to an interest in a publicly traded partnership are not allowed to
offset a partner's other income. Thus, a Unitholder's proportionate share of
the Partnership's net losses may be used to offset only Partnership net income
from its trade or business in succeeding taxable years or, upon a complete
disposition of a Unitholder's interest in the Partnership to an unrelated
person in a fully taxable transaction, may be used to (i) offset gain
recognized upon the disposition, and (ii) then against all other income of the
Unitholder. In effect, net losses are suspended and carried forward
indefinitely until utilized to offset net income of the Partnership from its
trade or business or allowed upon the complete disposition to an unrelated
person in a fully taxable transaction of the Unitholder's interest in the
Partnership. A Unitholder's share of Partnership net income may not be offset
by passive activity losses generated by other passive activities. In addition,
a Unitholder's proportionate share of the Partnership's portfolio income,
including portfolio income arising from the investment of the Partnership's
working capital, is not treated as income from a passive activity and may not
be offset by such Unitholder's share of net losses of the Partnership.
Deductibility of Interest Expense
The Code generally provides that investment interest expense is deductible
only to the extent of a non-corporate taxpayer's net investment income. In
general, net investment income for purposes of this limitation includes gross
income from property held for investment, gain attributable to the disposition
of property held for investment (except for net capital gains for which the
taxpayer has elected to be taxed at special capital gains rates) and portfolio
income (determined pursuant to the passive loss rules) reduced by certain
expenses (other than interest) which are directly connected with the production
of such income. Property subject to the passive loss rules is not treated as
property held for investment. However, the IRS has issued a Notice which
provides that net income from a publicly traded partnership (not otherwise
treated as a corporation) may be included in net investment income for purposes
of the limitation on the deductibility of investment interest. A Unitholder's
investment income attributable to its interest in the Partnership will include
both its allocable share of the Partnership's portfolio income and trade or
business income. A Unitholder's investment interest expense will include its
allocable share of the Partnership's interest expense attributable to portfolio
investments.
Unrelated Business Taxable Income
Certain entities otherwise exempt from federal income taxes (such as
individual retirement accounts, pension plans and charitable organizations) are
nevertheless subject to federal income tax on net unrelated business taxable
income and each such entity must file a tax return for each year in which it
has more than $1,000 of gross income from unrelated business activities. The
General Partner believes that substantially all of the Partnership's gross
income will be treated as derived from an unrelated trade or business and
taxable to such entities. The tax-exempt entity's share of the Partnership's
deductions directly connected with carrying on such unrelated trade or business
are allowed in computing the entity's taxable unrelated business income.
ACCORDINGLY, INVESTMENT IN THE PARTNERSHIP BY TAX-EXEMPT ENTITIES SUCH AS
INDIVIDUAL RETIREMENT ACCOUNTS, PENSION PLANS AND CHARITABLE TRUSTS MAY NOT BE
ADVISABLE.
State Tax Treatment
During 2000, the Partnership owned property or conducted business in the
states of Pennsylvania, New York, New Jersey, Indiana, Ohio, Michigan,
Illinois, Connecticut, Massachusetts, Florida, Texas, Nevada and California. 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.
11
Certain Tax Consequences to Unitholders
Upon formation of the Partnership in 1986, the General Partner elected
twelve-year straight-line depreciation for tax purposes. For this reason,
starting in 1999, the amount of depreciation available to the Partnership has
been reduced significantly and taxable income has increased accordingly.
Unitholders, however, will continue to offset Partnership income with
individual LP Unit depreciation under their IRC section 754 election. Each
Unitholder's tax situation will differ depending upon the price paid and when
LP Units were purchased. Generally, those who purchased LP Units in the past
few years will have adequate depreciation to offset a considerable portion of
Partnership income, while those who purchased LP Units more than several years
ago will experience the full increase in taxable income. Unitholders are
reminded that, in spite of the additional taxable income beginning in 1999, the
current level of cash distributions exceed expected tax payments. Furthermore,
sale of LP Units will result in taxable ordinary income recapture. UNITHOLDERS
ARE ENCOURAGED TO CONSULT THEIR PROFESSIONAL TAX ADVISORS REGARDING THE TAX
IMPLICATIONS TO THEIR INVESTMENT IN LP UNITS.
Item 2. Properties
As of December 31, 2000, the principal facilities of the Partnership
included 3,370 miles of 6-inch to 24-inch diameter pipeline, 35 pumping
stations, 83 delivery points and various sized tanks having an aggregate
capacity of approximately 11.4 million barrels. The Operating Partnerships and
their subsidiaries own substantially all of their facilities.
In general, the Operating Partnerships' and their subsidiaries' 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' and their subsidiaries rights are revocable at the election of
the grantor or are subject to renewal at various intervals, and some require
periodic payments. Certain portions of Buckeye's pipeline in Connecticut and
Massachusetts are subject to security interests in favor of the owners of the
right-of-way to secure future lease payments. The Operating Partnerships and
their subsidiaries have not experienced any revocations or lapses of such
rights which were material to their 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 or their subsidiaries.
The General Partner believes that the Operating Partnerships and their
subsidiaries 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' and their
subsidiaries 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' or their
subsidiaries' 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 amounts involved, have a material effect on the Partnership for
a future period, the General Partner does not believe that their outcome will
have a material effect on the Partnership's consolidated financial condition or
annual results of operations.
12
With respect to environmental litigation, certain Operating Partnerships
(or their predecessors) have been named as defendants in several lawsuits or
have been notified by federal or state authorities that they are a potentially
responsible party ("PRP") under federal laws or a respondent under state laws
relating to the generation, disposal or release of hazardous substances into
the environment. Typically, an Operating Partnership is one of many PRPs for a
particular site and its contribution of total waste at the site is minimal.
However, because CERCLA and similar statutes impose liability without regard to
fault and on a joint and several basis, the liability of an Operating
Partnership in connection with such proceedings could be material.
In July 1994, Buckeye was named as a defendant in an action filed by the
Michigan Department of Natural Resources ("MDNR") in Circuit Court, Oakland
County, Michigan. The complaint also names three individuals and three other
corporations as defendants. The complaint alleges that under the Michigan
Environmental Response Act, the Michigan Water Resource Commission Act and the
Leaking Underground Storage Tank Act, the defendants are liable to the state of
Michigan for remediation expenses in connection with alleged groundwater
contamination in the vicinity of Sable Road, Oakland County, Michigan. The
complaint asserts that contaminated groundwater has infiltrated drinking water
wells in the area. The complaint seeks past response costs in the amount of
approximately $2.0 million and a declaratory judgment that the defendants are
liable for future response costs and remedial activities at the site.
In October 1999, the parties reached a settlement agreement. The
defendants agreed to pay the state of Michigan $1.1 million for past costs
incurred in connection with site activities, and to conduct certain
investigation and remediation activities in the future. The Partnership's share
of the settlement payment will be less than $0.4 million.
The parties are in the process of negotiating a Consent Decree to be
entered by the Court to confirm the settlement. In addition, the defendants are
in the process of negotiating a Site Participation Agreement to confirm the
agreed upon funding arrangements among the defendants for future costs at the
site. Although the cost of the future remediation costs to be undertaken by the
defendants cannot be determined at this time, Buckeye expects that its portion
of any such liability will not be material.
Additional claims for the cost of cleaning up releases of hazardous
substances and for damage to the environment resulting from the activities of
the Operating Partnerships or their predecessors may be asserted in the future
under various federal and state laws, but the amount of such claims or the
potential liability, if any, cannot be estimated. See
"Business--Regulation--Environmental Matters."
In February 1999, the General Partner entered into a stipulation and order
of settlement with the New York State Office of Real Property Services and the
City of New York settling various real property tax certiorari proceedings. The
Partnership had challenged its real property tax assessments for a number of
past tax years on that portion of its pipeline that is located in a public
right-of-way in New York City. The settlement agreement resulted in a one-time
property tax reduction of $11.0 million for the Partnership in the second
quarter of 1999.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the holders of LP Units during the
fourth quarter of the fiscal year ended December 31, 2000.
13
PART II
Item 5. Market for the Registrant's LP Units and Related Unitholder Matters
The LP Units of the Partnership are listed and traded principally on the
New York Stock Exchange. In January 1998, the General Partner approved a
two-for-one unit split that became effective February 13, 1998. All unit and
per unit information contained in this filing, unless otherwise noted, has been
adjusted for the two for one split. The high and low sales prices of the LP
Units in 2000 and 1999, as reported on the New York Stock Exchange Composite
Tape, were as follows:
2000 1999
--------------------------- ---------------------------
Quarter High Low High Low
- ---------------- ------------ ------------ ------------ ------------
First .......... 28.0000 25.0000 29.2500 25.7500
Second ......... 27.8125 25.0625 29.3750 25.2500
Third .......... 28.8750 26.4375 29.5000 26.5000
Fourth ......... 31.8750 27.6250 28.3750 25.0000
During the months of December 2000 and January 2001, the Partnership
gathered tax information from its known LP Unitholders and from
brokers/nominees. Based on the information collected, the Partnership estimates
its number of beneficial LP Unitholders to be approximately 18,000.
Cash distributions paid during 1999 and 2000 were as follows:
Amount
Record Date Payment Date Per Unit
- ----------- ------------ --------
February 16, 1999 ........................ February 26, 1999 $ 0.525
May 5, 1999 .............................. May 28, 1999 $ 0.550
August 4, 1999 ........................... August 31, 1999 $ 0.550
November 1, 1999 ......................... November 30, 1999 $ 0.550
February 4, 2000 ......................... February 29, 2000 $ 0.600
May 4, 2000 .............................. May 31, 2000 $ 0.600
August 4, 2000 ........................... August 31, 2000 $ 0.600
November 6, 2000 ......................... November 30, 2000 $ 0.600
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 23, 2001, the Partnership announced a quarterly distribution of
$0.60 per LP Unit payable on February 28, 2001 to Unitholders of record on
February 6, 2001.
14
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, 2000, 1999, 1998, 1997 and 1996. The tables should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this Report.
Year Ended December 31,
-------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------- ------------- ------------- ------------- -------------
(In thousands, except per unit amounts)
Income Statement Data:
Transportation revenue(1) ................. $ 208,632 $ 200,828 $ 184,477 $ 184,981 $ 182,955
Depreciation and amortization(2) .......... 17,906 16,908 16,432 13,177 11,333
Operating income (3)(4) ................... 91,475 95,936 74,358 72,075 68,784
Interest and debt expense (5) (6) (7) ..... 18,690 16,854 15,886 21,187 21,854
Income from continuing operations
before extraordinary loss and discon-
tinued operations ....................... 64,467 71,101 52,007 48,807 49,337
Net income ................................ 96,331 76,283 52,007 6,383 49,337
Income per unit from continuing opera-
tions before extraordinary loss and
discontinued operations ................. 2.38 2.63 1.93 1.92 2.03
Net income per unit ....................... 3.56 2.82 1.93 0.25 2.03
Distributions per unit .................... 2.40 2.18 2.10 1.72 1.50
December 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(In thousands)
Balance Sheet Data:
Total assets ...................... $712,812 $661,078 $618,099 $615,062 $567,837
Long-term debt (4) ................ 283,000 266,000 240,000 240,000 202,100
General Partner's capital ......... 2,831 2,548 2,390 2,432 2,760
Limited Partners' capital ......... 346,551 314,441 296,095 300,346 273,219
(1) Transportation revenue includes BGC revenue of $7,696,000 for 2000 and
$3,715,000 for the period March 31, 1999 through December 31, 1999.
(2) Depreciation and amortization includes $4,698,000 in each of 1998 through
2000 and $1,806,000 in 1997 for amortization of a deferred charge related
to the issuance of LP Units, with a market value of $64,200,000, in
connection with a restructuring of the ESOP that occurred in 1997.
(3) Operating income for 2000 includes BGC operating income of $1,194,000 for
2000 and $488,000 for the period March 4, 1999 through December 31, 1999.
(4) Operating income for 1999 includes a one-time property tax expense
reduction of $11.0 million following the settlement of a real property tax
dispute with the City and State of New York.
(5) In December 1997 Buckeye issued $240,000,000 of Senior Notes bearing
interest ranging from 6.39 percent to 6.98 percent. Concurrently with the
issuance of the Senior Notes, Buckeye extinguished $202,100,000 of First
Mortgage Notes bearing interest ranging from 7.11 percent to 11.18
percent.
(6) In February, May, June and August 2000, Buckeye borrowed an additional
$46,000,000 under its Credit Agreement. Borrowings under the Credit
Agreement bear interest at the bank's base rate or at a rate based on the
London interbank rate. In March and October 2000, Buckeye repaid
$3,000,000 and $26,000,000 million, respectively, under the Credit
Agreement.
(7) In February and March 1999, Buckeye borrowed a total of $26,000,000 under
its Credit Agreement. Borrowings under the Credit Agreement bear interest
at the bank's base rate or at a rate based on the London interbank rate.
15
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is a discussion of the liquidity and capital resources and
the results of operations of the Partnership for the periods indicated below.
This discussion should be read in conjunction with the consolidated financial
statements and notes thereto, which are included elsewhere in this Report.
Results of Operations
Through its Operating Partnerships and their subsidiaries, the Partnership
is principally engaged in the pipeline transportation of refined petroleum
products and, prior to October 25, 2000, the refining of transmix. Products
transported via pipeline include gasoline, jet fuel, diesel fuel, heating oil
and kerosene. The Partnership's revenues derived from the transportation of
refined petroleum products are principally a function of the volumes of refined
petroleum products transported by the Partnership, which are in turn a function
of the demand for refined petroleum products in the regions served by the
Partnership's pipelines, and the tariffs or transportation fees charged for
such transportation. The Partnership's revenues included in discontinued
operations, that were derived from the refining of transmix, were principally a
function of the wholesale market price of the refined products produced and the
number of barrels of refined products sold. Results of operations are affected
by factors that include general economic conditions, weather, competitive
conditions, demand for refined petroleum products, seasonal factors and
regulation. See "Business-- Competition and Other Business Considerations."
2000 Compared With 1999
Revenue from the transportation of refined petroleum products for the year
ended December 31, 2000 was $208.6 million, $7.8 million or 3.9 percent greater
than revenue of $200.8 million in 1999. Volumes delivered during 2000 averaged
1,061,500 barrels per day, 5,400 barrels per day or 0.5 percent greater than
volume of 1,056,100 barrels per day delivered in 1999. Revenue from the
transportation of gasoline decreased by $0.1 million, or 0.1 percent, from 1999
levels. In the East, higher gasoline prices dampened demand and discouraged
inventory restocking. In the Midwest, revenue grew despite flat volumes as
increased revenue under longer-haul moves more than offset declines in shorter
haul movements. Revenue from the transportation of distillate volumes increased
by $1.8 million, or 3.6 percent, over 1999 levels. The revenue increase is
primarily related to distillate volume increases of 8,400 barrels per day, or
3.5 percent more than 1999 volumes. In the East, volumes were relatively flat
throughout most market areas. In the Midwest, distillate revenues were up
primarily on increased deliveries to Bay City, Michigan and new business in the
Indianapolis, Indiana area. Distillate deliveries to Long Island market areas
were up approximately 21 percent, or 3,400 barrels per day, over 1999 levels.
Revenue from the transportation of jet fuel volumes increased by $1.2 million,
or 3.2 percent, over 1999 levels. Increased demand at Detroit Airport and
modest increases to New York airports were the primary reasons for the
increase. In addition, WesPac's jet fuel transportation revenue increased by
$0.3 million as a result of a full year of operations in 2000 compared to two
months in 1999. Revenue from BGC's operations, which began in March 1999, was
up $4.0 million as a result of a full year of operations and the impact of
entering into an expanded operating agreement with a major petrochemical
company. Revenue from BT's operations, which began in June 2000, added $1.9
million to revenue for the year.
Costs and expenses for 2000 were $117.2 million compared to costs and
expenses of $104.9 for 1999. During 1999, the Partnership settled a real
property tax dispute with the City and State of New York that resulted in a
one-time property tax expense reduction of $11.0 million. BGC's costs and
expenses increased $3.3 million over 1999 as result of a full year of
operations and additional
16
contract services provided. BT's cost and expenses amounted to $1.4 million for
its six months of operations in 2000. Excluding BGC's and BT's expenses,
payroll and payroll benefit costs declined during the year and were partially
offset by an increase in the use of outside services. Casualty loss expenses
were also less in 2000 than in 1999.
Other expenses for 2000 were $27.0 million compared to $24.8 million in
1999. Interest expense increased due to additional borrowings used to finance
acquisitions. In addition, incentive compensation payments to the General
Partner that are based on the level of Partnership distributions were
approximately $2.5 million greater during 2000 than 1999 due to an increase in
the level of cash distributions paid to limited partners. These increases were
partially offset by a $1.6 million gain on the sale of property.
Discontinued Operations
In 2000, net income of $5.7 million from the discontinued operations of
BRC resulted from revenues of $172.5 million offset by costs and expenses of
$166.8 million. In 1999, net income of $5.2 million from the discontinued
operations of BRC resulted from revenues of $107.5 million offset by costs and
expenses of $102.3 million. BRC was sold to Kinder Morgan Energy Partners, L.P.
for an aggregate sale price of $45.7 million on October 25, 2000. The sale
resulted in a gain of $26.2 million (see Item 8, "Financial Statements and
Supplementary Data").
1999 Compared With 1998
Revenue from the transportation of refined petroleum products for the year
ended December 31, 1999 was $200.8 million, $16.3 million or 8.8 percent
greater than revenue of $184.5 million in 1998. Volumes delivered during 1999
averaged 1,056,100 barrels per day, 24,900 barrels per day or 2.4 percent
greater than volume of 1,031,200 barrels per day delivered in 1998. Revenue
from the transportation of gasoline increased by $4.7 million, or 4.8 percent,
over 1998 levels. The revenue increase is primarily related to gasoline volume
increases of 13,100 barrels per day, or 2.5 percent more than 1998 volumes.
Deliveries to the upstate New York area, which are longer haul and at higher
tariff rates, were the primary cause of the increased gasoline revenue and
volumes. Demand in the Pittsburgh, Pennsylvania, Toledo, Ohio and Inwood, New
York areas also increased over 1998 levels. Offsetting these increases were
declines in volume to eastern and central Ohio locations. Revenue from the
transportation of distillate volumes increased by $4.3 million, or 9.1 percent,
over 1998 levels. The revenue increase is primarily related to distillate
volume increases of 9,900 barrels per day, or 4.3 percent more than 1998
volumes. In the East, volumes were higher throughout most market areas as
degree days were 17 percent higher during the first quarter of 1999 than the
first quarter of 1998. In the Midwest, distillate revenues were up slightly
despite declines in volumes due to the expiration of an incentive tariff early
in the year. The Long Island, Connecticut and Massachusetts markets experienced
modest growth in distillate revenues and volumes during 1999. Revenue from the
transportation of jet fuel volumes increased by $1.3 million, or 3.8 percent,
over 1998 levels. The revenue increase is primarily related to jet fuel volume
increases of 8,700 barrels per day, which were 3.4 percent greater than 1998
volumes. These increases are related to increased demand at Pittsburgh,
Pennsylvania, J.F. Kennedy, New York and Newark, New Jersey airports in the
East and at Detroit, Michigan airport in the Midwest. In addition, new jet fuel
business at Huntington, Indiana added to the favorable variance. Revenue from
the transportation of LPG volumes and other petroleum products declined by $0.6
million, or 15.9 percent, from 1998 levels with most of the decline occurring
at Toledo, Ohio. Transportation revenue from BGC's operations beginning March
31, 1999 (date of acquisition) through December 31, 1999 amounted to $3.7
million.
Costs and expenses for 1999 were $104.9 million, $5.2 million or 4.7
percent less than costs and expenses of $110.1 million for 1998. Costs and
expenses in 1999 include $3.2 million related to BGC's operations. Excluding
the expenses of BGC, operating expenses were $101.7 million, $8.4 million or
7.6 percent below costs and expenses of $110.1 million incurred during 1998.
17
During 1999, the Partnership settled a real property tax dispute with the City
and State of New York that resulted in a one-time property tax expense reduction
of $11.0 million. Payroll costs also declined as severance related provisions
and costs associated with the realignment of senior management occurring in 1998
did not recur in 1999. Outside service costs and maintenance material expense
also declined in 1999. Offsetting these decreases were increases in provisions
for environmental costs and increased power costs associated with the higher
level of volumes delivered.
Other expenses for 1999 were $24.8 million compared to $22.4 million in
1998. Interest expense increased due to additional borrowings used to finance
acquisitions. In addition, incentive compensation payments to the General
Partner that are based on the level of Partnership distributions were
approximately $0.8 million greater during 1999 than 1998.
Tariff Changes
Effective July 1, 2000, certain of the Operating Partnerships implemented
tariff increases that were expected to generate approximately $2.0 million in
additional revenue per year. Effective January 1, 1998, certain of the
Operating Partnerships implemented tariff increases that were expected to
generate approximately $2.5 million in additional revenue per year. The
Operating Partnerships did not file any general tariff rate increases that
became effective during 1999.
Competition and Other Business Conditions
Several major refiners and marketers of petroleum products announced
strategic alliances or mergers in recent years. These alliances or mergers have
the potential to alter refined product supply and distribution patterns within
the Operating Partnerships' market area resulting in both gains and losses of
volume and revenue. While the General Partner believes that individual delivery
locations within its market area may have significant gains or losses, it is
not possible to predict the overall impact these alliances or mergers would
have on the Operating Partnerships' business. However, the General Partner does
not believe that these alliances or mergers will have a material adverse effect
on the Partnership's results of operations or financial condition.
Liquidity and Capital Resources
The Partnership's financial condition at December 31, 2000, 1999 and 1998
is highlighted in the following comparative summary:
18
Liquidity and Capital Indicators
As of December 31,
--------------------------------------------
2000 1999 1998
------------- ------------- ------------
Current ratio ....................................... 2.0 to 1 1.4 to 1 0.8 to 1
Ratio of cash, cash equivalents and trade receivables
to current liabilities ............................ 1.5 to 1 0.8 to 1 0.5 to 1
Working capital (deficit) (in thousands) ............ $28,749 $13,149 ($ 6,266)
Ratio of total debt to total capital ................ .45 to 1 .45 to 1 .44 to 1
Book value (per Unit) ............................... $ 12.91 $ 11.72 $ 11.06
Cash Provided by Operations
During 2000, net cash provided by continuing operations of $74.4 million
was derived principally from $82.4 million of income from continuing operations
before depreciation and amortization. Changes in current assets and current
liabilities resulted in a net cash use of $8.4 million resulting primarily from
increases in trade receivables and increases in prepaid and other current
assets related to anticipated insurance recoveries of funds previously expended
for casualty losses. Changes in non-current assets and liabilities resulted in
a net cash source of $1.2 million. During the year the Partnership borrowed
$46.0 million under a line of credit from commercial banks (the "Credit
Agreement") which was used to finance, in part, capital expenditures of $40.3
million and acquisitions of $20.7 million. Capital expenditures increased by
$13.6 million over 1999 and acquisitions increased by $1.2 million over 1999.
Distributions paid to Unitholders in 2000 amounted to $65.0 million, an
increase of $6.2 million over 1999. Proceeds of $45.7 million from the sale of
BRC were used to repay $26.0 million of debt under its Credit Agreement and for
working capital purposes. An additional $3.0 million of debt was repaid in
March 2000.
During 1999, net cash provided by continuing operations of $84.6 million
was derived principally from $88.0 million of income from continuing operations
before depreciation and amortization. Changes in current assets and current
liabilities resulted in a net cash use of $2.6 million. During the year the
Partnership borrowed $26.0 million under its Credit Agreement which was used to
finance acquisitions of $19.5 million and for working capital purposes. Changes
in non-current assets and liabilities resulted in a net cash use of $1.8
million. Distributions paid to Unitholders in 1999 amounted to $58.8 million,
an increase of $2.1 million over 1998, and capital expenditures were $26.7
million, an increase of $4.0 million over 1998.
During 1998, cash provided by operations of $81.2 million was derived
principally from $68.4 million of net income before depreciation and
amortization. Depreciation and amortization increased by $3.3 million as a
result of the amortization for a full year of a deferred charge associated with
a restructuring of the ESOP and depreciation related to capital additions.
Changes in current assets and current liabilities resulted in a net cash source
of $12.3 million. The cash source from the change in current assets and
liabilities resulted primarily from maturities of temporary investments,
continued improvement in the collection of trade receivables, a reduction in
prepaid and other current assets and an increase in current liabilities payable
to the General Partner. Distributions paid to Unitholders in 1998 amounted to
$56.7 million, an increase of $12.4 million over 1997, and capital expenditures
were $22.8 million, an increase of $3.0 million over 1997.
Debt Obligations and Credit Facilities
At December 31, 2000, the Partnership had $283.0 million in outstanding
long-term debt representing $240.0 million of Senior Notes (Series 1997A
through 1997D) (the "Senior Notes") and $43.0 million of borrowings under the
Credit Agreement.
During December 1997, Buckeye issued the Senior Notes, which are due 2024
and accrue interest at an average annual rate of 6.94 percent. The proceeds
from the issuance of the Senior Notes, plus $4.5 million of additional cash,
19
were used to purchase and retire all of Buckeye's outstanding First Mortgage
Notes (the "First Mortgage Notes"), which accrued interest at an average annual
rate of 10.3 percent. In connection with the issuance of the Senior Notes, the
indenture (the "Indenture") pursuant to which the First Mortgage Notes were
issued was amended and restated in its entirety to eliminate the collateral
requirements and to impose certain financial covenants.
The Indenture, as amended in connection with the issuance of the Senior
Notes, contains covenants that affect Buckeye, Laurel and Buckeye Pipe Line
Company of Michigan, L.P. (the "Indenture Parties"). Generally, the Indenture
(a) limits outstanding indebtedness of Buckeye based upon certain financial
ratios of the Indenture Parties, (b) prohibits the Indenture Parties from
creating or incurring certain liens on their property, (c) prohibits the
Indenture Parties from disposing of property that is material to their
operations, and (d) limits consolidation, merger and asset transfers of the
Indenture Parties.
During December 1998, Buckeye established the Credit Agreement which
permits borrowings of up to $100 million subject to certain limitations
contained in the Credit Agreement. Borrowings bear interest at the bank's base
rate or at a rate based on the London interbank rate (LIBOR) at the option of
Buckeye. The Credit Agreement expires December 16, 2003. At December 31, 2000
there were $43.0 million of borrowings outstanding under the Credit Agreement.
During 2000, Buckeye borrowed $46.0 million and repaid $29.0 million under the
Credit Agreement resulting in a net increase in borrowings of $17.0 million.
Proceeds from the borrowings were used to finance the purchase of the Agway
terminal assets for BT, for capital expenditures and for working capital
purposes. At December 31, 2000, a total of $57.0 million was available for
borrowing under the Credit Agreement.
The Credit Agreement contains covenants that affect Buckeye and the
Partnership. Generally, the Credit Agreement (a) limits outstanding
indebtedness of Buckeye based upon certain financial ratios contained in the
Credit Agreement, (b) prohibits Buckeye from creating or incurring certain
liens on its property, (c) prohibits the Partnership or Buckeye from disposing
of property which is material to its operations, and (d) limits consolidation,
merger and asset transfers by Buckeye and the Partnership.
The ratio of total debt to total capital was 45 percent at December 31,
2000 and 1999 and 44 percent at December 31, 1998. 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, 2000, property, plant and equipment was approximately 82
percent of total consolidated assets. This compares to 83 percent and 86
percent for the years ended December 31, 1999 and 1998, respectively. Capital
expenditures are generally for expansion of the Operating Partnerships' service
capabilities and sustaining the Operating Partnerships' existing operations.
Capital expenditures made by the Partnership were $40.3 million, $26.7
million and $22.8 million for 2000, 1999 and 1998, respectively. Projected
capital expenditures for 2001 are approximately $27.7 million, including
approximately $20.0 million of maintenance capital and $7.7 million of
expansion capital, are expected to be funded from cash generated by operations
and Buckeye's Credit Agreement. Planned capital expenditures include, among
other things, various improvements that facilitate increased pipeline volumes,
facility automation, renewal and replacement of several tank roofs, upgrades to
field instrumentation and cathodic protection systems and installation and
replacement of mainline pipe and valves.
Environmental Matters
The Operating Partnerships are subject to federal, state and local laws
and regulations relating to the protection of the environment. These laws and
regulations, as well as the Partnership's own standards relating to
20
protection of the environment, cause the Operating Partnerships to incur current
and ongoing operating and capital expenditures. During 2000, the Operating
Partnerships incurred operating expenses of $1.5 million and capital
expenditures of $2.3 million for environmental matters. Capital expenditures of
$1.4 million for environmental related projects are planned for 2001.
Expenditures, both capital and operating, relating to environmental matters are
expected to continue due to the Partnership's commitment to maintain high
environmental standards and to increasingly rigorous environmental laws.
Various claims for the cost of cleaning up releases of hazardous
substances and for damage to the environment resulting from the activities of
the Operating Partnerships or their predecessors have been asserted and may be
asserted in the future under various federal and state laws. The General
Partner believes that the generation, handling and disposal of hazardous
substances by the Operating Partnerships and their predecessors have been in
material compliance with applicable environmental and regulatory requirements.
The total potential remediation costs to be borne by the Operating Partnerships
relating to these clean-up sites cannot be reasonably estimated and could be
material. With respect to each site, however, the Operating Partnership
involved is one of several or as many as several hundred PRPs that would share
in the total costs of clean-up under the principle of joint and several
liability. Although the Partnership has made a provision for certain legal
expenses relating to these matters, the General Partner is unable to determine
the timing or outcome of any pending proceedings or of any future claims and
proceedings. See "Business--Regulation--Environmental Matters" and "Legal
Proceedings."
Employee Stock Ownership Plan
Services Company provides an employee stock ownership plan (the "ESOP") to
substantially all of its regular full-time employees, except those covered by
certain labor contracts. The ESOP owns all of the outstanding common stock of
Services Company. At December 31, 2000, the ESOP was directly obligated to a
third-party lender for $54.8 million of 7.24 percent Notes (the "ESOP Notes").
The ESOP Notes are secured by Services Company common stock and are guaranteed
by Glenmoor and certain of its affiliates. The proceeds from the issuance of
the ESOP Notes were used to purchase Services Company common stock. Services
Company stock is released to employee accounts in the proportion that current
payments of principal and interest on the ESOP Notes bear to the total of all
principal and interest payments due under the ESOP Notes. Individual employees
are allocated shares based upon the ratio of their eligible compensation to
total eligible compensation. Eligible compensation generally includes base
salary, overtime payments and certain bonuses. Services Company stock allocated
to employees receives stock dividends in lieu of cash, while cash dividends are
used to pay principal and interest on the ESOP Notes.
The Partnership contributed 2,573,146 LP Units to Services Company in
August 1997 in exchange for the elimination of the Partnership's obligation to
reimburse BMC for certain executive compensation costs, a reduction of the
incentive compensation paid by the Partnership to BMC under the existing
incentive compensation agreement, and other changes that made the ESOP a less
expensive fringe benefit for the Partnership. Funding for the ESOP Notes is
provided by distributions that Services Company receives on the LP Units that
it owns and from cash payments from the Partnership, as required to cover the
shortfall, if any, between the distributions that Services Company receives on
the LP Units that it owns and amounts currently due under the ESOP Notes. The
Partnership will also incur ESOP-related costs for taxes associated with the
sale and annual taxable income of the LP Units and for routine administrative
costs. Total ESOP related costs charged to earnings were $1.1 million during
2000, $1.3 million during 1999 and $1.2 million during 1998.
Accounting Statements Not Yet Adopted
In November 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
Recognition" ("SAB 101"). SAB 101 sets forth the SEC Staff's position regarding
the point at which it is appropriate to recognize revenue. The Staff believes
21
that revenue is realizable and earned when (i) persuasive evidence of an
arrangement exists, (ii) delivery has occurred or service has been rendered,
(iii) the seller's price to the buyer is fixed or determinable, and (iv)
collection is reasonably assured. The Partnership uses the above criteria to
determine when revenue should be recognized and therefore the issuance of SAB
101 is not expected to have a material impact on its financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
"derivatives"), and for hedging activities. In June 2000, the FASB issued SFAS
No. 138, which amends certain provisions of SFAS 133 to clarify four areas
causing difficulties in implementation. The amendment included expanding the
normal purchase and sale exemption for supply contracts, permitting the
offsetting of certain intercompany foreign currency derivatives thereby
reducing the number of third party derivatives, permitting hedge accounting for
foreign-currency denominated assets and liabilities and redefining interest
rate risk to reduce sources of ineffectiveness. The Partnership will adopt SFAS
133 and the corresponding amendments under SFAS 138 on January 1, 2001.
Management completed its evaluation of the effect of SFAS 133 and 138 on the
Partnership's financial statements and has determined that the adoption of SFAS
133 and 138 will not have a material impact on the financial statements.
Forward-Looking Statements
Information contained above in this Management's Discussion and Analysis
and elsewhere in this Report on Form 10-K with respect to expected financial
results and future events is forward-looking, based on our estimates and
assumptions and subject to risk and uncertainties. For those statements, we
claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.
The following important factors could affect our future results and could
cause those results to differ materially from those expressed in our
forward-looking statements: (1) adverse weather conditions resulting in reduced
demand; (2) changes in laws and regulations, including safety, tax and
accounting matters; (3) competitive pressures from alternative energy sources;
(4) liability for environmental claims; (5) improvements in energy efficiency
and technology resulting in reduced demand; (6) labor relations; (7) changes in
real property tax assessments, (8) regional economic conditions; (9) market
prices of petroleum products and the demand for those products in the
Partnership's service territory; and (10) interest rate fluctuations and other
capital market conditions.
These factors are not necessarily all of the important factors that could
cause actual results to differ materially from those expressed in any of our
forward-looking statements. Other unknown or unpredictable factors could also
have material adverse effects on future results. We undertake no obligation to
update publicly any forward-looking statement whether as a result of new
information or future events.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Partnership is exposed to market risks resulting from changes in
interest rates. Market risk represents the risk of loss that may impact the
Partnership's results of operations, the consolidated financial position or
operating cash flows. The Partnership is not exposed to any market risk due to
rate changes on its Senior Notes but is exposed to market risk related to the
interest rate on its Credit Agreement.
22
Market Risk -- Other than Trading Instruments
Prior to the sale of BRC, the Partnership hedged a substantial portion of
its exposure to inventory price fluctuations related to its BRC business with
commodity futures contracts for the sale of gasoline and fuel oil. Losses
related to commodity futures contracts included in earnings from discontinued
operations were $6.7 million and $4.4 million for 2000 and 1999, respectively.
Market Risk -- Other than Trading Instruments
The Partnership has market risk exposure on its Credit Agreement due to
its variable rate pricing that is based on the bank's base rate or at a rate
based on LIBOR. At December 31, 2000, the Partnership had $43.0 million in
outstanding debt under its Credit Agreement that was subject to market risk. A
1 percent increase or decrease in the applicable rate under the Credit
Agreement will result in an interest expense fluctuation of approximately $0.4
million. As of December 31, 1999, the Partnership had $26.0 million in
outstanding debt under its Credit Agreement that was subject to market risk.
23
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 ..................................... 25
Consolidated Statements of Income--For the years ended December
31, 2000, 1999 and 1998 ........................................ 26
Consolidated Balance Sheets--December 31, 2000 and 1999 .......... 27
Consolidated Statements of Cash Flows--For the years ended Decem-
ber 31, 2000, 1999 and 1998 .................................... 28
Notes to Consolidated Financial Statements ....................... 29
Financial Statement Schedules and Independent Auditors' Report:
Independent Auditors' Report ..................................... S-1
Schedule I--Registrant's Condensed Financial Information ......... S-2
Schedules other than those listed above are omitted because they are
either not applicable or not required or the information required is included
in the consolidated financial statements or notes thereto.
24
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, 2000
and 1999, and the related consolidated statements of income and cash flows for
each of the three years in the period ended December 31, 2000. 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 auditing standards generally
accepted in the United States of America. 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 present fairly, in
all material respects, the financial position of the Partnership as of December
31, 2000 and 1999, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2000 in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
January 26, 2001
25
BUCKEYE PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per unit amounts)
Year Ended December 31,
------------------------------------------
Notes 2000 1999 1998
---------- ------------ ------------ ------------
Transportation revenue ............................ 2,4 $ 208,632 $ 200,828 $ 184,477
--------- --------- ---------
Costs and expenses
Operating expenses .............................. 6,17,22 87,498 74,346 79,439
Depreciation and amortization ................... 2,8,9 17,906 16,908 16,432
General and administrative expenses ............. 17 11,753 13,638 14,248
--------- --------- ---------
Total costs and expenses ....................... 117,157 104,892 110,119
--------- --------- ---------
Operating income .................................. 91,475 95,936 74,358
--------- --------- ---------
Other income (expenses)
Investment income ............................... 596 64 251
Interest and debt expense ....................... (18,690) (16,854) (15,886)
Minority interests and other .................... 17 (8,914) (8,045) (6,716)
--------- --------- ---------
Total other income (expenses) .................. (27,008) (24,835) (22,351)
--------- --------- ---------
Income from continuing operations ................. 64,467 71,101 52,007
--------- --------- ---------
Earnings of discontinued operations ............... 5,682 5,182 --
Gain on sale of discontinued operations ........... 26,182 -- --
--------- --------- ---------
Income from discontinued operations ............... 31,864 5,182 --
--------- --------- ---------
Net income ........................................ $ 96,331 $ 76,283 $ 52,007
========= ========= =========
Net income allocated to General Partner ........... 18 $ 868 $ 689 $ 470
Net income allocated to Limited Partners .......... 18 $ 95,463 $ 75,594 $ 51,537
Earnings per Partnership Unit
Income from continuing operations allocated to
General and Limited Partners per Partnership
Unit ............................................ $ 2.38 $ 2.63 $ 1.93
Income from discontinued operations allocated to
General and Limited Partners per Partnership
Unit ............................................ 1.18 0.19 --
--------- --------- ---------
Earnings per Partnership Unit ..................... $ 3.56 $ 2.82 $ 1.93
========= ========= =========
Earnings Per Partnership Unit -- assuming dilution:
Income from continuing operations allocated to
General and Limited Partners per Partnership
Unit ............................................ $ 2.38 $ 2.62 $ 1.92
Income from discontinued operations allocated to
General and Limited Partners per Partnership
Unit ............................................ 1.17 0.19 --
--------- --------- ---------
Earnings per Partnership Unit ..................... $ 3.55 $ 2.81 $ 1.92
========= ========= =========
See Notes to consolidated financial statements.
26
BUCKEYE PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
-----------------------
Notes 2000 1999
---------- ---------- ----------
Assets
Current assets
Cash and cash equivalents ................................ 2 $ 32,216 $ 15,731
Trade receivables ........................................ 2 11,005 7,947
Inventories .............................................. 2 5,871 4,591
Prepaid and other current assets ......................... 7 8,961 4,734
Net current assets of discontinued operations ............ 5 -- 9,417
-------- --------
Total current assets ................................... 58,053 42,420
Property, plant and equipment, net ........................ 2,4,8 585,630 549,626
Other non-current assets .................................. 9,15 69,129 61,041
Net non-current assets of discontinued operations ......... 5 -- 7,991
-------- --------
Total assets ........................................... $712,812 $661,078
======== ========
Liabilities and partners' capital
Current liabilities
Accounts payable ......................................... $ 6,588 $ 6,506
Accrued and other current liabilities .................... 5,10,17 22,716 22,765
-------- --------
Total current liabilities .............................. 29,304 29,271
Long-term debt ............................................ 11 283,000 266,000
Minority interests ........................................ 3,102 2,853
Other non-current liabilities ............................. 12,13,17 48,024 45,965
Commitments and contingent liabilities .................... 6,16 -- --
-------- --------
Total liabilities ...................................... 363,430 344,089
-------- --------
Partners' capital
General Partner .......................................... 18 2,831 2,548
Limited Partner .......................................... 18 346,551 314,441
-------- --------
Total partners' capital ................................ 349,382 316,989
-------- --------
Total liabilities and partners' capital ................ $712,812 $661,078
======== ========
See Notes to consolidated financial statements.
27
BUCKEYE PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
Year Ended December 31,
------------------------------------------
Notes 2000 1999 1998
------- ------------ ------------ ------------
Cash flows from operating activities:
Net income .............................................. $ 96,331 $ 76,283 $ 52,007
Income from discontinued operations ..................... (5,682) (5,182) --
Gain on sale of discontinued operations ................. (26,182) -- --
--------- --------- ---------
Income from continuing operations ....................... 64,467 71,101 52,007
--------- --------- ---------
Adjustments to reconcile income to net cash pro-
vided by operating activities:
Gain on sale of property, plant and equipment .......... (1,582) -- (195)
Depreciation and amortization .......................... 8,9 17,906 16,908 16,432
Minority interests ..................................... 788 1,011 594
Change in assets and liabilities:
Temporary investments ................................ -- -- 2,854
Trade receivables .................................... (3,058) (369) 2,617
Inventories .......................................... (1,159) (1,603) (901)
Prepaid and other current assets ..................... (4,227) 586 1,977
Accounts payable ..................................... 82 2,137 705
Accrued and other current liabilities ................ (49) (3,359) 5,051
Other non-current assets ............................. (838) (1,143) (1,535)
Other non-current liabilities ........................ 2,059 (655) 1,608
--------- --------- ---------
Total adjustments from operating activities ......... 9,922 13,513 29,207
--------- --------- ---------
Net cash provided by continuing operations .......... 74,389 84,614 81,214
--------- --------- ---------
Net cash provided by discontinued operations 3,576 1,511 --
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures .................................... (40,267) (26,731) (22,750)
Acquisitions ............................................ (20,693) (19,487) --
Net proceeds from (expenditures for) disposal of
property, plant and equipment .......................... 1,261 (79) (544)
Proceeds from sale of discontinued operations ........... 45,696 -- --
--------- --------- ---------
Net cash used in investing activities ............... (14,003) (46,297) (23,294)
--------- --------- ---------
Cash flows from financing activities:
Capital contribution .................................... 306 -- --
Proceeds from exercise of unit options .................. 1,013 978 366
Distributions to minority interests ..................... (845) (659) (628)
Proceeds from issuance of long-term debt ................ 11 46,000 26,000 --
Payment of long-term debt ............................... 11 (29,000) -- --
Distributions to Unitholders ............................ 18,19 (64,951) (58,757) (56,666)
--------- --------- ---------
Net cash used in financing activities ............... (47,477) (32,438) (56,928)
--------- --------- ---------
Net increase in cash and cash equivalents ................. 16,485 7,390 992
Cash and cash equivalents at beginning of year ............ 15,731 8,341 7,349
--------- --------- ---------
Cash and cash equivalents at end of year .................. $ 32,216 $ 15,731 $ 8,341
========= ========= =========
Supplemental cash flow information:
Cash paid during the year for interest (net of
amount capitalized) .................................... $ 17,828 $ 16,912 $ 15,918
See Notes to consolidated financial statements.
28
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
1. ORGANIZATION
Buckeye Partners, L.P. (the "Partnership") is a limited partnership
organized in 1986 under the laws of the state of Delaware. The Partnership owns
approximately 99 percent limited partnership interests in Buckeye Pipe Line
Company, L.P. ("Buckeye"), Laurel Pipe Line Company, L.P. ("Laurel"),
Everglades Pipe Line Company, L.P. ("Everglades") and Buckeye Tank Terminals
Company, L.P. ("BTT"). These entities are hereinafter referred to as the
"Operating Partnerships." BTT owns a 100 percent interest in each of Buckeye
Terminals, LLC ("BT") and Buckeye Gulf Coast Pipe Lines, LLC ("BGC") and also
owns a 75 percent interest in WesPac Pipelines-Reno Ltd. ("WesPac") and related
WesPac entities. The Partnership also owns a 99 percent interest in Buckeye
Telecom, L.P. ("Telecom").
Buckeye Pipe Line Company (the "General Partner") serves as the general
partner to the Partnership. As of December 31, 2000, the General Partner owned
approximately a 1 percent general partnership interest in the Partnership and
approximately a 1 percent general partnership interest in each Operating
Partnership, for an effective 2 percent interest in the Partnership. The
General Partner is a wholly-owned subsidiary of Buckeye Management Company
("BMC"). BMC is a wholly-owned subsidiary of Glenmoor, Ltd. Glenmoor is owned
by certain directors and members of senior management of the General Partner
and trusts for the benefit of their families and by certain other management
employees of Buckeye Pipe Line Services Company ("Services Company").
Services Company employs all of the employees that work for the Operating
Partnerships. Services Company entered into a Services Agreement with BMC and
the General Partner in August 1997 to provide services to the Partnership and
the Operating Partnerships for a 13.5 year term. Services Company is reimbursed
by BMC or the General Partner for its direct and indirect expenses, which in
turn are reimbursed by the Partnership, except for certain executive
compensation costs which after August 12, 1997 are no longer reimbursed (see
Note 17).
Buckeye is one of the largest independent pipeline common carriers of
refined petroleum products in the United States, with 2,970 miles of pipeline
serving 9 states. Laurel owns a 345-mile common carrier refined products
pipeline located principally in Pennsylvania. Everglades owns 37 miles of
refined products pipeline in Florida. Buckeye, Laurel and Everglades conduct
the Partnership's refined products pipeline business. BTT and its subsidiaries
provide bulk storage service through facilities with an aggregate capacity of
1,658,000 barrels of refined petroleum products.
On March 4, 1999, the Partnership acquired the fuels division of American
Refining Group, Inc. ("ARG"). The Partnership operated the former ARG
processing business under the name of Buckeye Refining Company, LLC ("BRC").
BRC was sold to Kinder Morgan Energy Partners, L.P. ("Kinder Morgan") on
October 25, 2000. BRC processed transmix at its Indianola, Pennsylvania and
Hartford, Illinois refineries. Transmix represents refined petroleum products,
primarily fuel oil and gasoline that become commingled during normal pipeline
operations. The refining process produced separate quantities of fuel oil,
kerosene and gasoline that BRC then marketed at the wholesale level.
On March 31, 1999, the Partnership acquired pipeline operating contracts
and a 16-mile pipeline from Seagull Products Pipeline Corporation and Seagull
Energy Corporation ("Seagull"). The Partnership operates the assets acquired
from Seagull under the name of Buckeye Gulf Coast Pipe Lines, LLC. BGC is an
owner and contract operator of pipelines owned by major chemical companies in
the Gulf Coast area. BGC also leases the 16-mile pipeline to a chemical
company.
29
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
On June 30, 2000, the Partnership acquired six petroleum products
terminals from Agway Energy Products LLC. The terminals have an aggregate
capacity of approximately 1.8 million barrels and are located in Brewerton,
Geneva, Marcy, Rochester and Vestal, New York and Macungie, Pennsylvania.
The Partnership maintains its accounts in accordance with the Uniform
System of Accounts for Pipeline Companies, as prescribed by the Federal Energy
Regulatory Commission ("FERC"). Reports to FERC differ from the accompanying
consolidated financial statements, which have been prepared in accordance with
generally accepted accounting principles, generally in that such reports
calculate depreciation over estimated useful lives of the assets as prescribed
by FERC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements include the accounts of the Operating
Partnerships on a consolidated basis. All significant intercompany transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of the Partnership's consolidated financial statements in
conformity with generally accepted accounting principles necessarily requires
management to make estimates and assumptions. These estimates and assumptions,
which may differ from actual results, will affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts of
revenue and expense during the reporting period.
Financial Instruments
The fair values of financial instruments are determined by reference to
various market data and other valuation techniques as appropriate. Unless
otherwise disclosed, the fair values of financial instruments approximate their
recorded values (see Note 11).
Temporary Investments
The Partnership's temporary investments that are bought and held
principally for the purpose of selling them in the near term are classified as
trading securities. Trading securities are recorded at fair value as current
assets on the balance sheet, with the change in fair value during the period
included in earnings.
Revenue Recognition
Substantially all revenue from continuing operations is derived from
interstate and intrastate transportation of petroleum products. Such revenue is
recognized as products are delivered to customers. Such customers include major
integrated oil companies, major refiners and large regional marketing
companies. The consolidated Partnership's customer base was approximately 90 in
2000. No customer contributed more than 10 percent of total revenue during
2000. The Partnership does not maintain an allowance for doubtful accounts due
to its favorable collections experience.
Inventories
Inventories, consisting of materials and supplies, pipe, valves, pumps,
electrical/electronic components, drag reducing agent and other miscellaneous
items are carried at the lower of cost or market based on the first-in
first-out method.
30
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Property, Plant and Equipment
Property, plant and equipment consist primarily of pipeline and related
transportation facilities and equipment. For financial reporting purposes,
depreciation is calculated primarily using the straight-line method over the
estimated useful life of 50 years. Additions and betterments are capitalized
and maintenance and repairs are charged to income as incurred. Generally, upon
normal retirement or replacement, the cost of property (less salvage) is
charged to the depreciation reserve, which has no effect on income.
Goodwill
The Partnership amortizes goodwill on the straight-line basis over a
period of fifteen years.
Long-Lived Assets
The Partnership regularly assesses the recoverability of its long-lived
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
Income Taxes
For federal and state income tax purposes, the Partnership and Operating
Partnerships are not taxable entities. Accordingly, the taxable income or loss
of the Partnership and Operating Partnerships, which may vary substantially
from income or loss reported for financial reporting purposes, is generally
includable in the federal and state income tax returns of the individual
partners. As of December 31, 2000 and 1999, the Partnership's reported amount
of net assets for financial reporting purposes exceeded its tax basis by
approximately $293 million and $290 million, respectively.
Environmental Expenditures
Environmental expenditures that relate to current or future revenues are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations, and do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or clean-ups are probable, and the costs can be reasonably
estimated. Generally, the timing of these accruals coincides with the
Partnership's commitment to a formal plan of action. Accrued environmental
remediation related expenses include direct costs of remediation and indirect
costs related to the remediation effort, such as compensation and benefits for
employees directly involved in the remediation activities and fees paid to
outside engineering, consulting and law firms.
Pensions
Services Company maintains a defined contribution plan, defined benefit
plans (see Note 13) and an employee stock ownership plan (see Note 15) which
provide retirement benefits to substantially all of its regular full-time
employees. Certain hourly employees of Services Company are covered by a
defined contribution plan under a union agreement.
Postretirement Benefits Other Than Pensions
Services Company provides postretirement health care and life insurance
benefits for certain of its retirees (see Note 13). Certain other retired
employees are covered by a health and welfare plan under a union agreement.
31
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Unit Option and Distribution Equivalent Plan
The Partnership has adopted Statement of Financial Accounting Standards
No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," which requires
expanded disclosures of stock-based compensation arrangements with employees.
SFAS 123 encourages, but does not require, compensation cost to be measured
based on the fair value of the equity instrument awarded. It allows the
Partnership to continue to measure compensation cost for these plans using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
The Partnership has elected to continue to recognize compensation cost based on
the intrinsic value of the equity instrument awarded as promulgated in APB 25.
Comprehensive Income
The Partnership has not reported comprehensive income due to the absence
of items of other comprehensive income in any period presented.
Recent Accounting Pronouncements
In November 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
Recognition" ("SAB 101"). SAB 101 sets forth the SEC Staff's position regarding
the point at which it is appropriate to recognize revenue. The Staff believes
that revenue is realizable and earned when (i) persuasive evidence of an
arrangement exists, (ii) delivery has occurred or service has been rendered,
(iii) the seller's price to the buyer is fixed or determinable, and (iv)
collection is reasonably assured. The Partnership uses the above criteria to
determine when revenue should be recognized and therefore the issuance of SAB
101 is not expected to have a material impact on its financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
"derivatives"), and for hedging activities. In June 2000, the FASB issued SFAS
No. 138, which amends certain provisions of SFAS 133 to clarify four areas
causing difficulties in implementation. The amendment included expanding the
normal purchase and sale exemption for supply contracts, permitting the
offsetting of certain intercompany foreign currency derivatives thereby
reducing the number of third party derivatives, permitting hedge accounting for
foreign-currency denominated assets and liabilities and redefining interest
rate risk to reduce sources of ineffectiveness. The Partnership will adopt SFAS
133 and the corresponding amendments under SFAS 138 on January 1, 2001.
Management completed its evaluation of the effect of SFAS 133 and 138 on the
Partnership's financial statements and has determined that the adoption of SFAS
133 and 138 will not have a material impact on the financial statements.
3. ACQUISITIONS AND DIVESTITURES
Buckeye Refining Company, LLC
On March 4, 1999, the Partnership acquired the fuels division of American
Refining Group, Inc. for an initial purchase price of $12,990,000. In December
1999, the Partnership accrued an additional payment of $747,000 pursuant to a
contingent payment agreement. The assets acquired included a refined petroleum
products terminal and a transmix processing facility located in Indianola,
Pennsylvania, a transmix processing facility located in Hartford, Illinois, and
related assets, which included trade receivables and inventory valued at net
realizable value. The acquisition was recorded under the purchase method of
accounting and, accordingly, the results of operations of the acquired
32
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
operations were included in the financial statements of the Partnership
beginning on March 4, 1999. The Partnership operated the former ARG processing
business under the name of Buckeye Refining Company, LLC. The purchase price
was allocated to assets acquired based on estimated fair value. The allocated
fair value of assets acquired is summarized as follows:
Trade receivables ..................... $ 815,000
Petroleum products inventory .......... 4,102,000
Property, plant and equipment ......... 8,073,000
Goodwill .............................. 747,000
------------
Total ................................. $ 13,737,000
============
In connection with the acquisition of the ARG assets, the Partnership was
obligated to pay additional consideration, not to exceed $5,000,000 in the
aggregate over a six-year period, if BRC's gross profits and cash flows,
calculated on an annual basis, exceed certain levels. On October 25, 2000, BRC
was sold to Kinder Morgan for an aggregate sale price of $45,696,000 million.
The total additional consideration provided for since the acquisition of BRC
amounted to $4,217,000 million (see Note 5).
Buckeye Gulf Coast Pipe Lines, LLC
On March 31, 1999, the Partnership acquired certain assets from Seagull
Products Pipeline Corporation and Seagull Energy Corporation for a total
purchase price of $5,750,000. The assets acquired consist primarily of six
pipeline operating agreements for major chemical companies in the Gulf Coast
area, a 16-mile pipeline (a portion of which is leased to a chemical company),
and related assets. The acquisition was recorded under the purchase method of
accounting and, accordingly, the results of operations of the acquired
operations are included in the financial statements of the Partnership
beginning on March 31, 1999. The Partnership operates the pipeline assets
acquired from Seagull under the name of Buckeye Gulf Coast Pipe Lines, LLC. The
purchase price has been allocated to assets acquired based on estimated fair
value. The allocated fair value of assets acquired is summarized as follows:
Property, plant and equipment ......... $ 2,150,000
Goodwill .............................. 3,600,000
-----------
Total ............................... $ 5,750,000
===========
Buckeye Terminals, LLC
On June 30, 2000, the Partnership acquired six petroleum products
terminals from Agway Energy Products LLC ("Agway") for a total purchase price
of $19,000,000. Additional costs incurred in connection with the acquisition
for gasoline and diesel fuel additives and closing adjustments amounted to
$1,693,000. The Partnership operates the terminals under the name of Buckeye
Terminals, LLC. The terminals are located in Brewerton, Geneva, Marcy,
Rochester and Vestal, New York and Macungie, Pennsylvania. The terminals have
an aggregate capacity of approximately 1.8 million barrels of petroleum
product. The initial allocated fair value of assets acquired is summarized as
follows:
Fuel additive inventory ............... $ 121,000
Property, plant and equipment ......... 7,964,000
Goodwill .............................. 12,608,000
-----------
Total ................................. $20,693,000
===========
33
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Pro forma results of operations for the Partnership, assuming the
acquisition of the Seagull and Agway assets had occurred at the beginning of
the periods indicated below, are as follows:
Twelve Months Ended
December 31,
------------------------------------------------
2000 1999 1998
-------------- -------------- --------------
(In thousands, except per Unit amounts)
Revenue ..................................... $ 210,421 $ 205,786 $ 193,024
Income from continuing operations ........... $ 64,374 $ 71,305 $ 53,229
Net income .................................. $ 96,238 $ 76,487 $ 53,229
Earnings per Partnership Unit from continuing
operations ................................ $ 2.38 $ 2.64 $ 1.97
Earnings per Partnership Unit ............... $ 3.56 $ 2.83 $ 1.97
The unaudited pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the combinations been in effect at the
beginning of each period presented, or of future results of operations of the
entities.
4. SEGMENT INFORMATION
The Partnership operated in two business segments, the transportation
segment and the refining segment. Operations in the refining segment commenced
upon the acquisition of BRC in March, 1999 and ceased upon the sale of BRC in
October, 2000. As a result of the sale of BRC, the refining segment is
accounted for as a discontinued operation in the accompanying financial
statements. The Partnership's continuing operations consist solely of its
transportation segment.
The transportation segment derives its revenues from the transportation of
refined petroleum products that it receives from refineries, connecting
pipelines and marine terminals. Revenues from the transportation segment are
generally subject to regulation or are under contract and tend to be less
variable than revenues from the refining segment.
5. DISCONTINUED OPERATIONS
On October 25, 2000, the Partnership sold BRC to Kinder Morgan Energy
Partners, L.P. for $45,696,000 in cash. The sale resulted in a gain of
$26,182,000 after provisions of $3,470,000 related to conditional consideration
payable to ARG by the Partnership pursuant to the acquisition agreement entered
into in March, 1999 (see Note 3). Proceeds from the sale were used to repay
$26,000,000 of debt and for working capital purposes.
Results of BRC's operations are reported as a discontinued operation for
all periods presented in the accompanying financial statements. BRC operated as
a subsidiary of the Partnership for the period of March 4, 1999 through October
25, 2000. Summarized operating results of BRC were as follows for the periods
indicated below:
34
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
January 1, 2000 March 4, 1999
through through
October 25, 2000 December 31, 1999
------------------ ------------------
Refining revenue ......... $ 172,451 $ 107,489
Operating income ......... $ 5,526 $ 5,093
Net income ............... $ 5,682 $ 5,182
At December 31, 1999 the assets and liabilities of BRC reported on the
balance sheet as net assets of discontinued operations consisted of the
following:
Assets
Cash ................................................. $ 6,272
Trade receivables .................................... 1,771
Inventories .......................................... 13,806
Prepaid and other current assets ..................... 775
--------
Total current assets ................................ $ 22,624
========
Liabilities
Current liabilities
Accounts payable ..................................... $ 12,455
Accrued and other current liabilities ................ 752
--------
Total current liabilities ........................... $ 13,207
========
Net current assets of discontinued operations ........ $ 9,417
========
Property, plant and equipment, net .................. $ 7,278
Other non-current assets ............................ 713
--------
Net non-current assets of discontinued operations..... $ 7,991
========
The Partnership hedged a substantial portion of its exposure to inventory
price fluctuations related to its BRC business with commodity futures contracts
for the sale of gasoline and fuel oil. Losses related to commodity futures
contracts included in earnings from discontinued operations were $6.7 million
and $4.4 million for 2000 and 1999, respectively.
6. 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 for a future period, the General Partner does not
believe that their outcome will have a material effect on the Partnership's
consolidated financial condition or annual results of operations.
Environmental
In accordance with its accounting policy on environmental expenditures,
the Partnership recorded operating expenses of $1.5 million, $3.2 million and
$1.8 million for 2000, 1999 and 1998, respectively, which were related to the
environment. Expenditures, both capital and operating, relating to
environmental matters are expected to continue due to the Partnership's
commitment to maintain high environmental standards and to increasingly strict
environmental laws and government enforcement policies.
35
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Various claims for the cost of cleaning up releases of hazardous
substances and for damage to the environment resulting from the activities of
the Operating Partnerships or their predecessors have been asserted and may be
asserted in the future under various federal and state laws. The General
Partner believes that the generation, handling and disposal of hazardous
substances by the Operating Partnerships and their predecessors have been in
material compliance with applicable environmental and regulatory requirements.
The total potential remediation costs to be borne by the Operating Partnerships
relating to these clean-up sites cannot be reasonably estimated and could be
material. With respect to each site, however, the Operating Partnership
involved is one of several or as many as several hundred potentially
responsible parties that would share in the total costs of clean-up under the
principle of joint and several liability. Although the Partnership has made a
provision for certain legal expenses relating to these matters, the General
Partner is unable to determine the timing or outcome of any pending proceedings
or of any future claims and proceedings.
7. PREPAID AND OTHER CURRENT ASSETS
Prepaid and other current assets consist primarily of receivables from
third parties for pipeline relocations and other work either completed or
in-progress. Prepaid and other current assets also include prepaid insurance,
prepaid taxes and other miscellaneous items.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
December 31,
--------------------------
2000 1999
----------- ------------
(In thousands)
Land ................................................ $ 12,300 $ 9,499
Buildings and leasehold improvements ................ 29,209 27,926
Machinery, equipment and office furnishings ......... 603,003 539,982
Construction in progress ............................ 29,722 51,975
--------- ---------
674,234 629,382
Less accumulated depreciation .................... 88,604 79,756
--------- ---------
Total ............................................ $ 585,630 $ 549,626
========= =========
Depreciation expense was $12,548,000, $12,030,000 and $11,734,000 for the
years 2000, 1999 and 1998, respectively. Depreciation expense related to
discontinued operations was $434,000 and $525,000 in 2000 and 1999,
respectively.
9. OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following:
December 31,
-------------------------
2000 1999
----------- -----------
(In thousands)
Deferred charge (see Note 15) ......... $ 48,302 $ 52,999
Goodwill .............................. 15,368 3,420
Other ................................. 5,459 4,622
-------- --------
Total ............................... $ 69,129 $ 61,041
======== ========
36
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The $64.2 million market value of the LP Units issued in connection with
the restructuring of the ESOP in August 1997 (the "ESOP Restructuring") was
recorded as a deferred charge and is being amortized on the straight-line basis
over 13.5 years (see Note 15). Amortization of the deferred charge related to
the ESOP Restructuring was $4,698,000 in 2000, 1999 and 1998. Goodwill is
amortized on a straight-line basis over a period of fifteen years. Goodwill
amortization expense related to continuing operations was $660,000 and $180,000
in 2000 and 1999, respectively. Goodwill amortization expense included in
income from discontinued operations was $41,000 in 2000 and 1999.
10. ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other current liabilities consist of the following:
December 31,
-----------------------
2000 1999
---------- ----------
(In thousands)
Taxes--other than income .................... $ 4,158 $ 5,050
Accrued charges due General Partner ......... 5,581 6,690
Environmental liabilities ................... 2,611 3,588
Interest .................................... 1,618 756
Accrued operating power ..................... 926 1,242
Deposits .................................... 3,170 --
Other ....................................... 4,652 5,439
-------- --------
Total ..................................... $ 22,716 $ 22,765
======== ========
11. LONG-TERM DEBT AND CREDIT FACILITIES
Long-term debt consists of the following:
December 31,
---------------------------
2000 1999
------------ ------------
(In thousands)
Senior Notes:
6.98% Series 1997A due December 16, 2024 (subject
to $25.0 million annual sinking fund requirement
commencing December 16, 2020) ................... $ 125,000 $ 125,000
6.89% Series 1997B due December 16, 2024 (subject
to $20.0 million annual sinking fund requirement
commencing December 16, 2020) ................... 100,000 100,000
6.95% Series 1997C due December 16, 2024 (subject
to $2.0 million annual sinking fund requirement
commencing December 16, 2020) ................... 10,000 10,000
6.96% Series 1997D due December 16, 2024 (sub-
ject to $1.0 million annual sinking fund require-
ment commencing December 16, 2020) .............. 5,000 5,000
Credit Agreement due December 16, 2003 (variable
rates; average weighted rate at December 31,
2000 and 1999 was 7.21% and 6.32%,
respectively) ................................... 43,000 26,000
--------- ---------
Total ........................................... $ 283,000 $ 266,000
========= =========
37
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
At December 31, 2000, a total of $43.0 million of debt was scheduled to
mature in December 2003. A total of $240,000,000 of debt is scheduled to mature
in the period 2020 through 2024.
The fair value of the Partnership's debt is estimated to be $283 million
and $234 million as of December 31, 2000 and 1999, respectively. The values at
December 31, 2000 and 1999 were calculated using interest rates currently
available to the Partnership for issuance of debt with similar terms and
remaining maturities.
In December 1997, Buckeye entered into an agreement to issue $240.0
million of Senior Notes (Series 1997A through 1997D) bearing interest ranging
from 6.89 percent to 6.98 percent. The indenture, as amended in connection with
the issuance of the Senior Notes (the "Indenture") contains covenants that
affect Buckeye, Laurel and Buckeye Pipe Line Company of Michigan, L.P. (the
"Indenture Parties"). Generally, the Indenture (a) limits outstanding
indebtedness of Buckeye based upon certain financial ratios of the Indenture
Parties, (b) prohibits the Indenture Parties from creating or incurring certain
liens on their property, (c) prohibits the Indenture Parties from disposing of
property which is material to their operations, and (d) limits consolidation,
merger and asset transfers of the Indenture Parties.
During December 1998, Buckeye established a line of credit from commercial
banks (the "Credit Agreement") that permits borrowings of up to $100 million
subject to certain limitations contained in the Credit Agreement. Borrowings
bear interest at the bank's base rate or at a rate based on the London
interbank rate at the option of Buckeye. The Credit Agreement expires December
16, 2003. At December 31, 2000 a total of $43.0 million in borrowings, at a
weighted average rate of 7.21 percent, was outstanding under the Credit
Agreement.
The Credit Agreement contains certain covenants that affect Buckeye and
the Partnership. Generally, the Credit Agreement (a) limits outstanding
indebtedness of Buckeye based upon certain financial ratios contained in the
Credit Agreement, (b) prohibits Buckeye from creating or incurring certain
liens on its property, (c) prohibits the Partnership or Buckeye from disposing
of property which is material to its operations, and (d) limits consolidation,
merger and asset transfers by Buckeye and the Partnership.
12. OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consist of the following:
December 31,
-------------------------
2000 1999
----------- -----------
(In thousands)
Accrued employee benefit liabilities (see Note 13) ......... $ 35,658 $ 36,491
Accrued top-up reserve ..................................... 4,097 2,998
Other ...................................................... 8,269 6,476
-------- --------
Total .................................................... $ 48,024 $ 45,965
======== ========
13. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Services Company provides retirement benefits, primarily through
noncontributory pension plans, for substantially all of its regular full-time
employees, except those covered by certain labor contracts, under which
Services Company contributes 5 percent of each covered employee's salary.
Services Company also sponsors a retirement income guarantee plan (a defined
benefit plan) which generally guarantees employees hired before January 1, 1986,
38
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
a retirement benefit at least equal to the benefit they would have received
under a previously terminated defined benefit plan. Services Company's policy is
to fund amounts necessary to at least meet the minimum funding requirements of
ERISA.
Services Company also provides postretirement health care and life
insurance benefits to certain of its retirees. To be eligible for these
benefits an employee had to be hired prior to January 1, 1991 and meet certain
service requirements. Services Company does not pre-fund this postretirement
benefit obligation.
A reconciliation of the beginning and ending balances of the benefit
obligations under the noncontributory pension plans and the postretirement
health care and life insurance plan is as follows:
Postretirement
Pension Benefits Benefits
------------------------- ------------------------
2000 1999 2000 1999
----------- ----------- ----------- ----------
(In thousands)
Change in benefit obligation
Benefit obligation at beginning of
year ................................. $ 12,295 $ 15,122 $ 26,348 $ 29,393
Service cost .......................... 519 492 518 509
Interest cost ......................... 726 742 1,983 1,688
Actuarial (gain) loss ................. (1,225) (466) 788 (3,732)
Change in assumptions ................. -- (171) -- --
Benefit payments ...................... (2,394) (3,424) (1,600) (1,510)
-------- -------- -------- --------
Benefit obligation at end of year ..... $ 9,921 $ 12,295 $ 28,037 $ 26,348
======== ======== ======== ========
A reconciliation of the beginning and ending balances of the fair value of
plan assets under the noncontributory pension plans and the postretirement
health care and life insurance plan is as follows:
Postretirement
Pension Benefits Benefits
----------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------- -------------- --------------
(In thousands)
Change in plan assets
Fair value of plan assets at
beginning of year ...................... $ 8,337 $ 8,864 $ -- $ --
Actuarial return on plan assets ......... (10) 1,713 -- --
Employer contribution ................... 1,360 1,184 1,600 1,510
Benefits paid ........................... (2,394) (3,424) (1,600) (1,510)
--------- --------- ---------- ----------
Fair value of plan assets at end
of year ................................ $ 7,293 $ 8,337 $ -- $ --
========= ========= ========== ==========
Funded status ........................... $ (2,628) $ (3,958) $ (28,037) $ (26,348)
Unrecognized prior service cost ......... (569) (665) (1,738) (2,318)
Unrecognized actuarial (gain)
loss ................................... (1,397) (1,007) (1,159) (1,927)
Unrecognized net asset at transi-
tion ................................... (463) (623) -- --
--------- --------- ---------- ----------
Accrued benefit cost .................... $ (5,057) $ (6,253) $ (30,934) $ (30,593)
========= ========= ========== ==========
39
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The weighted average assumptions used in accounting for the
noncontributory pension plans and the postretirement health care and life
insurance plan were as follows:
Postretirement
Pension Benefits Benefits
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(In thousands)
Weighted-average assumptions
as of December 31
Discount rate .......................... 7.75% 7.75% 7.75% 7.75%
Expected return on plan assets ......... 8.50% 8.50% N/A N/A
Rate of compensation increase .......... 5.25% 5.25% N/A N/A
The assumed rate of cost increase in the postretirement health care and
life insurance plan in 2000 was 7.25 percent and 6.75 percent for non-Medicare
eligible and Medicare eligible retirees, respectively. The assumed annual rates
of cost increase decline each year through 2005 to a rate of 5.5 percent, and
remain at 5.5 percent thereafter for both non-Medicare eligible and Medicare
eligible retirees.
Assumed healthcare cost trend rates have a significant effect on the
amounts reported for the healthcare plans. The effect of a 1 percent change in
the health care cost trend rate for each future year would have had the
following effects on 2000 results:
1-Percentage 1-Percentage
Point Increase Point Decrease
---------------- ---------------
(In thousands)
Effect on total service cost and interest cost
components ........................................ $ 431 $ (366)
Effect on postretirement benefit obligation ......... $ 4,369 $ (3,763)
The components of the net periodic benefit cost recognized for the
noncontributory pension plans and the postretirement health care and life
insurance plan were as follows:
Pension Benefits Postretirement Benefits
------------------------------ --------------------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- ----------- ----------- ----------
(In thousands)
Components of net periodic
benefit cost
Service cost ........................... $ 519 $ 492 $ 511 $ 518 $ 509 $ 540
Interest cost .......................... 726 742 888 1,983 1,688 1,707
Expected return on plan assets ......... (676) (655) (656) -- -- --
Amortization of unrecognized
transition asset ...................... (160) (160) (160) -- -- --
Amortization of prior service
cost .................................. (96) (86) (86) (580) (580) (580)
Amortization of unrecognized
(gains)/losses ........................ (149) 258 189 21 26 18
------ ------ ------ ------- ------- ------
Net periodic benefit cost .............. $ 164 $ 591 $ 686 $ 1,942 $ 1,643 $1,685
====== ====== ====== ======= ======= ======
Services Company also participates in a multi-employer retirement income
plan that provides benefits to employees covered by certain labor contracts.
Pension expense for the plan was $119,000, $140,000 and $126,000 for 2000, 1999
and 1998, respectively.
In addition, Services Company contributes to a multi-employer
postretirement benefit plan that provides health care and life insurance
benefits to employees covered by certain labor contracts. The cost of providing
these benefits was approximately $95,000, $103,000 and $106,000 for 2000, 1999
and 1998, respectively.
40
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
14. 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 was amended and restated on July 14, 1998. The Option Plan
authorizes the granting of options (the "Options") to acquire LP Units to
selected key employees (the "Optionees") of Services Company not to exceed
720,000 LP Units in the aggregate. The price at which each LP Unit may be
purchased pursuant to an Option granted under the Option Plan is generally
equal to the market value on the date of the grant. Options granted prior to
1998 were granted with a feature that allows Optionees to apply accrued credit
balances (the "Distribution Equivalents") as an adjustment to the aggregate
purchase price of such Options. The Distribution Equivalents are an amount
equal to (i) the Partnership's per LP Unit regular quarterly distribution,
multiplied by (ii) the number of LP Units subject to such Options that have not
vested. Options granted after 1997 do not have a Distribution Equivalent
feature. Vesting in the Options is determined by the number of anniversaries
the Optionee has remained in the employ of Services Company following the date
of the grant of the Option. Options granted prior to 1998 vested in varying
amounts beginning generally three years after the date of grant. Options
granted after 1997 vest in three years. Options granted after 1997 are
exercisable for a period of seven years following the date on which they vest.
Options granted prior to 1998 are exercisable for a period of five years
following the date on which they vest. The Partnership recorded compensation
expense related to the Option Plan of $20,000 in 2000, $33,000 in 1999 and
$34,000 in 1998. Compensation and benefit costs of executive officers were not
charged to the Partnership after August 12, 1997 (see Note 17). If compensation
cost for the Option Plan had been determined based on the fair value at the
time of the grant dates for awards consistent with SFAS 123, the Partnership's
net income and earnings per share would have been as indicated by the proforma
amounts below:
(In thousands,
except per Unit amounts)
------------------------------------------
2000 1999 1998
------------ ------------ ------------
Net income As reported $ 96,331 $ 76,283 $ 52,007
Pro forma $ 96,256 $ 76,258 $ 52,006
Basic earnings per unit As reported
and Pro forma $ 3.56 $ 2.82 $ 1.93
Diluted earnings per unit As reported
and Pro forma $ 3.55 $ 2.81 $ 1.92
Options granted after 1997 vest after 3 years following the date of the
grant. The fair value of each option is estimated on the date of grant using
the Black-Scholes option-pricing model. A portion of each option granted prior
to 1998 vests after three, four and five years following the date of the grant.
The assumptions used for options granted in 2000, 1999 and 1998 are indicated
below.
Risk-free Interest Rate Expected Life (Years)
------------------------- ----------------------
Year of Dividend Vesting Period Vesting Period
Option Grant Yield Volatility 3 Years 3 Years
------------ ----- ---------- ------- -------
2000 9.3% 19.4% 6.5% 3.50
1999 7.7% 20.1% 5.6% 3.50
1998 7.1% 24.7% 5.5% 3.50
Options granted in 2000, 1999 and 1998 assume a dividend yield of 9.3
percent, 7.7 percent and 7.1 percent, respectively.
41
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
A summary of the changes in the LP Unit options outstanding under the
Option Plan as of December 31, 2000, 1999 and 1998 is as follows:
2000 1999 1998
------------------------------ ----------------------------- -------------------------
Units Weighted Units Weighted Units Weighted
Under Average Under Average Under Average
Option Exercise Price Option ExercisePrice Option Exercise
------ -------------- ------ ------------- ------ --------
Outstanding at beginning
of year ....................... 204,040 $ 17.86 220,440 $ 15.71 221,140 $ 15.51
Granted ........................ 45,900 25.75 37,400 28.50 20,300 29.50
Exercised ...................... (50,200) 14.09 (53,800) 12.53 (21,000) 11.78
------- ------- -------
Outstanding at end of year. 199,740 20.17 204,040 17.86 220,440 15.71
======= ======= =======
Options exercisable at
year-end ...................... 78,740 68,240 49,540
Weighted average fair
value of options granted
during the year ............... $ 2.03 $ 3.75 $ 2.66
The following table summarizes information relating to LP Unit options
outstanding under the Option Plan at December 31, 2000:
Options Outstanding Options Exercisable
------------------------------------------ ---------------------------
Weighted
Average Weighted Weighted
Range of Options Remaining Average Options Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/00 Life Price at 12/31/00 Price
------ ----------- ---- ----- ----------- -----
$8.00 to $10.00 14,840 4.6 Years $ 9.20 6,940 $ 8.45
$10.01 to $15.00 61,000 3.7 Years 12.72 48,000 12.53
$15.01 to $20.00 23,800 2.7 Years 15.63 23,800 15.63
$20.01 to $30.00 100,100 8.6 Years 27.43 -- --
------- ------
Total 199,740 6.1 Years 20.17 78,740 13.10
======= ======
At December 31, 2000, there were 246,800 LP Units available for future
grants under the Option Plan.
15. EMPLOYEE STOCK OWNERSHIP PLAN
Services Company provides an employee stock ownership plan (the "ESOP") to
substantially all of its regular full-time employees, except those covered by
certain labor contracts. The ESOP owns all of the outstanding common stock of
Services Company. At December 31, 2000, the ESOP was directly obligated to a
third-party lender for $54.8 million of 7.24 percent Notes ( the "ESOP Notes").
The ESOP Notes are secured by Services Company common stock and are guaranteed
by Glenmoor and certain of its affiliates. The proceeds from the issuance of
the ESOP Notes were used to purchase Services Company common stock. Services
Company stock is released to employee accounts in the proportion that current
payments of principal and interest on the ESOP Notes bear to the total of all
principal and interest payments due under the ESOP Notes. Individual employees
are allocated shares based upon the ratio of their eligible compensation to
total eligible compensation. Eligible compensation generally includes base
42
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
salary, overtime payments and certain bonuses. Services Company stock allocated
to employees receives stock dividends in lieu of cash, while cash dividends are
used to pay principal and interest on the ESOP Notes.
The Partnership contributed 2,573,146 LP Units to Services Company in
August 1997 in exchange for the elimination of the Partnership's obligation to
reimburse BMC for certain executive compensation costs, a reduction of the
incentive compensation paid by the Partnership to BMC under the existing
incentive compensation agreement, and other changes that made the ESOP a less
expensive fringe benefit for the Partnership. Funding for the ESOP Notes is
provided by distributions that Services Company receives on the LP Units that
it owns and from cash payments from the Partnership, as required to cover the
shortfall, if any, between the distributions that Services Company receives on
the LP Units that it owns and amounts currently due under the ESOP Notes. The
Partnership will also incur ESOP-related costs for taxes associated with the
sale and annual taxable income of the LP Units and for routine administrative
costs. Total ESOP related costs charged to earnings were $1.1 million during
2000, $1.3 million during 1999 and $1.2 million during 1998.
16. LEASES AND COMMITMENTS
The Operating Partnerships lease certain land and rights-of-way. Minimum
future lease payments for these leases as of December 31, 2000 are
approximately $3.1 million for each of the next five years. Substantially all
of these lease payments can be canceled at any time should they not be required
for operations.
The General Partner leases space in an office building and certain copying
equipment and charges these costs to the Operating Partnerships. Buckeye leases
certain computing equipment and automobiles. Future minimum lease payments
under these noncancelable operating leases at December 31, 2000 were as
follows:, $937,000 for 2001, $739,000 for 2002, $516,000 for 2003, $426,000 for
2004, $427,000 for 2005 and $247,000 thereafter.
Buckeye entered into an energy services agreement for certain main line
pumping equipment and the natural gas requirements to fuel this equipment at
its Linden, New Jersey facility. Under the energy services agreement, which is
designed to reduce power costs at the Linden facility, Buckeye is required to
pay a minimum of $1,743,000 annually over the next eleven years. This minimum
payment is based on an annual minimum usage requirement of the natural gas
engines at the rate of $0.049 per kilowatt hour equivalent. In addition to the
annual usage requirement, Buckeye is subject to minimum usage requirements
during peak and off-peak periods. Buckeye's use of the natural gas engines has
exceeded the minimum requirement in 1998, 1999 and 2000.
Rent expense for all operating leases was $8,855,000, $8,448,000, and
$7,192,000 for 2000, 1999 and 1998, respectively. Included in rent expense for
all operating leases is $1,191,000 and $1,187,000 related to discontinued
operations for 2000 and 1999, respectively.
17. RELATED PARTY TRANSACTIONS
The Partnership and the Operating Partnerships are managed by the General
Partner. Under certain partnership agreements and management agreements, BMC,
the General Partner, Services Company and certain related parties are entitled
to reimbursement of substantially all direct and indirect costs related to the
business activities of the Partnership and the Operating Partnerships.
Services Company employs all of the employees that work for the Operating
Partnerships. Services Company entered into a Services Agreement with BMC and
the General Partner to provide services to the Partnership and the Operating
43
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Partnerships over a 13.5-year term. Services Company is reimbursed by BMC or the
General Partner for its direct and indirect expenses, other than as described
below with respect to certain executive compensation. BMC and the General
Partner are reimbursed by the Partnership and the Operating Partnerships. Costs
reimbursed to BMC, the General Partner or Services Company by the Partnership
and the Operating Partnerships totaled $53.6 million, $54.3 million and $54.4
million in 2000, 1999 and 1998, respectively. The reimbursable costs include
insurance, general and administrative costs, compensation and benefits payable
to employees of Services Company, tax information and reporting costs, legal and
audit fees and an allocable portion of overhead expenses.
Services Company, which is beneficially owned by the ESOP, owns 2,512,881
LP Units (approximately 9.4 percent of the LP Units outstanding). Distributions
received by Services Company on such LP Units are used to fund obligations of
the ESOP. Distributions paid to Services Company totaled $6,050,000, $5,533,000
and $5,390,000 in 2000, 1999 and 1998, respectively. In addition, the
Partnership recorded ESOP related costs of $1,099,000, $1,341,000 and
$1,196,000 in 2000, 1999 and 1998, respectively, representing a non-cash
accrual of the current General Partner of estimated expenses related to the
ESOP (see Note 15.)
In July 1998, through a consent solicitation approved by more than
two-thirds of the LP Unitholders, amendments to the Partnership Agreement were
adopted to (i) remove the limitation on the number of limited partnership units
of the Partnership that may be issued without the approval of the Unitholders;
(ii) eliminate the restrictions on the amount of debt that can be incurred by
the Partnership or its Operating Partnerships; and (iii) remove the limitations
on the amount of capital expenditures that can be made by the Partnership or
the Operating Partnerships in any calendar year.
In December 1998, the Partnership Agreement was amended and restated to
reflect the transfer of the general partnership interest in the Partnership
from BMC to the General Partner.
44
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
18. PARTNERS' CAPITAL
Changes in partners' capital for the years ended December 31, 1998, 1999,
and 2000 were as follows:
General Limited
Partner Partners Total
----------- ----------- ----------
(In thousands, except for Units)
Partners' capital at January 1, 1998 ........... $ 2,432 $ 300,346 $ 302,778
Net income ..................................... 470 51,537 52,007
Distributions .................................. (512) (56,154) (56,666)
Proceeds from exercise of unit options ......... -- 366 366
-------- ---------- ----------
Partners' capital at December 31, 1998 ......... 2,390 296,095 298,485
Net income ..................................... 689 75,594 76,283
Distributions .................................. (531) (58,226) (58,757)
Proceeds from exercise of unit options ......... -- 978 978
-------- ---------- ----------
Partners' capital December 31, 1999 ............ 2,548 314,441 316,989
Net income ..................................... 868 95,463 96,331
Distributions .................................. (585) (64,366) (64,951)
Proceeds from exercise of unit options ......... -- 1,013 1,013
-------- ---------- ----------
Partners' capital December 31, 2000 ............ $ 2,831 $ 346,551 $ 349,382
======== ========== ==========
Units outstanding at January 1, 1998 ........... 243,914 26,721,606 26,965,520
Units issued pursuant to the unit option and
distribution equivalent plan and capital
contributions ................................ -- 21,000 21,000
-------- ---------- ----------
Units outstanding at December 31, 1998 ......... 243,914 26,742,606 26,986,520
Units issued pursuant to the unit option and
distribution equivalent plan ................. -- 53,800 53,800
-------- ---------- ----------
Units outstanding at December 31, 1999 ......... 243,914 26,796,406 27,040,320
Units issued pursuant to the unit option and
distribution equivalent plan ................. -- 50,200 50,200
-------- ---------- ----------
Units outstanding at December 31, 2000 ......... 243,914 26,846,606 27,090,520
======== ========== ==========
Historical LP Unit information has been restated to reflect a two-for-one
unit split approved effective February 13, 1998.
The net income per unit for 2000, 1999 and 1998 was calculated using the
weighted average outstanding LP Units of 27,062,809, 27,014,429 and 26,982,099,
respectively.
The Partnership Agreement provides that without prior approval of limited
partners of the Partnership holding an aggregate of at least two-thirds of the
outstanding LP Units, the Partnership cannot issue any additional LP Units of a
class or series having preferences or other special or senior rights over the
LP Units.
45
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
19. CASH DISTRIBUTIONS
The Partnership makes quarterly cash distributions to Unitholders of
substantially all of its available cash, generally defined as consolidated cash
receipts less consolidated cash expenditures and such retentions for working
capital, anticipated cash expenditures and contingencies as the General Partner
deems appropriate. In 2000, quarterly distributions of $0.60 per GP and LP Unit
were paid in February, May, August and November. In 1999, quarterly
distributions of $0.525 per GP and LP Unit were paid in February and $0.55 per
GP and LP Unit were paid in May, August and November. In 1998, quarterly
distributions of $0.525 per GP and LP Unit were paid in February, May, August
and November. All such distributions were paid on the then outstanding GP and
LP Units. Cash distributions aggregated $64,951,000 in 2000, $58,757,000 in
1999 and $56,666,000 in 1998.
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 2000 and 1999 are set forth below.
Quarterly results were influenced by seasonal factors inherent in the
Partnership's business.
1st Quarter 2nd Quarter 3rd Quarter
-------------------------- -------------------------- --------------------------
2000 1999 2000 1999 2000 1999
------------ ------------ ------------ ------------ ------------ ------------
(In thousands, except per unit amounts)
Transportation revenue ........... $ 49,873 $ 47,061 $ 50,078 $ 51,321 $ 52,567 $ 49,886
Operating income ................. 20,844 19,780 20,636 29,806 22,064 21,993
Income from continuing
operations ...................... 14,293 13,970 14,015 23,487 14,471 15,724
Income from discontinued
operations ...................... 1,317 37 421 2,310 3,465 901
Gain on sale of discontinued
operations ...................... -- -- -- -- -- --
Net income ....................... 15,610 14,007 14,436 25,797 17,936 16,625
Earnings per Partnership Unit:
Income from continuing
operations ..................... 0.53 0.52 0.52 0.87 0.53 0.59
Income from discontinued
operations ..................... 0.05 -- 0.01 0.09 0.13 0.03
Gain on sale of discontinued
operations ..................... -- -- -- -- -- --
Net income per Unit ............. 0.58 0.52 0.53 0.96 0.66 0.62
Earnings per Partnership Unit:
assuming dilution:
Income from continuing
operations ..................... 0.53 0.52 0.52 0.87 0.53 0.58
Income from discontinued
operations ..................... 0.05 -- 0.01 0.08 0.13 0.03
Gain on sale of discontinued
operations ..................... -- -- -- -- -- --
Net income per Unit ............. 0.58 0.52 0.53 0.95 0.66 0.61
4th Quarter Total
-------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------- -------------
(In thousands, except per unit amounts)
Transportation revenue ........... $ 56,114 $ 52,560 $ 208,632 $ 200,828
Operating income ................. 27,931 24,357 91,475 95,936
Income from continuing
operations ...................... 21,688 17,920 64,467 71,101
Income from discontinued
operations ...................... 479 1,934 5,682 5,182
Gain on sale of discontinued
operations ...................... 26,182 -- 26,182 --
Net income ....................... 48,349 19,854 96,331 76,283
Earnings per Partnership Unit:
Income from continuing
operations ..................... 0.80 0.66 2.38 2.63
Income from discontinued
operations ..................... 0.02 0.07 0.21 0.19
Gain on sale of discontinued
operations ..................... 0.97 -- 0.97 --
Net income per Unit ............. 1.79 0.73 3.56 2.82
Earnings per Partnership Unit:
assuming dilution:
Income from continuing
operations ..................... 0.80 0.66 2.38 2.62
Income from discontinued
operations ..................... 0.02 0.07 0.21 0.19
Gain on sale of discontinued
operations ..................... 0.96 -- 0.96 --
Net income per Unit ............. 1.78 0.73 3.55 2.81
46
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
21. EARNINGS PER UNIT
The following is a reconciliation of basic and dilutive income from
continuing operations per LP Unit for the years ended December 31, 2000, 1999
and 1998:
2000 1999
-------------------------------- --------------------------------
Income Units Per Income Units Per
(Numer- (Denom- Unit (Numer- (Denom- Unit
ator inator) Amt. ator) inator) Amt.
--------- --------- ---------- --------- --------- ----------
Income from continuing
operations. .................... $64,467 $71,101
------- -------
Basic earnings per Partner-
ship Unit ...................... 64,467 27,063 $ 2.38 71,101 27,014 $ 2.63
====== ======
Effect of dilutive securities
-- options ..................... -- 75 -- 85
------- ------ ------- ------
Diluted earnings per Part-
nership Unit ................... $64,467 27,138 $ 2.38 $71,101 27,099 $ 2.62
======= ====== ====== ======= ====== ======
1998
--------------------------------
Income Units Per
(Numer- (Denom- Unit
ator) inator) Amt.
--------- --------- ----------
Income from continuing
operations. .................... $52,007
-------
Basic earnings per Partner-
ship Unit ...................... 52,007 26,982 $ 1.93
======
Effect of dilutive securities
-- options ..................... -- 104
------- ------
Diluted earnings per Part-
nership Unit ................... $52,007 27,086 $ 1.92
======= ====== ======
Options reported as dilutive securities are related to unexercised options
outstanding under the Option Plan (see Note 14).
22. PROPERTY TAX SETTLEMENT
In February 1999, the Partnership entered into a stipulation and order of
settlement with the New York State Office of Real Property Services and the
City of New York settling various real property tax certiorari proceedings. The
Partnership had challenged its real property tax assessments for a number of
past tax years on that portion of its pipeline that is located in a public
right-of-way in New York City. The settlement agreement resulted in a one-time
reduction of operating expenses of $11.0 million, including a cash refund of
$6.0 million, for the Partnership in the second quarter of 1999.
23. OTHER EVENTS
In April 2000, the Partnership announced that it entered into
non-exclusive agreements that provide for the Partnership to receive a 3.5
percent equity interest in Aerie Networks, Inc. ("Aerie") in exchange for
assisting Aerie with its development of a fiber optics network along a portion
of the Partnership's pipeline rights-of-way. No cash investment or expense is
required by the Partnership. The Partnership, and 11 other natural gas, oil and
liquid petroleum pipeline companies and telecommunications affiliates, are
providing Aerie with rights in over 14,500 miles of right-of-way on which to
build a large capacity broadband fiber optics network. The pipeline
rights-of-way will serve as the foundation for Aerie's planned 20,000-mile
broadband fiber optic network that will connect 194 cities. The Partnership's
agreement to provide access to its rights-of-way was contingent on Aerie's
success in raising additional capital. On September 1, 2000, the Partnership
received preferred stock in Aerie Networks, Inc. in exchange for 1,026 miles of
right-of-way occupancy rights for fiber optic cable. As a result of Aerie's
successful financing, the Partnership's equity ownership was diluted to
approximately a 2.8 percent interest in Aerie. At this time, it is not possible
to estimate the value of the Partnership's equity interest in Aerie, however,
such investment may be material to the Partnership's financial position in the
future.
In July, 2000, the Partnership entered into a joint venture with PetroNet
Corporation ("PetroNet"). The Partnership received 49.99 percent of PetroNet
common stock in exchange for
47
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
granting PetroNet the right to construct a next generation fiber optics network
within the Partnership's pipeline rights-of-way. PetroNet has not been
successful in obtaining first stage equity financing, and has substantially
reduced its level of operations. As a result, on January 4, 2001, the
Partnership exercised its option to put its stock interest back to PetroNet and
has terminated its contractual relationship with PetroNet, with no material
impact on the Partnership's results of operations or financial position.
48
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership does not have directors or officers. The executive
officers of the General Partner perform all management functions for the
Partnership and the Operating Partnerships in their capacities as officers and
directors of the General Partner and Services Company. Directors and officers
of the General Partner are selected by BMC. See "Certain Relationships and
Related Transactions."
Directors of the General Partner
Set forth below is certain information concerning the directors of the
General Partner.
Name, Age and Present Business Experience During
Position with General Partner Past Five Years
- ------------------------------- --------------------------------------------------------------------
Alfred W. Martinelli, 73 Mr. Martinelli has been Chairman of the Board of the General
Chairman of the Board* Partner and BMC since April 1987. He was Chief Executive
Officer of the General Partner and BMC from April 1987 to Sep-
tember 2000. Mr. Martinelli has been a Director of the General
Partner and BMC since October 1986. He was Chairman and
Chief Executive Officer of Penn Central Energy Management
Company ("PCEM") from April 1987 until his resignation in
March 1996. Mr. Martinelli was also Vice Chairman and a direc-
tor of American Financial and a director of American Annuity
Group, Inc., for more than five years until his resignation in
March 1996.
William H. Shea, Jr., 46 Mr. Shea was named President and Chief Executive Officer and
President and Chief a director of the General Partner on September 27, 2000. He
Executive Officer and served as President and Chief Operating Officer of the General
Director* Partner from July 1998 to September 2000. Mr. Shea had been
named Executive Vice President of the General Partner in Sep-
tember 1997 and previously served as Vice President of Market-
ing and Business Development of the General Partner from
March 1996 to September 1997. He was Vice President--West
Central Region of Laidlaw Environmental Services from 1994
until 1995. Mr. Shea is the son-in-law of Mr. Alfred W. Martinelli.
Brian F. Billings, 62 Mr. Billings became a director of the General Partner on
Director December 31, 1998. Mr. Billings was a director of BMC from
October 1986 to December 1998. He served as Chairman of the
General Partner from February 1991 until February 1995. Mr.
Billings was President of PCEM from December 1986 to 1995.
49
Name, Age and Present Business Experience During
Position with General Partner Past Five Years
- ------------------------------- ----------------------------------------------------------------
Neil M. Hahl, 52 Mr. Hahl became a director of the General Partner and BMC in
Director* September 1997. He is President of The Weitling Group, a busi-
ness consulting firm and a director of American Capital Strate-
gies, Ltd., a specialty finance firm. Mr. Hahl was previously a
director of BMC from February 1989 until March, 1996 and
served as President of BMC from February 1992 until March
1996. From January 1993 to August 1996, he was a Senior Vice
President of American Financial Group and its predecessor,
The Penn Central Corporation.
Edward F. Kosnik, 56 Mr. Kosnik became a director of the General Partner on Decem-
Director ber 31, 1998. He was a director of BMC from October 1986 to
December 1998. Mr. Kosnik was President and Chief Executive
Officer of Berwind Corporation, a diversified company, from
December 1999 until February 2001 and was President and
Chief Operating Officer of Berwind Corporation from June 1997
to December 1999. He was Senior Executive Vice President and
Chief Operating Officer of Alexander & Alexander Services, Inc.
from May 1996 until January 1997. Mr. Kosnik was Executive
Vice President and Chief Financial Officer of Alexander & Alex-
ander Services, Inc. from August 1994 to April 1996.
Jonathan O'Herron, 71 Mr. O'Herron became a director of the General Partner on
Director December 31, 1998. Mr. O'Herron was a director of BMC from
September 1997 to December 1998. He has been Managing
Director of Lazard Freres & Company, LLC for more than five
years.
David J. Martinelli, 40 Mr. Martinelli became a director of the General Partner on Sep-
Senior Vice President-- tember 27, 2000. He was named Senior Vice President--
Corporate Corporate Development and Treasurer of the General Partner
Development and in December 1999. Mr. Martinelli served as Senior Vice Presi-
Treasurer and Director dent and Treasurer of the General Partner from July 1998 to
December 1999 and previously served as Vice President and
Treasurer of the General Partner from June 1996. He served as
Assistant Treasurer of the General Partner from March 1996 to
June 1996. Mr. Martinelli was employed in a corporate financial
position with Salomon Brothers Inc from 1993 until 1996. He is
the son of Mr. Alfred W. Martinelli.
Frank S. Sowinski, 44 Mr. Sowinski became a director of the General Partner on Feb-
Director ruary 22, 2001. He has served as Senior Vice President and
Chief Financial Officer of the Dun & Bradstreet Corporation
since October 2000. Mr. Sowinski served as President of the
Dun & Bradstreet operating company from September 1999 to
October 2000. He had been Senior Vice President and Chief
Financial Officer of the Dun & Bradstreet Corporation from
November 1996 to September 1999.
50
Name, Age and Present Business Experience During
Position with General Partner Past Five Years
- ------------------------------- ------------------------------------------------------------------
Ernest R. Varalli, 70 Mr. Varalli has been a director of the General Partner and BMC
Director* since July 1987. He was Executive Vice President, Chief Finan-
cial Officer and Treasurer for more than five years until 1996.
Mr. Varalli also served as Executive Vice President, Chief Finan-
cial Officer and Treasurer of PCEM for more than five years
until his resignation in March 1996. He had been a consultant to
American Financial from September 1986 until March 1996.
- ---------------
* Also a director of Services Company.
The General Partner has an Audit Committee, which currently consists of
four directors: Brian F. Billings, Edward F. Kosnik, Jonathan O'Herron and
Frank S. Sowinski. Messrs. Billings, Kosnik, O'Herron and Sowinski are neither
officers nor employees of the General Partner or any of its affiliates.
In addition, the General Partner has a Finance Committee, which currently
consists of four directors: Neil M. Hahl, Edward F. Kosnik, Jonathan O'Herron
and Ernest R. Varalli. The Finance Committee provides oversight and advice with
respect to the capital structure of the Partnership.
Executive Officers of the General Partner
Set forth below is certain information concerning the executive officers
of the General Partner who also serve in similar positions in BMC and Services
Company.
Name, Age and Present Business Experience During
Position Past Five Years
- --------------------------- --------------------------------------------------------------
Stephen C. Muther, 51 Mr. Muther has been Senior Vice President--Administration,
Senior Vice President-- General Counsel and Secretary of the General Partner since
Administration, February 1995. Mr. Muther served as General Counsel, Vice
General Counsel President--Administration and Secretary of the General Part-
and Secretary ner from May 1990 to February 1995.
Steven C. Ramsey, 46 Mr. Ramsey has been Senior Vice President--Finance and Chief
Senior Vice President-- Financial Officer of the General Partner since February 1995.
Finance and Chief Mr. Ramsey served as Vice President and Treasurer of the Gen-
Financial Officer eral Partner from February 1991 to February 1995.
Item 11. Executive Compensation
Director Compensation
The fee schedule for directors of the General Partner is as follows:
annual fee, $25,000; attendance fee for each Board of Directors meeting,
$1,000; and attendance fee for each committee meeting, $750. Messrs. Alfred and
David Martinelli, Shea, and Varalli do not receive any fees as directors.
Directors' fees paid by the General Partner in 2000 to its directors amounted
to $128,300. In addition, Mr. Hahl received $56,300 for consulting services.
Each of these payments were reimbursed by the Partnership. Members of the Board
of Directors of BMC and Services Company are not separately compensated for
their services as directors.
51
Executive Compensation
As part of a restructuring of the ESOP in 1997, the Partnership and the
Operating Partnerships were permanently released from their obligation to
reimburse the General Partner for certain compensation and fringe benefit costs
for executive level duties performed by the General Partner with respect to
operations, finance, legal, marketing and business development, and treasury,
as well as the President of the General Partner.
Executive Officer Severance Agreements
BMC, Services Company and Glenmoor entered into severance agreements in
May 1997 with four executive officers of the General Partner providing for the
payment of severance compensation equal to the amount of annual base salary and
incentive compensation then being paid to such individuals (the "Severance
Compensation Amount"). Such officers were C. Richard Wilson, then President and
Chief Operating Officer; Michael P. Epperly, then Senior Vice
President--Operations; Steven C. Ramsey, Senior Vice President--Finance; and
Stephen C. Muther, Senior Vice President--Administration, General Counsel and
Secretary. The severance agreements provide for 1.5 times the Severance
Compensation Amount upon termination of such individual's employment without
"cause" under certain circumstances not involving a "change of control" of the
Partnership, and 2.99 times such individual's Severance Compensation Amount
(subject to certain limitations) following a "change of control." For purposes
of the severance agreements, a "change of control" is defined as the
acquisition (other than by the General Partner and its affiliates) of 80
percent or more of the LP Units of the Partnership. Any costs incurred under
the severance agreements were to be reimbursed by the Partnership.
In April 1998, in connection with the realignment of senior management,
Mr. Wilson was named Vice Chairman and was succeeded as President and Chief
Operating Officer of the General Partner by William H. Shea, Jr. Mr. Wilson
resigned as Vice Chairman in 2000. Mr. Epperly's position was eliminated, and
his responsibilities were assigned to other officers. The General Partner
entered into agreements with each of Messrs. Wilson and Epperly under which
they would receive the equivalent of the Severance Compensation Amount and
certain additional compensation pending their retirement. Total costs incurred
in 2000, 1999 and 1998 under Messrs. Wilson's and Epperly's severance
agreements amounted to $0.3 million, $0.1 million and $0.9 million,
respectively. After their retirement, each of Messrs. Wilson and Epperly agreed
to provide certain consulting services to the General Partner for a period of
60 months for a fixed annual fee.
In December 1999, the severance agreements for Messrs. Muther and Ramsey
were amended to modify the definition of "change of control" to include the
acquisition (other than by the General Partner and its affiliates) of 80
percent or more of the LP Units, 51 percent or more of the general partnership
interests owned by the General Partner, or 50 percent or more of the voting
equity interests of the Partnership and the General Partner on a combined
basis.
Director Recognition Program
The General Partner has adopted the Director Recognition Program (the
"Recognition Program") that had been instituted by BMC in September 1997. The
Recognition Program provides that, upon retirement or death and subject to
certain conditions, directors receive a recognition benefit of up to three
times their annual director's fees (excluding attendance and committee fees)
based upon their years of service as a member of the Board of Directors of the
General Partner or BMC. A minimum of three full years of service as a member of
the Board of Directors is required for eligibility under the Recognition
Program. Members of the Board of Directors who are concurrently serving as an
officer or employee of the General Partner or its affiliates are not eligible
for the Recognition Program. In 2000, there were $210,000 in expenses recorded
under the program.
52
In 1999, the Partnership recorded expenses of $180,000 under the Recognition
Program. Mr. William C. Pierce and Mr. Robert H. Young, former members of the
Board of Directors who resigned in July 1999, were paid $45,000 each in 1999
under the Recognition Program.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Services Company owns approximately 9.4 percent of the outstanding LP
Units as of March 15, 2001. No other person or group is known to be the
beneficial owner of more than 5 percent of the LP Units as of March 15, 2001.
The following table sets forth certain information, as of March 15, 2001,
concerning the beneficial ownership of LP Units by each director of the General
Partner, the Chief Executive Officer of the General Partner, the four most
highly compensated officers of the General Partner and by all directors and
executive officers of the General Partner as a group. Such information is based
on data furnished by the persons named. Based on information furnished to the
General Partner by such persons, no director or executive officer of the
General Partner owned beneficially, as of March 15, 2001, 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 ............................................... 16,000(2)
Neil M. Hahl .................................................... 2,000(2)
Edward F. Kosnik ................................................ 10,000(2)
Alfred W. Martinelli ............................................ 9,000(2)
David J. Martinelli ............................................. 6,000
Stephen C. Muther ............................................... 24,100
Jonathan O'Herron ............................................... 14,800
Steven C. Ramsey ................................................ 20,000
William H. Shea, Jr. ............................................ 15,600(2)
Ernest R. Varalli ............................................... 13,000(2)
All directors and executive officers as a group (consisting of 11
persons) ...................................................... 130,500
- ---------------
(1) Unless otherwise indicated, the persons named above have sole voting and
investment power over the LP Units reported.
(2) The LP Units owned by the persons indicated have shared voting and
investment power with their respective spouses.
Item 13. Certain Relationships and Related Transactions
The Partnership and the Operating Partnerships are managed by the General
Partner pursuant to the Amended and Restated Agreement of Limited Partnership
(the "Partnership Agreement"), the several Amended and Restated Agreements of
Limited Partnership of the Operating Partnerships (the "Operating Partnership
Agreements") and the several Management Agreements between the General Partner
and the Operating Partnerships (the "Management Agreements"). BMC, which had
been general partner of the Partnership, contributed its general partnership
interest and certain other assets to the General Partner effective December 31,
1998. The General Partner is a wholly-owned subsidiary of BMC.
Under the Partnership Agreement and the Operating Partnership Agreements,
as well as the Management Agreements, the General Partner and certain related
parties are entitled to reimbursement of all direct and indirect costs and
expenses related to the business activities of the Partnership and the
Operating Partnerships, except as otherwise provided by the Exchange Agreement
(as discussed below). These costs and expenses include insurance fees,
consulting fees,
53
general and administrative costs, compensation and benefits payable to
employees of the General Partner (other than certain executive officers), tax
information and reporting costs, legal and audit fees and an allocable portion
of overhead expenses. Such reimbursed amounts constitute a substantial portion
of the revenues of the General Partner.
Glenmoor owns all of the common stock of BMC. Glenmoor is owned by certain
directors and members of senior management of the General Partner or trusts for
the benefit of their families and certain director-level employees of Services
Company.
Glenmoor and BMC are entitled to receive an annual management fee for
certain management functions they provide to the General Partner pursuant to a
Management Agreement among Glenmoor, BMC and the General Partner. The
disinterested directors of the General Partner approve the amount on a periodic
basis. The management fee includes a Senior Administrative Charge of not less
than $975,000 and reimbursement for certain costs and expenses. Amounts paid to
Glenmoor and BMC in each of the years 2000, 1999 and 1998 for management fees
equaled $2.3 million, including $1.0 million for the Senior Administrative
Charge and $1.3 million of reimbursed expenses.
The following chart depicts the ownership relationships among the
Partnership, the General Partner and various other parties:
[GRAPHIC OMITTED]
54
The Incentive Compensation Agreement, as subsequently amended to reflect
the two-for-one LP Unit split effective on February 13, 1998, provides that,
subject to certain limitations and adjustments, if a quarterly cash
distribution exceeds a target of $0.325 per LP Unit, the Partnership will pay
the General Partner, in respect of each outstanding LP Unit, incentive
compensation equal to (i) 15 percent of that portion of the distribution per LP
Unit which exceeds the target quarterly amount of $0.325 but is not more than
$0.35, plus (ii) 25 percent of the amount, if any, by which the quarterly
distribution per LP Unit exceeds $0.35 but is not more than $0.375, plus (iii)
30 percent of the amount, if any, by which the quarterly distribution per LP
Unit exceeds $0.375 but is not more than $0.40, plus (iv) 35 percent of the
amount, if any, by which the quarterly distribution per LP Unit exceeds $0.40
but is not more than $0.425, plus (v) 40 percent of the amount, if any, by
which the quarterly distribution per LP Unit exceeds $0.425 but is not more
than $0.525, plus (vi) 45 percent of the amount, if any, by which the quarterly
distribution per LP Unit exceeds $0.525. The General Partner is also entitled
to incentive compensation, under a comparable formula, in respect of special
cash distributions exceeding a target special distribution amount per LP Unit.
The target special distribution amount generally means the amount which,
together with all amounts distributed per LP Unit prior to the special
distribution compounded quarterly at 13 percent per annum, would equal $10.00
(the initial public offering price of the LP Units split two-for-one)
compounded quarterly at 13 percent per annum from the date of the closing of
the initial public offering in December 1986. Incentive compensation paid by
the Partnership for quarterly cash distributions totaled $9,698,000, $7,229,000
and $6,405,000 in 2000, 1999 and 1998, respectively. No special cash
distributions have ever been paid by the Partnership.
On December 31, 1998, BMC transferred its general partnership interest and
certain other assets relating to the Partnership to the General Partner, and
the General Partner assumed certain liabilities and obligations of BMC,
including the liabilities and obligations of BMC under the Exchange Agreement,
the Services Agreement and the Incentive Compensation Agreement.
On January 23, 2001, the General Partner announced a quarterly
distribution of $0.60 per GP and LP Unit payable on February 28, 2001. As such
distribution exceeds a target of $0.325 per LP Unit, the Partnership paid the
General Partner incentive compensation aggregating $2.4 million as a result of
this distribution.
55
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as a part of this Report:
(1) and (2) Financial Statements and Financial Statement Schedule--see
Index to Financial Statements and Financial Statement Schedule appearing on
page 24.
(3) Exhibits, including those incorporated by reference. The following
is a list of exhibits filed as part of this Annual Report on Form 10-K. Where
so indicated by footnote, exhibits which were previously filed are incorporated
by reference. For exhibits incorporated by reference, the location of the
exhibit in the previous filing is indicated in parentheses.
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 31, 1998.(9) (Exhibit 3.1)
3.2 -- Certificate of Amendment to Amended and Restated Certificate of
Limited Partnership of the Partnership, dated as of December 31, 1998.
(9) (Exhibit 3.2)
4.1 -- Amended and Restated Indenture of Mortgage and Deed of Trust and
Security Agreement, dated as of December 16, 1997, by Buckeye to
PNC Bank, National Association, as Trustee. (8) (Exhibit 4.1)
4.2 -- Note Agreement, dated as of December 16, 1997, between Buckeye
and The Prudential Insurance Company of America. (8) (Exhibit 4.2)
4.3 -- Defeasance Trust Agreement, dated as of December 16, 1997, between
and among PNC Bank, National Association, and Douglas A. Wilson, as
Trustees. (8) (Exhibit 4.3)
4.4 -- Certain instruments with respect to long-term debt of the Operating
Partnerships which relate to debt that does not exceed 10 percent of
the total assets of the Partnership and its consolidated subsidiaries are
omitted pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K, 17
C.F.R. ss.229.601. The Partnership hereby agrees to furnish
supplementally to the Securities and Exchange Commission a copy of
each such instrument upon request.
10.1 -- Amended and Restated Agreement of Limited Partnership of Buckeye,
dated as of December 23, 1986. (1)(2) (Exhibit 10.1)
10.2 -- Amendment No. 1 to the Amended and Restated Agreement of Limited
Partnership of Buckeye, dated as of August 12, 1997. (8) (Exhibit 10.2)
10.3 -- Management Agreement, dated November 18, 1986, between the
Manager and Buckeye. (1)(3) (Exhibit 10.4)
10.4 -- Amended and Restated Management Agreement, dated November 18,
1986, between the General Partner, Buckeye and Glenmoor. (7)
(Exhibit 10.2)
56
Exhibit Number
(Referenced to
Item 601 of
Regulation S-K)
- ----------------
10.5 -- Amendment to Management Agreement dated as of August 12, 1997,
between the General Partner, Buckeye and Glenmoor. (8) (Exhibit
10.5)
10.6 -- Amended and Restated Incentive Compensation Agreement, dated as
of March 22, 1996, between the General Partner and the Partnership.
(7) (Exhibit 10.4)
10.7 -- Amendment No. 1 to Amended and Restated Incentive Compensation
Agreement dated as of March 22, 1997 between the General Partner
and the Partnership. (8) (Exhibit 10.7)
10.8 -- Amendment No. 2 to Amended and Restated Incentive Compensation
Agreement dated as of January 20, 1998 between the General Partner
and the Partnership. (8) (Exhibit 10.8)
10.9 -- Services Agreement, dated as of August 12, 1997, among the General
Partner, the Manager and Services Company. (8) (Exhibit 10.9)
10.10 -- Exchange Agreement, dated as of August 12, 1997, among the General
Partner, the Manager the Partnership and the Operating Partnership.
(8) (Exhibit 10.10)
10.11 -- Unit Option and Distribution Equivalent Plan of Buckeye Partners, L.P.
(4)(5) (Exhibit 10.10)
10.12 -- Buckeye Management Company Unit Option Loan Program. (4)(5)
(Exhibit 10.11)
10.13 -- Form of Executive Officer Severance Agreement. (8) (Exhibit 10.13)
10.14 -- Contribution, Assignment and Assumption Agreement, dated as of
December 31, 1998, between Buckeye Management Company and
Buckeye Pipe Line Company. (9) (Exhibit 10.14)
10.15 -- Director Recognition Program of the General Partner. (4) (9) (Exhibit
10.15)
10.16 -- Credit Agreement dated as of December 16, 1998 among Buckeye Pipe
Line Company, L.P., Buckeye Partners, L.P., First Union National Bank
as Agent, The First National Bank of Chicago as Documentation Agent
and the Lenders party thereto. (9) (Exhibit 10.16)
10.17 -- Guaranty Agreement dated December 16, 1998 by Buckeye Partners,
L.P. in favor of First Union National Bank, as agent for the lenders that
are or become parties to the Credit Agreement dated as of December
16, 1998 among Buckeye Pipe Line Company, L.P., Buckeye Partners,
L.P. First Union National Bank as Agent, The First National Bank of
Chicago as Documentation Agent and the Lenders party thereto. (9)
(Exhibit 10.17)
10.18 -- Form of Amendment No. 1 to Executive Officer Severance Agreement.
(10) (Exhibit 10.18)
21.1 -- List of subsidiaries of the Partnership. (7) (Exhibit 21.1)
57
- ---------------
(1) Previously filed with the Securities and Exchange Commission as the
Exhibit to the Buckeye Partners, L.P. Annual Report on Form 10-K for the
year 1986.
(2) The Amended and Restated Agreements of Limited Partnership of the other
Operating Partnerships are not filed because they are identical to Exhibit
10.1 except for the identity of the partnership.
(3) The Management Agreements of the other Operating Partnerships are not
filed because they are identical to Exhibit 10.4 except for the identity
of the partnership.
(4) Represents management contract or compensatory plan or arrangement.
(5) Previously filed with the Securities and Exchange Commission as the
Exhibit to the Buckeye Partners, L.P. Quarterly Report on Form 10-Q for
the quarter ended September 30, 1991.
(6) Previously filed with the Securities and Exchange Commission as the
Exhibit to the Buckeye Partners, L.P. Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995.
(7) Previously filed with the Securities and Exchange Commission as the
Exhibit to the Buckeye Partners, L.P. Annual Report on Form 10-K for the
year 1995.
(8) Previously filed with the Securities and Exchange Commission as the
Exhibit to the Buckeye Partners, L.P. Annual Report on Form 10-K for the
year 1997.
(9) Previously filed with the Securities and Exchange Commission as the
Exhibit to the Buckeye Partners, L.P. Annual Report on Form 10-K for the
year 1998.
(10) 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 1999.
(b) Reports on Form 8-K filed during the quarter ended December 31, 2000:
None
58
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BUCKEYE PARTNERS, L.P.
(Registrant)
By: Buckeye Pipe Line Company,
as General Partner
Dated: March 15, 2001 By: /s/ WILLIAM H. SHEA, JR.
-------------------------------------
William H. Shea, Jr.
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: March 15, 2001 By: /s/ BRIAN F. BILLINGS
-------------------------------------
Brian F. Billings
Director
Dated: March 15, 2001 By: /s/ NEIL M. HAHL
-------------------------------------
Neil M. Hahl
Director
Dated: March 15, 2001 By: /s/ EDWARD F. KOSNIK
-------------------------------------
Edward F. Kosnik
Director
Dated: March 15, 2001 By: /s/ ALFRED W. MARTINELLI
-------------------------------------
Alfred W. Martinelli
Chairman of the Board and Director
Dated: March 15, 2001 By: /s/ DAVID J. MARTINELLI
-------------------------------------
David J. Martinelli
Director
Dated: March 15, 2001 By: /s/ JONATHAN O'HERRON
-------------------------------------
Jonathan O'Herron
Director
Dated: March 15, 2001 By: /s/ STEVEN C. RAMSEY
-------------------------------------
Steven C. Ramsey
(Principal Financial Officer and
Principal Accounting Officer)
Dated: March 15, 2001 By: /s/ WILLIAM H. SHEA, JR.
-------------------------------------
William H. Shea, Jr.
Director
Dated: March 15, 2001 By: /s/ FRANK S. SOWINSKI
-------------------------------------
Frank S. Sowinski
Director
Dated: March 15, 2001 By: /s/ ERNEST R. VARALLI
-------------------------------------
Ernest R. Varalli
Director
59
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 (the "Partnership") as of December 31, 2000 and 1999,
and for each of the three years in the period ended December 31, 2000, and have
issued our report thereon dated January 26, 2001; such report is included
elsewhere in this Form 10-K. Our audits also included the condensed financial
information (Parent Only) of Buckeye Partners, L.P. listed in Item 14. This
condensed financial information is the responsibility of the Partnership's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such condensed financial information, 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 LLP
Philadelphia, Pennsylvania
January 26, 2001
S-1
SCHEDULE I
BUCKEYE PARTNERS, L.P.
Registrant's Condensed Financial Information (Parent Only)
(In thousands)
BALANCE SHEETS
December 31,
---------------------------
2000 1999
------------ ------------
Assets
Current assets
Cash and cash equivalents ....................................... $ 73 $ 171
Other current assets ............................................ 1,020 135
--------- ---------
Total current assets ................................. ......... 1,093 306
Investments in and advances to subsidiaries (at equity) ......... 348,701 317,117
--------- ---------
Total assets ......................................... ......... $ 349,794 $ 317,423
========= =========
Liabilities and partners' capital
Current liabilities .............................................. $ 412 $ 434
--------- ---------
Partners' capital
General Partner ................................................. 2,831 2,548
Limited Partners ................................................ 346,551 314,441
--------- ---------
Total partners' capital .............................. ......... 349,382 316,989
--------- ---------
Total liabilities and partners' capital .............. ......... $ 349,794 $ 317,423
========= =========
STATEMENTS OF INCOME
Year Ended December 31,
------------------------------------------
2000 1999 1998
----------- ----------- --------------
Equity in income of subsidiaries .................. $106,087 $ 83,791 $ 58,415
Operating expenses ................................ (59) (301) (6)
Interest income ................................... 1 -- 3
Interest and debt expense ......................... -- 22 --
Incentive compensation to General Partner ......... (9,698) (7,229) (6,405)
-------- -------- --------
Net income .................................. $ 96,331 $ 76,283 $ 52,007
======== ======== ========
STATEMENTS OF CASH FLOWS
Year Ended December 31,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
Cash flows from operating activities:
Net income ................................................... $ 96,331 $ 76,283 $ 52,007
Adjustments to reconcile net income to net cash provided by
operating activities:
Decrease (increase) in investment in subsidiaries ........... (31,584) (18,551) 3,699
Change in assets and liabilities:
Temporary investments ..................................... -- -- 740
Other current assets ...................................... (885) (91) 510
Current liabilities ....................................... (22) 279 (1,095)
--------- --------- ---------
Net cash provided by operating activities ................. 63,840 57,920 55,861
Cash flows from financing activities:
Proceeds from exercise of unit options ....................... 1,013 978 366
Distributions to Unitholders ................................. (64,951) (58,757) (56,666)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents ......... (98) 141 (439)
Cash and cash equivalents at beginning of period ............. 171 30 469
--------- --------- ---------
Cash and cash equivalents at end of period ................... $ 73 $ 171 $ 30
========= ========= =========
See footnotes to consolidated financial statements of Buckeye Partners, L.P.
S-2