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EX-32.2 - EXHIBIT 32.2 - BUCKEYE PARTNERS, L.P.ex322q22016.htm
EX-32.1 - EXHIBIT 32.1 - BUCKEYE PARTNERS, L.P.ex321q22016.htm
EX-31.2 - EXHIBIT 31.2 - BUCKEYE PARTNERS, L.P.ex312q22016.htm
EX-31.1 - EXHIBIT 31.1 - BUCKEYE PARTNERS, L.P.ex311q22016.htm

 
 
 
 
 
 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
FORM 10-Q
 
 

(Mark One)
ý    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2016
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)
 
 
 
One Greenway Plaza
 
 
Suite 600
 
 
Houston, TX
 
77046
(Address of principal executive offices)
 
(Zip Code)
 Registrant’s telephone number, including area code: (832) 615-8600
 
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 ý  No ¨ 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý   No ¨ 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
ý
 
Accelerated filer ¨ 
Non-accelerated filer
¨ 
 
Smaller reporting company ¨ 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨  No ý 
As of July 29, 2016, there were 131,049,226 limited partner units outstanding.
 
 
 
 
 



TABLE OF CONTENTS
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
5.
 
 
 
6.

 
 
7.
 
 
 
8.
 
 
 
9.
 
 
 
10.
 
 
 
11.
 
 
 
12.
 
 
 
13.
 
 
 
14.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I.  FINANCIAL INFORMATION 
Item 1.  Financial Statements 
BUCKEYE PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit amounts)
(Unaudited) 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Revenue:
 

 
 

 
 

 
 

Product sales
$
364,326

 
$
458,613

 
$
749,088

 
$
1,198,831

Transportation, storage and other services
412,796

 
338,170

 
808,628

 
686,052

Total revenue
777,122

 
796,783

 
1,557,716

 
1,884,883

 
 
 
 
 
 
 
 
Costs and expenses:
 

 
 

 
 

 
 

Cost of product sales
353,953

 
448,534

 
722,597

 
1,166,073

Operating expenses
147,718

 
141,339

 
296,804

 
283,704

Depreciation and amortization
63,322

 
55,598

 
124,748

 
109,374

General and administrative
22,185

 
20,293

 
43,416

 
42,911

Total costs and expenses
587,178

 
665,764

 
1,187,565

 
1,602,062

Operating income
189,944

 
131,019

 
370,151

 
282,821

 
 
 
 
 
 
 
 
Other income (expense):
 

 
 

 
 

 
 

Earnings from equity investments
2,470

 
2,446

 
5,558

 
4,580

Interest and debt expense
(47,834
)
 
(41,975
)
 
(95,617
)
 
(83,684
)
Other (expense) income
(108
)
 
77

 
(28
)
 
110

Total other expense, net
(45,472
)
 
(39,452
)
 
(90,087
)
 
(78,994
)
Income from continuing operations before taxes
144,472

 
91,567

 
280,064

 
203,827

Income tax benefit (expense)
27

 
(241
)
 
(588
)
 
(480
)
Income from continuing operations
144,499

 
91,326

 
279,476

 
203,347

Loss from discontinued operations

 

 

 
(857
)
Net income
144,499

 
91,326

 
279,476

 
202,490

Less: Net (income) loss attributable to noncontrolling interests
(4,043
)
 
254

 
(7,907
)
 
701

Net income attributable to Buckeye Partners, L.P.
$
140,456

 
$
91,580

 
$
271,569

 
$
203,191

 
 
 
 
 
 
 
 
Basic earnings (loss) per unit attributable to Buckeye Partners, L.P.:
 
 

 
 

 
 

Continuing operations
$
1.08

 
$
0.72

 
$
2.09

 
$
1.60

Discontinued operations

 

 

 
(0.01
)
Total
$
1.08

 
$
0.72

 
$
2.09

 
$
1.59

 
 
 
 
 
 
 
 
Diluted earnings (loss) per unit attributable to Buckeye Partners, L.P.:
 
 

 
 

 
 

Continuing operations
$
1.07

 
$
0.71

 
$
2.08

 
$
1.60

Discontinued operations

 

 

 
(0.01
)
Total
$
1.07

 
$
0.71

 
$
2.08

 
$
1.59

 
 
 
 
 
 
 
 
Weighted average units outstanding:
 

 
 

 
 

 
 

Basic
130,494

 
127,650

 
130,099

 
127,414

Diluted
131,153

 
128,198

 
130,641

 
127,904

 
See Notes to Unaudited Condensed Consolidated Financial Statements.

1


BUCKEYE PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
144,499

 
$
91,326

 
$
279,476

 
$
202,490

Other comprehensive income (loss):
 

 
 

 
 

 
 

Unrealized losses on derivative instruments

 
(3,857
)
 

 
(3,857
)
Reclassification of derivative losses to net income
3,037

 
3,039

 
4,809

 
6,076

Recognition of costs related to benefit plans to net income
309

 
259

 
504

 
520

Total other comprehensive income (loss)
3,346

 
(559
)
 
5,313

 
2,739

Comprehensive income
147,845

 
90,767

 
284,789

 
205,229

Less: Comprehensive (income) loss attributable to noncontrolling interests
(4,043
)
 
254

 
(7,907
)
 
701

Comprehensive income attributable to Buckeye Partners, L.P.
$
143,802

 
$
91,021

 
$
276,882

 
$
205,930

 
See Notes to Unaudited Condensed Consolidated Financial Statements.


2


BUCKEYE PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except unit amounts)
(Unaudited)
 
June 30,
2016
 
December 31,
2015
Assets:
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
14,762

 
$
4,881

Accounts receivable, net
222,338

 
213,830

Construction and pipeline relocation receivables
12,315

 
13,491

Inventories
247,294

 
192,992

Derivative assets
4,423

 
78,285

Prepaid and other current assets
76,006

 
48,071

Total current assets
577,138

 
551,550

 
 
 
 
Property, plant and equipment
7,287,984

 
7,076,901

Less: Accumulated depreciation
(962,829
)
 
(874,820
)
Property, plant and equipment, net
6,325,155

 
6,202,081

 
 
 
 
Equity investments
87,944

 
84,128

Goodwill
998,659

 
998,748

 
 
 
 
Intangible assets
627,310

 
627,310

Less: Accumulated amortization
(169,991
)
 
(135,938
)
Intangible assets, net
457,319

 
491,372

 
 
 
 
Other non-current assets
41,977

 
41,402

Total assets
$
8,488,192

 
$
8,369,281

 
 
 
 
Liabilities and partners’ capital:
 

 
 

Current liabilities:
 

 
 

Line of credit
$
177,489

 
$
111,488

Accounts payable
77,985

 
82,691

Derivative liabilities
16,436

 
510

Accrued and other current liabilities
279,897

 
309,620

Total current liabilities
551,807

 
504,309

 
 
 
 
Long-term debt
3,738,610

 
3,732,824

Other non-current liabilities
112,851

 
115,407

Total liabilities
4,403,268

 
4,352,540

 
 
 
 
Commitments and contingencies (Note 3)

 

 
 
 
 
Partners’ capital:
 

 
 

Buckeye Partners, L.P. capital:
 

 
 

Limited Partners (131,048,415 and 129,523,703 units outstanding as of June 30, 2016 and December 31, 2015, respectively)
3,890,598

 
3,833,230

Accumulated other comprehensive loss
(92,528
)
 
(97,841
)
Total Buckeye Partners, L.P. capital
3,798,070

 
3,735,389

Noncontrolling interests
286,854

 
281,352

Total partners’ capital
4,084,924

 
4,016,741

Total liabilities and partners’ capital
$
8,488,192

 
$
8,369,281

 
See Notes to Unaudited Condensed Consolidated Financial Statements.

3


BUCKEYE PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 
Six Months Ended 
 June 30,
 
2016
 
2015
Cash flows from operating activities:
 

 
 

Net income
$
279,476

 
$
202,490

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization
124,748

 
109,374

Litigation contingency accrual

 
13,500

Net changes in fair value of derivatives
92,242

 
73,238

Amortization of unfavorable storage contracts
(5,536
)
 
(5,536
)
Earnings from equity investments
(5,558
)
 
(4,580
)
Distributions from equity investments
1,594

 
4,258

Other non-cash items
25,498

 
22,761

Change in assets and liabilities, net of amounts related to acquisitions:
 

 
 

Accounts receivable
(8,895
)
 
43,848

Construction and pipeline relocation receivables
1,115

 
7,947

Inventories
(54,302
)
 
(38,922
)
Prepaid and other current assets
(50,694
)
 
(43,226
)
Accounts payable
(10,031
)
 
(69,211
)
Accrued and other current liabilities
(12,021
)
 
(21,898
)
Other non-current assets
(477
)
 
2,244

Other non-current liabilities
(5,559
)
 
(4,685
)
Net cash provided by operating activities
371,600

 
291,602

Cash flows from investing activities:
 

 
 

Capital expenditures
(224,117
)
 
(298,414
)
Acquisitions, net of working capital settlement

 
(2,921
)
Proceeds from sale and disposition of assets
1,775

 
13

Escrow deposits
19,850

 

Net cash used in investing activities
(202,492
)
 
(301,322
)
Cash flows from financing activities:
 

 
 

Net proceeds from issuance of LP Units
90,182

 
62,414

Net proceeds from exercise of LP Unit options
300

 
173

Payment of tax withholding on issuance of LTIP awards
(5,082
)
 
(6,539
)
Debt issuance costs

 
(365
)
Borrowings under BPL Credit Facility
691,500

 
832,000

Repayments under BPL Credit Facility
(687,500
)
 
(647,000
)
Net borrowings under BMSC Credit Facility
66,001

 
43,300

Acquisition of additional interest in Buckeye Memphis

 
(10,044
)
Contributions from noncontrolling interests
2,200

 
30,000

Distributions paid to noncontrolling interests
(6,194
)
 
(3,218
)
Distributions paid to unitholders
(310,634
)
 
(290,632
)
Net cash (used in) provided by financing activities
(159,227
)
 
10,089

Net increase in cash and cash equivalents
9,881

 
369

Cash and cash equivalents — Beginning of period
4,881

 
8,208

Cash and cash equivalents — End of period
$
14,762

 
$
8,577

 
See Notes to Unaudited Condensed Consolidated Financial Statements.

4


BUCKEYE PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(In thousands)
(Unaudited)
 
 
 
 
Accumulated
 
 
 
 
 
 
 
Other
 
 
 
 
 
Limited
 
Comprehensive
 
Noncontrolling
 
 
 
Partners
 
Income (Loss)
 
Interests
 
Total
Partners’ capital - January 1, 2016
$
3,833,230

 
$
(97,841
)
 
$
281,352

 
$
4,016,741

Net income
271,569

 

 
7,907

 
279,476

Distributions paid to unitholders
(312,175
)
 

 
1,541

 
(310,634
)
Net proceeds from issuance of LP Units
90,182

 

 

 
90,182

Amortization of unit-based compensation awards
14,090

 

 

 
14,090

Net proceeds from exercise of LP Unit options
300

 

 

 
300

Payment of tax withholding on issuance of LTIP awards
(5,082
)
 

 

 
(5,082
)
Distributions paid to noncontrolling interests

 

 
(6,194
)
 
(6,194
)
Contributions from noncontrolling interests

 

 
2,200

 
2,200

Other comprehensive income

 
5,313

 

 
5,313

Noncash accrual for distribution equivalent rights
(1,468
)
 

 

 
(1,468
)
Other
(48
)
 

 
48

 

Partners' capital - June 30, 2016
$
3,890,598

 
$
(92,528
)
 
$
286,854

 
$
4,084,924

 
 
 
 
 
 
 
 
Partners’ capital - January 1, 2015
$
3,817,916

 
$
(115,288
)
 
$
237,968

 
$
3,940,596

Net income (loss)
203,191

 

 
(701
)
 
202,490

Acquisition of additional interest in Buckeye Memphis
(8,276
)
 

 
(1,768
)
 
(10,044
)
Adjusted value of noncontrolling interest in acquisition

 

 
(1,220
)
 
(1,220
)
Distributions paid to unitholders
(292,467
)
 

 
1,835

 
(290,632
)
Net proceeds from issuance of LP Units
62,414

 

 

 
62,414

Amortization of unit-based compensation awards
11,134

 

 

 
11,134

Net proceeds from exercise of LP Unit options
173

 

 

 
173

Payment of tax withholding on issuance of LTIP awards
(6,539
)
 

 

 
(6,539
)
Distributions paid to noncontrolling interests

 

 
(3,218
)
 
(3,218
)
Contributions from noncontrolling interests

 

 
30,000

 
30,000

Other comprehensive income

 
2,739

 

 
2,739

Noncash accrual for distribution equivalent rights
(1,361
)
 

 

 
(1,361
)
Other
366

 

 
(348
)
 
18

Partners' capital - June 30, 2015
$
3,786,551

 
$
(112,549
)
 
$
262,548

 
$
3,936,550

 
See Notes to Unaudited Condensed Consolidated Financial Statements.


5


BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1. ORGANIZATION AND BASIS OF PRESENTATION
 
Organization
 
Buckeye Partners, L.P. is a publicly traded Delaware master limited partnership and its limited partnership units representing limited partner interests (“LP Units”) are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “BPL.”  Buckeye GP LLC (“Buckeye GP”) is our general partner.  As used in these Notes to Unaudited Condensed Consolidated Financial Statements, “we,” “us,” “our” or “Buckeye” mean Buckeye Partners, L.P. and, where the context requires, includes our subsidiaries.
 
Buckeye owns and operates a diversified network of integrated assets providing midstream logistic solutions, primarily consisting of the transportation, storage and marketing of liquid petroleum products.  We are one of the largest independent liquid petroleum products pipeline operators in the United States in terms of volumes delivered and miles of pipeline. In addition, we own and operate one of the largest networks of active products terminals across our portfolio of pipelines, inland terminals and marine terminals located primarily in the East Coast and Gulf Coast regions of the United States and in the Caribbean.  Our network of marine terminals enables us to facilitate global flows of crude oil and refined petroleum products, offering our customers connectivity between supply areas and market centers through some of the world’s most important bulk storage and blending hubs.  Our flagship marine terminal in The Bahamas, Buckeye Bahamas Hub Limited (“BBH”), formerly known as Bahamas Oil Refining Company International Limited (“BORCO”), is one of the largest marine crude oil and refined petroleum products storage facilities in the world and provides an array of logistics and blending services for the global flow of petroleum products. Our expansion into the Gulf Coast has added another regional hub with world-class marine terminalling, storage and processing capabilities. We are also a wholesale distributor of refined petroleum products in certain areas served by our pipelines and terminals. 
 
Basis of Presentation and Principles of Consolidation
 
The unaudited condensed consolidated financial statements and the accompanying notes are prepared in accordance with U.S. generally accepted accounting principles and the rules of the U.S. Securities and Exchange Commission.  Accordingly, our financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of our results of operations for the interim periods.  The unaudited condensed consolidated financial statements include the accounts of our subsidiaries controlled by us and variable interest entities (“VIE”) of which we are the primary beneficiary. We have eliminated all intercompany transactions in consolidation.
 
We believe that the disclosures in these unaudited condensed consolidated financial statements are adequate to make the information presented not misleading.  These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2015.

Recent Accounting Developments

Equity-Based Compensation. In March 2016, the Financial Accounting Standards Board (“FASB”) issued guidance to simplify several aspects of the accounting for employee equity-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows and classification of awards as liabilities or equity. The guidance is effective for annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods, with early adoption permitted. Amendments related to the timing of when excess tax benefits are recognized, statutory withholding requirements and forfeitures should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows should be applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement should be applied prospectively. Amendments related to the presentation of excess tax benefits on the statement of cash flows may be applied using either a prospective transition method or a retrospective transition method. We are currently evaluating the impact the adoption of this guidance will have on our consolidated financial statements.

6



Leases. In February 2016, the FASB issued guidance requiring lessees to recognize assets and liabilities for leases with lease terms greater than twelve months in the statement of financial position. This update also requires enhanced disclosures regarding the amount, timing and uncertainty of cash flows arising from leases. The guidance must be applied using a modified retrospective approach and is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those annual periods, with early adoption permitted. We are currently evaluating the impact the adoption of this guidance will have on our consolidated financial statements.
 
2. ACQUISITIONS
 
Business Combinations
 
2015 Transactions
 
Pennsauken pipeline acquisition
 
In December 2015, we acquired a pipeline and associated tanks and other infrastructure in Pennsauken, New Jersey for $5.3 million. The operations of these assets are reported in our Domestic Pipelines & Terminals segment. The acquisition cost has been allocated on a preliminary basis to assets acquired based on estimated fair values at the acquisition date, with amounts exceeding the fair value recorded as goodwill, which represent expected synergies from combining the acquired assets with our existing operations. Fair values have been developed using recognized business valuation techniques.  The estimates of fair value reflected as of June 30, 2016 are subject to change pending final valuation analysis.  The purchase price has been allocated to tangible and intangible assets acquired and liabilities assumed as follows (in thousands):
Property, plant and equipment
$
5,287

Goodwill
2,372

Environmental liabilities
(2,372
)
Allocated purchase price
$
5,287

 
Unaudited Pro forma Financial Results for the Pennsauken pipeline acquisition

Our consolidated statements of operations do not include earnings from the pipeline and associated tanks and other infrastructure prior to December 10, 2015, the effective acquisition date of these assets. The preparation of unaudited pro forma financial information for the pipeline and associated tanks and other infrastructure is impracticable due to the fact that meaningful historical revenue information is not available. The revenues and earnings impact of this acquisition was not significant to our financial results for the three and six months ended June 30, 2016.

Springfield pipeline and terminal acquisitions

In March and May 2015, we acquired a terminal and pipeline, respectively, in Springfield, Massachusetts from ExxonMobil Oil Corporation (“ExxonMobil”) for an aggregate $7.7 million.  The operations of these assets are reported in our Domestic Pipelines & Terminals segment. The acquisition cost has been allocated to assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with amounts exceeding the fair value recorded as goodwill, which represents both expected synergies from combining the acquired assets with our existing operations and the economic value attributable to optimizing, modernizing and commercializing the asset from this acquisition. Fair values have been developed using recognized business valuation techniques.  The purchase price has been allocated to tangible and intangible assets acquired and liabilities assumed as follows (in thousands):
Property, plant and equipment
$
4,040

Goodwill
8,165

Asset retirement obligation
(4,200
)
Environmental liabilities
(293
)
Allocated purchase price
$
7,712



7


Unaudited Pro forma Financial Results for the Springfield pipeline and terminal acquisition

Our consolidated statements of operations do not include earnings from the terminal acquired from ExxonMobil prior to March 31, 2015, nor earnings from the pipeline acquired from ExxonMobil prior to May 5, 2015, which were the respective acquisition dates of the assets. The preparation of unaudited pro forma financial information for the terminal and pipeline acquired from ExxonMobil is impracticable due to the fact that ExxonMobil historically operated the assets as part of its integrated distribution network and, therefore, meaningful historical revenue information is not available. The revenues and earnings impact of this acquisition was not significant to our financial results for the three and six months ended June 30, 2016 or 2015.

3. COMMITMENTS AND CONTINGENCIES
 
Claims and Legal Proceedings
 
In the ordinary course of business, we are involved in various claims and legal proceedings, some of which are covered by insurance.  We are generally unable to predict the timing or outcome of these claims and proceedings.  Based upon our evaluation of existing claims and proceedings and the probability of losses relating to such contingencies, we have accrued certain amounts relating to such claims and proceedings, none of which are considered material.

Buckeye Texas Partners Contractor Dispute.  Buckeye Texas Processing LLC, a wholly owned subsidiary of Buckeye Texas Partners LLC (“Buckeye Texas”), is party to a contract with Ventech Engineers USA, LLC (“Ventech”). The contract required Ventech to design, supply, fabricate, and install two condensate splitters in Corpus Christi, Texas (the “Splitter Project”). Ventech’s primary subcontractor on the Splitter Project was Bay, Ltd. (“Bay”). Certain disputes arose on the Splitter Project relating to payment, delays, cost overruns, defective work, and other issues. On October 14, 2015, Bay filed a lawsuit in Harris County District Court against us and Ventech, claiming breach of contract, fraud, and other causes of action primarily premised on alleged non-payment of amounts due on the Splitter Project. On February 15, 2016, Buckeye Texas filed a cross claim against Ventech claiming that Ventech and Bay were responsible for cost overruns and defective work. Buckeye Texas also alleged that Ventech was responsible for certain design defects in the Splitter Project. On June 3, 2016, Ventech filed a cross claim against Buckeye Texas primarily premised on alleged non-payment of amounts due on the Splitter Project.

On August 1, 2016, Buckeye Texas resolved the portion of the dispute related to Bay's allegations of non-payment and certain construction issues, while reserving certain rights related to design issues against Ventech and Ventech’s surety. The impact of this dispute settlement with Bay is not material to our financial condition, results of operations, and cash flows.

With respect to the remaining claims in the dispute, Ventech currently claims it is owed approximately $12.0 million. We disagree with the assertion that we owe Ventech any additional amounts and, in addition, have reserved our rights to dispute a portion of the amounts already paid for the Splitter Project.

Environmental Contingencies
 
We recorded operating expenses, net of insurance recoveries, of $2.6 million and $1.3 million during the three months ended June 30, 2016 and 2015, respectively, related to environmental remediation liabilities unrelated to claims and legal proceedings.  For the six months ended June 30, 2016 and 2015, we recorded operating expenses, net of insurance recoveries, of $4.2 million and $2.7 million, respectively, related to environmental remediation liabilities unrelated to claims and legal proceedings. As of June 30, 2016 and December 31, 2015, we recorded environmental remediation liabilities of $47.1 million and $48.0 million, respectively.  Costs incurred may be in excess of our estimate, which may have a material impact on our financial condition, results of operations or cash flows.  At June 30, 2016 and December 31, 2015, we had $8.3 million and $10.9 million, respectively, of receivables related to these environmental remediation liabilities covered by insurance or third-party claims.


8


4. INVENTORIES
 
Our inventory amounts were as follows at the dates indicated (in thousands):
 
June 30,
2016
 
December 31,
2015
Liquid petroleum products (1)
$
227,793

 
$
174,232

Materials and supplies
19,501

 
18,760

Total inventories
$
247,294

 
$
192,992

                                                      
(1)
Ending inventory was 152.3 million and 153.3 million gallons of liquid petroleum products as of June 30, 2016 and December 31, 2015, respectively.
 
At June 30, 2016 and December 31, 2015, approximately 91% and 89% of our liquid petroleum products inventory volumes were designated in a fair value hedge relationship, respectively.  Because we generally designate inventory as a hedged item upon purchase, hedged inventory is valued at current market prices with the change in value of the inventory reflected in our unaudited condensed consolidated statements of operations.  Our inventory volumes that are not designated as the hedged item in a fair value hedge relationship are economically hedged to reduce our commodity price exposure.  Inventory not accounted for as a fair value hedge is accounted for at the lower of weighted average cost method or net realizable value.

5. PREPAID AND OTHER CURRENT ASSETS
 
Prepaid and other current assets consist of the following at the dates indicated (in thousands):
 
June 30,
2016
 
December 31,
2015
Prepaid insurance
$
18,520

 
$
12,779

Margin deposits
38,069

 

Unbilled revenue
2,080

 
4,047

Prepaid taxes
7,689

 
4,842

Escrow deposits
10

 
21,360

Other
9,638

 
5,043

Total prepaid and other current assets
$
76,006

 
$
48,071


6. EQUITY INVESTMENTS
 
The following table presents earnings (losses) from equity investments for the periods indicated (in thousands): 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
West Shore Pipe Line Company
$
1,565

 
$
2,398

 
$
3,896

 
$
4,176

Muskegon Pipeline LLC
419

 
(671
)
 
796

 
(584
)
Transport4, LLC
226

 
305

 
373

 
273

South Portland Terminal LLC
260

 
414

 
493

 
715

Total earnings from equity investments
$
2,470

 
$
2,446

 
$
5,558

 
$
4,580

 

9


Summarized combined income statement data for our equity method investments are as follows for the periods indicated (amounts represent 100% of investee income statement data in thousands): 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Revenue
$
20,835

 
$
22,874

 
$
43,046

 
$
44,346

Costs and expenses
(10,762
)
 
(16,876
)
 
(20,440
)
 
(26,614
)
Non-operating expenses
(3,089
)
 
(3,361
)
 
(7,283
)
 
(7,657
)
Net income
$
6,984

 
$
2,637

 
$
15,323

 
$
10,075


7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We are exposed to financial market risks, including changes in commodity prices, in the course of our normal business operations.  We use derivative instruments to manage risks.
 
Commodity Derivatives

Our Merchant Services segment primarily uses exchange-traded refined petroleum product futures contracts to manage the risk of market price volatility on its refined petroleum product inventories and its physical derivative contracts which we designated as fair value hedges with changes in fair value of both the futures contracts and physical inventory reflected in earnings.  Physical forward contracts and futures contracts that have not been designated in a hedge relationship are marked-to-market.
The following table summarizes our commodity derivative instruments outstanding at June 30, 2016 (amounts in thousands of gallons):
 
 
Volume (1)
 
Accounting
Derivative Purpose 
 
Current
 
Long-Term
 
Treatment
Derivatives NOT designated as hedging instruments:
 
 

 
 

 
 
Physical fixed price derivative contracts
 
10,800

 
1,610

 
Mark-to-market
Physical index derivative contracts
 
48,603

 

 
Mark-to-market
Futures contracts for refined petroleum products
 
5,414

 
16,506

 
Mark-to-market
 
 
 
 
 
 
 
Derivatives designated as hedging instruments:
 
 

 
 

 
 
Futures contracts for refined petroleum products
 
139,020

 

 
Fair Value Hedge
                                                     
(1)
Volume represents absolute value of net notional volume position.


10


The following table sets forth the fair value of each classification of derivative instruments and the locations of the derivative instruments on our unaudited condensed consolidated balance sheets at the dates indicated (in thousands):
 
June 30, 2016
 
Derivatives NOT Designated as Hedging Instruments
 
Derivatives Designated as Hedging Instruments
 
Derivative Carrying Value
 
Netting Balance Sheet Adjustment (1)
 
Net Total
Physical fixed price derivative contracts
$
4,004

 
$
1,498

 
$
5,502

 
$
(1,097
)
 
$
4,405

Physical index derivative contracts
57

 

 
57

 
(39
)
 
18

Futures contracts for refined products
17,988

 
980

 
18,968

 
(18,968
)
 

Total current derivative assets
22,049

 
2,478

 
24,527

 
(20,104
)
 
4,423

Physical fixed price derivative contracts
346

 

 
346

 
(6
)
 
340

Futures contracts for refined products
183

 

 
183

 
(183
)
 

Total non-current derivative assets
529

 

 
529

 
(189
)
 
340

Physical fixed price derivative contracts
(2,620
)
 

 
(2,620
)
 
1,097

 
(1,523
)
Physical index derivative contracts
(117
)
 

 
(117
)
 
39

 
(78
)
Futures contracts for refined products
(29,725
)
 
(4,078
)
 
(33,803
)
 
18,968

 
(14,835
)
Total current derivative liabilities
(32,462
)
 
(4,078
)
 
(36,540
)
 
20,104

 
(16,436
)
Physical fixed price derivative contracts
(54
)
 

 
(54
)
 
6

 
(48
)
Futures contracts for refined products
(3,841
)
 

 
(3,841
)
 
183

 
(3,658
)
Total non-current derivative liabilities
(3,895
)
 

 
(3,895
)
 
189

 
(3,706
)
Net derivative liabilities
$
(13,779
)
 
$
(1,600
)
 
$
(15,379
)
 
$

 
$
(15,379
)
                                                      
(1)
Amounts represent the netting of physical fixed and index contracts’ assets and liabilities when a legal right of offset exists.  Futures contracts are subject to settlement through margin requirements and are additionally presented on a net basis. 
 
December 31, 2015
 
Derivatives NOT Designated as Hedging Instruments
 
Derivatives Designated as Hedging Instruments
 
Derivative Carrying Value
 
Netting Balance Sheet Adjustment (1)
 
Net Total
Physical fixed price derivative contracts
$
26,698

 
$

 
$
26,698

 
$
(79
)
 
$
26,619

Physical index derivative contracts
87

 

 
87

 
(62
)
 
25

Futures contracts for refined products
136,131

 
36,834

 
172,965

 
(121,324
)
 
51,641

Total current derivative assets
162,916

 
36,834

 
199,750

 
(121,465
)
 
78,285

Physical fixed price derivative contracts
1,057

 

 
1,057

 

 
1,057

Total non-current derivative assets
1,057

 

 
1,057

 

 
1,057

Physical fixed price derivative contracts
(535
)
 

 
(535
)
 
79

 
(456
)
Physical index derivative contracts
(116
)
 

 
(116
)
 
62

 
(54
)
Futures contracts for refined products
(119,506
)
 
(1,818
)
 
(121,324
)
 
121,324

 

Total current derivative liabilities
(120,157
)
 
(1,818
)
 
(121,975
)
 
121,465

 
(510
)
Futures contracts for refined products
(703
)
 

 
(703
)
 

 
(703
)
Total non-current derivative liabilities
(703
)
 

 
(703
)
 

 
(703
)
Net derivative assets
$
43,113

 
$
35,016

 
$
78,129

 
$

 
$
78,129

                                                      
(1)
Amounts represent the netting of physical fixed and index contracts’ assets and liabilities when a legal right of offset exists.  Futures contracts are subject to settlement through margin requirements and are additionally presented on a net basis.
 
Our futures contracts designated as fair value hedges related to our inventory portfolio extend to the first quarter of 2017.  The unrealized loss at June 30, 2016 for fair value hedges of inventory represented by future contracts of $3.1 million will be realized by the first quarter of 2017.  At June 30, 2016, open refined petroleum product derivative contracts (represented by the physical fixed-price contracts, physical index contracts, and futures contracts for refined products contracts noted above) varied in duration in the overall portfolio, but did not extend beyond December 2018.  In addition, at June 30, 2016, we had refined petroleum product inventories that we intend to use to satisfy a portion of the physical derivative contracts.
 

11


The gains and losses on our derivative instruments recognized in income were as follows for the periods indicated (in thousands):
 
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
Location
 
2016
 
2015
 
2016
 
2015
Derivatives NOT designated as hedging instruments:
 
 
 

 
 

 
 

 
 

Physical fixed price derivative contracts
Product sales
 
$
(5,309
)
 
$
(3,126
)
 
$
(7,564
)
 
$
3,929

Physical index derivative contracts
Product sales
 
15

 
(5
)
 
(12
)
 
(10
)
Physical fixed price derivative contracts
Cost of product sales
 
2,371

 
3,952

 
7,486

 
6,591

Physical index derivative contracts
Cost of product sales
 
(51
)
 
220

 
163

 
64

Futures contracts for refined products
Cost of product sales
 
6,115

 
4,878

 
4,633

 
13,583

 
 
 
 
 
 
 
 
 
 
Derivatives designated as fair value hedging instruments:
 
 
 

 
 

 
 

 
 

Futures contracts for refined products
Cost of product sales
 
$
(28,568
)
 
$
(14,708
)
 
$
(26,955
)
 
$
(32,555
)
Physical inventory - hedged items
Cost of product sales
 
31,681

 
11,152

 
40,007

 
20,576

 
 
 
 
 
 
 
 
 
 
Ineffectiveness excluding the time value component on fair value hedging instruments:
 
 
 

 
 

 
 

 
 

Fair value hedge ineffectiveness (excluding time value)
Cost of product sales
 
$
(660
)
 
$
(1,216
)
 
$
(13
)
 
$
(150
)
Time value excluded from hedge assessment
Cost of product sales
 
3,773

 
(2,340
)
 
13,065

 
(11,829
)
Net gain (loss) in income
 
 
$
3,113

 
$
(3,556
)
 
$
13,052

 
$
(11,979
)


The change in value recognized in other comprehensive income (“OCI”) and the losses reclassified from accumulated other comprehensive income (“AOCI”) to income attributable to our derivative instruments designated as cash flow hedges were as follows for the periods indicated (in thousands):

 
Loss Recognized in OCI on Derivatives for the
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Derivatives designated as cash flow hedging instruments:
 

 
 

 
 

 
 

Commodity derivatives

 
(3,857
)
 

 
(3,857
)
Total
$

 
$
(3,857
)
 
$

 
$
(3,857
)


 
 
 
(Loss) Gain Reclassified from AOCI to Income (Effective Portion) for the
 
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
Location
 
2016
 
2015
 
2016
 
2015
Derivatives designated as cash flow hedging instruments:
 
 
 

 
 

 
 

 
 

Interest rate contracts
Interest and debt expense
 
$
(3,037
)
 
$
(3,039
)
 
$
(6,075
)
 
$
(6,076
)
Commodity derivatives
Product Sales
 

 

 
1,266

 

Total
 
 
$
(3,037
)
 
$
(3,039
)
 
$
(4,809
)
 
$
(6,076
)

Over the next twelve months, we expect to reclassify $12.2 million of net losses attributable to interest rate derivative instruments from AOCI to earnings as an increase to interest and debt expense. For additional information on the net losses attributable to interest rate derivative instruments, see our Annual Report on Form 10-K for the year ended December 31, 2015.




12


8. FAIR VALUE MEASUREMENTS
 
We categorize our financial assets and liabilities using the three-tier hierarchy as follows:
 
Recurring
 
The following table sets forth financial assets and liabilities measured at fair value on a recurring basis, as of the measurement dates indicated, and the basis for that measurement, by level within the fair value hierarchy (in thousands):
 
June 30, 2016
 
December 31, 2015
 
Level 1
 
Level 2
 
Level 1
 
Level 2
Financial assets:
 

 
 

 
 

 
 

Physical fixed price derivative contracts
$

 
$
4,745

 
$

 
$
27,676

Physical index derivative contracts

 
18

 

 
25

Futures contracts for refined products

 

 
51,641

 

 
 
 
 
 
 
 
 
Financial liabilities:
 

 
 

 
 

 
 

Physical fixed price derivative contracts

 
(1,571
)
 

 
(456
)
Physical index derivative contracts

 
(78
)
 

 
(54
)
Futures contracts for refined products
(18,493
)
 

 
(703
)
 

Fair value
$
(18,493
)
 
$
3,114

 
$
50,938

 
$
27,191

 
The values of the Level 1 derivative assets and liabilities were based on quoted market prices obtained from the New York Mercantile Exchange.
 
The values of the Level 2 commodity derivative contracts were calculated using market approaches based on observable market data inputs, including published commodity pricing data, which is verified against other available market data, and market interest rate and volatility data.  Level 2 physical fixed price derivative assets are net of credit value adjustments (“CVAs”) determined using an expected cash flow model, which incorporates assumptions about the credit risk of the derivative contracts based on the historical and expected payment history of each customer, the amount of product contracted for under the agreement and the customer’s historical and expected purchase performance under each contract.  The Merchant Services segment determined CVAs are appropriate because few of the Merchant Services segment’s customers entering into these derivative contracts are large organizations with nationally recognized credit ratings.  The CVAs were nominal as of June 30, 2016 and December 31, 2015. As of June 30, 2016 and December 31, 2015, the Merchant Services segment did not hold any net liability derivative position containing credit contingent features.
 
Financial instruments included in current assets and current liabilities are reported in the unaudited condensed consolidated balance sheets at amounts which approximate fair value due to the relatively short period to maturity of these financial instruments.  The fair values of our fixed-rate debt were estimated by observing market trading prices and by comparing the historic market prices of our publicly issued debt with the market prices of the publicly issued debt of other master limited partnerships with similar credit ratings and terms.  The fair values of our variable-rate debt are their carrying amounts, as the carrying amount reasonably approximates fair value due to the variability of the interest rates.  The carrying value and fair value, using Level 2 input values, of our debt were as follows at the dates indicated (in thousands):
 
June 30, 2016
 
December 31, 2015
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Fixed-rate debt
$
3,373,610

 
$
3,441,293

 
$
3,371,824

 
$
3,057,945

Variable-rate debt
542,489

 
542,489

 
472,488

 
472,488

Total debt
$
3,916,099

 
$
3,983,782

 
$
3,844,312

 
$
3,530,433

 
We recognize transfers between levels within the fair value hierarchy as of the beginning of the reporting period.  We did not have any transfers between Level 1 and Level 2 during the six months ended June 30, 2016 and 2015, respectively.
 

13


Non-Recurring
 
Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.  For the three and six months ended June 30, 2016 and 2015, there were no fair value adjustments related to such assets or liabilities reflected in our unaudited condensed consolidated financial statements.

9. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
 
Buckeye Pipe Line Services Company, which employs the majority of our workforce, sponsors a defined benefit plan, the Retirement Income Guarantee Plan (the “RIGP”), and an unfunded post-retirement benefit plan (the “Retiree Medical Plan”).  The RIGP and Retiree Medical Plan are closed and have limited participation. The components of the net periodic benefit cost for the RIGP and Retiree Medical Plan were as follows for the three and six months ended June 30, 2016 and 2015 (in thousands):
 
RIGP
 
Retiree Medical Plan
 
Three Months Ended 
 June 30,
 
Three Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Service cost
$
(8
)
 
$
3

 
$
70

 
$
91

Interest cost
83

 
138

 
322

 
334

Expected return on plan assets
(57
)
 
(83
)
 

 

Amortization of unrecognized losses
116

 
210

 
(50
)
 
49

Actuarial loss due to settlements
243

 

 

 

Net periodic benefit cost
$
377

 
$
268

 
$
342

 
$
474

 
 
RIGP
 
Retiree Medical Plan
 
Six Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Service cost
$
(17
)
 
$
6

 
$
161

 
$
182

Interest cost
210

 
276

 
655

 
667

Expected return on plan assets
(128
)
 
(167
)
 

 

Amortization of unrecognized losses
261

 
421

 

 
99

Actuarial loss due to settlements
243

 

 

 

Net periodic benefit cost
$
569

 
$
536

 
$
816

 
$
948

 
During the three months ended June 30, 2016 and 2015, we contributed $0.2 million and $0.5 million, respectively, in aggregate to the RIGP and Retiree Medical Plans.  For the six months ended June 30, 2016 and 2015, we contributed $1.0 million and $0.7 million, respectively, in aggregate to the RIGP and Retiree Medical Plans.
 
10. UNIT-BASED COMPENSATION PLANS
 
We award unit-based compensation to employees and directors primarily under the Buckeye Partners, L.P. 2013 Long-Term Incentive Plan (the “LTIP”).  We formerly awarded options to acquire LP Units to employees pursuant to the Buckeye Partners, L.P. Unit Option and Distribution Equivalent Plan (the “Option Plan”).  These compensation plans are further discussed below.
 
We recognized compensation expense from continuing operations related to the LTIP and the Option Plan, of $7.7 million and $5.9 million for the three months ended June 30, 2016 and 2015, respectively. For the six months ended June 30, 2016 and 2015, we recognized compensation expense of $14.1 million and $11.0 million, respectively.

LTIP
 
As of June 30, 2016, there were 2,035,472 LP Units available for issuance under the LTIP.
 

14


Deferral Plan under the LTIP
 
We also maintain the Buckeye Partners, L.P. Unit Deferral and Incentive Plan, as amended and restated effective February 4, 2015 (the “Deferral Plan”), pursuant to which we issue phantom and matching units under the LTIP to certain employees in lieu of a portion of the cash payments such employees would be entitled to receive under the Buckeye Partners, L.P. Annual Incentive Compensation Plan, as amended and restated, effective January 1, 2012.  At December 31, 2015 and 2014, actual compensation awards deferred under the Deferral Plan were $3.1 million and $1.7 million, for which 139,526 and 54,592 phantom units (including matching units) were granted during the six months ended June 30, 2016 and the year ended 2015, respectively.  These grants are included as granted in the LTIP activity table below.
 
Awards under the LTIP
 
During the six months ended June 30, 2016, the Compensation Committee of the Board granted 340,919 phantom units to employees (including the 139,526 phantom units granted pursuant to the Deferral Plan, as discussed above), 20,000 phantom units to independent directors of Buckeye GP and 273,243 performance units to employees.

The following table sets forth the LTIP activity for the periods indicated (in thousands, except per unit amounts):
 
Number of
LP Units
 
Weighted
Average
Grant Date
Fair Value
per LP Unit
Unvested at January 1, 2016
1,011

 
$
68.20

Granted
634

 
53.39

Vested
(265
)
 
55.16

Forfeited
(5
)
 
68.14

Unvested at June 30, 2016
1,375

 
$
63.97

 
At June 30, 2016, $50.2 million of compensation expense related to the LTIP is expected to be recognized over a weighted average period of 2.0 years.
 
Unit Option Plan
 
The following is a summary of the changes in the options outstanding (all of which are vested) under the Option Plan for the periods indicated (in thousands, except per unit amounts): 
 
Number of
LP Units
 
Weighted
Average
Strike Price
per LP Unit
 
Weighted
Average
Remaining
Contractual
Term (in years)
 
Aggregate
Intrinsic
Value (1)
Outstanding at January 1, 2016
17

 
$
48.71

 
0.9
 
$
300

Exercised
(6
)
 
47.17

 
 
 
 

Forfeited, cancelled or expired
(1
)
 
44.73

 
 
 
 
Outstanding at June 30, 2016
10

 
50.36

 
0.6
 
$
191

 
 
 
 
 
 
 
 
Exercisable at June 30, 2016
10

 
$
50.36

 
0.6
 
$
191

                                                      
(1)
Aggregate intrinsic value reflects fully vested LP Unit options at the date indicated. Intrinsic value is determined by calculating the difference between our closing LP Unit price on the last trading day in June 2016 and the exercise price, multiplied by the number of exercisable, in-the-money options.
 
The total intrinsic value of options exercised during each of the six months ended June 30, 2016 and 2015 was $0.1 million.

15


11. PARTNERS' CAPITAL AND DISTRIBUTIONS
 
In March 2016, we entered into an equity distribution agreement (the “Equity Distribution Agreement”) with J.P. Morgan Securities LLC, BB&T Capital Markets, a division of BB&T Securities, LLC, BNP Paribas Securities Corp., Deutsche Bank Securities Inc., Jefferies LLC, Morgan Stanley & Co. LLC, RBC Capital Markets, LLC, and SMBC Nikko Securities America, Inc. Under the terms of the Equity Distribution Agreement, we may offer and sell up to $500.0 million in aggregate gross sales proceeds of LP Units from time to time through such firms, acting as agents of Buckeye or as principals, subject in each case to the terms and conditions set forth in the Equity Distribution Agreement. This agreement replaced our prior four separate equity distribution agreements with each of Wells Fargo Securities, LLC, Barclays Capital Inc., SunTrust Robinson Humphrey, Inc. and UBS Securities LLC, which we entered into in May 2013 and, under the terms of which, we could sell up to $300.0 million in aggregate gross sales proceeds of LP Units from time to time through such firms.

During the six months ended June 30, 2016, we sold approximately 1.3 million LP Units under the Equity Distribution Agreement and received $90.2 million in net proceeds after deducting commissions and other related expenses, including $0.9 million of compensation paid in aggregate to the agents under the Equity Distribution Agreement.
 
Summary of Changes in Outstanding LP Units
 
The following is a summary of changes in Buckeye's outstanding LP Units for the periods indicated (in thousands):
 
Limited
Partners
LP Units outstanding at January 1, 2016
129,524

LP Units issued pursuant to the Option Plan (1)
6

LP Units issued pursuant to the LTIP (1)
211

Issuance of LP Units through Equity Distribution Agreements
1,307

LP Units outstanding at June 30, 2016
131,048

                                                      
(1) The number of LP Units issued represents issuance net of tax withholding.
 
Distributions
 
We generally make quarterly cash distributions to unitholders of substantially all of our available cash, generally defined in our partnership agreement as consolidated cash receipts less consolidated cash expenditures and such retentions for working capital, anticipated cash expenditures and contingencies as our general partner deems appropriate.  Actual cash distributions on our LP Units totaled $312.2 million ($2.3875 per LP Unit) and $292.5 million ($2.2875 per LP Unit) during the six months ended June 30, 2016 and 2015, respectively.
 
On August 5, 2016, we announced a quarterly distribution of $1.2125 per LP Unit that will be paid on August 22, 2016 to unitholders of record on August 15, 2016.  Based on the LP Units outstanding as of June 30, 2016, estimated cash distributed to unitholders on August 22, 2016 will total $159.8 million.
 

16


12. EARNINGS PER UNIT
 
The following table is a reconciliation of the weighted average units outstanding used in computing the basic and diluted earnings per unit for the periods indicated (in thousands, except per unit amounts):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Net income attributable to Buckeye Partners, L.P.
$
140,456

 
$
91,580

 
$
271,569

 
$
203,191

 
 
 
 
 
 
 
 
Basic:
 

 
 

 
 

 
 

    Weighted average units outstanding - basic
130,494

 
127,650

 
130,099

 
127,414

 
 
 
 
 
 
 
 
Earnings per unit - basic
$
1.08

 
$
0.72

 
$
2.09

 
$
1.59

 
 
 
 
 
 
 
 
Diluted:
 

 
 

 
 

 
 

Weighted average units outstanding - basic
130,494

 
127,650

 
130,099

 
127,414

Dilutive effect of LP Unit options and LTIP awards granted
659

 
548

 
542

 
490

    Weighted average units outstanding - diluted
131,153

 
128,198

 
130,641

 
127,904

 
 
 
 
 
 
 
 
Earnings per unit - diluted
$
1.07

 
$
0.71

 
$
2.08

 
$
1.59


13. BUSINESS SEGMENTS
 
We operate and report in three business segments: (i) Domestic Pipelines & Terminals; (ii) Global Marine Terminals; and (iii) Merchant Services.  Each segment uses the same accounting policies as those used in the preparation of our unaudited condensed consolidated financial statements.  All inter-segment revenues, operating income and assets have been eliminated. 

 Domestic Pipelines & Terminals
 
The Domestic Pipelines & Terminals segment receives liquid petroleum products from refineries, connecting pipelines, vessels, and bulk and marine terminals, transports those products to other locations for a fee, and provides bulk storage and terminal throughput services.  The segment also has butane blending capabilities and provides crude oil services, including train loading/unloading, storage and throughput. This segment owns and operates pipeline systems and liquid petroleum products terminals in the continental United States, including five terminals owned by the Merchant Services segment but operated by the Domestic Pipelines & Terminals segment, and two underground propane storage caverns.  Additionally, this segment provides turn-key operations and maintenance of third-party pipelines and performs pipeline construction management services typically for cost plus a fixed fee.
 
Global Marine Terminals
 
The Global Marine Terminals segment provides marine accessible bulk storage and blending services, rail and truck rack loading/unloading along with petroleum processing services in the East Coast and Gulf Coast regions of the United States and in the Caribbean.  The segment has seven liquid petroleum product terminals located in The Bahamas, Puerto Rico and St. Lucia in the Caribbean, as well as the New York Harbor and Corpus Christi, Texas in the United States. 
 
Merchant Services
 
The Merchant Services segment is a wholesale distributor of refined petroleum products in the United States and in the Caribbean. This segment recognizes revenues when products are delivered. The segment’s products include gasoline, natural gas liquids, ethanol, biodiesel and petroleum distillates such as heating oil, diesel fuel, kerosene and fuel oil.  The segment owns five terminals, which are operated by the Domestic Pipelines & Terminals segment.  The segment’s customers consist principally of product wholesalers as well as major commercial users of these refined petroleum products.
 

17


The following table summarizes revenue by each segment for the periods indicated (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Revenue:
 

 
 

 
 

 
 

Domestic Pipelines & Terminals
$
249,979

 
$
224,654

 
$
487,932

 
$
468,225

Global Marine Terminals
169,517

 
124,590

 
339,581

 
245,574

Merchant Services
369,408

 
460,156

 
759,145

 
1,200,316

Intersegment
(11,782
)
 
(12,617
)
 
(28,942
)
 
(29,232
)
Total revenue
$
777,122

 
$
796,783

 
$
1,557,716

 
$
1,884,883

 
For the three and six months ended June 30, 2016 and 2015, no customers contributed 10% or more of consolidated revenue.

The following table summarizes revenue for our continuing operations, by major geographic area, for the periods indicated (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Revenue:
 

 
 

 
 

 
 

United States
$
692,154

 
$
709,115

 
$
1,389,042

 
$
1,714,177

International
84,968

 
87,668

 
168,674

 
170,706

Total revenue
$
777,122

 
$
796,783

 
$
1,557,716

 
$
1,884,883

 
Adjusted EBITDA
 
Adjusted EBITDA is the primary measure used by our senior management, including our Chief Executive Officer, to: (i) evaluate our consolidated operating performance and the operating performance of our business segments; (ii) allocate resources and capital to business segments; (iii) evaluate the viability of proposed projects; and (iv) determine overall rates of return on alternative investment opportunities. Adjusted EBITDA eliminates: (i) non-cash expenses, including but not limited to, depreciation and amortization expense resulting from the significant capital investments we make in our businesses and from intangible assets recognized in business combinations; (ii) charges for obligations expected to be settled with the issuance of equity instruments; and (iii) items that are not indicative of our core operating performance results and business outlook.
 
We believe that investors benefit from having access to the same financial measures that we use and that these measures are useful to investors because they aid in comparing our operating performance with that of other companies with similar operations.  The Adjusted EBITDA data presented by us may not be comparable to similarly titled measures at other companies because these items may be defined differently by other companies.
 

18


The following tables present Adjusted EBITDA from continuing operations by segment and on a consolidated basis and a reconciliation of income from continuing operations to Adjusted EBITDA for the periods indicated (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016