SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2002 or
_____ Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _______________ to _______________
Commission file number 1-9356
BUCKEYE PARTNERS, L.P.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2432497
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5 Radnor Corporate Center, Suite 500
100 Matsonford Road
Radnor, PA 19087
- --------------------------------- ----------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: 484-232-4000
Not Applicable
- -----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report).
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at April 18, 2002
- ------------------------- -----------------------------
Limited Partnership Units 26,924,546 Units
BUCKEYE PARTNERS, L.P.
INDEX
Page No.
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Income
for the three months ended
March 31, 2002 and 2001 1
Condensed Consolidated Balance Sheets
March 31, 2002 and December 31, 2001 2
Condensed Consolidated Statements of Cash Flows
for the three months ended
March 31, 2002 and 2001 3
Notes to Condensed Consolidated Financial Statements 4-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10-13
IItem 3. Quantitative and Qualitative Disclosures
about Market Risk 14
Part II. Other Information
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15-16
Part I - Financial Information
Buckeye Partners, L.P.
Condensed Consolidated Statements of Income
(In thousands, except per unit amounts)
(Unaudited)
Three Months Ended
March 31,
--------------------
2002 2001
---- ----
Revenue $56,891 $54,417
------- -------
Costs and expenses
Operating expenses 25,938 24,720
Depreciation and amortization 5,147 4,839
General and administrative expenses 3,759 3,005
------- -------
Total costs and expenses 34,844 32,564
------- -------
Operating income 22,047 21,853
------- -------
Other income (expenses)
Investment income 538 271
Interest expense (5,240) (4,546)
Minority interests and other (2,920) (2,655)
------- -------
Total other income (expenses) (7,622) (6,930)
------- -------
Net income $14,425 $14,923
======= =======
Net income allocated to General
Partner $ 130 $ 134
Net income allocated to Limited
Partners $14,295 $14,789
Earnings per Partnership Unit -
basic:
Net income allocated to General
and Limited Partners
per Partnership Unit $ 0.53 $ 0.55
Earnings per Partnership Unit -
Assuming dilution:
Net income allocated to General
and Limited Partners per
Partnership Unit $ 0.53 $ 0.55
See notes to condensed consolidated financial statements.
Buckeye Partners, L.P.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
March 31, December 31,
2002 2001
---- ----
Assets
Current assets
Cash and cash equivalents $ 7,846 $ 12,946
Trade receivables 14,032 13,753
Inventories 7,789 7,591
Prepaid and other current assets 17,473 13,441
-------- --------
Total current assets 47,140 47,731
Property, plant and equipment, net 671,880 670,439
Other non-current assets 88,540 89,390
-------- --------
Total assets $807,560 $807,560
======== ========
Liabilities and partners' capital
Current liabilities
Accounts payable $ 2,611 $ 7,416
Accrued and other current liabilities 21,924 24,885
-------- --------
Total current liabilities 24,535 32,301
Long-term debt 383,000 373,000
Minority interests 3,319 3,307
Other non-current liabilities 46,248 46,056
-------- --------
Total liabilities 457,102 454,664
-------- --------
Commitments and contingent liabilities - -
Partners' capital
General Partner 2,812 2,834
Limited Partners 348,641 351,057
Receivable from exercise of options (995) (995)
-------- --------
Total partners' capital 350,458 352,896
-------- --------
Total liabilities and partners'
capital $807,560 $807,560
======== ========
See notes to condensed consolidated financial statements.
Buckeye Partners, L.P.
Condensed Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------
2002 2001
---- ----
Cash flows from operating activities:
Net income $14,425 $14,923
------- -------
Adjustments to reconcile net income to net
cash
provided by operating activities:
Depreciation and amortization 5,147 4,839
Minority interests 211 251
Change in assets and liabilities:
Trade receivables (279) 256
Inventories (198) (249)
Prepaid and other current assets (4,032) 869
Accounts payable (4,805) (2,845)
Accrued and other current liabilities (2,961) (2,979)
Other non-current assets (384) 198
Other non-current liabilities 192 315
------- -------
Total adjustments from operating
activities (7,109) 655
------- -------
Net cash provided by operating
activities 7,316 15,578
------- -------
Cash flows from investing activities:
Capital expenditures (5,366) (7,488)
Net proceeds from (expenditures for)
disposal of property, plant and equipment 12 (100)
------- -------
Net cash used in investing activities (5,354) (7,588)
------- -------
Cash flows from financing activities:
Proceeds from exercise of unit options 115 144
Distributions to minority interests (199) (188)
Proceeds from issuance of long-term debt 10,000 -
Payment of long-term debt - (10,000)
Distributions to Unitholders (16,978) (16,258)
------- -------
Net cash used in financing activities (7,062) (26,302)
------- -------
Net decrease in cash and cash equivalents (5,100) (18,312)
Cash and cash equivalents at beginning of
period 12,946 32,216
------- -------
Cash and cash equivalents at end of period $ 7,846 $13,904
======= =======
Supplemental cash flow information:
Cash paid during the period for interest
(net of amount capitalized) $ 5,268 $5,390
See notes to condensed consolidated financial statements.
BUCKEYE PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.BASIS OF PRESENTATION
In the opinion of management, the accompanying condensed consolidated
financial statements of Buckeye Partners, L.P. (the "Partnership"), which are
unaudited except that the Balance Sheet as of December 31, 2001 is derived
from audited financial state ments, include all adjustments necessary to
present fairly the Partnership's financial position as of March 31, 2002 and
the results of operations for the three month period ended March 31, 2002 and
2001 and cash flows for the three month period ended March 31, 2002 and 2001.
The results of operations for the three months ended March 31, 2002 are not
necessarily indicative of the results to be expected for the full year ending
December 31, 2002.
Buckeye Pipe Line Company, L.P., Laurel Pipe Line Company, L.P, Everglades
Pipe Line Company, L.P. and Buckeye Pipe Line Holdings, L.P. (formerly Buckeye
Tank Terminals, L.P.). are referred to collectively as the "Operating
Partnerships".
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the condensed consolidated financial statements do not include all
of the information and notes normally included with financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 2001.
2. ACQUISITIONS
On July 31, 2001, the Partnership acquired a pipeline system and related
terminals from affiliates of TransMontaigne Inc. for a total purchase price of
$61,750,000. Additional costs incurred in connection with the acquisition
amounted to $533,000. The assets included a 482-mile refined petroleum
products pipeline that runs from Hartsdale, Indiana west to Fort Madison, Iowa
and east to Toledo, Ohio, with an 11-mile pipeline connection between major
storage terminals in Hartsdale and East Chicago, Indiana. The assets also
included 3.2 million barrels of pipeline storage and trans-shipment facilities
in Hartsdale and East Chicago, Indiana and Toledo, Ohio; and four truck rack
product terminals located in Bryan, Ohio; South Bend and Indianapolis,
Indiana; and Peoria, Illinois. The pipeline system is operated under the name
of Norco Pipe Line Co., LLC ("Norco"). The terminal assets became part of
Buckeye Terminals, LLC's operations. The pipeline system and related terminals
are collectively referred to as the "Norco Assets" or "Norco Operations". The
allocated fair value of assets acquired is summarized as follows:
(In thousands)
--------------
Pipe inventory $ 688
Property, plant and equipment 61,595
-------
Total $62,283
=======
Pro forma results of operations for the Partnership, assuming the acquisition
of the Norco Assets had occurred at the beginning of the period indicated
below, are as follows:
(Unaudited)
Three Months Ended March 31, 2001
---------------------------------
(In thousands,
except per Unit amounts)
Revenue $58,278
Net income $15,379
Earnings per Partnership Unit $ 0.57
Earnings per Partnership
Unit - excluding amortization of goodwill $ 0.58
The unaudited pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have resulted had the combination been in effect at the
beginning of the periods presented, or of future results of operations of the
entities. The Norco acquisition was accounted for under the purchase method
of accounting.
3. SEGMENT INFORMATION
During the first quarter 2002 and 2001, the Partnership had one business
segment, the transportation segment. The transportation segment derives its
revenues primarily from the transportation of refined petroleum products that
it receives from refineries, connecting pipelines and marine terminals.
Revenues from the transportation segment are, for the most part, subject to
regulation by the Federal Energy Regulatory Commission or are under contract.
4. CONTINGENCIES
The Partnership and its subsidiaries (the "Operating Partnerships") in the
ordinary course of business are involved in various claims and legal
proceedings, some of which are covered in whole or in part by insurance.
Buckeye Pipe Line Company (the "General Partner") is unable to predict the
timing or outcome of these claims and proceedings. Although it is possible
that one or more of these claims or proceedings, if adversely determined,
could, depending on the relative amounts involved, have a material effect on
the Partnership for a future period, the General Partner does not believe that
their outcome will have a material effect on the Partnership's consolidated
financial condition or annual results of operations.
Environmental
Various claims for the cost of cleaning up releases of hazardous substances
and for damage to the environment resulting from the activities of the
Operating Partnerships or their predecessors have been asserted and may be
asserted in the future under various federal and state laws. The General
Partner believes that the generation, handling and disposal of hazardous
substances by the Operating Partnerships and their predecessors have been in
material compliance with applicable environmental and regulatory requirements.
The total potential remediation costs to be borne by the Operating
Partnerships relating to these clean-up sites cannot be reasonably estimated
and could be material. With respect to certain sites, however, the Operating
Partnership involved is one of several or as many as several hundred
potentially responsible parties that would share in the total costs of clean-
up under the principle of joint and several liability. Although the
Partnership has made a provision for certain legal expenses relating to
environmental matters, the General Partner is unable to determine the timing
or outcome of any pending proceedings or of any future claims and proceedings.
5. LONG-TERM DEBT
As of March 31, 2002, the Partnership had $240 million of Senior Notes
outstanding. The Senior Notes are scheduled to mature in the period 2020 to
2024 and bear interest from 6.89 percent to 6.98 percent.
During September and October 2001, the Partnership entered into a $277.5
million 5-year Revolving Credit Agreement and an $92.5 million 364-day
Revolving Credit Agreement (the "Credit Facilities") with a syndicate of banks
led by SunTrust Bank. These Credit Facilities permit borrowings of up to $370
million subject to certain limitations contained in the Credit Facility
agreements. Borrowings bear interest at the bank's base rate or at a rate
based on the London interbank rate ("LIBOR") at the option of the Partnership.
At March 31, 2002, the Partnership had borrowed $143 million under the 5-year
Revolving Credit Agreement at an average weighted LIBOR pricing option rate of
2.92 percent. The Credit Facility agreements contain certain covenants that
affect the Partnership. Generally, the Credit Facility (a) limits outstanding
indebtedness of the Partnership based upon certain financial ratios contained
in the Credit Facility agreements (b) prohibit the Partnership from creating
or incurring certain liens on its property, (c) prohibit the Partnership from
disposing of property which is material to its operations, (d) limits
consolidation, merger and asset transfers by the Partnership and (e) requires
the Partnership to maintain at least one investment grade credit rating (BBB-,
Baa3 or greater) from S&P or Moody's. Concurrent with the above transaction,
Buckeye repaid all borrowings outstanding under its $100 million Credit
Agreement with First Union National Bank ("First Union") and its $30 million
Loan Agreement with First Union. Those agreements were terminated with the
repayment of the borrowings.
The fair value of the Partnership's debt is estimated to be $377 million and
$372 million as of March 31, 2002 and December 31, 2001, respectively. The
values at March 31, 2002 and December 31, 2001 were calculated using interest
rates currently available to the Partnership for issuance of debt with similar
terms and remaining maturities.
6. GOODWILL AND INTANGIBLE ASSETS
Effective January 1, 2002, the Partnership adopted SFAS No. 142, "Goodwill and
Other Intangible Assets," which establishes financial accounting and reporting
for acquired goodwill and other intangible assets. Under SFAS No. 142,
goodwill and indefinite-lived intangible assets are no longer amortized but
are reviewed at least annually for impairment. Intangible assets that have
finite useful lives will continue to be amortized over their useful lives.
SFAS No. 142 requires that goodwill be tested for impairment at least annually
utilizing a two-step methodology. The initial step requires the Partnership
to determine the fair value of each of its reporting units and compare it to
the carrying value, including goodwill, of such reporting unit. If the fair
value exceeds the carrying value, no impairment loss is recognized. However,
a carrying value that exceeds its fair value, may be an indication of impaired
goodwill. The amount, if any, of the impairment would then be measured and an
impairment loss would be recognized.
In connection with adopting this standard, the Partnership will continue to
evaluate the fair value of each of its reporting units and determine if any
adjustments to goodwill are required by June 30, 2002.
The following represents a pro-forma restatement of 2001 as if SFAS No. 142
had been adopted at the beginning of the year and that goodwill amortization
had been eliminated. The impact on net income, and basic and diluted earnings
per share for the quarter ended March 31, 2001 is set forth below:
Reported net income $14,923
Adjustment for amortization of goodwill 202
-------
Adjusted net income $15,125
=======
Reported basic earnings per Unit $ 0.55
Adjustment for amortization of goodwill 0.01
-------
Adjusted basic earnings per Unit $ 0.56
=======
Reported diluted earnings per Unit $ 0.55
Adjustment for amortization of goodwill 0.01
-------
Adjusted diluted earnings per Unit $ 0.56
=======
The Partnership's amortizable intangible assets consist of pipeline rights-of-
way and contracts. The contracts were acquired in connection with the
acquisition of Buckeye Gulf Coast Pipe Lines, LLC in March 1999. At March 31,
2002, the gross carrying amount of the pipeline rights-of-way was $25,402,000
and accumulated amortization was $2,748,000. At March 31, 2002, the gross
carrying amount of the contracts was $3,600,000 and accumulated amortization
was $720,000. Amortization expense related to intangible assets was $187,000
and $176,00 for the three month periods ended March 31, 2002 and 2001,
respectively. Estimated aggregate amortization expense related to intangible
assets is estimated to be $748,000 per year for each of the next five years.
The Partnership's only intangible asset not subject to amortization is
goodwill that was recorded in connection with the acquisition of Buckeye
Terminals, LLC in June 2000. The gross carrying amount of the goodwill is
$12,608,000. Accumulated amortization of the goodwill was $1,253,000 at March
31, 2002.
7. PARTNERS' CAPITAL
Partners' capital consists of the following:
Receivable
General Limited from Exercise
Partner Partners of Options Total
------- -------- ------------- -----
(In thousands)
Partners' Capital - 1/1/02 $2,834 $351,057 $(995) $352,896
Net income 130 14,295 - 14,425
Distributions (152) (16,826) - (16,978)
Exercise of unit options - 115 - 115
------ -------- ----- --------
Partners' Capital - 3/31/02 $2,812 $348,641 $(995) $350,458
====== ======== ===== ========
The following is a reconciliation of basic and dilutive income from continuing
operations per Partnership Unit for the three month period ended March 31:
Three Months Ended March 31,
-------------------------------------------------
2002 2001
--------------------- ---------------------
Income Units Per Income Units Per
(Numer- (Denomi- Unit (Numer- (Denomi- Unit
ator) nator) Amount ator) nator) Amount
------- -------- ------ ------- -------- ------
(in thousands, except per unit amounts)
Income from continuing
operations $14,425 $14,923
------- -------
Basic earnings per
Partnership Unit 14,425 27,167 $0.53 14,923 27,095 $0.55
Effect of dilutive
securities - options - 62 - - 75 -
------- ------ ----- ------- ------ -----
Diluted earnings per
Partnership Unit $14,425 27,229 $0.53 $14,923 27,170 $0.55
======= ====== ===== ======= ====== =====
Options reported as dilutive securities are related to unexercised options
outstanding under the Partnership's Unit Option Plan.
8. CASH DISTRIBUTIONS
The Partnership will generally make quarterly cash distributions of
substantially all of its available cash, generally defined as consolidated
cash receipts less consolidated cash expenditures and such retentions for
working capital, anticipated cash expenditures and contingencies as the
General Partner deems appropriate.
The Partnership declared a cash distribution of $0.625 per unit payable on May
31, 2002 to Unitholders of record on May 6, 2002. The total distribution will
amount to approximately $16,980,000.
9. RELATED PARTY ACCRUED CHARGES
Accrued and other current liabilities include $2,853,000 and $6,552,000 due
the General Partner as of March 31, 2002 and December 31, 2001, respectively.
10. ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued two new pronouncements: SFAS No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS
141 prohibits the use of the pooling-of-interest method for business
combinations initiated after June 30, 2001 and also applies to all business
combinations accounted for by the purchase method that are completed after
June 30, 2001. The Norco acquisition was accounted for in accordance with the
provisions of SFAS 141. SFAS 142 is effective for fiscal years beginning
after December 15, 2001 with respect to all goodwill and other intangible
assets recognized in an entity's statement of financial position at that date,
regardless of when those assets were initially recognized. The Partnership's
goodwill of $11,355,000 will no longer be subject to amortization beginning in
2002. (See Note 6)
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations". SFAS No. 143, addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002. The Partnership is currently evaluating
the provisions of SFAS 143.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS 144 addresses the financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS 144
is effective for fiscal years beginning after December 15, 2001. The adoption
of SFAS 144 did not have a material impact on the Partnership's financial
statements.
11. SUBSEQUENT EVENTS
On May 1, 2002, an Amended and Restated Exchange Agreement (the "Amended
Exchange Agreement"), among the Partnership, the Operating Partnerships,
Buckeye Pipe Line Company (the "General Partner" of the Partnership), Buckeye
Management Company and Glenmoor, Ltd., ("Glenmoor") was approved in accordance
with the terms of the Partnership's Limited Partnership Agreement. The
Amended Exchange Agreement, which is designed to better align the interests of
the General Partner and the Partnership, was approved by the Board of
Directors of Buckeye Pipe Line Company based upon a recommendation of a
special committee of disinterested directors of the Board. The principal
change reflected in the Amended Exchange Agreement was the elimination of the
forfeiture payment provision contained in the original Exchange Agreement. The
Amended Exchange Agreement also includes certain definitional and other minor
changes.
As a condition of entering into the Amended Exchange Agreement, Glenmoor,
Ltd., the parent corporation of the General Partner, and the Partnership
entered into an Acknowledgement and Agreement under which Glenmoor
acknowledged and agreed that any tax liabilities of Glenmoor resulting from
the Amended Exchange Agreement were the responsibility of Glenmoor and its
subsidiaries and not the Partnership and that any funds borrowed by Glenmoor
from third party lenders to pay those tax liabilities would be the
responsibility of Glenmoor and its subsidiaries and not the Partnership.
The foregoing description is qualified entirely by reference to the Amended
Exchange Agreement and the Acknowledgement and Agreement, each dated as of May
6, 2002, filed as Exhibits to this Report.
Separately, on April 24, 2002 at the meeting of the Board of Directors of
Buckeye Pipe Line Company, the Board approved an Amended and Restated Limited
Partnership Agreement for the Partnership reflecting a change in the
Partnership's principal office, certain recent Delaware law developments
relating to the resolution of conflicts of interest, and revisions to the
indemnification provisions. The amendments were approved by Buckeye Pipe Line
Company as General Partner of the Partnership in accordance with the
Partnership's Limited Partnership Agreement. In addition, the Board approved
an Amended and Restated Unit Option and Distribution Equivalent Plan to extend
the term thereof for an additional ten years and to make certain
administrative changes in the Plan, the Unit Option Loan Program of the
General Partner and related documents.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
First Quarter
Revenue for the first quarter 2002 was $56.9 million or 4.6 percent greater
than revenue of $54.4 million for the first quarter 2001. Included in first
quarter 2002 revenue is $4.0 million from three months of Norco Operations.
Volumes for the first quarter of 2002 were 1,057,200 barrels per day, 34,700
barrels per day or 3.2 percent less than volumes of 1,091,900 barrels per day
for the first quarter 2001. Included in first quarter volumes are three
months of Norco volumes of 37,100 barrels per day. Average transportation
revenue was 52.3 cents per barrel during the first quarter 2002 as compared to
50.7 cents per barrel during the first quarter 2001.
Gasoline volumes, including 16,800 barrels per day of Norco gasoline volumes,
were 3.4 percent greater than first quarter 2001 gasoline volumes. Gasoline
volumes during the first quarter 2002, excluding Norco, were equivalent to the
first quarter 2001. In the East, gasoline volumes increased by approximately
8,100 barrels per day, or 3.9 percent, primarily due to increases in
deliveries to the Pittsburgh, Pennsylvania and upstate New York areas. In the
Midwest, gasoline volumes decreased by approximately 11,900 barrels per day,
or 7.1 percent. Demand for gasoline was weak throughout the region with the
largest declines occurring in the Detroit and Bay City, Michigan areas.
Distillate volumes, including 15,900 barrels per day of Norco distillate
volumes, were 8.3 percent less than first quarter 2001 distillate volumes.
Distillate volumes, excluding Norco, declined by 41,700 barrels per day, or
13.4 percent, during the first quarter 2002 as compared to the first quarter
2001. Demand was weak throughout all systems due to the unseasonably warm
weather.
Turbine fuel volumes were 12.5 percent lower during the first quarter 2002
than the first quarter 2001. Norco does not transport turbine fuel. WesPac
volumes increased by 7,800 barrels per day on deliveries to San Diego Airport
where transportation service commenced in May 2001. Deliveries to New York
City airports declined by 18.0 percent while deliveries to Pittsburgh and
Miami airports declined 16.1 and 12.1 percent, respectively. Volumes to all
major airports declined as a result of reduced flight activity following the
terrorist attacks on September 11, 2001. The outlook for recovery of turbine
fuel volumes is uncertain due to airline schedule reductions and reduced
consumer air travel. Turbine fuel revenue constitutes approximately 15 percent
of the Partnership's revenues.
Costs and expenses for the first quarter 2002 were $34.8 million compared to
$32.6 million for the first quarter 2001. Costs and expenses related to Norco
Operations were $2.2 million for the first quarter 2002. During the first
quarter 2002, increases in payroll and payroll benefits, professional fees and
property tax expenses were offset by declines in operating power and casualty
loss expense.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financial condition at March 31, 2002 and December 31, 2001
is highlighted in the following comparative summary:
Liquidity and Capital Indicators
As of
-----------------------
3/31/02 12/31/01
------- --------
Current ratio 1.9 to 1 1.5 to 1
Ratio of cash and cash equivalents,
and trade receivables to
current liabilities 0.9 to 1 0.8 to 1
Working capital - in thousands $22,605 $15,430
Ratio of total debt to total capital .52 to 1 .51 to 1
Book value (per Unit) $12.90 $12.98
The Partnership's cash flows from operations are generally sufficient to meet
current working capital requirements. In addition, the Partnership has the
ability to borrow up to $370 million under a $277.5 million 5-year Revolving
Credit Agreement and a $92.5 million 364-day Revolving Credit Agreement (the
"Credit Facilities".) The $370 million Credit Facilities is available until
September 2002 with $277.5 million available thereafter until September 2006.
The Partnership anticipates renewing the 364-day facility prior to its
expiration in September 2002. At March 31, 2002 there was $143.0 million
borrowed under the Credit Facilities.
Cash Provided by Operations
For the three months ended March 31, 2002, net cash provided by operations of
$7.3 million was principally derived from $19.6 million of net income before
depreciation and amortization. Changes in current assets and current
liabilities resulted in a net cash use of $12.3 million. Increases in prepaid
and other current assets are related to unbilled receivables for work
performed by BGC under certain of its contracts. Accounts payable declined due
to the payment of outstanding invoices while accrued and other current
liabilities declined primarily as a result of payments to the General Partner
for its services. Changes in non-current assets and liabilities resulted in a
net cash use of $0.2 million.
Debt Obligation and Credit Facilities
In September and October 2001, the Partnership entered into the Credit
Facilities with a syndicate of banks led by SunTrust Bank. These Credit
Facilities permit borrowings of up to $370 million subject to certain
limitations contained in the Credit Facilities agreements. Borrowings bear
interest at the bank's base rate or at a rate based on the London interbank
rate ("LIBOR") at the option of the Partnership. At March 31, 2002, the
Partnership had borrowed $143 million under the 5-Year Revolving Credit
Agreement at a weighted average LIBOR pricing option rate of 2.92 percent.
Also in September 2001 and concurrent with the above transaction, Buckeye
repaid all borrowings outstanding under its $100 million Credit Agreement with
First Union National Bank ("First Union") and its $30 million Loan Agreement
with First Union. These agreements were terminated with the repayment of the
borrowings.
At March 31, 2002, the Partnership had $383.0 million in outstanding long-term
debt representing $240.0 million of Senior Notes and $143 million of
borrowings under the 5-year Revolving Credit Agreement. The weighted average
interest rate on all debt outstanding at March 31, 2002 was 5.44 percent.
Capital Expenditures
At March 31, 2002 approximately 83 percent of total consolidated assets
consisted of property, plant and equipment.
Capital expenditures during the three months ended March 31, 2002 totaled $5.4
million and were $2.1 million less than capital expenditures for the three
months ended March 31, 2001. Projected capital expenditures for 2002 are
approximately $30 million, including approximately $25 million of maintenance
capital and $5 million of expansion capital, and are expected to be funded
from cash generated by operations and the Credit Facilities. Planned capital
expenditures include, among other things, various improvements that enhance
pipeline integrity, facilitate increased pipeline volumes, renewal and
replacement of tank floors and roofs, upgrades to field instrumentation and
cathodic protection systems and installation and replacement of mainline pipe
and valves. In addition to the above planned 2002 capital expenditures, BGC
has entered into a letter of intent with three major petrochemical companies
to construct a 90-mile pipeline. At March 31, 2002, the project was in the
right-of-way acquisition and design stage. Construction is expected to begin
during the second quarter 2002 and be completed during 2002. Depending upon
the outcome of the final terms and conditions of the ownership agreement, the
Partnership expects to be a co-owner of the pipeline with a potential capital
investment of up to $30 million. This project will be funded by the
Partnership's existing Credit Facility.
OTHER MATTERS
Accounting Pronouncements
In June 2001, the FASB issued two new pronouncements: SFAS No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS
141 prohibits the use of the pooling-of-interest method for business
combinations initiated after June 30, 2001 and also applies to all business
combinations accounted for by the purchase method that are completed after
June 30, 2001. The Norco acquisition was accounted for in accordance with the
provisions of SFAS 141. SFAS 142 is effective for fiscal years beginning
after December 15, 2001 with respect to all goodwill and other intangible
assets recognized in an entity's statement of financial position at that date,
regardless of when those assets were initially recognized. The Partnership's
goodwill of $11,355,000 will no longer be subject to amortization beginning in
2002.
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations". SFAS No. 143, addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002. The Partnership is currently evaluating
the provisions of SFAS 143.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS 144 addresses the financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS 144
is effective for fiscal years beginning after December 15, 2001. The adoption
of SFAS 144 did not have a material impact on the Partnership's financial
statements.
Forward Looking Statements
Information contained above in this Management's Discussion and Analysis and
elsewhere in this Report on Form 10-Q with respect to expected financial
results and future events is forward-looking, based on our estimates and
assumptions and subject to risk and uncertainties. For those statements, the
Partnership and the General Partner claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.
The following important factors could affect our future results and could
cause those results to differ materially from those expressed in our forward-
looking statements: (1) adverse weather conditions resulting in reduced
demand; (2) changes in laws and regulations, including safety, tax and
accounting matters; (3) competitive pressures from alternative energy sources;
(4) liability for environmental claims; (5) improvements in energy efficiency
and technology resulting in reduced demand; (6) labor relations; (7) changes
in real property tax assessments; (8) regional economic conditions; (9) market
prices of petroleum products and the demand for those products in the
Partnership's service territory; (10) disruptions to the air travel system;
(11) security issues relating to the Partnership' assets; and (12) interest
rate fluctuations and other capital market conditions.
These factors are not necessarily all of the important factors that could
cause actual results to differ materially from those expressed in any of our
forward-looking statements. Other unknown or unpredictable factors could also
have a material adverse effect on future results. We undertake no obligation
to update publicly any forward-looking statement whether as a result of new
information or future events.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Partnership is exposed to market risks resulting from changes in interest
rates. Market risk represents the risk of loss that may impact the
Partnership's results of operations, consolidated financial position or
operating cash flows. The Partnership is not exposed to any market risk due to
rate changes on its fixed-rate Senior Notes but is exposed to market risk
related to the interest rate on its Credit Facilities.
Market Risk - Trading Instruments
The Partnership is not currently exposed to market risk from trading
instruments.
Market Risk - Other than Trading Instruments
The Partnership has market risk exposure on its Credit Facilities due to its
variable rate pricing that is based on the bank's base rate or at a rate based
on LIBOR. At March 31, 2002, the Partnership had $143.0 million in outstanding
debt under its Credit Facilities that was subject to market risk. A 1 percent
increase or decrease in the applicable rate under the Credit Facilities will
result in an interest expense fluctuation of approximately $1.4 million per
year. As of December 31, 2001, the Partnership had $133.0 million in
outstanding debt under the Credit Facilities that was subject to market risk.
Part II - Other Information
Item 5. Other Information
An Amended and Restated Exchange Agreement (the "Amended Exchange Agreement"),
among the Partnership, the Operating Partnerships, Buckeye Pipe Line Company
(the General Partner of the Partnership), Buckeye Management Company and
Glenmoor, Ltd., was approved on May 1, 2002, in accordance with the terms of
the Partnership's Limited Partnership Agreement. The Amended Exchange
Agreement, which is designed to better align the interests of the General
Partner and the Partnership, was approved by the Board of Directors of Buckeye
Pipe Line Company based upon a recommendation of a special committee of
disinterested directors of the Board. The principal change reflected in the
Amended Exchange Agreement was the elimination of the forfeiture payment
provision contained in the original Exchange Agreement. The Amended Exchange
Agreement also includes certain definitional and other minor changes.
As a condition of entering into the Amended Exchange Agreement, Glenmoor,
Ltd., the parent corporation of the General Partner, and the Partnership
entered into an Acknowledgement and Agreement under which Glenmoor
acknowledged and agreed that any tax liabilities of Glenmoor resulting from
the Amended Exchange Agreement were the responsibility of Glenmoor and its
subsidiaries and not the Partnership and that any funds borrowed by Glenmoor
from third party lenders to pay those tax liabilities would be the
responsibility of Glenmoor and its subsidiaries and not the Partnership.
The foregoing description is qualified entirely by reference to the Amended
Exchange Agreement and the Acknowledgement and Agreement, each dated as of May
6, 2002, filed as Exhibits to this Report.
Separately, at the meeting of the Board of Directors of Buckeye Pipe Line
Company on April 24, 2002, the Board approved an Amended and Restated Limited
Partnership Agreement for the Partnership reflecting a change in the
Partnership's principal office, certain recent Delaware law developments
relating to the resolution of conflicts of interest, and revisions to the
indemnification provisions. The amendments were approved by Buckeye Pipe Line
Company as General Partner of the Partnership in accordance with the
Partnership's Limited Partnership Agreement. In addition, the Board approved
an Amended and Restated Unit Option and Distribution Equivalent Plan to extend
the term thereof for an additional ten years and to make certain
administrative changes in the Plan, the Unit Option Loan Program of the
General Partner and related documents.
Item 6. Exhibits and Reports on Form 8-K
(a)
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
April 24, 2002.*
3.2 - Certificate of Amendment to Amended and
Restated Certificate of Limited Partnership
of the Partnership, dated as of April 26,
2002.*
4.1 - Amended and Restated Indenture of Mortgage
and Deed of Trust and Security Agreement,
dated as of December 16, 1997, by Buckeye
Pipe Line Company, L.P. ("Buckeye") to PNC
Bank, National Association, as Trustee. (4)
(Exhibit 4.1)
4.2 - Note Agreement, dated as of December 16,
1997, between Buckeye and The Prudential
Insurance Company of America. (4) (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. (4) (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. 1229.601. 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 March
25, 1998. (1) *
10.2 - Amended and Restated Management Agreement,
dated as of October 4, 2001, between the
General Partner and Buckeye. (2) (3) *
10.3 - Services Agreement, dated as of August 12,
1997, among Buckeye Management Company, the
General Partner, and Services Company. (4)
(Exhibit 10.9)
10.4 - Amended and Restated Exchange Agreement,
dated as of May 6, 2002, among the
Partnership, the Operating Partnerships, the
General Partner, Buckeye Management Company
and Glenmoor, Ltd.*
10.5 - Acknowledgement and Agreement, dated as of
May 6, 2002, between the Partnership and
Glenmoor, Ltd.*
10.6 - Form of Executive Officer Severance
Agreement. (3) (4) (Exhibit 10.13)
10.7 - Form of Amendment No. 1 to Executive Officer
Severance Agreement. (3) (6) (Exhibit 10.18)
10.8 - Contribution, Assignment and Assumption
Agreement, dated as of December 31, 1998,
between Buckeye Management Company and
Buckeye Pipe Line Company. (5) (Exhibit
10.14)
10.9 - Director Recognition Program of the General
Partner. (3) (5) Exhibit 10.15)
Exhibit
Number
(Referenced
to
Item 601 of
Regulation S-K)
10.10 - Management Agreement, dated as of January 1,
1998, among Buckeye Management Company, the
General Partner and Glenmoor. (3)
10.11 - Amended and Restated Unit Option and
Distribution Equivalent Plan of the
Partnership, dated as of April 24, 2002.
(3)*
10.12 - Amended and Restated Unit Option Loan
Program of Buckeye Pipe Line Company, dated
as of April 24, 2002. (3)*
10.13 - Second Amended and Restated Incentive
Compensation Agreement, dated as of April
22, 2001, between the General Partner and
the Partnership. (3) (7) (Exhibit 10.7)
10.14 - Credit Agreement, dated as of September 5,
2001 among the Partnership, SunTrust Bank
and the other Signatories thereto. (8)
10.15 - Credit Agreement, dated as of September 5,
2001 among the Partnership, SunTrust Bank
and the other Signatories thereto. (8)
21.1 - List of subsidiaries of the Partnership. (8)
23.1 - Consent of Deloitte & Touche LLP. (8)
_______________
* Filed herewith.
(1) The Amended and Restated Agreements of Limited Partnership
of the other Operating Partnerships are not filed because they
are substantially identical to Exhibit 10.1 except for the
identity of the partnership.
(2) The Management Agreements of the other Operating
Partnerships are not filed because they are substantially
identical to Exhibit 10.2 except for the identity of the
partnership.
(3) Represents management contract or compensatory plan or
arrangement.
(4) 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.
(5) 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.
(6) 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.
(7) Previously filed with Securities and Exchange Commission as
an Exhibit to the Buckeye Partners, L.P. Quarterly Report on Form
10-Q for the quarter ended June 30, 2001.
(8) Previously filed with the Securities and Exchange Commission
as an Exhibit to the Buckeye Partners, L.P. Annual Report on Form
10-K for the year 2001.
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 2002.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BUCKEYE PARTNERS, L.P.
(Registrant)
By: Buckeye Pipe Line Company,
as General Partner
Dated: May 7, 2002 By: /s/ Steven C. Ramsey
Steven C. Ramsey
Senior Vice President, Finance
and Chief Financial Officer
(Principal Accounting and
Financial Officer)