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 June 30, 2003 or
_____ Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _______________ to _______________
Commission file number 1-9356
BUCKEYE PARTNERS, L.P.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2432497
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5002 Buckeye Rd.
P. O. Box 368
Emmaus, Pennsylvania 18049
- --------------------------------- ----------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: 484-232-4000
Not Applicable
- -----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report).
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the registrant is an accel-
erated filer (as defined in Exchange Act 12b-2). Yes X No
--- ---
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at July 18, 2003
- ------------------------- -------------------------------
Limited Partnership Units 28,705,246 Units
BUCKEYE PARTNERS, L.P.
INDEX
Page No.
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Income 1
(unaudited) for the three months and six months
ended June 30, 2003 and 2002
Condensed Consolidated Balance Sheets (unaudited) 2
June 30, 2003 and December 31, 2002
Condensed Consolidated Statements of Cash Flows 3
(unaudited) for the three months and six months
ended 30, 2003 and 2002
Notes to Condensed Consolidated Financial Statements 4-10
Item 2.Management's Discussion and Analysis 11-19
of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures 19
about Market Risk
Item 4. Controls and Procedures 19
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 20
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Buckeye Partners, L.P.
Condensed Consolidated Statements of Income
(In thousands, except per Unit amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
- ------------------ ------------------
2003 2002 2003 2002
---- ---- ---- ----
$66,997 $61,061 Revenue $132,824 $117,952
- ------- ------- -------- --------
Costs and expenses
32,638 28,019 Operating expenses 64,767 53,957
5,483 5,136 Depreciation and amortization 10,978 10,283
3,412 3,242 General and administrative expenses 6,811 7,001
- ------- ------- -------- --------
41,533 36,397 Total costs and expenses 82,556 71,241
- ------- ------- -------- --------
25,464 24,664 Operating income 50,268 46,711
- ------- ------- -------- --------
Other income (expenses)
629 151 Investment income 1,132 689
(4,864) (5,337) Interest and debt expense (10,096) (10,577)
(3,671) (2,969) Minority interests and other (7,019) (5,889)
- ------- ------- -------- --------
(7,906) (8,155) Total other income (expenses) (15,983) (15,777)
- ------- ------- -------- --------
$17,558 $16,509 Net income $ 34,285 $ 30,934
======= ======= ======== ========
Net income allocated to General
$ 148 $ 148 Partner $ 295 $ 278
Net income allocated to Limited
$17,410 $16,361 Partners $ 33,990 $ 30,656
Earnings per Partnership Unit - basic:
Net income allocated to General
and Limited Partners per
$ 0.61 $ 0.61 Partnership Unit $ 1.21 $ 1.14
======= ======= ======= =======
Earnings per Partnership Unit -
assuming dilution:
Net income allocated to General
and Limited Partners per
$ 0.61 $ 0.61 Partnership Unit $ 1.21 $ 1.14
======== ======= ======== ========
See notes to consolidated financial statements.
Buckeye Partners, L.P.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
June 30, December 31,
2003 2002
---- ----
Assets
Current assets
Cash and cash equivalents $ 11,554 $ 11,208
Trade receivables 16,915 17,203
Inventories 9,387 8,424
Prepaid and other current assets 10,555 7,007
-------- --------
Total current assets 48,411 43,842
Property, plant and equipment, net 737,463 727,450
Goodwill 11,355 11,355
Other non-current assets 70,259 73,524
-------- --------
Total assets $867,488 $856,171
======== ========
Liabilities and partners' capital
Current liabilities
Accounts payable $ 5,738 $ 8,062
Accrued and other current liabilities 23,137 22,688
-------- --------
Total current liabilities 28,875 30,750
Long-term debt 357,000 405,000
Minority interests 17,997 3,498
Other non-current liabilities 45,767 59,491
-------- --------
Total liabilities 449,639 498,739
-------- --------
Commitments and contingent liabilities - -
Partners' capital
General Partner 2,857 2,870
Limited Partners 416,394 355,475
Receivable from exercise of options (1,050) (913)
Accumulated other comprehensive income (352) -
-------- --------
Total partners' capital 417,849 357,432
-------- --------
Total liabilities and partners'
capital $867,488 $856,171
======== ========
See notes to condensed consolidated financial statements.
Buckeye Partners, L.P.
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
(Unaudited)
Six Months Ended
June 30,
----------------------
2003 2002
---- ----
Cash flows from operating activities:
Net income $ 34,285 $ 30,934
-------- --------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 10,978 10,283
Minority interests 651 468
Change in assets and liabilities,
net of acquisitions:
Trade receivables 288 (1,638)
Inventories (963) (588)
Prepaid and other current assets (3,548) (1,000)
Accounts payable (2,324) (3,826)
Accrued and other current liabilities 449 2,425
Other non-current assets 797 (775)
Other non-current liabilities 1,182 180
-------- --------
Total adjustments from operating
activities 7,510 5,529
-------- --------
Net cash provided by operating activities 41,795 36,463
-------- --------
Cash flows from investing activities:
Capital expenditures (18,313) (11,968)
Net expenditures for disposal
of property, plant and equipment (210) (172)
-------- --------
Net cash used in investing activities (18,523) (12,140)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of Partnership Units 59,920 -
Proceeds from exercise of unit options 280 340
Distributions to minority interests (1,410) (397)
Proceeds from issuance of long-term debt 24,000 10,000
Payment of long-term debt (72,000) -
Paid-in capital related to pipeline project 1,736 -
Distributions to Unitholders (35,452) (33,959)
-------- --------
Net cash used in financing activities (22,926) (24,016)
-------- --------
Net increase in cash and cash equivalents 346 307
Cash and cash equivalents at beginning of period 11,208 12,946
-------- --------
Cash and cash equivalents at end of period $ 11,554 $ 13,253
======== ========
Supplemental cash flow information:
Cash paid during the period for interest
(net of amount capitalized) $ 10,337 $ 10,372
Capitalized interest $ 133 $ 224
Non cash change in assets and liabilities:
Minimum pension liability $ (352) $ -
See notes to consolidated financial statements.
BUCKEYE PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.BASIS OF PRESENTATION
In the opinion of management, the accompanying condensed consolidated
financial statements of Buckeye Partners, L.P. (the "Partnership"), which are
unaudited except that the Balance Sheet as of December 31, 2002 is derived
from audited financial statements, include all adjustments necessary to
present fairly the Partnership's financial position as of June 30, 2003, the
results of operations for the three and six month periods ended June 30, 2003
and 2002 and cash flows for the six month periods ended June 30, 2003 and
2002. The results of operations for the three and six months ended June 30,
2003 are not necessarily indicative of the results to be expected for the full
year ending December 31, 2003.
Buckeye Pipe Line Company, L.P., Laurel Pipe Line Company, L.P, Everglades
Pipe Line Company, L.P. and Buckeye Pipe Line Holdings, L.P. (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, 2002.
2. SEGMENT INFORMATION
During the three and six month periods ended June 30, 2003 and 2002, the
Partnership had one business segment, the transportation segment. The
transportation segment derives its revenues primarily from the transportation
of refined petroleum products that it receives from refineries, connecting
pipelines and marine terminals. Other transportation segment revenues are
received from storage and terminal throughput services of refined petroleum
products and contract operation of petrochemical pipelines. Revenues from the
transportation segment are, for the most part, subject to regulation by the
Federal Energy Regulatory Commission or are under contract.
3. CONTINGENCIES
The Partnership and the Operating Partnerships in the ordinary course of
business are involved in various claims and legal proceedings, some of which
are covered in whole or in part by insurance. Buckeye Pipe Line Company, the
general partner of the Partnership, (the "General Partner") is unable to
predict the timing or outcome of these claims and proceedings. Although it is
possible that one or more of these claims or proceedings, if adversely
determined, could, depending on the relative amounts involved, have a material
effect on the Partnership for a future period, the General Partner does not
believe that their outcome will have a material effect on the Partnership's
consolidated financial condition or annual results of operations.
Environmental
Various claims for the cost of cleaning up releases of hazardous substances
and for damage to the environment resulting from the activities of the
Operating Partnerships or their predecessors have been asserted and may be
asserted in the future under various federal and state laws. The General
Partner believes that the generation, handling and disposal of hazardous
substances by the Operating Partnerships and their predecessors have been in
material compliance with applicable environmental and regulatory requirements.
The total potential remediation costs to be borne by the Operating
Partnerships relating to these clean-up sites cannot be reasonably estimated
and could be material. With respect to certain sites, however, the Operating
Partnership involved is one of several or as many as several hundred
potentially responsible parties that would share in the total costs of clean-
up under the principle of joint and several liability. The General Partner is
unable to determine the timing or outcome of pending proceedings.
4. LONG-TERM DEBT
As of June 30, 2003, Buckeye Pipe Line Company, L.P. had $240.0 million of
Senior Notes outstanding. The Senior Notes are scheduled to mature in the
period 2020 to 2024 and bear interest from 6.89 percent to 6.98 percent.
The Partnership has a $277.5 million Revolving Credit Agreement with a
syndicate of banks led by SunTrust Bank that expires in September 2006 and an
$85.0 million 364-day Revolving Credit Agreement with another syndicate of
banks also led by SunTrust Bank that expires in September 2003 (the "Credit
Facilities"). Together, the Credit Facilities permit borrowings up to a
maximum of $362.5 million subject to certain limitations contained in the
Credit Facilities. Borrowings bear interest at SunTrust Bank's base rate or
at a rate based on the London Interbank Offered Rate ("LIBOR") at the option
of the Partnership. At June 30, 2003, the Partnership had borrowed $117
million under the Credit Facilities at a weighted average LIBOR pricing option
rate of 2.31 percent.
The Credit Facilities contain certain covenants that affect the Partnership.
Generally, the Credit Facilities (a) limit outstanding indebtedness of the
Partnership based on certain financial ratios contained in the Credit
Facilities, (b) prohibit the Partnership from creating or incurring certain
liens on its property, (c) prohibit the Partnership from disposing of property
that is material to its operations and (d) limit consolidations, mergers and
asset transfers by the Partnership. At June 30, 2003, the Partnership was in
compliance with the covenants contained in the Credit Facilities.
The fair value of the Partnership's debt is estimated to be $397 million and
$429 million as of June 30, 2003 and December 31, 2002, respectively. The
values at June 30, 2003 and December 31, 2002 were calculated using interest
rates currently available to the Partnership for issuance of debt with similar
terms and remaining maturities.
On July 7, 2003, the Partnership sold $300 million aggregate principal of
4.625% senior unsecured notes due July 15, 2013 in an underwritten public
offering. Proceeds from the note offering after underwriters' fees and
expenses were approximately $296.1 million. The Partnership used a portion of
the proceeds to fully repay the outstanding indebtedness under the Credit
Facilities.
5. PARTNERS' CAPITAL AND EARNINGS PER PARTNERSHIP UNIT
Partners' capital consists of the following:
Receivable Accumulated
from Other
General Limited Exercise Comprehensive
Partner Partners of Options Income Total
------- -------- ---------- ------------- -----
(In thousands)
Partners' Capital - 1/1/03 $2,870 $355,475 $ (913) $ - $357,432
Net income 295 33,990 - - 34,285
Distributions (308) (35,144) - - (35,452)
Net proceeds from
issuance of 1,750,000
Limited Partnership Units - 59,920 - - 59,920
Paid-in capital related to
pipeline project - 1,736 - - 1,736
Net change in receivable
from exercise of options - - (137) - (137)
Exercise of unit options - 417 - - 417
Minimum pension liability - - - (352) (352)
------ -------- ------- ----- --------
Partners' Capital - 6/30/03 $2,857 $416,394 $(1,050) $(352) $417,849
====== ======== ======= ===== ========
The following is a reconciliation of basic and diluted net income per
Partnership Unit for the three month and six month periods ended June 30:
Three Months Ended June 30,
-------------------------------------------------
2003 2002
--------------------- ---------------------
Income Units Per Income Units Per
(Numer- (Denomi- Unit (Numer- (Denomi- Unit
ator) nator) Amount ator) nator) Amount
------- -------- ------ ------- -------- ------
(in thousands, except per unit amounts)
Income from continuing
operations $17,558 $16,509
------- -------
Basic earnings per
Partnership Unit 17,558 28,948 $0.61 16,509 27,169 $0.61
Effect of dilutive
securities - options - 52 - - 53 -
------- ------ ----- ------ ------ -----
Diluted earnings per
Partnership Unit $17,558 29,000 $0.61 $16,509 27,222 $0.61
======= ====== ===== ======= ====== =====
Six months Ended June 30,
-------------------------------------------------
2003 2002
--------------------- ---------------------
Income Units Per Income Units Per
(Numer- (Denomi- Unit (Numer- (Denomi- Unit
ator) nator) Amount ator) nator) Amount
------- -------- ------ ------- -------- ------
(in thousands, except per unit amounts)
Income from continuing
operations $34,285 $30,934
------- -------
Basic earnings per
Partnership Unit 34,285 28,384 $1.21 30,934 27,168 $1.14
Effect of dilutive
securities - options - 53 - - 57 -
------- ------ ----- ------ ------ -----
Diluted earnings per
Partnership Unit $34,285 28,437 $1.21 $30,934 27,225 $1.14
======= ====== ===== ======= ====== =====
Options reported as dilutive securities are related to unexercised options
outstanding under the Partnership's Unit Option Plan.
6. CASH DISTRIBUTIONS
The Partnership will generally make quarterly cash distributions of
substantially all of its available cash, generally defined as consolidated
cash receipts less consolidated cash expenditures and such retentions for
working capital, anticipated cash expenditures and contingencies as the
General Partner deems appropriate.
On July 24, 2003, the Partnership declared a cash distribution of $0.6375 per
unit payable on August 29, 2003 to Unitholders of record on August 5, 2003.
The total distribution will amount to approximately $18,455,000.
7. RELATED PARTY ACCRUED CHARGES
Accrued and other current liabilities include $3,489,000 and $4,478,000 due to
the General Partner for payroll and other reimbursable costs at June 30, 2003
and December 31, 2002, respectively.
8. UNIT OPTION AND DISTRIBUTION EQUIVALENT PLAN
The Partnership has adopted Statement of Financial Accounting Standards No.
123 ("SFAS 123"), "Accounting for Stock-Based Compensation," which requires
expanded disclosures of stock-based compensation arrangements with employees.
SFAS 123 encourages, but does not require, compensation cost to be measured
based on the fair value of the equity instrument awarded. It allows the
Partnership to continue to measure compensation cost for these plans using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
The Partnership has elected to continue to recognize compensation cost based
on the intrinsic value of the equity instrument awarded as promulgated in APB
25.
If compensation cost had been determined based on the fair value at the time
of the grant dates for awards consistent with SFAS 123, the Partnership's net
income and earnings per share would have been as indicated by the proforma
amounts below:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2003 2002 2003 2002
---- ---- ---- ----
(in thousands, except per unit amounts)
Net income as reported $17,558 $16,509 $34,285 $30,934
Stock-based employee
compensation cost
included in net income - - - 2
Stock-based employee
compensation cost that
would have been included
in net income under the
fair value method (66) (53) (116) (92)
------- ------- ------- -------
Pro forma net income
as if the fair value
method had been applied
to all awards $17,492 $16,456 $34,169 $30,844
======= ======= ======= =======
Basic earnings per unit:
As reported $0.61 $0.61 $1.21 $1.14
Pro forma $0.60 $0.61 $1.20 $1.14
Diluted earnings per unit:
As reported $0.61 $0.61 $1.21 $1.14
Pro forma $0.60 $0.60 $1.20 $1.13
9. ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations". SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002. The adoption of SFAS No. 143 did not
have a material effect on the Partnership's consolidated financial position or
results of operations.
In May 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections".
SFAS 145 rescinds the automatic treatment of gains or losses from
extinguishments of debt as extraordinary unless they meet the criteria for
extraordinary items as outlined in APB No. 30, "Reporting the Results of
Operations, Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions".
SFAS No. 145 also requires sale-leaseback accounting for certain lease
modifications that have economic effects similar to a sale-leaseback
transaction and makes various technical corrections to existing
pronouncements. SFAS No. 145 is effective for fiscal years beginning after
December 31, 2002. The adoption of SFAS No. 145 did not have a material
effect on the Partnership's consolidated financial position or results of
operations.
In June 2002 the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 nullifies the guidance
provided in Emerging Issues Task Force ("EITF") Issue 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)." Generally,
SFAS No. 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred, rather than
when management commits to a plan of exit or disposal as is called for by EITF
Issue No. 94-3. SFAS No. 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. The adoption of SFAS No. 146 did
not have a material effect on the Partnership's financial statements.
In November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 established
requirements for accounting and disclosure of guarantees issued to third
parties for various transactions. The accounting requirements of FIN 45 are
applicable to guarantees issued after December 31, 2002. The disclosure
requirements of FIN 45 are applicable to financial statements issued for
periods ending after December 15, 2002. The adoption of FIN 45 did not have a
material effect on the Partnership's financial statements.
In December 2002 the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure", SFAS 148 amended the implementation
provisions of SFAS 123 and required changes in disclosures in financial
statements. The provisions of SFAS 148 were applicable for years ending after
December 15, 2002 except for certain quarterly disclosures, which were
applicable for interim periods beginning after December 15, 2002. The Company
has not changed its method of accounting for stock-based compensation and,
therefore, is subject only to the revised disclosure provisions of SFAS 148.
Such quarterly disclosures have been provided commencing in the first quarter
of 2003.
In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities ("FIN 46"). FIN 46 establishes accounting and
disclosure requirements for ownership interests in entities that have certain
financial or ownership characteristics (sometimes known as Special Purpose
Entities). FIN 46 is applicable for variable interest entities created after
January 31, 2003 and becomes effective in the first fiscal year or interim
accounting period beginning after June 15, 2003 for variable interest entities
created before February 1, 2003. The Partnership does not anticipate that the
provisions of FIN 46 will have a material effect on its financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activity". SFAS No. 149 amends certain
provisions related to Statement No. 133, and is generally effective for
transactions entered into after June 30, 2003. The Partnership does not
expect the adoption of SFAS No. 149 to have a material effect on its
consolidated financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". SFAS No.
150 affects how an entity measures and reports financial instruments that have
characteristics of both liabilities and equity, and is effective for financial
instruments entered into or modified after May 31, 2003 and is otherwise
effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS No. 150 is not expected to have a material
effect on its consolidated financial position or results of operations.
In May 2003 the Emerging Issues Task Force (EITF) of the FASB issued Consensus
No. 01-8 "Determining Whether an Arrangement Contains a Lease." Consensus No.
01-8 establishes criteria for determining when certain contracts, or portions
of contracts, should be subject to the provisions of SFAS No. 13 - "Accounting
for Leases" and related pronouncements. EITF Consensus No. 01-8 generally is
effective for arrangements entered into or modified after May 28, 2003. The
Partnership does not believe that the adoption of EITF Consensus No. 01-8 will
have a material effect on its financial condition or results of operations.
10. SUBSEQUENT EVENT
On July 23, 2003, the Partnership and certain affiliates of The Williams
Companies, Inc. entered into a definitive purchase agreement pursuant to which
the Partnership will purchase an aggregate 20 percent partnership interest in
the West Texas LPG Pipeline Limited Partnership ("WTP") for $28.5 million.
WTP owns and operates a pipeline system that delivers natural gas liquids to
Mont Belvieu, Texas for fractionation. The natural gas liquids are delivered
to the WTP pipeline system from the Rocky Mountain area via connecting
pipelines and from gathering fields located in West and Central Texas. The
majority owner and operator of WTP are affiliates of Chevron Pipeline Company.
The transaction is scheduled to close in August 2003.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Second Quarter
Through its Operating Partnerships and their subsidiaries, the Partnership is
principally engaged in the pipeline transportation of refined petroleum
products. Products transported via pipeline include gasoline, jet fuel, diesel
fuel, heating oil, kerosene and liquid propane gases ("LPGs"). The
Partnership's revenues derived from the transportation of refined petroleum
products are principally a function of the volumes of refined petroleum
products transported by the Partnership, which are in turn a function of the
demand for refined petroleum products in the regions served by the
Partnership's pipelines, and the tariffs or transportation fees charged for
such transportation.
The Partnership is also engaged, through Buckeye Pipe Line Holdings, L.P.
("BPH"), Buckeye Terminals, LLC ("BT") and Buckeye Gulf Coast Pipe Lines, L.P.
("BGC"), in the terminalling and storage of petroleum products and in the
lease and contract operation of pipelines for third parties. Revenues for the
quarters ended June 30, 2003 and 2002 were as follows:
Revenues
(in thousands)
--------------------
Three Months Ended
June 30,
------------
2003 2002
---- ----
Pipeline transportation $56,193 $53,166
Terminalling, storage and rentals 6,821 5,138
Contract operations 3,983 2,757
------- -------
Total $66,997 $61,061
======= =======
Results of operations are affected by factors that include general economic
conditions, weather, competitive conditions, demand for refined petroleum
products, seasonal factors and regulation.
Total revenue for the quarter ended June 30, 2003 was $67.0 million, $5.9
million, or 9.7 percent, greater than revenue of $61.1 million in the same
period of 2002. Revenue from pipeline transportation was $56.2 million in the
second three months of 2003 compared to $53.2 million in the second three
months of 2002. The $3.0 million increase in pipeline transportation revenue
is primarily due to increased gasoline shipments and higher average tariff
rates as a result of tariff rate adjustments instituted on July 1, 2002 and
May 1, 2003. Volumes delivered during the second quarter 2003 averaged
1,103,000 barrels per day, 1,700 barrels per day, or 0.2 percent, less than
volumes of 1,104,700 barrels per day delivered during the second quarter of
2002.
Revenue from the transportation of gasoline of $32.2 million increased by $2.5
million, or 8.4 percent, from the second three months of 2002. Total gasoline
volumes of 600,500 barrels per day in the second three months of 2003 were
23,700 barrels per day, or 4.1 percent, greater than second quarter 2002
volumes of 576,800 barrels per day. In the East, gasoline volumes of 284,500
barrels per day were approximately 19,800 barrels per day, or 7.5 percent,
greater than second quarter 2002 volumes. The increase was primarily due to
greater deliveries to the upstate New York and Pittsburgh, Pennsylvania areas.
In the Midwest, gasoline volumes of 164,100 barrels per day were 300 barrels
per day, or 0.2 percent, less than gasoline volumes delivered during the
second quarter of 2002. Increases in deliveries of approximately 4,400 barrels
per day to the Detroit, Michigan area were offset by declines in deliveries to
the Bay City, Michigan and Cleveland Ohio areas. In addition, approximately
2,200 barrels per day that were delivered to the Pittsburgh, Pennsylvania area
from the Midwest in the second three months of 2002 were supplied from the
East in the second three months of 2003. Long Island System gasoline volumes
of 113,500 barrels per day increased by 2,100 barrels per day, or 1.9 percent,
from deliveries in the second quarter of 2002. On the Jet Lines system,
gasoline volumes of 16,600 barrels per day were 2,900 barrels per day, or 14.7
percent, less than volumes in the second quarter of 2002 due to lower gasoline
transportation demand in the Hartford, Connecticut area. On the Norco Pipe
Line Company, LLC ("Norco") system, gasoline volumes of 21,800 barrels per day
were 3,900 barrels per day, or 21.5 percent, greater than volumes delivered
during the second quarter 2002.
Revenue from the transportation of distillate of $12.7 million decreased by
$0.3 million, or 2.3 percent, from second quarter 2002 levels. Total volumes
of 232,000 barrels per day in the second three months of 2003 were 9,800
barrels per day, or 4.1 percent, less than second quarter 2002 distillate
volumes of 241,800 barrels per day. In the East, distillate volumes of 121,000
barrels per day were approximately 6,100 barrels per day, or 4.8 percent, less
than second quarter 2002 volumes. In the Midwest, distillate volumes of
73,800 barrels per day were 3,700 barrels per day, or 5.2 percent, greater
than volumes delivered during the second quarter of 2002. Long Island System
distillate volumes of 13,600 barrels per day were 200 barrels per day, or 1.7
percent, less than volumes delivered during the second quarter of 2002. On the
Jet Lines system, distillate volumes of 15,000 barrels per day were 1,800
barrels per day, or 10.4 percent, less than second quarter 2002 volumes. Norco
distillate volumes were 5,700 barrels per day, or 39.8 percent, less than
second quarter 2002 volumes due to the loss of a pipeline customer that
entered into a product exchange with a local refiner.
Revenue from the transportation of jet fuel of $9.4 million increased by $0.3
million, or 3.3 percent, from second quarter 2002 levels. Total jet fuel
volumes of 241,200 barrels per day in the second three months of 2003 were
8,400 barrels per day, or 3.4 percent, less than second quarter 2002 jet fuel
volumes of 249,600 barrels per day. Deliveries to the New York City airports
(LaGuardia, JFK and Newark) decreased by 5,900 barrels per day, or 4.6
percent. Deliveries to Pittsburgh International Airport were 3,000 barrels per
day, or 27.9 percent, less than second quarter 2002 deliveries due to schedule
reductions by U.S. Airways. Deliveries to Miami International Airport were
2,100 barrels per day, or 4.2 percent, less than second quarter 2002 levels.
WesPac's jet fuel volumes of 11,400 barrels per day approximated 2002 levels.
Terminalling, storage and rental revenues of $6.8 million for the three months
ended June 30, 2003 increased by $1.7 million from the comparable period in
2002. Approximately $1.5 million of this increase reflects lease revenue with
respect to a 90-mile crude butadiene pipeline that was completed in March
2003. Approximately $520,000 of this lease revenue was distributed to
minority interest partners in the pipeline project during the second quarter
2003. Although the pipeline was completed in March 2003 and neither the
pipeline nor the chemical plant that it serves are currently in operation,
lease payments commenced as of January 1, 2003. The crude butadiene pipeline
originates at a Shell Chemicals, L.P. facility in Deer Park, Texas and
terminates at a chemical plant owned by Sabina Petrochemicals, LLC in Port
Arthur, Texas. Subsidiaries of BGC hold an approximate 63% interest in two
partnerships (the "Pipeline Partnerships") that own the pipeline. Two
petrochemical companies own the remaining 37% minority interest in the
Pipeline Partnerships. Concurrent with the completion of the pipeline,
advances from the two minority interest partners were reclassified from
noncurrent liabilities on the Partnership's balance sheet to minority
interest. The Pipeline Partnerships have entered into a long-term agreement
with Sabina Petrochemicals, LLC to provide pipeline transportation throughput
services. Separately, BGC entered into an agreement to operate and maintain
the pipeline for the Pipeline Partnerships.
Contract operations services revenues of $4.0 million for the three months
ended June 30, 2003 increased by $1.2 million compared to the second quarter
of 2002. The increase in contract services revenues was due to increased
operations services provided by BGC as a result of additional contracts
obtained during 2002, as well as the commencement of the crude butadiene
pipeline operation and maintenance agreement as of January 1, 2003. Contract
operations revenues typically consist of costs reimbursable under the
contracts plus an operator's fee. Accordingly, revenues from these operations
carry a lower gross profit margin than revenues from pipeline transportation
or terminalling, storage and rentals.
The Partnership's costs and expenses for the second three months of 2003 were
$41.5 million compared to $36.4 million for the second three months of 2002.
BGC's costs and expenses increased by $0.6 million over second quarter 2002 as
a result of additional contract services provided. Other increases of $4.5
million are primarily related to increases in power costs, the increased use
of outside services, increases in property taxes and insurance, and general
wage and employee benefit cost increases.
Other income and expense for the second three months of 2003 was a net cost of
$7.9 million compared to $8.2 million for the second three months of 2002. The
decrease is primarily due to decreases in interest expense offset by increased
minority interest and other expense, which includes increased incentive
payments due to the general partner and additional minority interest expense
related to the 90-mile crude butadiene pipeline.
First Six Months
Revenues for the six months ended June 30, 2003 and 2002 were as follows:
Revenues
(in thousands)
--------------------
Six Months Ended
June 30,
------------
2003 2002
---- ----
Pipeline transportation $111,206 $103,024
Terminalling, storage and rentals 13,337 9,615
Contract operations 8,281 5,313
-------- --------
Total $132,824 $117,952
======== ========
Total revenue for the six months ended June 30, 2003 was $132.8 million, $14.8
million, or 12.6 percent, greater than revenue of $118.0 million in the same
period of 2002. Revenue from pipeline transportation was $111.2 million in the
first six months of 2003 compared to $103.0 million in the first six months of
2002. The $8.2 million increase in pipeline transportation revenue is
primarily due to increased gasoline and distillate shipments, and higher
average tariff rates as a result of tariff rate adjustments instituted on July
1, 2002 and May 1, 2003. Volumes delivered during the first six months 2003
averaged 1,113,000 barrels per day, 30,200 barrels per day, or 2.8 percent,
greater than volumes of 1,081,100 barrels per day delivered during the first
six months of 2002.
Revenue from the transportation of gasoline of $58.5 million increased by $3.4
million, or 6.2 percent, from the first six months of 2002. Total gasoline
volumes of 564,900 barrels per day in the first six months of 2003 were 18,400
barrels per day, or 3.4 percent, greater than first six months 2002 volumes of
546,500 barrels per day. In the East, gasoline volumes of 256,500 barrels per
day were approximately 17,200 barrels per day, or 7.2 percent, greater than
first six months 2002 volumes. The increase was primarily due to greater
deliveries to the upstate New York and Pittsburgh, Pennsylvania areas. In the
Midwest, gasoline volumes of 159,900 barrels per day were 600 barrels per day,
or 0.4 percent, less than gasoline volumes delivered during the first six
months of 2002. Approximately 3,200 barrels per day that were delivered to the
Pittsburgh, Pennsylvania area from the Midwest in the first six months of 2002
were supplied from the East in the first six months of 2003. Long Island
System gasoline volumes of 112,900 barrels per day were up 2,600 barrels per
day, or 2.4 percent, from deliveries in the first six months of 2002. On the
Jet Lines system, gasoline volumes of 16,300 barrels per day were 3,300
barrels per day, or 16.5 percent, less than volumes in the first six months of
2002 due to lower gasoline transportation demand in the Hartford, Connecticut
area. On the Norco system, gasoline volumes of 19,200 barrels per day were
1,600 barrels per day, or 9.1 percent, greater than volumes delivered during
the first six months 2002.
Revenue from the transportation of distillate of $29.8 million increased by
$1.9 million, or 6.8 percent, from first six months 2002 levels. Total
volumes of 276,500 barrels per day in the first six months of 2003 were 13,000
barrels per day, or 4.9 percent, greater than first six months 2002 distillate
volumes of 263,500 barrels per day. In the East, distillate volumes of 145,900
barrels per day were approximately 8,000 barrels per day, or 5.8 percent,
greater than first six months 2002 volumes. In the Midwest, distillate
volumes of 74,000 barrels per day were 6,200 barrels per day, or 9.1 percent,
greater than volumes delivered during the first six months of 2002. Long
Island System distillate volumes of 22,500 barrels per day were 1,800 barrels
per day, or 8.7 percent, greater than volumes delivered during the first six
months of 2002. On the Jet Lines system, distillate volumes of 26,000 barrels
per day were 4,000 barrels per day, or 18.4 percent, greater than first six
months 2002 volumes. Norco distillate volumes were 8,100 barrels per day, or
46.7 percent, less than the first six months 2002 volumes due to the loss of a
pipeline customer that entered into a product exchange with a local refiner.
With the exception of Norco, distillate volume increases are due to greater
heating fuel requirements in response to significantly colder winter
temperatures during the first quarter of 2003.
Revenue from the transportation of jet fuel of $18.9 million increased by $1.3
million, or 7.3 percent, from the first six months 2002 levels. Total jet fuel
volumes of 246,200 barrels per day in the first six months of 2003 were 4,200
barrels per day, or 1.7 percent, greater than first six months 2002 jet fuel
volumes of 242,000 barrels per day. Deliveries to the New York City airports
(LaGuardia, JFK and Newark) increased by 500 barrels per day, or 0.4 percent.
Deliveries to Pittsburgh International Airport were 1,700 barrels per day, or
16.9 percent, less than first six months 2002 deliveries due to schedule
reductions by U.S. Airways. Deliveries to Miami International Airport were
1,500 barrels per day, or 2.9 percent, less than first six months 2002 levels.
Turbine fuel deliveries to the Detroit area increased by 5,500 barrels per
day, or 33.7 percent, over 2002 levels due to delivery problems at a competing
pipeline carrier. WesPac's jet fuel volumes of 11,300 barrels per day
approximated first six months 2002 levels.
Terminalling, storage and rental revenues of $13.3 million for the six months
ended June 30, 2003 increased by $3.7 million from the comparable period in
2002. Approximately $3.0 million of this increase reflects lease revenue with
respect to the 90-mile crude butadiene pipeline. Approximately $1,054,000 of
this lease revenue was distributed to minority interest partners in the
pipeline project during the first six months 2003.
Contract operations services revenues of $8.3 million for the six months ended
June 30, 2003 increased by $3.0 million compared to the first six months of
2002. The increase in contract services revenues was due to increased
operations services provided by BGC as a result of additional contracts
obtained during 2002, as well as the commencement of the crude butadiene
pipeline operation and maintenance agreement as of January 1, 2003.
The Partnership's costs and expenses for the first six months of 2003 were
$82.6 million compared to $71.2 million for the first six months of 2002.
BGC's costs and expenses increased by $2.4 million over first six months 2002
as a result of additional contract services provided. Other increases of $9.0
million are primarily related to increases in power costs, the increased use
of outside services, increases in property taxes and insurance, and general
wage and employee benefit cost increases. Additionally, a casualty loss
recovery payment of approximately $0.5 million received in the first quarter
of 2002 did not recur in the first quarter of 2003.
Other income and expense for the first six months of 2003 was a net cost of
$16.0 million compared to $15.8 million for the first six months of 2002. The
$0.2 million increase is primarily due to increased incentive payments to the
general partner and additional minority interest expense related to the 90-
mile crude butadiene pipeline. These increases were partially offset by
declines in interest expense and an increase in investment income.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financial condition at June 30, 2003 and December 31, 2002
is highlighted in the following comparative summary:
Liquidity and Capital Indicators
As of
-----------------------
6/30/03 12/31/02
------- --------
Current ratio (1) 1.7 to 1 1.4 to 1
Ratio of cash and cash equivalents,
and trade receivables to
current liabilities 1.0 to 1 0.9 to 1
Working capital - in thousands (2) $19,536 $13,092
Ratio of total debt to total capital (3) .46 to 1 .53 to 1
Book value (per Unit) (4) $14.43 $13.15
(1) current assets divided by current liabilities
(2) current assets minus current liabilities
(3) long-term debt divided by long-term debt plus total
partners' capital
(4) total partners' capital divided by Units outstanding at the
end of the period.
The Partnership's principal sources of liquidity typically are cash from
operations and borrowings under its revolving credit facilities. The
Partnership's principal uses of cash are capital expenditures, investments and
acquisitions, operating expenses and distributions to Unitholders. On
February 28, 2003, the Partnership sold 1,750,000 limited partnership units in
an underwritten public offering. On July 7, 2003, the Partnership sold $300
million aggregate principal amount of 4.625% senior unsecured notes due July
15, 2013. The Partnership received net proceeds of approximately $59.9
million in the equity offering and $296.1 million in the debt offering.
Cash Flows from Operations
Cash flows from operations were $41.8 million for the first six months of 2003
compared to $36.5 million for the first six months of 2002. Net income for
the first six months of 2003 and 2002 was $34.3 million and $30.9 million,
respectively . Changes in current assets and liabilities resulted in a net
use of cash of $6.1 million for the first six months of 2003 compared to a net
cash use of $4.6 million for the first six months of 2002. For the first six
months of 2002 and 2003, increases in prepaid and other assets were coupled
with declines in accounts payable, partially offset by increases in accrued
and other current liabilities. Changes in other non-current assets and
liabilities resulted in a net cash source of $2.0 million for the first six
months of 2003 compared to a net cash use of $0.6 million for the first six
months of 2002.
Cash Flows from Investing Activities
Net cash used in investing activities totaled $18.5 million in the first six
months of 2003 compared to $12.1 million in the comparable period last year.
Substantially all of the first six months of 2003 and 2002 investing
activities relate to capital expenditures. Capital expenditures in 2003
include the Partnership purchase of a terminal in Utica, New York for
approximately $1.1 million. The Partnership made no acquisitions in either six
month period.
Cash Flows from Financing Activities
On February 28, 2003, the Partnership sold 1,750,000 LP units in an
underwritten public offering. Net proceeds to the Partnership, after
underwriters' discount of $1.62 per LP unit and offering costs were,
approximately $59.9 million. The net proceeds from the offering were used to
reduce amounts outstanding under the Partnership's $277.5 million Revolving
Credit Agreement.
The Partnership has a $277.5 million Revolving Credit Agreement with a
syndicate of banks led by SunTrust Bank that expires in September 2006 and an
$85.0 million 364-day Revolving Credit Agreement with another syndicate of
banks also led by SunTrust Bank that expires in September 2003. Together, the
Credit Facilities permit borrowings up to a maximum of $362.5 million subject
to certain limitations contained in the Credit Facilities. Borrowings bear
interest at SunTrust Bank's base rate or at a rate based on LIBOR at the
option of the Partnership. At June 30, 2003, the Partnership had borrowed
$117 million under the Credit Facilities at a weighted average LIBOR pricing
option rate of 2.31 percent.
The Credit Facilities contain certain covenants that affect the Partnership.
Generally, the Credit Facilities (a) limit outstanding indebtedness of the
Partnership based on certain financial ratios contained in the Credit
Facilities, (b) prohibit the Partnership from creating or incurring certain
liens on its property, (c) prohibit the Partnership from disposing of property
that is material to its operations and (d) limit consolidations, mergers and
asset transfers by the Partnership. At June 30, 2003, the Partnership was in
compliance with the covenants contained in the Credit Facilities.
On July 7, 2003, the Partnership sold $300 million aggregate principal amount
of 4.625% senior unsecured notes due July 15, 2013 in an underwritten public
offering. Proceeds from the note offering after underwriters' fees and
expenses were approximately $296.1 million. The Partnership used a portion of
the proceeds to fully repay the outstanding indebtedness under the Credit
Facilities.
On May 30, 2003, the Partnership paid a quarterly distribution to Unitholders
of $0.6375 per unit. Total distributions were $18.5 million. On July 24,
2003, the Board of Directors of the General Partner declared a quarterly
distribution of $0.6375 per unit to be payable on August 29, 2003 to
Unitholders of record on August 5, 2003.
OTHER MATTERS
Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations". SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002. The adoption of SFAS No. 143 did not
have a material effect on the Partnership's consolidated financial position or
results of operations.
In May 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections".
SFAS 145 rescinds the automatic treatment of gains or losses from
extinguishments of debt as extraordinary unless they meet the criteria for
extraordinary items as outlined in APB No. 30, "Reporting the Results of
Operations, Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions".
SFAS No. 145 also requires sale-leaseback accounting for certain lease
modifications that have economic effects similar to a sale-leaseback
transaction and makes various technical corrections to existing
pronouncements. SFAS No. 145 is effective for fiscal years beginning after
December 31, 2002. The adoption of SFAS No. 145 did not have a material
effect on the Partnership's consolidated financial position or results of
operations.
In June 2002 the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 nullifies the guidance
provided in Emerging Issues Task Force ("EITF") Issue 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)." Generally,
SFAS No. 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred, rather than
when management commits to a plan of exit or disposal as is called for by EITF
Issue No. 94-3. SFAS No. 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. The adoption of SFAS No. 146 did
not have a material effect on the Partnership's financial statements.
In November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 established
requirements for accounting and disclosure of guarantees issued to third
parties for various transactions. The accounting requirements of FIN 45 are
applicable to guarantees issued after December 31, 2002. The disclosure
requirements of FIN 45 are applicable to financial statements issued for
periods ending after December 15, 2002. The adoption of FIN 45 did not have a
material effect on the Partnership's financial statements.
In December 2002 the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure", SFAS 148 amended the implementation
provisions of SFAS 123 and required changes in disclosures in financial
statements. The provisions of SFAS 148 were applicable for years ending after
December 15, 2002 except for certain quarterly disclosures, which were
applicable for interim periods beginning after December 15, 2002. The Company
has not changed its method of accounting for stock-based compensation and,
therefore, is subject only to the revised disclosure provisions of SFAS 148.
Such quarterly disclosures have been provided commencing in the first quarter
of 2003.
In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities ("FIN 46"). FIN 46 establishes accounting and
disclosure requirements for ownership interests in entities that have certain
financial or ownership characteristics (sometimes known as Special Purpose
Entities). FIN 46 is applicable for variable interest entities created after
January 31, 2003 and becomes effective in the first fiscal year or interim
accounting period beginning after June 15, 2003 for variable interest entities
created before February 1, 2003. The Partnership does not anticipate that the
provisions of FIN 46 will have a material effect on its financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activity". SFAS No. 149 amends certain
provisions related to Statement No. 133, and is generally effective for
transactions entered into after June 30, 2003. The Partnership does not
expect the adoption of SFAS No. 149 to have a material effect on its
consolidated financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". SFAS No.
150 affects how an entity measures and reports financial instruments that have
characteristics of both liabilities and equity, and is effective for financial
instruments entered into or modified after May 31, 2003 and is otherwise
effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS No. 150 is not expected to have a material
effect on its consolidated financial position or results of operations.
In May 2003 the Emerging Issues Task Force (EITF) of the FASB issued Consensus
No. 01-8 "Determining Whether an Arrangement Contains a Lease." Consensus No.
01-8 establishes criteria for determining when certain contracts, or portions
of contracts, should be subject to the provisions of SFAS No. 13 - "Accounting
for Leases" and related pronouncements. EITF Consensus No. 01-8 generally is
effective for arrangements entered into or modified after May 28, 2003. The
Partnership does not believe that the adoption of EITF Consensus No. 01-8 will
have a material effect on its financial condition or results of operations.
Forward Looking Statements
Information contained above in this Management's Discussion and Analysis and
elsewhere in this Report on Form 10-Q with respect to expected financial
results and future events is forward-looking, based on our estimates and
assumptions and subject to risk and uncertainties. For those statements, the
Partnership and the General Partner claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.
The following important factors could affect our future results and could
cause those results to differ materially from those expressed in our forward-
looking statements: (1) adverse weather conditions resulting in reduced
demand; (2) changes in laws and regulations, including safety, tax and
accounting matters; (3) competitive pressures from alternative energy sources;
(4) liability for environmental claims; (5) improvements in energy efficiency
and technology resulting in reduced demand; (6) labor relations; (7) changes
in real property tax assessments; (8) regional economic conditions; (9) market
prices of petroleum products and the demand for those products in the
Partnership's service territory; (10) disruptions to the air travel system;
(11) security issues relating to the Partnership' assets; and (12) interest
rate fluctuations and other capital market conditions.
These factors are not necessarily all of the important factors that could
cause actual results to differ materially from those expressed in any of our
forward-looking statements. Other unknown or unpredictable factors could also
have material adverse effects on future results. We undertake no obligation
to update publicly any forward-looking statement whether as a result of new
information or future events.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Operating Partnerships generate revenue primarily from the transportation
of refined petroleum products for third-party customers. Other than certain
amounts of off-specification product generated in the ordinary course of
pipeline operations, the Operating Partnerships do not own the product they
transport, and, therefore, the Partnership is not exposed to fluctuation in
commodity prices. As a result, the Partnership does not engage in hedge
transactions to manage commodity price risk. The Partnership is also not
engaged in any other type of energy trading or derivative activity.
The Partnership is exposed to interest rate risks resulting from changes in
interest rates. Interest rate risk represents the risk of loss that may impact
the Partnership's results of operations, consolidated financial position or
operating cash flows. The Partnership is not exposed to any interest rate
risk due to rate changes on its senior unsecured notes or Buckeye Pipe Line
Company, L.P.'s fixed-rate Senior Notes but is exposed to interest rate risk
related to the interest rate on its Credit Facilities.
Market Risk - Trading Instruments
The Partnership is not exposed to market risk from trading instruments.
Market Risk - Other than Trading Instruments
The Partnership has market risk exposure on its Credit Facilities due to its
variable rate pricing that is based on the bank's base rate or at a rate based
on LIBOR. At June 30, 2003, the Partnership had $117.0 million in outstanding
debt under its Credit Facilities that was subject to market risk. A 1.0
percent increase or decrease in the applicable rate under the Credit
Facilities will result in an interest expense fluctuation of approximately
$1.1 million per year. As of December 31, 2002, the Partnership had $165.0
million in outstanding debt under the Credit Facilities that was subject to
market risk. As of the date of this report, the Partnership has no debt
outstanding under the Credit Facilities.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
The General Partner's principal executive officer and its principal
financial officer, evaluated the effectiveness of the Partnership's
disclosure controls and procedures as of the end of the period covered by
this report, Based on that evaluation, such principal executive officer and
principal financial officer concluded that, the Partnership's disclosure
controls and procedures as of the end of the period covered by this report
have been designed and are functioning effectively to provide reasonable
assurance that the information required to be disclosed by the Partnership
in reports filed under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms. The General Partner and the Partnership believe
that a controls system, no matter how well designed and operated, can not
provide absolute assurance that the objectives of the controls system are
met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been
detected.
(b) Change in Internal Control over Financial Reporting.
No change in the Partnership's internal control over financial reporting
occurred during the Partnership's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect the
Partnership's internal control over financial reporting.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14 (a)
under the Securities Exchange Act of 1934, filed under Exhibit 31 of Item
601 of Regulation S-K.
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under
the Securities Exchange Act of1934, filed under Exhibit 31 of Item 601 of
Regulation S-K.
32.1 Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section
1350, furnished under Exhibit 32 of Item 601 of Regulation S-K.
32.2 Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section
1350, furnished under Exhibit 32 of Item 601 of Regulation S-K.
(b) Reports on Form 8-K
On April 25, 2003, the Partnership filed a Current Report on Form 8-K for
the purpose of furnishing the press release announcing its earnings for the
first quarter 2003.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUCKEYE PARTNERS, L.P.
(Registrant)
By: Buckeye Pipe Line Company,
as General Partner
Date: July 29, 2003 By: /s/ Steven C. Ramsey
------------- ---------------------
Steven C. Ramsey
Senior Vice President, Finance
and Chief Financial Officer
(Principal Accounting and
Financial Officer)