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, 2004 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 Road
P.O. Box 368
Emmaus, PA 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 April 21, 2004
- ------------------------- -----------------------------
Limited Partnership Units 28,733,782 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
ended March 31, 2004 and 2003
Condensed Consolidated Balance Sheets (unaudited) 2
March 31, 2004 and December 31, 2003
Condensed Consolidated Statements of Cash Flows 3
(unaudited) for the three months ended
March 31, 2004 and 2003
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 20
about Market Risk
Item 4. Controls and Procedures 20
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 22
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,
--------------------
2004 2003
---- ----
Revenue $71,761 $65,827
------- -------
Costs and expenses
Operating expenses 34,383 31,646
Depreciation and amortization 5,806 5,495
General and administrative expenses 3,474 3,882
------- -------
Total costs and expenses 43,663 41,023
------- -------
Operating income 28,098 24,804
------- -------
Other income (expenses)
Investment income 1,428 503
Interest expense (5,345) (5,232)
Minority interests and other (4,080) (3,348)
------- -------
Total other income (expenses) (7,997) (8,077)
------- -------
Net income $20,101 $16,727
======= =======
Net income allocated to General
Partner $ 169 $ 147
======= =======
Net income allocated to Limited
Partners $19,932 $16,580
======= =======
Weighted average units outstanding:
Basic 28,967 27,814
======= =======
Assuming dilution 29,028 27,860
======= =======
Earnings per Partnership Unit -
basic:
Net income allocated to General
and Limited Partners
per Partnership Unit $ 0.69 $ 0.60
======= =======
Earnings per Partnership Unit -
Assuming dilution:
Net income allocated to General
and Limited Partners per
Partnership Unit $ 0.69 $ 0.60
======= =======
See notes to condensed consolidated financial statements.
Buckeye Partners, L.P.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
March 31, December 31,
2004 2003
---- ----
Assets
Current assets
Cash and cash equivalents $ 10,845 $ 22,723
Trade receivables 15,386 17,112
Inventories 9,483 9,212
Prepaid and other current assets 16,570 17,534
-------- --------
Total current assets 52,284 66,581
Property, plant and equipment, net 754,390 752,818
Goodwill 11,355 11,355
Other non-current assets 110,955 109,292
-------- --------
Total assets $928,984 $940,046
======== ========
Liabilities and partners' capital
Current liabilities
Accounts payable $ 4,809 $ 14,478
Accrued and other current liabilities 27,848 34,383
-------- --------
Total current liabilities 32,657 48,861
Long-term debt 453,692 450,200
Minority interests 18,008 17,796
Other non-current liabilities 45,747 45,777
-------- --------
Total liabilities 550,104 562,634
-------- --------
Commitments and contingencies - -
Partners' capital
General Partner 2,524 2,514
Limited Partners 377,531 376,158
Receivable from exercise of options (827) (912)
Accumulated other comprehensive income (348) (348)
-------- --------
Total partners' capital 378,880 377,412
-------- --------
Total liabilities and partners'
capital $928,984 $940,046
======== ========
See notes to condensed consolidated financial statements.
Buckeye Partners, L.P.
Condensed Consolidated Statements of Cash Flows
Decrease in Cash and Cash Equivalents
(In thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------
2004 2003
---- ----
Cash flows from operating activities:
Net income $20,101 $16,727
------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,806 5,495
Minority interests 879 614
Change in assets and liabilities:
Trade receivables 1,726 767
Inventories (271) (250)
Prepaid and other current assets 964 (3,545)
Accounts payable (9,669) (3,872)
Accrued and other current liabilities (6,535) (179)
Other non-current assets 558 (471)
Other non-current liabilities (30) 548
------- -------
Total adjustments from operating
activities (6,572) (893)
------- -------
Net cash provided by operating activities 13,529 15,834
------- -------
Cash flows from investing activities:
Capital expenditures (6,122) (7,220)
Net proceeds from disposal of
property, plant and equipment 15 18
------- -------
Net cash used in investing activities (6,107) (7,202)
------- -------
Cash flows from financing activities:
Net proceeds from issuance of Partnership
units - 59,979
Proceeds from exercise of unit options 196 -
Distributions to minority interests (667) (347)
Proceeds from issuance of long-term debt 15,000 12,000
Payment of long-term debt (15,000) (67,000)
Distributions to Unitholders (18,829) (16,997)
------- -------
Net cash used in financing activities (19,300) (12,365)
------- -------
Net decrease in cash and cash equivalents (11,878) (3,733)
Cash and cash equivalents at beginning of
period 22,723 11,208
------- -------
Cash and cash equivalents at end of period $10,845 $ 7,475
======= =======
Supplemental cash flow information:
Cash paid during the period for interest
(net of amount capitalized) $11,310 $ 5,438
Capitalized interest $ 81 $ 47
Change in fair value of long-term debt
associated with a fair value hedge $ 3,492 -
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, 2003 is derived
from audited financial statements, include all adjustments necessary to
present fairly the Partnership's financial position as of March 31, 2004,
along with the results of the Partnership's operations and its cash flows for
the three months ended March 31, 2004 and 2003. The results of operations for
the three months ended March 31, 2004 are not necessarily indicative of the
results to be expected for the full year ending December 31, 2004.
The Partnership is a master limited partnership organized in 1986 under the
laws of the state of Delaware. The Partnership owns approximately 99 percent
limited partnership interests in Buckeye Pipe Line Company, L.P. ("Buckeye"),
Laurel Pipe Line Company, L.P. ("Laurel"), Everglades Pipe Line Company, L.P.
("Everglades") and Buckeye Pipe Line Holdings, L.P. ("BPH"). These entities
are hereinafter referred to as the "Operating Partnerships."
Buckeye Pipe Line Company (the "General Partner") serves as the general
partner to the Partnership. As of March 31, 2004, the General Partner owned
approximately a 1 percent general partnership interest in the Partnership and
approximately a 1 percent general partnership interest in each Operating
Partnership, for an approximate 2 percent interest in the Partnership. The
General Partner is a wholly-owned subsidiary of Buckeye Management Company
("BMC"). BMC is a wholly-owned subsidiary of Glenmoor, Ltd. ("Glenmoor").
Glenmoor is owned by certain directors and members of senior management of the
General Partner and trusts for the benefit of their families and by certain
other management employees of Buckeye Pipe Line Services Company ("Services
Company"). See Note 11.
Services Company employs approximately 81 percent of the employees that
work for the Operating Partnerships. Pursuant to a Services Agreement dated
August 12, 1997, BMC and the General Partner reimburse Services Company for
its direct and indirect expenses. These expenses are reimbursed to the
General Partner by the Operating Partnerships except for certain executive
compensation costs and related benefits expenses.
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, 2003.
2. SEGMENT INFORMATION
During the three month periods ended March 31, 2004 and 2003, 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 third-party 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. 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 AND CREDIT FACILITIES
Long-term debt consists of the following:
March 31, December 31,
2004 2003
---- ----
(In thousands)
4.625% Notes due June 15, 2013 $300,000 $300,000
6.75% Notes due August 15, 2033 150,000 150,000
Adjustment to fair value associated with
hedge of fair value 3,692 200
-------- --------
Total $453,692 $450,200
======== ========
At March 31, 2004, $300.0 million of debt was scheduled to mature on June
15, 2013 and $150.0 million was scheduled to mature on August 15, 2033.
The fair value of the Partnership's debt was estimated to be $448 million
as of March 31, 2004 and $429 million at December 31, 2003. The values at
March 31, 2004 and December 31, 2003 were calculated using interest rates
currently available to the Partnership for issuance of debt with similar terms
and remaining maturities.
The Partnership has a $277.5 million Revolving Credit Agreement with a
syndicate of banks led by SunTrust Bank that expires in September 2006. In
September 2003, the Partnership entered into a 364-day Revolving Credit
Agreement for $100 million with another syndicate of banks also led by
SunTrust Bank. Together, the $277.5 million and $100 million agreements are
referred to as the "Credit Facilities." At March 31, 2004 and December 31,
2003, the Partnership had no amounts outstanding under the Credit Facilities.
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 (d) limit consolidations, mergers
and asset transfers by the Partnership. At March 31, 2004, the Partnership
was in compliance with the covenants contained in the Credit Facilities.
On October 28, 2003, the Partnership entered into an interest rate swap
agreement with a financial institution in order to hedge a portion of its fair
value risk associated with its 4 5/8% Notes. The notional amount of the swap
agreement is $100 million. The swap agreement calls for the Partnership to
receive fixed payments from the financial institution at a rate of 4 5/8% of
the notional amount in exchange for floating rate payments from the
Partnership based on the notional amount using a rate equal to the six-month
LIBOR (determined in arrears) minus 0.28%. The swap agreement terminates on
the maturity date of the 4 5/8% Notes and interest amounts under the swap
agreement are payable semiannually on the same date as interest payments on
the 4 5/8% Notes. The Partnership designated the swap agreement as a fair
value hedge at the inception of the agreement and elected to use the short-cut
method provided for in SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities", which assumes no ineffectiveness will result from the use
of the hedge.
Interest expense in the Partnership's income statement was reduced by $0.9
million in the first quarter of 2004 as a result of the interest rate swap
agreement. Assuming interest rates in effect at March 31, 2004, the
Partnership's annual interest expense would be reduced by approximately $3.8
million compared to interest expense that the Partnership would incur had it
not entered into the swap agreement. Changes in LIBOR, however, will impact
the interest rate expense incurred in connection with the swap agreement. A
1% increase or decrease in LIBOR would increase or decrease annual interest
expense by $1 million.
The fair values of the swap agreement at March 31, 2004 and December 31,
2003 were gains of $3.7 million and $0.2 million, respectively which have been
reflected in other non-current assets in the accompanying consolidated balance
sheets of the Partnership with a corresponding increase in the carrying value
of the hedged debt.
5. PARTNERS' CAPITAL AND EARNINGS PER PARTNERSHIP UNIT
Partners' capital consists of the following:
Accumulated
Receivable Other
General Limited from Exercise Comprehensive
Partner Partners of Options Income Total
------- -------- ------------- ------------- -----
(In thousands)
Partners' Capital - 1/1/04 $2,514 $376,158 $(912) $(348) $377,412
Net Income 169 19,932 - - 20,101
Distributions (159) (18,670) - - (18,829)
Net change in receivable from
exercise of options - - 85 - 85
Exercise of unit options - 111 - - 111
------ -------- ----- ----- --------
Partners' Capital - 3/31/04 $2,524 $377,531 $(827) $(348) $378,880
====== ======== ===== ===== ========
During the three months ended March 31, 2004, Partnership net income
equaled comprehensive income. During the three months ended March 31, 2003,
comprehensive income was less than net income by $352,000 due to the accrual
of a minimum pension liability.
The following is a reconciliation of basic and diluted net income per
Partnership Unit for the three month periods ended March 31:
Three Months Ended March 31,
-------------------------------------------------
2004 2003
--------------------- ---------------------
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 $20,101 $16,727
------- -------
Basic earnings per
Partnership Unit 20,101 28,967 $0.69 16,727 27,814 $0.60
Effect of dilutive
securities - options - 61 - - 46 -
------- ------ ----- ------- ------ -----
Diluted earnings per
Partnership Unit $20,101 29,028 $0.69 $16,727 27,860 $0.60
======= ====== ===== ======= ====== =====
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 April 29, 2004, the Partnership declared a cash distribution of $0.65
per unit payable on May 31, 2004 to Unitholders of record on May 5, 2004. The
total distribution will amount to approximately $18,830,000.
7. RELATED PARTY ACCRUED CHARGES
Accrued and other current liabilities include $4,698,000 and $4,780,000 due
to the General Partner for payroll and other reimbursable costs at March 31,
2004 and December 31, 2003, 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
March 31,
------------------
2004 2003
---- ----
(In thousands, except
per Unit amounts)
Net income as reported $20,101 $16,727
Stock-based employee compensation
cost included in net income - -
Stock-based employee compensation
cost that would have been
included in net income under
the fair value method (66) (50)
------- -------
Pro forma net income as if the fair
value method had been applied to
all awards $20,035 $16,677
======= =======
Basic earnings per unit As reported $0.69 $0.60
Pro forma $0.69 $0.60
Diluted earnings per unit As reported $0.69 $0.60
Pro forma $0.69 $0.60
9. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Services Company sponsors a retirement income guaranty plan (a defined
benefit plan) which generally guarantees employees hired before January 1,
1986 a retirement benefit at least equal to the benefit they would have
received under a previously terminated defined benefit plan. Services
Company's policy is to fund amounts necessary to at least meet the minimum
funding requirements under ERISA.
Services Company also provides postretirement health care and life
insurance benefits to certain of its retirees. To be eligible for these
benefits, an employee had to be hired prior to January 1, 1991 with respect to
health care benefits and January 1, 2002 with respect to life insurance
benefits, as well as meet certain service requirements. Services Company does
not pre-fund this postretirement benefit obligation.
In the three months ended March 31, 2004 and 2003, the components of the
net periodic benefit cost recognized by the Partnership for Services Company's
retirement income guarantee plan and postretirement health care and life
insurance plan were as follows:
Postretirement
Pension Benefits Benefits
---------------- --------------
2004 2003 2004 2003
---- ---- ---- ----
(In thousands)
Components of net periodic benefit cost
Service cost $ 245 $ 205 $ 193 $ 141
Interest cost 264 265 653 488
Expected return on plan assets (173) (118) - -
Amortization of unrecognized transition
asset - (35) - -
Amortization of prior service benefit (136) (114) (79) (114)
Amortization of unrecognized losses 175 196 171 60
----- ----- ----- -----
Net periodic benefit cost $ 375 $ 399 $ 938 $ 575
===== ===== ===== =====
The Partnership previously disclosed in its financial statements for the
year ended December 31, 2003 that it expected to contribute $1,905,000 to the
retirement income guarantee plan in 2004. As of March 31, 2004, none of this
amount had been contributed. On April 9, 2004, the Partnership contributed
approximately $364,000.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities ("FIN 46"), which was subsequently modified and
reissued in December 2003. FIN 46 establishes accounting and disclosure
requirements for ownership interests in entities that have certain financial
or ownership characteristics. FIN 46, as revised, is generally applicable for
the first fiscal year or interim accounting period ending after March 15,
2004. The adoption of the provisions of FIN 46 has not had a material effect
on the Partnership's consolidated financial statements.
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 FASB continues to address certain implementation
issues associated with the application of SFAS No. 150, including those
related to mandatory redeemable financial instruments representing non-
controlling interests in subsidiaries' consolidated financial statements. The
Partnership will continue to monitor the actions of the FASB and assess the
impact, if any, on its consolidated financial statements. The effective
provisions of SFAS No. 150 did not have a material impact on the Partnership's
consolidated financial statements.
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132
(as revised) requires additional disclosures regarding pensions and
postretirement benefits beyond those previously required in the original
version of SFAS No. 132. SFAS No. 132 (revised 2003) was effective for
fiscal years and interim periods ending after December 15, 2003, except for
certain provisions which generally are not applicable to the Partnership. The
Partnership has adopted the provisions of SFAS No. 132 (revised 2003) and has
included the appropriate disclosures in the Partnership's consolidated
financial statements.
In January 2004, the staff of the FASB issued FASB Staff Position No.
106-1, "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003." The purpose of
FASB Staff Position No. 106-1 is to provide guidance on how recent Federal
legislation which provides certain prescription drug benefits and subsidies to
sponsors of certain medical plans which substitute benefits for Medicare Part
D is to be incorporated into a plan sponsor's calculation of retiree medical
liabilities. There are significant uncertainties about how this Federal
legislation will ultimately affect plan sponsors' liabilities with respect to
retiree medical costs.
FASB Staff Position No. 106-1, which is effective for fiscal years ending
after December 7, 2003, permits plan sponsors, like the Partnership, to defer
the accounting effects of the legislation until authoritative guidance on how
to account for the Federal legislation is provided, or a significant event
occurs, such as a plan amendment, settlement or curtailment, which would
require a remeasurement of a plan's assets and obligations.
The Partnership has elected to defer the accounting recognition of the
Medicare Prescription Drug, Improvement and Modernization Act of 2003 until
such time as authoritative guidance is provided. Accordingly, measures
related to the Accumulated Benefit Obligation and net periodic postretirement
benefit cost in the Partnership's financial statements do not reflect the
effects of the Act on the Plan. When authoritative guidance to plan sponsors
is provided, such guidance could cause financial information related to
retiree medical benefits previously reported to change. The Partnership has
not yet evaluated the provisions of the Act in order to determine how the
prescription drug benefits and potential subsidies will affect the
Partnership.
11. SALE OF PARENT OF GENERAL PARTNER
On March 5, 2004, the stockholders of Glenmoor, Ltd, the parent company of
the General Partner, entered into a definitive agreement to sell Glenmoor to a
new entity formed by Carlyle/Riverstone Global Energy and Power Fund II, L.P.
The transaction is scheduled to close in early May 2004, and is subject to
certain customary closing conditions.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Overview
Buckeye Partners, L.P. (the "Partnership"), is a master limited partnership
organized in 1986 under the laws of the state of Delaware. The Partnership's
principal line of business is the transportation, terminalling and storage of
refined petroleum products for major integrated oil companies, large refined
product marketing companies and major end users of petroleum products on a fee
basis through facilities owned and operated by the Partnership. The
Partnership also operates pipelines owned by third parties under contracts
with major integrated oil and chemical companies.
The Partnership conducts all its operations through subsidiary entities.
These operating subsidiaries are Buckeye Pipe Line Company, L.P. ("Buckeye"),
Laurel Pipe Line Company, L.P. ("Laurel"), Everglades Pipe Line Company, L.P.
("Everglades") and Buckeye Pipe Line Holdings, L.P. ("BPH"). Each of Buckeye,
Laurel, Everglades and BPH is referred to individually as an "Operating
Partnership" and collectively as the "Operating Partnerships". The Partnership
owns approximately a 99 percent interest in each of the Operating
Partnerships.
Buckeye Pipe Line Company (the "General Partner") serves as the general
partner to the Partnership. As of March 31, 2004, the General Partner owned
approximately a 1 percent general partnership interest in the Partnership and
approximately a 1 percent general partnership interest in each Operating
Partnership, for an approximate 2 percent interest in the Partnership. The
General Partner is a wholly-owned subsidiary of Buckeye Management Company
("BMC"). BMC is a wholly-owned subsidiary of Glenmoor, Ltd. ("Glenmoor").
Glenmoor is owned by certain directors and members of senior management of the
General Partner and trusts for the benefit of their families and by certain
other management employees of Buckeye Pipe Line Services Company ("Services
Company").
On March 5, 2004, the stockholders of Glenmoor entered into a definitive
agreement to sell Glenmoor to a new entity formed by Carlyle/Riverstone Global
Energy and Power Fund II, L.P. The transaction is scheduled to close in early
May 2004, and is subject to customary closing conditions.
Products transported by the Operating Partnerships include primarily
gasoline, jet fuel, diesel fuel, heating oil, kerosene and liquid petroleum
gases ("LPGs"). Revenues generated in these activities are generally a
function of the volumes of products transported and the tariffs or
transportation fees charged for such transportation. Results of operations
are affected by factors that include general economic conditions, weather,
competitive conditions, overall and regional demand for refined petroleum
products, seasonal factors and regulation.
First Quarter
Revenues for the quarters ended March 31, 2004 and 2003 were as follows:
Revenues
--------
2004 2003
---- ----
(In thousands)
Pipeline transportation $58,560 $55,013
Terminalling, storage and rentals 7,914 6,516
Contract operations 5,287 4,298
------- -------
Total $71,761 $65,827
======= =======
Total revenue for the quarter ended March 31, 2004 was $71.8 million, $6.0
million, or 9.1 percent, greater than revenue of $65.8 million in the same
period of 2003. Revenue from pipeline transportation was $58.6 million for the
three months ended March 31, 2004 compared to $55.0 million for the three
months ended March 31, 2003. The $3.6 million, or 6.5 percent, increase in
pipeline transportation revenue is primarily due to increased distillate and
gasoline shipments and higher average tariff rates as a result of a tariff
rate adjustment instituted on May 1, 2003. Volumes delivered during the first
quarter 2004 averaged 1,165,000 barrels per day, 45,200 barrels per day, or
4.1 percent, greater than volumes of 1,119,800 barrels per day delivered
during the first quarter of 2003.
Revenue from the transportation of gasoline of $28.6 million increased by
$2.3 million, or 8.7 percent, from the first quarter of 2003. Total gasoline
volumes of 542,400 barrels per day for the first quarter of 2004 were 13,600
barrels per day, or 2.6 percent, greater than first quarter 2003 volumes of
528,800 barrels per day. In the East, gasoline volumes of 221,700 barrels per
day were approximately 6,500 barrels per day, or 2.9 percent, less than first
quarter 2003 volumes. Gasoline transportation revenue, however, increased by
approximately $0.6 million as increases in deliveries to the upstate New York
area, which are at higher tariffs rates, more than offset declines in
deliveries to other locations. In the Midwest, gasoline volumes of 181,900
barrels per day were 26,100 barrels per day, or 16.8 percent, greater than
gasoline volumes delivered during the first quarter of 2003. Shippers in the
Midwest increased inventories earlier than usual in anticipation of local
refinery shutdowns for maintenance activities. In addition, deliveries to the
Cleveland, Ohio area increased due to problems on a competing pipeline. Long
Island System gasoline volumes of 109,200 barrels per day decreased by 3,000
barrels per day, or 2.6 percent, from deliveries in the first quarter of 2003.
Revenue, however, increased $0.5 million, or 15.4 percent. This increase
resulted from the implementation of a blend-stock handling charge as the
market area converted to local terminal-blended ethanol. This conversion
occurred because state regulations eliminating the use of gasoline blended
with Methyl-Tertiary-Butyl-Ether ("MTBE") became effective January 1, 2004.
On the Jet Lines system, gasoline volumes of 11,200 barrels per day were 4,800
barrels per day less than volumes in the first quarter of 2003 resulting in a
$0.1 million decline in revenue. On the Norco Pipe Line Company, LLC ("Norco")
system, gasoline volumes of 18,400 barrels per day were 1,800 barrels per day,
or 10.7 percent, greater than volumes delivered during the first quarter 2003.
Revenue from the transportation of distillate of $19.0 million increased by
$1.9 million, or 11.2 percent, from first quarter 2003 levels. Total volumes
of 344,000 barrels per day for the three months ended March 31, 2004 were
22,600 barrels per day, or 7.1 percent, greater than first quarter 2003
distillate volumes of 321,400 barrels per day. In the East, distillate volumes
of 184,400 barrels per day were approximately 13,400 barrels per day, or 7.8
percent, greater than first quarter 2003 volumes. Demand for distillate was
strong throughout the entire eastern products system area as cold winter
temperatures increased the demand for heating oil. In the Midwest, distillate
volumes of 82,900 barrels per day were 8,700 barrels per day, or 11.7 percent,
greater than volumes delivered during the first quarter of 2003. The
increases were due to the cold winter temperatures and increased deliveries to
Cleveland, Ohio due to integrity problems on a competing pipeline. Long Island
System distillate volumes of 30,700 barrels per day were 800 barrels per day,
or 2.7 percent, less than volumes delivered during the first quarter of 2003.
On the Jet Lines system, distillate transportation revenue declined by $0.2
million as distillate volumes of 31,800 barrels per day were 5,300 barrels per
day, or 14.3 percent, less than first quarter 2003 volumes. Norco distillate
transportation revenue increased by $0.4 million on increased distillate
volumes related to new business at Toledo, Ohio and increased deliveries to
Peoria, Illinois.
Revenue from the transportation of jet fuel of $9.7 million increased by
$0.3 million, or 2.7 percent, from first quarter 2003 levels. Total jet fuel
volumes of 253,000 barrels per day for the three months ended March 31, 2004
were 1,700 barrels per day, or 0.7 percent, greater than first quarter 2003
jet fuel volumes of 251,300 barrels per day. Deliveries to the New York City
airports (LaGuardia, JFK and Newark) increased by 4,900 barrels per day, or
3.9 percent. Jet fuel deliveries to Pittsburgh International Airport were
1,500 barrels per day, or 16.4 percent, less than first quarter 2003
deliveries due to schedule reductions by U.S. Airways. Deliveries to Miami
International Airport were 1,700 barrels per day, or 3.2 percent, greater than
first quarter 2003 levels. WesPac's jet fuel volumes of 11,600 barrels per day
were 400 barrels per day, or 3.7 percent, greater than prior year first
quarter volumes.
Revenue from the transportation of liquefied petroleum gases ("LPG") of
$1.1 million increased by $0.4 million, or 56.8 percent, from first quarter
2003 levels. Total LPG volumes of 21,600 barrels per day for the first quarter
2004 were 4,900 barrels per day, or 29.3 percent, greater than first quarter
2003 volumes of 16,700 barrels per day. Increased deliveries to Lima, Ohio,
which resulted from colder weather, were the primary reason for the increase
in LPG volumes and revenue.
Terminalling, storage and rental revenues of $7.9 million for the three
months ended March 31, 2004 increased by $1.4 million or 21.5 percent from the
comparable period in 2003. The increase reflects additional rental revenues
associated with pipelines and storage along with additional throughput
revenues from terminalling services.
Contract operations services revenues of $5.3 million for the three months
ended March 31, 2004 increased by $1.0 million compared to the first quarter
of 2003. Contract operations revenues consist of costs reimbursable under the
contracts plus an operator's fee as well as pipeline construction contract
revenues. Revenues from these operations typically carry a lower gross profit
margin than revenues from pipeline transportation or terminalling, storage and
rentals. The increase in revenue for the three months ended March 31, 2004
over the comparable period in 2003 resulted from additional pipeline
construction contract activity.
Costs and expenses for the three month periods ended March 31, 2004 and
2003 were as follows:
Operating Expenses
------------------
2004 2003
---- ----
(In thousands)
Payroll and payroll benefits $14,955 $13,290
Depreciation and amortization 5,806 5,494
Operating power 5,853 5,269
Outside services 4,151 4,978
Property and other taxes 2,927 2,846
All other 9,971 9,146
------- -------
Total $43,663 $41,023
======= =======
Payroll and payroll benefits increased to $15.0 million in the first
quarter of 2004, or $1.7 million over the first quarter of 2003, principally
due to increases in accruals for benefits costs ($1.1 million) related to the
Partnership's retiree medical plan and other medical and benefits costs.
Payroll costs rose in pipeline, terminalling and administrative activities
principally due to wage increases ($0.6 million).
Depreciation and amortization expense increased $0.3 million to $5.8
million in the first quarter of 2004 due to depreciation on the Sabina
Pipeline ($0.2 million), and other capital additions to the Partnership's
pipeline and terminalling assets ($0.1 million).
Operating power consists primarily of electricity required to operate
pumping facilities. The increase in operating power costs to $5.9 million in
the three months ended March 31, 2004, was $0.6 million more than operating
power costs incurred in the first quarter of 2003. Increased power costs were
principally related to additional pipeline volumes.
Outside services costs consist principally of third-party contract services
for maintenance activities. These costs were $4.2 million or $0.8 million less
than 2003, as the Partnership's activity in these areas was reduced in the
first three months of 2004 compared to the same period of 2003 ($0.5 million)
combined with reduced expenditures related to acquisition and development
projects ($0.3 million).
All other costs were $9.9 million, an increase of $0.8 million, in the
first quarter of 2004 compared to the same period in 2003. This change is
almost entirely due to additional costs associated with construction
management activities at BGC.
Other income (expense) for the three month periods ended March 31, 2004 and
2003 was as follows:
Other Income
------------
2004 2003
---- ----
(In thousands)
Investment income $ 1,428 $ 503
Interest and debt expense (5,345) (5,232)
Minority interests and other (4,080) (3,348)
------- -------
Total $(7,997) $(8,077)
======= =======
Investment income of $1.4 million increased by $0.9 million over the first
quarter of 2003 as a result of equity income from the Partnership's 20%
interest in West Texas LPG Pipe Line, L.P., which was acquired in August 2003
and increased earnings from the Partnership's interest in West Shore Pipe Line
Company. In September 2003, the Partnership increased its interest in West
Shore to approximately 25% from 18% previously.
Interest expense was $5.3 million in the first three months of 2004, an
increase of $0.1 million from the same period in 2003. The increased debt
outstanding in the first quarter of 2004 compared to the same period in 2003
was offset by lower average interest rates for such debt as a result of the
capital markets activities completed by the Partnership in 2003.
Minority interest and other of $4.1 million in the first quarter of 2004
increased by $0.7 million over the first quarter of 2003 as a result of
increased minority interest expense (0.2 million) and higher incentive
payments to the General Partner ($0.5 million).
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financial condition at March 31, 2004 and December 31,
2003 is highlighted in the following comparative summary:
Liquidity and Capital Indicators
As of
-----------------------
3/31/04 12/31/03
------- --------
Current ratio (1) 1.6 to 1 1.4 to 1
Ratio of cash and cash equivalents,
and trade receivables to
current liabilities 0.8 to 1 0.8 to 1
Working capital - in thousands (2) $19,627 $17,720
Ratio of total debt to total capital (3) .54 to 1 .54 to 1
Book value (per Unit) (4) $13.08 $13.03
(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
During the first quarter of 2004, the Partnership's principal sources of
liquidity were cash from operations and temporary borrowings under its lines
of credit. The Partnership's principal uses of cash are operating expenses,
capital expenditures, investments and acquisitions and distributions to
unitholders.
At March 31, 2004, the Partnership had $450.0 million in outstanding long-
term debt, consisting of $300 million of 4 5/8% Notes due 2013 and $150.0
million of 6 _% Notes due 2033. The Partnership also has a 5-year $277.5
million Revolving Credit Agreement which was entered into in September 2001
with a syndicate of banks led by SunTrust Bank and a $100 million 364-day
Revolving Credit Agreement entered into in September 2003 with another
syndicate of banks also led by SunTrust Bank (together, the "Credit
Facilities"). Borrowings bear interest at SunTrust Bank's base rate or, at
the Partnership's option, a rate based on LIBOR. The Credit Facilities permit
borrowings up to $377.5 million, subject to certain limitations contained in
the Credit Facility agreements. The 364-day revolving credit facility expires
in September 2004 and the Partnership anticipates renewing it prior to that
time. At March 31, 2004, no amounts were outstanding under the Credit
Facilities.
The Credit Facilities contain covenants which (a) limit outstanding
indebtedness of the Partnership based on certain financial ratios, (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 and (d) limit consolidation, merger and asset
transfers by the Partnership. These covenants apply to the Partnership and
all of its direct and substantially all of its indirect subsidiaries. At
March 31, 2004, the Partnership and its subsidiaries were in compliance with
these covenants.
In order to hedge a portion of its fair value risk related to the 4 5/8%
Notes, on October 28, 2003, the Partnership entered into an interest rate swap
agreement with a financial institution with respect to $100 million principal
amount (the "notional amount") of the 4 5/8% Notes. The contract calls for
the Partnership to receive fixed payments from the financial institution at a
rate of 4 5/8% of the notional amount in exchange for floating rate payments
from the Partnership based on the notional amount using a rate equal to the
six-month London Interbank Offered Rate ("LIBOR"), determined in arrears,
minus 0.28%. The agreement terminates on the maturity date of the 4 5/8%
Notes and interest amounts under the agreement are payable semiannually on the
same date as the interest payments on the 4 5/8% Notes. At the inception of
the agreement, the Partnership designated the agreement as a fair value hedge
and determined that no ineffectiveness will result from the use of the hedge.
During the first quarter of 2004, the Partnership saved $0.9 million and,
based on LIBOR at March 31, 2003, the Partnership would save approximately
$3.8 million per year compared to interest expense the Partnership would incur
had the Partnership not engaged in this transaction. Changes in "LIBOR",
however, will impact the interest rate expense incurred in connection with the
interest rate swap. For example, a 1% increase or decrease in LIBOR would
increase or decrease interest expense by $1 million per year. The fair market
value of the interest rate swap was an asset of approximately $3.7 million at
March 31, 2004.
Cash Flows from Operations
The components of cash flows from operations are as follows:
Cash Flows from Operations
--------------------------
2004 2003
---- ----
(In thousands)
Net income $ 20,101 $ 16,727
Depreciation and amortization 5,806 5,495
Minority interests 879 614
Changes in current assets and liabilities (13,785) (7,079)
Changes in other assets and liabilities 528 77
-------- --------
Total $ 13,529 $ 15,834
======== ========
Cash flows from operations were $13.5 million in the first quarter of 2004,
a reduction of $2.3 million from $15.8 million in the first quarter of 2003.
The increase in net income of $3.4 million to $20.1 million in the first three
months of 2004 compared to $16.7 million in the first quarter of 2003 was more
than offset by an increase in use of cash resulting from changes in current
assets and liabilities. In 2004 these changes used $13.8 million in cash,
compared to 2003 when these changes used $7.1 million. The principal causes
of these changes in 2004 were reductions in accounts payable and accrued and
other current liabilities. The reduction in accounts payable resulted from
several large payments being made during the last two weeks of the year which
did not clear cash accounts until early January 2004. The reduction in
accrued and other current liabilities in 2004 resulted principally from the
timing of interest payments on the Partnership's debt obligations.
Approximately $11.3 million of interest related to the Partnership's $300
million 4 5/8% Notes and $150 million $6.75% Notes was paid in January and
February 2004, respectively. In 2003, interest on the Partnership's debt was
paid monthly or quarterly. Offsetting these changes were reductions in
accounts receivable, which provided $1.7 million and reductions in prepaid and
other current assets which provided $1.0 million in 2004. In the first three
months of 2003, the changes in current assets and liabilities resulted
principally from reductions in accounts payable and increases in prepaid and
other current assets.
Cash Flows from Investing Activities
Cash used in investing activities totaled $6.1 million in the first three
months of 2004 compared to $7.2 million in the same period of 2003,
substantially all of which consisted of capital expenditures. The $1.1
million reduction in capital expenditures resulted principally from $2.4
million of expenditures which occurred in the 2003 period related to the
completion of a pipeline project in Texas, partially offset by $1.7 million
expended in March 2004 for the acquisition of a terminal in Peoria, Illinois.
Cash Flows from Financing Activities
During the first three months of 2004, the Partnership borrowed and repaid
$15 million under the Credit Facilities. In February 2003, the Partnership
completed an underwritten public offering of 1,750,000 LP units for net
proceeds of approximately $60.0 million in cash proceeds. These cash proceeds
from that offering were used to reduce amounts outstanding under the Credit
Facilities. Distributions to unitholders totaled $18.8 million in the first
three months of 2004, compared to $17.0 million in the first three months of
2003. The increase in distributions resulted from an increase in the
quarterly distribution rate to $0.65 per unit in the first quarter of 2004
compared to $0.6375 in the 2003 period, as well as additional units
outstanding, principally as a result of the February 2003 LP unit offering.
OTHER MATTERS
Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities ("FIN 46"), which was subsequently modified and
reissued in December 2003. FIN 46 establishes accounting and disclosure
requirements for ownership interests in entities that have certain financial
or ownership characteristics. FIN 46, as revised, is generally applicable for
the first fiscal year or interim accounting period ending after March 15,
2004. The adoption of the provisions of FIN 46 has not had a material effect
on the Partnership's consolidated financial statements.
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 FASB continues to address certain implementation
issues associated with the application of SFAS No. 150, including those
related to mandatory redeemable financial instruments representing non-
controlling interests in subsidiaries' consolidated financial statements. The
Partnership will continue to monitor the actions of the FASB and assess the
impact, if any, on its consolidated financial statements. The effective
provisions of SFAS No. 150 did not have a material impact on the Partnership's
consolidated financial statements.
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132
(as revised) requires additional disclosures regarding pensions and
postretirement benefits beyond those previously required in the original
version of SFAS No. 132. SFAS No. 132 (revised 2003) was effective for
fiscal years and interim periods ending after December 15, 2003, except for
certain provisions which generally are not applicable to the Partnership. The
Partnership has adopted the provisions of SFAS No. 132 (revised) and has
included the appropriate disclosures in the Partnership's consolidated
financial statements.
In January 2004, the staff of the FASB issued FASB Staff Position No.
106-1, "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003." The purpose of
FASB Staff Position No. 106-1 is to provide guidance on how recent Federal
legislation which provides certain prescription drug benefits and subsidies to
sponsors of certain medical plans which substitute benefits for Medicare Part
D is to be incorporated into a plan sponsor's calculation of retiree medical
liabilities. There are significant uncertainties about how this Federal
legislation will ultimately affect plan sponsors' liabilities with respect to
retiree medical costs.
FASB Staff Position No. 106-1, which is effective for fiscal years ending
after December 7, 2003, permits plan sponsors, like the Partnership, to defer
the accounting effects of the legislation until authoritative guidance on how
to account for the Federal legislation is provided, or a significant event
occurs, such as a plan amendment, settlement or curtailment, which would
require a remeasurement of a plan's assets and obligations.
The Partnership has elected to defer the accounting recognition of the
Medicare Prescription Drug, Improvement and Modernization Act of 2003 until
such time as authoritative guidance is provided. Accordingly, measures
related to the Accumulated Benefit Obligation and net periodic postretirement
benefit cost in the Partnership's financial statements do not reflect the
effects of the Act on the Plan. When authoritative guidance to plan sponsors
is provided, such guidance could cause financial information related to
retiree medical benefits previously reported to change. The Partnership has
not yet evaluated the provisions of the Act in order to determine how the
prescription drug benefits and potential subsidies will affect the
Partnership.
Forward Looking Statements
The information contained above in this Management's Discussion and
Analysis and elsewhere in this Report on Form 10-Q includes "forward-looking,
statements," within the meaning of the Private Securities Litigation Reform
Act of 1995. Such statements use forward-looking words such as "anticipate,"
"continue," "estimate," "expect," "may," `will," or other similar words,
although some forward-looking statements are expressed differently. These
statements discuss future expectations or contain projections. Specific
factors which could cause actual results to differ from those in the forward-
looking statements include: (1) price trends and overall demand for refined
petroleum products in the United States in general and in our service areas in
particular (economic activity, weather, alternative energy sources,
conservation and technological advances may affect price trends and demands);
(2) changes, if any, in laws and regulations, including, among others, safety,
tax and accounting matters or Federal Energy Regulatory Commission regulation
of our tariff rates; (3) liability for environmental claims; (4) security
issues affecting our assets, including, among others, potential damage to our
assets caused by acts of war or terrorism; (5) unanticipated capital
expenditures and operating expenses to repair or replace our assets; (6)
availability and cost of insurance on our assets and operations; (7) our
ability to successfully identify and complete strategic acquisitions and make
cost saving changes in operations; (8) expansion in the operations of our
competitors; (9) our ability to integrate any acquired operations into our
existing operations; (10) shut-downs or cutbacks at major refineries that use
our services; (11) deterioration in our labor relations; (12) changes in real
property tax assessments; (13) disruptions to the air travel system; and (14)
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. Although the expectations in
the forward-looking statements are based on our current beliefs and
expectations, we do not assume responsibility for the accuracy and
completeness of such statements. Further, 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
Market Risk - Trading Instruments
Currently the Partnership has no derivative instruments and does not engage
in hedging activity with respect to trading instruments.
Market Risk - Other than Trading Instruments
The Partnership is exposed to risk resulting from changes in interest
rates. The Partnership does not have significant commodity or foreign
exchange risk. The Partnership is exposed to fair value risk with respect to
the fixed portion of its financing arrangements (the 4 5/8% Notes and the 6 _%
Notes) and to cash flow risk with respect to its variable rate obligations.
Fair value risk represents the risk that the value of the fixed portion of its
financing arrangements will rise or fall depending on changes in interest
rates. Cash flow risk represents the risk that interest costs related to the
variable portion of its financing arrangements (the Credit Facilities) will
rise or fall depending on changes in interest rates.
At March 31, 2004, the Partnership had total debt of $450 million,
consisting of $300 million of its 4 5/8% Notes and $150 million of its 6 _%
Notes. The fair value of these obligations at March 31, 2004 was
approximately $448 million. The Partnership estimates that a 1% decrease in
rates for obligations of similar maturities would increase the fair value of
these obligations by $45 million.
In order to hedge a portion of its fair value risk related to the 4 5/8%
Notes, on October 28, 2003, the Partnership entered into an interest rate swap
agreement with a financial institution with respect to $100 million principal
amount (the "notional amount") of the 4 5/8% Notes. The contract calls for
the Partnership to receive fixed payments from the financial institution at a
rate of 4 5/8% of the notional amount in exchange for floating rate payments
from the Partnership based on the notional amount using a rate equal to the
six-month LIBOR, determined in arrears, minus 0.28%. The agreement terminates
on the maturity date of the 4 5/8% Notes and interest amounts under the
agreement are payable semiannually on the same date as the interest payments
on the 4 5/8% Notes. At the inception of the agreement, the Partnership
designated the agreement as a fair value hedge and determined that no
ineffectiveness will result from the use of the hedge. During the first
quarter of 2004, the Partnership saved $0.9 million and, based on LIBOR at
March 31, 2003, the Partnership would save approximately $3.8 million per year
compared to interest expense the Partnership would incur had the Partnership
not engaged in this transaction. Changes in LIBOR, however, will impact the
interest rate expense incurred in connection with the interest rate swap. For
example, a 1% increase or decrease in LIBOR would increase or decrease
interest expense by $1 million per year. The fair market value of the
interest rate swap was an asset of approximately $3.7 million at March 31,
2004.
The Partnership's practice with respect to hedge transactions has been to
have each transaction authorized by the Board of Directors of the General
Partner.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
The management of the General Partner, with the participation of 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, the General Partner's principal executive officer and its
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 Partnership believes that a controls system, no
matter how well designed and operated, cannot 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) Changes in internal controls.
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.
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934.
32.1 Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section
1350.
32.2 Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section
1350.
(b) Reports on Form 8-K
On February 10, 2004, the Partnership filed a Current Report on Form
8-K for the purpose of furnishing the press release announcing its earnings
for the fourth quarter 2003.
On March 8, 2004, the Partnership filed a Current Report on Form 8-K
for the purpose of furnishing the press release announcing the proposed
sale of the parent of the Partnership's general partner.
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: April 30, 2004 STEVEN C. RAMSEY
----------------
Steven C. Ramsey
Senior Vice President, Finance
and Chief Financial Officer
(Principal Accounting and
Financial Officer)