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, 2001
Transition report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the transition period from _______________ to _______________
Commission file number 1-9356
BUCKEYE PARTNERS, L.P.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2432497
- ------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5 Radnor Corporate Center, Suite 500
100 Matsonford Road
Radnor, PA 19087
- ------------------------------------- --------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: 484-232-4000
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report).
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at July 13, 2001
- ------------------------- ----------------------------
Limited Partnership Units 26,900,546 Units
BUCKEYE PARTNERS, L.P.
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Statements of Income 1
for the three months and six months
ended June 30, 2001 and 2000
Consolidated Balance Sheets 2
June 30, 2001 and December 31, 2000
Consolidated Statements of Cash Flows 3
for the six months ended
June 30, 2001 and 2000
Notes to Consolidated Financial Statements 4-8
Item 2. Management's Discussion and Analysis 9-12
of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures 12
about Market Risk
Part II. Other Information
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
i
Item 1. Consolidated Financial Statements
Buckeye Partners, L.P.
Consolidated Statements of Income
(In thousands, except per Unit amounts)
(Unaudited)
Three Months Ended Six Months Ended
6/30/01 6/30/00 6/30/01 6/30/00
------- ------- ------- -------
$ 56,867 $ 50,076 Revenue $ 111,284 $ 99,949
- --------- ---------- ----------- -----------
Costs and expenses
25,917 22,096 Operating expenses 50,637 43,477
4,887 4,304 Depreciation and amortization 9,726 8,601
3,051 3,040 General and administrative expenses 6,056 6,391
- --------- ---------- ----------- -----------
33,855 29,440 Total costs and expenses 66,419 58,469
- --------- ---------- ----------- -----------
23,012 20,636 Operating income 44,865 41,480
- --------- ---------- ----------- -----------
Other income (expenses)
127 73 Investment income 398 395
(4,157) (4,549) Interest and debt expense (8,703) (9,008)
(2,932) (2,145) Minority interests and other (5,587) (4,559)
- --------- ---------- ----------- -----------
(6,962) (6,621) Total other income (expenses) (13,892) (13,172)
- --------- ---------- ----------- -----------
16,050 14,015 Income from continuing operations 30,973 28,308
- 421 Income from discontinued operations - 1,738
- --------- ---------- ----------- -----------
$ 16,050 $ 14,436 Net income $ 30,973 $ 30,046
========= ========== ----------- -----------
Net income allocated to General
$ 145 $ 130 Partner $ 279 $ 271
Net income allocated to Limited
$ 15,905 $ 14,306 Partners $ 30,694 $ 29,775
Earnings per Partnership Unit- basic:
Income from continuing operations allocated to
$ 0.59 $ 0.52 General and Limited Partners per Partnership Unit $ 1.14 $ 1.05
Income from discontinued operations allocated to
- 0.01 General and Limited Partners per Partnership Unit - 0.06
- --------- ---------- ----------- -----------
$ 0.59 $ 0.53 Earnings per Partnership Unit - basic $ 1 .14 $ 1.11
========= ========== =========== ===========
Earnings per Partnership Unit -
assuming dilution:
Income from continuing operations allocated to
$ 0.59 $ 0.52 General and Limited Partners per Partnership Unit $ 1.14 $ 1.05
Income from discontinued operations allocated to
- 0.01 General and Limited Partners per Partnership Unit - 0.06
- --------- ---------- ----------- -----------
Earnings per Partnership Unit -
$ 0.59 $ 0.53 assuming dilution $ 1.14 $ 1.11
========= ========== ========== ===========
See notes to consolidated financial statements.
1
Buckeye Partners, L.P.
Consolidated Balance Sheets
(In thousands)
(Unaudited)
June 30, December 31,
2001 2000
---------- ------------
Assets
Current assets
Cash and cash equivalents $ 10,102 $ 32,216
Trade receivables 12,102 11,005
Inventories 6,549 5,871
Prepaid and other current assets 8,408 8,961
------------- -------------
Total current assets 37,161 58,053
Property, plant and equipment, net 594,671 585,630
Other non-current assets 66,206 69,129
------------- -------------
Total assets $ 698,038 $ 712,812
============= =============
Liabilities and partners' capital
Current liabilities
Accounts payable $ 4,286 $ 6,588
Accrued and other current liabilities 20,097 22,716
------------- -------------
Total current liabilities 24,383 29,304
Long-term debt 273,000 283,000
Minority interests 3,279 3,102
Other non-current liabilities 48,685 48,024
Commitments and contingent liabilities - -
------------- -------------
Total liabilities 349,347 363,430
------------- -------------
Partners' capital
General Partner 2,817 2,831
Limited Partners 345,874 346,551
------------- -------------
Total partners' capital 348,691 349,382
------------- -------------
Total liabilities and partners' capital $ 698,038 $ 712,812
============= =============
See notes to consolidated financial statements.
2
Buckeye Partners, L.P.
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
(Unaudited)
Six Months Ended
June 30,
--------------------------------
2001 2000
---- ----
Cash flows from operating activities:
Net income $ 30,973 $ 30,046
Income from discontinued operations - (1,738)
------------ -----------
Income from continuing operations 30,973 28,308
------------ -----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on sale of property, plant and equipment - (432)
Depreciation and amortization 9,726 8,601
Minority interests 555 192
Change in assets and liabilities,
net of acquisitions:
Trade receivables (1,097) (1,134)
Inventories (678) (558)
Prepaid and other current assets 553 (499)
Accounts payable (2,302) (1,664)
Accrued and other current liabilities (2,619) (4,927)
Other non-current assets 42 (583)
Other non-current liabilities 661 1,389
------------ ------------
Total adjustments from operating activities 4,841 385
------------ ------------
Net cash provided by continuing activities 35,814 28,693
------------ ------------
Net cash provided by discontinued operations - 512
------------ ------------
Cash flows from investing activities:
Capital expenditures (15,669) (19,296)
Acquisitions - (19,251)
Net (expenditures) proceeds for disposal of
property, plant and equipment (217) 293
------------ ------------
Net cash used in investing activities (15,886) (38,254)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of unit options 853 410
Distributions to minority interests (378) (374)
Payment of long-term debt (15,000) -
Proceeds from issuance of long-term debt 5,000 31,000
Distributions to Unitholders (32,517) (32,461)
------------ ------------
Net cash used in financing activities (42,042) (1,425)
------------ ------------
Net decrease in cash and cash equivalents (22,114) (10,474)
Cash and cash equivalents at beginning of period 32,216 15,731
------------ ------------
Cash and cash equivalents at end of period $ 10,102 $ 5,257
============ ============
Supplemental cash flow information:
Cash paid during the period for interest
(net of amount capitalized) $ 9,544 $ 8,921
See notes to consolidated financial statements.
3
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying financial statements of Buckeye
Partners, L.P. (the "Partnership"), which are unaudited except that the Balance
Sheet as of December 31, 2000 is derived from audited financial statements,
include all adjustments necessary to present fairly the Partnership's financial
position as of June 30, 2001 and the results of operations for the three month
and six month periods ended June 30, 2001 and 2000 and cash flows for the six
month periods ended June 30, 2001 and 2000. The results of operations for the
three month and six month periods ended June 30, 2001 are not necessarily
indicative of the results to be expected for the full year ending December 31,
2001.
Pursuant to the rules and regulations of the Securities and Exchange Commission,
the financial statements do not include all of the information and notes
normally included with financial statements prepared in accordance with
generally accepted accounting principles. These 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, 2000.
Certain amounts in the financial statements for 2000 have been reclassified to
conform to the current presentation.
2. ACQUISITIONS
On June 30, 2000, the Partnership acquired six petroleum products terminals from
Agway Energy Products LLC ("Agway") for a total purchase price of $19,000,000.
Additional costs incurred in connection with the acquisition for gasoline and
diesel fuel additives and closing adjustments amounted to $1,693,000. The
Partnership operates the terminals under the name of Buckeye Terminals, LLC
("BT"). The terminals are located in Brewerton, Geneva, Marcy, Rochester and
Vestal, New York and Macungie, Pennsylvania. The terminals have an aggregate
capacity of approximately 1.8 million barrels of petroleum product. The
allocated fair value of assets acquired is summarized as follows:
(In thousands)
Fuel additive inventory $ 121
Property, plant and equipment 7,964
Goodwill 12,608
-------
Total $20,693
=======
Pro forma results of operations for the Partnership, assuming the acquisition of
the Agway assets had occurred at the beginning of the periods indicated below,
are as follows:
Six Months Ended June 30, 2000
(In thousands,
except per Unit amounts)
Revenue $ 101,738
Income from continuing operations $ 28,215
Earnings per Unit from continuing
operations $ 1.04
4
The unaudited pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which actually
would have resulted had the combination been in effect at the beginning of the
period presented, or of future results of operations of the entities.
3. SEGMENT INFORMATION
During the year 2000, the Partnership operated in two business segments, the
transportation segment and the refining segment. Operations in the refining
segment commenced upon the acquisition of Buckeye Refining Company ("BRC") in
March 1999 and ceased upon the sale of BRC in October 2000. As a result of the
sale of BRC, the refining segment is accounted for as a discontinued operation
in the accompanying financial statements. The Partnership's continuing
operations consist solely of its transportation segment.
The transportation segment derives its revenues from the transportation of
refined petroleum products through its pipelines that it receives from
refineries, connecting pipelines and marine terminals and from the storage and
throughput of refined petroleum products at its terminals. All transportation
revenues are from sources within the United States.
4. DISCONTINUED OPERATIONS
On October 25, 2000, the Partnership sold BRC to Kinder Morgan Energy Partners,
L.P. for $45,696,000 in cash. The sale resulted in a gain of $26,182,000 after
provisions of $3,470,000 related to conditional consideration payable to BRC's
predecessor by the Partnership pursuant to the acquisition agreement entered
into in March, 1999. Proceeds from the sale were used to repay $26,000,000 of
debt and for working capital purposes.
Results of BRC's operations are reported as a discontinued operation for all
periods presented in the accompanying financial statements. BRC operated as a
subsidiary of the Partnership for the period of March 4, 1999 through October
25, 2000. Summarized operating results of BRC were as follows for the period
indicated below:
January 1, 2000
through
June 30, 2000
-------------
(In thousands)
Refining revenue $ 91,534
Operating income $ 1,650
Net income $ 1,738
5. CONTINGENCIES
The Partnership and its subsidiaries (the "Operating Partnerships"), in the
ordinary course of business, are involved in various claims and legal
proceedings, some of which are covered in whole or in part by insurance. Buckeye
Pipe Line Company (the "General Partner") is unable to predict the timing or
outcome of these claims and proceedings. Although it is possible that one or
more of these claims or proceedings, if adversely determined, could, depending
on the relative amounts involved, have a material effect on the Partnership for
a future period, the General Partner does not believe that their outcome will
have a material effect on the Partnership's consolidated financial condition or
annual results of operations.
5
Environmental
Certain Operating Partnerships (or their predecessors) have been named as a
defendant in lawsuits or have been notified by federal or state authorities that
they are a potentially responsible party ("PRP") under federal laws or a
respondent under state laws relating to the generation, disposal, or release of
hazardous substances into the environment. These proceedings generally relate to
potential liability for clean-up costs. Typically, an Operating Partnership is
one of many PRP's for a particular site and its contribution of total waste at
the site is minimal. However, because CERCLA and similar statutes impose
liability without regard to fault and on a joint and several basis, the
liability of an Operating Partnership in connection with such proceedings could
be material. The total potential remediation costs relating to these clean-up
sites cannot be reasonably estimated.
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. Additional claims for the cost of cleaning up releases of
hazardous substances and for damage to the environment resulting from the
activities of the Operating Partnerships or their predecessors may be asserted
in the future under various federal and state laws.
6. LONG-TERM DEBT
As of June 30, 2001, the Partnership 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. In addition, at June 30,
2001, the Partnership had $33.0 million outstanding under its $100 million
Credit Agreement at an interest rate of 5.21 percent.
During June 2001, the Partnership entered into a new Loan Agreement (the "Loan
Agreement") with First Union National Bank ("First Union") under which $30.0
million in additional funds were committed to the Partnership. Funds advanced
under the Loan Agreement are at interest rates based on a spread over LIBOR, to
be determined by First Union at the time of the borrowing. At June 30, 2001,
there were no borrowings outstanding under the Loan Agreement.
7. PARTNERS' CAPITAL
Partners' capital consists of the following:
General Limited
Partner Partners Total
------- -------- -----
(In thousands)
Partners' Capital - 1/1/01 $2,831 $346,551 $349,382
Net income 279 30,694 30,973
Distributions (293) (32,224) (32,517)
Exercise of unit options - 853 853
------ -------- --------
Partners' Capital - 6/30/01 $2,817 $345,874 $348,691
====== ======== ========
6
The following is a reconciliation of basic and dilutive income from continuing
operations per Partnership Unit for the three month and six month periods ended
June 30:
Three Months Ended June 30,
2001 2000
------------------------------------ ----------------------------------
Income Units Income Units
(Numer (Denomi Per Unit (Numer (Denomi Per Unit
-ator) -nator) Amount -ator) -nator) Amount
------ ------ -------- ----- ------- --------
(in thousands, except per unit amounts)
Income from
continuing operations...... $16,050 $14,015
------- -------
Basic earnings per
Partnership Unit.......... 16,050 27,117 $0.59 14,015 27,054 $0.52
Effect of dilutive
securities - options..... - 65 - - 68 -
------- ------ ----- ------- ------ -----
Diluted earnings per
Partnership Unit......... $16,050 27,182 $0.59 $14,015 27,122 $0.52
======= ====== ===== ======= ====== =====
Six Months Ended June 30,
2001 2000
------------------------------------ ----------------------------------
Income Units Income Units
(Numer (Denomi Per Unit (Numer (Denomi Per Unit
-ator) -nator) Amount -ator) -nator) Amount
------ ------ -------- ----- ------- --------
(in thousands, except per unit amounts)
Income from
continuing operations..... $30,973 $28,308
------- -------
Basic earnings per
Partnership Unit.......... 30,973 27,106 $1.14 28,308 27,048 $1.05
Effect of dilutive
securities - options..... - 72 - - 71 -
------- ------ ----- ------- ------ -----
Diluted earnings per
Partnership Unit......... $30,973 27,178 $1.14 $28,308 27,119 $1.05
======= ====== ===== ======= ====== =====
Options reported as dilutive securities are related to unexercised options
outstanding under the Partnership's Unit Option Plan.
8. CASH DISTRIBUTIONS
The Partnership will generally make quarterly cash distributions of
substantially all of its available cash, generally defined as consolidated cash
receipts less consolidated cash expenditures and such retentions for working
capital, anticipated cash expenditures and contingencies as the General Partner
deems appropriate.
The Partnership declared a cash distribution of $0.625 per unit payable on
August 31, 2001 to Unitholders of record on August 6, 2001. The total
distribution will amount to approximately $16,969,000.
9. RELATED PARTY ACCRUED CHARGES
Accrued and other current liabilities include $4,516,000 and $5,581,000 due the
General Partner as of June 30, 2001 and December 31, 2000, respectively.
7
10. ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued two new
pronouncements: Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS 141 prohibits the use of the pooling-of-interest method for
business combinations initiated after June 30, 2001 and also applies to all
business combinations accounted for by the purchase method that are completed
after June 30, 2001. There are also transition provisions that apply to business
combinations completed before July 1, 2001, that were accounted for by the
purchase method. SFAS 142 is effective for fiscal years beginning after December
15, 2001 to all goodwill and other intangible assets recognized in an entity's
statement of financial position at that date, regardless of when those assets
were initially recognized. The Partnership is currently evaluating the
provisions of SFAS 141 and SFAS 142 and has not adopted such provisions in its
June 30, 2001 financial statements.
11. OTHER EVENTS
In July 2000, the Partnership entered into a joint venture with PetroNet
Corporation ("PetroNet"). The Partnership received 49.99 percent of PetroNet
common stock in exchange for granting PetroNet the right to construct a next
generation fiber optics network within the Partnership's pipeline rights-of-way.
PetroNet has not been successful in obtaining first stage equity financing, and
has substantially reduced its level of operations. As a result, on January 4,
2001, the Partnership exercised its option to put its stock interest back to
PetroNet and has terminated its contractual relationship with PetroNet, with no
material impact on the Partnership's results of operations or financial
position.
On May 21, 2001, the Partnership announced that it had entered into a Letter of
Intent with TransMontaigne Inc. to purchase TransMontaigne's Norco refined
product pipeline system and associated storage, product distribution and
delivery facilities. The transaction is anticipated to close during the third
quarter 2001.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Second Quarter
Revenue from the transportation of refined petroleum products for the second
quarter 2001 was $56.9 million or 13.6 percent greater than revenue of $50.1
million for the second quarter 2000. Volumes for the second quarter of 2001 were
1,080,505 barrels per day, 39,071 barrels per day or 3.8 percent greater than
volumes of 1,041,434 barrels per day for the second quarter 2000. Average
transportation revenue was 51.4 cents per barrel during the second quarter 2001
as compared to 49.7 cents per barrel during the second quarter 2000. Gasoline
volumes were 0.4 percent greater during the second quarter 2001 than in the
second quarter 2000. In the East, gasoline volumes increased by approximately
15,000 barrels per day, or 6.3 percent, primarily due to increases in deliveries
to the upstate New York area. In the Midwest, gasoline volumes decreased by
approximately 12,400 barrels per day, or 6.8 percent, primarily due to lower
business to Cleveland and Toledo, Ohio and to Bay City, Michigan. Distillate
volumes during the second quarter 2001 increased by 14.5 percent from second
quarter 2000 levels. In the East, distillate volumes were up by approximately
8,100 barrels per day, or 16.4 percent, due to increased deliveries to the
upstate New York and Pittsburgh, Pennsylvania markets. In the Midwest, volumes
increased by 7,300 barrels per day or 11.6 percent due to increased deliveries
to Lima, Ohio and the Detroit, Michigan area. Revenue generated by Buckeye Gulf
Coast Pipe Lines, LLC ("BGC") increased $0.5 million as a result of additional
contract services and BT revenues increased $1.4 million as a result of the
Agway terminal acquisition last year.
Costs and expenses for the second quarter 2001 were $33.9 million compared to
$29.4 million for the second quarter 2000. The increase is primarily related to
an increase in the use of outside services and operating power related to
increased pipeline deliveries and increases in payroll and outside service
expenses related to the new business at BGC and the acquisition of the Agway
terminals.
First Six Months
Revenue from the transportation of refined petroleum products for the first six
months of 2001 was $111.3 million or 11.4 percent greater than revenue of $99.9
million for the first six months of 2000. Volumes for the first six months 2001
were 1,086,174 barrels per day, 43,407 barrels per day or 4.2 percent greater
than volumes of 1,042,767 barrels per day for the first six months 2000. Average
transportation revenue during the first six months 2001 was 51.0 cents per
barrel as compared to 49.7 cents per barrel during the first six months 2000.
Gasoline volumes were 0.6 percent greater during the first six months 2001 than
in the first six months 2000. In the East, gasoline volumes increased by
approximately 4,709 barrels per day, or 2.1 percent, primarily due to favorable
product prices in New York harbor. In the Midwest, gasoline volumes were
slightly lower for the first six months 2001 as compared to the first six months
2000. Strong demand in the Detroit and Flint, Michigan areas during the first
quarter were offset by weaker deliveries to Cleveland and Toledo, Ohio during
the second quarter. Distillate volumes during the first six months 2001
increased by 13.3 percent from the first six months 2000 levels. In the East and
9
on the Jet Lines system serving Connecticut and Massachusetts, distillate
volumes were up by approximately 26,900 barrels per day, or 17.9, as demand was
strong throughout all areas served due to the colder than normal winter
conditions present during the first quarter. The increase in distillate volume
was also due to increases in deliveries to upstate New York, and Pittsburgh,
Pennsylvania. In the Midwest, volumes increased by approximately 3,500 barrels
per day or 5.1 percent compared to the first six months last year on stronger
deliveries to the Cleveland and Lima, Ohio areas. Turbine fuel volumes were 2.0
percent greater during the first six months 2001 than the first six months 2000.
Demand was up at most airports with the largest increase occurring at Pittsburgh
airport. In addition, revenue generated by BGC increased $1.4 million as a
result of additional contract services and BT revenues increased $2.5 million as
a result of the Agway terminal acquisition last year.
Costs and expenses for the first six months 2001 were $66.4 million compared to
$58.5 million for the first six months 2000. The increase of $7.9 million is
primarily related to an increase in the use of outside services and operating
power related to increased pipeline deliveries and increases in payroll, outside
services and other expense due to additional services provided by BGC and the
acquisition of the Agway terminals by BT. These cost increases were partially
offset by declines in professional fees.
Discontinued Operations
During the first six months of 2000, net income of $1.7 million from the
discontinued operations of BRC resulted from revenues of $91.5 million offset by
costs and expenses of $89.8 million. BRC was sold to Kinder Morgan Energy
Partners, L.P. for an aggregate sale price of $45.7 million on October 25, 2000.
The sale resulted in a gain of $26.2 million during the fourth quarter of 2000.
The Partnership's refining segment, reported as discontinued operations, was
subject to competition from other refiners and marketers of refined petroleum
products and was subject to market price risks representing the difference
between the purchase cost of transmix and the market price of refined petroleum
products at the time of resale. In order to reduce the level of market price
risk the General Partner adopted a policy of hedging a substantial portion of
BRC's exposure to inventory price fluctuations with commodity futures contracts
for the sale of gasoline and fuel oil.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financial condition at June 30, 2001 and December 31, 2000 is
highlighted in the following comparative summary:
Liquidity and Capital Indicators
As of
-------------------------
6/30/01 12/31/00
------- --------
Current ratio 1.5 to 1 2.0 to 1
Ratio of cash and cash equivalents,
and trade receivables to
current liabilities 0.9 to 1 1.5 to 1
Working capital - in thousands $12,778 $28,749
Ratio of total debt to total capital .44 to 1 .45 to 1
Book value (per Unit) $12.85 $12.91
The Partnership's cash flows from operations are generally sufficient to meet
current working capital requirements. In addition, the Partnership has a $100
million credit agreement (the "Credit Agreement") that expires on December 16,
2003. At June 30, 2001 there was $33.0 million borrowed under the Credit
Agreement.
During June 2001, the Partnership entered into a new Loan Agreement (the "Loan
Agreement") with First Union National Bank ("First Union") under which $30.0
million in additional funds were committed to the Partnership. Funds advanced
under the Loan Agreement are at interest rates based on a spread over LIBOR, to
be determined by First Union at the time of the borrowing. At June 30, 2001,
there were no borrowings outstanding under the Loan Agreement.
10
Cash Provided by Operations
For the six months ended June 30, 2001, net cash provided by continuing
operations of $35.8 million was principally derived from $40.7 million of income
from continuing operations before depreciation and amortization. Changes in
current assets and current liabilities resulted in a net cash use of $6.1
million. Accounts payable declined due to the payment of outstanding invoices
while accrued and other current liabilities declined primarily as a result of
payments to the General Partner for its services and payments of interest.
Changes in non-current assets and liabilities resulted in a net cash source of
$0.7 million. Distributions to Unitholders amounted to $32.5 million.
Debt Obligation and Credit Facilities
At June 30, 2001, the Partnership had $273.0 million in outstanding long-term
debt representing $240.0 million of Senior Notes and $33 million of borrowings
under the Credit Agreement. The weighted average interest rate on all debt
outstanding at June 30, 2001 was 6.73 percent.
Capital Expenditures
At June 30, 2001 approximately 85 percent of total consolidated assets consisted
of property, plant and equipment.
Capital expenditures during the six months ended June 30, 2001 totaled $15.7
million and were $3.6 million less than capital expenditures for the six months
ended June 30, 2000. The Partnership continues to make capital expenditures in
connection with the automation of its pipeline facilities and improvements to
its facilities in order to increase capacity, reliability, integrity and
efficiency. Estimated total capital expenditures for 2001, exclusive of
acquisitions, amount to $27.7 million.
OTHER MATTERS
Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued two new
pronouncements: Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS 141 prohibits the use of the pooling-of-interest method for
business combinations initiated after June 30, 2001 and also applies to all
business combinations accounted for by the purchase method that are completed
after June 30, 2001. There are also transition provisions that apply to business
combinations completed before July 1, 2001, that were accounted for by the
purchase method. SFAS 142 is effective for fiscal years beginning after December
15, 2001 to all goodwill and other intangible assets recognized in an entity's
statement of financial position at that date, regardless of when those assets
were initially recognized. The Partnership is currently evaluating the
provisions of SFAS 141 and SFAS 142 and has not adopted such provisions in its
June 30, 2001 financial statements.
11
Forward Looking Statements
This SEC Form 10-Q includes forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the General Partner believes that its
expectations are based on reasonable assumptions, it can give no assurance that
such assumptions will materialize. For instance, cost savings to be realized in
connection with the automation of pipeline facilities depend upon, among other
things, the field automation projects being implemented effectively and on time.
Similarly, increased revenues anticipated to be realized in connection with
pipeline expansion projects are dependent upon, among other things, the
expansion projects being implemented effectively and on time, and the use of the
increased capacity by shippers on the pipeline systems.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Partnership is exposed to market risks resulting from changes in interest
rates. Market risk represents the risk of loss that may impact the Partnership's
results of operations, the consolidated financial position or operating cash
flows. The Partnership is not exposed to any market risk due to rate changes on
its Senior Notes but is exposed to market risk related to the interest rate on
its Credit Agreement and its Loan Agreement.
Market Risk - Trading Instruments (discontinued operations)
Prior to the sale of BRC, the Partnership hedged a substantial portion of its
exposure to inventory price fluctuations related to its BRC business with
commodity futures contracts for the sale of gasoline and fuel oil. Losses
related to commodity futures contracts included in earnings from discontinued
operations were $4.9 million for the period ended June 30, 2000.
Market Risk - Other than Trading Instruments
The Partnership has market risk exposure on its Credit Agreement due to its
variable rate pricing that is based on the bank's base rate or at a rate based
on LIBOR. At June 30, 2001, the Partnership had $33.0 million in outstanding
debt under its Credit Agreement that was subject to market risk. A 1 percent
increase or decrease in the applicable rate under the Credit Agreement will
result in an interest expense fluctuation of approximately $0.3 million per
year. As of December 31, 2000, the Partnership had $43.0 million in outstanding
debt under its Credit Agreement that was subject to market risk. The Partnership
also has market risk exposure on its Loan Agreement due to variable rate pricing
applicable to each borrowing.
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Part II - Other Information
Item 5. Other Information
A Second Amended and Restated Incentive Compensation Agreement (the "Second
Restatement") between the Partnership and Buckeye Pipe Line Company, the General
Partner of the Partnership, was approved on April 23, 2001, in accordance with
the terms of the Partnership's Limited Partnership Agreement. The amendments,
which are designed to more closely align the interests of the General Partner
and the Partnership, were approved by the Board of Directors of Buckeye Pipe
Line Company based upon a recommendation of a special committee of disinterested
directors of the Board. The principal change reflected in the Second Restatement
is a provision which eliminated prospectively a cap on aggregate incentive
compensation payments to the General Partner effective on December 31, 2005, or
earlier if quarterly distributions to holders of the Partnership's LP Units
equal or exceed $.6375 per LP Unit for four consecutive quarterly periods ($2.55
annually). The Second Restatement also made certain definitional and similar
changes.
Item 6. Exhibits and Reports on Form 8-K
(a) 10.7 Second Amended and Restated Incentive Compensation Agreement, dated
April 23, 2001, between the General Partner and the Partnership
(b) No reports on Form 8-K were filed during the quarter ended June 30, 2001.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUCKEYE PARTNERS, L.P.
(Registrant)
By: Buckeye Pipe Line Company,
as General Partner
Dated: July 18, 2001 By: /s/ Steven C. Ramsey
--------------------------
Steven C. Ramsey
Senior Vice President, Finance
and Chief Financial Officer
(Principal Accounting and
Financial Officer)
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