e10vqza
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark One)
|
|
|
þ |
|
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2010
OR
|
|
|
o |
|
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
incorporation or organization)
|
|
(IRS Employer
Identification number) |
|
|
|
One Greenway Plaza |
|
|
Suite 600 |
|
|
Houston, TX
|
|
77046 |
|
|
|
(Address of principal executive offices)
|
|
(Zip Code) |
Registrants telephone number, including area code: (832) 615-8600
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Date File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act).
Yes o No þ
Limited partner units outstanding as of May 3, 2010: 51,501,265
EXPLANATORY NOTE
Buckeye Partners, L.P. (Buckeye) is filing this Amendment No. 1 on Form 10-Q/A
(Amendment No. 1) to amend Part I, Item 2 and Part II, Item 6 of its Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2010, originally filed with the Securities and
Exchange Commission on May 7, 2010 (the Original Quarterly Report). Buckeye is filing Amendment
No. 1 for the sole purpose of removing certain credit agency ratings information in the Original
Quarterly Report.
As required by Rule 12b-15 of the Securities and Exchange Act of 1934, as amended, Buckeye is
also filing as exhibits to Amendment No. 1 the certifications required under Section 302 of the
Sarbanes-Oxley Act of 2002.
Except for the foregoing, Amendment No. 1 neither alters the Original Quarterly Report nor
updates the Original Quarterly Report to reflect events or developments since the date of filing of
the Original Quarterly Report.
For the convenience of the reader, this Amendment No. 1 restates in its entirety the section
Managements Discussion and Analysis of Financial Condition and Results of Operations from the
Original Quarterly Report, although Buckeye is only removing certain credit agency ratings
information.
2
PART I. FINANCIAL INFORMATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
The following information should be read in conjunction with our unaudited condensed
consolidated financial statements and accompanying notes included in this report. The following
information and such unaudited condensed consolidated financial statements should also be read in
conjunction with the consolidated financial statements and related notes, together with our
discussion and analysis of financial condition and results of operations included in our Annual
Report on Form 10-K for the year ended December 31, 2009.
Our consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles (GAAP).
Cautionary Note Regarding Forward-Looking Statements
This discussion contains various forward-looking statements and information that are based on
our beliefs, as well as assumptions made by us and information currently available to us. When
used in this document, words such as proposed, anticipate, project, potential, could,
should, continue, estimate, expect, may, believe, will, plan, seek, outlook and
similar expressions and statements regarding our plans and objectives for future operations are
intended to identify forward-looking statements. Although we believe that such expectations
reflected in such forward-looking statements are reasonable, we cannot give any assurances that
such expectations will prove to be correct. Such statements are subject to a variety of risks,
uncertainties and assumptions as described in more detail in Item 1A Risk Factors included in our
Annual Report on Form 10-K for the year ended December 31, 2009. If one or more of these risks or
uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may
vary materially from those anticipated, estimated, projected or expected. You should not put undue
reliance on any forward-looking statements. The forward-looking statements in this Quarterly
Report speak only as of the date hereof. Except as required by federal and state securities laws,
we undertake no obligation to publicly update or revise any forward-looking statements, whether as
a result of new information, future events or any other reason.
Overview of Critical Accounting Policies and Estimates
A summary of the significant accounting policies we have adopted and followed in the
preparation of our condensed consolidated financial statements is included in our Annual Report on
Form 10-K for the year ended December 31, 2009. Certain of these accounting policies require the
use of estimates. As more fully described therein, the following estimates, in our opinion, are
subjective in nature, require the exercise of judgment and involve complex analysis: depreciation
methods, estimated useful lives and disposals of property, plant and equipment; reserves for
environmental matters; fair value of derivatives; measuring the fair value of goodwill; and
measuring recoverability of long-lived assets and equity method investments. These estimates are
based on our knowledge and understanding of current conditions and actions we may take in the
future. Changes in these estimates will occur as a result of the passage of time and the
occurrence of future events. Subsequent changes in these estimates may have a significant impact
on our financial position, results of operations and cash flows.
Overview of Business
Buckeye Partners, L.P. is a publicly traded Delaware master limited partnership (MLP), the
limited partner units (LP Units) of which are listed on the New York Stock Exchange (NYSE)
under the ticker symbol BPL. Unless the context requires otherwise, references to we, us,
our, and Buckeye mean Buckeye Partners, L.P. and, where the context requires, include our
subsidiaries.
Buckeye GP LLC (Buckeye GP) is our general partner. Buckeye GP is a wholly owned subsidiary
of Buckeye GP Holdings L.P. (BGH), a Delaware MLP that is also publicly traded on the NYSE under
the ticker symbol BGH.
3
Our primary business strategies are to generate stable cash flows, increase pipeline and
terminal throughput and pursue strategic cash-flow accretive acquisitions that complement our
existing asset base, improve operating efficiencies and allow increased cash distributions to our
unitholders.
We operate and report in five business segments: Pipeline Operations; Terminalling & Storage;
Natural Gas Storage; Energy Services; and Development & Logistics. Our principal line of business
is the transportation, terminalling, storage and marketing of refined petroleum products in the
United States for major integrated oil companies, large refined petroleum product marketing
companies and major end users of refined petroleum products on a fee basis through facilities we
own and operate. We own a major natural gas storage facility in northern California. In addition,
we operate and maintain approximately 2,400 miles of other pipelines under agreements with major
oil and gas, petrochemical and chemical companies, and perform certain engineering and construction
management services for third parties.
Recent Developments
Sale of Buckeye NGL Pipeline
Effective January 1, 2010, we sold our ownership interest in an approximately 350-mile natural
gas liquids pipeline (the Buckeye NGL Pipeline) that runs from Wattenberg, Colorado to Bushton,
Kansas for $22.0 million. The assets had been classified as Assets held for sale in our
consolidated balance sheet at December 31, 2009 with a carrying amount equal to the proceeds
received.
Results of Operations
Adjusted EBITDA
In the first quarter of 2010, we revised our internal management reports provided to senior
management, including the Chief Executive Officer, to redefine adjusted earnings before interest,
taxes and depreciation and amortization (Adjusted EBITDA) to now exclude non-cash unit-based
compensation expense. We believe this revised measure provides an improved means by which to gauge
our performance and increases comparability to similar measures used by other companies.
Adjusted EBITDA is the primary measure used by senior management to evaluate our operating
results and to allocate our resources. We define EBITDA, a measure not defined under GAAP, as net
income attributable to our unitholders before interest expense, income taxes and depreciation and
amortization. EBITDA should not be considered an alternative to net income, operating income, cash
flow from operations or any other measure of financial performance presented in accordance with
GAAP. The EBITDA measure eliminates the significant level of non-cash depreciation and amortization
expense that results from the capital-intensive nature of our businesses and from intangible assets
recognized in business combinations. In addition, EBITDA is unaffected by our capital structure due
to the elimination of interest expense and income taxes. We define Adjusted EBITDA, which is also a
non-GAAP measure, as EBITDA plus: (i) non-cash deferred lease expense, which is the difference
between the estimated annual land lease expense for our natural gas storage facility in the Natural
Gas Storage segment to be recorded under GAAP and the actual cash to be paid for such annual land
lease, and (ii) non-cash unit-based compensation expense.
The EBITDA and Adjusted EBITDA data presented may not be comparable to similarly titled
measures at other companies because EBITDA and Adjusted EBITDA exclude some items that affect net
income attributable to our unitholders, and these items may vary among other companies. Our senior
management uses Adjusted EBITDA to evaluate consolidated operating performance and the operating
performance of the business segments and to allocate resources and capital to the business
segments. In addition, our senior management uses Adjusted EBITDA as a performance measure to
evaluate the viability of proposed projects and to determine overall rates of return on alternative
investment opportunities.
4
We believe that investors benefit from having access to the same financial measures that we
use. Further, we believe that these measures are useful to investors because they are one of the
bases for comparing our operating performance with that of other companies with similar operations,
although our measures may not be directly comparable to similar measures used by other companies.
The following table presents Adjusted EBITDA by segment and on a consolidated basis for the
periods indicated, and a reconciliation of EBITDA and Adjusted EBITDA to net income attributable to
our unitholders, which is the most comparable GAAP financial measure (in thousands).
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
Pipeline Operations |
|
$ |
57,817 |
|
|
$ |
55,868 |
|
Terminalling & Storage |
|
|
26,201 |
|
|
|
12,841 |
|
Natural Gas Storage |
|
|
6,469 |
|
|
|
8,963 |
|
Energy Services |
|
|
(1,541 |
) |
|
|
7,485 |
|
Development & Logistics |
|
|
1,136 |
|
|
|
1,537 |
|
|
|
|
|
|
|
|
Total Adjusted EBITDA |
|
$ |
90,082 |
|
|
$ |
86,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Reconciliation: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
52,278 |
|
|
$ |
55,120 |
|
Less: net income attributable to noncontrolling interests |
| |
(1,765 |
) |
|
|
(1,360 |
) |
|
|
|
|
|
|
|
Net income attributable to Buckeye Partners, L.P.
unitholders |
|
|
50,513 |
|
|
|
53,760 |
|
Interest and debt expense |
|
|
21,549 |
|
|
|
17,176 |
|
Income tax (benefit) expense |
|
|
(18 |
) |
|
|
65 |
|
Depreciation and amortization |
|
|
15,644 |
|
|
|
14,480 |
|
|
|
|
|
|
|
|
EBITDA |
|
|
87,688 |
|
|
|
85,481 |
|
Non-cash deferred lease expense |
|
|
1,059 |
|
|
|
1,125 |
|
Non-cash unit-based compensation expense |
|
|
1,335 |
|
|
|
88 |
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
90,082 |
|
|
$ |
86,694 |
|
|
|
|
|
|
|
|
5
Segment Results
A summary of financial information by business segment follows for the periods indicated (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Revenues: |
|
|
|
|
|
|
|
|
Pipeline Operations |
|
$ |
96,537 |
|
|
$ |
99,195 |
|
Terminalling & Storage |
|
|
42,371 |
|
|
|
30,643 |
|
Natural Gas Storage |
|
|
25,406 |
|
|
|
15,077 |
|
Energy Services |
|
|
568,202 |
|
|
|
268,480 |
|
Development & Logisitics |
|
|
7,515 |
|
|
|
9,125 |
|
Intersegment |
|
|
(8,857 |
) |
|
|
(5,680 |
) |
|
|
|
|
|
|
|
Total revenues |
|
$ |
731,174 |
|
|
$ |
416,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses: (1) |
|
|
|
|
|
|
|
|
Pipeline Operations |
|
$ |
50,565 |
|
|
$ |
54,279 |
|
Terminalling & Storage |
|
|
18,905 |
|
|
|
19,650 |
|
Natural Gas Storage |
|
|
21,851 |
|
|
|
8,839 |
|
Energy Services |
|
|
571,278 |
|
|
|
262,068 |
|
Development & Logisitics |
|
|
6,412 |
|
|
|
7,581 |
|
Intersegment |
|
|
(8,857 |
) |
|
|
(5,680 |
) |
|
|
|
|
|
|
|
Total costs and expenses |
|
$ |
660,154 |
|
|
$ |
346,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
Pipeline Operations |
|
$ |
9,641 |
|
|
$ |
9,577 |
|
Terminalling & Storage |
|
|
2,494 |
|
|
|
1,866 |
|
Natural Gas Storage |
|
|
1,767 |
|
|
|
1,581 |
|
Energy Services |
|
|
1,287 |
|
|
|
1,059 |
|
Development & Logisitics |
|
|
455 |
|
|
|
397 |
|
|
|
|
|
|
|
|
Total depreciation and amortization |
|
$ |
15,644 |
|
|
$ |
14,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss): |
|
|
|
|
|
|
|
|
Pipeline Operations |
|
$ |
45,972 |
|
|
$ |
44,916 |
|
Terminalling & Storage |
|
|
23,466 |
|
|
|
10,993 |
|
Natural Gas Storage |
|
|
3,555 |
|
|
|
6,238 |
|
Energy Services |
|
|
(3,076 |
) |
|
|
6,412 |
|
Development & Logisitics |
|
|
1,103 |
|
|
|
1,544 |
|
|
|
|
|
|
|
|
Total operating income |
|
$ |
71,020 |
|
|
$ |
70,103 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes depreciation and amortization. |
6
The following table presents product volumes transported in the Pipeline Operations
segment and average daily throughput for the Terminalling & Storage segment in barrels per day and
total volumes sold in gallons for the Energy Services segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Pipeline Operations: (average barrels per day) |
|
|
|
|
|
|
|
|
Gasoline |
|
|
608,900 |
|
|
|
632,400 |
|
Jet fuel |
|
|
322,300 |
|
|
|
333,300 |
|
Diesel fuel |
|
|
227,500 |
|
|
|
222,000 |
|
Heating oil |
|
|
113,900 |
|
|
|
131,100 |
|
LPGs |
|
|
20,500 |
|
|
|
14,400 |
|
NGLs |
|
|
|
|
|
|
21,300 |
|
Other products |
|
|
800 |
|
|
|
13,400 |
|
|
|
|
|
|
|
|
Total Pipeline Operations |
|
|
1,293,900 |
|
|
|
1,367,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminalling & Storage: (average barrels per day) |
|
|
|
|
|
|
|
|
Products throughput (1) |
|
|
556,300 |
|
|
|
480,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Services: (in thousands of gallons) |
|
|
|
|
|
|
|
|
Sales volumes |
|
|
266,900 |
|
|
|
205,200 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reported quantities exclude transfer volumes, which are non-revenue generating
transfers among our various terminals. For the three months ended March 31, 2009, we
previously reported 521.0 thousand, which included transfer volumes. |
Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
Consolidated
Adjusted EBITDA increased by $3.4 million, or 3.9%, to $90.1 million in the three months ended
March 31, 2010 from $86.7 million in the corresponding period in 2009. The Terminalling & Storage
segment and the Pipeline Operations segment were primarily responsible for this increase in
Adjusted EBITDA. The Terminalling & Storage segments Adjusted EBITDA increased by $13.4 million
in the three months ended March 31, 2010 as compared to the corresponding period in 2009, driven
primarily by growth in fees, storage and rental revenues, the contribution from terminals acquired
in November 2009 (see Note 2 in the Notes to Unaudited Condensed Consolidated Financial
Statements), favorable settlement experience and lower operating expenses. The Pipeline Operations
segments Adjusted EBITDA increased by $1.9 million in the three months ended March 31, 2010 as
compared to the corresponding period in 2009, primarily due to increased tariffs, favorable
settlement experience and lower overall operating expenses, which more than offset the impact of
lower volumes transported during the three months ended March 31, 2010 compared to the
corresponding period in 2009. The Energy Services segments Adjusted EBITDA decreased by $9.0
million in the three months ended March 31, 2010 as compared to the corresponding
period in 2009 as a result of lower margins realized on products sold as a result of weakened
market conditions during the three months ended March 31, 2010, partially offset by increased
volumes of product sold. The Natural Gas Storage segments Adjusted EBITDA decreased by $2.5
million in the three months ended March 31, 2010 as compared to the corresponding period in 2009 as
a result of general market conditions, which led to increased hub service expense transactions
partially offset by increased hub service revenue transactions. The Development & Logistics
segments Adjusted EBITDA decreased by $0.4 million in the three months ended March 31, 2010 as
compared to the corresponding period in 2009 as a result of reduced operating services and
construction revenues. Further contributing to the increase in Adjusted EBITDA was the continued
effectiveness of cost control measures we implemented in 2009. Largely as a result of these
efforts, costs decreased by approximately $4.6 million during the three months ended March 31, 2010
as compared to the corresponding period in 2009. Income from equity investments increased by $0.6
million in the three months ended March 31, 2010 as compared to the corresponding
7
period in 2009. The revenue and expense factors affecting the variance in consolidated Adjusted EBITDA are more
fully discussed below.
Revenue was $731.1 million for the three months ended March 31, 2010, which is an increase of
$314.3 million, or 75.4%, from the three months ended March 31, 2009. This overall increase was
caused primarily by an increase of $299.7 million in revenues from the Energy Services segment, an
increase of $11.8 million in revenues from the Terminalling & Storage segment and an increase of
$10.3 million in revenues from the Natural Gas Storage segment. The increase in revenues in the
Energy Services segment resulted from an overall increase in refined petroleum product prices and
volumes of product sold in the first quarter of 2010 as compared to the corresponding period in
2009. The increase in revenues in the Terminalling & Storage segment resulted primarily from
increased fees, storage and rental revenue, including $1.7 million in storage fees from previously underutilized
tankage identified in connection with our best-practice initiatives, increased revenue from terminals acquired in November
2009 and favorable settlement experience. The increase in revenues from the Natural Gas Storage
segment resulted from increased activity from the commencement of operations of the Kirby Hills
Phase II expansion project in June 2009. These increases in revenue were partially offset by a
decrease of $2.7 million in revenues from the Pipeline Operations segment and a decrease of $1.6
million in revenue from the Development & Logistics segment. Revenue decreased in the Pipeline
Operations segment primarily due to lower transportation volumes and lower miscellaneous revenues,
partially offset by increased tariffs, favorable settlement experience and increased revenues from
the pipeline assets acquired in November 2009. Revenue decreased in the Development & Logistics
segment primarily due to decreased construction activities.
Total costs and expenses were $660.2 million for the three months ended March 31, 2010, which
is an increase of $313.5 million, or 90.4%, from the corresponding period in 2009. Total costs and
expenses reflect an increase in refined petroleum product prices, which, coupled with an increase
in volume sold, resulted in a $309.9 million increase in the Energy Services segments cost of
product sales in the 2010 period as compared to the 2009 period. Total costs and expenses also
reflect an increase of $13.1 million in the Natural Gas Storage segments costs and expenses
resulting from higher costs associated with hub services transactions caused by general market
conditions. Total costs and expenses also include an increase of $1.1 million in depreciation and
amortization and an increase of $1.2 million in non-cash unit-based compensation expense, which are
not components of Adjusted EBITDA as presented in the reconciliation above. These increases in
total costs and expenses were largely offset by decreases of $3.7 million, $1.1 million and $0.8
million in the costs and expenses of the Pipeline Operations segment, the Development & Logistics
segment and the Terminalling & Storage segment, respectively. The decrease in the costs and
expenses of the Pipeline Operations segment was driven by lower payroll and benefits costs, which
was primarily attributable to the organizational restructuring that occurred in 2009, which
resulted in reduced headcount, as well as from lower contract service activities and lower
environmental remediation expenses. The decrease in the costs and expenses of the Development &
Logistics segment was primarily due to reduced construction contract activity and reduced operating
services activities. The decrease in the costs and expenses of the Terminalling & Storage segment
primarily resulted from lower environmental remediation expenses. Total costs and expenses for the
three months ended March 31, 2010 reflect the effectiveness of cost management efforts we
implemented in 2009.
Consolidated net income attributable to our unitholders was $50.5 million for the three months
ended March 31, 2010 compared to $53.8 million for the three months ended March 31, 2009. Interest
and debt expense increased by $4.3 million in the three months ended March 31, 2010 as compared to
the corresponding period in 2009, which was largely attributable to the issuance in August 2009 of
$275.0 million aggregate principal amount of 5.500% Notes due 2019. In addition, depreciation and
amortization increased by $1.1 million, primarily due to the assets utilized
with respect to the Kirby Hills Phase II expansion project, which were placed in service in
the second half of 2009, and certain internal-use software, which was placed in service in the
fourth quarter of 2009.
For a more detailed discussion of the above factors affecting our results, see the following
discussion by segment.
Pipeline Operations
Adjusted EBITDA from the Pipeline Operations segment of $57.8 million in the three months
ended March 31, 2010 increased by $1.9 million, or 3.5%, from $55.9 million in the corresponding
period in 2009. The increase in
8
Adjusted EBITDA was driven primarily by the benefit of higher
tariffs of $2.5 million, favorable settlement experience of $2.0 million and increased revenues of
$0.6 million from pipeline assets acquired in November 2009. The Pipeline Operations segments
improved Adjusted EBITDA was also due to a $0.6 million increase in income from equity investments
and a $2.6 million decrease in operating expenses. These increases in Adjusted EBITDA were
partially offset by a decrease of $4.8 million in transportation revenues resulting from lower
volumes transported in the three months ended March 31, 2010 compared with the corresponding period
in 2009 and lower volumes resulting from the sale of Buckeye NGL Pipeline on January 1, 2010 (see
Note 2 in the Notes to Unaudited Condensed Consolidated Financial
Statements) and a $3.1 million
decrease in miscellaneous other revenue. The revenue and expense factors affecting the variance in
Adjusted EBITDA are more fully discussed below.
Revenue from the Pipeline Operations segment was $96.5 million in the three months ended March
31, 2010, which is a decrease of $2.7 million, or 2.7%, from the corresponding period in 2009.
Revenues decreased primarily due to a $4.8 million decrease related to a 5.4% decrease in
transportation volumes due in part to the sale of Buckeye NGL Pipeline on January 1, 2010 and a
$3.1 million decrease in miscellaneous other revenue, including revenues from a product supply
arrangement with a wholesale distributor and contract service activities at customer facilities
connected to our refined petroleum products pipelines. These decreases were partially offset by
higher tariffs of $2.5 million, favorable settlement experience of $2.0 million and increased
revenues of $0.6 million from the pipeline assets acquired in November 2009. An overall average
tariff increase of approximately 3.8% was implemented on July 1, 2009.
Total costs and expenses from the Pipeline Operations segment were $50.6 million for the three
months ended March 31, 2010, which is a decrease of $3.7 million, or 6.8%, from the corresponding
period in 2009. Total costs and expenses include decreases in (i) payroll and benefits costs of
$2.2 million, pursuant to our best-practice initiative in 2009; (ii) contract service activities of
$1.1 million at customer facilities connected to our refined petroleum products pipelines; (iii)
environmental remediation expenses of $1.5 million and (iv) product costs of $0.4 million as a
result of reduced volumes of product sold to a wholesale distributor. These decreases were
partially offset by an increase of $0.4 million in professional fees, as well as increases in other
expenses, primarily consisting of an increase of $0.6 million in bad debt expense. Total costs and
expenses also include an increase of $0.7 million in non-cash unit-based compensation expense,
which is not a component of Adjusted EBITDA as presented in the reconciliation above.
Operating income from the Pipeline Operations segment was $46.0 million for the three months
ended March 31, 2010 compared to operating income of $44.9 million for the three months ended March
31, 2009. Depreciation and amortization of $9.6 million for the three months ended March 31, 2010
was consistent with the corresponding period in 2009. Other revenue and expense items impacting
operating income are discussed above.
Terminalling & Storage
Adjusted EBITDA from the Terminalling & Storage segment of $26.2 million in the three months
ended March 31, 2010 increased by $13.4 million, or 104.0%, from $12.8 million in the corresponding
period in 2009. The increase in Adjusted EBITDA reflects an increase of $10.6 million primarily
from terminals acquired in November 2009, internal growth projects, higher fees, storage, rental
and other service revenue and increased settlement experience and a $2.3 million decrease in
operating expenses. In addition to the 10.5% increase in volumes resulting from the acquisition of
terminals in November 2009, terminalling volumes increased 5.2% in the three months ended March 31,
2010 as compared to the corresponding period in 2009 largely due increased ethanol throughput
volumes. The revenue and expense factors affecting the variance in Adjusted EBITDA are more fully
discussed below.
Revenue from the Terminalling & Storage segment was $42.4 million in the three months ended
March 31, 2010, which is an increase of $11.8 million, or 38.3%, from the corresponding period in
2009. The majority of the increase resulted from an increase of $10.9 million, primarily from (i)
terminals acquired in November 2009, (ii) internal growth projects, (iii) higher fees, as well as
higher storage and rental revenue of $3.5 million, including $1.7 million in storage fees from
previously underutilized tankage identified in connection with our best-practice initiatives and
(iv) increased butane-blending revenue. Also contributing to the improved revenue was an increase
of $0.9 million in settlement experience reflecting the favorable impact of higher refined
petroleum product prices during the three months ended March 31, 2010 as compared to the
corresponding period in 2009. In addition to the 10.5% increase in volumes resulting from the
acquisition of terminals in November 2009, terminalling volumes increased 5.2% in the three months
ended March 31, 2010 as compared to the corresponding period in 2009 largely due to increased
ethanol throughput volumes.
9
Total costs and expenses from the Terminalling & Storage segment were $18.9 million for the three months
ended March 31, 2010, which is a decrease of $0.8 million, or 3.8%, from the corresponding period in 2009. Total
costs and expenses reflect a $2.4 million decrease in environmental remediation expenses and a decrease in payroll and benefits
costs of approximately $0.6 million,
partially offset by a $1.0 million increase in operating expenses for terminals acquired in November 2009 and a $0.6 million
increase in bad debt expense. Total costs and expenses also include an increase of $0.6 million in depreciation and amortization
and an increase of $0.2 million in non-cash unit-based compensation expense, which are not components of Adjusted EBITDA as presented
in the reconciliation above.
Operating income from the Terminalling & Storage segment was $23.5 million for the three
months ended March 31, 2010 compared to operating income of $11.0 million for the three months
ended March 31, 2009. Depreciation and amortization increased by $0.6 million for the three months
ended March 31, 2010 as a result of the terminals acquired in November 2009. Other revenue and
expense items impacting operating income are discussed above.
Natural Gas Storage
Adjusted EBITDA from the Natural Gas Storage segment of $6.5 million in the three months ended March 31,
2010 decreased by $2.5 million, or 27.8%, from $9.0 million in the corresponding period in 2009. The decrease
in Adjusted EBITDA was primarily a result of a $3.9 million decrease in the net contribution from hub service
activities during the three months ended March 31, 2010, partially offset by increased lease revenues of $1.5
million. The increase in lease revenues was the result of increased storage capacity from the commissioning of
the Kirby Hills Phase II expansion project, which was placed in service in June 2009, partially offset by a
decrease in the fee charged for each volumetric unit of storage capacity leased. The revenue and expense
factors affecting the variance in Adjusted EBITDA are more fully discussed below.
Revenue from the Natural Gas Storage segment was $25.4 million in the three months ended March
31, 2010, which is an increase of $10.3 million, or 68.5%, from the corresponding period in 2009.
This overall increase is attributable to greater underlying volume for hub services provided during
the three months ended March 31, 2010 compared to the same period in 2009. In addition, this
increase is due to higher fees recognized as revenue for hub services provided during the three
months ended March 31, 2010. The fees for hub services agreements are based on the relative market
prices of natural gas over different delivery periods. When that market price spread is positive,
a fee is received from the customer and reflected as transportation and other services revenue.
When that market price spread is negative, a fee is paid to the customer and reflected as cost of
natural gas storage services. These fees are recognized as revenue or cost of natural gas storage services ratably
as the underlying services are provided or utilized. Such agreements are entered into in order to
maximize the daily utilization of the natural gas storage facility and to attempt to capture value
from seasonal price differences in the natural gas markets. During each respective period, there
were 155 outstanding hub service contracts for which revenue was being recognized ratably. Market
conditions contributed to higher fees for hub service agreements recognized as revenue during the
three months ended March 31, 2010 compared to the same period in 2009. In addition, lease revenue
increased $1.5 million in the three months ended March 31, 2010, as storage capacity increased
from the commissioning of the Kirby Hills Phase II expansion project, which was placed in service
in June 2009, partially offset by a decrease in the fee charged for each volumetric unit of storage
capacity leased.
Total costs and expenses from the Natural Gas Storage segment were $21.9 million for the three
months ended March 31, 2010, which is an increase of $13.1 million, or 147.2%, from the
corresponding period in 2009. The primary driver of the increase in expenses is an increase in hub
services fees paid to customers for hub service activities. As stated above, hub service fees are
based on the relative market prices of natural gas over different delivery periods; when that
market price spread is negative, a fee is paid to the customer, which is reflected as cost
of natural gas storage services ratably as those services are provided. Total costs and expenses also
include an increase of $0.2 million in depreciation and amortization and an increase of $0.1
million in non-cash unit-based compensation expense, which are not components of Adjusted EBITDA as
presented in the reconciliation above.
Operating income from the Natural Gas Storage segment was $3.5 million for the three months
ended March 31, 2010 compared to operating income of $6.3 million for the three months ended March
31, 2009. Depreciation and amortization increased by $0.2 million in the 2010 period from the
corresponding period in 2009
10
due to depreciation expense on the assets utilized with respect to the
Kirby Hills Phase II expansion project, which were placed in service in the second half of 2009.
Other revenue and expense items impacting operating income are discussed above.
Energy Services
Adjusted EBITDA from the Energy Services segment, which was a loss of $1.5 million, decreased
during the three months ended March 31, 2010 by $9.0 million, or 120.6%, from income of $7.5
million in the corresponding period in 2009. This decrease in Adjusted EBITDA was a result of the
withdrawal of product from inventory as the market conditions changed and commodity prices were no longer in contango. The increase in product supply from inventory liquidation, coupled with lower
overall product demand, created additional pressure on margins, which was partially offset by a
30.1% increase in sales volume. The revenue and expense factors affecting the variance in Adjusted
EBITDA are more fully discussed below.
Revenue from the Energy Services segment was $568.2 million in the three months ended March
31, 2010, which is an increase of $299.7 million, or 111.6%, from the corresponding period in 2009.
This increase was primarily due to an increase in refined petroleum product prices, which
correspondingly increases the cost of products sales, and an increase of 30.1% in sales volumes.
Total costs and expenses from the Energy Services segment were $571.3 million for the three
months ended March 31, 2010, which is an increase of $309.2 million, or 118.0%, from the
corresponding period in 2009. The increase in total costs and expenses was primarily due to an
increase of $309.9 million in cost of product sales as a result of increased volumes and an
increase in refined petroleum product prices and an increase of $0.5 million in bad debt expense. Total costs and expenses also include an increase of
$0.2 million in depreciation and amortization and an increase of $0.2 million in non-cash
unit-based compensation expense, which are not components of Adjusted EBITDA as presented in the
reconciliation above.
Operating loss from the Energy Services segment was $3.1 million for the three months ended
March 31, 2010 compared to operating income of $6.4 million for the three months ended March 31,
2009. Depreciation and amortization increased by $0.2 million for the 2010 period from the
corresponding period in 2009 due to amortization of certain internal-use software that was placed
in service in the fourth quarter of 2009. Other revenue and expense items impacting operating
income (loss) are discussed above.
Development & Logistics
Adjusted EBITDA from the Development & Logistics segment of $1.1 million in the three months
ended March 31, 2010 decreased by $0.4 million, or 26.1%, from $1.5 million in the corresponding
period in 2009. The revenue and expense factors affecting the variance in Adjusted EBITDA are more
fully discussed below.
Revenue from the Development & Logistics segment, which consists principally of our contract
operations and engineering services for third-party pipelines, was $7.5 million in the three months
ended March 31, 2010, which is a decrease of $1.6 million, or 17.6%, from the corresponding period
in 2009. The decrease was primarily due to the completion and non-replacement of construction
projects in 2009, resulting in a $1.5 million reduction in certain construction contract revenues.
The decrease was also partially the result of a $0.2 million reduction in operating services
primarily related to the non-renewal of an operating lease contract that expired in 2009.
Total costs and expenses from the Development & Logistics segment were $6.4 million for the
three months ended March 31, 2010, which is a decrease of $1.1 million, or 15.4%, from the
corresponding period in 2009. The decrease was the result of the reduced construction contract activity and reduced operating
services activities discussed above.
Operating income from the Development & Logistics segment was $1.1 million for the three
months ended March 31, 2010 compared to operating income of $1.5 million for the three months ended
March 31, 2009. Depreciation and amortization of $0.4 million for the three months ended March 31,
2010 was relatively consistent with the corresponding period in 2009, and income taxes decreased by
$0.1 million for the three months ended
11
March 31, 2010 due to lower earnings. Other revenue and
expense items impacting operating income are discussed above.
Liquidity and Capital Resources
General
Our primary cash requirements, in addition to normal operating expenses and debt service, are
for working capital, capital expenditures, business acquisitions and distributions to partners.
Our principal sources of liquidity are cash from operations, borrowings under our unsecured
revolving credit agreement (the Credit Facility) and proceeds from the issuance of our LP Units.
We will, from time to time, issue debt securities to permanently finance amounts borrowed under the
Credit Facility. Buckeye Energy Services LLC (BES) funds its working capital needs principally
from its operations and a secured credit facility (the BES Credit Agreement). Our financial
policy has been to fund sustaining capital expenditures with cash from operations. Expansion and
cost improvement capital expenditures, along with acquisitions, have typically been funded from
external sources including the Credit Facility as well as debt and equity offerings. Our goal has
been to fund at least half of these expenditures with proceeds from equity offerings in order to
maintain our investment-grade credit rating.
As a result of our actions to minimize external financing requirements and the fact that no
debt facilities mature prior to 2011, we believe that availabilities under our credit facilities,
coupled with ongoing cash flows from operations, will be sufficient to fund our operations for the
remainder of 2010. We will continue to evaluate a variety of financing sources, including the debt
and equity markets described above, throughout 2010. However, continuing volatility in the debt
and equity markets will make the timing and cost of any such potential financing uncertain.
At March 31, 2010, we had $16.5 million of cash and cash equivalents on hand and approximately
$413.0 million of available credit under the Credit Facility, after application of the facilitys
funded debt ratio covenant. In addition, at March 31, 2010, BES
had
$40.5 million of available
credit under the BES Credit Agreement, pursuant to certain borrowing base calculations under that
agreement.
At March 31, 2010, we had an aggregate face amount of $1,628.5 million of debt, which
consisted of the following:
|
|
|
$300.0 million of 4.625% Notes due 2013 (the 4.625% Notes); |
|
|
|
|
$275.0 million of 5.300% Notes due 2014 (the 5.300% Notes); |
|
|
|
|
$125.0 million of 5.125% Notes due 2017 (the 5.125% Notes); |
|
|
|
|
$300.0 million of 6.050% Notes due 2018 (the 6.050% Notes); |
|
|
|
|
$275.0 million of 5.500% Notes due 2019 (the 5.500% Notes); |
|
|
|
|
$150.0 million of 6.750% Notes due 2033 (the 6.750% Notes); |
|
|
|
|
$20.0 million outstanding under our Credit Facility; and |
|
|
|
|
$183.5 million outstanding under the BES Credit Agreement. |
See Note 10 in the Notes to Unaudited Condensed Consolidated Financial Statements for more
information about the terms of the debt discussed above.
The fair values of our aggregate debt and credit facilities were estimated to be $1,677.4
million and $1,762.1 million at March 31, 2010 and December 31, 2009, respectively. The fair
values of the fixed-rate debt were estimated by observing market trading prices and by comparing
the historic market prices of our publicly-issued debt with the market prices of other MLPs
publicly-issued debt with similar credit ratings and terms. The fair
values of our variable-rate debt are their carrying amounts, as the carrying amount reasonably
approximates fair value due to the variability of the interest rates.
12
Registration Statement
We may issue equity or debt securities to assist us in meeting our liquidity and capital
spending requirements. We have a universal shelf registration statement on file with the U.S.
Securities and Exchange Commission (SEC) that would allow us to issue an unlimited amount of debt
and equity securities for general partnership purposes.
Cash Flows from Operating, Investing and Financing Activities
The following table summarizes our cash flows from operating, investing and financing
activities for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
144,746 |
|
|
$ |
79,633 |
|
Investing activities |
|
|
11,211 |
|
|
|
(21,018 |
) |
Financing activities |
|
|
(174,049 |
) |
|
|
(100,196 |
) |
Operating Activities
Net cash flow provided by operating activities was $144.7 million for the three months ended
March 31, 2010 compared to $79.6 million for the three months ended March 31, 2009. The following
were the principal factors resulting in the $65.1 million increase in net cash flows provided by
operating activities:
|
|
|
The net change in fair values of derivatives was a decrease of $19.2 million to cash
flows from operating activities for the three months ended March 31, 2010, resulting
from the increase in value related to fixed-price sales contracts compared to a lower
level of opposite fluctuations in futures contracts purchased to hedge such
fluctuations. |
|
|
|
|
The net impact of working capital changes was an increase of $90.3 million to cash
flows from operating activities for the three months ended March 31, 2010. The
principal factors affecting the working capital changes were: |
|
o |
|
Inventories decreased by $73.7 million due to a decrease in
volume of hedged inventory stored by the Energy Services segment. From time to
time, the Energy Services segment stores hedged inventory to attempt to capture
value when market conditions are economically favorable. |
|
|
o |
|
Trade receivables increased by $10.4 million primarily due to
increased activity from our Energy Services segment due to higher volumes and
higher commodity prices in the 2010 period. |
|
|
o |
|
Prepaid and other current assets decreased by $26.9 million
primarily due to a decrease in margin deposits on futures contracts in our
Energy Services segment as a result of increased commodity prices during the
first quarter of 2010 (increased commodity prices result in an increase in our
broker equity account and therefore less margin deposit is required), a
decrease in unbilled revenue within our Natural Gas Storage segment reflecting
billings to counterparties in accordance with terms of their storage agreements
and a decrease in prepaid insurance due to continued amortization of the balance
over the policy period. |
13
|
o |
|
Accrued and other current liabilities increased by $0.3 million
primarily due to increases in unearned revenue primarily in the Natural Gas
Storage segment as a result of increased hub services contracts during the
first quarter of 2010 for which the customer is billed up front for services
provided over the entire term of the contract, an increase in accrued property
taxes for the Natural Gas Storage segment as a result of the Kirby Hills II
expansion project and an increase in accrued excise taxes for the Energy
Services segment due to higher revenues, largely offset by a reduction in
accrued interest resulting from interest payments made during the three months
ended March 31, 2010 and a reduction in the reorganization accrual. |
|
|
o |
|
Accounts payable decreased by $3.0 million primarily due to
lower payable balances at March 31, 2010 as a result of lower outside services
and project work performed in the first quarter of 2010. |
|
|
o |
|
Construction and pipeline relocation receivables decreased by
$2.7 million primarily due to a decrease in construction activity in the 2010
period. |
Investing Activities
Net cash flow provided by investing activities was $11.2 million for the three months ended
March 31, 2010 compared to net cash flow used in investing activities of $21.0 million for the
three months ended March 31, 2009. The following were the principal factors resulting in the $32.2
million increase in net cash flows provided by investing activities:
|
|
|
Capital expenditures decreased by $10.0 million for the three months ended March 31,
2010 compared with the three months ended March 31, 2009. See below for a discussion
of capital spending. |
|
|
|
|
Cash proceeds from the sale of the Buckeye NGL Pipeline were $22.0 million during
the three months ended March 31, 2010. |
Capital expenditures are summarized below (net of non-cash changes in accruals for capital
expenditures for the three months ended March 31, 2010 and 2009) for the periods indicated (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Sustaining capital expenditures |
|
$ |
3,270 |
|
|
$ |
4,883 |
|
Expansion and cost reduction |
|
|
7,693 |
|
|
|
16,093 |
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
10,963 |
|
|
$ |
20,976 |
|
|
|
|
|
|
|
|
Expansion and cost reduction projects in the first quarter of 2010 included terminal ethanol
and butane blending, new pipeline connections, natural gas well recompletions, continued progress
on a new pipeline and terminal billing system as well as various other operating infrastructure
projects. In the first quarter of 2009, expansion and cost reduction projects included the Kirby
Hills Phase II expansion project, terminal ethanol and butane blending, the construction of three
additional tanks with capacity of 0.4 million barrels in Linden, New Jersey and various other
pipeline and terminal operating infrastructure projects.
We expect to spend approximately $90.0 million to $110.0 million for capital expenditures in
2010, of which approximately $25.0 million to $35.0 million is expected to relate to sustaining
capital expenditures and $65.0 million to $75.0 million is expected to relate to expansion and cost
reduction projects. Sustaining capital expenditures include renewals and replacement of pipeline
sections, tank floors and tank roofs and upgrades to station and terminalling equipment, field instrumentation and cathodic protection systems.
Major expansion and cost reduction expenditures in 2010 will include the completion of additional
product storage tanks in the Midwest, the construction of a 4.4 mile pipeline in central
Connecticut to connect our pipeline in Connecticut to a third-party electric generation plant
currently under construction, various terminal expansions and upgrades and pipeline and terminal
automation projects.
14
PART II. OTHER INFORMATION
(a) Exhibits
|
|
|
10.1
|
|
Buckeye Partners, L.P. Annual Incentive Compensation Plan, as amended and
restated, effective as of January 1, 2010 (Incorporated by reference to
Exhibit 10.13 of Buckeye Partners, L.P.s Annual Report on Form 10-K for the
year ended December 31, 2009). |
|
|
|
*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 by Chief Executive Officer pursuant to 18 U.S.C. Section 1350. |
|
|
|
**32.2
|
|
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350. |
|
|
|
* |
|
Filed herewith. |
|
** |
|
Previously filed. |
15
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
|
By: |
BUCKEYE PARTNERS, L.P.
|
|
|
|
(Registrant) |
|
|
|
|
|
|
|
|
|
|
By: |
Buckeye GP LLC,
|
|
|
|
as General Partner |
|
|
|
|
|
|
|
|
|
Date: August 26, 2010 |
By: |
/s/ Keith E. St.Clair
|
|
|
|
Keith E. St.Clair |
|
|
|
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer) |
|
|
16