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Buckeye Partners 10-Q 2013

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

x

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2013

 

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

 

(IRS Employer

incorporation or organization)

 

Identification number)

 

 

 

One Greenway Plaza

 

 

Suite 600

 

 

Houston, TX

 

77046

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s 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 x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data 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 x  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 x

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 x

 

As of October 29, 2013, there were 115,032,019 limited partner units outstanding.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

 

Page

PART I.  FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

 

 

 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2013 and 2012 (Unaudited)

2

 

 Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2013 and 2012 (Unaudited)

3

 

 Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012 (Unaudited)

4

 

 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012 (Unaudited)

5

 

 Condensed Consolidated Statements of Partners’ Capital for the Nine Months Ended September 30, 2013 and 2012 (Unaudited)

6

 

 Notes to Unaudited Condensed Consolidated Financial Statements:

 

 

 

1.

Organization and Basis of Presentation

7

 

 

2.

Acquisitions

8

 

 

3.

Commitments and Contingencies

8

 

 

4.

Inventories

11

 

 

5.

Equity Investments

11

 

 

6

Long-term Debt

12

 

 

7.

Derivative Instruments and Hedging Activities

12

 

 

8.

Fair Value Measurements

16

 

 

9.

Pensions and Other Postretirement Benefits

18

 

 

10.

Unit-Based Compensation Plans

18

 

 

11.

Partners’ Capital and Distributions

20

 

 

12.

Earnings Per Unit

22

 

 

13.

Business Segments

22

 

 

14.

Supplemental Cash Flow Information

25

 

 

15.

Subsequent Events

25

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

40

 

 

 

Item 4.

Controls and Procedures

42

 

 

 

PART II.  OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

43

 

 

 

Item 1A.

Risk Factors

43

 

 

 

Item 6.

Exhibits

44

 

1



Table of Contents

 

PART I.  FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

BUCKEYE PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit amounts)

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Revenue:

 

 

 

 

 

 

 

 

 

Product sales

 

$

805,281

 

$

688,948

 

$

2,608,894

 

$

2,462,699

 

Transportation, storage and other services

 

283,477

 

277,022

 

830,204

 

745,350

 

Total revenue

 

1,088,758

 

965,970

 

3,439,098

 

3,208,049

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of product sales and natural gas storage services

 

813,959

 

698,019

 

2,624,869

 

2,476,659

 

Operating expenses

 

106,461

 

100,731

 

308,611

 

299,086

 

Depreciation and amortization

 

38,755

 

37,134

 

115,798

 

104,486

 

General and administrative

 

18,173

 

16,222

 

53,610

 

51,074

 

Total costs and expenses

 

977,348

 

852,106

 

3,102,888

 

2,931,305

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

111,410

 

113,864

 

336,210

 

276,744

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Earnings from equity investments

 

1,389

 

553

 

4,971

 

4,287

 

Interest and debt expense

 

(34,341

)

(28,737

)

(94,827

)

(85,159

)

Other income (expense)

 

(12

)

90

 

287

 

57

 

Total other expense, net

 

(32,964

)

(28,094

)

(89,569

)

(80,815

)

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

78,446

 

85,770

 

246,641

 

195,929

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

(195

)

(511

)

(521

)

(1,177

)

Net income

 

78,251

 

85,259

 

246,120

 

194,752

 

Less: Net income attributable to noncontrolling interests

 

(997

)

(143

)

(3,095

)

(3,298

)

 

 

 

 

 

 

 

 

 

 

Net income attributable to Buckeye Partners, L.P.

 

$

77,254

 

$

85,116

 

$

243,025

 

$

191,454

 

 

 

 

 

 

 

 

 

 

 

Earnings per unit:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.73

 

$

0.87

 

$

2.31

 

$

1.97

 

Diluted

 

$

0.72

 

$

0.87

 

$

2.30

 

$

1.97

 

 

 

 

 

 

 

 

 

 

 

Weighted average units outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

106,223

 

97,993

 

105,068

 

97,017

 

Diluted

 

106,774

 

98,342

 

105,516

 

97,340

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

2



Table of Contents

 

BUCKEYE PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

78,251

 

$

85,259

 

$

246,120

 

$

194,752

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on derivative instruments

 

(80

)

(6,396

)

32,446

 

(29,471

)

Reclassification of derivative gains and losses to net income

 

1,778

 

229

 

3,099

 

688

 

Adjustment to funded status of benefit plans

 

154

 

(73

)

557

 

(75

)

Total other comprehensive income (loss)

 

1,852

 

(6,240

)

36,102

 

(28,858

)

Comprehensive income

 

80,103

 

79,019

 

282,222

 

165,894

 

Less: Comprehensive income attributable to noncontrolling interests

 

(997

)

(143

)

(3,095

)

(3,298

)

Comprehensive income attributable to Buckeye Partners, L.P.

 

$

79,106

 

$

78,876

 

$

279,127

 

$

162,596

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

3



Table of Contents

 

BUCKEYE PARTNERS, L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except unit amounts)

(Unaudited)

 

 

 

September 30,

 

December 31,

 

 

 

2013

 

2012

 

Assets:

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

4,982

 

$

6,776

 

Trade receivables, net

 

245,301

 

262,023

 

Construction and pipeline relocation receivables

 

19,430

 

13,078

 

Inventories

 

316,732

 

259,163

 

Derivative assets

 

10,267

 

1,719

 

Prepaid and other current assets

 

66,783

 

91,563

 

Total current assets

 

663,495

 

634,322

 

 

 

 

 

 

 

Property, plant and equipment, net

 

4,363,710

 

4,188,648

 

 

 

 

 

 

 

Equity investments

 

73,188

 

68,713

 

Goodwill

 

812,298

 

818,121

 

Intangible assets, net

 

200,282

 

219,247

 

Other non-current assets

 

53,344

 

51,958

 

 

 

 

 

 

 

Total assets

 

$

6,166,317

 

$

5,981,009

 

 

 

 

 

 

 

Liabilities and partners’ capital:

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Line of credit

 

$

180,100

 

$

206,200

 

Accounts payable

 

161,930

 

112,792

 

Derivative liabilities

 

2,147

 

82,989

 

Accrued and other current liabilities

 

172,731

 

192,385

 

Total current liabilities

 

516,908

 

594,366

 

 

 

 

 

 

 

Long-term debt

 

2,676,946

 

2,735,244

 

Long-term derivative liabilities

 

35,334

 

57,805

 

Other non-current liabilities

 

196,206

 

204,754

 

Total liabilities

 

3,425,394

 

3,592,169

 

 

 

 

 

 

 

Commitments and contingencies (Note 3)

 

 

 

 

 

 

 

 

 

 

 

Partners’ capital:

 

 

 

 

 

Buckeye Partners, L.P. capital:

 

 

 

 

 

Limited Partners (106,407,019 and 90,371,061 units outstanding as of September 30, 2013 and December 31, 2012 respectively)

 

2,848,121

 

2,117,788

 

Class B Units (0 and 7,974,750 units outstanding as of September 30, 2013 and December 31, 2012 respectively)

 

 

413,304

 

Accumulated other comprehensive loss

 

(122,677

)

(158,779

)

Total Buckeye Partners, L.P. capital

 

2,725,444

 

2,372,313

 

Noncontrolling interests

 

15,479

 

16,527

 

Total partners’ capital

 

2,740,923

 

2,388,840

 

 

 

 

 

 

 

Total liabilities and partners’ capital

 

$

6,166,317

 

$

5,981,009

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

4



Table of Contents

 

BUCKEYE PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2013

 

2012

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

246,120

 

$

194,752

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

Settlement of terminated interest rate swap agreement

 

(62,009

)

 

Depreciation and amortization

 

115,798

 

104,486

 

Net changes in fair value of derivatives

 

(16,608

)

17,055

 

Non-cash deferred lease expense

 

2,828

 

2,925

 

Amortization of unfavorable storage contracts

 

(8,255

)

(8,245

)

Earnings from equity investments

 

(4,971

)

(4,287

)

Distributions from equity investments

 

275

 

3,324

 

Other non-cash items

 

17,804

 

14,282

 

Change in assets and liabilities, net of amounts related to acquisitions:

 

 

 

 

 

Trade receivables

 

16,722

 

(31,990

)

Construction and pipeline relocation receivables

 

(6,352

)

(3,010

)

Inventories

 

(57,569

)

101,274

 

Prepaid and other current assets

 

24,863

 

3,214

 

Accounts payable

 

35,397

 

970

 

Accrued and other current liabilities

 

(14,557

)

(46,882

)

Other non-current assets

 

964

 

985

 

Other non-current liabilities

 

(5,046

)

(857

)

Net cash provided by operating activities

 

285,404

 

347,996

 

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(257,008

)

(233,005

)

Contribution to equity investment

 

 

(350

)

Acquisitions, net of cash acquired

 

 

(260,312

)

Proceeds from disposal of property, plant and equipment

 

433

 

52

 

Net cash used in investing activities

 

(256,575

)

(493,615

)

Cash flows from financing activities:

 

 

 

 

 

Net proceeds from issuance of units

 

382,319

 

246,805

 

Net proceeds from exercise of unit options

 

1,201

 

1,067

 

Payment of tax withholding on issuance of LTIP awards

 

(3,741

)

(1,608

)

Issuance of long-term debt

 

499,050

 

 

Repayment of long term-debt

 

(300,000

)

 

Debt issuance costs

 

(4,552

)

 

Borrowings under BPL Credit Facility

 

1,380,000

 

856,000

 

Repayments under BPL Credit Facility

 

(1,637,900

)

(577,400

)

Net repayments under BES Credit Facility

 

(26,100

)

(85,200

)

Acquisition of additional interest in WesPac Memphis

 

(9,727

)

(17,328

)

Credits associated with agreement and plan of merger

 

 

422

 

Distributions paid to noncontrolling interests

 

(5,629

)

(8,900

)

Distributions paid to unitholders

 

(305,544

)

(278,274

)

Net cash provided by (used in) financing activities

 

(30,623

)

135,584

 

Net decrease in cash and cash equivalents

 

(1,794

)

(10,035

)

Cash and cash equivalents — Beginning of period

 

6,776

 

12,986

 

Cash and cash equivalents — End of period

 

$

4,982

 

$

2,951

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

5



Table of Contents

 

BUCKEYE PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Limited

 

Class B

 

Comprehensive

 

Noncontrolling

 

 

 

 

 

Partners

 

Units

 

Income (Loss)

 

Interests

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ capital - January 1, 2013

 

$

2,117,788

 

$

413,304

 

$

(158,779

)

$

16,527

 

$

2,388,840

 

Net income

 

226,306

 

16,719

 

 

3,095

 

246,120

 

Acquisition of additional interest in WesPac Memphis

 

(8,232

)

 

 

(1,495

)

(9,727

)

Distributions paid to unitholders

 

(308,459

)

 

 

2,915

 

(305,544

)

Conversion of Class B Units to LP Units

 

430,023

 

(430,023

)

 

 

 

Net proceeds from issuance of units

 

382,319

 

 

 

 

382,319

 

Amortization of unit-based compensation awards

 

12,438

 

 

 

 

12,438

 

Proceeds from exercise of unit options

 

1,201

 

 

 

 

1,201

 

Payment of tax withholding on issuance of LTIP awards

 

(3,741

)

 

 

 

(3,741

)

Distributions paid to noncontrolling interests

 

 

 

 

(5,629

)

(5,629

)

Other comprehensive income

 

 

 

36,102

 

 

36,102

 

Noncash accrual for distribution equivalent rights

 

(1,437

)

 

 

 

(1,437

)

Other

 

(85

)

 

 

66

 

(19

)

Partners’ capital - September 30, 2013

 

$

2,848,121

 

$

 

$

(122,677

)

$

15,479

 

$

2,740,923

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ capital - January 1, 2012

 

$

2,035,271

 

$

395,639

 

$

(127,741

)

$

20,788

 

$

2,323,957

 

Net income

 

176,640

 

14,814

 

 

3,298

 

194,752

 

Acquisition of additional interest in WesPac Memphis

 

(14,536

)

 

 

(2,792

)

(17,328

)

Credits associated with agreement and plan of merger

 

422

 

 

 

 

422

 

Distributions paid to unitholders

 

(282,111

)

 

 

3,837

 

(278,274

)

Net proceeds from issuance of units

 

246,805

 

 

 

 

246,805

 

Amortization of unit-based compensation awards

 

10,534

 

 

 

 

10,534

 

Net proceeds from exercise of unit options

 

1,067

 

 

 

 

1,067

 

Payment of tax withholding on issuance of LTIP awards

 

(1,608

)

 

 

 

(1,608

)

Distributions paid to noncontrolling interests

 

 

 

 

(8,900

)

(8,900

)

Other comprehensive loss

 

 

 

(28,858

)

 

(28,858

)

Noncash accrual for distribution equivalent rights

 

(555

)

 

 

 

(555

)

Other

 

688

 

 

 

(29

)

659

 

Partners’ capital - September 30, 2012

 

$

2,172,617

 

$

410,453

 

$

(156,599

)

$

16,202

 

$

2,442,673

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

6



Table of Contents

 

BUCKEYE PARTNERS, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.  ORGANIZATION AND BASIS OF PRESENTATION

 

Organization

 

Buckeye Partners, L.P. is a publicly traded Delaware master limited partnership and its limited partnership units representing limited partner interests (“LP Units”) are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “BPL.”  Buckeye GP LLC (“Buckeye GP”) is our general partner.  As used in these Notes to Unaudited Condensed Consolidated Financial Statements, “we,” “us,” “our” and “Buckeye” mean Buckeye Partners, L.P. and, where the context requires, includes our subsidiaries.

 

We were formed in 1986 and own and operate one of the largest independent liquid petroleum products pipeline systems in the United States in terms of volumes delivered, miles of pipeline and active product terminals. In addition, we operate and/or maintain third-party pipelines under agreements with major oil and gas, petrochemical and chemical companies, and perform certain engineering and construction management services for third parties.  We also own and operate a natural gas storage facility in Northern California, and are a wholesale distributor of refined petroleum products in the United States in areas also served by our pipelines and terminals.  Beginning in late 2012, we began to provide fuel oil supply and distribution services to third parties in the Caribbean.  Our flagship marine terminal in The Bahamas, Bahamas Oil Refining Company International Limited (“BORCO”), is one of the largest marine crude oil and petroleum products storage facilities in the world, serving the international markets as a global logistics hub.

 

Basis of Presentation and Principles of Consolidation

 

The unaudited condensed consolidated financial statements and the accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules of the U.S. Securities and Exchange Commission (“SEC”).  Accordingly, our financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of our results of operations for the interim periods.  The consolidated financial statements include the accounts of our subsidiaries controlled by us and variable interest entities of which we are the primary beneficiary. We have eliminated all intercompany transactions in consolidation.

 

We believe that the disclosures in these unaudited condensed consolidated financial statements are adequate to make the information presented not misleading.  These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2012.

 

Recent Accounting Developments

 

Reclassification Adjustments Out of Accumulated Other Comprehensive Income (“AOCI”).  In February 2013, the Financial Accounting Standards Board (“FASB”) issued guidance requiring entities to disclose additional information about reclassification adjustments, including changes in AOCI balances by component and significant items reclassified out of AOCI.  Under the new guidance, an entity would (i) disaggregate the total change of each component of other comprehensive income (“OCI”) and separately present reclassification adjustments and current-period OCI, and (ii) present information about significant items reclassified out of AOCI by component either on the face of the statement where net income is presented or as a separate disclosure in the notes to the financial statements.  This guidance is effective for interim and annual periods beginning after December 15, 2012.  We adopted this guidance on January 1, 2013, which did not have an impact on our unaudited condensed consolidated financial statements, or a material impact on our disclosures, as there were no significant reclassification adjustments during the three and nine months ended September 30, 2013.

 

Balance Sheet: Disclosures about Offsetting Assets and LiabilitiesIn December 2011, the FASB issued guidance requiring an entity to provide enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position.  In January 2013, the FASB issued an update to this guidance clarifying that the scope of disclosures applied to derivatives accounted for in accordance with FASB Accounting Standards Codification (“ASC”) Topic 815, Derivative and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse purchase agreements and securities lending transactions that are either offset in accordance with FASB ASC Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement.  This guidance is effective for interim and annual reporting periods beginning on or after January 1, 2013 and should be applied retrospectively. We adopted this guidance on January 1, 2013, which did not have an impact on our unaudited condensed consolidated financial statements, or a material impact on our disclosures. See Note 7 for information about our netting policy for derivatives.

 

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BUCKEYE PARTNERS, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2.  ACQUISITIONS

 

Business Combination

 

In July 2012, we acquired a marine terminal facility for liquid petroleum products in New York Harbor from Chevron U.S.A Inc. for $260.3 million in cash.  The purchase price has been allocated to tangible and intangible assets acquired and liabilities assumed as follows (in thousands):

 

Current assets

 

$

547

 

Property, plant and equipment

 

198,091

 

Intangible assets

 

13,350

 

Goodwill

 

59,197

 

Environmental liabilities

 

(10,873

)

Allocated purchase price

 

$

260,312

 

 

Acquisition of Additional Interest in WesPac Pipelines — Memphis LLC

 

In April 2013, our operating subsidiary, Buckeye Pipe Line Holdings, L.P. (“BPH”), purchased an additional 10% ownership interest in WesPac Pipelines — Memphis LLC (“WesPac Memphis”) from Kealine LLC for $9.7 million and, as a result of the acquisition, our ownership interest in WesPac Memphis increased from 70% to 80%.  Since BPH retains controlling interest in WesPac Memphis, this acquisition was accounted for as an equity transaction.

 

3.  COMMITMENTS AND CONTINGENCIES

 

Claims and Legal Proceedings

 

In the ordinary course of business, we are involved in various claims and legal proceedings, some of which are covered by insurance.  We are generally unable to predict the timing or outcome of these claims and proceedings.  Based upon our evaluation of existing claims and proceedings and the probability of losses relating to such contingencies, we have accrued certain amounts relating to such claims and proceedings, none of which are considered material.

 

BORCO Jetty.  On May 25, 2012, a ship allided with a jetty at our BORCO facility while berthing, causing damage to portions of the jetty.  The extent of the damage is presently estimated to be approximately $25.0 million.  Buckeye has insurance to cover this loss, subject to a $5.0 million deductible.  On May 26, 2012, we commenced legal proceedings in The Bahamas against the vessel’s owner and the vessel to obtain security for the cost of repairs and other losses incurred as a result of the incident.  Full security for our claim has been provided by the vessel owner’s insurers, reserving all of their defenses.  We also have notified the customer on whose behalf the vessel was at the BORCO facility that we intend to hold them responsible for all damages and losses resulting from the incident pursuant to the terms of an agreement between the parties.  Any disputes between us and our customer on this matter are subject to arbitration in Houston, Texas.  The vessel owner has claimed that it is entitled to limit its liability to approximately $17.0 million, but we are contesting the right of the vessel owner to such limitation.  A hearing in the Bahamas court on the vessel owner’s right to limit its liability was held on July 23, 2013, and the court of first instance denied the vessel owner the right to limit its liability for the incident, leaving the vessel owner responsible for all provable damages.  The vessel interests have appealed that decision and the appeal is pending.  We experienced no material interruption of service at the BORCO facility as a result of the incident, and the repairs of the damaged sections are complete.  We recorded a loss on disposal due to the assets destroyed in the incident and other related costs incurred; however, since we believe recovery of our losses is probable, we recorded a corresponding receivable.  As of September 30, 2013, we have a $5.0 million receivable included in “Other non-current assets” in our unaudited condensed consolidated balance sheet, representing reimbursement of the deductible.  To the extent the proceeds from the recovery of our losses is in excess of the carrying value of the destroyed assets or other costs incurred, we will recognize a gain when such proceeds are received and are not refundable.  As of September 30, 2013, no gain had been recognized; however, we recorded a $2.4 million deferred gain in “Accrued and other current liabilities” in our unaudited condensed consolidated balance sheet, representing excess proceeds received over the loss on disposal and other costs incurred.

 

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BUCKEYE PARTNERS, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Federal Energy Regulatory Commission (“FERC”) Proceedings

 

FERC Docket No. IS12-185 — Buckeye Pipe Line Show Cause Proceeding.  On March 30, 2012, FERC issued an order (the “Show Cause Order”) regarding the market-based methodology used by Buckeye Pipe Line Company, L.P. (“BPLC”) to set tariff rates on its pipeline system (the “Buckeye System”).  In 1991, BPLC sought and received FERC permission to determine rate changes on the Buckeye System using a unique methodology that constrains rates in markets not found to be competitive based on rate changes in markets that FERC found to be competitive, as well as certain other limits on rate increases.  FERC ordered the continuation of this methodology for the Buckeye System in 1994, subject to FERC’s authority to cause BPLC to terminate the program in the future.  The Show Cause Order, among other things, stated that FERC would review the continued efficacy of BPLC’s unique program and directed BPLC to show cause why it should not be required to discontinue the program on the Buckeye System and avail itself of the generic ratemaking methodologies used by other oil pipelines.  The Show Cause Order also disallowed proposed rate increases on the Buckeye System that would have become effective April 1, 2012.  The Show Cause Order did not impact any of the pipeline systems or terminals owned by Buckeye’s other operating subsidiaries.  On April 23, 2012, BPLC requested rehearing as to the disallowance of certain rates.  On February 22, 2013, FERC issued an order in Dkt. No. IS12-185-000 et al. discontinuing the BPLC program, and affirming on rehearing its rejection of all rate increases filed in March 2012 (“Ratemaking Methodology Order”).  The Ratemaking Methodology Order permitted Buckeye to retain its currently-filed rates in place, to make future rate changes under market-based ratemaking authority in markets previously found to be competitive by FERC, and to make future changes in rates in other markets pursuant to the generic FERC ratemaking methods, which would include indexing.  No requests for rehearing or petitions for judicial review were filed with respect to the Ratemaking Methodology Order.  Subsequently, on March 28, 2013, BPLC filed rate increases for services in the markets previously found to be competitive, and on May 30, 2013, BPLC filed rate increases for most transportation services in the markets not previously found to be competitive; both sets of tariff filings became effective and are not subject to any FERC proceedings.

 

FERC Docket No. OR12-28 — Airlines Complaint against BPLC New York City Jet Fuel Rates.  On September 20, 2012, a complaint was filed with FERC by Delta Air Lines, JetBlue Airways, United/Continental Air Lines, and US Airways challenging BPLC’s rates for transportation of jet fuel from New Jersey to three New York City airports.  The complaint was not directed at BPLC’s rates for service to other destinations, and does not involve pipeline systems and terminals owned by Buckeye’s other operating subsidiaries.  The complaint challenges these jet fuel transportation rates as generating revenues in excess of costs and thus being “unjust and unreasonable” under the Interstate Commerce Act.  On October 10, 2012, BPLC filed its answer to the complaint, contending that the airlines’ allegations are based on inappropriate adjustments to the pipeline’s costs and revenues, and that, in any event, any revenue recovery by BPLC in excess of costs would be irrelevant because BPLC’s rates are set under a FERC-approved program that ties rates to competitive levels.  BPLC also sought dismissal of the complaint to the extent it seeks to challenge the portion of BPLC’s rates that were deemed just and reasonable, or “grandfathered,” under Section 1803 of the Energy Policy Act of 1992.  BPLC further contested the airlines’ ability to seek relief as to past charges where the rates are lawful under BPLC’s FERC-approved rate program.  On October 25, 2012, the complainants filed their answer to BPLC’s motion to dismiss and answer.  On November 9, 2012, BPLC filed a response addressing newly raised arguments in the complainants’ October 25th answer.  On February 22, 2013, FERC issued an order setting the airline complaint in Dkt. No. OR12-28-000 for hearing, but holding the hearing in abeyance and setting the dispute for settlement procedures before a settlement judge.  If FERC were to find these challenged rates to be in excess of costs and not otherwise protected by law, it could order BPLC to reduce these rates prospectively and could order repayment to the complaining airlines of any past charges found to be in excess of just and reasonable levels for up to two years prior to the filing date of the complaint. BPLC intends to vigorously defend its rates.  On March 8, 2013, an order was issued consolidating this complaint proceeding with the proceeding regarding BPLC’s application for market-based rates in the New York City market in Dkt. No. OR13-3-00 (discussed below), for settlement purposes, and settlement discussions under the supervision of the FERC settlement judge are ongoing.  The timing or outcome of final resolution of this matter cannot reasonably be determined at this time.

 

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BUCKEYE PARTNERS, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

FERC Docket No. OR13-3 — Buckeye Pipe Line’s Market-Based Rate Application.  On October 15, 2012, BPLC filed an application with FERC seeking authority to charge market-based rates for deliveries of refined petroleum products to the New York City-area market (the “Application”).  In the Application, BPLC seeks to charge market-based rates from its three origin points in northeastern New Jersey to its five destinations on its Long Island System, including deliveries of jet fuel to the Newark, LaGuardia, and JFK airports.  The jet fuel rates were also the subject of the airlines’ OR12-28 complaint discussed above.  On December 14, 2012, Delta Air Lines, JetBlue Airways, United/Continental Air Lines, and US Airways filed a joint intervention and protest challenging the Application and requesting its rejection.  On January 14, 2013, BPLC filed its answer to the protest and requested summary disposition as to those non-jet-fuel rates that were not challenged in the protest.  On January 29, 2013, the protestants responded to BPLC’s answer, and on February 13, 2013, BPLC filed a further answer to the protestants’ January 29, 2013 pleading.  On February 28, 2013, FERC issued an order setting the Application for hearing, holding the hearing in abeyance and setting the dispute for settlement procedures before a settlement judge.  As discussed above, the Application has been consolidated with the complaint proceeding in Dkt. No. OR12-28-000 for settlement purposes and settlement discussions under the supervision of the FERC settlement judge are ongoing.  If FERC were to approve the Application, BPLC would be permitted prospectively to set these rates in response to competitive forces, and the basis for the airlines’ claim for relief in their OR12-28 complaint as to BPLC’s future rates would be irrelevant prospectively.  The timing or outcome of FERC’s review of the Application cannot reasonably be determined at this time.

 

Environmental Contingencies

 

We recorded operating expenses, net of insurance recoveries, of $1.4 million and $1.2 million during the three months ended September 30, 2013 and 2012, respectively, related to environmental remediation expenditures unrelated to claims and legal proceedings.  For the nine months ended September 30, 2013 and 2012, we recorded operating expenses, net of recoveries, of $4.4 million and $3.9 million, respectively, related to environmental remediation expenditures unrelated to claims and legal proceedings.  Costs incurred may be in excess of our estimate, which may have a material impact on our financial condition, results of operations or cash flows.  As of September 30, 2013 and December 31, 2012, we recorded environmental liabilities of $60.8 million and $61.8 million, respectively.  At September 30, 2013 and December 31, 2012, we had $10.7 million and $17.7 million, respectively, of receivables related to these environmental remediation expenditures covered by insurance.

 

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BUCKEYE PARTNERS, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

4.  INVENTORIES

 

Our inventory amounts were as follows at the dates indicated (in thousands):

 

 

 

September 30,

 

December 31,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

Liquid petroleum products (1)

 

$

302,310

 

$

246,918

 

Materials and supplies

 

14,422

 

12,245

 

Total inventories

 

$

316,732

 

$

259,163

 

 


(1)         Ending inventory was 103.5 million and 80.9 million gallons of liquid petroleum products at September 30, 2013 and December 31, 2012, respectively.

 

At September 30, 2013 and December 31, 2012, approximately 74% and 88% of our liquid petroleum products inventory volumes were designated in a fair value hedge relationship, respectively.  Because we generally designate inventory as a hedged item upon purchase, hedged inventory is valued at current market prices with the change in value of the inventory reflected in our unaudited condensed consolidated statements of operations.  Our inventory volumes that are not designated as the hedged item in a fair value hedge relationship are economically hedged to reduce our commodity price exposure.  Inventory not accounted for as a fair value hedge is accounted for at the lower of cost or market using the weighted average cost method.

 

5.  EQUITY INVESTMENTS

 

The following table presents earnings from equity investments for the periods indicated (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

West Shore Pipe Line Company

 

$

1,569

 

$

(220

)

$

4,142

 

$

2,884

 

Muskegon Pipeline LLC

 

(377

)

303

 

254

 

722

 

Transport4, LLC

 

90

 

113

 

286

 

191

 

South Portland Terminal LLC

 

107

 

357

 

289

 

490

 

Total earnings from equity investments

 

$

1,389

 

$

553

 

$

4,971

 

$

4,287

 

 

Summarized combined income statement data for our equity method investments are as follows for the periods indicated (amounts represent 100% of investee income statement data in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

22,218

 

$

21,233

 

$

58,534

 

$

55,215

 

Costs and expenses

 

(15,563

)

(16,549

)

(34,776

)

(34,161

)

Non-operating expense

 

(3,145

)

(1,061

)

(9,265

)

(7,182

)

Net income

 

$

3,510

 

$

3,623

 

$

14,493

 

$

13,872

 

 

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BUCKEYE PARTNERS, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

6.  LONG-TERM DEBT

 

Credit Facility

 

At September 30, 2013, we had $662.8 million of availability under our $1.25 billion revolving credit facility dated September 26, 2011 (the “Credit Facility”) with SunTrust Bank but, except for borrowings that are used to refinance other debt, we are limited to $517.6 million of additional borrowing capacity by the financial covenants under our Credit Facility.

 

In August 2013, we extended the maturity date of our Credit Facility by one year to September 26, 2017, which we may further extend for up to one additional year.

 

Extinguishment of Debt

 

In July 2013, we repaid in full the $300.0 million principal amount outstanding under the 4.625% Notes due on July 15, 2013 (the “4.625% Notes”) and approximately $6.9 million of related accrued interest using funds available under our Credit Facility.

 

Notes Offering

 

In June 2013, we issued $500.0 million of 4.150% Notes due July 1, 2023 (the “4.150% Notes”) in an underwritten public offering at 99.81% of their principal amount.  Total proceeds from this offering, after underwriting fees, expenses and debt issuance costs of $3.3 million, were approximately $495.8 million.  We used the net proceeds from this offering for general partnership purposes and to repay amounts due under our Credit Facility, a portion of which was subsequently reborrowed in July 2013 in order to repay in full the 4.625% Notes and related accrued interest (as discussed above).

 

7.  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

We are exposed to financial market risks, including changes in interest rates and commodity prices, in the course of our normal business operations.  We use derivative instruments to manage risks.

 

Interest Rate Derivatives

 

We utilize forward-starting interest rate swaps to hedge the variability of the forecasted interest payments on anticipated debt issuances that may result from changes in the benchmark interest rate until the expected debt is issued.  When entering into interest rate swap transactions, we become exposed to both credit risk and market risk.  We are subject to credit risk when the change in fair value of the swap instrument is positive and the counterparty may fail to perform under the terms of the contract.  We are subject to market risk with respect to changes in the underlying benchmark interest rate that impacts the fair value of the swaps.  We manage our credit risk by entering into swap transactions only with major financial institutions with investment-grade credit ratings.  We manage our market risk by aligning the swap instrument with the existing underlying debt obligation or a specified expected debt issuance generally associated with the maturity of an existing debt obligation.

 

We entered into six forward-starting interest rate swaps with a total aggregate notional amount of $300.0 million, which we entered into in anticipation of the issuance of debt on or before July 15, 2013, and six forward-starting interest rate swaps with a total aggregate notional amount of $275.0 million, which we entered into in anticipation of the issuance of debt on or before October 15, 2014.  We designated the swap agreements as cash flow hedges at inception and expect the changes in values to be highly correlated with the changes in value of the underlying borrowingsIn June 2013, we issued $500 million of the 4.150% Notes (see Note 6 for further discussion) and also settled the related six forward-starting interest rate swaps for approximately $62.0 million.  As a result of the interest rate swap settlement, we recognized $0.9 million hedge ineffectiveness in interest and debt expense attributable to the timing difference between when the swaps were settled and when they were forecasted to settle.  We expect to issue new fixed-rate debt on or before October 15, 2014 to repay the $275.0 million of 5.300% Notes that are due on October 15, 2014, although no assurances can be given that the issuance of fixed-rate debt will be possible on acceptable terms.

 

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BUCKEYE PARTNERS, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

During the three months ended September 30, 2013 and 2012, unrealized losses of $0.1 million and $6.4 million, respectively, were recorded in accumulated other comprehensive loss to reflect the change in the fair values of the forward-starting interest rate swaps.  For the nine months ended September 30, 2013 and 2012, unrealized gains of $32.5 million and unrealized losses of $29.5 million, respectively, were recorded in accumulated other comprehensive loss to that effect.  Additionally, over the next twelve months, we expect to reclassify $7.1 million of net losses from accumulated other comprehensive loss to interest and debt expense.  The loss consists of the following: (i) the forward-starting interest rate swaps that were settled in 2008 and (ii) the forward-starting interest rate swaps settled in June 2013 (as discussed above).  These losses were partially offset by a gain attributable to the settlement of a treasury lock agreement settled in 2011.

 

Commodity Derivatives

 

Our Energy Services segment primarily uses exchange-traded refined petroleum product futures contracts to manage the risk of market price volatility on its refined petroleum product inventories and its physical derivative contracts.  The futures contracts used to hedge refined petroleum product inventories are designated as fair value hedges with changes in fair value of both the futures contracts and physical inventory reflected in earnings.  Physical contracts and futures contracts that have not been designated in a hedge relationship are marked-to-market.

 

The following table summarizes our commodity derivative instruments outstanding at September 30, 2013 (amounts in thousands of gallons):

 

 

 

Volume (1)

 

Accounting

 

Derivative Purpose 

 

Current

 

Long-Term

 

Treatment

 

 

 

 

 

 

 

 

 

Derivatives NOT designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Physical fixed price derivative contracts

 

34,531

 

604

 

Mark-to-market

 

Physical index derivative contracts

 

85,082

 

 

Mark-to-market

 

Futures contracts for refined petroleum products

 

46,458

 

588

 

Mark-to-market

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Futures contracts for refined petroleum products

 

76,524

 

 

Fair Value Hedge

 

 


(1)         Volume represents absolute value of net notional volume position.

 

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BUCKEYE PARTNERS, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The following table sets forth the fair value of each classification of derivative instruments and the locations of the derivative instruments on our condensed consolidated balance sheets at the dates indicated (in thousands):

 

 

 

September 30, 2013

 

 

 

Derivatives

 

Derivatives

 

Gross

 

Netting

 

 

 

 

 

NOT Designated

 

Designated

 

Derivative

 

Balance

 

 

 

 

 

as Hedging

 

as Hedging

 

Carrying

 

Sheet

 

 

 

 

 

Instruments

 

Instruments

 

Value

 

Adjustment (1)

 

Net Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Physical fixed price derivative contracts

 

$

2,433

 

$

 

$

2,433

 

$

(17

)

$

2,416

 

Physical index derivative contracts

 

81

 

 

81

 

 

81

 

Futures contracts for refined products

 

99,231

 

2,493

 

101,724

 

(93,954

)

7,770

 

Total current derivative assets

 

101,745

 

2,493

 

104,238

 

(93,971

)

10,267

 

 

 

 

 

 

 

 

 

 

 

 

 

Physical fixed price derivative contracts

 

66

 

 

66

 

 

66

 

Total non-current derivative assets

 

66

 

 

66

 

 

66

 

 

 

 

 

 

 

 

 

 

 

 

 

Physical fixed price derivative contracts

 

(1,891

)

 

(1,891

)

17

 

(1,874

)

Physical index derivative contracts

 

(273

)

 

(273

)

 

(273

)

Futures contracts for refined products

 

(93,403

)

(551

)

(93,954

)

93,954

 

 

Total current derivative liabilities

 

(95,567

)

(551

)

(96,118

)

93,971

 

(2,147

)

 

 

 

 

 

 

 

 

 

 

 

 

Futures contracts for refined products

 

(17

)

 

(17

)

 

(17

)

Interest rate derivatives

 

 

(35,317

)

(35,317

)

 

(35,317

)

Total non-current derivative liabilities

 

(17

)

(35,317

)

(35,334

)

 

(35,334

)

Net derivative assets (liabilities)

 

$

6,227

 

$

(33,375

)

$

(27,148

)

$

 

$

(27,148

)

 


(1)         Amounts represent the netting of physical fixed and index contracts’ assets and liabilities when a legal right of offset exists. Futures contracts are subject to settlement through margin requirements and are additionally presented on a net basis.

 

 

 

December 31, 2012

 

 

 

Derivatives

 

Derivatives

 

Gross

 

Netting

 

 

 

 

 

NOT Designated

 

Designated

 

Derivative

 

Balance

 

 

 

 

 

as Hedging

 

as Hedging

 

Carrying

 

Sheet

 

 

 

 

 

Instruments

 

Instruments

 

Value

 

Adjustment (1)

 

Net Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Physical fixed price derivative contracts

 

$

1,489

 

$

 

$

1,489

 

$

(335

)

$

1,154

 

Physical index derivative contracts

 

724

 

 

724

 

(159

)

565

 

Futures contracts for refined products

 

10,359

 

435

 

10,794

 

(10,794

)

 

Total current derivative assets

 

12,572

 

435

 

13,007

 

(11,288

)

1,719

 

 

 

 

 

 

 

 

 

 

 

 

 

Physical fixed price derivative contracts

 

(2,377

)

 

(2,377

)

335

 

(2,042

)

Physical index derivative contracts

 

(705

)

 

(705

)

159

 

(546

)

Futures contracts for refined products

 

(15,268

)

(3,096

)

(18,364

)

10,794

 

(7,570

)

Interest rate derivatives

 

 

(72,831

)

(72,831

)

 

(72,831

)

Total current derivative liabilities

 

(18,350

)

(75,927

)

(94,277

)

11,288

 

(82,989

)

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate derivatives

 

 

(57,805

)

(57,805

)

 

(57,805

)

Total non-current derivative liabilities

 

 

(57,805

)

(57,805

)

 

(57,805

)

Net derivative liabilities

 

$

(5,778

)

$

(133,297

)

$

(139,075

)

$

 

$

(139,075

)

 


(1)         Amounts represent the netting of physical fixed and index contracts’ assets and liabilities when a legal right of offset exists.  Futures contracts are subject to settlement through margin requirements and are additionally presented on a net basis.

 

14



Table of Contents

 

BUCKEYE PARTNERS, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Our hedged inventory portfolio extends to the fourth quarter of 2013.  The majority of the unrealized gain at September 30, 2013 for inventory hedges represented by futures contracts of $1.9 million will be realized by the fourth quarter of 2013 as the related inventory is sold.  At September 30, 2013, open refined petroleum product derivative contracts (represented by the physical fixed-price contracts, physical index contracts, and futures contracts for fixed-price sales contracts noted above) varied in duration in the overall portfolio, but did not extend beyond December 2014.  In addition, at September 30, 2013, we had refined petroleum product inventories that we intend to use to satisfy a portion of the physical derivative contracts.

 

The gains and losses on our derivative instruments recognized in income were as follows for the periods indicated (in thousands):

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

September 30,

 

September 30,

 

 

 

Location

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives NOT designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

Physical fixed price derivative contracts

 

Product sales

 

$

(6,851

)

$

(9,153

)

$

(3,475

)

$

(6,255

)

Physical index derivative contracts

 

Product sales

 

(13

)

678

 

1,096

 

1,038

 

Physical fixed price derivative contracts

 

Cost of product sales and natural gas storage services

 

4,736

 

813

 

4,291

 

210

 

Physical index derivative contracts

 

Cost of product sales and natural gas storage services

 

(113

)

(1,014

)

(657

)

(1,053

)

Futures contracts for refined products

 

Cost of product sales and natural gas storage services

 

(1,190

)

1,304

 

4,607

 

6,635

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as fair value hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

Futures contracts for refined products

 

Cost of product sales and natural gas storage services

 

(1,689

)

(19,062

)

7,246

 

(33,697

)

Physical inventory - hedged items

 

Cost of product sales and natural gas storage services

 

2,114

 

21,307

 

(7,326

)

32,464

 

 

 

 

 

 

 

 

 

 

 

 

 

Ineffectiveness excluding the time value component on fair value hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

Fair value hedge ineffectiveness (excluding time value)

 

Cost of product sales and natural gas storage services

 

2,902

 

(249

)

(725

)

(809

)

Time value excluded from hedge assessment

 

Cost of product sales and natural gas storage services

 

(2,477

)

2,494

 

645

 

(423

)

Net gain (loss) in income

 

 

 

$

425

 

$

2,245

 

$

(80

)

$

(1,232

)

 

15



Table of Contents

 

BUCKEYE PARTNERS, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The losses reclassified from AOCI to income and the change in value recognized in OCI on our derivatives were as follows for the periods indicated (in thousands):

 

 

 

 

 

Loss Reclassified from AOCI to Income for the

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

September 30,

 

September 30,

 

 

 

Location

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as cash flow hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Interest and debt expense

 

$

(1,778

)

$

(229

)

$

(3,099

)

$

(688

)

 

 

 

 

 

 

Gain (Loss) Recognized in OCI on Derivatives for the

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

September 30,

 

September 30,

 

 

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as cash flow hedging instruments:

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$

(80

)

$

(6,396

)

$

32,446

 

$

(29,471

)

 

8.  FAIR VALUE MEASUREMENTS

 

We categorize our financial assets and liabilities using the three-tier hierarchy as follows:

 

Recurring

 

The following table sets forth financial assets and liabilities measured at fair value on a recurring basis, as of the measurement dates indicated, and the basis for that measurement, by level within the fair value hierarchy (in thousands):

 

 

 

September 30, 2013

 

December 31, 2012

 

 

 

Level 1

 

Level 2

 

Level 1

 

Level 2

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

Physical fixed price derivative contracts

 

$

 

$

2,482

 

$

 

$

1,154

 

Physical index derivative contracts

 

 

81

 

 

565

 

Futures contracts for refined products

 

7,770

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

</