Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS
INTRODUCTION
Buckeye Partners, L.P. (the "Partnership"), the Registrant, is a limited partnership organized in 1986 under the laws of the state of Delaware.
The Partnership conducts all its operations through subsidiary entities. These operating subsidiaries are Buckeye Pipe Line Company, L.P. ("Buckeye"), Laurel Pipe Line Company, L.P. ("Laurel"), Everglades Pipe Line Company, L.P. ("Everglades") and Buckeye Tank Terminals Company, L.P. ("BTT"), each of which is 99 percent owned. (Each of Buckeye, Laurel, Everglades and BTT is referred to as an "Operating Partnership" and collectively as the "Operating Partnerships").
Buckeye is one of the largest independent pipeline common carriers of refined petroleum products in the United States, with 3,291 miles of pipeline serving 10 states. Laurel owns a 344-mile common carrier refined products pipeline located principally in Pennsylvania. Everglades owns 37 miles of refined products pipeline in Florida. Buckeye, Laurel and Everglades conduct the Partnership's refined products pipeline business. BTT provides bulk storage service through leased facilities with an aggregate capacity of 235,000 barrels of refined petroleum products.
The Partnership acquired its interests in the Operating Partnerships from American Premier Underwriters, Inc. ("American Premier"), formerly The Penn Central Corporation, on December 23, 1986 (the "Acquisition"). The Operating Partnerships (other than Laurel) had been organized by American Premier for purposes of the Acquisition and succeeded to the operations of predecessor companies owned by American Premier, including Buckeye Pipe Line Company (an Ohio corporation) and its subsidiaries ("Pipe Line"), in November 1986. Laurel was formed in October 1992 and succeeded to the operations of Laurel Pipe Line Company ("Laurel Corp") (an Ohio corporation) which was a majority owned corporate subsidiary of the Partnership until the minority interest was acquired in December 1991.
Buckeye Management Company (the "General Partner"), a wholly owned subsidiary of American Premier formed in 1986, owns a 1 percent general partnership interest in, and serves as sole general partner of, the Partnership. A corporate subsidiary of the General Partner, Buckeye Pipe Line Company (a Delaware corporation) (the "Manager"), owns a 1 percent general partnership interest in, and serves as sole general partner and manager of, each Operating Partnership.
REFINED PRODUCTS BUSINESS
The Partnership receives petroleum products from refineries, connecting pipelines and marine terminals, and transports those products to other locations. In 1994, refined products accounted for substantially all of the Partnership's consolidated revenues, consolidated operating income and consolidated property, plant and equipment.
The Partnership transported an average of approximately 1,028,800 barrels per day of refined products in 1994. The following table shows the volume and percentage of refined products transported over the last three years.
VOLUME AND PERCENTAGE OF REFINED PRODUCTS TRANSPORTED(1)(2) (VOLUME IN THOUSANDS OF BARRELS PER DAY)
- - -------- (1) Excludes crude oil volumes of 0.7 thousand barrels per day for the year ended December 31, 1992. No crude oil volumes were transported during 1993 or 1994. (2) Excludes local product transfers. (3) Includes diesel fuel, heating oil, kerosene and other middle distillates.
The Partnership provides service in the following states: Pennsylvania, New York, New Jersey, Indiana, Ohio, Michigan, Illinois, Connecticut, Massachusetts, Washington and Florida.
Pennsylvania--New York--New Jersey
Buckeye serves major population centers in the states of Pennsylvania, New York and New Jersey through 1,171 miles of pipeline. Refined products are received at Linden, New Jersey. Products are then transported through two lines from Linden, New Jersey to Allentown, Pennsylvania. From Allentown, the pipeline continues west, through a connection with Laurel, to Pittsburgh, Pennsylvania (serving Reading, Harrisburg, Altoona/Johnstown and Pittsburgh) and north through eastern Pennsylvania into New York State (serving Scranton/Wilkes-Barre, Binghamton, Syracuse, Utica and Rochester and, via a connecting carrier, Buffalo). Products received at Linden, New Jersey are also transported through two lines to John F. Kennedy International and LaGuardia Airports and to commercial bulk terminals at Long Island City and Inwood, New York. The pipeline presently supplies Kennedy, LaGuardia and Newark International airports with substantially all of each airport's jet fuel requirements.
Laurel transports refined products through a 344-mile pipeline extending westward from five refineries in the Philadelphia area to Pittsburgh, Pennsylvania.
Indiana--Ohio--Michigan--Illinois
Buckeye transports refined products through 1,994 miles of pipeline (of which 246 miles are jointly owned with other pipeline companies) in southern Illinois, central Indiana, eastern Michigan, western and northern Ohio and western Pennsylvania. A number of receiving lines and delivery lines connect to a central corridor which runs from Lima, Ohio, through Toledo, Ohio to Detroit, Michigan. Products are received at East Chicago, Indiana; Robinson, Illinois and at the corridor connection points of Detroit, Toledo and Lima. Major areas served include Huntington/Fort Wayne, Indiana; Bay City, Detroit and Flint, Michigan; Cleveland, Columbus, Lima and Toledo, Ohio; and Pittsburgh, Pennsylvania.
Other Refined Products Pipelines
Buckeye serves Connecticut and Massachusetts through 112 miles of pipeline that carry refined products from New Haven, Connecticut to Hartford, Connecticut and Springfield, Massachusetts.
Everglades carries primarily jet fuel on a 37-mile pipeline from Port Everglades, Florida to Hollywood-Ft. Lauderdale International Airport and Miami International Airport.
Buckeye carries jet fuel on a 14-mile pipeline from Tacoma, Washington to McChord Air Force Base.
OTHER BUSINESS ACTIVITIES
BTT provides bulk storage services through leased facilities located in Pittsburgh, Pennsylvania and Bay City, Michigan, which have the capacity to store up to an aggregate of approximately 235,000 barrels of refined petroleum products. Each facility is served by Buckeye and provides bulk storage and loading facilities for shippers or other customers.
COMPETITION AND OTHER BUSINESS CONSIDERATIONS
The Operating Partnerships do business without the benefit of exclusive franchises from government entities. In addition, the Operating Partnerships generally operate as common carriers, providing transportation services at posted tariffs and without long-term contracts. As providers of such service, the Operating Partnerships do not own the products they transport. Demand for such service arises, ultimately, from demand for petroleum products in the regions served and the ability and willingness of refiners, marketers and end- users to supply such demand by deliveries through the Partnership's pipelines. Demand for refined petroleum products is primarily a function of price, prevailing economic conditions and weather. The Operating Partnerships' businesses are, therefore, subject to a variety of factors partially or entirely beyond their control. Multiple sources of pipeline entry and multiple points of delivery, however, have historically helped maintain stable total volumes even when volumes at particular source or destination points have changed.
The Partnership's business may in the future be affected by changing prices or demand for oil and for other fuels. The Partnership may also be affected by energy conservation, changing sources of supply, structural changes in the oil industry and new energy technologies. The General Partner is unable to predict the effect of such factors.
A substantial portion of the refined petroleum products transported by the Partnership's pipelines are ultimately used as fuel for motor vehicles and aircraft. Changes in transportation and travel patterns in the areas served by the Partnership's pipelines could adversely affect the Partnership's results of operations.
In 1994, the Operating Partnerships had approximately 120 customers, most of which were either major integrated oil companies or smaller marketing companies. The largest two customers accounted for 7.1 percent and 6.6 percent, respectively, of consolidated revenues, while the 20 largest customers accounted for 74.4 percent of consolidated revenues.
Generally, pipelines are the lowest cost method for long-haul overland movement of refined petroleum products. Therefore, the Operating Partnership's most significant competitors for large volume shipments are other pipelines, many of which are owned and operated by major integrated oil companies. Although it is unlikely that a pipeline system comparable in size and scope to the Operating Partnership's will be built in the foreseeable future, new pipelines (including pipeline segments that connect with existing pipeline systems) could be built to effectively compete with the Operating Partnerships in particular locations.
In some areas, the Operating Partnerships compete with marine transportation. Tankers and barges on the Great Lakes account for some of the volume to certain Michigan, Ohio and upstate New York locations during the approximately eight non-winter months of the year. Barges are presently a competitive factor for deliveries to the New York City area, the Pittsburgh area, Connecticut and Ohio.
Trucks competitively deliver product in a number of areas served by the Operating Partnerships. While their costs may not be competitive for longer hauls or large volume shipments, trucks compete effectively with the Operating Partnerships in many areas. The availability of truck transportation places a significant competitive constraint on the ability of the Operating Partnerships to increase their tariff rates.
Privately arranged exchanges of product between marketers in different locations are an increasing but unquantified form of competition. Generally, such exchanges reduce both parties' costs by eliminating or reducing transportation charges.
Distribution of refined petroleum products depends to a large extent upon the location and capacity of refineries. In past years, a significant quantity of domestic refining capacity has been shut down. To date, the aggregate impact of these shut-downs has affected the Operating Partnerships' volumes favorably, as these shut-downs have resulted in the transportation of product over longer distances to certain locations. Because the Operating Partnerships' pipelines have numerous source points, the General Partner does not believe that the shut-down of any particular refinery would have a material adverse effect on the Partnership. However, the General Partner is unable to determine whether additional shut-downs will occur or what their effects might be.
The Operating Partnerships' mix of products transported tends to vary seasonally. Declines in demand for heating oil during the summer months are, to a certain extent, offset by increased demand for gasoline and jet fuels. Overall, operations have been only moderately seasonal, with somewhat lower than average volume being transported during March, April and May as compared to the rest of the year.
Neither the Partnership nor any of the Operating Partnerships have any employees. All of the operations of the Operating Partnerships are managed and operated by employees of the Manager. At December 31, 1994, the Manager had 607 full-time employees, 161 of whom were represented by two labor unions. The collective bargaining agreement with each of these unions is subject to renewal in 1996. The Operating Partnerships (and their predecessors) have never experienced any significant work stoppages or other significant labor problems.
CAPITAL EXPENDITURES
The General Partner anticipates that the Partnership will continue to make ongoing capital expenditures to maintain and enhance its assets and properties, including improvements to meet customers' needs and those required to satisfy new environmental and safety standards. In 1994, total capital expenditures were $15.4 million. Projected capital expenditures for 1995 amount to $14.9 million. Planned capital expenditures in 1995 include, among other things, tanks to accommodate specific new business opportunities, renewal and replacement of pipe, new valves, metering systems, field instrumentation, communications facilities and testing equipment. Capital expenditures are expected to increase over time primarily in response to increasingly rigorous governmental safety and environmental requirements as well as industry standards. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources."
REGULATION
General
Buckeye is an interstate common carrier subject to the regulatory jurisdiction of the Federal Energy Regulatory Commission ("FERC") under the Interstate Commerce Act and the Department of Energy Organization Act. FERC regulation requires that interstate oil pipeline rates be posted publicly and that these rates be "just and reasonable" and non-discriminatory. FERC regulation also enforces common carrier obligations and specifies a uniform system of accounts. In addition, Buckeye, and the other Operating Partnerships, are subject to the jurisdiction of certain other federal agencies with respect to environmental and pipeline safety matters.
The Operating Partnerships are also subject to the jurisdiction of various state and local agencies, including, in some states, public utility commissions which have jurisdiction over, among other things, intrastate tariffs, the issuance of debt and equity securities, transfers of assets and pipeline safety.
Tariffs
FERC has jurisdiction over Buckeye's interstate tariffs. In July 1988, in the midst of a rate proceeding involving Buckeye, FERC issued an order that provided Buckeye with the opportunity to qualify for an unspecified alternative form of "light-handed" rate regulation if Buckeye could establish that it lacked significant market power. On December 31, 1990, after extensive testimony and hearings, FERC issued an opinion which found that in most of its relevant market areas, Buckeye operated in a competitive environment in which it could not exercise significant market power and that Buckeye's tariff rates in those markets were just and reasonable. Based on these findings, FERC permitted Buckeye to implement a "light-handed" rate regulation program on an experimental basis for three years beginning in March 1991. Under the program, in markets where Buckeye does not have significant market power, individual rate increases: (a) will not exceed a real (i.e., exclusive of inflation) increase of 15 percent over any two-year period (the "rate cap"), and (b) will be allowed to become effective without suspension or investigation if they do not exceed a "trigger" equal to the change in the GDP implicit price deflator since the date on which the individual rate was last increased, plus 2 percent. Individual rate decreases will be presumptively valid upon a showing that the proposed rate exceeds marginal costs. In markets where Buckeye was found to have significant market power and in certain markets where no market power finding was made: (i) individual rate increases cannot exceed the volume weighted average rate increase in markets where Buckeye does not have significant market power since the date on which the individual rate was last increased, and (ii) any volume weighted average rate decrease in markets where Buckeye does not have significant market power must be accompanied by a corresponding decrease in all of Buckeye's rates in markets where it does have significant market power. Shippers retain the right to file complaints or protests following notice of a rate increase, but are required to show that the proposed rates violate or have not been adequately justified under the experimental program, that the proposed rates are unduly discriminatory, or that Buckeye has acquired significant market power in markets previously found to be competitive.
In October 1992, the Energy Policy Act of 1992 (the "Policy Act") was enacted. Title XVIII of the Policy Act, "Oil Pipeline Regulatory Reform," provided, among other things, that certain tariff rates that were in effect on October 25, 1991 were deemed "just and reasonable, " and that FERC was directed by October 24, 1993 to promulgate a rule establishing a simplified and generally applicable ratemaking methodology for oil pipelines. FERC was also directed to issue a rule streamlining certain procedural aspects of its proceedings.
On October 22, 1993, FERC issued a final rule pursuant to the Policy Act with respect to rate regulation of oil pipelines. The rule relies primarily on an index methodology, whereby a pipeline would be allowed to change its rates in accordance with an index that FERC believes reflects cost changes appropriate for application to pipeline rates. In the alternative, a pipeline is allowed to charge market-based rates if the pipeline establishes that it does not possess significant market power in a particular market. In addition, the rule provides for the rights of both pipelines and shippers to demonstrate that the index should not apply to an individual pipeline's rates in light of the pipeline's costs. The final rule became effective on January 1, 1995.
On February 22, 1994, Buckeye filed a tariff and justification material to extend its "experimental" rate regulation program for an indefinite period. No protests or interventions were filed and, on March 24, 1994, FERC found that the program should be extended but that Buckeye would be subject to the generic regulations on oil pipeline rates as of January 1, 1995. On October 26, 1994, Buckeye filed a motion that requested FERC to permit Buckeye to continue its existing rate program indefinitely, as an exception to the generic oil pipeline rate regulations. On December 6, 1994, FERC issued an order granting that motion and extended the operation of Buckeye's rate program indefinitely, commencing January 1, 1995. The Buckeye rate program will be subject to reevaluation at the same time FERC reviews the index selected in the generic oil pipeline regulations, currently scheduled to occur five years after the effective date of the generic rules. Independent of regulatory considerations, it is expected that tariff rates will continue to be constrained by competition and other market factors.
Environmental Matters
The Operating Partnerships are subject to federal and state laws and regulations relating to the protection of the environment. Although the General Partner believes that the operations of the Operating Partnerships comply in all material respects with applicable environmental regulations, risks of substantial liabilities are inherent in pipeline operations, and there can be no assurance that material environmental liabilities will not be incurred. Moreover, it is possible that other developments, such as increasingly rigorous environmental laws, regulations and enforcement policies thereunder, and claims for damages to property or persons resulting from the operations of the Operating Partnerships, could result in substantial costs and liabilities to the Partnership. See "Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Environmental Matters."
The Oil Pollution Act of 1990 ("OPA") amends certain provisions of the federal Water Pollution Control Act of 1972, commonly referred to as the Clean Water Act ("CWA") and other statutes as they pertain to the prevention of and response to oil spills into navigable waters. The OPA subjects owners of facilities to strict joint and several liability for all containment and clean- up costs and certain other damages arising from a spill. The CWA provides penalties for any discharges of petroleum products in reportable quantities and imposes substantial liability for the costs of removing a spill. State laws for the control of water pollution also provide varying civil and criminal penalties and liabilities in the case of releases of petroleum or its derivatives into surface waters or into the ground. Regulations are currently being developed under OPA and state laws which may impose additional regulatory burdens on the Partnership.
Contamination resulting from spills or releases of refined petroleum products are not unusual in the petroleum pipeline industry. The Partnership's pipelines cross numerous navigable rivers and streams. Although the General Partner believes that the Operating Partnerships comply in all
material respects with the spill prevention, control and countermeasure requirements of federal laws, any spill or other release of petroleum products into navigable waters may result in material costs and liabilities to the Partnership.
The Resource Conservation and Recovery Act ("RCRA"), as amended, establishes a comprehensive program of regulation of "hazardous wastes." Hazardous waste generators, transporters, and owners or operators of treatment, storage and disposal facilities must comply with regulations designed to ensure detailed tracking, handling and monitoring of these wastes. RCRA also regulates the disposal of certain non-hazardous wastes. As a result of recently issued regulations, many previously non-hazardous wastes generated by pipeline operations have become "hazardous wastes" which are subject to more rigorous and costly disposal requirements.
The Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), also known as "Superfund," governs the release or threat of release of a "hazardous substance." Disposal of a hazardous substance, whether on or off-site, may subject the generator of that substance to liability under CERCLA for the costs of clean-up and other remedial action. Pipeline maintenance and other activities in the ordinary course of business could subject the Operating Partnerships to the requirements of these statutes. As a result, to the extent hydrocarbons or other petroleum waste may have been released or disposed of in the past, the Operating Partnerships may in the future be required to remedy contaminated property. Governmental authorities such as the Environmental Protection Agency ("EPA"), and in some instances third parties, are authorized under CERCLA to seek to recover remediation and other costs from responsible persons, without regard to fault or the legality of the original disposal. In addition to its potential liability as a generator of a "hazardous substance," the property or right-of-way of the Operating Partnerships may be adjacent to or in the immediate vicinity of Superfund and other hazardous waste sites. Accordingly, the Operating Partnerships may be responsible under CERCLA for all or part of the costs required to cleanup such sites, which costs could be material.
The Clean Air Act, amended by the Clean Air Act Amendments of 1990 (the "Amendments"), imposes controls on the emission of pollutants into the air. The Operating Partnerships may be affected in several ways by the Amendments, including required changes in operating procedures and increased capital expenditures. The Amendments require states to develop permitting programs over the next several years to comply with new federal programs. Existing operating and air-emission permits like those held by the Operating Partnerships will have to be reviewed to determine compliance with the new programs. It is possible that new or more stringent controls will be imposed upon the Operating Partnerships through this permit review. In addition, the Amendments impose new requirements on the composition of fuels transported by the Operating Partnerships. While the principal impact of these new requirements will be on refiners and marketers of such fuels, the Operating Partnerships may have to institute additional quality control procedures and provide additional tankage in order to satisfy customer needs for segregated storage of these reformulated fuels.
The Operating Partnerships are also subject to environmental laws and regulations adopted by the various states in which they operate. In certain instances, the regulatory standards adopted by the states are more stringent than applicable federal laws.
In connection with the Acquisition, Pipe Line obtained an Administrative Consent Order ("ACO") from the New Jersey Department of Environmental Protection and Energy ("NJDEPE") under the New Jersey Environmental Cleanup Responsibility Act of 1983 ("ECRA") for all six of Pipe Line's facilities in New Jersey. The ACO permitted the Acquisition to be completed prior to full compliance with ECRA, but required Pipe Line to conduct in a timely manner a sampling plan for environmental contamination at the New Jersey facilities and to implement any required clean-up plan. Sampling continues in an effort to identify areas of contamination at the New Jersey facilities, while clean-up
operations have begun at certain of the sites. The obligations of Pipe Line were not assumed by the Partnership, and the costs of compliance will be paid by American Premier. Through December 1994, Buckeye's costs of approximately $2,353,000 have been funded by American Premier.
Safety Matters
The Operating Partnerships are subject to regulation by the United States Department of Transportation ("DOT") under the Hazardous Liquid Pipeline Safety Act of 1979 ("HLPSA") relating to the design, installation, testing, construction, operation, replacement and management of their pipeline facilities. HLPSA covers petroleum and petroleum products and requires any entity which owns or operates pipeline facilities to comply with applicable safety standards, to establish and maintain a plan of inspection and maintenance and to comply with such plans.
The Pipeline Safety Reauthorization Act of 1988 required increased coordination of safety regulation between federal and state agencies, testing and certification of pipeline personnel, and authorization of safety-related feasibility studies. In 1990, the Manager initiated a random drug testing program to comply with the regulations promulgated by the Office of Pipeline Safety, DOT, and in January 1995, the Manager instituted a program to comply with new DOT regulations that require alcohol testing of certain pipeline personnel.
HLPSA requires, among other things, that the Secretary of Transportation consider the need for the protection of the environment in issuing federal safety standards for the transportation of hazardous liquids by pipeline. The legislation also requires the Secretary of Transportation to issue regulations concerning, among other things, the identification by pipeline operators of environmentally sensitive areas; the circumstances under which emergency flow restricting devices should be required on pipelines; training and qualification standards for personnel involved in maintenance and operation of pipelines; and the periodic integrity testing of pipelines in environmentally sensitive and high-density population areas by internal inspection devices or by hydrostatic testing. Significant expenses would be incurred if, for instance, additional valves were required, if leak detection standards were amended to exceed the current control system capabilities of the Operating Partnerships or additional integrity testing of pipeline facilities were to be required. The General Partner believes that the Operating Partnerships' operations comply in all material respects with HLPSA. However, the industry, including the Partnership, could be required to incur substantial additional capital expenditures and increased operating costs depending upon the requirements of final regulations issued by DOT pursuant to HLPSA, as amended.
The Operating Partnerships are also subject to the requirements of the Federal Occupational Safety and Health Act ("OSHA") and comparable state statutes. The General Partner believes that the Operating Partnerships' operations comply in all material respects with OSHA requirements, including general industry standards, recordkeeping, hazard communication requirements and monitoring of occupational exposure to benzene and other regulated substances.
The General Partner cannot predict whether or in what form any new legislation or regulatory requirements might be enacted or adopted or the costs of compliance. In general, any such new regulations would increase operating costs and impose additional capital expenditure requirements on the Partnership, but the General Partner does not presently expect that such costs or capital expenditure requirements would have a material adverse effect on the Partnership.
TAX TREATMENT OF PUBLICLY TRADED PARTNERSHIPS UNDER THE INTERNAL REVENUE CODE
The Internal Revenue Code of 1986, as amended (the "Code"), imposes certain limitations on the current deductibility of losses attributable to investments in publicly traded partnerships and treats certain publicly traded partnerships as corporations for federal income tax purposes. The following
discussion briefly describes certain aspects of the Code that apply to individuals who are citizens or residents of the United States without commenting on all of the federal income tax matters affecting the Partnership or its unitholders (the "Unitholders"), and is qualified in its entirety by reference to the Code. UNITHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISOR ABOUT THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE PARTNERSHIP.
Characterization of the Partnership for Tax Purposes
The Code treats a publicly traded partnership that existed on December 17, 1987, such as the Partnership, as a corporation for federal income tax purposes beginning in the earlier of (i) 1998 or (ii) the year in which it adds a substantial new line of business unless, for each taxable year of the Partnership beginning in the earlier of such years, 90 percent or more of its gross income consists of qualifying income. Qualifying income includes interest, dividends, real property rents, gains from the sale or disposition of real property, income and gains derived from the exploration, development, mining or production, processing, refining, transportation (including pipelines transporting gas, oil or products thereof), or the marketing of any mineral or natural resource (including fertilizer, geothermal energy and timber), and gain from the sale or disposition of capital assets that produced such income.
Because the Partnership is engaged primarily in the refined products pipeline transportation business, the General Partner believes that 90 percent or more of the Partnership's gross income has been qualifying income. If this continues to be true and no subsequent legislation amends this provision, the Partnership would continue to be classified as a partnership and not as a corporation for federal income tax purposes.
Passive Activity Loss Rules
The Code provides that an individual, estate, trust or personal service corporation generally may not deduct losses from passive business activities, to the extent they exceed income from all such passive activities, against other income. Income which may not be offset by passive activity "losses" includes not only salary and active business income, but also portfolio income such as interest, dividends or royalties or gain from the sale of property that produces portfolio income. Credits from passive activities are also limited to the tax attributable to any income from passive activities. The passive activity loss rules are applied after other applicable limitations on deductions, such as the at-risk rules and the basis limitation. Certain closely held corporations are subject to slightly different rules, which can also limit their ability to offset passive losses against certain types of income.
Under the Code, net income from publicly traded partnerships is not treated as passive income for purposes of the passive loss rule, but is treated as non- passive income. Net losses and credits attributable to an interest in a publicly traded partnership are not allowed to offset a partner's other income. Thus, a Unitholder's proportionate share of the Partnership's net losses may be used to offset only Partnership net income from its trade or business in succeeding taxable years or, upon a complete disposition of a Unitholder's interest in the Partnership to an unrelated person in a fully taxable transaction, may be used to (i) offset gain recognized upon the disposition, and (ii) then against all other income of the Unitholder. In effect, net losses are suspended and carried forward indefinitely until utilized to offset net income of the Partnership from its trade or business or allowed upon the complete disposition to an unrelated person in a fully taxable transaction of a Unitholder's interest in the Partnership. A Unitholder's share of Partnership net income may not be offset by passive activity losses generated by other passive activities. In addition, a Unitholder's proportionate share of the Partnership's portfolio income, including portfolio income arising from the investment of the Partnership's working capital, is not treated as income from a passive activity and may not be offset by such Unitholder's share of net losses of the Partnership.
Deductibility of Interest Expense
The Code generally provides that investment interest expense is deductible only to the extent of a non-corporate taxpayer's net investment income. In general, net investment income for purposes of this limitation includes gross income from property held for investment, gain attributable to the disposition of property held for investment (except for net capital gains for which the taxpayer has elected to be taxed at a maximum rate of 28 percent) and portfolio income (determined pursuant to the passive loss rules) reduced by certain expenses (other than interest) which are directly connected with the production of such income. Property subject to the passive loss rules is not treated as property held for investment. However, the IRS has issued a Notice which provides that net income from a publicly traded partnership (not otherwise treated as a corporation) may be included in net investment income for purposes of the limitation on the deductibility of investment interest. A Unitholder's investment income attributable to its interest in the Partnership will include both its allocable share of the Partnership's portfolio income and trade or business income. A Unitholder's investment interest expense will include its allocable share of the Partnership's interest expense attributable to portfolio investments.
Unrelated Business Taxable Income
Certain entities otherwise exempt from federal income taxes (such as individual retirement accounts, pension plans and charitable organizations) are nevertheless subject to federal income tax on net unrelated business taxable income and each such entity must file a tax return for each year in which it has more than $1,000 of gross income from unrelated business activities. The General Partner believes that substantially all of the Partnership's gross income will be treated as derived from an unrelated trade or business and taxable to such entities. The tax-exempt entity's share of the Partnership's deductions directly connected with carrying on such unrelated trade or business are allowed in computing the entity's taxable unrelated business income. ACCORDINGLY, INVESTMENT IN THE PARTNERSHIP BY TAX-EXEMPT ENTITIES SUCH AS INDIVIDUAL RETIREMENT ACCOUNTS, PENSION PLANS AND CHARITABLE TRUSTS MAY NOT BE ADVISABLE.
State Tax Treatment
The Partnership owns property or does business in the states of Pennsylvania, New York, New Jersey, Indiana, Ohio, Michigan, Illinois, Connecticut, Massachusetts, Washington and Florida. A Unitholder will likely be required to file state income tax returns and to pay applicable state income taxes in many of these states and may be subject to penalties for failure to comply with such requirements. Some of the states have proposed that the Partnership withhold a percentage of income attributable to Partnership operations within the state for Unitholders who are non-residents of the state. In the event that amounts are required to be withheld (which may be greater or less than a particular Unitholder's income tax liability to the state), such withholding would generally not relieve the non-resident Unitholder from the obligation to file a state income tax return.
ITEM 2.



ITEM 2. PROPERTIES
As of December 31, 1994, the principal facilities of the Operating Partnerships included 3,672 miles of 6-inch to 24-inch diameter pipeline, 44 pumping stations, 105 delivery points and various sized tanks having an aggregate capacity of approximately 10.1 million barrels.
The Operating Partnerships own substantially all of their facilities subject, in the case of Buckeye, to a mortgage and security interest granted to secure payment of the outstanding balance of Buckeye's First Mortgage Notes due serially through 2010. See Note 7 to Consolidated Financial Statements of Buckeye Partners, L.P. In addition, certain portions of Buckeye's pipeline in Connecticut and Massachusetts are subject to security interests in favor of the owners of the right-of-way to secure future lease payments.
In general, the Operating Partnerships' pipelines are located on land owned by others pursuant to rights granted under easements, leases, licenses and permits from railroads, utilities, governmental entities and private parties. Like other pipelines, certain of the Operating Partnerships' rights are revocable at the election of the grantor or are subject to renewal at various intervals, and some require periodic payments. The Operating Partnerships have not experienced any revocations or lapses of such rights which were material to its business or operations, and the General Partner has no reason to expect any such revocation or lapse in the foreseeable future. Most pumping stations and terminal facilities are located on land owned by the Operating Partnerships.
The General Partner believes that the Operating Partnerships have sufficient title to their material assets and properties, possess all material authorizations and franchises from state and local governmental and regulatory authorities and have all other material rights necessary to conduct their business substantially in accordance with past practice. Although in certain cases the Operating Partnerships' title to assets and properties or their other rights, including their rights to occupy the land of others under easements, leases, licenses and permits, may be subject to encumbrances, restrictions and other imperfections, none of such imperfections are expected by the General Partner to interfere materially with the conduct of the Operating Partnerships' businesses.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Partnership, in the ordinary course of business, is involved in various claims and legal proceedings, some of which are covered in whole or in part by insurance. The General Partner is unable to predict the timing or outcome of these claims and proceedings. Although it is possible that one or more of these claims or proceedings, if adversely determined, could, depending on the relative amounts involved, have a material effect on the Partnership's results of operations for a future period, the General Partner does not believe that their outcome will have a material effect on the Partnership's consolidated financial condition.
FREEPORT LANDSLIDE
On March 30, 1990, a landslide near Freeport, Pennsylvania caused a rupture to one of the Partnership's pipelines which resulted in the release of approximately 58,000 gallons of petroleum products. Undetermined amounts of petroleum products saturated the soils surrounding the landslide area and flowed into Knapp Run and eventually into the Allegheny River. Buckeye promptly conducted extensive emergency response and remediation efforts.
After the emergency phase of the clean-up was complete, Buckeye and the Pennsylvania Department of Environmental Resources ("DER") reached an agreement on remediation and erosion and sedimentation control at the site. Under this agreement, Buckeye is collecting and treating surface runoff water from the site and has instituted further erosion and sedimentation control measures under a DER-approved plan.
Following the release, various agencies and departments of both the federal and state governments, including the United States Department of Justice, the Pennsylvania Office of Attorney General, DER, the Pennsylvania Department of Transportation, EPA, the National Transportation Safety Board, and DOT, commenced investigations into the circumstances of the pipeline rupture. In May 1994, Buckeye began discussions with DER and other state agencies concerning potential settlement of natural resource damage claims and civil penalties that the state agencies indicated they might assert against Buckeye. In January 1995, DER filed a complaint for civil penalties with the Commonwealth of Pennsylvania Environmental Hearing Board based on alleged violations by Buckeye of various state strict liability environmental laws. Buckeye's negotiations with DER and other state agencies concerning the alleged civil penalties, as well as potential natural resource damage claims, are continuing. In addition, in January 1995, a complaint was filed against Buckeye
in the United States District Court for the Western District of Pennsylvania by the United States of America. The complaint charges Buckeye with two criminal misdemeanor violations of environmental laws. One count of the complaint alleges a violation of the strict liability provisions of the Rivers and Harbors Act, and the other count alleges negligence in violation of the Clean Water Act. Buckeye is actively engaged in discussions with the government seeking disposition of these charges.
In addition to the above governmental proceedings, eight civil class actions against the Partnership, Buckeye and certain affiliates were filed in four Pennsylvania counties. Plaintiffs in these lawsuits seek both injunctive and monetary relief, including punitive damages and attorneys' fees, based on a number of legal theories. The parties have consolidated these actions in a single class action in the Court of Common Pleas for Allegheny County, Pennsylvania, but the proposed class has not yet been certified and there has been no significant activity in the case. At this time, it is not possible to predict the likely outcome of such case.
Buckeye maintains insurance in amounts believed by the General Partner to be adequate covering certain liabilities and claims arising out of pipeline accidents above a self-insured retention amount. The insurance is written generally on an indemnity basis, which requires Buckeye to seek reimbursement from its carriers for covered claims after paying such claims directly. Various entities that allegedly incurred costs or damages as a result of this incident have filed claims with Buckeye's insurance adjusters. Certain claims have been paid by Buckeye and other claims remain outstanding. The insurance carriers are reimbursing Buckeye for covered claims subject to the terms of the policy.
For the reasons set forth above, Buckeye is unable to estimate the total amount of environmental clean-up and other costs and liabilities that may be incurred in connection with this incident. However, based on information currently available to it, Buckeye believes that its net expense after insurance recoveries will not be material to its financial condition or results of operations.
OTHER ENVIRONMENTAL PROCEEDINGS
With respect to other environmental litigation, certain Operating Partnerships (or their predecessors) have been named as a defendant in several lawsuits or have been notified by federal or state authorities that they are a potentially responsible party ("PRP") under federal laws or a respondent under state laws relating to the generation, disposal or release of hazardous substances into the environment. Typically, an Operating Partnership is one of many PRPs for a particular site and its contribution of total waste at the site is minimal. However, because CERCLA and similar statutes impose liability without regard to fault and on a joint and several basis, the liability of the Operating Partnerships in connection with these proceedings could be material. Potentially material proceedings affecting the Operating Partnerships are described below.
In July 1986, Buckeye was named as one of several PRPs for the Whitmoyer Laboratories site in Myerstown, Pennsylvania. Buckeye previously owned part of the site and sold it to a purchaser now believed to be primarily responsible for the reported substantial chemical contamination at the site. Without knowledge of the contamination, Buckeye subsequently repurchased a small portion of the site on which it constructed a pumping station. After completion of a remedial investigation and feasibility study and consideration of proposed remediation plans, EPA issued two Records of Decision in December 1990 proposing a clean-up estimated to cost approximately $125 million. In 1992, EPA entered into a Consent Decree with the two PRPs that were former owners of Whitmoyer Laboratories. These PRPs agreed to assume the cost of clean-up at the site, and to reimburse EPA for future response costs and a portion of its past response costs. These two PRPs have instituted suit against each other to determine their relative responsibility for the Whitmoyer Laboratories site clean-up. One of the PRPs served a third-party complaint against Buckeye for the stated purpose of tolling the statute of limitations to preserve its rights, if any, against Buckeye. Buckeye
subsequently settled the third-party complaint that had been filed against it. In consideration of mutual releases and the PRP's agreement to cleanup Buckeye's portion of the site, Buckeye agreed to remove its booster pump station, to reroute its pipeline around the site and to reimburse the PRP for the cost of removing the original pipeline, if such removal is required by EPA. Buckeye estimates at this time that the costs of complying with the terms of the settlement agreement will be between $1 million and $2 million. Buckeye has not entered into any agreements with the EPA or the other PRP involved at the site, and Buckeye has not waived any rights to recover for any claim arising out of the PRP's activities at the site or any claims brought by any governmental agency or third party based upon environmental conditions at the site. In the event that claims were asserted by any party in connection with the site, Buckeye believes that it would have meritorious defenses, but its potential liability, if any, related to such claims, cannot be estimated at this time.
In July 1987, the NJDEPE ordered Buckeye and 27 other parties to provide site security and conduct a preliminary clean-up at the Borne Chemical site located in Elizabeth, New Jersey. Twenty of the parties (including Buckeye) agreed to provide security and to remove certain materials from the site. Buckeye agreed to pay approximately $64,000 of the $4 million estimated cost of this activity. This removal work has been completed. The NJDEPE is requiring that all parties (including Buckeye) which are alleged to have contributed hazardous substances to the site, conduct a remedial investigation/feasibility study to determine the scope of additional contamination, if any, that may exist at the site. Buckeye's involvement with this site is based on allegations that a small amount of Buckeye's waste was stored at this site pending its ultimate disposal elsewhere. Buckeye believes that it has meritorious defenses, but its potential liability, if any, for future costs cannot be estimated at this time.
In March 1989, the NJDEPE issued a directive to Buckeye and 113 other parties demanding payment of approximately $9.2 million in remediation costs incurred by NJDEPE at the Bridgeport Rental & Oil Services site in Logan Township, New Jersey. This site is subject to a remediation being conducted by EPA under CERCLA. In March 1992, an action was commenced by Rollins Environmental Services (NJ), Inc., and others, against the United States of America and certain additional private parties seeking reimbursement for remediation expenses incurred by plaintiffs in connection with the site. In June 1992, the United States of America brought an action against Rollins Environmental Services (NJ), Inc., and additional private parties, seeking reimbursement of approximately $29 million for response costs incurred by EPA at the site. Buckeye has not been designated by EPA as a PRP with respect to the site, and has not been named as a defendant in any litigation connected with the site. Buckeye believes that it is, at most, a de minimis contributor of waste to this site. Although EPA has estimated remediation costs at the site to be over $100 million, Buckeye expects that its liability, if any, will not be material.
In May 1993, Buckeye was notified by EPA that EPA had reason to believe that Buckeye was a PRP under CERCLA regarding certain hazardous substances located at a former waste processing/management facility located in Niagara Falls, New York known as the Frontier Chemical Superfund Site. Buckeye is one of several hundred parties that have been informed by EPA that they are potential PRPs in connection with the site. In its notification letter, EPA requested the PRPs to refund approximately $376,000 in costs already incurred by EPA in connection with the management of the site, and to fund the clean-up and removal of certain alleged hazardous materials contained in drums and liquid waste holding tanks at the site. The estimated cost of the removal activity has been estimated by EPA at approximately $4,700,000. In addition, EPA noted that certain subsequent clean-up activities may be required at the site, but that such work would be the subject of a future letter to the PRPs and would be addressed under a separate administrative order. Buckeye has entered into a PRP Group Participation Agreement with other PRPs in order to facilitate a joint approach to EPA and to the clean-up of the site. Buckeye believes that it is, at most, a de minimis contributor of
waste to the site. Although the cost of the ultimate remediation of the site cannot be determined at this time, Buckeye expects that its liability, if any, will not be material.
In July 1994, Buckeye was named as a defendant in an action filed by the Michigan Department of Natural Resources ("MDNR") in Circuit Court, Oakland County, Michigan. The complaint also names three individuals and three other corporations as defendants. The complaint alleges that under the Michigan Environmental Response Act, the Michigan Water Resource Commission Act and the Leaking Underground Storage Tank Act, the defendants are liable to the state of Michigan for remediation expenses in connection with alleged groundwater contamination in the vicinity of Sable Road, Oakland County, Michigan. The complaint asserts that contaminated groundwater has infiltrated drinking water wells in the area. The complaint seeks past response costs in the amount of approximately $1.2 million and a declaratory judgment that the defendants are liable for future response costs and remedial activities at the site. Buckeye believes that its pipeline in the vicinity of the contaminated groundwater has not been a source of the contaminants and that Buckeye has no responsibility with respect to past or future clean-up costs at the site. Buckeye's liability, if any, cannot be estimated at this time.
In July 1994, Buckeye was named as a defendant in an action entitled Waste Management Inc., et. al. v. Aerospace America, Inc., et. al. filed in the United States District Court for the Eastern District of Michigan. One of the plaintiffs, SCA Services, Inc. ("SCA"), entered into a consent order with the state of Michigan in 1980, pursuant to which SCA agreed to remedy a portion of a Superfund site known as the Hartley & Hartley landfill located in Kawkawlin, Bay County, Michigan. In the pending action, plaintiffs are seeking contributions from Buckeye and over 100 other defendants of approximately $5.7 million in response costs alleged to have been incurred to date and for future response and remediation costs that may be incurred in connection with future remediation at the site. Plaintiffs' claim against Buckeye is purportedly brought pursuant to the provisions of CERCLA. Buckeye believes that it is, at most, a de minimis contributor of wastes to the site. Although the cost of the ultimate remediation of the site cannot be determined at this time, Buckeye expects that its liability, if any, will not be material.
Additional claims for the cost of cleaning up releases of hazardous substances and for damage to the environment resulting from the activities of the Operating Partnerships or their predecessors may be asserted in the future under various federal and state laws, but the amount of such claims or the potential liability, if any, cannot be estimated. See "Business--Regulation-- Environmental Matters."
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the holders of LP Units during the fourth quarter of the fiscal year ended December 31, 1994.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S LP UNITS AND RELATED UNITHOLDER MATTERS
The LP Units of the Partnership are listed and traded principally on the New York Stock Exchange. The high and low sales prices of the LP Units in 1994 and 1993, as reported on the New York Stock Exchange Composite Tape, were as follows:
During the months of December 1994 and January 1995, the Partnership gathered tax information from its known LP Unitholders and from brokers/nominees. Based on the information collected, the Partnership estimates its number of beneficial LP Unitholders to be approximately 18,000.
Cash distributions paid quarterly during 1993 and 1994 were as follows:
In general, the Partnership makes quarterly cash distributions of substantially all of its available cash less such retentions for working capital, anticipated expenditures and contingencies as the General Partner deems appropriate.
On February 1, 1995, the Partnership announced a quarterly distribution of $0.70 per LP Unit payable on February 28, 1995.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth, for the period and at the dates indicated, the Partnership's income statement and balance sheet data for the years ended December 31, 1994, 1993, 1992, 1991 and 1990. The tables should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Report.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the liquidity and capital resources and the results of operations of the Partnership for the periods indicated below. Amounts in the Management's Discussion and Analysis of Financial Condition and Results of Operations relate to continuing operations unless otherwise indicated. This discussion should be read in conjunction with the consolidated financial statements and notes thereto, which are included elsewhere in this Report.
RESULTS OF OPERATIONS
Through its Operating Partnerships, the Partnership is principally engaged in the transportation of refined petroleum products including gasoline, jet fuel, diesel fuel, heating oil and kerosene. The Partnership's revenues are principally a function of the volumes of refined petroleum products transported by the Partnership, which are in turn a function of the demand for refined petroleum products in the regions served by the Partnership's pipelines and the tariffs or transportation fees charged for such transportation. Results of operations are affected by factors which include competitive conditions, demand for products transported, seasonality and regulation. See "Business-- Competition and Other Business Considerations."
1994 Compared With 1993
Revenue for the year ended December 31, 1994 was $186.3 million, $10.8 million, or 6.2 percent greater than revenue of $175.5 million for 1993. Volume delivered during 1994 averaged 1,028,800 barrels per day, 47,700 barrels per day or 4.9 percent greater than volume of 981,100 barrels per day delivered in 1993. Greater revenue in 1994 was related to increased gasoline and distillate deliveries and to the effect of tariff rate increases (see "Tariff Changes" below). Gasoline volumes increased primarily due to higher end-use demand in response to continued economic recovery and moderate growth in market share. Higher distillate shipments were the result of increased demand due to colder weather early in the year and the effect of carrying two distillate inventories, both high and low sulfur product, as required by Clean Air Act regulations that became effective in October 1993. Turbine fuel shipments increased slightly due to market demand growth at major airports.
Costs and expenses during 1994 were $113.9 million, $5.3 million or 4.9 percent greater than costs and expenses of $108.6 million during 1993. Categories of increased expenses included payroll and employee benefits, maintenance services, power, supplies and casualty loss. A significant portion of these increased expenses were directly related to the transportation of additional volume. In addition, costs incurred in connection with environmental remediation activities were $2.9 million greater than the prior year. See "Environmental Matters."
Other income (expenses) consist of interest income, interest and debt expense, and minority interests and other. Net reductions in debt, plus refinancing of debt at lower interest rates, resulted in a decline in interest expense of $0.9 million from 1993 levels.
1993 Compared With 1992
Revenue for the year ended December 31, 1993 was $175.5 million, $12.5 million, or 7.7 percent greater than revenue of $163.0 million for 1992. Volume delivered during 1993 averaged 981,100 barrels per day, 67,900 barrels per day or 7.4 percent greater than volume of 913,200 barrels per day delivered in 1992. Greater revenue in 1993 was related to increased gasoline, distillate and turbine fuel deliveries and to the effect of tariff rate increases implemented in July 1992 and August 1993. Gasoline and distillate volume increases were due primarily to higher end-use demand in response to moderate economic recovery and a return to normal winter temperatures. In addition, 1993 volume improved as a result of new business captured from barge and other pipelines, a decline in Canadian imports to upstate New York and extended refinery maintenance activities that required transportation of additional refined products into the Partnership's service areas. Increased turbine fuel volume was due to a moderate improvement in domestic and international air travel and continued growth in air cargo business.
Costs and expenses during 1993 were $108.6 million, $8.8 million or 8.8 percent greater than costs and expenses of $99.8 million during 1992. Categories of increased expenses included payroll and employee benefits, maintenance services, power and supplies. A significant portion of these increased expenses were directly related to the transportation of additional volume and related maintenance activities.
Other income (expenses) consist of interest income, interest and debt expense, and minority interests and other. Interest and debt expense of $25.9 million in 1993 was $1.6 million less than interest and debt expense of $27.5 million in 1992 reflecting lower debt outstanding following payment of $16.3 million of Series E First Mortgage Notes in December 1992.
Tariff Changes
In November 1994, July 1993 and June 1992, Buckeye filed proposed changes in certain tariff rates that represented, on average, increases of 0.4 percent, 1.4 percent and 3.0 percent, respectively.
The November 1994, July 1993 and June 1992 changes were projected to generate approximately $0.4 million, $1.5 million and $4.0 million in additional revenue per year, respectively. Each of these proposed changes became effective during the month after they were filed.
Change in Accounting Principle
In December 1992, the Partnership adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106") effective as of January 1, 1992. As a result, the Partnership recorded a one-time, non-cash charge of $25.5 million as of the first quarter of 1992 to reflect the cumulative effect of the change in accounting principle for periods prior to 1992. In addition, quarterly results for 1992 were restated to reflect an additional $1.5 million, or approximately $0.4 million per quarter, in related operating expenses throughout the year.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financial condition at December 31, 1994, 1993 and 1992 is highlighted in the following comparative summary:
Liquidity and Capital Indicators
Cash Provided by Operations
During 1994, cash provided by operations of $58.1 million was derived principally from $48.1 million of income from continuing operations before an extraordinary charge and $11.2 million of depreciation. Operating working capital decreased by $0.7 million. Increases in accrued and other current liabilities, trade receivables, temporary investments and prepaid and other current assets account for the majority of the change. Remaining cash uses, totaling $0.5 million, were related to an extraordinary charge on early extinguishment of debt of $2.3 million, changes in minority interests and changes in other non-current liabilities.
During 1993, cash provided by operations of $52.9 million was derived principally from $41.7 million of income from continuing operations before an extraordinary charge, $11.0 million of depreciation and $3.7 million of operating working capital changes. Operating working capital changes relate to a decrease in trade receivables and an increase in accrued and other current liabilities. Remaining cash uses, totaling $3.5 million, were related to an extraordinary charge on early extinguishment of debt of $2.2 million and changes in minority interests and other non-current liabilities.
During 1992, cash provided by operations of $52.2 million was derived principally from $34.5 million of income from continuing operations before the cumulative effect of a change in accounting principle, $10.7 million of depreciation and $3.5 million of changes in operating working capital. Other net cash sources, totaling $3.5 million, were largely provided by discontinued operations and an increase in other non-current liabilities.
Debt Obligation and Credit Facilities
The indenture pursuant to which the First Mortgage Notes were issued (the "Mortgage Note Indenture") was amended in March 1994 by a Fourth Supplemental Indenture to permit Buckeye to issue additional First Mortgage Notes from time to time under certain circumstances; so long as the aggregate principal amount of First Mortgage Notes outstanding after any such issuance does not exceed $275 million.
At December 31, 1994, the Partnership had $214.0 million in outstanding current and long-term debt representing the First Mortgage Notes of Buckeye which does not include $45.0 million in First Mortgage Notes which had been retired by in-substance defeasance. The First Mortgage Notes are collateralized by substantially all of Buckeye's currently existing and after acquired property, plant and equipment. Debt outstanding at December 31, 1994 includes $15 million of additional First Mortgage Notes, Series N, bearing interest at a rate of 7.93 percent. The First Mortgage Notes, Series N, were issued on April 11, 1994 and are due December 2010. Current and long-term debt excludes $20 million of 9.72 percent First Mortgage Notes, Series I, due December 1996, which were retired by an in-substance defeasance with the proceeds of the Series N First Mortgage Notes and an additional defeasance of $5 million in December 1994. Also excluded from long-term debt is $5 million of 11.18 percent First Mortgage Notes, Series J, which were retired by an in-substance defeasance in December 1994. Total debt due beyond 1994 that was retired by an in-substance defeasance during 1994 amounted to $25 million with total new debt issued during 1994 of $15.0 million. During 1994, the Partnership also paid $16 million of principal on the First Mortgage Notes, Series G, that became due in December 1994.
At December 31, 1993, the Partnership had $240.0 million in outstanding current and long-term debt representing the First Mortgage Notes of Buckeye which does not include $20.0 million in First Mortgage Notes which had been retired by in-substance defeasance. Debt outstanding at 1993 year end included $35 million of additional First Mortgage Notes (Series K, L and M) bearing interest rates from 7.11 percent to 7.19 percent which were issued on January 7, 1994 in accordance with an agreement entered into on December 31, 1993 and excluded $20 million of 9.50 percent First Mortgage Notes, Series H, due December 1995 that were retired by an in-substance defeasance with a portion of the proceeds from such additional First Mortgage Notes. During 1993, the Partnership paid $17.5 million of principal on the First Mortgage Notes, Series F, that became due in December 1993. In December 1993, Buckeye entered into an agreement with the purchaser of the $35 million of additional First Mortgage Notes which permits Buckeye, under certain circumstances, to issue up to $40 million of additional First Mortgage Notes to such purchaser.At December 31, 1994, Buckeye has the capacity to borrow up to $25.0 million of additional First Mortgage Notes under this agreement.
The Partnership has a $15 million unsecured short-term revolving credit facility with a commercial bank. This facility, which has options to extend borrowings through September 1999, is available to the Partnership for general purposes, including capital expenditures and working capital. In addition, Buckeye has a $10 million short-term line of credit secured by accounts receivable. Laurel has an unsecured $1 million line of credit. At December 31, 1994, there were no outstanding borrowings under these facilities.
The ratio of total debt to total capital was 46 percent, 50 percent, and 51 percent at December 31, 1994, 1993 and 1992, respectively. For purposes of the calculation of this ratio, total capital consists of current and long-term debt, minority interests and partners' capital.
Cash Distributions
Pursuant to the Mortgage Note Indenture, cash distributions by Buckeye to the Partnership cannot exceed Net Cash Available to Partners (generally defined to equal net income plus
depreciation and amortization less (a) capital expenditures funded from operating cash flows, (b) payments of principal of debt and (c) certain other amounts, all on a cumulative basis since the formation of the Partnership). The maximum amount available for distribution by Buckeye to the Partnership under the formula as of December 31, 1994 amounted to $11.0 million. The Partnership is also entitled to receive cash distributions from Everglades, BTT and Laurel.
Capital Expenditures
At December 31, 1994, property, plant and equipment was approximately 94 percent of total consolidated assets. This compares to 92 percent and 93 percent for the years ended December 31, 1993 and 1992, respectively. Capital expenditures are generally for expansion of the Operating Partnerships' service capabilities and sustaining the Operating Partnerships' existing operations.
Capital expenditures by the Partnership were $15.4 million, $13.3 million and $10.8 million for 1994, 1993 and 1992, respectively. Projected capital expenditures for 1995 amount to $14.9 million. Planned capital expenditures include, among other things, tanks to accommodate specific new business opportunities, renewal and replacement of pipe and station facilities, new valves, metering systems, field instrumentation, communication facilities and testing equipment. Capital expenditures are expected to increase over time primarily in response to increasingly rigorous governmental safety and environmental requirements as well as industry standards.
Environmental Matters
The Operating Partnerships are subject to federal and state laws and regulations relating to the protection of the environment. These regulations, as well as the Partnership's own standards relating to protection of the environment, cause the Operating Partnerships to incur current and ongoing operating and capital expenditures. During 1994, the Operating Partnerships incurred operating expenses of $5.9 million and capital expenditures of $4.3 million related to environmental matters. Capital expenditures of $4.5 million for environmental related projects are included in the Partnership's plans for 1995. Expenditures, both capital and operating, relating to environmental matters are expected to increase due to the Partnership's commitment to maintain high environmental standards and to increasingly rigorous environmental laws.
Certain Operating Partnerships (or their predecessors) have been named as a defendant in lawsuits or have been notified by federal or state authorities that they are a PRP under federal laws or a respondent under state laws relating to the generation, disposal, or release of hazardous substances into the environment. These proceedings generally relate to potential liability for clean-up costs. The total potential remediation costs to be borne by the Operating Partnerships relating to these clean-up sites cannot be reasonably estimated and could be material. With respect to each site, however, the Operating Partnership involved is one of several or as many as several hundred PRPs that would share in the total costs of clean-up under the principle of joint and several liability. The General Partner believes that the generation, handling and disposal of hazardous substances by the Operating Partnerships and their predecessors have been in material compliance with applicable environmental and regulatory requirements.
At the Whitmoyer Laboratories site in Myerstown, Pennsylvania, Buckeye is one of several PRPs for a clean-up estimated to cost approximately $125 million. However, in 1992, EPA entered into an agreement with the estate of one of the PRPs to recover a portion of EPA's past costs and a Consent Decree with the two PRPs that were former owners of Whitmoyer Laboratories to assume the cost of clean-up at the site and to reimburse EPA for future response costs and a portion of its past response costs. These two PRPs have instituted suit against each other to determine their relative responsibility for the Whitmoyer Laboratories site clean-up. One of the PRPs served a third-party complaint against Buckeye for the stated purpose of tolling the statute of limitations to
preserve its rights, if any, against Buckeye. Buckeye subsequently settled the third-party complaint that had been filed against it. In consideration of mutual releases and the PRP's agreement to cleanup Buckeye's portion of the site, Buckeye agreed to remove its booster pump station, to reroute its pipeline around the site and to reimburse the PRP for the cost of removing the original pipeline, if such removal is required by EPA. Buckeye has not entered into any agreements with the EPA or the other PRP involved at the site, and Buckeye has not waived any rights to recover for any claim arising out of the PRP's activities at the site or any claims brought by any governmental agency or third party based upon environmental conditions at the site. Although the exact costs of the settlement are not known, Buckeye estimates at this time that the costs of complying with the terms of the settlement agreement will be between $1 million and $2 million.
Buckeye has worked with the U.S. Coast Guard and other federal, state and local agencies since October 15, 1994 to remedy the environmental consequences of a pipeline release in New Haven, Connecticut. Product released from one of Buckeye's pipelines contaminated the groundwater in the area and, for a short period of time, discharged into the Quinnipiac River. Buckeye replaced approximately 2,000 feet of pipe in the area of the release site and presently has in place facilities to remedy groundwater contamination associated with the release. Although it is possible that costs related to this incident could increase to a level which would materially effect the Partnership's results of operations for a future period, the General Partner does not believe, based upon information currently available, that costs arising out of this event will have a material adverse effect on the Partnership's consolidated financial condition or annual results of operations. During 1994, Buckeye paid claims and other charges in the amount of $1.4 million and made capital expenditures of $0.5 million related to this incident.
In March 1990, a landslide near Freeport, Pennsylvania caused a rupture to one of Buckeye's pipelines which resulted in the release of approximately 58,000 gallons of petroleum products. During 1994, Buckeye paid claims and other charges related to this incident in the amount of $0.3 million. Substantially all of this amount has been reimbursed by Buckeye's insurance carriers. Buckeye is unable to estimate the total amount of environmental clean-up and other costs and liabilities that may be incurred in connection with this incident. However, based on information currently available to it, Buckeye believes that its net expense after insurance recoveries will not be material to its financial condition or results of operations. See "Legal Proceedings--Freeport Landslide."
Various claims for the cost of cleaning up releases of hazardous substances and for damage to the environment resulting from the activities of the Operating Partnerships or their predecessors have been asserted and may be asserted in the future under various federal and state laws. Although the Partnership has made a provision for certain legal expenses relating to these matters, the General Partner is unable to determine the timing or outcome of any pending proceedings or of any future claims and proceedings. See "Business--Regulation--Environmental Matters" and "Legal Proceedings."
Discontinued Operations
In the fourth quarter of 1990, the Partnership recorded a non-cash charge to earnings of $19.1 million, net of estimated earnings during phase-out, relating to the Partnership's decision to discontinue its 16-inch crude oil pipeline and a refined products terminal. The Partnership closed the sale of the 16-inch crude oil pipeline, together with associated real and personal property to Sun Pipe Line Company on February 1, 1993. Proceeds from the sale amounted to $9.2 million. Remaining discontinued operations consisting of petroleum facilities at a refined products terminal were dismantled and removed during the first quarter 1993. Disposal of these discontinued operations resulted in a loss of $127,000 in 1993.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BUCKEYE PARTNERS, L.P.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Schedules other than those listed above are omitted because they are either not applicable or not required or the information required is included in the consolidated financial statements or notes thereto.
INDEPENDENT AUDITORS' REPORT
To the Partners of Buckeye Partners, L.P.:
We have audited the accompanying consolidated balance sheets of Buckeye Partners, L.P. and its subsidiaries (the "Partnership") as of December 31, 1994 and 1993, and the related consolidated statements of income and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Partnership as of December 31, 1994 and 1993, and the results of its operations and cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 10 to the consolidated financial statements, in 1992 the Partnership changed its method of accounting for postretirement benefits other than pensions to conform with Statement of Financial Accounting Standards Number 106.
Deloitte & Touche
Philadelphia, Pennsylvania January 27, 1995
BUCKEYE PARTNERS, L.P. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
See notes to consolidated financial statements.
BUCKEYE PARTNERS, L.P. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
See notes to consolidated financial statements.
BUCKEYE PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
See notes to consolidated financial statements.
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1994 AND 1993 AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1. ORGANIZATION
Buckeye Partners, L.P. (the "Partnership") is a limited partnership organized in 1986 under the laws of the state of Delaware. The Partnership owns 99 percent limited partnership interests in Buckeye Pipe Line Company, L.P. ("Buckeye"), Laurel Pipe Line Company, L.P. ("Laurel"), Everglades Pipe Line Company, L.P. ("Everglades") and Buckeye Tank Terminals Company, L.P. ("BTT"). The foregoing entities are hereinafter referred to as the "Operating Partnerships." Laurel owns a 98.01 percent limited partnership interest in Buckeye Pipe Line Company of Michigan, L.P. ("BPL Michigan") which discontinued operations in 1993 (see Note 5).
During December 1986, the Partnership sold 12,000,000 limited partnership units ("LP Units") in a public offering representing an aggregate 99 percent limited partnership interest in the Partnership. Concurrently, the Partnership sold 121,212 units representing a 1 percent general partnership interest in the Partnership ("GP Units") to Buckeye Management Company (the "General Partner"), a wholly owned subsidiary of American Premier Underwriters, Inc. ("American Premier"), formerly The Penn Central Corporation. The Partnership used the proceeds from such sales to purchase from subsidiaries of American Premier the 99 percent limited partnership interests in the then existing Operating Partnerships and an 83 percent stock interest in Laurel Pipe Line Company ("Laurel Corp"). In December 1991, the Partnership acquired the minority interest in Laurel Corp. Laurel was formed in October 1992 and succeeded to the operations of Laurel Corp. During 1994, the Partnership issued an additional 16,060 limited partnership units and 162 general partnership units under its Unit Option and Distribution Equivalent Plan. At December 31, 1994, there were 12,016,060 limited partnership units and 121,374 general partnership units outstanding (see Note 14 and Note 16).
A subsidiary of the General Partner, Buckeye Pipe Line Company (the "Manager"), owns a 1 percent general partnership interest in, and serves as sole general partner and manager of, each Operating Partnership. The Manager also owns a 1 percent general partnership interest and a 0.99 percent limited partnership interest in BPL Michigan.
The Partnership maintains its accounts in accordance with the Uniform System of Accounts for Pipeline Companies, as prescribed by the Federal Energy Regulatory Commission ("FERC"). Reports to FERC differ from the accompanying consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles, generally in that such reports calculate depreciation over estimated useful lives of the assets as prescribed by FERC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements of the Partnership have been prepared using the purchase method of accounting. An allocation of the purchase price to the net assets acquired was made on their relative fair market values as appraised. The financial statements include the accounts of the Operating Partnerships on a consolidated basis. All significant intercompany transactions have been eliminated in consolidation.
Financial Instruments
The fair value of financial instruments is determined by reference to various market data and other valuation techniques as appropriate. Unless otherwise disclosed, the fair values of financial instruments approximate their recorded values (see Note 7).
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents
All highly liquid debt instruments purchased with a maturity of three months or less are classified as cash equivalents.
Temporary Investments
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," all temporary investments are considered to be trading securities. The aggregate market value of temporary investments approximates cost as of December 31, 1994. The adoption of SFAS 115 did not have a material effect on the Partnership's net income for the year ended December 31, 1994.
Revenue Recognition
Substantially all revenue is derived from interstate and intrastate transportation of petroleum products. Such revenue is recognized as products are delivered to customers. Such customers are major integrated oil companies, major refiners and large regional marketing companies. While the consolidated Partnership's continuing customer base numbers approximately 120, no customer during 1994 contributed more than 10 percent of total revenue. The Partnership does not maintain an allowance for doubtful accounts.
Inventories
Inventories, consisting of materials and supplies, are carried at cost which does not exceed realizable value.
Property, Plant and Equipment
Property, plant and equipment consist primarily of pipeline and related transportation facilities and equipment. For financial reporting purposes, depreciation is calculated primarily using the straight-line method over the estimated useful life of 50 years. Additions and betterments are capitalized and maintenance and repairs are charged to income as incurred. Generally, upon normal retirement or replacement, the cost of property (less salvage) is charged to the depreciation reserve, which has no effect on income.
Income Taxes
For federal and state income tax purposes, the Partnership and Operating Partnerships are not taxable entities. Accordingly, the taxable income or loss of the Partnership and Operating Partnerships, which may vary substantially from income or loss reported for financial reporting purposes, is generally includable in the federal and state income tax returns of the individual partners. In October 1992 (see Note 1), Laurel Corp and its parent LE Holdings, Inc. ("LEH") were merged into Laurel. Laurel Corp and its parent, LEH, as corporations, had been separate taxpaying entities whose taxable income was included in a consolidated federal income tax return. As a result of the merger, the then existing deferred income taxes of $3,697,000 were charged directly to the Partnership's capital accounts. The provision for federal income taxes on operations of Laurel Corp and LEH prior to the merger approximates the statutory tax rate applied to the pretax accounting income. As of December 31, 1994, the Partnership's reported amount of net assets for financial reporting purposes exceeded its tax basis by approximately $179 million.
Environmental Expenditures
Environmental expenditures that relate to current or future revenues are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and do not contribute to current or future revenue generation, are expensed. Liabilities
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) are recorded when environmental assessments and/or clean-ups are probable, and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with the Partnership's commitment to a formal plan of action.
Pensions
The Manager maintains a defined contribution plan and a defined benefit plan (see Note 9) which provide retirement benefits to substantially all of its regular full-time employees. Certain hourly employees of the Manager are covered by a defined contribution plan under a union agreement.
Postretirement Benefits Other Than Pensions
The Manager provides postretirement health care and life insurance benefits for certain of its retirees. In 1992, the Manager adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106") (see Note 10) to account for the cost of these plans. Certain other retired employees are covered by a health and welfare plan under a union agreement.
Reclassifications
Certain amounts in the consolidated financial statements for the periods prior to 1994 have been reclassified to conform to the current presentation.
3. CONTINGENCIES
The Partnership, and the Operating Partnerships, in the ordinary course of business, are involved in various claims and legal proceedings, some of which are covered in whole or in part by insurance. The General Partner is unable to predict the timing or outcome of these claims and proceedings. Although it is possible that one or more of these claims or proceedings, if adversely determined, could, depending on the relative amounts involved, have a material effect on the Partnership's results of operations for a future period, the General Partner does not believe that their outcome will have a material effect on the Partnership's consolidated financial condition.
Environmental
In accordance with its accounting policy on environmental expenditures, the Partnership recorded expenses of $5.9 million, $3.0 million and $3.1 million for 1994, 1993 and 1992, respectively, which were related to the environment. Expenditures, both capital and operating, relating to environmental matters are expected to increase due to the Partnership's commitment to maintain high environmental standards and to increasingly strict environmental laws and government enforcement policies.
Certain Operating Partnerships (or their predecessors) have been named as a defendant in lawsuits or have been notified by federal or state authorities that they are a potentially responsible party ("PRP") under federal laws or a respondent under state laws relating to the generation, disposal, or release of hazardous substances into the environment. These proceedings generally relate to potential liability for clean-up costs. The total potential remediation costs relating to these clean-up sites cannot be reasonably estimated. With respect to each site, however, the Operating Partnership involved is one of several or as many as several hundred PRPs that would share in the total costs of clean-up under the principle of joint and several liability. The General Partner believes
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
that the generation, handling and disposal of hazardous substances by the Operating Partnerships and their predecessors have been in material compliance with applicable environmental and regulatory requirements. Additional claims for the cost of cleaning up releases of hazardous substances and for damage to the environment resulting from the activities of the Operating Partnerships or their predecessors may be asserted in the future under various federal and state laws. Although the Partnership has made a provision for certain legal expenses relating to these matters, the General Partner is unable to determine the timing or outcome of any pending proceedings or of any future claims and proceedings.
Guaranteed Investment Contract
The Buckeye Pipe Line Company Retirement and Savings Plan (the "Plan") held a guaranteed investment contract ("GIC") issued by Executive Life Insurance Company ("Executive Life"), which entered conservatorship proceedings in the state of California in April 1991. The GIC was purchased in July 1989, with an initial principal investment of $7.4 million earning interest at an effective rate per annum of 8.98 percent through June 30, 1992. As a result of the conservatorship proceedings, no payment of principal or interest was made on the maturity date. A Plan of Rehabilitation was approved by the Superior Court of the state of California, and the Rehabilitation Plan was consummated on September 3, 1993. Various policy holders and creditors have, however, appealed certain aspects of the Plan of Rehabilitation, including the priority status of entities such as the Plan which purchased GICs subsequent to January 1, 1989. Pursuant to the Plan of Rehabilitation, the Plan has received an interest only contract from Aurora National Life Assurance Company in substitution for its Executive Life GIC. The contract provides for semi-annual interest payments at a rate of 5.61 percent per annum through September 1998, the maturity date of the contract. In addition, the Plan is to receive certain additional cash payments, the amounts of which cannot be accurately estimated at this time, over the next four years pursuant to the Plan of Rehabilitation. The timing and amount of payment with respect to the GIC is dependent upon the outcome of the pending appeals as well as clarification of various provisions of the Rehabilitation Plan. In May 1991, the General Partner, in order to safeguard the basic retirement and savings benefits of its employees, announced its intention to enter an arrangement with the Plan that would guarantee that the Plan would receive at least its initial principal investment of $7.4 million plus interest at an effective rate per annum of 5 percent from July 1, 1989. The General Partner's present intention is to effectuate its commitment no later than September 1998, the maturity date of the Aurora contract. The costs and expenses of the General Partner's employee benefit plans are reimbursable by the Partnership under the applicable limited partnership and management agreements. The General Partner believes that an adequate provision has been made for costs which may be incurred by the Partnership in connection with the guarantee.
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
Depreciation expense was $11,203,000, $11,002,000 and $10,745,000 for the years 1994, 1993 and 1992, respectively.
5. DISCONTINUED OPERATIONS
In the fourth quarter of 1990, the Partnership recorded a non-cash charge to earnings of $19.1 million, net of estimated earnings during phase-out, relating to the Partnership's decision to discontinue its 16-inch crude oil pipeline and a refined products terminal. The Partnership closed the sale of the 16-inch crude oil pipeline, together with associated real and personal property to Sun Pipe Line Company on February 1, 1993. Proceeds from the sale amounted to $9.2 million. Remaining discontinued operations consisting of petroleum facilities at the refined products terminal were dismantled and removed during the first quarter 1993. Disposal of these discontinued operations resulted in a loss of $127,000 in 1993.
6. ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other current liabilities consist of the following:
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. LONG-TERM DEBT AND CREDIT FACILITIES
Long-term debt (excluding current maturities) consists of the following:
Maturities of debt outstanding at December 31, 1994 are as follows: None in 1995; none in 1996; $11,900,000 in 1997; $16,900,000 in 1998; $16,900,000 in 1999 and a total of $168,300,000 in the period 2000 through 2010.
In accordance with SFAS 107, "Disclosure about Fair Value of Financial Instruments," the fair value of the Partnership's debt is estimated to be $221 million and $285 million as of December 31, 1994 and 1993, respectively. These values were calculated using interest rates currently available to the Partnership for issuance of debt with similar terms and remaining maturities.
The First Mortgage Notes are collateralized by a mortgage on and a security interest in substantially all of the currently existing and after-acquired property, plant and equipment (the "Mortgaged Property") of Buckeye.
The indenture pursuant to which the First Mortgage Notes were issued (the "Mortgage Note Indenture"), as amended by Supplemental Indentures, contains covenants which generally (a) limit the outstanding indebtedness of Buckeye under the Mortgage Note Indenture at any time to $275 million plus up to $15 million of short-term borrowings for working capital purposes, (b) prohibit Buckeye from creating or incurring additional liens on its property, (c) prohibit Buckeye from disposing of substantially all of its property or business to another party and (d) prohibit Buckeye from disposing of any part of the Mortgaged Property unless the proceeds in excess of $1 million in a fiscal year are available for reinvestment in assets subject to the lien of the Mortgage Note Indenture.
In December 1993, Buckeye entered into an agreement to issue $35 million of additional First Mortgage Notes in accordance with provisions under a Third Supplemental Indenture and as permitted under the Mortgage Note Indenture. These additional First Mortgage Notes, which were issued on January 7, 1994, mature from 2007 to 2009 and bear interest at rates ranging from 7.11 percent to 7.19 percent. A portion of the proceeds of these notes was used to complete an in-substance defeasance of principal and interest with respect to Buckeye's $20 million, 9.50 percent First Mortgage Notes (Series H) due December 1995 (see Note 11). Remaining proceeds of the additional notes were used for working capital purposes. In addition, Buckeye entered into an agreement with the purchaser of the $35 million of additional First Mortgage Notes which permitted Buckeye, under certain circumstances, to issue up to $40 million of additional First Mortgage Notes to such purchaser (the "Mortgage Note Facility").
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During March 1994, Buckeye entered into an agreement with such purchaser to issue $15 million of additional First Mortgage Notes under the Mortgage Note Facility and in accordance with provisions under a Fourth and Fifth Supplemental Indenture and the Mortgage Note Indenture. These additional First Mortgage Notes mature in 2010 and bear interest at 7.93 percent. The proceeds of these notes, plus additional cash of $1.6 million, were used to complete an in-substance defeasance of principal and interest with respect to $15 million of 9.72 percent First Mortgage Notes (Series I) due December 1996. In addition, in December 1994, Buckeye completed an in-substance defeasance of $5 million of Buckeye's 9.72 percent Series I First Mortgage Notes and $5 million of Buckeye's 11.18 percent Series J First Mortgage Notes (see Note 11). As of December 1994, Buckeye has the capacity to borrow up to $25 million of additional First Mortgage Notes under the Mortgage Note Facility.
The Amended and Restated Agreement of Limited Partnership of the Partnership (the "Partnership Agreement") contains certain restrictions which limit the incurrence of any debt by the Partnership or any Operating Partnership to the First Mortgage Notes, any additional debt of Buckeye permitted by the Mortgage Note Indenture and other debt not in excess of an aggregate consolidated principal amount of $25 million plus the aggregate proceeds from the sale of additional partnership interests.
The Partnership maintains a $15 million unsecured revolving credit facility with a commercial bank which is available to the Partnership for general purposes, including capital expenditures and working capital. Interest on any borrowings under this facility is calculated on the bank's Alternate Base Rate ("ABR") or LIBOR plus one percent. ABR is defined as the highest of the bank's prime rate, the three month secondary CD rate plus one percent, and the Federal Funds Rate plus one-half of one percent. At December 31, 1994, there was no amount outstanding under this facility.
Buckeye has a line of credit from two commercial banks (the "Working Capital Facility") which permits short-term borrowings of up to $10 million outstanding at any time. Borrowings under the Working Capital Facility bear interest at each bank's prime rate and are secured by the accounts receivable of Buckeye. The Mortgage Note Indenture contains covenants requiring that, for a period of 45 consecutive days during any year, no indebtedness be outstanding under the Working Capital Facility. In addition, Laurel has an unsecured line of credit from a commercial bank which permits short-term borrowings of up to $1 million outstanding at any time. Borrowings bear interest at the bank's prime rate. Laurel's unsecured line of credit contains covenants requiring that, for a period of 30 consecutive days during any year, no indebtedness be outstanding under this facility. At December 31, 1994, there were no amounts outstanding under either of these facilities.
8. OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consist of the following:
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. PENSION PLANS
The Manager provides retirement benefits, primarily through noncontributory pension plans, for substantially all of its regular full-time employees, except those covered by certain labor contracts, under which the Manager contributes 5 percent of each covered employee's salary, and a retirement income guarantee plan (a defined benefit plan) which generally guarantees employees hired before January 1, 1986 a retirement benefit at least equal to the benefit they would have received under a previously terminated defined benefit plan. The Manager's policy is to fund amounts as are necessary to at least meet the minimum funding requirements of ERISA. All of these plans were assumed by the Manager.
Net pension expense (benefit) for 1994, 1993 and 1992 for the defined benefit plans included the following components:
The pension expense for the defined contribution plan included in the consolidated statements of income approximated $1,471,000, $1,403,000 and $1,342,000 for 1994, 1993 and 1992, respectively.
The following table sets forth the funded status of the Manager's defined benefit plans and amounts recognized in the Partnership's consolidated balance sheets at December 31, 1994 and 1993 related to those plans:
As of December 31, 1994, approximately 39.6 percent of plan assets were invested in debt securities, 56.1 percent in equity securities and 4.3 percent in cash equivalents.
The weighted average discount rate and the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 8.5 percent and 6.0 percent, respectively. The expected long-term rate of return on assets was 8.5 percent as of January 1, 1994 and 1995.
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Manager also participates in a multi-employer retirement income plan which provides benefits to employees covered by certain labor contracts. Pension expense for the plan was $152,000, $156,000 and $137,000 for 1994, 1993 and 1992, respectively.
10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1992, the Partnership adopted SFAS 106. This statement requires that the cost of postretirement benefits other than pensions be accrued over the employee's years of service. Prior to the adoption of SFAS 106, the cost of these postretirement benefits was expensed on a "pay as you go" basis.
The Manager provides postretirement health care and life insurance benefits to certain of its retirees. To be eligible for these benefits an employee had to be hired prior to January 1, 1991 and has to meet certain service requirements. The Manager does not pre-fund this postretirement benefit obligation. On January 1, 1992, the accumulated postretirement benefit obligation ("APBO") amounted to $25,544,000. The Manager chose to recognize immediately the APBO as expense in 1992 for financial reporting purposes.
Net postretirement benefit costs for 1994, 1993 and 1992 included the following components:
The following table sets forth the amounts related to postretirement benefit obligations recognized in the Partnership's consolidated balance sheets as of December 31, 1994 and 1993:
The weighted average discount rate used in determining the APBO was 8.5 percent. The assumed rate for plan cost increases in 1994 was 12.3 percent and 10.4 percent for non-Medicare eligible and Medicare eligible retirees, respectively. The assumed annual rates of cost increase decline each year through 2005 to a rate of 5.75 percent, and remain at 5.75 percent thereafter for both non-Medicare eligible and Medicare eligible retirees. The effect of a 1 percent increase in the health care cost trend rate for each future year would have increased the aggregate of service and interest cost components by $391,200 in 1994 and the APBO would have increased by $3,421,300 as of December 31, 1994.
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Manager also contributes to a multi-employer postretirement benefit plan which provides health care and life insurance benefits to employees covered by certain labor contracts. The cost of providing these benefits was approximately $130,000, $123,000 and $112,000 for 1994, 1993 and 1992, respectively.
11. EARLY EXTINGUISHMENT OF DEBT
In March 1994, Buckeye entered into an agreement to issue $15 million of additional First Mortgage Notes (Series N) bearing interest at 7.93 percent (see Note 7). The proceeds from the issuance of these First Mortgage Notes, plus additional amounts approximating $1.6 million, were used to purchase U.S. Government securities. These securities were deposited into an irrevocable trust to complete an in-substance defeasance of $15 million of Buckeye's 9.72 percent, Series I, First Mortgage Notes. In addition, during December 1994, Buckeye purchased approximately $10.7 million of U.S. Government securities. These securities were deposited into an irrevocable trust to complete an in- substance defeasance of $5 million of Buckeye's 9.72 percent, Series I, First Mortgage Notes and $5 million of Buckeye's 11.18 percent, Series J, First Mortgage Notes. The funds placed in trust in 1994 will be used solely to satisfy the interest due and principal amounts of $20 million Series I Notes due December 1996 and $5 million Series J Notes due serially through December 2006. Accordingly, these U.S. Government securities, the Series I First Mortgage Notes and $5 million of the Series J First Mortgage Notes have been excluded from the 1994 balance sheet. This debt extinguishment resulted in an extraordinary charge of $2,269,000 in 1994.
In December 1993, Buckeye entered into an agreement to issue $35 million of additional First Mortgage Notes (Series K, L and M) bearing interest at rates ranging from 7.11 percent to 7.19 percent (see Note 7). A portion of the proceeds from the issuance of these First Mortgage Notes were used to purchase approximately $22.2 million of U.S. Government securities. These securities were deposited into an irrevocable trust to complete an in-substance defeasance of Buckeye's 9.50 percent, Series H, First Mortgage Notes. The funds in the trust will be used solely to satisfy the interest due and principal amount of $20 million due at maturity in December 1995. Accordingly, these U.S. Government securities and the Series H First Mortgage Notes have been excluded from the balance sheets. This debt extinguishment resulted in an extraordinary charge of $2,161,000 in 1993.
12. LEASES
The Operating Partnerships lease certain land and rights-of-way. Minimum future lease payments for these leases as of December 31, 1994 are approximately $2.6 million for each of the next five years. Substantially all of these lease payments can be cancelled at any time should they not be required for operations.
The Manager leases space in an office building and certain copying equipment and Buckeye leases certain computing equipment and automobiles. The rent on such leases is charged to the Operating Partnerships. Future minimum lease payments under these noncancellable operating leases at December 31, 1994 were as follows: $859,000 for 1995, $733,000 for 1996, $620,000 for 1997, $493,000 for 1998, $351,000 for 1999, and $2,381,000 thereafter.
Rent expense for all operating leases was $4,834,000, $4,890,000 and $4,417,000 for 1994, 1993 and 1992, respectively.
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. RELATED PARTY TRANSACTIONS
The Partnership and the Operating Partnerships are managed and controlled by the General Partner and the Manager. Under certain partnership agreements and management agreements, the General Partner, the Manager, and certain related parties are entitled to reimbursement of all direct and indirect costs related to the business activities of the Partnership and the Operating Partnerships. These costs, which totaled $52.5 million, $52.7 million and $46.3 million in 1994, 1993 and 1992, respectively, include insurance fees, consulting fees, general and administrative costs, compensation and benefits payable to officers and employees of the General Partner and Manager, tax information and reporting costs, legal and audit fees and an allocable portion of overhead expenses.
In 1986, Buckeye's predecessor (then owned by a subsidiary of American Premier) obtained an Administrative Consent Order ("ACO") from the New Jersey Department of Environmental Protection and Energy under the New Jersey Environmental Cleanup Responsibility Act of 1983 for all six of its facilities in New Jersey. The ACO required Pipe Line to conduct in a timely manner a sampling plan for environmental contamination at the New Jersey facilities and to implement any required clean-up plan. Sampling continues in an effort to identify areas of contamination at the New Jersey facilities, while clean-up operations have begun at certain of the sites. The obligations of Pipe Line were not assumed by the Partnership and the costs of compliance will be paid by American Premier. Through December 1994, Buckeye's costs of approximately $2,353,000 have been funded by American Premier.
14. PARTNERS' CAPITAL
Changes in partners' capital for the years ended December 31, 1992, 1993, and 1994 were as follows:
The net income per unit for 1994 was calculated using the weighted average outstanding units of 12,131,640. The net income per unit for 1993 and 1992 was calculated using 12,121,212 outstanding units.
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Partnership Agreement provides that without prior approval of limited partners of the Partnership holding an aggregate of at least two-thirds of the outstanding LP Units, the Partnership cannot issue more than 4,800,000 additional LP Units, or issue any additional LP Units of a class or series having preferences or other special or senior rights over the LP Units. At December 31, 1994, the Partnership has the ability to issue up to 4,783,940 additional LP Units without prior approval of the Limited Partners of the Partnership.
15. CASH DISTRIBUTIONS
The Mortgage Note Indenture covenants permit cash distributions by Buckeye to the Partnership so long as no default exists under the Mortgage Note Indenture and provided that such distributions do not exceed Net Cash Available to Partners (generally defined to equal net income plus depreciation and amortization less (a) capital expenditures funded from operating cash flows, (b) payments of principal of debt and (c) certain other amounts, all on a cumulative basis since the formation of the Partnership). The maximum amount available for distribution by Buckeye to the Partnership under the formula as of December 31, 1994 amounted to $11.0 million. The Partnership is also entitled to receive cash distributions from Everglades, BTT and Laurel.
The Partnership makes quarterly cash distributions to Unitholders of substantially all of its available cash, generally defined as consolidated cash receipts less consolidated cash expenditures and such retentions for working capital, anticipated cash expenditures and contingencies as the General Partner deems appropriate or as are required by the terms of the Mortgage Note Indenture. In 1994, quarterly distributions of $0.70 per GP and LP Unit were paid in February, May, August and November. In 1993 and 1992, quarterly distributions of $0.65 per GP and LP Unit were paid in February, May, August and November. All such distributions were paid on the then outstanding GP and LP Units. Cash distributions aggregated $33,968,000 in 1994 and $31,515,000 in each of 1993 and 1992.
On February 1, 1995, the General Partner announced a quarterly distribution of $0.70 per GP and LP Unit payable on February 28, 1995.
16. UNIT OPTION AND DISTRIBUTION EQUIVALENT PLAN
The Partnership has a Unit Option and Distribution Equivalent Plan (the "Option Plan"), which was approved by the Board of Directors of the General Partner on April 25, 1991 and by holders of the LP Units on October 22, 1991. The Option Plan authorizes the granting of options (the "Options") to acquire LP Units to selected key employees (the "Optionees") of the General Partner or any subsidiary, not to exceed 360,000 LP Units in the aggregate. The price at which each LP Unit may be purchased pursuant to an Option granted under the Option Plan is generally equal to the market value on the date of the grant. Options may be granted with a feature that allows Optionees to apply accrued credit balances (the "Distribution Equivalents") as an adjustment to the aggregate purchase price of such Options. The Distribution Equivalents shall be an amount equal to (i) the Partnership's per LP Unit regular quarterly distribution, multiplied by (ii) the number of LP Units subject to such Options that have not vested. Vesting in the Options is determined by the number of anniversaries the Optionee has remained in the employ of the General Partner or a subsidiary following the date of the grant of the Option. Options become vested in varying amounts beginning generally three years after the date of grant and remain exercisable for a period of five years. The aggregate number of Options granted during 1994, 1993 and 1992 were 26,750 units, 23,500 units and 22,250 units, respectively, with a purchase price of $39.438, $32.750 and $27.688, respectively. All such Options
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
were granted with Distribution Equivalents. During 1994, a total of 16,060 Options were exercised at an exercise price ranging from $18.025 to $29.450 per unit. At December 31, 1994, there were 76,540 Options outstanding and none of the outstanding Options were exercisable.
17. QUARTERLY FINANCIAL DATA (NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
Summarized quarterly financial data for 1994 and 1993 are set forth below. Quarterly results were influenced by seasonal factors inherent in the Partnership's business.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership does not have directors or officers. The directors and officers of the General Partner and the Manager perform all management functions. Directors and officers of the General Partner and the Manager are selected by American Premier.
DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER
Set forth below is certain information concerning the directors and executive officers of the General Partner. All of such persons were elected to their present positions with the General Partner in October 1986, except as noted below.
- - -------- * Also a director of the Manager.
The General Partner has an Audit Committee, which currently consists of three directors: A. Leon Fergenson, William C. Pierce and Robert H. Young. Messrs. Fergenson, Pierce and Young are neither officers nor employees of the General Partner or any of its affiliates.
The General Partner also has a Compensation Committee, which currently consists of four directors: Alfred W. Martinelli, Brian F. Billings, Ernest R. Varalli and Robert H. Young. The Compensation Committee is concerned primarily with establishing executive compensation policies for officers of the Manager and administering of the Partnership's Option Plan. See "Executive Compensation--Compensation Committee Interlocks and Insider Participation in Compensation Decisions."
DIRECTORS AND EXECUTIVE OFFICERS OF THE MANAGER
Set forth below is certain information concerning the directors and executive officers of the Manager. Messrs. Billings and Martinelli were elected as directors of the Manager in March 1987, and Mr. Varalli was elected as a director of the Manager in July 1987.
- - -------- * Also Secretary of the General Partner since February 1992.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the total compensation earned by the Chief Executive Officer of the General Partner and the four most highly compensated executive officers of the General Partner and the Manager for services rendered to the Partnership, the General Partner or the Manager for the fiscal year ended December 31, 1994, as well as the total compensation earned by such individuals for the two previous fiscal years. Alfred W. Martinelli, Chairman of the Board, Chief Executive Officer and Director of the General Partner, did not receive any cash compensation for serving as an officer of the General Partner in 1994, but received fees for serving as a Director of the General Partner. See "Director Compensation" below. Executive officers of the Manager, including Messrs. Wilson, Epperly, Muther and Ramsey, are compensated by the Manager and, pursuant to management agreements with each of the Operating Partnerships, such compensation is reimbursed by the Operating Partnerships in accordance with an allocation formula based upon the results of the prior year's operations.
SUMMARY COMPENSATION TABLE
- - -------- (1) Represents amounts awarded by the Compensation Committee as cash bonuses earned under the Manager's Annual Incentive Compensation Plan ("AIC Plan"). Under the AIC Plan, individual awards are granted to participants based upon satisfaction of such participant's target award opportunities and such awards are paid to participants as soon as practicable after they are granted. (2) Represents options granted under the Partnership's Unit Option and Distribution Equivalent Plan (the "Option Plan"). See "Long Term Compensation--Option Plan" below. Certain officers of the Manager are also eligible to participate in the American Premier Stock Option Plan (the "American Premier Option Plan"). No cost or expense relating to the American Premier Option Plan is borne by the Partnership. No options were awarded in 1992, 1993 or 1994 under the American Premier Option Plan to the Chief Executive Officer of the General Partner or the four most highly compensated executive officers of the General Partner and the Manager. (3) Represents payments received during the applicable year under the Manager's Long-Term Incentive Compensation Plans (the "LTIC Plans"). See "Long-Term Compensation--Long-Term Incentive Plans" below. (4) Represents consulting fees paid by PCEM and reimbursed by the Partnership prior to the termination of Mr. Martinelli's consulting arrangement in July 1992. (5) Represents lease payments made by the Partnership for an automobile used by Mr. Martinelli. (6) During the year indicated, no perquisites or non-cash compensation exceeded the lesser of $50,000 or an amount equal to 10 percent of such person's salary and bonus.
(7) Represents director fees which commenced in July 1992. See "Director Compensation" below. (8) Represents the amount contributed by the Manager to the Manager's defined contribution retirement plan and the Manager's matching contributions under the Manager's savings plan and, for Messrs. Wilson, Epperly, Muther and Ramsey an additional $18,313, $7,150, $5,000 and $3,000, respectively, under the Manager's Benefit Equalization Plan for 1994. Mr. Wilson and Mr. Epperly received an additional $733 and $379, respectively, in 1993 and Mr. Wilson received an additional $10,748 in 1992 under the Manager's Benefit Equalization Plan. In addition to participation in the Manager's defined contribution plan, Messrs. Wilson, Epperly and Ramsey are guaranteed certain defined benefits upon retirement under the Manager's retirement income guarantee plan. See "Retirement and Savings Plans" below.
LONG-TERM COMPENSATION
Option Plan
The following table sets forth additional information regarding options granted under the Option Plan to the Chief Executive Officer of the General Partner and the four most highly compensated executive officers of the General Partner and Manager during 1994.
OPTION GRANTS IN LAST FISCAL YEAR
- - -------- (1) Represents LP Unit options granted under the Option Plan. Options shown in the table were granted with a feature that allows optionees to apply accrued credit balances (the "Distribution Equivalents") as a reduction to the aggregate purchase price of such options. The Distribution Equivalents are equal to (i) the Partnership's per LP Unit regular quarterly distribution as declared from time to time by the Board of Directors of the General Partner, multiplied by (ii) the number of LP Units subject to options that have not vested. Vesting in the options is determined by the number of anniversaries the optionee has remained in the employ of the General Partner or a subsidiary following the date of the grant of the option. Vesting shall be at the rate of 0 percent if the number of anniversaries are less than three, 60 percent if the number of anniversaries are three but less than four, 80 percent if the number of anniversaries are four but less than five and 100 percent if the number of anniversaries are five or more. In addition, the optionee may become fully vested upon death, retirement, disability or a determination by the Board of Directors of the General Partner or the Compensation Committee that acceleration of the vesting in the option would be desirable for the Partnership. Up to 95 percent of the LP Unit purchase price and up to 100 percent of any taxes required to be withheld in connection with the purchase of the LP Units pursuant to such options may be financed through a loan program established by the General Partner.
(2) The dollar amounts under these columns are the values of options (not including accrual of any Distribution Equivalents) at the 5 percent and 10 percent rates set by the Securities and Exchange Commission and therefore are not intended to forecast possible future appreciation, if any, of the price of LP Units. No alternative formula for a grant date valuation was used, as the General Partner is not aware of any formula which will determine with reasonable accuracy a present value based on future unknown or volatile factors.
The following table sets forth information regarding options exercised in 1994 and values of unexercised options as of December 31, 1994 for the Chief Executive Officer of the General Partner and the four most highly compensated executive officers of the General Partner and the Manager.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
- - -------- (1) The values of the unexercised options do not include any accrual for Distribution Equivalents.
In 1994, Mr. Muther exercised options to purchase 546 shares of American Premier with a net value realized of $3,784. In 1993, Messrs. Wilson, Epperly and Muther exercised options to purchase 11,294 shares, 1,636 shares and 1,090 shares of American Premier, respectively, with a net value realized of $63,559, $22,141 and $8,916, respectively. All shares were acquired pursuant to the American Premier Option Plan. No cost or expense relating to the exercise of these options was incurred by the Partnership.
Long-Term Incentive Plans
Prior to 1991 when the Option Plan went into effect, the Manager created a LTIC Plan each year which permitted the Board of Directors of the General Partner or the Compensation Committee to grant cash awards to certain employees of the Manager for performance during three-year periods. Although cash award payments continued under these LTIC Plans through 1994, no new LTIC plans were established after 1990. In addition to the LTIC Plans, the Manager created a transition plan which grants to each participant an additional cash award in an amount equal to the difference between the target amount under the 1990-1992 LTIC Plan and the sum of (i) amounts received pursuant to LTIC Plans and (ii) the value of Distribution Equivalents vested under the Option Plan for each year from 1992 through 1995.
Awards under LTIC Plans were based on achievement of certain long-term financial performance goals for the Partnership and could not exceed 150 percent of the target award opportunity established by the Board of Directors of the General Partner or the Compensation Committee at the beginning of such period (or as soon as practicable thereafter) for such period. A participant's target award opportunity under the LTIC Plans could not exceed 25 percent of such
participant's aggregate base salary earned during the three-year period. If the Partnership met or exceeded the interim financial performance goals under the LTIC Plans, cash payments up to the full amount of the target award were made in the following installments: 10 percent in the second year of the award period, 30 percent in the third year of the award period and 60 percent in the first year following the award period. Any cash award in excess of the target award was paid in the second year following the award period with 10 percent simple interest.
RETIREMENT AND SAVINGS PLANS
Effective December 31, 1985, Pipe Line terminated its defined benefit retirement plan (the "Retirement Plan") and adopted a new defined contribution plan (the "New Retirement Program"). Those employees hired prior to January 1, 1986 are covered by a retirement income guarantee plan (the "RIGP"). These plans were assumed by the Manager.
The Operating Partnerships reimburse the Manager for cash costs incurred in connection with the New Retirement Program, the RIGP, the Equalization Plan (described below) and the Savings Plan (described below).
Under the New Retirement Program, the Manager makes contributions equal to 5 percent of an employee's covered compensation, which includes base salary plus overtime, annual cash bonuses and any periodic salary continuance payments but does not include extraordinary cash bonuses, deferred awards, other forms of deferred compensation, lump-sum severance pay, fees or any other kind of special or extra compensation. Employees may elect to have the Manager's contributions invested in any of five investment funds.
The RIGP generally provides for an additional retirement benefit equal to the amount, if any, by which the aggregate of the annuity equivalent of the employee's accrued benefit under the former Retirement Plan at December 31, 1985 plus the annuity equivalent of the vested portion of employer contributions under the New Retirement Program for the account of such employee (plus or minus aggregate investment gains or losses thereon) is less than the retirement benefit that the employee would have received if the former Retirement Plan had continued. The vesting formula for the New Retirement Program and the RIGP provides for 100 percent vesting after 5 years of service. Service under the former Retirement Plan is carried over to the new plans. The minimum retirement benefit guaranteed under the RIGP is based on the highest average compensation during any five consecutive calendar years of employment within the last ten years of employment preceding retirement ("Highest Average Compensation"). For purposes of the RIGP, compensation is defined to include the same components as under the New Retirement Program, except that periodic salary continuance payments are not included. The former Retirement Plan benefit, which the RIGP was established to guarantee, provides for a retirement benefit equal to 1.75 percent per year of service (maximum of 60 percent) of the Highest Average Compensation, reduced by 1.46 percent for each year of service (with a maximum offset of 50 percent) of the estimated primary insurance amount that an employee is entitled to receive upon retirement, other termination of employment or, if earlier, attainment of age 65 under the Social Security Act.
The Manager also assumed Pipe Line's Benefit Equalization Plan (the "Equalization Plan"), which generally makes up the reductions caused by Internal Revenue Code limitations in the annual retirement benefit determined pursuant to the RIGP and in the Manager's contributions on behalf of an employee pursuant to the New Retirement Program and the Savings Plan. Those amounts not payable under the RIGP (or under affiliated company retirement plans and employee transfer policies), the New Retirement Program or the Savings Plan are payable under the Equalization Plan.
Estimated annual benefits under the RIGP and the Equalization Plan, calculated under the single life annuity option form of pension, payable to participants at the normal retirement age of 65, are illustrated in the following table.
The amounts shown in the above table have been reduced by the percentage equal to 1.46 percent for each year of service of the estimated maximum annual benefits payable under the Social Security Act in respect of each category. The amounts shown in the table would be further reduced, as described above, by the accrued benefit under the former Retirement Plan as of December 31, 1985, as well as by the aggregate amount of vested employer contributions under the New Retirement Program (plus or minus aggregate investment gains or losses thereon).
Messrs. Wilson, Epperly and Ramsey have 20, 29 and 13 full credited years of service with the Manager and its affiliates, respectively, under the New Retirement Program, the RIGP and the Equalization Plan. Each of them is 100 percent vested under such plans. Mr. Muther has four full years of credited service with the Manager. He is not covered under the RIGP and is currently vested under the New Retirement Program.
Officers of the Manager are also eligible to participate on a voluntary basis in the Manager's Savings Plan (the "Savings Plan"). An employee may elect to contribute to the Savings Plan annually a specified percentage of his pay, subject to certain limitations. The Manager will contribute to the Savings Plan, out of its current or accumulated profits, for the benefit of each participating employee, an amount equal to his contributions up to a maximum of 5 percent of his pay (6 percent of pay if the employee has completed 20 or more years of service). Employees may elect to have the Manager's contributions invested in any of four investment funds. The Manager's contributions vest immediately for the first 2 percent of the employee's pay and at the rate of 20 percent per year of service (excluding the first year of service) for the remainder, with 100 percent vesting upon death, disability, retirement or attainment of age 65. Benefits are payable, at the election of the employee, in a lump-sum cash distribution after termination of employment or as an annuity upon retirement or a combination of the two.
DIRECTOR COMPENSATION
The fee schedule for directors of the General Partner other than Messrs. Martinelli, Hahl and Wilson is as follows: annual fee, $15,000; attendance fee for each Board of Directors meeting, $1,000; and attendance fee for each committee meeting, $750. Directors' fees paid by the General Partner in 1994 to such directors amounted to $118,500.
Mr. Martinelli, Chairman of the Board, Chief Executive Officer and Director of the General Partner is entitled to receive the following fees as Chairman of the Board of Directors: annual fee $20,000; attendance fee for each Board of Directors meeting, $1,500; and attendance fee for each committee meeting, $1,000. Director's fees paid by the General Partner in 1994 to Mr. Martinelli amounted to $24,500.
Mr. Hahl, President and Director of the General Partner, is an employee of American Premier and devotes substantially all of his time to American Premier rather than to the General Partner or the Partnership. Consequently, no compensation or other benefits payable to Mr. Hahl is paid or reimbursed by the Partnership for Mr. Hahl's services as a director of the General Partner.
Mr. Wilson, Chairman of the Board, President and Chief Operating Officer of the Manager and Director of the General Partner, is compensated by the Partnership for his services to the Manager (see "Summary Compensation Table") and does not receive any additional compensation or other benefits with respect to his services as a director of the General Partner.
Members of the Board of Directors of the Manager were not compensated for their services as directors, and it is not currently anticipated that any such compensation will be paid in the future to directors of the Manager who are full-time employees of the Manager or any of its affiliates.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS
The Compensation Committee consists of Messrs. Martinelli, Varalli, Billings and Young. Messrs. Martinelli and Varalli are executive officers of the General Partner and Mr. Billings is a former executive officer of the General Partner. Mr. Martinelli is on the American Premier Compensation Committee. The members of the Board of Directors of the General Partner are chosen by American Premier, as beneficial owner of all outstanding capital stock of the General Partner. See "Certain Relationships and Related Transactions." Mr. Hahl, the President and Director of the General Partner, also serves as Senior Vice President and Director of American Premier, although he does not serve on the Compensation Committee. Mr. Young, who is also a member of the Compensation Committee, is counsel to the law firm of Morgan, Lewis and Bockius, which supplies legal services to the Partnership.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person or group is known to be the beneficial owner of more than 5 percent of the LP Units as of February 1, 1995.
The following table sets forth certain information, as of February 1, 1995, concerning the beneficial ownership of LP Units by each director of the General Partner, the Chief Executive Officer of the General Partner, the four most highly compensated officers of the General Partner and the Manager and by all directors and executive officers of the General Partner and the Manager as a group. Such information is based on data furnished by the persons named. Based on information furnished to the General Partner by such persons, no director or executive officer of the General Partner or the Manager owned beneficially, as of February 1, 1995, more than 1 percent of any class of equity securities of the Partnership or any of its subsidiaries outstanding at that date.
- - -------- (1) Unless otherwise indicated, the persons named above have sole voting and investment power over the LP Units reported. (2) The LP Units owned by Messrs. Epperly, Pierce and Ramsey have shared voting and investment power with their respective spouses.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership and the Operating Partnerships are managed and controlled by the General Partner and the Manager, respectively, pursuant to the Amended and Restated Agreement of Limited Partnership of the Partnership (the "Partnership Agreement"), the several Amended and Restated Agreements of Limited Partnership of the Operating Partnerships (the "Operating Partnership Agreements") and the several Management Agreements between the Manager and the Operating Partnerships (the "Management Agreements").
Under the Partnership Agreement and the Operating Partnership Agreements, as well as the Management Agreements, the General Partner, the Manager and certain related parties are entitled to reimbursement of all direct and indirect costs and expenses related to the business activities of the Partnership and the Operating Partnerships. These costs and expenses include insurance fees, consulting fees, general and administrative costs, compensation and benefits payable to officers and other employees of the General Partner and Manager, tax information and reporting costs, legal and audit fees and an allocable portion of overhead expenses. Such reimbursed amounts constitute a substantial portion of the revenues of the General Partner and the Manager. These costs and expenses reimbursed by the Partnership totaled $52.2 million in 1994.
The Partnership receives management consulting services from PCEM. The cost of this management consulting service allocated to the Partnership in 1994 totaled $337,600. See "Executive Compensation--Summary Compensation and Compensation Committee Interlocks and Insider Participation in Compensation Decisions."
The Partnership and the General Partner have entered into incentive compensation arrangements which provide for incentive compensation payable to the General Partner in the event quarterly or special distributions to Unitholders exceed certain specified targets. In general, subject to certain limitations and adjustments, if a quarterly cash distribution exceeds a target of $0.65 per LP Unit, the Partnership will pay the General Partner, in respect of each outstanding LP Unit, incentive compensation equal to (i) 15 percent of that portion of the distribution per LP Unit which exceeds the target quarterly amount of $0.65 but is not more than $0.75 plus (ii) 25 percent of the amount, if any, by which the quarterly distribution per LP Unit exceeds $0.75. The General Partner is also entitled to incentive compensation, under a comparable formula, in respect of special cash distributions exceeding a target special distribution amount per LP Unit. The target special distribution amount generally means the amount which, together with all amounts distributed per LP Unit prior to the special distribution compounded quarterly at 13 percent per annum, would equal $20.00 (the initial public offering price of the LP Units) compounded quarterly at 13 percent per annum from the date of the closing of the initial public offering. Incentive compensation paid by the Partnership, to the General Partner totaled $360,000 in 1994.
On February 1, 1995, the General Partner announced a quarterly distribution of $0.70 per GP and LP Unit payable on February 28, 1995. As such distribution exceeds a target of $0.65 per LP Unit, the Partnership will pay the General Partner incentive compensation aggregating $90,000 as a result of this distribution.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
(1) and (2) Financial Statements and Financial Statement Schedules--see Index to Financial Statements and Financial Statement Schedules appearing on page 22.
(3) Exhibits, including those incorporated by reference. The following is a list of exhibits filed as part of this Annual Report on Form 10-K. Where so indicated by footnote, exhibits which were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated in parentheses.
- - -------- (1) Previously filed with the Securities and Exchange Commission as the Exhibit to the Buckeye Partners, L.P. Annual Report on Form 10-K for the year 1986.
(2) Previously filed with the Securities and Exchange Commission as the Exhibit to the Buckeye Partners, L.P. Quarterly Report on Form 10-Q for the quarter ended March 31, 1988.
(3) Previously filed with the Securities and Exchange Commission as the Exhibit to Buckeye Partners, L.P. Annual Report on Form 10-K for the year 1992.
(4) The Amended and Restated Agreements of Limited Partnership of the other Operating Partnerships are not filed because they are identical to Exhibit 10.1 except for the identity of the partnership.
(5) The Management Agreements of the other Operating Partnerships are not filed because they are identical to Exhibit 10.4 except for the identity of the partnership.
(6) Represents management contract or compensatory plan or arrangement.
(7) Previously filed with the Securities and Exchange Commission as the Exhibit to the Buckeye Partners, L.P. Quarterly Report on Form 10-Q for the quarter ended September 30, 1991.
(8) Previously filed with the Securities and Exchange Commission as the Exhibit to the Buckeye Partners, L.P. Annual Report on Form 10-K for the year 1993.
(9) Previously filed with the Securities and Exchange Commission as the Exhibit to the Buckeye Partners, L.P. Quarterly Report on Form 10-Q for the quarter ended March 31, 1994.
* Filed herewith
(b) Reports on Form 8-K filed during the quarter ended December 31, 1994:
None
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Buckeye Partners, L.P. (Registrant)
By: Buckeye Management Company, as General Partner
/s/ Alfred W. Martinelli Dated: March 14, 1995 By: _________________________________ Alfred W. Martinelli Chairman of the Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
/s/ Brian F. Billings Dated: March 14, 1995 By: _________________________________ Brian F. Billings Director
/s/ A. Leon Fergenson Dated: March 14, 1995 By: _________________________________ A. Leon Fergenson Director
/s/ Neil M. Hahl Dated: March 14, 1995 By: _________________________________ Neil M. Hahl President and Director
/s/ Edward F. Kosnik Dated: March 14, 1995 By: _________________________________ Edward F. Kosnik Director
/s/ Alfred W. Martinelli Dated: March 14, 1995 By: _________________________________ Alfred W. Martinelli Chairman of the Board and Director (Principal Executive Officer)
/s/ William C. Pierce Dated: March 14, 1995 By: _________________________________ William C. Pierce Director
/s/ Ernest R. Varalli Dated: March 14, 1995 By: _________________________________ Ernest R. Varalli Executive Vice President, Chief Financial Officer, Treasurer and Director (Principal Accounting and Financial Officer)
/s/ C. Richard Wilson Dated: March 14, 1995 By: _________________________________ C. Richard Wilson Director
/s/ Robert H. Young Dated: March 14, 1995 By: _________________________________ Robert H. Young Director
INDEPENDENT AUDITORS' REPORT
To the Partners of Buckeye Partners, L.P.:
We have audited the consolidated financial statements of Buckeye Partners, L.P. and its subsidiaries as of December 31, 1994 and 1993, and for each of the three years in the period ended December 31, 1994, and have issued our report thereon dated January 27, 1995; such report is included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedules of Buckeye Partners, L.P. and subsidiaries referred to in Item 14. These consolidated financial statement schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
Deloitte & Touche
Philadelphia, Pennsylvania January 27, 1995
S-1
SCHEDULE I
BUCKEYE PARTNERS, L.P. REGISTRANT'S CONDENSED FINANCIAL STATEMENTS (IN THOUSANDS)
BALANCE SHEETS
STATEMENTS OF INCOME
See footnotes to consolidated financial statements of Buckeye Partners, L.P.
S-2
SCHEDULE II
BUCKEYE PARTNERS, L.P. VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
- - -------- (a) Represents disposition of discontinued operations upon sale of net assets of discontinued operations during 1993. (b) Reversal of corporate deferred income taxes.
S-3
INDEX TO EXHIBITS