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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _________
Commission file number: 1-4998
ATLAS PIPELINE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 23-3011077
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
311 Rouser Road
Moon Township, Pennsylvania 15108
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (412) 262-2830
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of August 1, 2002, there were outstanding 1,621,159 Common Units and
1,641,026 Subordinated Units
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2002 (Unaudited) and December 31, 2001..................... 3
Consolidated Statements of Income for the Three Months and Six Months Ended
June 30, 2002 and June 30, 2001 (Unaudited)......................................................... 4
Consolidated Statement of Partners' Capital (Deficit) (Unaudited) for the Six Months
Ended June 30, 2002................................................................................. 5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and
June 30, 2001 (Unaudited)........................................................................... 6
Notes to Consolidated Financial Statements - June 30, 2002 (Unaudited)................................ 7 - 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 11 - 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................ 19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................................................... 20
SIGNATURES ...................................................................................................... 21
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2002 (Unaudited) AND DECEMBER 31, 2001
June 30, December 31,
2002 2001
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 1,907,600 $ 2,162,200
Accounts receivable - affiliates................................................. - 1,312,300
Prepaid expenses................................................................. 1,364,000 123,500
------------- -------------
Total current assets........................................................... 3,271,600 3,598,000
Property and equipment:
Gas gathering and transmission facilities........................................ 27,277,100 24,153,400
Less - accumulated depreciation.................................................. (4,851,700) (4,144,000)
------------- -------------
Net property and equipment..................................................... 22,425,400 20,009,400
Goodwill (net of accumulated amortization of $285,300).............................. 2,304,600 2,304,600
Other Assets (net of accumulated amortization of $71,000 and $53,300)............... 62,100 89,800
------------- -------------
$ 28,063,700 $ 26,001,800
============= =============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities......................................... $ 623,400 $ 189,600
Accounts payable - affiliates.................................................... 1,200,500 -
Distribution payable............................................................. 1,851,800 2,049,600
------------- -------------
Total current liabilities...................................................... 3,675,700 2,239,200
Long-term debt...................................................................... 3,743,500 2,089,000
Partners' capital (deficit):
Common unitholders, 1,621,159 units outstanding.................................. 19,628,600 20,128,700
Subordinated unitholder, 1,641,026 units outstanding............................. 1,154,700 1,660,900
General partner.................................................................. (138,800) (116,000)
------------- -------------
Total partners' capital........................................................ 20,644,500 21,673,600
------------- -------------
$ 28,063,700 $ 26,001,800
============= =============
See accompanying notes to consolidated financial statements
3
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
2002 2001 2002 2001
------------ ------------ ----------- ------------
REVENUES:
Transportation and compression.................................... $ 2,615,200 $ 3,411,800 $ 5,191,300 $ 7,682,900
Interest income................................................... 2,900 12,300 4,400 21,900
------------ ------------ ----------- ------------
2,618,100 3,424,100 5,195,700 7,704,800
COST AND EXPENSES:
Transportation and compression.................................... 492,800 555,900 1,004,900 863,100
General and administrative........................................ 481,500 279,300 791,500 552,000
Depreciation and amortization..................................... 362,300 341,100 707,700 663,300
Interest.......................................................... 45,200 48,600 83,000 90,900
------------ ------------ ----------- ------------
1,381,800 1,224,900 2,587,100 2,169,300
------------ ------------ ----------- ------------
Net income........................................................ $ 1,236,300 $ 2,199,200 $ 2,608,600 $ 5,535,500
============ ============ =========== ============
Net income - limited partners..................................... $ 1,143,300 $ 1,801,000 $ 2,435,200 $ 4,788,600
============ ============ =========== ============
Net income - general partner...................................... $ 93,000 $ 398,200 $ 173,400 $ 746,900
============ ============ =========== ============
Basic and diluted net income per limited partner unit............. $ .35 $ .55 $ .75 $ 1.47
============ ============ =========== ============
Weighted average limited partner units outstanding................ 3,262,185 3,262,185 3,262,185 3,246,774
============ ============ =========== ============
See accompanying notes to consolidated financial statements
4
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(Unaudited)
Number of Limited Partners' Capital (Deficit)
Partner Units ---------------------------------------------- Total
---------------------------- General Partners'
Common Subordinated Common Subordinated Partner Capital (Deficit)
----------- ------------- ----------- ------------ ----------- -----------------
Balance at January 1, 2002..... 1,621,159 1,641,026 $20,128,700 $ 1,660,900 $ (116,000) $ 21,673,600
Distribution to partners....... - - (843,000) (853,300) (89,600) (1,785,900)
Distribution payable........... - - (867,300) (877,900) (106,600) (1,851,800)
Net income..................... - - 1,210,200 1,225,000 173,400 2,608,600
---------- ----------- ----------- ------------ ----------- -------------
Balance at June 30, 2002....... 1,621,159 1,641,026 $19,628,600 $ 1,154,700 $ (138,800) $ 20,644,500
========== =========== =========== ============ =========== =============
See accompanying notes to consolidated financial statements
5
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Unaudited)
2002 2001
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................................... $ 2,608,600 $ 5,535,500
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................... 707,700 663,300
Amortization of deferred finance costs........................................... 17,700 25,100
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable - affiliates and prepaid expenses..... 71,800 (192,000)
Increase in accounts payable and accrued liabilities............................. 433,800 25,700
Increase in accounts payable - affiliates........................................ 1,200,500 -
------------- -------------
Net cash provided by operating activities...................................... 5,040,100 6,057,600
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of gathering systems................................................... (165,000) (1,400,000)
Capital expenditures................................................................ (2,958,700) (952,300)
------------- -------------
Net cash used in investing activities.......................................... (3,123,700) (2,352,300)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term debt........................................................ 1,654,500 2,089,000
Capital contributions............................................................... - 45,500
Distributions paid to partners...................................................... (3,835,500) (4,382,000)
Decrease (increase) in other assets................................................. 10,000 (3,000)
------------- -------------
Net cash used in financing activities.......................................... (2,171,000) (2,250,500)
------------- -------------
(Decrease) increase in cash and cash equivalents.................................... (254,600) 1,454,800
Cash and cash equivalents, beginning of period...................................... 2,162,200 2,043,500
------------- -------------
Cash and cash equivalents, end of period............................................ $ 1,907,600 $ 3,498,300
============= =============
See accompanying notes to consolidated financial statements
6
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(Unaudited)
NOTE 1 - MANAGEMENT'S OPINION REGARDING INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared
by the Partnership without audit and reflect all adjustments, consisting of
normal recurring adjustments and accruals, which are, in the opinion of
management, necessary for a fair statement of financial position and the results
of operations for the interim periods. The statements have been prepared in
accordance with the regulations of the Securities and Exchange Commission, but
omit certain information and footnote disclosures necessary to present the
statements in accordance with generally accepted accounting principles. For
further information, refer to the consolidated financial statements and notes
thereto included in the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 2001.
Certain reclassifications have been made to the consolidated financial
statements for the six months ended June 30, 2001 to conform with the six months
ended June 30, 2002.
The accompanying consolidated financial statements and related notes
present the Partnership's consolidated financial position as of June 30, 2002
and December 31, 2001 and the results of its consolidated operations, changes in
partners' capital (deficit) and cash flows for the six months ended June 30,
2002 and 2001.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fair Value of Financial Instruments
For cash and cash equivalents, receivables and payables, the carrying
amounts approximate fair value because of the short maturity of these
instruments.
Net Income Per Unit
There is no difference between basic and diluted net income per limited
partner unit since there are no potentially dilutive units outstanding. Net
income per limited partner unit is determined by dividing net income, after
deducting the general partner's 2% and incentive interests, by the weighted
average number of outstanding common units and subordinated units.
Comprehensive Income
The Partnership is subject to the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 130," Reporting Comprehensive Income," which
requires disclosure of comprehensive income and its components. Comprehensive
income includes net income and all other changes in the equity of a business
during a period from non-owner sources. These changes, other than net income,
are referred to as "other comprehensive income." The Partnership has no elements
of comprehensive income, other than net income, to report.
Cash Flow Statements
For purposes of the statements of cash flows, all highly liquid debt
instruments purchased with a maturity of six months or less are considered to be
cash equivalents.
7
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2002
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Segment Information
The Partnership has one business segment, the transportation segment.
The transportation segment derives its revenues primarily from the
transportation of natural gas that it receives from producers. Revenues from the
transportation segment are, for the most part, based on contractual arrangements
with Resource America, Inc. and its affiliates.
Supplemental Disclosure of Cash Flow Information
Information for the six months ended June 30, 2002 and 2001,
respectively, is as follows:
2002 2001
------------- -------------
Cash paid for:
Interest............................................. $ 65,300 $ 22,300
============= =============
Non-cash activities:
Issuance of common units in exchange for
gas gathering and transmission facilities........ $ - $ 2,250,000
============= =============
New Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations" ("SFAS 141"), SFAS No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"), and SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143").
SFAS 141 requires that the purchase method of accounting be used for
all business combinations initiated or completed after June 2001. SFAS 141 also
specifies the criteria that intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. The adoption of SFAS 141 as of July 2001 had no impact on the
Partnership's consolidated financial statements.
SFAS 142 requires that goodwill no longer be amortized, but instead
tested for impairment at least annually. Any goodwill and any intangible asset
determined to have an indefinite useful life that is acquired in a purchase
business combination completed after June 2001 is not amortized, but is
evaluated for impairment in accordance with the appropriate existing accounting
literature. The Partnership adopted SFAS 142 on January 1, 2002. At that date,
the Partnership had unamortized goodwill in the amount of $2,304,600, which was
subject to the transition provisions of SFAS 142. The adoption of SFAS 142 as of
January 1, 2002 will reduce amortization expense for the year ended December 31,
2002 by approximately $88,000 as compared to the year ended December 31, 2001.
For the three and six months ended June 30, 2001, the Partnership's
goodwill amortization expense was approximately $22,000 and $44,000,
respectively. Pro forma net income for the three and six months ended June 30,
2001 would have been $2,221,200 and $5,579,500, respectively, excluding goodwill
amortization expense. Pro forma basic and diluted income per limited partner for
the three and six months ended June 30, 2001 would have been $.56 and $1.49,
respectively.
8
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2002
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
The Partnership has completed the transitional impairment test required
upon adoption of SFAS 142. The transitional test, which involved the use of
estimates related to the fair market value of the business operations associated
with the goodwill, did not indicate an impairment loss. The Partnership will
continue to evaluate its goodwill, at least annually, and will reflect the
impairment of goodwill, if any, in operating income in the income statement.
SFAS 143 requires entities to record the fair value of a liability for
an asset retirement obligation in the period in which it is incurred and a
corresponding increase in the carrying amount of the related long-lived asset.
SFAS 143 will be effective for fiscal years beginning after June 15, 2002. The
Partnership is evaluating the impact of SFAS 143.
In October 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Live Assets" ("SFAS 144") was issued. SFAS 144 requires that
one accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired, and broadens the
presentation of discontinued operations to include more disposal transactions.
The adoption of SFAS 144 as of January 1, 2002 had no impact on the
Partnership's operations or financial position.
In May 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS
145") was issued. SFAS 145 rescinds the automatic treatment of gains or losses
from extinguishments of debt as extraordinary unless they meet the criteria for
extraordinary items as outlined in APB No. 30, "Reporting the Results of
Operations, Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions". SFAS
145 also requires sale-leaseback accounting for certain lease modifications that
have economic effects similar to a sale-leaseback transaction and makes various
technical corrections to existing pronouncements. SFAS 145 is effective for all
financial statements issued by the Partnership in 2003. The Partnership does not
expect the adoption of SFAS 145 to have a material effect on its consolidated
financial position or results of operations.
In July 2002, SFAS No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities" ("SFAS 146") was issued. SFAS 146 is effective for exit
or disposal activities initiated after December 31, 2002. The Partnership has
not yet adopted SFAS 146 nor determined the effect of the adoption of SFAS 146
on its financial position or results of operations.
NOTE 3 - DISTRIBUTION DECLARED
The Partnership will generally make quarterly cash distributions of
substantially all of its available cash, generally defined as cash on hand at
the end of the quarter less cash reserves deemed appropriate to provide for
future operating costs, potential acquisitions and future distributions.
On June 21, 2002, the Partnership declared a cash distribution of $.535
per unit on its outstanding common units and subordinated units. The
distribution represents the available cash flow for the three months ended June
30, 2002. The $1,851,800 distribution, which includes a distribution of $106,600
to the general partner, will be paid on August 8, 2002 to unitholders of record
on June 28, 2002.
9
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2002
(Unaudited)
NOTE 4 - TERMINATION OF PROPOSED ACQUISITION
On July 31, 2002, the Partnership announced that it had terminated its
agreement with New Vulcan Coal Holdings, L.L.C. and Vulcan Intermediary, L.L.C.
(collectively, "Vulcan") to acquire Triton Coal Company ("Triton"). The related
purchase agreement for the sale of the interests held by Atlas America, Inc. in
the Partnership's general partner also terminated. The Partnership has incurred
approximately $1.4 million in costs in connection with the Triton transaction
through June 30, 2002, subject to reimbursement by Atlas America and its
affiliates for their allocable portion of these costs. Atlas America had
advanced approximately $900,000 to the Partnership through June 30, 2002 to pay
for these costs; the advances are included in accounts payable--affiliates. The
Partnership anticipates that Atlas America will advance to the Partnership the
balance of these costs.
The Partnership and its affiliates have the right under the acquisition
agreement to reimbursement from Vulcan of up to $1.2 million of the transaction
costs. Through June 30, 2002, the Partnership has expensed transaction costs of
$187,500, the difference between costs incurred and those reimbursable by
Vulcan. The costs that are reimbursable by Vulcan are included on the
Partnership's consolidated balance sheet as prepaid expenses. The Partnership
anticipates that it will repay Atlas America from the Vulcan reimbursement, but
if that reimbursement is insufficient or uncollectible, the Partnership will
repay Atlas America from its cash flow, which would reduce cash available for
future distributions.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
When used in this Form 10-Q, the words "believes" "anticipates"
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties more
particularly described in Item 1, under the caption "Risk Factors," in our
annual report on Form 10-K for fiscal 2001. These risks and uncertainties could
cause actual results to differ materially. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. We undertake no obligation to publicly release the results of any
revisions to forward-looking statements which we may make to reflect events or
circumstances after the date of this Form 10-Q or to reflect the occurrence of
unanticipated events.
The following important factors could affect our future results and
could cause those results to differ materially from those expressed in our
forward-looking statements:
o weather conditions resulting in reduced demand;
o changes in laws and regulations, including safety, tax and
accounting matters;
o increased supply of natural gas or competitive pressures from
alternative energy sources;
o liability for environmental claims;
o improvements in energy efficiency and technology resulting in
reduced demand;
o changes in real property tax assessments;
o regional economic conditions;
o security issues relating to the Partnership's assets; and
o interest rate fluctuations and other capital market conditions.
These factors are not necessarily all of the important factors that
could cause actual results to differ materially from those expected in any of
our forward-looking statements. Other unknown or unpredictable factors could
also have a material adverse effect on future results.
The following discussion provides information to assist in
understanding our financial condition and results of operation. This discussion
should be read in conjunction with our consolidated financial statements and
related notes appearing elsewhere in this report.
General
Our principal business objective is to generate income for distribution
to our unitholders from the transportation of natural gas through our gathering
systems. We completed an initial public offering of our common units in February
2000 and used the proceeds of that offering to acquire the gathering systems
formerly owned by Atlas America and its affiliates, all subsidiaries of Resource
America. The gathering systems gather natural gas from wells in eastern Ohio,
western New York, and western Pennsylvania and transport the natural gas
primarily to public utility pipelines. To a lesser extent, the gathering systems
transport natural gas to end-users.
In January 2001, we acquired the gas gathering system of Kingston Oil
Corporation. The gas gathering system consists of approximately 100 miles of
pipeline located in southeastern Ohio. In March 2001, we acquired the gas
gathering system of American Refining and Exploration Company. The gas gathering
system consists of approximately 20 miles of pipeline located in Fayette County,
Pennsylvania. These acquisitions were accounted for under the purchase method of
accounting and, accordingly, we allocated the purchase prices to the assets
acquired based on their fair values at the dates of acquisition. Our results of
operations include the operations of these gathering systems from their
respective dates of acquisition.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
General - (Continued)
On January 18, 2002 we entered into an agreement to acquire
substantially all of the equity interests in Triton from Vulcan. Vulcan was to
contribute 98% of the equity interests in Triton and $6.0 million in cash to us
in exchange for approximately 7.0 million common units, approximately 4.0
million newly created subordinated units and approximately 17.6 million newly
created deferred participation units. On July 31, 2002, we announced that we had
terminated the agreement to acquire Triton. The related purchase agreement for
the sale of the interests held by Atlas America, Inc. in our general partner
also terminated.
We have incurred approximately $1.4 million in costs in connection with
the Triton transaction through June 30, 2002. Atlas America had advanced
approximately $900,000 of these costs to us through June 30, 2002. We anticipate
that Atlas America will advance the balance of these costs. Our affiliates have
agreed to reimburse us for their allocable portions of the transaction costs. We
and our affiliates have the right under the acquisition agreement to
reimbursement from Vulcan of up to $1.2 million of the transaction costs.
Through June 30, 2002, we have expensed transaction costs of $187,500, the
difference between costs incurred and those reimbursable by Vulcan. The costs
that are reimbursable by Vulcan are included on our consolidated balance sheet
as prepaid expenses. We anticipate that we will repay Atlas America from the
Vulcan reimbursement, but if that reimbursement is insufficient or
uncollectible, we will repay Atlas America from our cash flow, which would
reduce cash available for future distributions.
Results of Operations
Our revenues for the three and six months ended June 30, 2002, other
than interest income, were derived from our transportation and compression
operations. The principal variables which affect our transportation and
compression revenues are:
o the volumes of natural gas transported by us, which are in turn a
function of the supply for natural gas in the regions served by our
gathering systems, and
o the transportation fees paid to us which, in turn, depend upon the
price of the natural gas we transport, which itself is a function of
the relevant supply and demand in the Mid-Atlantic and North-Eastern
part of the United States.
The following table sets forth the average volumes transported, average
transportation rates per mcf (thousand cubic feet) and revenues received by us
for the periods indicated.
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
2002 2001 2002 2001
------------ ------------ ----------- ------------
Average daily throughput volumes (mcf)............................ 50,334 48,554 50,127 45,628
============ ============ =========== ============
Average transportation rate (per mcf)............................. $ .57 $ .77 $ .57 $ .93
============ ============ =========== ============
Total transportation and compression revenues..................... $ 2,615,200 $ 3,411,800 $ 5,191,300 $ 7,682,900
============ ============ =========== ============
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
Results of Operations - (Continued)
Three Months Ended June 30, 2002 as Compared to the Three Months Ended June 30,
2001
Revenues. Our transportation and compression revenues decreased to
$2,615,200 in the three months ended June 30, 2002 from $3,411,800 in the three
months ended June 30, 2001. The decrease of $796,600 (23%) resulted from a
decrease in the average transportation fees paid to us ($889,300), partially
offset by an increase in the volumes of natural gas we transported ($92,700).
Our average daily throughput volumes were 50,334 mcfs in the three
months ended June 30, 2002 as compared to 48,554 mcfs in the three months ended
June 30, 2001, an increase of 1,780 mcfs (4%). The increase in the average daily
throughput volume resulted principally from volumes associated with new wells
added to our pipeline system; 196 wells and 98 wells were connected to our
gathering system and began production in the year ended December 31, 2001 and
the six months ended June 30, 2002, respectively. These increases were partially
offset by the natural decline in production volumes from wells already connected
to our gathering system.
Our transportation rates are primarily at fixed percentages of the
sales price of the natural gas we transport. Our transportation fees for natural
gas produced by Atlas America and its affiliates also have specified minimums.
Our average transportation rate was $.57 per mcf in the three months ended June
30, 2002 as compared to $.77 per mcf in the three months ended June 30, 2001, a
decrease of $.20 per mcf (26%).
Interest income of $2,900 consists of interest earned on funds
temporarily invested in short-term money market accounts, a decrease of $9,400
(76%) from $12,300 for the three months ended June 30, 2001, as a result of a
decrease in funds invested and lower rates earned on those funds.
Costs and Expenses. Our transportation and compression expenses
decreased to $492,800 in the three months ended June 30, 2002 as compared to
$555,900 in the three months ended June 30, 2001, a decrease of $63,100 (11%).
Our average cost per mcf of transportation and compression was $.11 in the three
months ended June 30, 2002 as compared to $.125 in the three months ended June
30, 2001, a decrease of $.015 (12%). This decrease resulted from a decrease in
compressor expenses, including lease payments, in the three months ended June
30, 2002 as compared to the prior period.
Our general and administrative expenses increased to $481,500 in the
three months ended June 30, 2002 as compared to $279,300 in the three months
ended June 30, 2001, an increase of $202,200 (72%). This increase primarily
resulted from the payment of professional fees of $187,500, associated with the
terminated Triton acquisition (See Note 4).
Our depreciation and amortization expense increased to $362,300 in the
three months ended June 30, 2002 as compared to $341,100 in the three months
ended June 30, 2001, an increase of $21,200 (6%). This increase resulted from
the increased asset base associated with pipeline extensions and acquisitions
partially offset by a reduction in goodwill amortization as compared to the
previous period.
Our interest expense decreased to $45,200 in the three months ended
June 30, 2002 as compared to $48,600 in the three months ended June 30, 2001.
This decrease of $3,400 (7%) resulted from a decrease in the amortization of
deferred finance costs in the current period as compared to the prior period and
lower borrowing rates, slightly offset by increased borrowings.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
Results of Operations - (Continued)
Six Months Ended June 30, 2002 Compared to June 30, 2001
Revenues. Our transportation and compression revenues decreased to
$5,191,300 in the six months ended June 30, 2002 from $7,682,900 in the six
months ended June 30, 2001. The decrease of $2,491,600 (32%) resulted from a
decrease in the average transportation fees paid to us ($2,957,600), partially
offset by an increase in the volumes of natural gas we transported ($466,000).
Our average daily throughput volumes were 50,127 mcfs in the six months
ended June 30, 2002 as compared to 45,628 mcfs in the six months ended June 30,
2001, an increase of 4,499 mcfs (10%). The increase in the average daily
throughput volumes resulted principally from volumes associated with new wells
added to our pipeline system; 196 wells and 98 wells were connected to our
gathering system and began production in the year ended December 31, 2001 and
the six months ended June 30, 2002, respectively. These increases were partially
offset by the natural decline in production volumes from wells already connected
to our gathering system.
Our transportation rates are primarily at fixed percentages of the
sales price of the natural gas we transport. Our transportation fees for natural
gas produced by Atlas America and its affiliates also have specified minimums.
Our average transportation rate was $.57 per mcf in the six months ended June
30, 2002 as compared to $.93 per mcf in the six months ended June 30, 2001, a
decrease of $.36 per mcf (39%). In the first six months of 2001, natural gas
prices increased significantly over historical prices. During subsequent
quarters, prices returned to previous levels. As a result, our average
transportation rate decreased.
Interest income of $4,400 consists of interest earned on funds
temporarily invested in short-term money market accounts, a decrease of $17,500
(80%) from $21,900 for the six months ended June 30, 2001, as a result of a
decrease in funds invested and lower rates earned on those funds.
Costs and Expenses. Our transportation and compression expenses
increased to $1,004,900 in the six months ended June 30, 2002, as compared to
$863,100 in the six months ended June 30, 2001, an increase of $141,800 (16%).
Our average cost per mcf of transportation and compression was $.11 in the six
months ended June 30, 2002, as compared to $.10 in the six months ended June 30,
2001, an increase of $.01 (10%). This increase resulted from an increase in
labor costs associated with pipeline repairs and compressor expenses in the six
months ended June 30, 2002 as compared to the prior year.
Our general and administrative expenses increased to $791,500 in the
six months ended June 30, 2002 as compared to $552,000 in the six months ended
June 30, 2001, an increase of $239,500 (43%). This increase primarily resulted
from an increase in professional fees associated with the terminated Triton
acquisition (see Note 4), and an increase in our cost of insurance, reflecting
increased operating activities and assets, as well as significant increases in
insurance rates in general.
Our depreciation and amortization expense increased to $707,700 in the
six months ended June 30, 2002 as compared to $663,300 in the six months ended
June 30, 2001, an increase of $44,400 (7%). This increase resulted from the
increased asset base associated with pipeline extensions and acquisitions,
partially offset by a reduction in goodwill amortization.
Our interest expense decreased to $83,000 in the six months ended June
30, 2002 as compared to $90,900 in the six months ended June 30, 2001. The
$7,900 (9%) decrease resulted from a decrease in the amortization of deferred
finance costs in the current period as compared to the prior period and lower
borrowing rates.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
Liquidity and Capital Resources
Our primary cash requirements, in addition to normal operating
expenses, are debt service, sustaining capital expenditures, expansion capital
expenditures and quarterly distributions to our common unitholders, subordinated
unitholder and general partner. We meet our cash requirements principally from
cash generated by our operations. We also have $6.3 million of remaining
borrowing capacity under our credit facility. To date, we have used the facility
to fund construction of extensions to our existing gathering systems and to
acquire other gathering systems. We fund cash distributions to common
unitholders from operations. Minimum required distributions are supported by our
general partner under the Distribution Support Agreement.
The following table summarizes our financial condition for the periods
indicated:
June 30,
----------------------------------
2002 2001
------------- -------------
Current ratio.............................................................. .89 to 1.0 2.0 to 1.0
Working (deficit) capital................................................. $ (404,100) $ 2,750,400
Ratio of long-term debt to total partners' capital......................... .18 to 1.0 .09 to 1.0
The changes in our current ratio and working capital result from the
advance by Atlas America of $2.8 million for capital expenditures and expenses
incurred in connection with the Triton acquisition in the six months ended June
30, 2002. To reimburse Atlas America, we intend to draw $1.8 million on our line
of credit and anticipate reimbursement from Vulcan of the $900,000.
During the six months ended June 30, 2002, net cash provided by
operations was $5,040,100 as compared to $6,057,600 in the six months ended June
30, 2001. This decrease of $1,017,500 resulted primarily from a decrease in
income from operations before depreciation and amortization of $2,702,400 offset
by the effects of changes in operating assets and liabilities of $1,684,900.
Net cash used in investing activities was $3,123,700 for the six months
ended June 30, 2002, an increase of $771,400 from $2,352,300 the six months
ended June 30, 2001. Net cash used in investing activities during the six months
ended June 30, 2001 consisted of the acquisition of two small pipelines from
third parties ($1,400,000) and capital expenditures associated with gathering
system extensions and compressor upgrades to our existing pipeline systems. In
the six months ended June 30, 2002, we used $165,000 for the acquisition of one
small gathering system and incurred capital expenditures of $2,958,700 for
gathering system extensions and compressor upgrades.
Net cash used in financing activities was $2,171,000 for the six months
ended June 30, 2002, a decrease of $79,500 from cash used in financing
activities of $2,250,500 in the six months ended June 30, 2001. Distributions
paid to partners in the six months ended June 30, 2002 decreased $546,500 as
compared to the six months ended June 30, 2001 as a result of a decrease in net
income. Net borrowings of $1,654,500 were used to fund pipeline extensions. In
the prior fiscal period, we borrowed $1,400,000 to fund two small pipeline
acquisitions and $689,000 to fund pipeline extensions and compressor upgrades.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
Commitments
We and our affiliates have incurred approximately $1.4 million in costs
in connection with the Triton transactions through June 30, 2002. Atlas America
advanced approximately $900,000 of these costs to us. We anticipate that Atlas
America will advance the balance of these costs. Our affiliates have agreed to
reimburse us for their allocable portions of the transaction costs. We and our
affiliates have the right under the acquisition agreement to reimbursement from
Vulcan of up to $1.2 million of the transaction costs because Triton did not
secure the $225 million of financing required under the acquisition agreement.
We have expensed transaction costs of $187,500, the difference between costs
incurred and those reimbursable by Vulcan. We anticipate that we will repay
Atlas America from the Vulcan reimbursement, but if that reimbursement is
insufficient or uncollectible, we will repay Atlas America from our cash flow,
which would reduce cash available for future distributions.
Contractual Obligations and Commercial Commitments
We had no commercial commitments at June 30, 2002. The following table
summarizes our contractual obligations at June 30, 2002:
Payments Due By Period
Less than 1 - 3 4 - 5 After 5
Contractual cash obligations Total 1 Year Years Years Years
Long-term debt......................... $ 3,743,500 $ - $ 3,743,500 $ - $ -
Capital lease obligations.............. - - - - -
Operating leases....................... 331,500 331,500 - - -
Unconditional purchase obligations..... - - - - -
Other long-term obligations............ - - - - -
------------ ----------- ------------- ----------- -----------
Total contractual cash obligations..... $ 4,075,000 $ 331,500 $ 3,743,500 $ - $ -
============ ============ ============= =========== ===========
Our operating lease commitments are with respect to leases for
compressors with varying expiration dates. These commitments are routine and
were made in the normal course of our business.
Long-Term Debt
We obtained a $10.0 million revolving credit facility in October 2000.
Our principal purpose in obtaining the facility was to fund the expansion of our
existing gathering systems and the acquisitions of other gas gathering systems.
In the six months ended June 30, 2002 we used $1,654,500 of the facility to fund
capital expenditures for expansions of our existing gathering systems and
compressors. At June 30, 2002, $3,743,500 was outstanding on this facility,
which is due in October 2003.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
Capital Expenditures
Our property and equipment was 80% and 77% of our total consolidated
assets at June 30, 2002 and December 31, 2001, respectively. Capital
expenditures, other than the acquisitions of gathering systems, were $2,958,700
and $952,300 for the six months ended June 30, 2002 and 2001, respectively.
These capital expenditures principally consisted of costs relating to expansion
of our existing gathering systems as a result of new wells connected to our
system and compressor upgrades. During calendar 2001 and the six months ended
June 30, 2002, 294 wells were connected to our gathering system. Future capital
expenditures will be funded by a combination of cash generated from operations
and, and if required, from our existing credit facility. Our capital
expenditures could increase materially if the number of wells connected to our
gathering systems in fiscal 2002 exceeds our current expectations.
Critical Accounting Policies and Estimates
Certain amounts included in or affecting our consolidated financial
statements and related disclosures are estimates that require us to make
assumptions with respect to values or conditions that cannot be known with
certainty at the time the financial statements are prepared. These estimates
affect:
o the amount we report for assets and liabilities;
o our disclosure of contingent assets and liabilities at the date of
the consolidated financial statements; and
o the amounts we report for revenues and costs and expenses during the
reporting period.
Our estimates principally include the economic useful lives of our
assets, provisions for uncollectible accounts receivable, exposures under
contractual indemnifications and various other recorded or disclosed amounts.
However, we believe that certain accounting policies are of more significance in
our financial statement preparation process than others are. Refer to Note 2 of
the consolidated financial statements included in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2001 for further information. With
respect to our environmental exposure, we utilize both internal and external
experts to assist us in identifying environmental issues.
The reported amounts of our assets and liabilities, revenues and costs
and expenses and associated disclosures with respect to contingent assets and
obligations are necessarily affected by our estimates. We evaluate our estimates
on an ongoing basis, using our historical experience, consultation with experts
and other methods we consider reasonable in the particular circumstances.
Nevertheless, actual results may differ significantly from our estimates. Any
effects on our business, financial position or results of operations resulting
from revisions to these estimates are recorded in the period in which the facts
that give rise to the revisions become known.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
Recently Issued Financial Accounting Standards
Recently the Financial Accounting Standards Boards ("FASB") issued SFAS
No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"), and
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 143 establishes
requirements for the accounting for removal costs associated with asset
retirements and SFAS 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS 143 is effective for fiscal
years beginning after June 15, 2002, with earlier adoption encouraged, and SFAS
144 is effective for fiscal years beginning after December 15, 2001 and interim
periods within those fiscal years. We are currently assessing the impact of SFAS
143 on our consolidated financial statements. The adoption of SFAS 144 had no
impact on our operations or financial position.
In May 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS
145") was issued. SFAS 145 rescinds the automatic treatment of gains or losses
from extinguishments of debt as extraordinary unless they meet the criteria for
extraordinary items as outlined in APB No. 30, "Reporting the Results of
Operations, Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions". SFAS
145 also requires sale-leaseback accounting for certain lease modifications that
have economic effects similar to a sale-leaseback transaction and makes various
technical corrections to existing pronouncements. SFAS 145 is effective for all
financial statements issued by us in 2003. We do not expect the adoption of SFAS
145 to have a material effect on our consolidated financial position or results
of operations.
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All of our assets and liabilities are denominated in U.S. dollars, and
as a result, we do not have exposure to currency exchange risks.
We do not engage in any interest rate, foreign currency exchange rate
or commodity price-hedging transactions, and as a result, we do not have
exposure to derivatives risk.
Market risk inherent in our debt is the potential change arising from
increases or decreases in interest rates. Changes in variable rate debt usually
do not affect the fair value of the debt instrument, but may affect our future
earnings and cash flows.
We have a $10.0 million revolving credit facility to fund the expansion
of our existing gathering systems and the acquisition of other gas gathering
systems. The carrying value of our debt was $3,743,500 and the weighted average
interest rate was 3.4% at June 30, 2002. A hypothetical 10% change in the
average interest rate applicable to this debt would result in a change of
approximately $11,000 in our net income and would not affect the market value of
this debt.
19
PART II. OTHER INFORMATION
ITEM 6. Exhibits And Reports On Form 8-K
(a) Exhibits:
2.1 (1) Contribution Agreement among Vulcan Intermediary,
L.L.C., New Vulcan Holding, L.L.C., Atlas Pipeline
Partners GP, LLC, Atlas Pipeline Partners, L.P.
and Resource America, Inc.
2.2 (2) First Amendment to Contribution Agreement among
Vulcan Intermediary, L.L.C., New Vulcan Holding,
L.L.C., Atlas Pipeline Partners, GP, Atlas
Pipeline Partners, L.P. and Resource America, Inc.
3.1 (3) First Amended and Restated Agreement of Limited
Partnership
3.2 (3) Certificate of Limited Partnership of Atlas
Pipeline Partners, L.P.
3.3 (3) Amended and Restated Agreement of Limited
Partnership of Atlas Pipeline Operating
Partnership, L.P.
3.4 (3) Certificate of Limited Partnership of Atlas
Pipeline Operating Partnership, L.P.
99.1 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002
----------------
(1) Previously filed as an exhibit to the Partnership's current report
on Form 8-K dated January 18, 2002 and incorporated herein by
reference.
(2) Previously filed as an exhibit to the Partnership's current report
on Form 8-K dated May 9, 2002, and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Partnership's registration
statement on Form S-1, Registration No. 333-85193 and incorporated
herein by reference.
(b) Reports on Form 8-K:
During the quarter for which this report is being filed, the
Partnership filed a current report on Form 8-K dated May 9,
2002 regarding extension of the termination date of the
agreement to acquire Triton Coal Company to June 15, 2002 from
May 15, 2002.
20
SIGNATURES
ATLAS PIPELINE PARTNERS, L.P.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
By: Atlas Pipeline Partners GP, LLC, its General Partner
Date: August 13, 2002 By: /s/ Michael L. Staines
---------------------------
MICHAEL L. STAINES
President, Chief Operating Officer,
Secretary and Managing Board Member of the General Partner
Date: August 13, 2002 By: /s/ Nancy J. McGurk
---------------------------
NANCY J. McGURK
Chief Accounting Officer of the General Partner
21