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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, 2003
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
As of July 31, 2003, there were outstanding 2,713,659 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, 2003 (Unaudited) and December 31, 2002..................... 2
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2003 and
June 30, 2002 (Unaudited)........................................................................... 3
Consolidated Statement of Partners' Capital (Deficit) (Unaudited) for the Six Months
Ended June 30, 2003................................................................................. 4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and
June 30, 2002 (Unaudited)........................................................................... 5
Notes to Consolidated Financial Statements - June 30, 2003 (Unaudited)................................ 6 - 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................10 - 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................ 16
Item 4. Evaluation of Disclosure Controls and Procedures...................................................... 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................................................... 17
SIGNATURES.......................................................................................................... 18
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2003 2002
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents........................................................ $19,886,200 $ 1,858,600
Accounts receivable.............................................................. - 500,000
Accounts receivable-affiliates................................................... 369,400 -
Prepaid expenses................................................................. 160,100 26,800
--------------- --------------
Total current assets........................................................... 20,415,700 2,385,400
Property and equipment:
Gas gathering and transmission facilities........................................ 31,538,400 29,384,000
Less-accumulated depreciation.................................................... (6,447,300) (5,619,600)
--------------- --------------
Net property and equipment..................................................... 25,091,100 23,764,400
Goodwill (net of accumulated amortization of $285,300).............................. 2,304,600 2,304,600
Other assets (net of accumulated amortization of $56,200 and $0).................... 284,600 60,900
--------------- --------------
$ 48,096,000 $ 28,515,300
=============== ==============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities......................................... $ 7,300 $ 107,800
Accounts payable-affiliates...................................................... - 347,200
Distribution payable............................................................. 2,736,000 1,873,800
--------------- --------------
Total current liabilities...................................................... 2,743,300 2,328,800
Long-term debt...................................................................... - 6,500,000
Partners' capital (deficit):
Common unitholders, 2,713,659 and 1,621,159 units outstanding.................... 44,266,900 19,163,500
Subordinated unitholder, 1,641,026 units outstanding............................. 742,300 683,700
General partner.................................................................. 343,500 (160,700)
--------------- --------------
Total partners' capital........................................................ 45,352,700 19,686,500
--------------- --------------
$ 48,096,000 $ 28,515,300
=============== ==============
See accompanying notes to consolidated financial statements
2
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
2003 2002 2003 2002
------------ ------------ ----------- --------------
REVENUES:
Transportation and compression.................................... $ 4,325,000 $ 2,615,200 $ 7,653,400 $ 5,191,300
Interest and other income......................................... 23,300 2,900 24,400 4,400
------------ ------------ ----------- -------------
4,348,300 2,618,100 7,677,800 5,195,700
COST AND EXPENSES:
Transportation and compression.................................... 615,800 492,800 1,224,000 1,004,900
General and administrative........................................ 546,600 481,500 865,700 791,500
Depreciation and amortization..................................... 421,000 362,300 827,700 707,700
Interest.......................................................... 79,000 45,200 162,500 83,000
------------ ------------ ----------- -------------
1,662,400 1,381,300 3,079,900 2,587,100
------------ ------------ ----------- -------------
Net income........................................................ $ 2,685,900 $ 1,236,300 $ 4,597,900 $ 2,608,600
============ ============ =========== =============
Net income - limited partners..................................... $ 2,479,400 $ 1,143,300 $ 4,259,200 $ 2,435,200
============ ============ =========== =============
Net income - general partners..................................... $ 206,500 $ 93,000 $ 338,700 $ 173,400
============ ============ =========== =============
Basic and diluted net income per limited partner unit............. $ .63 $ .35 $ 1.18 $ .75
============ ============ =========== =============
Weighted average limited partner units outstanding................ 3,934,493 3,262,185 3,600,196 3,262,185
============ ============ =========== =============
See accompanying notes to consolidated financial statements
3
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(Unaudited)
Number of Limited Capital (Deficit) Total
Partner Units ------------------------------------- Partners'
----------------------- General Capital
Common Subordinated Common Subordinated Partner (Deficit)
--------- ------------ ------------- ------------ ----------- ------------
Balance at January 1, 2003........................ 1,621,159 1,641,026 $ 19,163,500 $ 683,700 $ (160,700) $ 19,686,500
Issuance of common units, net of offering costs... 1,092,500 - 25,255,300 - - 25,255,300
Capital contribution.............................. - - - - 510,700 510,700
Distribution to partners.......................... - - (907,800) (919,000) (134,900) (1,961,700)
Distribution payable.............................. - - (1,573,900) (951,800) (210,300) (2,736,000)
Net income........................................ - - 2,329,800 1,929,400 338,700 4,597,900
--------- --------- ------------- ----------- ---------- ------------
Balance at June 30, 2003.......................... 2,713,659 1,641,026 $ 44,266,900 $ 742,300 $ 343,500 $ 45,352,700
========= ========= ============= =========== ========== ============
See accompanying notes to consolidated financial statements
4
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Unaudited)
2003 2002
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................................................... $ 4,597,900 $ 2,608,600
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation..................................................................... 827,700 707,700
Amortization of deferred finance costs........................................... 56,200 17,700
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable and prepaid expenses.................. (2,700) 71,800
(Decrease) increase in accounts payable and accrued liabilities.................. (447,700) 1,634,300
-------------- -------------
Net cash provided by operating activities...................................... 5,031,400 5,040,100
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of gathering systems................................................... - (165,000)
Capital expenditures................................................................ (2,154,400) (2,958,700)
---------------- -------------
Net cash used in investing activities.......................................... (2,154,400) (3,123,700)
---------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under revolving credit facility.......................................... 2,000,000 1,654,500
Repayments of revolving credit facility............................................. (8,500,000) -
Capital contributions............................................................... 510,700 -
Issuance of common units, net of offering costs..................................... 25,255,300 -
Distribution paid to partners....................................................... (3,835,500) (3,835,500)
(Increase) decrease in other assets................................................. (279,900) 10,000
---------------- -------------
Net cash provided by (used in) financing activities............................ 15,150,600 (2,171,000)
---------------- -------------
Increase (decrease) in cash and cash equivalents.................................... 18,027,600 (254,600)
Cash and cash equivalents, beginning of period...................................... 1,858,600 2,162,200
---------------- -------------
Cash and cash equivalents, end of period............................................ $ 19,886,200 $ 1,907,600
================ =============
See accompanying notes to consolidated financial statements
5
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of the Partnership and its
wholly-owned subsidiaries as of June 30, 2003 and for the three month and six
month periods ended June 30, 2003 and 2002 are unaudited. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted in this Form 10-Q pursuant to the rules
and regulations of the Securities and Exchange Commission. However, in the
opinion of management, these interim financial statements include all the
necessary adjustments to fairly present the results of the interim periods
presented. The unaudited interim consolidated financial statements should be
read in conjunction with the audited financial statements included in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 2002.
The results of operations for the six months ended June 30, 2003 may not
necessarily be indicative of the results of operations for the full year ending
December 31, 2003.
Certain reclassifications have been made to the consolidated financial
statements for the three month and six month periods ended June 30, 2002 to
conform to the presentation for the three month and six month periods ended June
30, 2003.
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 values because of the short maturities of these items.
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 interest, by the weighted
average number of outstanding common units and subordinated units.
Comprehensive Income
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 three months or less are considered to
be cash equivalents.
6
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2003
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Segment Information
The Partnership has one business segment, the transportation segment,
which derives its revenues primarily from the transportation of natural gas that
it receives from producers. Transportation revenues are, for the most part,
based on contractual arrangements with Atlas America, Inc. and its affiliates.
Supplemental Disclosure of Cash Flow Information
Information for the six months ended June 30, 2003 and 2002,
respectively, is as follows:
2003 2002
------------- -------------
Cash paid for:
Interest....................................................................... $ 106,300 $ 65,300
============= =============
Goodwill
Goodwill is evaluated for impairment in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 142. As of January 1, 2002, the date
of adoption, the Partnership had unamortized goodwill in the amount of $2.3
million. In 2002, the Partnership completed the transitional impairment and
annual tests required by SFAS 142, which involved the use of estimates related
to the fair market value of the business operations associated with the
goodwill. These tests 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 in
the period in which the impairment is indicated. The Partnership will perform
its annual impairment evaluation at year end.
Concentration of Credit Risk
Financial instruments, which potentially subject the Partnership to
concentrations of credit risk, consist principally of periodic temporary
investments of cash. The Partnership places its temporary cash investments in
high quality short-term money market instruments and deposits with high quality
financial institutions. At June 30, 2003, the Partnership and its subsidiaries
had $19.8 million in deposits at one bank, of which $19.7 million was over the
insurance limit of the Federal Deposit Insurance Corporation. No losses have
been experienced on such investments.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations". 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. The adoption of SFAS 143 as
of January 1, 2003 had no impact on the Partnership's results of operations or
financial position.
7
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2003
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
New Accounting Standards - (Continued)
In May 2002, SFAS 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections" was issued.
SFAS 145 rescinds the automatic treatment of gains and losses from
extinguishments of debt as extraordinary unless they meet the criteria for
extraordinary items as outlined in Accounting Principles Board Opinion 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 corrections to existing
pronouncements. The provisions of this statement are effective for financial
statements issued by the Partnership in 2003. The adoption of SFAS 145 as of
January 1, 2003 did not have a material impact on the Partnership's results of
operations or its financial position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses
significant issues relating to the recognition, measurement, and reporting of
costs associated with exit and disposal activities, including restructuring
activities, and nullifies the guidance in Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". The provisions of this statement are effective for exit and
disposal activities that are initiated after December 31, 2002, with early
application encouraged. The adoption of SFAS 146 as of January 1, 2003 did not
have a material impact on the Partnership's results of operations or its
financial position.
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 20, 2003, the Partnership declared a cash distribution of $.58
per unit on its outstanding common units and subordinated units. The
distribution represents the available cash flow for the three months ended June
30, 2003. The $2,736,000 distribution, which includes a distribution of $210,300
to the general partner, will be paid on August 8, 2003 to unitholders of record
on June 30, 2003.
Available cash is initially distributed 98% to our limited partners and
2% to our general partner. These distribution percentages are modified to
provide for incentive distributions to be paid to our general partner in the
event that quarterly distributions to unitholders exceed certain specified
targets. Incentive distributions are generally defined as all cash distributions
paid to our general partner that are in excess of 2% of the aggregate amount of
cash being distributed. The general partner's incentive distribution for the
distributions that we declared for the three months and six months ended June
30, 2003 and 2002 was $155,300, $250,800, $95,500 and $161,500, respectively.
8
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2003
(Unaudited)
NOTE 4 - CREDIT FACILITY
In December 2002, the Partnership entered into a $7.5 million credit
facility administered by Wachovia Bank, National Association. The facility was
increased to $15.0 million through increases of $2.5 million and $5.0 million in
January and March 2003, respectively. Borrowings under the facility are secured
by a lien on and security interest in all the property of the Partnership and
its subsidiaries, including pledges by the Partnership of the issued and
outstanding equity interests in its subsidiaries. Up to $3.0 million of the
facility may be used for standby letters of credit. No such letters of credit
have been issued under the facility. The revolving credit facility has a term
ending in December 2005 and bears interest at one of two rates, elected at the
Partnership's option:
o the base rate plus the applicable margin; or
o the adjusted LIBOR plus the applicable margin.
The base rate for any day equals the higher of the federal funds rate
plus 1/2 of 1% of the Wachovia Bank prime rate. Adjusted LIBOR is LIBOR divided
by 1.00 minus the percentage prescribed by the Federal Reserve Board for
determining the reserve requirement for euro currency funding. The applicable
margin is as follows:
o where the Partnership's leverage ratio, as defined in the credit
facility agreement, is less than or equal to 1.5, the applicable
margin is 0.00% for bas erate loans and 1.50% for LIBOR loans;
o where the Partnership's leverage ratio is greater than 1.5 but less
than or equal to 2.5, the applicable margin is 0.25% for base rate
loans and 1.75% for LIBOR loans; and
o where the Partnership's leverage ratio is greater than 2.5, the
applicable margin is 0.50% for base rate loans and 2.00% for LIBOR
loans.
At June 30, 2003, there were no outstanding borrowings under this
credit facility.
The Wachovia credit facility requires the Partnership to maintain
specified net worth and specified ratios of current assets to current
liabilities and debt to EBITDA, and requires it to maintain a specified interest
coverage ratio. At June 30, 2003, the Partnership was in compliance with all of
the financial covenants.
NOTE 5 -PUBLIC OFFERING OF COMMON UNITS
In May 2003, the Partnership completed a public offering of 1,092,500
common units of limited partner interest. The net proceeds after underwriting
discounts and commissions were approximately $25.3 million. These proceeds were
used in part to repay existing indebtedness of $8.5 million. The Partnership
intends to use the balance of these proceeds to fund future capital projects and
for working capital.
9
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 2002. 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 discussion provides information to assist in
understanding our financial condition and results of operations. 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.
Results of Operations
In the three months and six months ended June 30, 2003 and 2002, our
principal revenues came from the operation of our pipeline gathering systems
which transport and compress natural gas. Two variables which affect our
transportation revenues are:
o the volumes of natural gas transported by us which, in turn, depend
upon the number of wells connected to our gathering system, the
amount of natural gas they produce, and the demand for that natural
gas; 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 Northeastern
areas of the United States.
We set forth the average volumes we transported, our average
transportation rates per mcf and revenues received by us for the periods
indicated in the following table:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
2003 2002 2003 2002
------------ ------------ ----------- -------------
Average daily throughput volumes (mcf)............................ 54,734 50,334 52,402 50,127
============ ============ =========== =============
Average transportation rate (per mcf)............................. $ .87 $ .57 $ .81 $ .57
============ ============ =========== =============
Total transportation and compression revenues..................... $ 4,325,000 $ 2,615,200 $ 7,653,400 $ 5,191,300
============ ============ =========== =============
10
Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002
Revenues. Our transportation and compression revenue increased to
$4,325,000 in the three months ended June 30, 2003 from $2,615,200 in the three
months ended June 30, 2002. The increase of $1,709,800 (65%) resulted from an
increase in the average transportation fees paid to us ($1,362,400) and an
increase in the volumes of natural gas we transported ($347,400).
Our average daily throughput volumes were 54,734 mcf in the three
months ended June 30, 2003 as compared to 50,334 mcf in the three months ended
June 30, 2002, an increase of 4,400 (9%) mcf per day. The increase in the three
months ended June 30, 2003 was a result of new wells added to our system and an
adjustment of approximately 2,000 mcf per day due to volumes under accrued in
the prior quarter. During the quarter ended June 30, 2003 we added 80 new wells
to our system as compared to 54 wells added in the prior period.
Our transportation rates are primarily at fixed percentages of the
sales price of natural gas transported. Our transportation rates for most of the
natural gas produced by Atlas America and its affiliates also have specified
minimums. Our average transportation rate was $.87 per mcf in the three months
ended June 30, 2003 as compared to $.57 per mcf in the three months ended June
30, 2002, an increase of $.30 per mcf (53%). In the three months ended June 30,
2003, natural gas prices increased significantly over the prior year period. As
a result, our average transportation rate increased.
Costs and Expenses. Our transportation and compression expenses
increased to $615,800 in the three months ended June 30, 2003 as compared to
$492,800 in the three months ended June 30, 2002, an increase of $123,000 (25%).
Our average cost per mcf of transportation and compression was $.12 in the three
months ended June 30, 2003 as compared to $.11 in the three months ended June
30, 2002, an increase of $.01 (9%). This increase resulted primarily from an
increase in compressor expenses due to increased lease rates and the addition of
more compressors in the three months ended June 30, 2003 as compared to the
prior year.
Our general and administrative expenses increased to $546,600 in the
three months ended June 30, 2003 as compared to $481,500 in the three months
ended June 30, 2002, an increase of $65,100 (14%). This increase resulted from
an increase of $200,000 in allocations of compensation and benefits from Atlas
and its affiliates due to an increase in management time spent during the three
months ended June 30, 2003 on potential acquisitions and our public offering.
This increase was partially offset by a decrease in professional fees of
$154,300 primarily associated with expenses in the prior year period in
connection with our terminated Triton acquisition.
Our depreciation expense increased to $421,000 in the three months
ended June 30, 2003 as compared to $362,300 in the three months ended June 30,
2002, an increase of $58,700 (16%). This increase resulted from the increased
asset base associated with pipeline extensions and compressor upgrades.
Our interest expense increased to $79,000 in the three months ended
June 30, 2003 as compared to $45,200 in the three months ended June 30, 2002.
This increase of $33,800 (75%) resulted from an increase in amounts outstanding
on our credit facility to finance pipeline extensions and an increase in
amortization of deferred finance costs in the current period as compared to the
prior period due to costs associated with obtaining our new credit facility. In
the three months ended June 30, 2003, we repaid all of our existing debt with
proceeds from our public offering. This will reduce future interest expense
until such time as we have invested the remainder of our offering proceeds and
are required to borrow for future growth needs.
Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002
Revenues. Our transportation and compression revenue increased to
$7,653,400 in the six months ended June 30, 2003 from $5,191,300 in the three
months ended June 30, 2002. The increase of $2,462,100 (47%) resulted from an
increase in the average transportation fees paid to us ($2,130,000) and an
increase in the volumes of natural gas we transported ($332,100).
Our average daily throughput volumes were 52,402 mcf in the six months
ended June 30, 2003 as compared to 50,127 mcf in the six months ended June 30,
2002, an increase of 2,275 mcf per day. The increase in the six months ended
June 30, 2003 was a result of new wells added to our system. During the six
months ended June 30, 2003 we added 153 new wells to our system compared to 112
wells in the prior period.
11
Our transportation rates for most of the natural gas produced by Atlas
America and its affiliates also have specified minimums. Our average
transportation rate was $.81 per mcf in the six months ended June 30, 2003 as
compared to $.57 per mcf in the six months ended June 30, 2002, an increase of
$.24 per mcf (42%). In the six months ended June 30, 2003, natural gas prices
increased significantly over the prior year period. Since, as described above,
our transportation rates are generally at fixed percentages of the sale prices
of our natural gas, the higher prices resulted in an increase in our average
transportation rate.
Costs and Expenses. Our transportation and compression expenses
increased to $1,224,000 in the six months ended June 30, 2003 as compared to
$1,004,900 in the six months ended June 30, 2002, an increase of $219,100 (22%).
Our average cost per mcf of transportation and compression was $.13 in the six
months ended June 30, 2003 as compared to $.11 in the six months ended June 30,
2002, an increase of $.02 (18%). This increase resulted primarily from an
increase in compressor expenses due to increased lease rates and the addition of
more compressors in the six months ended June 30, 2003 as compared to the prior
year.
Our general and administrative expenses increased to $865,700 in the
six months ended June 30, 2003 as compared to $791,500 in the six months ended
June 30, 2002, an increase of $74,200 (9%). This increase resulted from an
increase of $200,000 in allocations of compensation and benefits from Atlas and
its affiliates due to an increase in management time spent during the three
months ended June 30, 2003 on potential acquisitions and our public offering,
this increase was partially offset by a decrease in professional fees of
$140,000 primarily from the payment of fees in the prior year period associated
with our terminated Triton acquisition.
Our depreciation expense increased to $827,700 in the six months ended
June 30, 2003 as compared to $707,700 in the six months ended June 30, 2002, an
increase of $120,000 (17%). This increase resulted from the increased asset base
associated with pipeline extensions and compressor upgrades.
Our interest expense increased to $162,500 in the six months ended June
30, 2003 as compared to $83,000 in the six months ended June 30, 2002. This
increase of $79,500 (96%) resulted from an increase in amounts outstanding on
our credit facility to finance pipeline extensions and an increase in
amortization of deferred finance costs in the current period as compared to the
prior period due to costs associated with obtaining our new credit facility. In
the three months ended June 30, 2003, we repaid all of our existing debt with
proceeds from our public offering. This will reduce future interest expense
until such time as we have invested the remainder of our offering proceeds and
are required to borrow for future growth needs.
Liquidity and Capital Resources
Our primary cash requirements, in addition to normal operating
expenses, are for debt service, maintenance capital expenditures, expansion
capital expenditures and quarterly distributions to our unitholders and general
partner. In addition to cash generated from operations, we have the ability to
meet our cash requirements, (other than distributions to our unitholders and
general partner) through borrowings under our credit facility. In general, we
expect to fund:
o cash distributions, maintenance capital expenditures and interest
payments through existing cash and cash flows from operating
activities;
o expansion capital expenditures and working capital deficits through
the retention of cash and additional borrowings; and
o debt principal payments through additional borrowings as they become
due or by the issuance of additional common units.
At June 30, 2003, we had no outstanding borrowings and $15.0 million of
remaining borrowing capacity under our credit facility.
12
The following table summarizes our financial condition and liquidity at
the dates indicated:
June 30, December 31,
2003 2002
------------- -------------
Current ratio.............................................................. 7.4x 1.0x
Working capital............................................................ $ 17,672,400 $56,600
Ratio of long-term debt to total partners' capital......................... N/A .33x
During the six months ended June 30, 2003, net cash provided by
operations of $5,031,400 was derived from $5,681,800 of income from operations
before depreciation and amortization, partially offset by changes in our
operating assets and liabilities. Cash flow from operations before depreciation
and amortization was $3,334,000 in the six months ended June 30, 2002. The
current year increase was principally due to the increase in the average
transportation fee we received in the current year as compared to the prior
year. During the six months ended June 30, 2002, our accounts payable and
accrued liabilities increased as a result of advances from Atlas America and
liabilities in connection with expenses associated with the then-pending
acquisition of Triton Coal Company, and the subsequent repayment of a
substantial portion of those advances and liabilities as we received
reimbursements from the sellers following termination of the transaction,
including reimbursements in the six months ended June 30, 2003.
Net cash provided by financing activities was $15,150,600 for the six
months ended June 30, 2003, an increase of $17,321,600 from cash used in
financing activities of $2,171,000 in the six months ended June 30, 2002. The
principal reason for the increase was the completion of our public offering in
May 2003, which provided net cash of $17,266,000 after repayment of our
outstanding indebtedness.
Capital Expenditures
Our property and equipment was approximately 52% and 83% of our total
consolidated assets at June 30, 2003 and December 31, 2002, respectively.
Capital expenditures, other than the acquisitions of pipelines, were $2,154,400
and $2,958,700 for the six months ended June 30, 2003 and 2002, respectively.
These capital expenditures principally consisted of costs relating to expansion
of our existing gathering systems to accommodate new wells drilled in our
service area and compressor upgrades. During the six months ended June 30, 2003,
we connected 153 wells to our gathering system. As of June 30, 2003, we are
committed to expend approximately $4,000,000 in connection with our decision to
purchase our compressors rather than lease them. In addition, we were committed
to expend approximately $2,600,000 on pipeline extensions. Our capital
expenditures could increase materially if the number of wells connected to our
gathering systems in fiscal 2003 increases significantly.
Long-Term Debt
We increased our credit facility to $15.0 million in March 2003. Our
principal purpose in obtaining the increase in the facility was to enable us to
fund the expansion of our existing gathering systems and the acquisitions of
other gas gathering systems. In May 2003 we used proceeds from our public
offering to repay our existing indebtedness of $8,500,000.
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Contractual Obligations and Commercial Commitments
The following table summarizes our contractual obligations and
commercial commitments at June 30, 2003:
Payments Due By Period
-------------------------------------------------------------
Less than 1 - 3 4 - 5 After 5
Contractual cash obligations Total 1 Year Years Years Years
- ---------------------------- ------------ ------------ ------------- ----------- -----------
Long-term debt............................... $ - $ - $ - $ - $ -
Capital lease obligations.................... - - - - -
Operating leases............................. 527,900 207,200 171,000 149,700 -
Unconditional purchase obligations........... - - - - -
Other long-term obligations.................. - - - - -
------------ ----------- ------------- ----------- ----------
Total contractual cash obligations........... $ 527,900 $ 207,200 $ 171,000 $ 149,700 $ -
============ =========== ============= =========== ==========
The operating leases represent lease commitments for compressors with
varying expiration dates. These commitments are routine and were made in the
normal course of our business.
Amount of Commitment Expiration Per Period
(in thousands)
----------------------------------------------------------------
Less than 1 - 3 4 - 5 After 5
Other commercial commitments: Total 1 Year Years Years Years
----------------------------- ------------ ------------ ------------ ----------- -----------
Standby letters of credit................ $ - $ - $ - $ - $ -
Guarantees............................... - - - - -
Standby replacement commitments.......... - - - - -
Other commercial commitments............. 4,000,000 4,000,000 - - -
----------- ----------- ------------ ---------- ----------
Total commercial commitments............. $ 4,000,000 $ 4,000,000 $ - $ - $ -
=========== =========== ============ ========== ==========
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of actual revenues and
expenses during the reporting period. Although we believe our estimates are
reasonable, actual results could differ from those estimates. We summarize our
significant accounting policies in Note 2 to our Consolidated Financial
Statements in our annual report on Form 10-K for 2002. The critical accounting
policies and estimates that we have identified are discussed below.
Revenue and Expenses
We routinely make accruals for both revenues and expenses due to the
timing of receiving information from third parties and reconciling our records
with those of third parties. We have determined these estimates using available
market data and valuation methodologies. We believe our estimates for these
items are reasonable, but there is no assurance that actual amounts will not
vary from estimated amounts.
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Depreciation and Amortization
We calculate our depreciation based on the estimated useful lives and
salvage values of our assets. However, factors such as usage, equipment failure,
competition, regulation or environmental matters could cause us to change our
estimates, thus impacting the future calculation of depreciation and
amortization.
Impairment of Assets
In accordance with SFAS No. 144, whenever events or changes in
circumstances indicate that the carrying amount of long-lived assets may not be
recoverable, we review our long-lived assets for impairment and recognize an
impairment loss if estimated future cash flows associated with an asset or group
of assets are less than the asset carrying amount.
Goodwill
At June 30, 2003, we had $2.3 million of goodwill, all of which relates
to our acquisition of pipeline assets. We test our goodwill for impairment each
year. Our test during 2002 resulted in no impairment. We will continue to
evaluate our goodwill at least annually and will reflect the impairment of
goodwill, if any, in operating income in the income statement in the period in
which the impairment is indicated. Our next annual evaluation of goodwill for
impairment will be as of December 31, 2003.
Recently Issued Financial Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). 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. The adoption of
SFAS 143 as of January 1, 2003 did not have a material impact on results of
operations or financial position.
In May 2002, SFAS 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections" was issued.
SFAS 145 rescinds the automatic treatment of gains and losses from
extinguishments of debt as extraordinary unless they meet the criteria for
extraordinary items as outlined in Accounting Principles Board Opinion 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 corrections to existing
pronouncements. The provisions of this statement are effective for financial
statements issued by us in 2003. The adoption of SFAS 145 as of January 1, 2003
did not have a material impact on our results of operations or our financial
position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS 146 addresses significant
issues relating to the recognition, measurement, and reporting of costs
associated with exit and disposal activities, including restructuring
activities, and nullifies the guidance in Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." The provisions of this statement are effective for exit and
disposal activities that are initiated after December 31, 2002. The adoption of
SFAS 146 did not have a material impact on our results of operations or
financial position.
15
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.
Our major market risk exposure is in the pricing applicable to natural
gas sales. Realized pricing is primarily driven by spot market prices for
natural gas. Pricing for natural gas production has been volatile and
unpredictable for several years.
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 $15.0 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 $6,500,000 and the weighted average
interest rate was 2.9% at December 31, 2002. We had no amounts drawn on this
facility at June 30, 2003.
ITEM 4. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Chief Executive Officer and Chief Financial Officer of our general
partner, after evaluating the effectiveness of our "disclosure controls and
procedures" (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of a date (the "Evaluation Date") within 90 days before
the filing date of this quarterly report, have concluded that as of the
Evaluation Date, our disclosure controls and procedures are effective.
Changes in Internal Controls
There were no significant changes in our internal controls or in other
factors that could significantly affect these controls since the date of the
last evaluation of our internal controls.
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PART II. OTHER INFORMATION
ITEM 6. Exhibits And Reports On Form 8-K
(a) Exhibits:
3.1 (1) First Amended and Restated Agreement of Limited Partnership
3.2 (1) Certificate of Limited Partnership of Atlas Pipeline
Partners, L.P.
10.1 (1) Omnibus Agreement
10.2 (1) Master Natural Gas Gathering Agreement
31.1 Certification Pursuant to Rule 13a-15(e)/15(d) - 15(e)
31.2 Certification Pursuant to Rule 13a-15(e)/15(d) - 15(3)
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
32.2 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 registration
statement on Form S-1, Registration No. 333-85193 and incorporated
herein by reference.
(b) Reports on Form 8K:
During the quarter ended June 30, 2003, the Partnership filed four
current reports on Form 8K as follows:
o We filed a Form 8-K dated June 18, 2003 regarding the resignation
of George Beyer, Jr. from our Managing Board effective June 18,
2003. He cited health concerns for his resignation.
o We filed a Form 8-K dated May 5, 2003 in connection with our
underwriting agreement with regard to our public offering of up to
1,092,500 common units.
o We filed a Form 8-K dated April 29, 2003 regarding the volume of
natural gas transported through our gathering systems.
o We filed a Form 8-K dated April 23, 2003 regarding our earnings
for the quarter ended March 31, 2003.
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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, 2003 By: /s/ Edward E. Cohen
---------------------------
EDWARD E. COHEN
Chairman of the Managing Board of the
General Partner
(Chief Executive Officer of the General
Partner)
Date: August 13, 2003 By: /s/ Steven J. Kessler
---------------------------
STEVEN J. KESSLER
Chief Financial Officer of the General
Partner
Date: August 13, 2003 By: /s/ Michael L. Staines
---------------------------
MICHAEL L. STAINES
President, Chief Operating Officer,
Secretary and Managing Board Member of the
General Partner
Date: August 13, 2003 By: /s/ NANCY J. McGURK
-------------------
Chief Accounting Officer of the General
Partner
18