UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
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 No.: 1-16335
Magellan Midstream Partners, L.P.
(Exact name of registrant as specified in its charter)
| Delaware | 73-1599053 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
One Williams Center, P.O. Box 22186, Tulsa, Oklahoma 74121-2186
(Address of principal executive offices and zip code)
(918) 574-7000
(Registrant’s telephone number, including area code)
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 May 5, 2004, there were outstanding 23,130,541 common units and 4,259,771 subordinated units.
| PART I | ||||
| FINANCIAL INFORMATION | ||||
| Page | ||||
| ITEM 1. |
FINANCIAL STATEMENTS | |||
| MAGELLAN MIDSTREAM PARTNERS, L.P. | ||||
| Consolidated Statements of Income for the three months ended March 31, 2003 and 2004 | 2 | |||
| Consolidated Balance Sheets as of December 31, 2003 and March 31, 2004 | 3 | |||
| Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2004 | 4 | |||
| Notes to Consolidated Financial Statements | 5 | |||
| ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 17 | ||
| ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 24 | ||
| ITEM 4. |
CONTROLS AND PROCEDURES | 25 | ||
| FORWARD-LOOKING STATEMENTS | 26 | |||
| PART II | ||||
| OTHER INFORMATION | ||||
| ITEM 1. |
LEGAL PROCEEDINGS | 27 | ||
| ITEM 2. |
CHANGES IN SECURITIES AND USE OF PROCEEDS | 27 | ||
| ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES | 27 | ||
| ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 27 | ||
| ITEM 5. |
OTHER INFORMATION | 27 | ||
| ITEM 6. |
EXHIBITS AND REPORTS ON FORM 8-K | 27 | ||
1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per unit amounts)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2003 |
2004 |
|||||||
| Transportation and terminals revenues: |
||||||||
| Third party |
$ | 79,463 | $ | 88,930 | ||||
| Affiliate |
8,251 | — | ||||||
| Product sales revenues: |
||||||||
| Third party |
31,948 | 44,214 | ||||||
| Affiliate |
53 | — | ||||||
| Total revenues |
119,715 | 133,144 | ||||||
| Costs and expenses: |
||||||||
| Operating |
33,359 | 37,000 | ||||||
| Environmental |
1,797 | 23,805 | ||||||
| Environmental reimbursements |
(1,186 | ) | (23,015 | ) | ||||
| Product purchases |
27,818 | 38,499 | ||||||
| Depreciation and amortization |
9,379 | 9,522 | ||||||
| Affiliate general and administrative |
10,438 | 12,887 | ||||||
| Total costs and expenses |
81,605 | 98,698 | ||||||
| Equity earnings |
— | 120 | ||||||
| Operating profit |
38,110 | 34,566 | ||||||
| Interest expense |
9,031 | 8,515 | ||||||
| Interest income |
(526 | ) | (446 | ) | ||||
| Debt placement fee amortization |
547 | 682 | ||||||
| Net income |
$ | 29,058 | $ | 25,815 | ||||
| Allocation of net income: |
||||||||
| Limited partners’ interest |
$ | 27,008 | $ | 23,874 | ||||
| General partner’s interest |
2,050 | 1,941 | ||||||
| Net income |
$ | 29,058 | $ | 25,815 | ||||
| Basic net income per limited partner unit |
$ | 0.99 | $ | 0.87 | ||||
| Weighted average number of limited partner units outstanding used for basic net income per unit calculation |
27,190 | 27,390 | ||||||
| Diluted net income per limited partner unit |
$ | 0.99 | $ | 0.87 | ||||
| Weighted average number of limited partner units outstanding used for diluted net income per unit calculation |
27,318 | 27,436 | ||||||
See notes to consolidated financial statements.
2
MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
| December 31, 2003 |
March 31, 2004 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 111,357 | $ | 43,891 | ||||
| Restricted cash |
8,223 | 16,472 | ||||||
| Accounts receivable (less allowance for doubtful accounts of $319 and $306 at December 31, 2003 and March 31, 2004, respectively) |
19,615 | 23,979 | ||||||
| Other accounts receivable |
14,579 | 35,818 | ||||||
| Affiliate accounts receivable |
9,324 | 3,481 | ||||||
| Inventory |
17,588 | 14,260 | ||||||
| Other current assets |
3,941 | 7,673 | ||||||
| Total current assets |
184,627 | 145,574 | ||||||
| Property, plant and equipment, at cost |
1,371,847 | 1,407,903 | ||||||
| Less: accumulated depreciation |
431,298 | 439,212 | ||||||
| Net property, plant and equipment |
940,549 | 968,691 | ||||||
| Equity investments |
— | 25,120 | ||||||
| Goodwill |
22,057 | 22,057 | ||||||
| Other intangibles (less accumulated amortization of $911 and $1,238 at December 31, 2003 and March 31, 2004, respectively) |
11,417 | 11,091 | ||||||
| Long-term affiliate receivables |
13,472 | 12,886 | ||||||
| Long-term receivables |
9,077 | 10,949 | ||||||
| Debt placement costs (less accumulated amortization of $2,761 and $3,443 at December 31, 2003 and March 31, 2004, respectively) |
10,618 | 10,036 | ||||||
| Other noncurrent assets |
3,113 | 3,029 | ||||||
| Total assets |
$ | 1,194,930 | $ | 1,209,433 | ||||
| LIABILITIES AND PARTNERS’ CAPITAL | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 21,200 | $ | 14,212 | ||||
| Affiliate accounts payable |
257 | 497 | ||||||
| Outstanding checks |
6,961 | 4,878 | ||||||
| Accrued affiliate payroll and benefits |
15,077 | 6,755 | ||||||
| Accrued taxes other than income |
14,286 | 13,996 | ||||||
| Accrued interest payable |
8,196 | 16,039 | ||||||
| Environmental liabilities |
12,243 | 31,871 | ||||||
| Deferred revenue |
10,868 | 11,147 | ||||||
| Accrued product purchases |
11,585 | 7,891 | ||||||
| Current portion of long-term debt |
900 | 900 | ||||||
| Other current liabilities |
5,616 | 5,228 | ||||||
| Total current liabilities |
107,189 | 113,414 | ||||||
| Long-term debt |
569,100 | 569,100 | ||||||
| Long-term affiliate payable |
1,509 | 2,506 | ||||||
| Other deferred liabilities |
4,455 | 7,793 | ||||||
| Environmental liabilities |
14,528 | 18,842 | ||||||
| Commitments and contingencies |
||||||||
| Partners’ capital: |
||||||||
| Partners’ capital |
498,920 | 501,893 | ||||||
| Accumulated other comprehensive loss |
(771 | ) | (4,115 | ) | ||||
| Total partners’ capital |
498,149 | 497,778 | ||||||
| Total liabilities and partners’ capital |
$ | 1,194,930 | $ | 1,209,433 | ||||
See notes to consolidated financial statements.
3
MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2003 |
2004 |
|||||||
| Operating Activities: |
||||||||
| Net income |
$ | 29,058 | $ | 25,815 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
9,379 | 9,522 | ||||||
| Debt placement fee amortization |
547 | 682 | ||||||
| Loss on sale and retirement of assets |
242 | 1,224 | ||||||
| Earnings in equity investment |
— | (120 | ) | |||||
| Changes in components of operating assets and liabilities: |
||||||||
| Accounts receivable and other accounts receivable |
(2,973 | ) | (25,603 | ) | ||||
| Affiliate accounts receivable |
(1,513 | ) | 5,843 | |||||
| Inventory |
312 | 3,328 | ||||||
| Accounts payable |
(7,270 | ) | (6,988 | ) | ||||
| Affiliate accounts payable |
10,280 | 240 | ||||||
| Accrued affiliate payroll and benefits |
837 | (7,988 | ) | |||||
| Accrued taxes other than income |
(1,554 | ) | (290 | ) | ||||
| Accrued interest payable |
8,328 | 7,843 | ||||||
| Accrued product purchases |
4,948 | (3,694 | ) | |||||
| Restricted cash |
(5,309 | ) | (8,249 | ) | ||||
| Current and noncurrent environmental liabilities |
516 | 20,127 | ||||||
| Other current and noncurrent assets and liabilities |
(5,641 | ) | (6,135 | ) | ||||
| Net cash provided by operating activities |
40,187 | 15,557 | ||||||
| Investing Activities: |
||||||||
| Additions to property, plant and equipment |
(4,531 | ) | (9,332 | ) | ||||
| Proceeds from sale of assets |
37 | — | ||||||
| Acquisitions |
— | (50,415 | ) | |||||
| Net cash used by investing activities |
(4,494 | ) | (59,747 | ) | ||||
| Financing Activities: |
||||||||
| Distributions paid |
(21,034 | ) | (25,800 | ) | ||||
| Capital contributions by affiliate |
3,912 | 2,607 | ||||||
| Debt placement costs |
(313 | ) | (100 | ) | ||||
| Other |
— | 17 | ||||||
| Net cash used in financing activities |
(17,435 | ) | (23,276 | ) | ||||
| Change in cash and cash equivalents |
18,258 | (67,466 | ) | |||||
| Cash and cash equivalents at beginning of period |
75,151 | 111,357 | ||||||
| Cash and cash equivalents at end of period |
$ | 93,409 | $ | 43,891 | ||||
See notes to consolidated financial statements.
4
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Magellan Midstream Partners, L.P. (the “Partnership”) is a Delaware master limited partnership. The Partnership was formed in August 2000 as Williams Energy Partners L.P., which was renamed Magellan Midstream Partners, L.P. effective September 1, 2003. Magellan GP, LLC (the “General Partner”), a Delaware limited liability company, serves as the Partnership’s general partner and owns a 2% general partner interest. The General Partner is a wholly-owned subsidiary of Magellan Midstream Holdings, L.P. (“MMH”), a Delaware limited partnership owned by Madison Dearborn Capital Partners IV, L.P. and Carlyle/Riverstone MLP Holdings, L.P. The General Partner has contracted with MMH to perform all management and operating functions required for the Partnership.
The Partnership operates and reports in three business segments: the petroleum products pipeline sys