Magellan Midstream Partners Earnings 2020-03-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020



☐	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)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Units	MMP	New York Stock Exchange

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 has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer ☐ Non-accelerated filer ☐

Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No x

As of April 30, 2020, there were 225,056,287 common units outstanding.

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION



ITEM 1.		CONSOLIDATED FINANCIAL STATEMENTS
	CONSOLIDATED STATEMENTS OF INCOME		4
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME		5
	CONSOLIDATED BALANCE SHEETS		6
	CONSOLIDATED STATEMENTS OF CASH FLOWS		7
	CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL		8
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
	1.	Organization, Description of Business and Basis of Presentation	9
	2.	Segment Disclosures	11
	3.	Revenue from Contracts with Customers	12
	4.	Investments in Non-Controlled Entities	14
	5.	Inventory	17
	6.	Debt	17
	7.	Leases	18
	8.	Employee Benefit Plans	18
	9.	Long-Term Incentive Plan	20
	10.	Derivative Financial Instruments	20
	11.	Fair Value	23
	12.	Commitments and Contingencies	25
	13.	Related Party Transactions	26
	14.	Partners’ Capital and Distributions	27
	15.	Subsequent Events	28
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Introduction		29
	Recent Developments		29
	Results of Operations		30
	Distributable Cash Flow		34
	Liquidity and Capital Resources		35
	Off-Balance Sheet Arrangements		36
	Environmental		X
	Other Items		37
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	37
ITEM 4.		CONTROLS AND PROCEDURES	38
PART II OTHER INFORMATION
ITEM 1.		LEGAL PROCEEDINGS	39
ITEM 1A.		RISK FACTORS	40
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	40
ITEM 3.		DEFAULTS UPON SENIOR SECURITIES	40
ITEM 4.		MINE SAFETY DISCLOSURES	40
ITEM 5.		OTHER INFORMATION	40
ITEM 6.		EXHIBITS	40
INDEX TO EXHIBITS			41
SIGNATURES			42

Forward-Looking Statements

Except for statements of historical fact, all statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may be identified by words like “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “guidance,” “intends,” “may,” “might,” “plans,” “potential,” “projected,” “scheduled,” “should,” “will” and other similar expressions. The absence of such words or expressions does not necessarily mean the statements are not forward-looking. Although we believe our forward-looking statements are reasonable, statements made regarding future results are not guarantees of future performance and are subject to numerous assumptions, uncertainties and risks that are difficult to predict, including those described in Part II, Item 1A – Risk Factors of this Quarterly Report on Form 10-Q. Actual outcomes and results may be materially different from the results stated or implied in such forward-looking statements included in this report. You should not put any undue reliance on any forward-looking statement.

The following are among the important factors that could cause future results to differ materially from any expected, projected, forecasted, estimated or budgeted amounts, events or circumstances we have discussed in this report:


•	overall demand for refined products, crude oil and liquefied petroleum gases;


•	price fluctuations for refined products, crude oil and liquefied petroleum gases and expectations about future prices for these products;


•	changes in the production of crude oil in the basins served by our pipelines;


•	changes in general economic conditions, interest rates and price levels;


•	changes in the financial condition of our customers, vendors, derivatives counterparties, lenders or joint venture co-owners;


•	our ability to secure financing in the credit and capital markets in amounts and on terms that will allow us to execute our business strategy, refinance our existing obligations when due and maintain adequate liquidity;


•	development of alternative energy sources, including but not limited to natural gas, solar power, wind power, electric and battery-powered engines and geothermal energy, increased use of biofuels such as ethanol and biodiesel, increased conservation or fuel efficiency, increased use of electric vehicles, as well as regulatory developments or other trends that could affect demand for our services;


•	changes in population in the markets served by our refined products pipeline system and changes in consumer preferences, driving patterns or rates of automobile ownership;


•	changes in the product quality, throughput or interruption in service of refined products or crude oil pipelines owned and operated by third parties and connected to our assets;


•	changes in demand for transportation or storage in our refined products or crude oil segments;


•	changes in supply and demand patterns for our facilities due to geopolitical events, the activities of the Organization of the Petroleum Exporting Countries, changes in U.S. trade policies or in laws governing the importing and exporting of petroleum products, technological developments or other factors;


•	our ability to manage interest rate and commodity price exposures;


•	changes in our tariff rates or other terms of service implemented by the Federal Energy Regulatory Commission or state regulatory agencies;


•	shut-downs or cutbacks at refineries, oil wells, petrochemical plants or other customers or businesses that use or supply our services;


•	the effect of weather patterns and other natural phenomena, including climate change, on our operations and demand for our services;


•	an increase in the competition our operations encounter, including the effects of capacity over-build in the areas where we operate;


•	the occurrence of natural disasters, epidemics, terrorism, sabotage, protests or activism, operational hazards, equipment failures, system failures or unforeseen interruptions;


•	changes in general economic conditions, including market and macro-economic disruptions resulting from the COVID-19 pandemic and related governmental responses;


•	our ability to obtain adequate levels of insurance at a reasonable cost, and the potential for losses to exceed the insurance coverage we do obtain;


•	the treatment of us as a corporation for federal or state income tax purposes or if we become subject to significant forms of other taxation or more aggressive enforcement or increased assessments under existing forms of taxation;


•	our ability to identify expansion projects with acceptable expected returns or to complete identified expansion projects on time and at projected costs;


•	our ability to make and integrate accretive acquisitions and joint ventures and successfully execute our business strategy;


•	uncertainty of estimates, including accruals and costs of environmental remediation;


•	our ability to cooperate with and rely on our joint venture co-owners;


•	actions by rating agencies concerning our credit ratings;


•	our ability to timely obtain and maintain all necessary approvals, consents and permits required to operate our existing assets and to construct, acquire and operate any new or modified assets;


•	our ability to promptly obtain all necessary services, materials, labor, supplies and rights-of-way required for maintenance and operation of our current assets and construction of our growth projects, without significant delays, disputes or cost overruns;


•	risks inherent in the use and security of information systems in our business and implementation of new software and hardware;

•

changes in laws and regulations or the interpretations of such laws that govern our gas liquids blending activities, including the potential applicability of the Carmack Amendment, which broadly covers claims for damage or loss incurred to goods transported by a carrier in interstate commerce, to such activities, or changes regarding product quality specifications or renewable fuel obligations that impact our ability to produce gasoline volumes through our gas liquids blending activities or that require significant capital outlays for compliance;


•	changes in laws and regulations to which we or our customers are or could become subject, including tax withholding requirements, safety, security, employment, hydraulic fracturing, derivatives transactions, trade and environmental laws and regulations, including laws and regulations designed to address climate change;


•	the cost and effects of legal and administrative claims and proceedings against us, our subsidiaries or our joint ventures;


•	the amount of our indebtedness, which could make us vulnerable to general adverse economic and industry conditions, limit our ability to borrow additional funds, place us at competitive disadvantages compared to our competitors that have less debt or have other adverse consequences;


•	the effect of changes in accounting policies;


•	the potential that our internal controls may not be adequate, weaknesses may be discovered or remediation of any identified weaknesses may not be successful;


•	the ability and intent of our customers, vendors, lenders, joint venture co-owners or other third parties to perform on their contractual obligations to us;


•	petroleum product supply disruptions;


•	global and domestic repercussions from terrorist activities, including cyber attacks, and the government’s response thereto; and


•	other factors and uncertainties inherent in the transportation, storage and distribution of petroleum products and the operation, acquisition and construction of assets related to such activities.

This list of important factors is not exhaustive. The forward-looking statements in this Quarterly Report speak only as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changes in assumptions or otherwise, unless required by law.

PART I

FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per unit amounts)

(Unaudited)



	Three Months Ended
	March 31,
	2019			2020
Transportation and terminals revenue	$	460,792		$	458,395
Product sales revenue	162,995			319,120
Affiliate management fee revenue	5,148			5,291
Total revenue	628,935			782,806
Costs and expenses:
Operating	146,025			149,508
Cost of product sales	169,094			249,236
Depreciation, amortization and impairment	61,871			63,534
General and administrative	45,995			36,908
Total costs and expenses	422,985			499,186
Other operating income (expense)	6,941			(511		)
Earnings of non-controlled entities	31,255			43,660
Operating profit	244,146			326,769
Interest expense	60,166			55,900
Interest capitalized	(3,454		)	(4,951		)
Interest income	(1,660		)	(420		)
Gain on disposition of assets	(21,788		)	(12,887		)
Other (income) expense	2,050			807
Income before provision for income taxes	208,832			288,320
Provision for income taxes	1,169			756
Net income	$	207,663		$	287,564
Basic net income per common unit	$	0.91		$	1.26
Diluted net income per common unit	$	0.91		$	1.26
Weighted average number of common units outstanding used for basic net income per unit calculation	228,558			227,571
Weighted average number of common units outstanding used for diluted net income per unit calculation	228,558			227,571

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)



	Three Months Ended March 31,
	2019			2020
Net income	$	207,663		$	287,564
Other comprehensive income (loss):
Derivative activity:
Net loss on cash flow hedges	(4,376		)	(11,914		)
Reclassification of net loss on cash flow hedges to income	627			809
Changes in employee benefit plan assets and benefit obligations recognized in other comprehensive income:
Net actuarial loss	—			(747		)
Curtailment gain	—			1,703
Recognition of prior service credit amortization in income	(45		)	(45		)
Recognition of actuarial loss amortization in income	1,348			1,531
Recognition of settlement cost in income	—			969
Total other comprehensive income (loss)	(2,446		)	(7,694		)
Comprehensive income	$	205,217		$	279,870

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands)



	December 31, 2019			March 31, 2020
ASSETS				(Unaudited)
Current assets:
Cash and cash equivalents	$	58,030		$	139,254
Trade accounts receivable	125,440			94,563
Other accounts receivable	23,887			20,478
Inventory	184,399			71,153
Commodity derivatives contracts, net	—			61,799
Commodity derivatives deposits	27,415			—
Other current assets	40,237			39,743
Total current assets	459,408			426,990
Property, plant and equipment	8,431,227			8,166,125
Less: accumulated depreciation	2,027,193			1,919,014
Net property, plant and equipment	6,404,034			6,247,111
Investments in non-controlled entities	1,240,551			1,190,803
Right-of-use asset, operating leases	171,868			165,512
Long-term receivables	20,782			21,406
Goodwill	53,260			52,830
Other intangibles (less accumulated amortization of $6,255 and $6,923 at December 31, 2019 and March 31, 2020, respectively)	47,898			47,230
Restricted cash	26,569			10,303
Other noncurrent assets	13,359			23,120
Total assets	$	8,437,729		$	8,185,305

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable	$	150,992		$	147,893
Accrued payroll and benefits	75,511			31,549
Accrued interest payable	64,276			47,484
Accrued taxes other than income	66,007			46,509
Deferred revenue	109,654			113,310
Accrued product liabilities	90,788			52,348
Commodity derivatives contracts, net	10,222			—
Commodity derivatives deposits	—			50,345
Current portion of operating lease liability	26,221			26,699
Current portion of long-term debt, net	—			550,949
Other current liabilities	73,205			72,558
Total current liabilities	666,876			1,139,644
Long-term operating lease liability	144,023			139,218
Long-term debt, net	4,706,075			4,155,437
Long-term pension and benefits	145,992			145,709
Other noncurrent liabilities	59,735			61,320
Commitments and contingencies
Partners’ capital:
Common unitholders (228,403 units and 225,056 units outstanding at December 31, 2019 and March 31, 2020, respectively)	2,877,105			2,713,748
Accumulated other comprehensive loss	(162,077		)	(169,771		)
Total partners’ capital	2,715,028			2,543,977
Total liabilities and partners’ capital	$	8,437,729		$	8,185,305

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)



	Three Months Ended
	March 31,
	2019			2020
Operating Activities:
Net income	$	207,663		$	287,564
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and impairment expense	61,871			63,534
Gain on sale and retirement of assets	(21,759		)	(13,002		)
Earnings of non-controlled entities	(31,255		)	(43,660		)
Distributions from operations of non-controlled entities	43,069			54,743
Equity-based incentive compensation expense	4,914			155
Settlement gain, amortization of prior service credit and actuarial loss	1,303			1,113
Debt prepayment costs	8,270			—
Changes in operating assets and liabilities:
Trade accounts receivable and other accounts receivable	(36,886		)	29,988
Inventory	(9,313		)	112,007
Accounts payable	2,909			7,926
Accrued payroll and benefits	(39,065		)	(43,962		)
Accrued interest payable	(16,470		)	(16,792		)
Accrued taxes other than income	(12,020		)	(17,673		)
Accrued product liabilities	18,949			(38,440		)
Deferred revenue	(2,395		)	3,656
Other current and noncurrent assets and liabilities	26,771			(2,536		)
Net cash provided by operating activities	206,556			384,621
Investing Activities:
Additions to property, plant and equipment, net⁽¹⁾	(206,436		)	(172,671		)
Proceeds from sale and disposition of assets	53,676			332,789
Investments in non-controlled entities	(76,634		)	(28,325		)
Distributions from returns of investments in non-controlled entities	7,500			—
Net cash provided (used) by investing activities	(221,894		)	131,793
Financing Activities:
Distributions paid	(227,832		)	(234,774		)
Net commercial paper borrowings	69,000			—
Borrowings under long-term notes	496,855			—
Payments on notes	(550,000		)	—
Debt placement costs	(5,355		)	—
Net payment on financial derivatives	(8,028		)	—
Payments associated with settlement of equity-based incentive compensation	(9,764		)	(14,700		)
Debt prepayment costs	(8,270		)	—
Repurchases of common units	—			(201,982		)
Net cash used by financing activities	(243,394		)	(451,456		)
Change in cash, cash equivalents and restricted cash	(258,732		)	64,958
Cash, cash equivalents and restricted cash at beginning of period	309,261			84,599
Cash, cash equivalents and restricted cash at end of period	$	50,529		$	149,557

Supplemental non-cash investing activities:
⁽¹⁾ Additions to property, plant and equipment	$	(260,734	)	$	(152,292	)
Changes in accounts payable and other current liabilities related to capital expenditures	54,298			(20,379		)
Additions to property, plant and equipment, net	$	(206,436	)	$	(172,671	)

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

(Unaudited, in thousands)



	Common Unitholders			Accumulated Other Comprehensive Loss				Total Partners’ Capital
Balance, January 1, 2019	$	2,763,925			$	(120,491	)	$	2,643,434
Comprehensive income:
Net income	207,663				—			207,663
Total other comprehensive income (loss)	—				(2,446		)	(2,446		)
Total comprehensive income (loss)	207,663				(2,446		)	205,217
Distributions	(227,832		)		—			(227,832		)
Equity-based incentive compensation expense	4,914				—			4,914
Issuance of common units in settlement of equity-based incentive plan awards	480				—			480
Payments associated with settlement of equity-based incentive compensation	(9,764		)		—			(9,764		)
Other	(194		)		—			(194		)
Three Months Ended March 31, 2019	$	2,739,192			$	(122,937	)	$	2,616,255

Balance, January 1, 2020	$	2,877,105			$	(162,077	)	$	2,715,028
Comprehensive income:
Net income	287,564				—			287,564
Total other comprehensive income (loss)	—				(7,694		)	(7,694		)
Total comprehensive income (loss)	287,564				(7,694		)	279,870
Distributions	(234,774		)		—			(234,774		)
Equity-based incentive compensation expense	155				—			155
Repurchases of common units	(201,982		)		—			(201,982		)
Issuance of common units in settlement of equity-based incentive plan awards	600				—			600
Payments associated with settlement of equity-based incentive compensation	(14,700		)		—			(14,700		)
Other	(220		)		—			(220		)
Three Months Ended March 31, 2020	$	2,713,748			$	(169,771	)	$	2,543,977

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	Organization, Description of Business and Basis of Presentation

Organization

Unless indicated otherwise, the terms “our,” “we,” “us” and similar language refer to Magellan Midstream Partners, L.P. together with its subsidiaries. Magellan Midstream Partners, L.P. is a Delaware limited partnership, and its common units are traded on the New York Stock Exchange under the ticker symbol “MMP.” Magellan GP, LLC, a wholly-owned Delaware limited liability company, serves as its general partner.

During first quarter 2020, we completed a reorganization of our reportable segments. This reorganization was effected to reflect changes in the management of our business in conjunction with the sale of three of our marine terminals. Following this sale, two of our remaining marine terminals were combined with our refined product segment and one terminal was combined with our crude oil segment based on the predominant types of product stored at the facilities. Accordingly, we have restated our segment disclosures for all previous periods included in this report.

Description of Business

On March 20, 2020, we sold three marine terminals to a subsidiary of Buckeye Partners, L.P. (“Buckeye”) for $252.6 million. These terminals are located in New Haven, Connecticut, Wilmington, Delaware and Marrero, Louisiana. We recognized a $5.4 million impairment loss related to the sale on our consolidated statements of income.

We are principally engaged in the transportation, storage and distribution of refined petroleum products and crude oil. As of March 31, 2020, our asset portfolio consisted of:


•	our refined products segment, comprised of our approximately 9,800-mile refined products pipeline system with 53 connected terminals, as well as 25 independent terminals not connected to our pipeline system and two marine storage terminals (one of which is owned through a joint venture); and

•

our crude oil segment, comprised of approximately 2,200 miles of crude oil pipelines, a condensate splitter and 37 million barrels of aggregate storage capacity, of which approximately 25 million barrels are used for contract storage. Approximately 1,000 miles of these pipelines, the condensate splitter and 30 million barrels of this storage capacity (including 22 million barrels used for contract storage) are wholly-owned, with the remainder owned through joint ventures.

Terminology common in our industry includes the following terms, which describe products that we transport, store and distribute through our pipelines and terminals:


•	refined products are the output from crude oil refineries that are primarily used as fuels by consumers. Refined products include gasoline, diesel fuel, aviation fuel, kerosene and heating oil. Diesel fuel, kerosene and heating oil are referred to as distillates;


•	transmix is a mixture of refined products that forms when transported in pipelines. Transmix is fractionated and blended into usable refined products;


•	liquefied petroleum gases, or LPGs, are liquids produced as by-products of the crude oil refining process and in connection with natural gas production. LPGs include butane and propane;

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


•	blendstocks are products blended with refined products to change or enhance their characteristics such as increasing a gasoline’s octane or oxygen content. Blendstocks include alkylates, oxygenates and natural gasoline;


•	heavy oils and feedstocks are products used as burner fuels or feedstocks for further processing by refineries and petrochemical facilities. Heavy oils and feedstocks include No. 6 fuel oil and vacuum gas oil;


•	crude oil, which includes condensate, is a naturally occurring unrefined petroleum product recovered from underground that is used as feedstock by refineries, splitters and petrochemical facilities; and


•	biofuels, such as ethanol and biodiesel, are fuels derived from living materials and typically blended with other refined products as required by government mandates.

We use the term petroleum products to describe any, or a combination, of the above-noted products.

Basis of Presentation

In the opinion of management, our accompanying consolidated financial statements which are unaudited, except for the consolidated balance sheet as of December 31, 2019, which is derived from our audited financial statements, include all normal and recurring adjustments necessary to present fairly our financial position as of March 31, 2020, the results of operations for the three months ended March 31, 2019 and 2020 and cash flows for the three months ended March 31, 2019 and 2020. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020 for several reasons. Profits from our gas liquids blending activities are realized largely during the first and fourth quarters of each year. Additionally, gasoline demand, which drives transportation volumes and revenues on our refined products pipeline system, generally trends higher during the summer driving months. Further, the volatility of commodity prices impacts the profits from our commodity activities and the volume of petroleum products we transport on our pipelines. Finally, we expect the impact of COVID-19 on demand for petroleum products and the decline in commodity prices to be more prevalent in our results of operations in the remaining three quarters of 2020, resulting in decreased transportation and terminalling revenues and reduced profits from our gas liquids blending activities.

Pursuant to the rules and regulations of the Securities and Exchange Commission, the financial statements in this report do not include all of the information and notes normally included with financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.

Use of Estimates

The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities that exist at the date of our consolidated financial statements, as well as their impact on the reported amounts of revenue and expense during the reporting periods. Actual results could differ from those estimates.

New Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326). The new guidance is effective for reporting periods

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

beginning after December 15, 2019. The standard replaces the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. The standard requires a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We adopted the new guidance as of January 1, 2020 using the modified retrospective approach related to our accounts receivables and contract assets, resulting in no cumulative adjustment to retained earnings. The adoption of this guidance did not have a material impact on our consolidated statements of income.


2.	Segment Disclosures

During first quarter 2020, we revised our reporting segments. See Note 1 – Organization, Description of Business and Basis of Presentation for a discussion of this matter.

Our reportable segments are strategic business units that offer different products and services. Our segments are managed separately as each segment requires different marketing strategies and business knowledge. Management evaluates performance based on segment operating margin, which includes revenue from affiliates and third-party customers, operating expenses, cost of product sales, other operating (income) expense and earnings of non-controlled entities.

We believe that investors benefit from having access to the same financial measures used by management. Operating margin, which is presented in the following tables, is an important measure used by management to evaluate the economic performance of our core operations. Operating margin is not a GAAP measure, but the components of operating margin are computed using amounts that are determined in accordance with GAAP. A reconciliation of operating margin to operating profit, which is its nearest comparable GAAP financial measure, is included in the tables below (presented in thousands). Operating profit includes depreciation, amortization and impairment expense and general and administrative (“G&A”) expense that management does not consider when evaluating the core profitability of our separate operating segments.



	Three Months Ended March 31, 2019
	Refined Products			Crude Oil			Intersegment Eliminations			Total
Transportation and terminals revenue	$	309,571		$	152,159		$	(938	)	$	460,792
Product sales revenue	157,282			5,713			—			162,995
Affiliate management fee revenue	1,662			3,486			—			5,148
Total revenue	468,515			161,358			(938		)	628,935
Operating expenses	102,692			45,706			(2,373		)	146,025
Cost of product sales	162,430			6,664			—			169,094
Other operating (income) expense	(5,368		)	(1,573		)	—			(6,941		)
(Earnings) loss of non-controlled entities	1,047			(32,302		)	—			(31,255		)
Operating margin	207,714			142,863			1,435			352,012
Depreciation, amortization and impairment expense	44,427			16,009			1,435			61,871
G&A expense	32,813			13,182			—			45,995
Operating profit	$	130,474		$	113,672		$	—		$	244,146

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	Three Months Ended March 31, 2020
	Refined Products			Crude Oil			Intersegment Eliminations			Total
Transportation and terminals revenue	$	314,319		$	145,658		$	(1,582	)	$	458,395
Product sales revenue	312,986			6,134			—			319,120
Affiliate management fee revenue	1,584			3,707			—			5,291
Total revenue	628,889			155,499			(1,582		)	782,806
Operating expenses	105,882			46,772			(3,146		)	149,508
Cost of product sales	233,342			15,894			—			249,236
Other operating (income) expense	(1,892		)	2,403			—			511
Earnings of non-controlled entities	(14,220		)	(29,440		)	—			(43,660		)
Operating margin	305,777			119,870			1,564			427,211
Depreciation, amortization and impairment expense	46,059			15,911			1,564			63,534
G&A expense	26,654			10,254			—			36,908
Operating profit	$	233,064		$	93,705		$	—		$	326,769


3.	Revenue from Contracts with Customers

Statement of Income Disclosures

During first quarter 2020, we revised our reporting segments. See Note 1 – Organization, Description of Business and Basis of Presentation for a discussion of this matter.

The following tables provide details of our revenues disaggregated by key activities that comprise our performance obligations by operating segment (in thousands):

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	Three Months Ended March 31, 2019
	Refined Products			Crude Oil			Intersegment Eliminations			Total
Transportation	$	171,027		$	85,158		$	—		$	256,185
Terminalling	41,297			5,246			—			46,543
Storage	57,376			38,599			(938		)	95,037
Ancillary services	32,511			6,291			—			38,802
Lease revenue	7,360			16,865			—			24,225
Transportation and terminals revenue	309,571			152,159			(938		)	460,792
Product sales revenue	157,282			5,713			—			162,995
Affiliate management fee revenue	1,662			3,486			—			5,148
Total revenue	468,515			161,358			(938		)	628,935
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers:
Lease revenue⁽¹⁾	(7,360		)	(16,865		)	—			(24,225		)
Losses from futures contracts included in product sales revenue⁽²⁾	52,109			2,402			—			54,511
Affiliate management fee revenue	(1,662		)	(3,486		)	—			(5,148		)
Total revenue from contracts with customers under ASC 606	$	511,602		$	143,409		$	(938	)	$	654,073

⁽¹⁾Lease revenue is accounted for under Accounting Standards Codification (“ASC”) 842, Leases.

⁽²⁾ The impact on product sales revenue from futures contracts falls under the guidance of ASC 815, Derivatives and Hedging.



	Three Months Ended March 31, 2020
	Refined Products		Crude Oil		Intersegment Eliminations			Total
Transportation	$	176,005	$	77,115	$	—		$	253,120
Terminalling	40,386		2,539		—			42,925
Storage	57,526		38,851		(1,582		)	94,795

Price	1.00	EPS	-734,404,000
Shares	-0	P/E	-0
MCap	-0	P/FCF	-0
Net Debt	4,514	EBIT	737
TEV	4,514	TEV/EBIT	6
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-03-31	Filed 2020-05-01
10-K	2019-12-31	Filed 2020-02-18
10-Q	2019-09-30	Filed 2019-10-31
10-Q	2019-06-30	Filed 2019-08-01
10-Q	2019-03-31	Filed 2019-05-01
10-K	2018-12-31	Filed 2019-02-15
10-Q	2018-09-30	Filed 2018-11-01
10-Q	2018-06-30	Filed 2018-08-02
10-Q	2018-03-31	Filed 2018-05-03
10-K	2017-12-31	Filed 2018-02-16
10-Q	2017-09-30	Filed 2017-11-02
10-Q	2017-06-30	Filed 2017-08-02
10-Q	2017-03-31	Filed 2017-05-03
10-K	2016-12-31	Filed 2017-02-17
10-Q	2016-09-30	Filed 2016-11-02
10-Q	2016-06-30	Filed 2016-08-02
10-Q	2016-03-31	Filed 2016-05-04
10-K	2015-12-31	Filed 2016-02-19
10-Q	2015-09-30	Filed 2015-11-03
10-Q	2015-06-30	Filed 2015-08-06
10-Q	2015-03-31	Filed 2015-05-05
10-K	2014-12-31	Filed 2015-02-20
10-Q	2014-09-30	Filed 2014-10-31
10-Q	2014-06-30	Filed 2014-08-05
10-Q	2014-03-31	Filed 2014-05-06
10-K	2013-12-31	Filed 2014-02-24
10-Q	2013-09-30	Filed 2013-11-01
10-Q	2013-06-30	Filed 2013-08-02
10-Q	2013-03-31	Filed 2013-05-03
10-K	2012-12-31	Filed 2013-02-22
10-Q	2012-09-30	Filed 2012-11-01
10-Q	2012-06-30	Filed 2012-08-02
10-Q	2012-03-31	Filed 2012-05-03
10-K	2011-12-31	Filed 2012-02-27
10-Q	2011-09-30	Filed 2011-11-07
10-Q	2011-06-30	Filed 2011-08-04
10-Q	2011-03-31	Filed 2011-05-04
10-K	2010-12-31	Filed 2011-02-25
10-Q	2010-06-30	Filed 2010-08-03
10-Q	2010-03-31	Filed 2010-05-04
10-K	2009-12-31	Filed 2010-02-24

8-K	2020-06-15
8-K	2020-05-20
8-K	2020-05-06
8-K	2020-05-04
8-K	2020-05-01
8-K	2020-04-28
8-K	2020-03-25
8-K	2020-01-30
8-K	2020-01-21
8-K	2019-10-31
8-K	2019-08-19
8-K	2019-08-08
8-K	2019-08-01
8-K	2019-05-21
8-K	2019-05-17
8-K	2019-05-01
8-K	2019-04-25
8-K	2019-03-26
8-K	2019-03-25
8-K	2019-01-31
8-K	2019-01-18
8-K	2019-01-11
8-K	2018-11-01
8-K	2018-10-25
8-K	2018-08-20
8-K	2018-08-02
8-K	2018-05-03
8-K	2018-04-26
8-K	2018-02-01

EX-31.1	ex-311x1q20.htm
EX-31.2	ex-312x1q20.htm
EX-32.1	ex-321x1q20.htm
EX-32.2	ex-322x1q20.htm

MMP 10Q Quarterly Report

Magellan Midstream Partners Earnings 2020-03-31