Company Quick10K Filing
Quick10K
Magellan Midstream Partners
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$59.97 228 $13,700
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-21 Officers, Regulation FD, Exhibits
8-K 2019-05-17 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-05-01 Earnings, Exhibits
8-K 2019-04-25 Shareholder Vote
8-K 2019-03-25 Other Events
8-K 2019-01-31 Earnings, Exhibits
8-K 2019-01-18 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-01-11 Enter Agreement, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-10-25 Amend Bylaw, Exhibits
8-K 2018-08-20 Enter Agreement, Regulation FD, Exhibits
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-04-26 Shareholder Vote
8-K 2018-02-01 Earnings, Exhibits
FUN Cedar Fair 3,080
EAT Brinker 1,580
BGS B&G Foods 1,430
PAHC Phibro Animal Health 1,260
CRZO Carrizo Oil & Gas 1,140
FRGI Fiesta Restaurant 360
AGGX Angiogenex 0
FSSN Fision 0
VYCO Vycor Medical 0
COBZ Cobiz Financial 0
MMP 2019-03-31
Part I
Item 1. Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex-311x1q19.htm
EX-31.2 ex-312x1q19.htm
EX-32.1 ex-321x1q19.htm
EX-32.2 ex-322x1q19.htm

Magellan Midstream Partners Earnings 2019-03-31

MMP 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 mmp-201933110q.htm 10-Q Document




 
 
 
 
 
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, 2019
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 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, 2019, there were 228,403,428 outstanding limited partner units of Magellan Midstream Partners, L.P. that trade on the New York Stock Exchange under the ticker symbol “MMP.”
 
 
 
 
 





TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
 
ITEM 1.
CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 
 
 
CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
 
 
1.
 
 
2.
 
 
3.
 
 
4.
 
 
5.
 
 
6.
 
 
7.
 
Leases
 
8.
 
 
9.
 
 
10.
 
 
11.
 
 
12.
 
 
13.
 
 
14.
 
 
15.
 
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
 
 
 
 
 
 
 
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4.
CONTROLS AND PROCEDURES
PART II
OTHER INFORMATION
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
 

1




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,
 
 
2018
 
2019
 
Transportation and terminals revenue
$
431,937

 
$
460,792

 
Product sales revenue
241,592

 
162,995

 
Affiliate management fee revenue
5,250

 
5,148

 
Total revenue
678,779

 
628,935

 
Costs and expenses:
 
 
 
 
Operating
143,296

 
146,025

 
Cost of product sales
199,592

 
169,094

 
Depreciation, amortization and impairment
51,879

 
61,871

 
General and administrative
46,556

 
45,995

 
Total costs and expenses
441,323

 
422,985

 
Other income

 
6,941

 
Earnings of non-controlled entities
34,538

 
31,255

 
Operating profit
271,994

 
244,146

 
Interest expense
56,652

 
60,166

 
Interest capitalized
(4,647
)
 
(3,454
)
 
Interest income
(579
)
 
(1,660
)
 
Gain on disposition of assets

 
(21,788
)
 
Other expense
8,724

 
2,050

 
Income before provision for income taxes
211,844

 
208,832

 
Provision for income taxes
934

 
1,169

 
Net income
$
210,910

 
$
207,663

 
Basic net income per limited partner unit
$
0.92

 
$
0.91

 
Diluted net income per limited partner unit
$
0.92

 
$
0.91

 
Weighted average number of limited partner units outstanding used for basic net income per unit calculation
228,320

 
228,558

 
Weighted average number of limited partner units outstanding used for diluted net income per unit calculation
228,360

 
228,558

 

    



See notes to consolidated financial statements.

2




MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
 
 
Three Months Ended March 31,
 
 
2018
 
2019
 
Net income
$
210,910

 
$
207,663

 
Other comprehensive income (loss):
 
 

 
Derivative activity:
 
 
 
 
Net gain (loss) on cash flow hedges
5,414

 
(4,376
)
 
Reclassification of net loss on cash flow hedges to income  
740

 
627

 
Changes in employee benefit plan assets and benefit obligations recognized in other comprehensive income:
 
 
 
 
Net actuarial loss
(5,944
)
 

 
Amortization of prior service credit
(45
)
 
(45
)
 
Amortization of actuarial loss
5,114

 
1,348

 
Total other comprehensive income (loss)
5,279

 
(2,446
)
 
Comprehensive income
$
216,189

 
$
205,217

 






























See notes to consolidated financial statements.

3




MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 
December 31,
2018
 
March 31,
2019
ASSETS
 
 
(Unaudited)
Current assets:
 
 
 
Cash and cash equivalents
$
218,283

 
$
13,496

Trade accounts receivable
104,164

 
134,120

Other accounts receivable
25,007

 
31,937

Inventory
185,735

 
195,048

Energy commodity derivatives contracts, net
55,011

 

Energy commodity derivatives deposits

 
23,820

Other current assets
58,143

 
39,767

Total current assets
646,343

 
438,188

Property, plant and equipment
7,628,592

 
7,808,952

Less: accumulated depreciation
1,830,411

 
1,883,358

Net property, plant and equipment
5,798,181

 
5,925,594

Investments in non-controlled entities
1,076,306

 
1,128,626

Right-of-use asset, operating leases

 
172,105

Long-term receivables
20,844

 
20,646

Goodwill
53,260

 
53,260

Other intangibles (less accumulated amortization of $2,979 and $4,253 at December 31, 2018 and March 31, 2019, respectively)
51,174

 
49,900

Restricted cash
90,978

 
37,033

Other noncurrent assets
10,451

 
19,199

Total assets
$
7,747,537

 
$
7,844,551

 
 
 
 
LIABILITIES AND PARTNERS’ CAPITAL
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
138,735

 
$
192,969

Accrued payroll and benefits
70,276

 
31,211

Accrued interest payable
63,258

 
46,788

Accrued taxes other than income
53,093

 
41,073

Environmental liabilities
9,153

 
6,851

Deferred revenue
121,085

 
118,690

Accrued product liabilities
75,482

 
94,431

Energy commodity derivatives contracts, net

 
13,272

Energy commodity derivatives deposits
37,328

 

Current portion of operating lease liability

 
23,264

Current portion of long-term debt, net
59,489

 

Other current liabilities
48,657

 
54,819

Total current liabilities
676,556

 
623,368

Long-term operating lease liability

 
148,603

Long-term debt, net
4,211,380

 
4,279,676

Long-term pension and benefits
122,580

 
124,652

Other noncurrent liabilities
82,240

 
40,295

Environmental liabilities
11,347

 
11,702

Commitments and contingencies

 

Partners’ capital:
 
 
 
Limited partner unitholders (228,195 units and 228,403 units outstanding at December 31, 2018 and March 31, 2019, respectively)
2,763,925

 
2,739,192

Accumulated other comprehensive loss
(120,491
)
 
(122,937
)
Total partners’ capital
2,643,434

 
2,616,255

Total liabilities and partners’ capital
$
7,747,537

 
$
7,844,551

 
 
 
 

See notes to consolidated financial statements.

4




MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
Three Months Ended
 
March 31,
 
2018
 
2019
Operating Activities:
 
 
 
Net income
$
210,910

 
$
207,663

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and impairment expense
51,879

 
61,871

Loss (gain) on sale and retirement of assets
1,997

 
(21,759
)
Earnings of non-controlled entities
(34,538
)
 
(31,255
)
Distributions from operations of non-controlled entities
51,754

 
43,069

Equity-based incentive compensation expense
6,632

 
4,914

Amortization of prior service credit and actuarial loss
5,069

 
1,303

Debt prepayment costs

 
8,270

Changes in operating assets and liabilities:
 
 
 
Trade accounts receivable and other accounts receivable
23,371

 
(36,886
)
Inventory
(13,642
)
 
(9,313
)
Energy commodity derivatives contracts, net of derivatives deposits
617

 
7,135

Accounts payable
19,457

 
2,909

Accrued payroll and benefits
(26,544
)
 
(39,065
)
Accrued interest payable
(17,956
)
 
(16,470
)
Accrued taxes other than income
(16,721
)
 
(12,020
)
Accrued product liabilities
(10,893
)
 
18,949

Deferred revenue
1,463

 
(2,395
)
Current and noncurrent environmental liabilities
(359
)
 
(1,947
)
Other current and noncurrent assets and liabilities
25,406

 
21,583

Net cash provided by operating activities
277,902

 
206,556

Investing Activities:
 
 
 
Additions to property, plant and equipment, net(1)
(99,471
)
 
(206,436
)
Proceeds from sale and disposition of assets
214

 
53,676

Investments in non-controlled entities
(60,976
)
 
(76,634
)
Distributions from returns of investments in non-controlled entities

 
7,500

Net cash used by investing activities
(160,233
)
 
(221,894
)
Financing Activities:
 
 
 
Distributions paid
(209,940
)
 
(227,832
)
Net commercial paper borrowings

 
69,000

Borrowings under long-term notes

 
496,855

Payments on notes

 
(550,000
)
Debt placement costs
(315
)
 
(5,355
)
Net payment on financial derivatives

 
(8,028
)
Payments associated with settlement of equity-based incentive compensation
(9,285
)
 
(9,764
)
Debt prepayment costs

 
(8,270
)
Net cash used by financing activities
(219,540
)
 
(243,394
)
Change in cash, cash equivalents and restricted cash
(101,871
)
 
(258,732
)
Cash, cash equivalents and restricted cash at beginning of period
176,068

 
309,261

Cash, cash equivalents and restricted cash at end of period
$
74,197

 
$
50,529

 
 
 
 
Supplemental non-cash investing and financing activities:
 
 
 
Issuance of limited partner units in settlement of equity-based incentive plan awards
$
120

 
$
480

 
 
 
 
(1)   Additions to property, plant and equipment
$
(105,384
)
 
$
(260,734
)
Changes in accounts payable and other current liabilities related to capital expenditures
5,913

 
54,298

Additions to property, plant and equipment, net
$
(99,471
)
 
$
(206,436
)

See notes to consolidated financial statements.

5




MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL
(Unaudited, in thousands)


 
 
Limited Partners
 
 Accumulated Other Comprehensive Loss
 
Total Partners’ Capital
Balance, January 1, 2018
 
$
2,267,231

 
 
$
(137,578
)
 
 
$
2,129,653

Comprehensive income:
 
 
 
 
 
 
 
 
Net income
 
210,910

 
 

 
 
210,910

Total other comprehensive income
 

 
 
5,279

 
 
5,279

Total comprehensive income
 
210,910

 
 
5,279

 
 
216,189

Distributions
 
(209,940
)
 
 

 
 
(209,940
)
Equity-based incentive compensation expense
 
6,632

 
 

 
 
6,632

Issuance of limited partner units in settlement of equity-based incentive plan awards
 
120

 
 

 
 
120

Payments associated with settlement of equity-based incentive compensation
 
(9,285
)
 
 

 
 
(9,285
)
ASC 606 cumulative effect
 
5,975

 
 

 
 
5,975

Other
 
(157
)
 
 

 
 
(157
)
Balance, March 31, 2018
 
$
2,271,486

 
 
$
(132,299
)
 
 
$
2,139,187

 
 
 
 
 
 
 
 
 
Balance, January 1, 2019
 
$
2,763,925

 
 
$
(120,491
)
 
 
2,643,434

Comprehensive income:
 
 
 
 
 
 
 
 
Net income
 
207,663

 
 

 
 
207,663

Total other comprehensive loss
 

 
 
(2,446
)
 
 
(2,446
)
Total comprehensive income
 
207,663

 
 
(2,446
)
 
 
205,217

Distributions
 
(227,832
)
 
 

 
 
(227,832
)
Equity-based incentive compensation expense
 
4,914

 
 

 
 
4,914

Issuance of limited partner 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
)
Balance, March 31, 2019
 
$
2,739,192

 
 
$
(122,937
)
 
 
$
2,616,255


















See notes to consolidated financial statements.

6






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 limited partner 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.

Description of Business

We are principally engaged in the transportation, storage and distribution of refined petroleum products and crude oil.  As of March 31, 2019, our asset portfolio consisted of:

our refined products segment, comprised of our approximately 9,700-mile refined products pipeline system with 53 terminals as well as 25 independent terminals not connected to our pipeline system and our 1,100-mile ammonia pipeline system;

our crude oil segment, comprised of approximately 2,200 miles of crude oil pipelines, a condensate splitter and 33 million barrels of aggregate storage capacity, of which approximately 21 million barrels are used for contract storage. Approximately 1,000 miles of these pipelines, the condensate splitter and 28 million barrels of this storage capacity (including 19 million barrels used for contract storage) are wholly-owned, and the remainder is owned through joint ventures; and

our marine storage segment, consisting of six marine terminals located along coastal waterways with an aggregate storage capacity of approximately 27 million barrels. Five of these terminals and approximately 25 million barrels of this storage capacity are wholly-owned, and the remainder is 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 refineries and are primarily used as fuels by consumers. Refined products include gasoline, diesel fuel, aviation fuel, kerosene and heating oil.  Collectively, diesel fuel, kerosene and heating oil are referred to as distillates;

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

blendstocks are 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 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 used as feedstock by refineries, splitters and petrochemical facilities; and


7






MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



biofuels, such as ethanol and biodiesel, are 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, 2018, 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, 2019, the results of operations for the three months ended March 31, 2018 and 2019 and cash flows for the three months ended March 31, 2018 and 2019. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year ending December 31, 2019 for several reasons. Profits from our butane 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, to a lesser extent, the volume of petroleum products we transport on our pipelines.

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, 2018.

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 - Adopted by us on January 1, 2019

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). This ASU requires lessees to recognize a right of use asset and lease liability on the balance sheet for all leases, with the exception of short-term leases. The new accounting model for lessors remains largely the same, although some changes have been made to align it with the new lessee model and the new revenue recognition guidance. This update also requires companies to include additional disclosures regarding their lessee and lessor agreements. We adopted this standard on January 1, 2019, and it did not have a material impact on our consolidated statements of income or our leverage ratio as defined in our credit agreement. Adoption of this ASU resulted in an increase in our assets and liabilities by approximately $172 million due to the recognition of right of use assets and lease liabilities. See Note 7 – Leases for our lease disclosures.



8






MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



2.
Revenue from Contracts with Customers

Statement of Income Disclosures

The following tables provide details of our revenues disaggregated by key activities that comprise our performance obligations by operating segment (in thousands):
 
 
Three Months Ended March 31, 2018
 
 
Refined Products
 
Crude Oil
 
Marine Storage
 
Intersegment Eliminations
 
Total
Transportation
 
$
166,902

 
$
79,123

 
$

 
$

 
$
246,025

Terminalling
 
39,348

 

 
712

 

 
40,060

Storage
 
25,247

 
29,990

 
34,211

 
(915
)
 
88,533

Ancillary services
 
25,788

 
5,035

 
7,034

 

 
37,857

Lease revenue
 
3,109

 
12,110

 
4,243

 

 
19,462

Transportation and terminals revenue
 
260,394

 
126,258

 
46,200

 
(915
)
 
431,937

Product sales revenue
 
232,774

 
6,439

 
2,379

 

 
241,592

Affiliate management fee revenue
 
297

 
4,016

 
937

 

 
5,250

Total revenue
 
493,465

 
136,713

 
49,516

 
(915
)
 
678,779

Revenue not under the guidance of ASC 606:
 

 

 

 
 
 

Lease revenue(1)
 
(3,109
)
 
(12,110
)
 
(4,243
)
 

 
(19,462
)
Losses from futures contracts included in product sales revenue(2)
 
5,465

 
1,910

 

 

 
7,375

Affiliate management fee revenue
 
(297
)
 
(4,016
)
 
(937
)
 

 
(5,250
)
Total revenue from contracts with customers under ASC 606
 
$
495,524

 
$
122,497

 
$
44,336

 
$
(915
)
 
$
661,442


(1) Lease revenue in 2018 is accounted for under ASC 840, Leases.
(2) The impact on product sales revenue from futures contracts falls under the guidance of ASC 815, Derivatives and Hedging.


9






MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



 
 
Three Months Ended March 31, 2019
 
 
Refined Products
 
Crude Oil
 
Marine Storage
 
Intersegment Eliminations
 
Total
Transportation
 
$
171,027

 
$
85,158

 
$

 
$

 
$
256,185

Terminalling
 
40,398

 
5,246

 
899

 

 
46,543

Storage
 
26,439

 
34,318

 
35,218

 
(938
)
 
95,037

Ancillary services
 
25,896

 
6,021

 
6,885

 

 
38,802

Lease revenue
 
3,245

 
16,865

 
4,115

 

 
24,225

Transportation and terminals revenue
 
267,005

 
147,608

 
47,117

 
(938
)
 
460,792

Product sales revenue
 
155,156

 
5,713

 
2,126

 

 
162,995

Affiliate management fee revenue
 
412

 
3,486

 
1,250

 

 
5,148

Total revenue
 
422,573

 
156,807

 
50,493

 
(938
)
 
628,935

Revenue not under the guidance of ASC 606:
 
 
 
 
 
 
 
 
 
 
Lease revenue(1)
 
(3,245
)
 
(16,865
)
 
(4,115
)
 

 
(24,225
)
Losses from futures contracts included in product sales revenue(2)
 
52,109

 
2,402

 

 

 
54,511

Affiliate management fee revenue
 
(412
)
 
(3,486
)
 
(1,250
)
 

 
(5,148
)
Total revenue from contracts with customers under ASC 606
 
$
471,025

 
$
138,858

 
$
45,128

 
$
(938
)
 
$
654,073


(1) Lease revenue in 2019 is accounted for under ASC 842, Leases.
(2) The impact on product sales revenue from futures contracts falls under the guidance of ASC 815, Derivatives and Hedging.

Balance Sheet Disclosures

The following table summarizes our accounts receivable, contract assets and contract liabilities resulting from contracts with customers (in thousands):
 
 
December 31, 2018
 
March 31, 2019
Accounts receivable from contracts with customers
 
$
102,684

 
$
130,257

Contract assets
 
$
8,487

 
$
8,618

Contract liabilities
 
$
122,129

 
$
124,439


For the three months ended March 31, 2019, we recognized $70.2 million of transportation and terminals revenue that was recorded in deferred revenue as of December 31, 2018.


10






MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Unfulfilled Performance Obligations

The following table provides the aggregate amount of the transaction price allocated to our unfulfilled performance obligations (“UPOs”) as of March 31, 2019 by operating segment, including the range of years remaining on our contracts with customers and an estimate of revenues expected to be recognized over the next 12 months (dollars in thousands):
 
 
Refined Products
 
Crude Oil
 
Marine Storage
 
Total
Balances at 3/31/2019
 
$
2,082,007

 
$
1,270,411

 
$
239,820

 
$
3,592,238

Remaining terms
 
1 - 19 years

 
1 - 10 years

 
1 - 5 years

 
 
Estimated revenues from UPOs to be recognized in the next 12 months
 
$
289,218

 
$
327,365

 
$
115,727

 
$
732,310



3.
Segment Disclosures

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 external customers, operating expenses, cost of product sales 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, 2018
 
Refined Products
 
Crude Oil
 
Marine Storage
 
Intersegment
Eliminations
 
Total
Transportation and terminals revenue
$
260,394

 
$
126,258

 
$
46,200

 
$
(915
)
 
$
431,937

Product sales revenue
232,774

 
6,439

 
2,379

 

 
241,592

Affiliate management fee revenue
297

 
4,016

 
937

 

 
5,250

Total revenue
493,465

 
136,713

 
49,516

 
(915
)
 
678,779

Operating expenses
94,049

 
33,591

 
17,964

 
(2,308
)
 
143,296

Cost of product sales
190,333

 
7,050

 
2,209

 

 
199,592

Earnings of non-controlled entities
(2,318
)
 
(31,608
)
 
(612
)
 

 
(34,538
)
Operating margin
211,401

 
127,680

 
29,955

 
1,393

 
370,429

Depreciation, amortization and impairment expense
28,907

 
12,762

 
8,817

 
1,393

 
51,879

G&A expense
28,887

 
11,906

 
5,763

 

 
46,556

Operating profit
$
153,607

 
$
103,012

 
$
15,375

 
$

 
$
271,994

 

11






MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



 
Three Months Ended March 31, 2019
 
Refined Products
 
Crude Oil
 
Marine Storage
 
Intersegment
Eliminations
 
Total
Transportation and terminals revenue
$
267,005

 
$
147,608

 
$
47,117

 
$
(938
)
 
$
460,792

Product sales revenue
155,156

 
5,713

 
2,126

 

 
162,995

Affiliate management fee revenue
412

 
3,486

 
1,250

 

 
5,148

Total revenue
422,573

 
156,807

 
50,493

 
(938
)
 
628,935

Operating expenses
89,678

 
43,823

 
14,897

 
(2,373
)
 
146,025

Cost of product sales
160,154

 
6,664

 
2,276

 

 
169,094

Other income
(614
)
 
(1,573
)
 
(4,754
)
 

 
(6,941
)
(Earnings) losses of non-controlled entities
1,430

 
(32,302
)
 
(383
)
 

 
(31,255
)
Operating margin
171,925

 
140,195

 
38,457

 
1,435

 
352,012

Depreciation, amortization and impairment expense
35,534

 
15,259

 
9,643

 
1,435

 
61,871

G&A expense
27,715

 
12,615

 
5,665

 

 
45,995

Operating profit
$
108,676

 
$
112,321

 
$
23,149

 
$

 
$
244,146

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.
Investments in Non-Controlled Entities

Our investments in non-controlled entities at March 31, 2019 were comprised of:
Entity
 
Ownership Interest
BridgeTex Pipeline Company, LLC (“BridgeTex”)
 
30%
Double Eagle Pipeline LLC (“Double Eagle”)
 
50%
HoustonLink Pipeline Company, LLC (“HoustonLink”)
 
50%
MVP Terminalling, LLC (“MVP”)
 
50%
Powder Springs Logistics, LLC (“Powder Springs”)
 
50%
Saddlehorn Pipeline Company, LLC (“Saddlehorn”)
 
40%
Seabrook Logistics, LLC (“Seabrook”)
 
50%
Texas Frontera, LLC (“Texas Frontera”)
 
50%

We serve as operator of BridgeTex, HoustonLink, MVP, Powder Springs, Saddlehorn, Texas Frontera and the pipeline activities of Seabrook. We receive fees for management services as well as reimbursement or payment to us for certain direct operational payroll and other overhead costs. The management fees we have received are reported as affiliate management fee revenue on our consolidated statements of income. Cost reimbursements we receive from these entities in connection with our operating services are included as reductions to costs and expenses on our consolidated statements of income and totaled $0.5 million and $1.5 million during the three months ended March 31, 2018 and 2019, respectively.


12






MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



We recorded the following revenue and expense transactions from certain of these non-controlled entities in our consolidated statements of income (in thousands):
 
 
Three Months Ended March 31,
 
 
 
2018
 
2019
 
Transportation and terminals revenue:
 
 
 
 
 
BridgeTex, pipeline capacity and storage
 
$
9,864

 
$
10,145

 
Double Eagle, throughput revenue
 
$
1,544

 
$
1,659

 
Saddlehorn, storage revenue
 
$
538

 
$
552

 
Operating costs:
 
 
 
 
 
Seabrook, storage lease and ancillary services
 
$

 
$
6,909

 
Product sales revenue:
 
 
 
 
 
Powder Springs, butane sales
 
$
2,719

 
$

 

Our consolidated balance sheets reflected the following balances related to our investments in non-controlled entities (in thousands):
 
 
December 31, 2018
 
 
Trade Accounts Receivable
 
Other Accounts Receivable
 
Other Accounts Payable
 
Long-Term Receivables
BridgeTex
 
$
318

 
$
1,549

 
$

 
$

Double Eagle
 
$
546

 
$

 
$

 
$

MVP
 
$

 
$
397

 
$

 
$

Powder Springs
 
$

 
$

 
$

 
$
2,221

Saddlehorn
 
$

 
$
183

 
$

 
$

Seabrook
 
$

 
$

 
$
1,140

 
$


 
 
March 31, 2019
 
 
Trade Accounts Receivable
 
Other Accounts Receivable
 
Other Accounts Payable
 
Long-Term Receivables
BridgeTex
 
$
284

 
$
779

 
$
179

 
$

Double Eagle
 
$
583

 
$

 
$

 
$

MVP
 
$

 
$
361

 
$

 
$

Powder Springs
 
$

 
$
269

 
$

 
$
2,725

Saddlehorn
 
$

 
$
109

 
$

 
$

Seabrook
 
$

 
$

 
$
1,646

 
$

Texas Frontera
 
$

 
$

 
$
83

 
$


The financial results from MVP and Texas Frontera are included in our marine storage segment, the financial results from BridgeTex, Double Eagle, HoustonLink, Saddlehorn and Seabrook are included in our crude oil segment and the financial results from Powder Springs are included in our refined products segment, each as earnings of non-controlled entities.


13






MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



A summary of our investments in non-controlled entities follows (in thousands):
 
 
 
Investments at 12/31/2018
 
$
1,076,306

Additional investment
 
76,634

Indemnification settlement
 
(5,000
)
Earnings of non-controlled entities:
 
 
Proportionate share of earnings
 
31,719

Amortization of excess investment and capitalized interest
 
(464
)
Earnings of non-controlled entities
 
31,255

Less:
 
 
Distributions from operations of non-controlled entities
 
43,069

Distributions from returns of investments in non-controlled entities
 
7,500

Investments at 3/31/2019
 
$
1,128,626

 
 
 
 

5.
Inventory

Inventory at December 31, 2018 and March 31, 2019 was as follows (in thousands): 
 
December 31, 2018
 
March 31,
2019
Refined products
$
92,751

 
$
80,437

Liquefied petroleum gases
46,612

 
52,725

Transmix
28,497

 
35,947

Crude oil
11,220

 
19,557

Additives
6,655

 
6,382

Total inventory
$
185,735

 
$
195,048



6.
Employee Benefit Plans

We sponsor a defined contribution plan in which we match our employees’ qualifying contributions, resulting in additional expense to us. Expenses related to the defined contribution plan were $3.8 million and $4.1 million for the three months ended March 31, 2018 and 2019, respectively.


14






MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Additionally, we sponsor two union pension plans that cover certain union employees, a pension plan for all non-union employees and a postretirement benefit plan for certain employees. Net periodic benefit expense for the three months ended March 31, 2018 and 2019 was as follows (in thousands):
 
 
Three Months Ended
 
Three Months Ended
 
March 31, 2018
 
March 31, 2019
 
Pension
Benefits
 
Other  Postretirement
Benefits
 
Pension
Benefits
 
Other  Postretirement
Benefits
Components of net periodic benefit costs:
 
 
 
 
 
 
 
Service cost
$
15,700

 
$
65

 
$
6,527

 
$
54

Interest cost
6,443

 
106

 
3,000

 
119

Expected return on plan assets
(2,978
)
 

 
(2,374
)
 

Amortization of prior service credit
(45
)
 

 
(45
)
 

Amortization of actuarial loss
4,954

 
160

 
1,277

 
71

Net periodic benefit cost
$
24,074

 
$
331

 
$
8,385

 
$
244

 
 
 
 
 
 
 
 
 
The service component of our net periodic benefit costs is presented in operating expense and G&A expense, and the non-service components are presented in other expense in our consolidated statements of income.

The changes in accumulated other comprehensive loss (“AOCL”) related to employee benefit plan assets and benefit obligations for the three months ended March 31, 2018 and 2019 were as follows (in thousands):
 
 
Three Months Ended
 
Three Months Ended
 
 
March 31, 2018
 
March 31, 2019
Gains (Losses) Included in AOCL
 
Pension Benefits
 
Other Postretirement Benefits
 
Pension Benefits
 
Other Postretirement Benefits
Beginning balance
 
$
(97,226
)
 
$
(6,597
)
 
$
(88,602
)
 
$
(5,409
)
Net actuarial loss
 
(5,944
)
 

 

 

Amortization of prior service credit
 
(45
)
 

 
(45
)
 

Amortization of actuarial loss
 
4,954

 
160

 
1,277

 
71

Ending balance
 
$
(98,261
)
 
$
(6,437
)
 
$
(87,370
)
 
$
(5,338
)
 
 
 
 
 
 
 
 
 
Contributions estimated to be paid into the plans in 2019 are $32.1 million and $0.2 million for the pension plans and other postretirement benefit plan, respectively.


7.
Leases

As of January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842) using the modified retrospective method of adoption. We elected to use the transition option that allows us to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment (if any) to the opening balance of retained earnings in the year of adoption. Comparable periods continue to be presented under the guidance of the previous standard, ASC 840. ASC 842 requires lessees to recognize a lease liability and right-of-use asset on the balance sheet for operating leases. For lessors, the new accounting model remains largely the same, although some changes have been made to align it with the new lessee model and the new revenue recognition guidance, ASC 606, Revenue from Contracts with Customers. Our adoption of ASC 842 did not result in any material adjustments to retained earnings, changes in the timing or amounts of lease costs or changes to our leverage ratio as defined in our credit agreement.

15






MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




We have both lessee and lessor arrangements. Our leases are evaluated at inception or at any subsequent modification. Depending on the terms, leases are classified as either operating or finance leases if we are the lessee, or as operating, sales-type or direct financing leases if we are the lessor, as appropriate under ASC 842.  Our lessee arrangements primarily include a terminalling and storage contract where we have exclusive use of dedicated tankage, leased pipelines and office buildings. Our lessor arrangements include pipeline capacity and storage contracts and our condensate splitter tolling agreement that qualify as operating leases under ASC 842. In addition, we have a long-term throughput and deficiency agreement with a customer that is being accounted for as a sales-type lease under ASC 842.

In accordance with ASC 842, we have made an accounting policy election to not apply the new standard to lessee arrangements with a term of one year or less and no purchase option that is reasonably certain of exercise. We will continue to account for these short-term arrangements by recognizing payments and expenses as incurred, without recording a lease liability and right-of-use asset.

We have also made an accounting policy election for both our lessee and lessor arrangements to combine lease and non-lease components. This election is applied to all of our lease arrangements as our non-lease components are not material and do not result in significant timing differences in the recognition of rental expenses or income.

Operating Leases – Lessee

We recognize a lease liability for each lease based on the present value of remaining minimum fixed rental payments (which includes payments under any renewal option that we are reasonably certain to exercise), using a discount rate that approximates the rate of interest we would have to pay to borrow on a collateralized basis over a similar term. We also recognize a right-of-use asset for each lease, valued at the lease liability, adjusted for prepaid or accrued rent balances existing at the time of initial recognition. The lease liability and right-of-use asset are reduced over the term of the lease as payments are made and the assets are used.

Related Party Operating Lease. In third quarter 2018, we entered into a long-term terminalling and storage contract with our equity investee, Seabrook, where we have exclusive use of dedicated tankage that is utilized to provide our customers with crude oil storage capacity and dock access for crude oil imports and exports on the Texas Gulf Coast. This arrangement meets the definition of an operating lease, and our lease liability includes renewal options necessary to maintain control of the assets for a time period sufficient to meet our performance obligations to our third-party customers.

Minimum fixed rental payments are recognized on a straight-line basis over the life of the lease as costs and expenses on our consolidated statements of income. Variable and short-term rental payments are recognized as costs and expenses as they are incurred. Variable payments consist of amounts that exceed the contractual minimum rental payment (for example, incremental payment increases tied to a change in a market index). Future minimum rental payments under operating leases with initial terms greater than one year as of March 31, 2019, are as follows (in thousands):

16






MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



 
Third Party Leases
 
Seabrook Lease
 
All Leases
2019
$
15,889

 
$
8,266

 
$
24,155

2020
18,948

 
11,021

 
29,969

2021
18,994

 
9,368

 
28,362

2022
18,868

 
6,612

 
25,480

2023
18,419

 
6,612

 
25,031

Thereafter
29,867

 
37,471

 
67,338

Total future minimum rental payments
120,985

 
79,350

 
200,335

Present value discount
14,691

 
13,777

 
28,468

Total operating lease liability
$
106,294

 
$
65,573

 
$
171,867


The following table provides further information about our operating leases as of and for the three months ended March 31, 2019 (dollars in thousands):
 
 
Third Party Leases
 
Seabrook Lease
 
All Leases
Current lease liability
 
$
14,828

 
$
8,436

 
$
23,264

Long-term lease liability
 
$
91,466

 
$
57,137

 
$
148,603

Right-of-use asset
 
$
106,532

 
$
65,573

 
$
172,105

 
 
 
 
 
 
 
Fixed lease cost
 
$
4,821

 
$
2,755

 
$
7,576

Short-term lease cost
 
457

 

 
457

Variable lease cost
 
371

 

 
371

Total lease cost
 
$
5,649

 
$
2,755

 
$
8,404

 
 
 
 
 
 
 
Operating cash flows from operating leases
 
$
3,226

 
2,755

 
$
5,981

Weighted average remaining lease term (years)
 
7

 
9

 
8

Weighted-average discount rate
 
4.1%
 
4.3%
 
4.2%
 
 
 
 
 
 
 

Rent expense was $9.0 million for first quarter 2018 and was recognized in accordance with ASC 840.

Operating Leases – Lessor

We recognize fixed rental income on a straight-line basis over the life of the lease as revenue on our consolidated statements of income. Variable rental payments are recognized as revenue in the period in which the changes in facts and circumstances on which the variable lease payments are based occur.


17






MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Future minimum payments receivable under operating leases with terms greater than one year as of March 31, 2019 are estimated as follows (in thousands):
2019
$
30,892

2020
33,770

2021
33,583

2022
23,486

2023
7,699

Thereafter
16,019

Total
$
145,449

 
We recognized variable lease revenue of $13.7 million in first quarter 2019, primarily related to our condensate splitter in Corpus Christi, Texas.

Property, plant and equipment utilized by our customers in operating lease arrangements consisted of: $229.6 million of processing equipment; $74.5 million of storage tanks; $44.3 million of pipeline and station equipment; and $27.9 million of other assets. The processing equipment primarily relates to our condensate splitter.

Sales-Type Lease - Lessor

We entered into a long-term throughput and deficiency agreement with a customer on a pipeline and related assets that we constructed in Texas and New Mexico, which contains minimum payment commitments. Our customer has the option to purchase this pipeline and related assets at the end of the lease term for a nominal amount. This agreement was previously accounted for as a direct-financing lease under ASC 840 and is now being accounted for as a sales-type lease under ASC 842. The net investment under this arrangement as of December 31, 2018 and March 31, 2019 was as follows (in thousands):
 
 
December 31, 2018
 
March 31, 2019
Total minimum lease payments receivable
 
$
17,468

 
$
17,031

Less: Unearned income
 
3,422

 
3,265

Recorded net investment in sales-type lease
 
$
14,046

 
$
13,766


The net investment in sales-type leases was classified in the consolidated balance sheets as follows (in thousands):
 
 
December 31, 2018
 
March 31, 2019
Other accounts receivable
 
$
1,138

 
$
1,151

Long-term receivables
 
12,908

 
12,615

Total
 
$
14,046

 
$
13,766


Future minimum payments receivable under this lease are $1.3 million in 2019, $1.7 million in 2020, $1.7 million in 2021, $1.7 million in 2022, $1.7 million in 2023 and $8.7 million thereafter.



18






MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



8.
Debt
Long-term debt at December 31, 2018 and March 31, 2019 was as follows (in thousands):
 
 
December 31,
2018
 
March 31,
2019
Commercial paper
 
$

 
$
69,000

6.55% Notes due 2019
 
550,000

 

4.25% Notes due 2021
 
550,000

 
550,000

3.20% Notes due 2025
 
250,000

 
250,000

5.00% Notes due 2026
 
650,000

 
650,000

6.40% Notes due 2037
 
250,000

 
250,000

4.20% Notes due 2042
 
250,000

 
250,000

5.15% Notes due 2043
 
550,000

 
550,000

4.20% Notes due 2045
 
250,000

 
250,000

4.25% Notes due 2046
 
500,000

 
500,000

4.20% Notes due 2047
 
500,000

 
500,000

4.85% Notes due 2049
 

 
500,000

Face value of long-term debt
 
4,300,000

 
4,319,000

Unamortized debt issuance costs(1)
 
(27,070
)
 
(31,671
)
Net unamortized debt discount(1)
 
(2,927
)
 
(7,653
)
Net unamortized amount of gains from historical fair value hedges(1)
 
866

 

Long-term debt, net, including current portion
 
4,270,869

 
4,279,676

Less: Current portion of long-term debt, net
 
59,489

 

Long-term debt, net
 
$
4,211,380

 
$
4,279,676

 
 
 
 
 

(1)
Debt issuance costs, note discounts and premiums and realized gains and losses of historical fair value hedges are being amortized or accreted to the applicable notes over the respective lives of those notes.

All of the instruments detailed in the table above are senior indebtedness.

2019 Debt Issuance

On January 18, 2019, we issued $500.0 million of 4.85% senior notes due 2049 in an underwritten public
offering. The notes were issued at 99.371% of par. Net proceeds from this offering were approximately $491.5 million after underwriting discounts and offering expenses. The net proceeds from this offering along with cash on hand were used to early redeem our $550.0 million of 6.55% senior notes due 2019 on February 11, 2019. We recognized $8.3 million of debt prepayment costs that were recorded as interest expense in our consolidated statements of income.

Other Debt

Revolving Credit Facility. At March 31, 2019, the total borrowing capacity under our revolving credit facility maturing October 26, 2022 was $1.0 billion. Any borrowings outstanding under this facility are classified as long-term debt on our consolidated balance sheets. Borrowings under this facility are unsecured and bear interest at LIBOR plus a spread ranging from 1.000% to 1.625% based on our credit ratings. Additionally, an unused commitment fee is assessed at a rate between 0.100% and 0.275% depending on our credit ratings. The unused commitment fee was 0.125% at March 31, 2019. Borrowings under this facility may be used for general partnership purposes, including capital expenditures. As of December 31, 2018 and March 31, 2019, there were no borrowings outstanding under this facility, with $6.8 million and $3.5 million, respectively, obligated for letters of credit.

19






MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Amounts obligated for letters of credit are not reflected as debt on our consolidated balance sheets, but decrease our borrowing capacity under this facility.

Commercial Paper Program. We have a commercial paper program under which we may issue commercial paper notes in an amount up to the available capacity under our $1.0 billion revolving credit facility. The maturities of the commercial paper notes vary, but may not exceed 397 days from the date of issuance. Because the commercial paper we can issue is limited to amounts available under our revolving credit facility, amounts outstanding under the program are classified as long-term debt. The commercial paper notes are sold under customary terms in the commercial paper market and are issued at a discount from par, or alternatively, are sold at par and bear varying interest rates on a fixed or floating basis. The weighted-average interest rate for commercial paper borrowings based on the number of days outstanding was 2.3% for the year ended December 31, 2018 and 2.8% for the three months ended March 31, 2019.


9.
Derivative Financial Instruments

Interest Rate Derivatives

We periodically enter into interest rate derivatives to hedge the fair value of debt or hedge against variability in
interest rates. For interest rate cash flow hedges, we record the noncurrent portion of unrealized gains or losses as an
adjustment to other comprehensive income with the current portion recorded as an adjustment to interest expense.
For fair value hedges on long-term debt, we record the noncurrent portion of gains or losses as an adjustment to
long-term debt with the current portion recorded as an adjustment to interest expense. Adjustments resulting from
discontinued hedges continue to be recognized in accordance with their historic hedging relationships.

At March 31, 2019, we had $100.0 million of treasury lock agreements outstanding to protect against the risk of variability of a portion of debt issuances we anticipate to occur in 2019. The fair value of these interest rate derivative agreements at March 31, 2019 was recorded as a current liability of $4.5 million, with the offset recorded to other comprehensive income. We account for these agreements as cash flow hedges.

In first quarter 2019, upon issuance of $500.0 million of 4.85% notes due 2049, we terminated and settled $150.0 million of treasury lock agreements that we had previously entered into to protect against the variability of interest payments on this anticipated debt issuance for a loss of $8.0 million. These agreements were accounted for as cash flow hedges. The loss was recorded to other comprehensive income and will be recognized into earnings as an adjustment to our periodic interest expense over the life of the debt issuance.

Commodity Derivatives

Our butane blending activities produce gasoline, and we can reasonably estimate the timing and quantities of sales of these products. We use a combination of exchange-traded commodities futures contracts and forward purchase and sale contracts to help manage commodity price changes and mitigate the risk of decline in the product margin realized from our butane blending activities. Further, certain of our other commercial operations generate petroleum products, and we also use futures contracts to hedge against price changes for some of these commodities.

Forward physical purchase and sale contracts that qualify for and are elected as normal purchases and sales are accounted for using traditional accrual accounting, whereby changes in the mark-to-market values of such contracts are not recognized in income; rather the revenues and expenses associated with such transactions are recognized during the period when commodities are physically delivered or received. Physical forward commodity contracts subject to this exception are evaluated for the probability of future delivery and are periodically tested once the

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MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



forecasted period has passed to determine whether similar forward contracts are probable of physical delivery in the future.

We record the effective portion of the gains or losses for commodity-based contracts designated as fair value hedges as adjustments to the assets being hedged and the ineffective portions as well as amounts excluded from the assessment of hedge effectiveness as adjustments to other income or expense. We recognize the change in fair value of economic hedges that hedge against changes in the price of petroleum products that we expect to sell or purchase in the future currently in earnings as adjustments to product sales revenue, cost of product sales or operating expenses, as applicable.

Our open futures contracts at March 31, 2019 were as follows:
Type of Contract/Accounting Methodology
 
Product Represented by the Contract and Associated Barrels
 
Maturity Dates
Futures - Economic Hedges
 
3.3 million barrels of refined products and crude oil
 
Between April 2019 and January 2020
Futures - Economic Hedges
 
0.6 million barrels of butane and natural gasoline
 
Between April 2019 and December 2019

Energy Commodity Derivatives Contracts and Deposits Offsets

At March 31, 2019, we had made margin deposits of $23.8 million for our future contracts with our counterparties, which were recorded as current assets under energy commodity derivatives deposits on our consolidated balance sheets. At December 31, 2018 we held margin deposits of $37.3 million for our future contracts with our counterparties, which were recorded as current liabilities under energy commodity derivatives deposits on our consolidated balance sheets. We have the right to offset the combined fair values of our open futures contracts against our margin deposits under a master netting arrangement for each counterparty; however, we have elected to present the combined fair values of our open futures contracts separately from the related margin deposits on our consolidated balance sheets. Additionally, we have the right to offset the fair values of our futures contracts together for each counterparty, which we have elected to do, and we report the combined net balances on our consolidated balance sheets. A schedule of the derivative amounts we have offset and the deposit amounts we could offset under a master netting arrangement are provided below as of December 31, 2018 and March 31, 2019 (in thousands):
Description
 
Gross Amounts of Recognized Assets (Liabilities)
 
Gross Amounts of Assets (Liabilities) Offset in the Consolidated Balance Sheets
 
Net Amounts of Assets (Liabilities) Presented in the Consolidated Balance Sheets
 
Margin Deposit Amounts Not Offset in the Consolidated Balance Sheets
 
Net Asset Amount(1)
As of 12/31/2018
 
$
62,166

 
$
(7,155
)
 
$
55,011

 
$
(37,328
)
 
$
17,683

As of 3/31/2019
 
$
(13,869
)
 
$
597

 
$
(13,272
)
 
$
23,820

 
$
10,548

 
 
 
 
 
 
 
 
 
 
 
(1)
Amount represents the maximum loss we would incur if all of our counterparties failed to perform on their derivative contracts.



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MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Impact of Derivatives on Our Financial Statements

Comprehensive Income

The changes in derivative activity included in AOCL for the three months ended March 31, 2018 and 2019 were as follows (in thousands):
 
 
Three Months Ended
 
 
March 31,
 
Derivative Losses Included in AOCL
2018
 
2019
 
Beginning balance
$
(33,755
)
 
$
(26,480
)
 
Net gain (loss) on cash flow hedges
5,414

 
(4,376
)
 
Reclassification of net loss on cash flow hedges to income
740

 
627

 
Ending balance
$
(27,601
)
 
$
(30,229
)
 

The following is a summary of the effect on our consolidated statements of income for the three months ended March 31, 2018 and 2019 of derivatives that were designated as cash flow hedges (in thousands):
 
 
Interest Rate Contracts
 
 
Amount of Gain (Loss) Recognized in AOCL on Derivatives
 
Location of Loss Reclassified from AOCL into  Income
 
Amount of Loss Reclassified from AOCL into Income
Three Months Ended March 31, 2018
 
$
5,414

 
Interest expense
 
$
(740
)
Three Months Ended March 31, 2019
 
$
(4,376
)
 
Interest expense
 
$
(627
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of March 31, 2019, the net loss estimated to be classified to interest expense over the next twelve months from AOCL is approximately $2.4 million. This amount relates to the amortization of losses on interest rate contracts over the life of the related debt instruments.
The following table provides a summary of the effect on our consolidated statements of income for the three months ended March 31, 2018 and 2019 of derivatives accounted for as economic hedges (in thousands):
 
 
 
 
Amount of Gain (Loss) Recognized on Derivatives
 
 
 
 
 
Three Months Ended
 
 
 
Location of Gain (Loss)
Recognized on Derivatives
 
March 31,
 
Derivative Instrument
 
 
2018
 
2019
 
Futures contracts
 
Product sales revenue
 
$
(7,375
)
 
$
(54,511
)
 
Futures contracts
 
Cost of product sales
 
(3,944
)
 
2,273

 
 
 
Total
 
$
(11,319
)
 
$
(52,238
)
 
The impact of the derivatives in the above table was reflected as cash from operations on our consolidated statements of cash flows.

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MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Balance Sheets
The following tables provide a summary of the fair value of derivatives, which are presented on a net basis in our consolidated balance sheets, that were designated as hedging instruments as of December 31, 2018 and March 31, 2019 (in thousands):
 
 
December 31, 2018
 
 
Asset Derivatives
 
Liability Derivatives
Derivative Instrument
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Futures contracts
 
Energy commodity derivatives contracts, net
 
$
462

 
Energy commodity derivatives contracts, net
 
$

Interest rate contracts
 
Other current assets
 
312

 
Other current liabilities
 
8,438

 
 
Total
 
$
774

 
Total
 
$
8,438

 
 
 
March 31, 2019
 
 
Asset Derivatives
 
Liability Derivatives
Derivative Instrument
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Interest rate contracts
 
Other current assets
 
$

 
Other current liabilities
 
$
4,474

 
The following tables provide a summary of the fair value of derivatives, which are presented on a net basis in our consolidated balance sheets, that were not designated as hedging instruments as of December 31, 2018 and March 31, 2019 (in thousands):
 
 
December 31, 2018
 
 
Asset Derivatives
 
Liability Derivatives