Magellan Midstream Partners, L.P. [MMP] Filings

10-Q 1 mmp-20210930.htm 10-Q mmp-20210930

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 September 30, 2021


☐			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 November 1, 2021, there were 213,445,238 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 STATEMENTS OF PARTNERS’ CAPITAL		8
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
	1.	Organization, Description of Business and Basis of Presentation	10
	2.	Discontinued Operations and Assets Held for Sale	12
	3.	Segment Disclosures	13
	4.	Revenue	16
	5.	Investments in Non-Controlled Entities	19
	6.	Inventory	21
	7.	Debt	22
	8.	Leases	23
	9.	Employee Benefit Plans	23
	10.	Long-Term Incentive Plan	25
	11.	Derivative Financial Instruments	26
	12.	Fair Value	29
	13.	Commitments and Contingencies	31
	14.	Related Party Transactions	32
	15.	Partners’ Capital and Distributions	32
	16.	Subsequent Events	33
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Introduction		34
	Recent Developments		34
	Results of Operations		35
	Adjusted EBITDA, Distributable Cash Flow and Free Cash Flow		41
	Liquidity and Capital Resources		43
	Off-Balance Sheet Arrangements		44
	Other Items		44
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	45
ITEM 4.		CONTROLS AND PROCEDURES	46
PART II OTHER INFORMATION
ITEM 1.		LEGAL PROCEEDINGS	47
ITEM 1A.		RISK FACTORS	47
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	48
ITEM 3.		DEFAULTS UPON SENIOR SECURITIES	48
ITEM 4.		MINE SAFETY DISCLOSURES	48
ITEM 5.		OTHER INFORMATION	48
ITEM 6.		EXHIBITS	49
INDEX TO EXHIBITS			50
SIGNATURES			51

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:

•changes in 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, including market and macro-economic disruptions resulting from pandemics and related governmental responses;

•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 and increasing use 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 renewable fuels such as ethanol, biodiesel and renewable diesel, increased conservation or fuel efficiency, increased use of electric vehicles, as well as regulatory developments, technological 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 and storage of refined products and crude oil services we provide;

•changes in supply and demand patterns for our facilities due to geopolitical events, the activities of the Organization of the Petroleum Exporting Countries (“OPEC”) and other non-OPEC oil producing countries with large production capacity, changes in U.S. trade policies or in laws governing the importing and exporting of petroleum products;

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

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

•shut-downs or cutbacks at refineries, oil fields, 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;

•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 interpretation or increased assessments under existing forms of taxation;

•our ability to identify expansion projects, accretive acquisitions and joint ventures with acceptable expected returns and to complete these projects on time and at projected costs;

•our ability to successfully execute our capital allocation priorities including unit repurchases with acceptable expected returns;

•the effect of changes in accounting policies and 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 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, 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 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 their contractual obligations to us;

•petroleum product supply disruptions;

•global and domestic repercussions from terrorist activities, including cyberattacks, 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				Nine Months Ended
	September 30,				September 30,
	2020		2021		2020		2021
Transportation and terminals revenue	$	459,940	$	464,910	$	1,305,217	$	1,332,271
Product sales revenue	111,220		168,815		443,127		575,575
Affiliate management fee revenue	5,288		5,329		15,895		15,925
Total revenue	576,448		639,054		1,764,239		1,923,771
Costs and expenses:
Operating	157,716		146,556		446,102		422,907
Cost of product sales	89,375		145,855		364,916		488,614
Depreciation, amortization and impairment	68,439		61,401		183,226		168,304
General and administrative	37,497		46,632		115,480		148,671
Total costs and expenses	353,027		400,444		1,109,724		1,228,496
Other operating income (expense)	(2,863)		2,591		539		4,033
Earnings of non-controlled entities	39,135		36,466		116,484		116,107
Operating profit	259,693		277,667		771,538		815,415
Interest expense	54,212		57,016		179,371		170,976
Interest capitalized	(1,272)		(315)		(10,451)		(1,240)
Interest income	(260)		(138)		(903)		(439)

Gain on disposition of assets	—		(3,231)		(12,887)		(72,933)
Other (income) expense	1,455		2,224		3,708		18,111
Income from continuing operations before provision for income taxes	205,558		222,111		612,700		700,940
Provision for income taxes	824		821		2,169		2,044
Income from continuing operations	204,734		221,290		610,531		698,896
Income from discontinued operations	6,904		15,309		22,514		39,438
Net income	$	211,638	$	236,599	$	633,045	$	738,334




Basic and diluted income from continuing operations per common unit	$	0.91	$	1.01	$	2.70	$	3.15
Basic and diluted income from discontinued operations per common unit	0.03		0.07		0.10		0.18
Basic and diluted net income per common unit	$	0.94	$	1.08	$	2.80	$	3.33
Weighted average number of common units outstanding used for basic net income per unit calculation	225,222		218,637		226,045		221,637
Weighted average number of common units outstanding used for diluted net income per unit calculation	225,222		218,788		226,045		221,730

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2021		2020		2021
Net income	$	211,638	$	236,599	$	633,045	$	738,334
Other comprehensive income (loss):
Derivative activity:
Net loss on cash flow hedges	—		—		(10,444)		—
Reclassification of net loss on cash flow hedges to income	896		887		2,552		2,662
Changes in employee benefit plan assets and benefit obligations recognized in other comprehensive income:
Net actuarial gain (loss)	—		—		(333)		10,801
Curtailment gain	—		—		1,703		—

Recognition of prior service credit amortization in income	(46)		(46)		(136)		(136)
Recognition of actuarial loss amortization in income	1,473		1,433		4,462		4,536
Recognition of settlement cost in income	—		1,300		969		2,751
Total other comprehensive income (loss)	2,323		3,574		(1,227)		20,614
Comprehensive income	$	213,961	$	240,173	$	631,818	$	758,948

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands)


	December 31, 2020		September 30, 2021
ASSETS			(Unaudited)
Current assets:
Cash and cash equivalents	$	13,036	$	12,593

Trade accounts receivable	103,568		134,281
Other accounts receivable	37,075		33,735
Inventory	158,204		222,567
Commodity derivatives contracts, net	—		4,469
Commodity derivatives deposits	34,165		47,609

Assets held for sale	15,059		299,304
Other current assets	44,086		44,738
Total current assets	405,193		799,296
Property, plant and equipment	7,943,760		8,021,353
Less: accumulated depreciation	1,956,926		2,088,990
Net property, plant and equipment	5,986,834		5,932,363
Investments in non-controlled entities	1,213,856		993,290
Right-of-use asset, operating leases	166,078		180,470
Long-term receivables	22,755		22,768
Goodwill	50,121		50,121
Other intangibles (less accumulated amortization of $9,228 and $11,186 at December 31, 2020 and September 30, 2021, respectively)	44,925		42,967
Restricted cash	9,411		7,847
Noncurrent assets held for sale	277,566		—
Other noncurrent assets	20,243		17,543
Total assets	$	8,196,982	$	8,046,665

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable	$	97,988	$	129,088
Accrued payroll and benefits	52,055		63,321
Accrued interest payable	58,998		49,992
Accrued taxes other than income	67,710		68,740

Deferred revenue	98,635		101,800
Accrued product liabilities	75,180		117,126
Commodity derivatives contracts, net	21,621		22,350

Current portion of operating lease liability	27,533		25,618

Liabilities held for sale	8,423		15,516
Other current liabilities	50,431		63,741
Total current liabilities	558,574		657,292
Long-term debt, net	4,978,691		5,103,226
Long-term operating lease liability	137,483		151,650
Long-term pension and benefits	163,776		151,922
Long-term liabilities held for sale	1,508		—
Other noncurrent liabilities	53,144		68,622

Commitments and contingencies

Partners’ capital:
Common unitholders (223,120 units and 213,445 units outstanding at December 31, 2020 and September 30, 2021, respectively)	2,486,996		2,076,529
Accumulated other comprehensive loss	(183,190)		(162,576)
Total partners’ capital	2,303,806		1,913,953


Total liabilities and partners’ capital	$	8,196,982	$	8,046,665

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Nine Months Ended
	September 30,
	2020		2021
Operating Activities:
Net income	$	633,045	$	738,334
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations	(22,514)		(39,438)
Depreciation, amortization and impairment expense	183,226		168,304
Gain on disposition of assets	(13,330)		(72,933)
Earnings of non-controlled entities	(116,484)		(116,107)
Distributions from operations of non-controlled entities	152,645		140,616
Equity-based incentive compensation expense	5,580		15,686
Settlement cost, amortization of prior service credit and actuarial loss	3,953		7,151


Debt extinguishment costs	12,893		—
Changes in operating assets and liabilities:

Trade accounts receivable and other accounts receivable	8,954		(24,245)
Inventory	49,802		(64,363)


Accounts payable	9,056		23,405
Accrued payroll and benefits	(34,239)		11,266
Accrued interest payable	(14,775)		(9,006)

Accrued product liabilities	(8,352)		41,946
Deferred revenue	(17,342)		3,165


Other current and noncurrent assets and liabilities	(23,523)		17,206
Net cash provided by operating activities of continuing operations	808,595		840,987
Net cash provided by operating activities of discontinued operations	31,510		38,090
Net cash provided by operating activities	840,105		879,077
Investing Activities:
Additions to property, plant and equipment, net(1)	(357,093)		(106,458)

Proceeds from sale and disposition of assets	334,583		271,964



Investments in non-controlled entities	(73,678)		(5,616)



Net cash provided (used) by investing activities of continuing operations	(96,188)		159,890
Net cash provided (used) by investing activities of discontinued operations	(14,077)		254
Net cash provided (used) by investing activities	(110,265)		160,144
Financing Activities:
Distributions paid	(697,264)		(685,018)
Repurchases of common units	(251,950)		(473,059)
Net commercial paper borrowings	248,000		123,000

Borrowings under long-term notes	499,400		—
Payments on notes	(550,000)		—
Debt placement costs	(4,255)		—
Net payment on financial derivatives	(10,444)		—

Payments associated with settlement of equity-based incentive compensation	(14,700)		(6,151)
Debt extinguishment costs	(12,893)		—

Net cash used by financing activities	(794,106)		(1,041,228)
Change in cash, cash equivalents and restricted cash	(64,266)		(2,007)
Cash, cash equivalents and restricted cash at beginning of period	84,599		22,447
Cash, cash equivalents and restricted cash at end of period	$	20,333	$	20,440

Supplemental non-cash investing activities:



(1) Additions to property, plant and equipment	$	(304,321)	$	(110,505)
Changes in accounts payable and other current liabilities related to capital expenditures	(52,772)		4,047
Additions to property, plant and equipment, net	$	(357,093)	$	(106,458)

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(Unaudited, in thousands)


	Common Unitholders		Accumulated Other Comprehensive Loss			Total Partners’ Capital
Balance, July 1, 2020	$	2,620,365		$	(165,627)	$	2,454,738
Comprehensive income:
Net income	211,638			—		211,638
Total other comprehensive income	—			2,323		2,323
Total comprehensive income	211,638			2,323		213,961
Distributions	(231,245)			—		(231,245)
Equity-based incentive compensation expense	1,169			—		1,169
Repurchases of common units	(49,968)			—		(49,968)



Other	(211)			—		(211)
Three Months Ended September 30, 2020	$	2,551,748		$	(163,304)	$	2,388,444

Balance, July 1, 2021	$	2,451,939		$	(166,150)	$	2,285,789
Comprehensive income:
Net income	236,599			—		236,599
Total other comprehensive income	—			3,574		3,574
Total comprehensive income	236,599			3,574		240,173
Distributions	(226,633)			—		(226,633)
Equity-based incentive compensation expense	5,626			—		5,626
Repurchases of common units	(390,735)			—		(390,735)


Other	(267)			—		(267)
Three Months Ended September 30, 2021	$	2,076,529		$	(162,576)	$	1,913,953



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

	Common Unitholders		Accumulated Other Comprehensive Loss			Total Partners’ Capital
Balance, January 1, 2020	$	2,877,105		$	(162,077)	$	2,715,028
Comprehensive income:
Net income	633,045			—		633,045
Total other comprehensive loss	—			(1,227)		(1,227)
Total comprehensive income (loss)	633,045			(1,227)		631,818
Distributions	(697,264)			—		(697,264)
Equity-based incentive compensation expense	5,580			—		5,580
Repurchases of common units	(251,950)			—		(251,950)
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	(668)			—		(668)
Nine Months Ended September 30, 2020	$	2,551,748		$	(163,304)	$	2,388,444

Balance, January 1, 2021	$	2,486,996		$	(183,190)	$	2,303,806
Comprehensive income:
Net income	738,334			—		738,334
Total other comprehensive income	—			20,614		20,614
Total comprehensive income	738,334			20,614		758,948
Distributions	(685,018)			—		(685,018)
Equity-based incentive compensation expense	15,686			—		15,686
Repurchases of common units	(473,059)			—		(473,059)
Issuance of common units in settlement of equity-based incentive plan awards	520			—		520
Payments associated with settlement of equity-based incentive compensation	(6,151)			—		(6,151)
Other	(779)			—		(779)
Nine Months Ended September 30, 2021	$	2,076,529		$	(162,576)	$	1,913,953

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.

Description of Business

We are principally engaged in the transportation, storage and distribution of refined petroleum products and crude oil. As of September 30, 2021, our asset portfolio, excluding assets associated with discontinued operations, consisted of:

•our refined products segment, comprised of our approximately 9,800-mile refined petroleum products pipeline system with 54 connected terminals 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 27 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 24 million barrels used for contract storage) are wholly-owned, with the remainder owned through joint ventures.

The following terms are commonly used in our industry to describe products that we transport, store, distribute or otherwise handle through our petroleum 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 also referred to as distillates;

•transmix is a mixture that forms when different refined products are 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;

•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;

•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

•renewable fuels, such as ethanol, biodiesel and renewable diesel, 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.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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, 2020, which is derived from our audited financial statements, include all normal and recurring adjustments necessary to present fairly our financial position as of September 30, 2021, the results of operations for the three and nine months ended September 30, 2020 and 2021 and cash flows for the nine months ended September 30, 2020 and 2021. The results of operations for the nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year ending December 31, 2021 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.

Pursuant to the rules and regulations of the Securities and Exchange Commission, the financial statements in

this report have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. 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, 2020.

Discontinued Operations

In June 2021, we entered into an agreement to sell our independent terminals network comprised of 26 refined petroleum products terminals with approximately six million barrels of storage located primarily in the southeastern United States. The sale is expected to close upon the receipt of required regulatory approvals. The related results of operations, financial position and cash flows have been classified as discontinued operations for all periods presented. See Note 2 - Discontinued Operations and Assets Held for Sale for further details.

Unless indicated otherwise, the information in the Notes to Consolidated Financial Statements relates to continuing operations.

Reclassifications

Certain prior period amounts have been reclassified to conform with the current period’s presentation, including amounts related to our discontinued operations.

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.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

New Accounting Pronouncements

We evaluate Accounting Standards Updates issued by the Financial Accounting Standards Board on an ongoing basis. There are no new accounting pronouncements that we anticipate will have a material impact on our financial statements.

2.Discontinued Operations and Assets Held for Sale

On June 10, 2021, we announced an agreement to sell our independent terminals network comprised of 26 refined petroleum products terminals with approximately six million barrels of storage located primarily in the southeastern U.S. to Buckeye Partners, L.P. (“Buckeye”) for $435 million. The sale is expected to close upon the receipt of required regulatory approvals. The related results of operations, which were previously included in our refined products segment, have been classified as discontinued operations.

Summarized Results of Discontinued Operations

The following table provides the summarized results that have been reclassified from continuing operations to discontinued operations on the consolidated statements of income (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2021		2020		2021
Transportation and terminals revenue	$	13,591	$	13,119	$	38,524	$	39,946
Product sales revenue	8,225		14,550		38,715		59,141
Total revenue	21,816		27,669		77,239		99,087
Costs and expenses:
Operating	4,266		2,814		11,495		10,070
Cost of product sales	6,744		8,846		30,948		40,620
Depreciation, amortization and impairment	3,383		57		10,670		7,059
General and administrative	519		643		1,612		1,900
Total costs and expenses	14,912		12,360		54,725		59,649


Income from discontinued operations	$	6,904	$	15,309	$	22,514	$	39,438

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Summarized Assets and Liabilities of Discontinued Operations

The following table provides the summarized assets and liabilities classified as held for sale on the consolidated balance sheets (in thousands):


	December 31, 2020		September 30, 2021
Assets:
Trade accounts receivable	$	5,568	$	7,013
Inventory	9,185		12,641

Net property, plant and equipment	274,857		269,468
Goodwill	2,709		2,709
Other assets	306		7,473
Total assets classified as held for sale	$	292,625	$	299,304

Liabilities:
Accounts payable	$	2,034	$	4,087
Accrued product liabilities	3,986		7,123
Other liabilities	3,911		4,306
Total liabilities classified as held for sale	$	9,931	$	15,516

3.Segment Disclosures

Our reportable segments are strategic business units that offer different products and services. Our segments are managed separately because 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 expense, 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 the 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.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	Three Months Ended September 30, 2020
	Refined Products		Crude Oil		Intersegment Eliminations		Total
Transportation and terminals revenue	$	307,218	$	154,652	$	(1,930)	$	459,940
Product sales revenue	106,027		5,193		—		111,220
Affiliate management fee revenue	1,579		3,709		—		5,288
Total revenue	414,824		163,554		(1,930)		576,448