Magellan Midstream Partners Earnings 2019-06-30

MMP 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________

FORM 10-Q



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

For the quarterly period ended June 30, 2019



☐	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 representing limited partnership 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 July 31, 2019, there were 228,403,428 outstanding common units representing limited partner units of Magellan Midstream Partners, L.P.

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION



ITEM 1.		CONSOLIDATED FINANCIAL STATEMENTS
	CONSOLIDATED STATEMENTS OF INCOME		2
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME		3
	CONSOLIDATED BALANCE SHEETS		4
	CONSOLIDATED STATEMENTS OF CASH FLOWS		5
	CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL		6
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
	1.	Organization, Description of Business and Basis of Presentation	8
	2.	Revenue from Contracts with Customers	10
	3.	Segment Disclosures	14
	4.	Investments in Non-Controlled Entities	16
	5.	Inventory	18
	6.	Employee Benefit Plans	18
	7.	Leases	20
	8.	Debt	24
	9.	Derivative Financial Instruments	25
	10.	Commitments and Contingencies	29
	11.	Long-Term Incentive Plan	30
	12.	Partners’ Capital and Distributions	31
	13.	Fair Value	32
	14.	Related Party Transactions	34
	15.	Subsequent Events	35
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Introduction		36
	Recent Developments		36
	Results of Operations		37
	Distributable Cash Flow		43
	Liquidity and Capital Resources		44
	Off-Balance Sheet Arrangements		45
	Environmental		46
	Other Items		47
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	49
ITEM 4.		CONTROLS AND PROCEDURES	50
Forward-Looking Statements			51
PART II OTHER INFORMATION
ITEM 1.		LEGAL PROCEEDINGS	52
ITEM 1A.		RISK FACTORS	53
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	53
ITEM 3.		DEFAULTS UPON SENIOR SECURITIES	53
ITEM 4.		MINE SAFETY DISCLOSURES	53
ITEM 5.		OTHER INFORMATION	53
ITEM 6.		EXHIBITS	53
INDEX TO EXHIBITS			54
SIGNATURES			55

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						Six Months Ended
	June 30,						June 30,
	2018			2019			2018			2019
Transportation and terminals revenue	$	472,248		$	506,405		$	904,185		$	967,197
Product sales revenue	166,797			189,989			408,389			352,984
Affiliate management fee revenue	5,046			5,305			10,296			10,453
Total revenue	644,091			701,699			1,322,870			1,330,634
Costs and expenses:
Operating	159,845			168,929			303,141			314,954
Cost of product sales	153,679			152,876			353,271			321,970
Depreciation, amortization and impairment	53,619			62,530			105,498			124,401
General and administrative	53,290			52,383			99,846			98,378
Total costs and expenses	420,433			436,718			861,756			859,703
Other operating income (expense)	—			(5,024		)	—			1,917
Earnings of non-controlled entities	42,510			40,785			77,048			72,040
Operating profit	266,168			300,742			538,162			544,888
Interest expense	56,750			51,406			113,402			111,572
Interest capitalized	(5,608		)	(5,134		)	(10,255		)	(8,588		)
Interest income	(380		)	(338		)	(959		)	(1,998		)
Gain on disposition of assets	—			(4,646		)	—			(26,434		)
Other (income) expense	(119		)	4,570			8,605			6,620
Income before provision for income taxes	215,525			254,884			427,369			463,716
Provision for income taxes	1,116			1,181			2,050			2,350
Net income	$	214,409		$	253,703		$	425,319		$	461,366
Basic net income per limited partner unit	$	0.94		$	1.11		$	1.86		$	2.02
Diluted net income per limited partner unit	$	0.94		$	1.11		$	1.86		$	2.02
Weighted average number of limited partner units outstanding used for basic net income per unit calculation	228,387			228,647			228,354			228,603
Weighted average number of limited partner units outstanding used for diluted net income per unit calculation	228,425			228,688			228,393			228,623

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2019			2018			2019
Net income	$	214,409		$	253,703		$	425,319		$	461,366
Other comprehensive income (loss):
Derivative activity:
Net gain (loss) on cash flow hedges	1,697			(6,659		)	7,111			(11,035		)
Reclassification of net loss on cash flow hedges to income	739			601			1,479			1,228
Changes in employee benefit plan assets and benefit obligations recognized in other comprehensive income:
Net actuarial gain (loss)	653			(10,913		)	(5,291		)	(10,913		)
Amortization of prior service credit	(46		)	(45		)	(91		)	(90		)
Amortization of actuarial loss	1,703			1,625			6,817			2,973
Settlement cost	—			2,060			—			2,060
Total other comprehensive income (loss)	4,746			(13,331		)	10,025			(15,777		)
Comprehensive income	$	219,155		$	240,372		$	435,344		$	445,589

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands)



	December 31, 2018			June 30, 2019
ASSETS				(Unaudited)
Current assets:
Cash and cash equivalents	$	218,283		$	3,070
Trade accounts receivable	104,164			139,611
Other accounts receivable	25,007			25,317
Inventory	185,735			172,907
Energy commodity derivatives contracts, net	55,011			—
Energy commodity derivatives deposits	—			27,533
Other current assets	58,143			38,580
Total current assets	646,343			407,018
Property, plant and equipment	7,628,592			8,024,845
Less: accumulated depreciation	1,830,411			1,935,301
Net property, plant and equipment	5,798,181			6,089,544
Investments in non-controlled entities	1,076,306			1,165,028
Right-of-use asset, operating leases	—			167,456
Long-term receivables	20,844			21,304
Goodwill	53,260			53,260
Other intangibles (less accumulated amortization of $2,979 and $4,920 at December 31, 2018 and June 30, 2019, respectively)	51,174			49,233
Restricted cash	90,978			28,176
Other noncurrent assets	10,451			24,421
Total assets	$	7,747,537		$	8,005,440

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable	$	138,735		$	179,734
Accrued payroll and benefits	70,276			47,396
Accrued interest payable	63,258			57,805
Accrued taxes other than income	53,093			48,148
Environmental liabilities	9,153			4,687
Deferred revenue	121,085			111,896
Accrued product liabilities	75,482			76,459
Energy commodity derivatives contracts, net	—			9,097
Energy commodity derivatives deposits	37,328			—
Current portion of operating lease liability	—			22,477
Current portion of long-term debt, net	59,489			—
Other current liabilities	48,657			60,572
Total current liabilities	676,556			618,271
Long-term operating lease liability	—			146,726
Long-term debt, net	4,211,380			4,407,793
Long-term pension and benefits	122,580			133,513
Other noncurrent liabilities	82,240			48,968
Environmental liabilities	11,347			12,390
Commitments and contingencies
Partners’ capital:
Limited partner unitholders (228,195 units and 228,403 units outstanding at December 31, 2018 and June 30, 2019, respectively)	2,763,925			2,774,047
Accumulated other comprehensive loss	(120,491		)	(136,268		)
Total partners’ capital	2,643,434			2,637,779
Total liabilities and partners’ capital	$	7,747,537		$	8,005,440

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)



	Six Months Ended
	June 30,
	2018			2019
Operating Activities:
Net income	$	425,319		$	461,366
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and impairment expense	105,498			124,401
Loss (gain) on sale and retirement of assets	4,586			(26,437		)
Earnings of non-controlled entities	(77,048		)	(72,040		)
Distributions from operations of non-controlled entities	94,661			83,069
Equity-based incentive compensation expense	16,679			15,804
Settlement cost, amortization of prior service credit and actuarial loss	6,726			4,943
Debt prepayment costs	—			8,270
Changes in operating assets and liabilities:
Trade accounts receivable and other accounts receivable	24,739			(35,757		)
Inventory	(1,233		)	12,828
Accounts payable	18,843			22,110
Accrued payroll and benefits	(11,070		)	(22,880		)
Accrued interest payable	(62		)	(5,453		)
Accrued taxes other than income	(10,199		)	(4,945		)
Accrued product liabilities	(32,142		)	977
Deferred revenue	4,240			(9,189		)
Other current and noncurrent assets and liabilities	(5,471		)	13,493
Net cash provided by operating activities	564,066			570,560
Investing Activities:
Additions to property, plant and equipment, net⁽¹⁾	(219,442		)	(487,662		)
Proceeds from sale and disposition of assets	241			63,887
Investments in non-controlled entities	(144,859		)	(112,251		)
Distributions from returns of investments in non-controlled entities	—			7,500
Deposits received from undivided joint interest third party	41,571			26,352
Net cash used by investing activities	(322,489		)	(502,174		)
Financing Activities:
Distributions paid	(423,873		)	(457,377		)
Net commercial paper borrowings	119,896			197,000
Borrowings under long-term notes	—			496,855
Payments on notes	—			(550,000		)
Debt placement costs	(326		)	(6,817		)
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	(313,588		)	(346,401		)
Change in cash, cash equivalents and restricted cash	(72,011		)	(278,015		)
Cash, cash equivalents and restricted cash at beginning of period	176,068			309,261
Cash, cash equivalents and restricted cash at end of period	$	104,057		$	31,246

Supplemental non-cash investing activities:
⁽¹⁾ Additions to property, plant and equipment	$	(219,828	)	$	(514,812	)
Changes in accounts payable and other current liabilities related to capital expenditures	386			27,150
Additions to property, plant and equipment, net	$	(219,442	)	$	(487,662	)

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

(Unaudited, in thousands)



	Limited Partners			Accumulated Other Comprehensive Loss				Total Partners’ Capital
Balance, April 1, 2018	$	2,271,486			$	(132,299	)	$	2,139,187
Comprehensive income:
Net income	214,409				—			214,409
Total other comprehensive income	—				4,746			4,746
Total comprehensive income	214,409				4,746			219,155
Distributions	(213,933		)		—			(213,933		)
Equity-based incentive compensation expense	10,047				—			10,047
Other	(164		)		—			(164		)
Three Months Ended June 30, 2018	$	2,281,845			$	(127,553	)	$	2,154,292

Balance, April 1, 2019	$	2,739,192			$	(122,937	)	2,616,255
Comprehensive income:
Net income	253,703				—			253,703
Total other comprehensive loss	—				(13,331		)	(13,331		)
Total comprehensive income	253,703				(13,331		)	240,372
Distributions	(229,545		)		—			(229,545		)
Equity-based incentive compensation expense	10,890				—			10,890
Other	(193		)		—			(193		)
Three Months Ended June 30, 2019	$	2,774,047			$	(136,268	)	$	2,637,779



MAGELLAN MIDSTREAM PARTNERS, L.P. CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL (Continued) (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	425,319				—			425,319
Total other comprehensive income	—				10,025			10,025
Total comprehensive income	425,319				10,025			435,344
Distributions	(423,873		)		—			(423,873		)
Equity-based incentive compensation expense	16,679				—			16,679
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	(321		)		—			(321		)
Six Months Ended June 30, 2018	$	2,281,845			$	(127,553	)	$	2,154,292

Balance, January 1, 2019	$	2,763,925			$	(120,491	)	2,643,434
Comprehensive income:
Net income	461,366				—			461,366
Total other comprehensive loss	—				(15,777		)	(15,777		)
Total comprehensive income	461,366				(15,777		)	445,589
Distributions	(457,377		)		—			(457,377		)
Equity-based incentive compensation expense	15,804				—			15,804
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	(387		)		—			(387		)
Six Months Ended June 30, 2019	$	2,774,047			$	(136,268	)	$	2,637,779

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$66.04	228	$15,084

10-Q	2019-06-30	Quarter: 2019-06-30
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	2019-08-19	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2019-08-08	Enter Agreement, Exhibits
8-K	2019-08-01	Earnings, Exhibits
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	2019-03-26	Officers, Regulation FD, Exhibits
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

WGP	Western Gas Equity Partners	16,208
PAA	Plains All American Pipeline	15,423
UGI	UGI	8,349
TRGP	Targa Resources	8,255
TCP	TC Pipelines	2,675
AROC	Archrock	1,284
CNXM	CNX Midstream Partners	897
USAC	USA Compression Partners	131
MPLX	MPLX	0
NBLX	Noble Midstream Partners	0

EX-31.1	ex-311x2q19.htm
EX-31.2	ex-312x2q19.htm
EX-32.1	ex-321x2q19.htm
EX-32.2	ex-322x2q19.htm