Published: August 03, 2010
Magellan Midstream Announces Record Quarterly Financial Results
TULSA, Okla., Aug. 3 /PRNewswire-FirstCall/ -- Magellan Midstream Partners, L.P. (NYSE: MMP) today reported record quarterly operating profit of $124.7 million for second quarter 2010, an increase of $60.8 million, or 95%, compared to $63.9 million for second quarter 2009.
Net income grew to a quarterly record of $102.5 million for second quarter 2010 compared to $49.1 million for second quarter 2009, an increase of 109%, and net income per limited partner unit was a record 96 cents in second quarter 2010 versus 37 cents in the corresponding 2009 period. Excluding mark-to-market (MTM) commodity-related pricing adjustments, net income per unit for the current quarter was 86 cents, exceeding the 64-cent guidance provided by management in early May.
Distributable cash flow (DCF), which represents the amount of cash generated during the period that is available to pay distributions, increased to $100.7 million for second quarter 2010 compared to $83.2 million during second quarter 2009.
"Increased volumes and rates in both our petroleum products pipeline and petroleum products terminals segments, as well as timing of mark-to-market adjustments related to our commodity-related activities, combined to produce record financial results," said Don Wellendorf, chief executive officer. "Our recent acquisition and expansion announcements along with continued solid performance by our base businesses provide an even more optimistic outlook for future distribution growth for our unitholders."
An analysis by segment comparing second quarter 2010 to second quarter 2009 is provided below based on operating margin, a non-generally accepted accounting principles (non-GAAP) financial measure that reflects operating profit before general and administrative (G&A) expense and depreciation and amortization:
Petroleum products pipeline system. Pipeline operating margin was $134.4 million, an increase of $56.8 million and a quarterly record for this segment. Transportation and terminals revenues increased between periods primarily due to higher average transportation rates resulting from the mid-year 2009 tariff increase and 7% higher transportation volumes driven primarily by improved demand for diesel fuel. Total transportation volumes during second quarter 2010 represented Magellan's highest quarterly level since fourth quarter 2007. Pipeline operating margin also benefited from higher leased storage volumes, and incremental fees for terminal throughput, ethanol blending and additive injection. Year-to-date volumes through June 2010 are 2% higher than in the same period in 2009. However, management continues to expect annual transportation volumes for 2010 to be approximately 4% higher than 2009 due to expansion projects coming online later in the year.
Operating expenses increased between periods due to additional costs to operate the Houston-to-El Paso segment of the partnership's pipeline system (the former Longhorn pipeline), which was acquired in late July 2009, higher remediation expense and less product overages.
Product margin (defined as product sales revenues less product purchases) increased between periods primarily due to timing of MTM adjustments for New York Mercantile Exchange (NYMEX) positions used to economically hedge the partnership's commodity-related activities. In second quarter 2010, the partnership recognized $22.3 million for unrealized gains on open NYMEX positions due to the declining petroleum products pricing environment in the current period compared to unrealized losses of $15.7 million in second quarter 2009. A $5.2 million lower-of-cost-or-market expense recognized in the current quarter associated with the pipeline inventory for the partnership's Houston-to-El Paso pipeline segment partially offset the favorable NYMEX adjustments. When adjusting the partnership's commodity-related activities to more closely follow the cash impact of settled transactions, the partnership's actual cash product margin increased between periods due to higher fractionation and petroleum products blending profits.
Petroleum products terminals. Terminals operating margin was $35 million, an increase of $8.2 million and a quarterly record for this segment. The current period benefited from higher revenues at both the partnership's marine and inland terminals primarily due to expansion projects, including additional marine storage and inland ethanol blending infrastructure, higher rates on existing marine storage and higher inland throughput volume. Operating expenses increased primarily due to increased maintenance projects and higher personnel costs in the 2010 period. Product margin increased due to the sale of additional product overages at higher prices in the current period.
Ammonia pipeline system. Ammonia operating margin was $0.5 million, a decrease of $1.5 million. Revenues were negatively impacted by downtime caused by maintenance work performed on the pipeline during second quarter 2010, with hydrostatic testing procedures expected to continue into fall 2010. Expenses were unchanged as higher maintenance costs were offset by the gain on the sale of a portion of the ammonia linefill owned by the partnership during the current quarter.
Other items. Depreciation and amortization increased due to recent capital spending, and net interest expense increased in the current quarter as a result of additional borrowings for expansion capital expenditures, including acquisitions.
Expansion capital expectations
Management continues to pursue expansion opportunities, including both the development of organic growth projects and acquisitions. Based on the progress of expansion projects already underway, the partnership has increased its expansion spending estimates to $565 million during 2010 (of which about $112 million was spent through June 30, 2010), with incremental spending of $100 million primarily in 2011 required to complete these projects. Spending for 2010 includes $289 million for the previously announced and pending acquisition of petroleum storage and pipeline assets from BP Pipelines (North America), Inc.
The partnership's connection of its East Houston, Texas terminal to a third-party pipeline near Houston to transport petroleum products from the Port Arthur, Texas refinery region is now operational. The related 15-year transportation commitment from Motiva Enterprises LLC is expected to commence on Sept. 1. This project was completed ahead of schedule at a $20 million cost savings from the initial $120 million expectation. These savings have been reflected in the latest 2010 spending estimates.
Further, the partnership continues to analyze more than $500 million of potential growth projects in earlier stages of development, which have been excluded from these spending estimates.
Guidance for 2010
Management is raising its 2010 DCF guidance by $10 million to approximately $360 million and continues to target annual distribution growth of 4% for 2010. Net income per limited partner unit is now estimated to be approximately $2.73 for full year 2010, with third-quarter guidance of 48 cents. Guidance assumes no future NYMEX MTM adjustments and a Sept. 1 closing date for the partnership's pending acquisition of petroleum storage and pipeline assets, which is awaiting regulatory approval.
Earnings call details
An analyst call with management regarding second-quarter earnings and outlook for the remainder of 2010 is scheduled today at 1:30 p.m. Eastern. To participate, dial (888) 206-4913 and provide code 2435185. Investors also may listen to the call via the partnership's website at http://www.magellanlp.com/webcasts.asp.
Audio replays of the conference call will be available from 4:30 p.m. Eastern today through midnight on Aug. 9. To access the replay, dial (888) 203-1112 and provide code 2435185. The replay also will be available at http://www.magellanlp.com.
Business segment presentation
At the beginning of 2010, the partnership transferred its East Houston, Texas terminal to the petroleum products pipeline segment due to its increasing usage as a pipeline terminal. Financial results for this location are now reported in the petroleum products pipeline system business segment instead of the petroleum products terminals segment, with historical results adjusted accordingly.
Non-GAAP financial measures
Management believes that investors benefit from having access to the same financial measures utilized by the partnership. As a result, this news release and supporting schedules include the non-GAAP financial measures of operating margin, product margin and DCF, which are important performance measures used by management.
Operating margin reflects operating profit before G&A expense and depreciation and amortization. This measure forms the basis of the partnership's internal financial reporting and is used by management to evaluate the economic performance of the partnership's operations.
Product margin, which is calculated as product sales revenues less product purchases, is used by management to evaluate the profitability of the partnership's commodity-related activities.
DCF is important in determining the amount of cash generated from the partnership's operations that is available for distribution to its unitholders. Management uses this measure as a basis for recommending to the board of directors the amount of cash distributions to be paid each period.
Reconciliations of operating margin to operating profit and DCF to net income accompany this news release.
The partnership uses NYMEX futures contracts to hedge against price changes of petroleum products associated with its commodity-related activities. Most of these NYMEX contracts do not qualify for hedge accounting treatment. However, because these NYMEX contracts are generally effective at hedging price changes, management believes the partnership's profitability should be evaluated excluding the unrealized NYMEX gains and losses associated with petroleum products that will be sold in future periods. Further, because the financial guidance provided by management generally excludes future MTM commodity-related pricing adjustments, a reconciliation of actual results to those excluding these adjustments is provided for comparability to previous financial guidance.
Because the non-GAAP measures presented in this news release include adjustments specific to the partnership, they may not be comparable to similarly-titled measures of other companies.
About Magellan Midstream Partners, L.P.
Magellan Midstream Partners, L.P. (NYSE: MMP) is a publicly traded partnership formed to own, operate and acquire a diversified portfolio of energy assets. The partnership primarily transports, stores and distributes refined petroleum products. More information is available at http://www.magellanlp.com.
Portions of this document constitute forward-looking statements as defined by federal law. Although management believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. Among the key risk factors that may have a direct impact on the partnership's results of operations and financial condition are: (1) its ability to identify growth projects or to complete identified projects on time and at expected costs; (2) price fluctuations for natural gas liquids and refined petroleum products; (3) overall demand for natural gas liquids, refined petroleum products, natural gas, oil and ammonia in the United States; (4) changes in the partnership's tariff rates implemented by the Federal Energy Regulatory Commission, the United States Surface Transportation Board and state regulatory agencies; (5) shut-downs or cutbacks at major refineries, petrochemical plants, ammonia production facilities or other businesses that use or supply the partnership's services; (6) changes in the throughput or interruption in service on petroleum products pipelines owned and operated by third parties and connected to the partnership's petroleum products terminals or petroleum products pipeline system; (7) the occurrence of an operational hazard or unforeseen interruption for which the partnership is not adequately insured; (8) the treatment of the partnership as a corporation for federal or state income tax purposes or if the partnership becomes subject to significant forms of other taxation; (9) an increase in the competition the partnership's operations encounter; (10) disruption in the debt and equity markets that negatively impacts the partnership's ability to finance its capital spending; (11) failure of customers to meet or continue contractual obligations to the partnership and (12) delay or cancellation of the closing of the partnership's pending acquisition of petroleum storage and pipeline assets. Additional information about issues that could lead to material changes in performance is contained in the partnership's filings with the Securities and Exchange Commission. The partnership undertakes no obligation to revise its forward-looking statements to reflect events or circumstances occurring after today's date.
Contact: Paula Farrell
(918) 574-7650
paula.farrell@magellanlp.com
MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per unit amounts)
(Unaudited)
Three Months Ended
June 30,
--------
2009 2010
---- ----
Transportation and terminals revenues $166,703 $193,173
Product sales revenues 41,327 229,698
Affiliate management fee revenue 190 189
--- ---
Total revenues 208,220 423,060
Costs and expenses:
Operating 60,848 70,287
Product purchases 40,990 183,639
Depreciation and amortization 23,163 25,715
General and administrative 20,248 20,178
------ ------
Total costs and expenses 145,249 299,819
Equity earnings 939 1,480
--- -----
Operating profit 63,910 124,721
Interest expense 15,809 22,521
Interest income (206) (7)
Interest capitalized (942) (803)
Debt placement fee amortization expense 224 329
Other income (565) -
---- ---
Income before provision for income taxes 49,590 102,681
Provision for income taxes 452 229
--- ---
Net income $49,138 $102,452
======= ========
Allocation of net income:
Non-controlling owners' interest $34,527 $(68)
Limited partners' interest 14,611 102,520
------ -------
Net income $49,138 $102,452
======= ========
Basic and diluted net income per limited
partner unit $0.37 $0.96
===== =====
Weighted average number of limited partner
units outstanding used 39,639 106,896
for basic and diluted net income per unit
calculation ====== =======
Six Months Ended
June 30,
--------
2009 2010
---- ----
Transportation and terminals revenues $321,723 $366,342
Product sales revenues 99,043 386,034
Affiliate management fee revenue 380 379
--- ---
Total revenues 421,146 752,755
Costs and expenses:
Operating 121,315 132,396
Product purchases 93,620 316,523
Depreciation and amortization 46,315 52,057
General and administrative 41,384 43,420
------ ------
Total costs and expenses 302,634 544,396
Equity earnings 1,458 2,669
----- -----
Operating profit 119,970 211,028
Interest expense 31,361 44,295
Interest income (427) (11)
Interest capitalized (1,878) (1,651)
Debt placement fee amortization expense 444 657
Other income (647) -
---- ---
Income before provision for income taxes 91,117 167,738
Provision for income taxes 809 752
--- ---
Net income $90,308 $166,986
======= ========
Allocation of net income:
Non-controlling owners' interest $63,675 $(68)
Limited partners' interest 26,633 167,054
------ -------
Net income $90,308 $166,986
======= ========
Basic and diluted net income per limited
partner unit $0.67 $1.56
===== =====
Weighted average number of limited partner
units outstanding used 39,638 106,869
for basic and diluted net income per unit
calculation ====== =======
MAGELLAN MIDSTREAM PARTNERS, L.P.
OPERATING STATISTICS
Three Months Ended
June 30,
--------
2009 2010
---- ----
Petroleum products pipeline system:
Transportation revenue per barrel
shipped $1.202 $1.304
Volume shipped (million barrels) 73.9 78.7
Petroleum products terminals:
Marine terminal average storage
utilized (million barrels per
month) 23.6 23.8
Inland terminal throughput (million
barrels) 27.9 30.3
Ammonia pipeline system:
Volume shipped (thousand tons) 171 111
Six Months Ended
June 30,
--------
2009 2010
---- ----
Petroleum products pipeline system:
Transportation revenue per barrel
shipped $1.174 $1.265
Volume shipped (million barrels) 145.6 148.4
Petroleum products terminals:
Marine terminal average storage
utilized (million barrels per
month) 23.1 23.8
Inland terminal throughput (million
barrels) 53.9 56.4
Ammonia pipeline system:
Volume shipped (thousand tons) 295 278
MAGELLAN MIDSTREAM PARTNERS, L.P.
OPERATING MARGIN RECONCILIATION TO OPERATING PROFIT
(Unaudited, in thousands)
Three Months Ended
June 30,
--------
2009 2010
---- ----
Petroleum products pipeline system: $122,006 $141,461
Transportation and terminals
revenues
Less: Operating expenses 43,557 49,450
------ ------
Transportation and terminals margin 78,449 92,011
Product sales revenues 37,892 222,963
Less: Product purchases 39,914 182,267
------ -------
Product margin (2,022) 40,696
Add: Affiliate management fee
revenue 190 189
Equity earnings 939 1,480
--- -----
Operating margin $77,556 $134,376
======= ========
Petroleum products terminals:
Transportation and terminals
revenues $39,968 $48,446
Less: Operating expenses 15,024 18,262
------ ------
Transportation and terminals margin 24,944 30,184
Product sales revenues 3,435 6,763
Less: Product purchases 1,570 1,917
----- -----
Product margin 1,865 4,846
----- -----
Operating margin $26,809 $35,030
======= =======
Ammonia pipeline system:
Transportation and terminals
revenues $5,248 $3,783
Less: Operating expenses 3,227 3,235
----- -----
Operating margin $2,021 $548
====== ====
Segment operating margin $106,386 $169,954
Add: Allocated corporate
depreciation costs 935 660
--- ---
Total operating margin 107,321 170,614
Less: Depreciation and amortization 23,163 25,715
General and administrative 20,248 20,178
------ ------
Total operating profit $63,910 $124,721
======= ========
Six Months Ended
June 30,
--------
2009 2010
---- ----
Petroleum products pipeline system: $236,907 $264,376
Transportation and terminals
revenues
Less: Operating expenses 86,557 92,270
------ ------
Transportation and terminals margin 150,350 172,106
Product sales revenues 92,124 375,189
Less: Product purchases 91,502 313,043
------ -------
Product margin 622 62,146
Add: Affiliate management fee
revenue 380 379
Equity earnings 1,458 2,669
----- -----
Operating margin $152,810 $237,300
======== ========
Petroleum products terminals:
Transportation and terminals
revenues $77,374 $94,105
Less: Operating expenses 30,361 34,635
------ ------
Transportation and terminals margin 47,013 59,470
Product sales revenues 6,919 10,873
Less: Product purchases 3,106 4,523
----- -----
Product margin 3,813 6,350
----- -----
Operating margin $50,826 $65,820
======= =======
Ammonia pipeline system:
Transportation and terminals
revenues $8,477 $8,876
Less: Operating expenses 6,340 7,216
----- -----
Operating margin $2,137 $1,660
====== ======
Segment operating margin $205,773 $304,780
Add: Allocated corporate
depreciation costs 1,896 1,725
----- -----
Total operating margin 207,669 306,505
Less: Depreciation and amortization 46,315 52,057
General and administrative 41,384 43,420
------ ------
Total operating profit $119,970 $211,028
======== ========
Note: Amounts may not sum to figures shown on the consolidated
statement of income due to intersegment eliminations and allocated
corporate depreciation costs.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NET INCOME AND NET INCOME PER LIMITED PARTNER UNIT
EXCLUDING MARK-TO-MARKET COMMODITY-RELATED PRICING
ADJUSTMENTS
(Unaudited, in thousands except per unit amounts)
Three Months Ended
June 30, 2010
-------------
Basic and
Net Income Diluted
Net Income
---------- Per
Limited
Partner
Unit
----
As reported $102,452 $0.96
Add: Lower-of-cost-or-market
inventory adjustments 5,183 0.05
Deduct: Unrealized NYMEX gains
associated with future physical
product sales (15,901) (0.15)
------- -----
Excluding mark-to-market
commodity-related pricing
adjustments $91,734 $0.86
======= =====
Weighted average number of limited partner
units outstanding used for basic and diluted
net income per unit calculation
106,896
==
MAGELLAN MIDSTREAM PARTNERS, L.P.
DISTRIBUTABLE CASH FLOW RECONCILIATION TO NET INCOME
(Unaudited, in millions)
Three Months Ended
June 30,
--------
2009 2010
---- ----
Net income $49.1 $102.5
Add: Depreciation and
amortization (1) 23.4 26.0
Equity-based incentive
compensation (2) 2.0 1.9
Direct charges to general
partner 0.7 -
Asset retirements and
impairments 0.9 0.3
Commodity-related
adjustments (3) 17.4 (20.1)
Less: Maintenance capital 9.9 9.0
Other 0.4 0.9
--- ---
Distributable cash flow (4) $83.2 $100.7
===== ======
Six Months Ended
June 30,
--------
2009 2010
---- ----
Net income $90.3 $167.0
Add: Depreciation and
amortization (1) 46.8 52.7
Equity-based incentive
compensation (2) 1.7 3.5
Direct charges to general
partner 1.5 -
Asset retirements and
impairments 2.2 (1.3)
Commodity-related
adjustments (3) 31.1 (19.5)
Less: Maintenance capital 20.3 15.0
Other (0.6) 1.5
---- ---
Distributable cash flow (4) $153.9 $185.9
====== ======
2010
Guidance
--------
Net income $299
Add: Depreciation and
amortization (1) 112
Equity-based incentive
compensation (2) 7
Direct charges to general
partner -
Asset retirements and
impairments 2
Commodity-related
adjustments (3) (12)
Less: Maintenance capital 45
Other 3
---
Distributable cash flow (4) $360
====
(1) Depreciation and amortization includes debt placement fee
amortization.
(2) Because the partnership intends to satisfy vesting of units
under its equity-based incentive
compensation program with the issuance of limited partner units,
expenses related to this program
generally are deemed non-cash and added back for distributable cash
flow purposes.
Total equity-based incentive compensation expense for the six months
ended June 30,
2009 and 2010 was $5.2 million and $6.9 million, respectively.
However, the figures above
include an adjustment for minimum statutory tax withholdings taxes
paid by the partnership in
2009 and 2010 of $3.5 million and $3.4 million, respectively, for
equity-based incentive compensation
units that vested on the previous year end.
(3) Represents adjustments to the partnership's commodity-related
activities to more closely follow
the cash impact of settled transactions. Commodity-related
adjustments include the following:
Three Months Ended
June 30,
--------
2009 2010
---- ----
NYMEX contract gains/(losses)
recognized in previous periods $3.5 $(3.8)
NYMEX contract (gains)/losses recognized
in the current period 15.7 (22.3)
that are associated with future physical
product sales.
Lower-of-cost-or-market adjustments (1.8) 5.2
Cost of goods sold adjustment related to
transitional commodity - 0.8
activities for the Houston-to-El Paso
pipeline to more closely --- ---
resemble current market prices for
distributable cash flow
purposes rather than average inventory
costing for the
income statement.
Total commodity-related adjustments $17.4 $(20.1)
===== ======
Six Months Ended
June 30,
--------
2009 2010
---- ----
NYMEX contract gains/(losses)
recognized in previous periods $20.2 $(2.0)
NYMEX contract (gains)/losses recognized
in the current period 17.3 (18.4)
that are associated with future physical
product sales.
Lower-of-cost-or-market adjustments (6.4 ) 5.1
Cost of goods sold adjustment related to
transitional commodity - (4.2)
activities for the Houston-to-El Paso
pipeline to more closely --- ----
resemble current market prices for
distributable cash flow
purposes rather than average inventory
costing for the
income statement.
Total commodity-related adjustments $31.1 $(19.5)
===== ======
(4) Distributable cash flow does not include fluctuations related to
working capital.
SOURCE Magellan Midstream Partners, L.P.
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