UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021March 31, 2022
OR
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☐ | 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)
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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:
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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,May 4, 2022, there were 213,445,238211,561,364 common units outstanding.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
| ITEM 1. | ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS | | ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS | |
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| | CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL | | | CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL | |
| | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS: | | | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS: | |
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ITEM 2. | ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | | ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |
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ITEM 3. | ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | | ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | |
ITEM 4. | ITEM 4. | CONTROLS AND PROCEDURES | | ITEM 4. | CONTROLS AND PROCEDURES | |
PART II OTHER INFORMATION | PART II OTHER INFORMATION | PART II OTHER INFORMATION |
ITEM 1. | ITEM 1. | | | ITEM 1. | | |
ITEM 1A. | ITEM 1A. | | | ITEM 1A. | | |
ITEM 2. | ITEM 2. | | | ITEM 2. | | |
ITEM 3. | ITEM 3. | | | ITEM 3. | | |
ITEM 4. | ITEM 4. | | | ITEM 4. | | |
ITEM 5. | ITEM 5. | | | ITEM 5. | | |
ITEM 6. | ITEM 6. | | | ITEM 6. | | |
INDEX TO EXHIBITS | INDEX TO EXHIBITS | | INDEX TO EXHIBITS | |
SIGNATURES | SIGNATURES | | SIGNATURES | |
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,” “cause,” “continue,” “could,” “depend,” “develop,” “estimates,” “expects,” “forecasts,” “goal,” “guidance,” “have,” “impact,” “implement,” “increase,” “intends,” “lead,” “maintain,” “may,” “might,” “plans,” “potential,” “possible,” “projected,” “reduce,” “remain,” “result,” “scheduled,” “seek,” “should,” “will”“will,” “would” and other similar words or 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,I, Item 1A – Risk Factors of this Quarterlyour Annual Report on Form 10-Q.10-K. 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 budgetedestimated amounts, events or circumstances we have discussed in this report:
•changes in overall demand for refined products, crude oil andor liquefied petroleum gases;gases (“LPGs”);
•price fluctuations for refined products, crude oil and liquefied petroleum gasesor LPGs and expectations about future prices for these products;
•changes in the production of crude oil in the basins served by our pipelines;pipelines or terminals;
•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 sources of energy, sources, including but not limited to natural gas, solar power, wind power, electric and battery-powered enginesmotors, natural gas, hydrogen and geothermal energy, increased use of renewable fuels such as ethanol, biodiesel and renewable diesel, as well as increased conservation or fuel efficiency increased use of electric vehicles, as well asand regulatory developments,or 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 ofor other services we provide for refined products andor crude oil services we provide;oil;
•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, capacity;
•changes in United States (“U.S.”) trade policies or in laws governing the importing andor 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;assets;
•the effect of weather patterns andor 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 wars, natural disasters, epidemics, terrorism, cyberattacks, sabotage, protests, or activism, operational hazards, equipment failures, system failures or other unforeseen interruptions;interruptions, as well as global and domestic repercussions from and any government responses to any such events;
•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 consummate announced divestitures;
•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 interpretationsinterpretation of such laws and regulations 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 or the interpretation of laws and regulations to which we or our customers are or could become subject, including those related to tax withholding requirements, safety, security, employment, hydraulic fracturing, derivatives transactions, trade and environmental,the environment, 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 productproducts supply disruptions;
•global and domestic repercussions from terrorist activities, including cyberattacks, and the government’s response thereto;disruptions whether due to international military conflicts or otherwise; 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,millions, except per unit amounts)
(Unaudited)
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| 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) | |
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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 | |
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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 | |
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| Three Months Ended | | |
| March 31, | | |
| 2021 | | 2022 | | | | |
Transportation and terminals revenue | $ | 412.0 | | | $ | 422.9 | | | | | |
Product sales revenue | 213.7 | | | 246.1 | | | | | |
Affiliate management fee revenue | 5.4 | | | 5.7 | | | | | |
Total revenue | 631.1 | | | 674.7 | | | | | |
Costs and expenses: | | | | | | | |
Operating | 127.3 | | | 124.2 | | | | | |
Cost of product sales | 170.9 | | | 243.4 | | | | | |
Depreciation, amortization and impairment | 54.6 | | | 57.7 | | | | | |
General and administrative | 46.0 | | | 62.8 | | | | | |
Total costs and expenses | 398.8 | | | 488.1 | | | | | |
Other operating income (expense) | (0.4) | | | (2.0) | | | | | |
Earnings of non-controlled entities | 39.1 | | | 35.4 | | | | | |
Operating profit | 271.0 | | | 220.0 | | | | | |
Interest expense | 57.0 | | | 57.3 | | | | | |
Interest capitalized | (0.5) | | | (0.4) | | | | | |
Interest income | (0.1) | | | (0.1) | | | | | |
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Gain on disposition of assets | — | | | (0.2) | | | | | |
Other (income) expense | 1.1 | | | 0.6 | | | | | |
Income from continuing operations before provision for income taxes | 213.5 | | | 162.8 | | | | | |
Provision for income taxes | 0.8 | | | 0.8 | | | | | |
Income from continuing operations | 212.7 | | | 162.0 | | | | | |
Income from discontinued operations | 8.6 | | | 3.5 | | | | | |
Net income | $ | 221.3 | | | $ | 165.5 | | | | | |
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Earnings per common unit | | | | | | | |
Basic: | | | | | | | |
Continuing operations | $ | 0.95 | | | $ | 0.76 | | | | | |
Discontinued operations | 0.04 | | | 0.02 | | | | | |
Net income per common unit | $ | 0.99 | | | $ | 0.78 | | | | | |
Weighted average number of common units outstanding | 223.6 | | | 212.9 | | | | | |
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Diluted: | | | | | | | |
Continuing operations | $ | 0.95 | | | $ | 0.76 | | | | | |
Discontinued operations | 0.04 | | | 0.02 | | | | | |
Net income per common unit | $ | 0.99 | | | $ | 0.78 | | | | | |
Weighted average number of common units outstanding | 223.6 | | | 212.9 | | | | | |
See notes to consolidated financial statements.
MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)millions)
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | | — | |
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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 | |
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| Three Months Ended March 31, | | |
| 2021 | | 2022 | | | | |
Net income | $ | 221.3 | | | $ | 165.5 | | | | | |
Other comprehensive income: | | | | | | | |
Derivative activity: | | | | | | | |
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Reclassification of net loss on cash flow hedges to income | 0.9 | | | 0.9 | | | | | |
Changes in employee benefit plan assets and benefit obligations recognized in other comprehensive income: | | | | | | | |
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Recognition of actuarial loss amortization in income | 1.6 | | | 1.2 | | | | | |
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Total other comprehensive income | 2.5 | | | 2.1 | | | | | |
Comprehensive income | $ | 223.8 | | | $ | 167.6 | | | | | |
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See notes to consolidated financial statements.
MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)millions)
| | | December 31, 2020 | | September 30, 2021 | | December 31, 2021 | | March 31, 2022 |
ASSETS | ASSETS | | | (Unaudited) | ASSETS | | | (Unaudited) |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 13,036 | | | $ | 12,593 | | Cash and cash equivalents | $ | 2.0 | | | $ | 4.6 | |
| Trade accounts receivable | Trade accounts receivable | 103,568 | | | 134,281 | | Trade accounts receivable | 135.2 | | | 129.8 | |
Other accounts receivable | Other accounts receivable | 37,075 | | | 33,735 | | Other accounts receivable | 34.6 | | | 35.0 | |
Inventory | Inventory | 158,204 | | | 222,567 | | Inventory | 281.1 | | | 308.2 | |
Commodity derivatives contracts, net | Commodity derivatives contracts, net | — | | | 4,469 | | Commodity derivatives contracts, net | 1.4 | | | 3.1 | |
Commodity derivatives deposits | Commodity derivatives deposits | 34,165 | | | 47,609 | | Commodity derivatives deposits | 46.3 | | | 130.8 | |
| Assets held for sale | Assets held for sale | 15,059 | | | 299,304 | | Assets held for sale | 299.5 | | | 304.0 | |
Other current assets | Other current assets | 44,086 | | | 44,738 | | Other current assets | 43.1 | | | 35.7 | |
Total current assets | Total current assets | 405,193 | | | 799,296 | | Total current assets | 843.2 | | | 951.2 | |
Property, plant and equipment | Property, plant and equipment | 7,943,760 | | | 8,021,353 | | Property, plant and equipment | 8,045.9 | | | 8,081.9 | |
Less: accumulated depreciation | Less: accumulated depreciation | 1,956,926 | | | 2,088,990 | | Less: accumulated depreciation | 2,141.2 | | | 2,195.4 | |
Net property, plant and equipment | Net property, plant and equipment | 5,986,834 | | | 5,932,363 | | Net property, plant and equipment | 5,904.7 | | | 5,886.5 | |
Investments in non-controlled entities | Investments in non-controlled entities | 1,213,856 | | | 993,290 | | Investments in non-controlled entities | 980.8 | | | 978.6 | |
Right-of-use asset, operating leases | Right-of-use asset, operating leases | 166,078 | | | 180,470 | | Right-of-use asset, operating leases | 174.2 | | | 168.3 | |
Long-term receivables | Long-term receivables | 22,755 | | | 22,768 | | Long-term receivables | 10.1 | | | 9.8 | |
Goodwill | Goodwill | 50,121 | | | 50,121 | | Goodwill | 50.1 | | | 50.1 | |
Other intangibles (less accumulated amortization of $9,228 and $11,186 at December 31, 2020 and September 30, 2021, respectively) | 44,925 | | | 42,967 | | |
Other intangibles (less accumulated amortization of $11.9 and $12.6 at December 31, 2021 and March 31, 2022, respectively) | | Other intangibles (less accumulated amortization of $11.9 and $12.6 at December 31, 2021 and March 31, 2022, respectively) | 43.2 | | | 42.5 | |
Restricted cash | Restricted cash | 9,411 | | | 7,847 | | Restricted cash | 7.0 | | | 6.7 | |
Noncurrent assets held for sale | 277,566 | | | — | | |
| Other noncurrent assets | Other noncurrent assets | 20,243 | | | 17,543 | | Other noncurrent assets | 16.7 | | | 17.3 | |
Total assets | Total assets | $ | 8,196,982 | | | $ | 8,046,665 | | Total assets | $ | 8,030.0 | | | $ | 8,111.0 | |
| LIABILITIES AND PARTNERS’ CAPITAL | LIABILITIES AND PARTNERS’ CAPITAL | | LIABILITIES AND PARTNERS’ CAPITAL | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable | Accounts payable | $ | 97,988 | | | $ | 129,088 | | Accounts payable | $ | 109.5 | | | $ | 98.0 | |
Accrued payroll and benefits | Accrued payroll and benefits | 52,055 | | | 63,321 | | Accrued payroll and benefits | 74.9 | | | 43.9 | |
Accrued interest payable | Accrued interest payable | 58,998 | | | 49,992 | | Accrued interest payable | 59.0 | | | 50.0 | |
Accrued taxes other than income | Accrued taxes other than income | 67,710 | | | 68,740 | | Accrued taxes other than income | 76.5 | | | 51.7 | |
| Deferred revenue | Deferred revenue | 98,635 | | | 101,800 | | Deferred revenue | 92.5 | | | 106.4 | |
Accrued product liabilities | Accrued product liabilities | 75,180 | | | 117,126 | | Accrued product liabilities | 153.5 | | | 126.6 | |
Commodity derivatives contracts, net | Commodity derivatives contracts, net | 21,621 | | | 22,350 | | Commodity derivatives contracts, net | 18.6 | | | 50.5 | |
| Current portion of operating lease liability | Current portion of operating lease liability | 27,533 | | | 25,618 | | Current portion of operating lease liability | 25.8 | | | 30.7 | |
| Liabilities held for sale | Liabilities held for sale | 8,423 | | | 15,516 | | Liabilities held for sale | 15.8 | | | 23.5 | |
Other current liabilities | Other current liabilities | 50,431 | | | 63,741 | | Other current liabilities | 53.5 | | | 54.5 | |
Total current liabilities | Total current liabilities | 558,574 | | | 657,292 | | Total current liabilities | 679.6 | | | 635.8 | |
Long-term debt, net | Long-term debt, net | 4,978,691 | | | 5,103,226 | | Long-term debt, net | 5,088.8 | | | 5,317.2 | |
Long-term operating lease liability | Long-term operating lease liability | 137,483 | | | 151,650 | | Long-term operating lease liability | 147.3 | | | 138.5 | |
Long-term pension and benefits | Long-term pension and benefits | 163,776 | | | 151,922 | | Long-term pension and benefits | 145.0 | | | 145.8 | |
Long-term liabilities held for sale | 1,508 | | | — | | |
| Other noncurrent liabilities | Other noncurrent liabilities | 53,144 | | | 68,622 | | Other noncurrent liabilities | 69.5 | | | 71.0 | |
| Commitments and contingencies | Commitments and contingencies | 0 | | 0 | Commitments and contingencies | 0 | | 0 |
| Partners’ capital: | Partners’ capital: | | 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 | | |
Common unitholders (212.4 units and 211.6 units outstanding at December 31, 2021 and March 31, 2022, respectively) | | Common unitholders (212.4 units and 211.6 units outstanding at December 31, 2021 and March 31, 2022, respectively) | 2,054.8 | | | 1,955.6 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (183,190) | | | (162,576) | | Accumulated other comprehensive loss | (155.0) | | | (152.9) | |
Total partners’ capital | Total partners’ capital | 2,303,806 | | | 1,913,953 | | Total partners’ capital | 1,899.8 | | | 1,802.7 | |
| Total liabilities and partners’ capital | Total liabilities and partners’ capital | $ | 8,196,982 | | | $ | 8,046,665 | | Total liabilities and partners’ capital | $ | 8,030.0 | | | $ | 8,111.0 | |
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See notes to consolidated financial statements.
MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)millions)
| | | Nine Months Ended | | Three Months Ended |
| | September 30, | | March 31, |
| | 2020 | | 2021 | | 2021 | | 2022 |
Operating Activities: | Operating Activities: | | | | Operating Activities: | | | |
Net income | Net income | $ | 633,045 | | | $ | 738,334 | | Net income | $ | 221.3 | | | $ | 165.5 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Income from discontinued operations | Income from discontinued operations | (22,514) | | | (39,438) | | Income from discontinued operations | (8.6) | | | (3.5) | |
Depreciation, amortization and impairment expense | Depreciation, amortization and impairment expense | 183,226 | | | 168,304 | | Depreciation, amortization and impairment expense | 54.6 | | | 57.7 | |
Gain on disposition of assets | Gain on disposition of assets | (13,330) | | | (72,933) | | Gain on disposition of assets | — | | | (0.2) | |
Earnings of non-controlled entities | Earnings of non-controlled entities | (116,484) | | | (116,107) | | Earnings of non-controlled entities | (39.1) | | | (35.4) | |
Distributions from operations of non-controlled entities | Distributions from operations of non-controlled entities | 152,645 | | | 140,616 | | Distributions from operations of non-controlled entities | 51.4 | | | 38.4 | |
Equity-based incentive compensation expense | Equity-based incentive compensation expense | 5,580 | | | 15,686 | | Equity-based incentive compensation expense | 4.7 | | | 14.4 | |
Settlement cost, amortization of prior service credit and actuarial loss | Settlement cost, amortization of prior service credit and actuarial loss | 3,953 | | | 7,151 | | Settlement cost, amortization of prior service credit and actuarial loss | 1.6 | | | 1.2 | |
| Debt extinguishment costs | 12,893 | | | — | | |
| Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
| Trade accounts receivable and other accounts receivable | Trade accounts receivable and other accounts receivable | 8,954 | | | (24,245) | | Trade accounts receivable and other accounts receivable | (31.3) | | | 5.0 | |
Inventory | Inventory | 49,802 | | | (64,363) | | Inventory | (46.5) | | | (27.1) | |
| Accounts payable | Accounts payable | 9,056 | | | 23,405 | | Accounts payable | 10.1 | | | (9.3) | |
Accrued payroll and benefits | Accrued payroll and benefits | (34,239) | | | 11,266 | | Accrued payroll and benefits | (12.3) | | | (31.0) | |
Accrued interest payable | Accrued interest payable | (14,775) | | | (9,006) | | Accrued interest payable | (9.0) | | | (9.0) | |
| Accrued taxes other than income | | Accrued taxes other than income | (19.9) | | | (24.8) | |
Accrued product liabilities | Accrued product liabilities | (8,352) | | | 41,946 | | Accrued product liabilities | 58.9 | | | (26.9) | |
Deferred revenue | Deferred revenue | (17,342) | | | 3,165 | | Deferred revenue | (0.6) | | | 13.9 | |
| Other current and noncurrent assets and liabilities | Other current and noncurrent assets and liabilities | (23,523) | | | 17,206 | | Other current and noncurrent assets and liabilities | (7.1) | | | (36.3) | |
Net cash provided by operating activities of continuing operations | Net cash provided by operating activities of continuing operations | 808,595 | | | 840,987 | | Net cash provided by operating activities of continuing operations | 228.2 | | | 92.6 | |
Net cash provided by operating activities of discontinued operations | Net cash provided by operating activities of discontinued operations | 31,510 | | | 38,090 | | Net cash provided by operating activities of discontinued operations | 12.2 | | | 7.8 | |
Net cash provided by operating activities | Net cash provided by operating activities | 840,105 | | | 879,077 | | Net cash provided by operating activities | 240.4 | | | 100.4 | |
Investing Activities: | Investing Activities: | | Investing Activities: | |
Additions to property, plant and equipment, net(1) | Additions to property, plant and equipment, net(1) | (357,093) | | | (106,458) | | Additions to property, plant and equipment, net(1) | (29.7) | | | (44.9) | |
| Proceeds from sale and disposition of assets | Proceeds from sale and disposition of assets | 334,583 | | | 271,964 | | Proceeds from sale and disposition of assets | 0.7 | | | 0.2 | |
| Investments in non-controlled entities | Investments in non-controlled entities | (73,678) | | | (5,616) | | Investments in non-controlled entities | (1.9) | | | (0.8) | |
| 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 | | |
Net cash used by investing activities of continuing operations | | Net cash used by investing activities of continuing operations | (30.9) | | | (45.5) | |
Net cash used by investing activities of discontinued operations | | Net cash used by investing activities of discontinued operations | (0.3) | | | (1.1) | |
Net cash used by investing activities | | Net cash used by investing activities | (31.2) | | | (46.6) | |
Financing Activities: | Financing Activities: | | Financing Activities: | |
Distributions paid | Distributions paid | (697,264) | | | (685,018) | | Distributions paid | (229.4) | | | (220.6) | |
Repurchases of common units | Repurchases of common units | (251,950) | | | (473,059) | | Repurchases of common units | — | | | (50.0) | |
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) | | | — | | |
Net borrowings under revolver | | Net borrowings under revolver | 17.0 | | | 228.0 | |
| | Payments associated with settlement of equity-based incentive compensation | Payments associated with settlement of equity-based incentive compensation | (14,700) | | | (6,151) | | Payments associated with settlement of equity-based incentive compensation | (6.2) | | | (8.9) | |
Debt extinguishment costs | (12,893) | | | — | | |
| | Net cash used by financing activities | Net cash used by financing activities | (794,106) | | | (1,041,228) | | Net cash used by financing activities | (218.6) | | | (51.5) | |
Change in cash, cash equivalents and restricted cash | Change in cash, cash equivalents and restricted cash | (64,266) | | | (2,007) | | Change in cash, cash equivalents and restricted cash | (9.4) | | | 2.3 | |
Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | 84,599 | | | 22,447 | | Cash, cash equivalents and restricted cash at beginning of period | 22.4 | | | 9.0 | |
Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | $ | 20,333 | | | $ | 20,440 | | Cash, cash equivalents and restricted cash at end of period | $ | 13.0 | | | $ | 11.3 | |
| Supplemental non-cash investing activities: | Supplemental non-cash investing activities: | | Supplemental non-cash investing activities: | | | |
| (1) Additions to property, plant and equipment | (1) Additions to property, plant and equipment | $ | (304,321) | | | $ | (110,505) | | (1) Additions to property, plant and equipment | $ | (20.4) | | | $ | (39.4) | |
Changes in accounts payable and other current liabilities related to capital expenditures | Changes in accounts payable and other current liabilities related to capital expenditures | (52,772) | | | 4,047 | | Changes in accounts payable and other current liabilities related to capital expenditures | (9.3) | | | (5.5) | |
Additions to property, plant and equipment, net | Additions to property, plant and equipment, net | $ | (357,093) | | | $ | (106,458) | | Additions to property, plant and equipment, net | $ | (29.7) | | | $ | (44.9) | |
See notes to consolidated financial statements.
MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(Unaudited, in thousands)millions)
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| | 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) | |
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Other | | (211) | | | | — | | | | (211) | |
Three Months Ended September 30, 2020 | | $ | 2,551,748 | | | | $ | (163,304) | | | | $ | 2,388,444 | |
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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) | |
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Other | | (267) | | | | — | | | | (267) | |
Three Months Ended September 30, 2021 | | $ | 2,076,529 | | | | $ | (162,576) | | | | $ | 1,913,953 | |
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MAGELLAN MIDSTREAM PARTNERS, L.P. CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL (Continued) (Unaudited, in thousands)
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| | 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) | |
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Other | | (668) | | | | — | | | | (668) | |
Nine Months Ended September 30, 2020 | | $ | 2,551,748 | | | | $ | (163,304) | | | | $ | 2,388,444 | |
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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 | |
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| | Common Unitholders | | Accumulated Other Comprehensive Loss | | Total Partners’ Capital |
Balance, January 1, 2021 | | $ | 2,487.0 | | | | $ | (183.2) | | | | $ | 2,303.8 | |
Comprehensive income: | | | | | | | | |
Net income | | 221.3 | | | | — | | | | 221.3 | |
Total other comprehensive income | | — | | | | 2.5 | | | | 2.5 | |
Total comprehensive income | | 221.3 | | | | 2.5 | | | | 223.8 | |
Distributions | | (229.4) | | | | — | | | | (229.4) | |
Equity-based incentive compensation expense | | 4.7 | | | | — | | | | 4.7 | |
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Issuance of common units in settlement of equity-based incentive plan awards | | 0.5 | | | | — | | | | 0.5 | |
Payments associated with settlement of equity-based incentive compensation | | (6.2) | | | | — | | | | (6.2) | |
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Other | | (0.2) | | | | — | | | | (0.2) | |
Three Months Ended March 31, 2021 | | $ | 2,477.7 | | | | $ | (180.7) | | | | $ | 2,297.0 | |
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Balance, January 1, 2022 | | $ | 2,054.8 | | | | $ | (155.0) | | | | $ | 1,899.8 | |
Comprehensive income: | | | | | | | | |
Net income | | 165.5 | | | | — | | | | 165.5 | |
Total other comprehensive income | | — | | | | 2.1 | | | | 2.1 | |
Total comprehensive income | | 165.5 | | | | 2.1 | | | | 167.6 | |
Distributions | | (220.6) | | | | — | | | | (220.6) | |
Repurchase of common units | | (50.0) | | | | — | | | | (50.0) | |
Equity-based incentive compensation expense | | 14.4 | | | | — | | | | 14.4 | |
Issuance of common units in settlement of equity-based incentive plan awards | | 0.7 | | | | — | | | | 0.7 | |
Payments associated with settlement of equity-based incentive compensation | | (8.9) | | | | — | | | | (8.9) | |
Other | | (0.3) | | | | — | | | | (0.3) | |
Three Months Ended March 31, 2022 | | $ | 1,955.6 | | | | $ | (152.9) | | | | $ | 1,802.7 | |
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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 itsour common units are traded on the New York Stock Exchange under the ticker symbol “MMP.” Magellan GP, LLC, a wholly-ownedwholly owned Delaware limited liability company, serves as itsour general partner. The board of directors of our general partner is referred to herein as our “board.”
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,March 31, 2022, 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 2 marine storage terminals (1 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 3739 million barrels of aggregate storage capacity, of which approximately 2729 million barrels are used for contract storage. Approximately 1,000 miles of these pipelines, the condensate splitter and 3031 million barrels of this storage capacity (including 2425 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 productsare 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 gas liquids such as butane, natural gasoline and propane;
•blendstocksare 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;oxygenates; and
•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.facilities.
We use the term petroleum products to describe any, or a combination, of the above-noted products. In addition, we handle, store and distribute renewable fuels, such as ethanol and biodiesel.
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, 2020,2021, 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,March 31, 2022, the results of operations for the three and nine months ended September 30, 2020March 31, 2021 and 20212022 and cash flows for the ninethree months ended September 30, 2020March 31, 2021 and 2021.2022. The results of operations for the ninethree months ended September 30, 2021March 31, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 20212022 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 U.S. 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, 2020.2021.
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 6000000 barrels of storage located primarily in the southeastern United States.U.S. to Buckeye Partners, L.P. (“Buckeye”). The sale is expected to close upon the receipt of required regulatory approvals.approval. The related results of operations, financial position and cash flows have been classified as discontinued operations for all periods presented. Seepresented (see Note 2 -– Discontinued Operations and Assets Held for Sale for further details.
additional 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 new Accounting Standards UpdatesCodifications (“ASC”) and 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.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 6 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)millions):
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| | 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 | |
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Income from discontinued operations | | $ | 6,904 | | | $ | 15,309 | | | $ | 22,514 | | | $ | 39,438 | |
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MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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| | Three Months Ended March 31, | | |
| | 2021 | | 2022 | | | | |
Transportation and terminals revenue | | $ | 13.1 | | | $ | 12.1 | | | | | |
Product sales revenue | | 16.9 | | | 6.3 | | | | | |
Total revenue | | 30.0 | | | 18.4 | | | | | |
Costs and expenses: | | | | | | | | |
Operating | | 3.4 | | | 3.8 | | | | | |
Cost of product sales | | 13.9 | | | 10.5 | | | | | |
Depreciation, amortization and impairment | | 3.5 | | | — | | | | | |
General and administrative | | 0.6 | | | 0.6 | | | | | |
Total costs and expenses | | 21.4 | | | 14.9 | | | | | |
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Income from discontinued operations | | $ | 8.6 | | | $ | 3.5 | | | | | |
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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)millions):
| | | December 31, 2020 | | September 30, 2021 | | December 31, 2021 | | March 31, 2022 |
Assets: | Assets: | | | | | Assets: | | | | |
Trade accounts receivable | Trade accounts receivable | | $ | 5,568 | | | $ | 7,013 | | Trade accounts receivable | | $ | 6.3 | | | $ | 5.9 | |
Inventory | Inventory | | 9,185 | | | 12,641 | | Inventory | | 17.0 | | | 20.1 | |
| Net property, plant and equipment | Net property, plant and equipment | | 274,857 | | | 269,468 | | Net property, plant and equipment | | 272.0 | | | 274.0 | |
Goodwill | Goodwill | | 2,709 | | | 2,709 | | Goodwill | | 2.7 | | | 2.7 | |
Other assets | Other assets | | 306 | | | 7,473 | | Other assets | | 1.5 | | | 1.3 | |
Total assets classified as held for sale | Total assets classified as held for sale | | $ | 292,625 | | | $ | 299,304 | | Total assets classified as held for sale | | $ | 299.5 | | | $ | 304.0 | |
| Liabilities: | Liabilities: | | Liabilities: | |
Accounts payable | Accounts payable | | $ | 2,034 | | | $ | 4,087 | | Accounts payable | | $ | 3.7 | | | $ | 4.7 | |
Accrued product liabilities | Accrued product liabilities | | 3,986 | | | 7,123 | | Accrued product liabilities | | 8.4 | | | 13.4 | |
Other liabilities | Other liabilities | | 3,911 | | | 4,306 | | Other liabilities | | 3.7 | | | 5.4 | |
Total liabilities classified as held for sale | Total liabilities classified as held for sale | | $ | 9,931 | | | $ | 15,516 | | Total liabilities classified as held for sale | | $ | 15.8 | | | $ | 23.5 | |
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, intersegment transactions, 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 theits nearest comparable GAAP financial measure, is included in the tables below (presented in thousands).below. 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.
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| Three Months Ended March 31, 2021 |
| (in millions) |
| Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation and terminals revenue | $ | 297.6 | | | $ | 116.2 | | | | | $ | (1.8) | | | $ | 412.0 | |
Product sales revenue | 184.5 | | | 29.2 | | | | | — | | | 213.7 | |
Affiliate management fee revenue | 1.6 | | | 3.8 | | | | | — | | | 5.4 | |
Total revenue | 483.7 | | | 149.2 | | | | | (1.8) | | | 631.1 | |
Operating expense | 91.5 | | | 39.2 | | | | | (3.4) | | | 127.3 | |
Cost of product sales | 140.8 | | | 30.1 | | | | | — | | | 170.9 | |
Other operating (income) expense | (0.3) | | | 0.7 | | | | | — | | | 0.4 | |
Earnings of non-controlled entities | (9.2) | | | (29.9) | | | | | — | | | (39.1) | |
Operating margin | 260.9 | | | 109.1 | | | | | 1.6 | | | 371.6 | |
Depreciation, amortization and impairment expense | 36.1 | | | 16.9 | | | | | 1.6 | | | 54.6 | |
G&A expense | 33.0 | | | 13.0 | | | | | — | | | 46.0 | |
Operating profit | $ | 191.8 | | | $ | 79.2 | | | | | $ | — | | | $ | 271.0 | |
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MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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| Three Months Ended March 31, 2022 |
| (in millions) |
| Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation and terminals revenue | $ | 309.5 | | | $ | 114.7 | | | | | $ | (1.3) | | | $ | 422.9 | |
Product sales revenue | 241.6 | | | 4.5 | | | | | — | | | 246.1 | |
Affiliate management fee revenue | 1.8 | | | 3.9 | | | | | — | | | 5.7 | |
Total revenue | 552.9 | | | 123.1 | | | | | (1.3) | | | 674.7 | |
Operating expense | 88.2 | | | 38.8 | | | | | (2.8) | | | 124.2 | |
Cost of product sales | 233.1 | | | 10.3 | | | | | — | | | 243.4 | |
Other operating (income) expense | (0.1) | | | 2.1 | | | | | — | | | 2.0 | |
Earnings of non-controlled entities | (3.7) | | | (31.7) | | | | | — | | | (35.4) | |
Operating margin | 235.4 | | | 103.6 | | | | | 1.5 | | | 340.5 | |
Depreciation, amortization and impairment expense | 39.6 | | | 16.6 | | | | | 1.5 | | | 57.7 | |
G&A expense | 45.7 | | | 17.1 | | | | | — | | | 62.8 | |
Operating profit | $ | 150.1 | | | $ | 69.9 | | | | | $ | — | | | $ | 220.0 | |
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4. Revenue
Statements of Income Disclosures
The following tables provide details of our revenue disaggregated by key activities that comprise our performance obligations by operating segment (in millions):
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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| 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 | |
Operating expense | 114,313 | | | 46,956 | | | | | (3,553) | | | 157,716 | |
Cost of product sales | 79,612 | | | 9,763 | | | | | — | | | 89,375 | |
Other operating (income) expense | (193) | | | 3,056 | | | | | — | | | 2,863 | |
Earnings of non-controlled entities | (7,134) | | | (32,001) | | | | | — | | | (39,135) | |
Operating margin | 228,226 | | | 135,780 | | | | | 1,623 | | | 365,629 | |
Depreciation, amortization and impairment expense | 38,237 | | | 28,579 | | | | | 1,623 | | | 68,439 | |
G&A expense | 26,968 | | | 10,529 | | | | | — | | | 37,497 | |
Operating profit | $ | 163,021 | | | $ | 96,672 | | | | | $ | — | | | $ | 259,693 | |
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| Three Months Ended September 30, 2021 |
| Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation and terminals revenue | $ | 349,430 | | | $ | 116,920 | | | | | $ | (1,440) | | | $ | 464,910 | |
Product sales revenue | 153,352 | | | 15,463 | | | | | — | | | 168,815 | |
Affiliate management fee revenue | 1,643 | | | 3,686 | | | | | — | | | 5,329 | |
Total revenue | 504,425 | | | 136,069 | | | | | (1,440) | | | 639,054 | |
Operating expense | 114,612 | | | 35,042 | | | | | (3,098) | | | 146,556 | |
Cost of product sales | 128,372 | | | 17,483 | | | | | — | | | 145,855 | |
Other operating (income) expense | (2,873) | | | 282 | | | | | — | | | (2,591) | |
Earnings of non-controlled entities | (8,160) | | | (28,306) | | | | | — | | | (36,466) | |
Operating margin | 272,474 | | | 111,568 | | | | | 1,658 | | | 385,700 | |
Depreciation, amortization and impairment expense | 42,552 | | | 17,191 | | | | | 1,658 | | | 61,401 | |
G&A expense | 33,478 | | | 13,154 | | | | | — | | | 46,632 | |
Operating profit | $ | 196,444 | | | $ | 81,223 | | | | | $ | — | | | $ | 277,667 | |
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| | Three Months Ended March 31, 2021 |
| | Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation | | $ | 193.4 | | | $ | 55.0 | | | | | $ | — | | | $ | 248.4 | |
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Terminalling | | 22.6 | | | 6.1 | | | | | — | | | 28.7 | |
Storage | | 49.0 | | | 29.3 | | | | | (1.8) | | | 76.5 | |
Ancillary services | | 28.5 | | | 8.0 | | | | | — | | | 36.5 | |
Lease revenue | | 4.1 | | | 17.8 | | | | | — | | | 21.9 | |
Transportation and terminals revenue | | 297.6 | | | 116.2 | | | | | (1.8) | | | 412.0 | |
Product sales revenue | | 184.5 | | | 29.2 | | | | | — | | | 213.7 | |
Affiliate management fee revenue | | 1.6 | | | 3.8 | | | | | — | | | 5.4 | |
Total revenue | | 483.7 | | | 149.2 | | | | | (1.8) | | | 631.1 | |
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers: | | | | | | | | | | |
Lease revenue | | (4.1) | | | (17.8) | | | | | — | | | (21.9) | |
(Gains) losses from futures contracts included in product sales revenue | | 47.3 | | | 5.4 | | | | | — | | | 52.7 | |
Affiliate management fee revenue | | (1.6) | | | (3.8) | | | | | — | | | (5.4) | |
Total revenue from contracts with customers under ASC 606 | | $ | 525.3 | | | $ | 133.0 | | | | | $ | (1.8) | | | $ | 656.5 | |
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| | Three Months Ended March 31, 2022 |
| | Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation | | $ | 213.3 | | | $ | 55.0 | | | | | $ | — | | | $ | 268.3 | |
Terminalling | | 23.3 | | | 6.3 | | | | | — | | | 29.6 | |
Storage | | 39.5 | | | 27.0 | | | | | (1.3) | | | 65.2 | |
Ancillary services | | 27.6 | | | 7.9 | | | | | — | | | 35.5 | |
Lease revenue | | 5.8 | | | 18.5 | | | | | — | | | 24.3 | |
Transportation and terminals revenue | | 309.5 | | | 114.7 | | | | | (1.3) | | | 422.9 | |
Product sales revenue | | 241.6 | | | 4.5 | | | | | — | | | 246.1 | |
Affiliate management fee revenue | | 1.8 | | | 3.9 | | | | | — | | | 5.7 | |
Total revenue | | 552.9 | | | 123.1 | | | | | (1.3) | | | 674.7 | |
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers: | | | | | | | | | | |
Lease revenue | | (5.8) | | | (18.5) | | | | | — | | | (24.3) | |
(Gains) losses from futures contracts included in product sales revenue | | 108.2 | | | 8.2 | | | | | — | | | 116.4 | |
Affiliate management fee revenue | | (1.8) | | | (3.9) | | | | | — | | | (5.7) | |
Total revenue from contracts with customers under ASC 606 | | $ | 653.5 | | | $ | 108.9 | | | | | $ | (1.3) | | | $ | 761.1 | |
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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| Nine Months Ended September 30, 2020 |
| Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation and terminals revenue | $ | 876,363 | | | $ | 433,947 | | | | | $ | (5,093) | | | $ | 1,305,217 | |
Product sales revenue | 422,986 | | | 20,141 | | | | | — | | | 443,127 | |
Affiliate management fee revenue | 4,676 | | | 11,219 | | | | | — | | | 15,895 | |
Total revenue | 1,304,025 | | | 465,307 | | | | | (5,093) | | | 1,764,239 | |
Operating expense | 316,371 | | | 139,645 | | | | | (9,914) | | | 446,102 | |
Cost of product sales | 334,366 | | | 30,550 | | | | | — | | | 364,916 | |
Other operating (income) expense | (2,223) | | | 1,684 | | | | | — | | | (539) | |
Earnings of non-controlled entities | (25,946) | | | (90,538) | | | | | — | | | (116,484) | |
Operating margin | 681,457 | | | 383,966 | | | | | 4,821 | | | 1,070,244 | |
Depreciation, amortization and impairment expense | 118,038 | | | 60,367 | | | | | 4,821 | | | 183,226 | |
G&A expense | 83,190 | | | 32,290 | | | | | — | | | 115,480 | |
Operating profit | $ | 480,229 | | | $ | 291,309 | | | | | $ | — | | | $ | 771,538 | |
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| Nine Months Ended September 30, 2021 |
| Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation and terminals revenue | $ | 984,895 | | | $ | 351,817 | | | | | $ | (4,441) | | | $ | 1,332,271 | |
Product sales revenue | 487,551 | | | 88,024 | | | | | — | | | 575,575 | |
Affiliate management fee revenue | 4,802 | | | 11,123 | | | | | — | | | 15,925 | |
Total revenue | 1,477,248 | | | 450,964 | | | | | (4,441) | | | 1,923,771 | |
Operating expense | 314,241 | | | 118,072 | | | | | (9,406) | | | 422,907 | |
Cost of product sales | 394,316 | | | 94,298 | | | | | — | | | 488,614 | |
Other operating (income) expense | (6,279) | | | 2,246 | | | | | — | | | (4,033) | |
Earnings of non-controlled entities | (25,528) | | | (90,579) | | | | | — | | | (116,107) | |
Operating margin | 800,498 | | | 326,927 | | | | | 4,965 | | | 1,132,390 | |
Depreciation, amortization and impairment expense | 112,754 | | | 50,585 | | | | | 4,965 | | | 168,304 | |
G&A expense | 106,749 | | | 41,922 | | | | | — | | | 148,671 | |
Operating profit | $ | 580,995 | | | $ | 234,420 | | | | | $ | — | | | $ | 815,415 | |
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MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4.Revenue
Statement of Income Disclosures
The following tables provide details of our revenue disaggregated by key activities that comprise our performance obligations by operating segment (in thousands):
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| | Three Months Ended September 30, 2020 |
| | Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation | | $ | 192,194 | | | $ | 90,156 | | | | | $ | — | | | $ | 282,350 | |
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Terminalling | | 30,650 | | | 5,651 | | | | | — | | | 36,301 | |
Storage | | 49,104 | | | 32,876 | | | | | (1,930) | | | 80,050 | |
Ancillary services | | 29,955 | | | 6,828 | | | | | — | | | 36,783 | |
Lease revenue | | 5,315 | | | 19,141 | | | | | — | | | 24,456 | |
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 | |
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers: | | | | | | | | | | |
Lease revenue(1) | | (5,315) | | | (19,141) | | | | | — | | | (24,456) | |
(Gains) losses from futures contracts included in product sales revenue(2) | | 6,560 | | | 884 | | | | | — | | | 7,444 | |
Affiliate management fee revenue | | (1,579) | | | (3,709) | | | | | — | | | (5,288) | |
Total revenue from contracts with customers under ASC 606 | | $ | 414,490 | | | $ | 141,588 | | | | | $ | (1,930) | | | $ | 554,148 | |
(1)Lease revenue is accounted for under Accounting Standards Codification (“ASC”) 842, Leases.
(2) The impact on product sales revenue from futures contracts falls under the guidance of ASC 815, Derivatives and Hedging.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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| | Three Months Ended September 30, 2021 |
| | Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation | | $ | 241,685 | | | $ | 58,172 | | | | | $ | — | | | $ | 299,857 | |
Terminalling | | 26,468 | | | 3,280 | | | | | — | | | 29,748 | |
Storage | | 42,316 | | | 28,199 | | | | | (1,440) | | | 69,075 | |
Ancillary services | | 34,157 | | | 7,667 | | | | | — | | | 41,824 | |
Lease revenue | | 4,804 | | | 19,602 | | | | | — | | | 24,406 | |
Transportation and terminals revenue | | 349,430 | | | 116,920 | | | | | (1,440) | | | 464,910 | |
Product sales revenue | | 153,352 | | | 15,463 | | | | | — | | | 168,815 | |
Affiliate management fee revenue | | 1,643 | | | 3,686 | | | | | — | | | 5,329 | |
Total revenue | | 504,425 | | | 136,069 | | | | | (1,440) | | | 639,054 | |
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers: | | | | | | | | | | |
Lease revenue(1) | | (4,804) | | | (19,602) | | | | | — | | | (24,406) | |
(Gains) losses from futures contracts included in product sales revenue(2) | | 26,992 | | | 2,634 | | | | | — | | | 29,626 | |
Affiliate management fee revenue | | (1,643) | | | (3,686) | | | | | — | | | (5,329) | |
Total revenue from contracts with customers under ASC 606 | | $ | 524,970 | | | $ | 115,415 | | | | | $ | (1,440) | | | $ | 638,945 | |
(1) Lease revenue 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.
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| | Nine Months Ended September 30, 2020 |
| | Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation | | $ | 533,451 | | | $ | 244,155 | | | | | $ | — | | | $ | 777,606 | |
Terminalling | | 88,038 | | | 14,702 | | | | | — | | | 102,740 | |
Storage | | 152,186 | | | 97,103 | | | | | (5,093) | | | 244,196 | |
Ancillary services | | 85,441 | | | 20,745 | | | | | — | | | 106,186 | |
Lease revenue | | 17,247 | | | 57,242 | | | | | — | | | 74,489 | |
Transportation and terminals revenue | | 876,363 | | | 433,947 | | | | | (5,093) | | | 1,305,217 | |
Product sales revenue | | 422,986 | | | 20,141 | | | | | — | | | 443,127 | |
Affiliate management fee revenue | | 4,676 | | | 11,219 | | | | | — | | | 15,895 | |
Total revenue | | 1,304,025 | | | 465,307 | | | | | (5,093) | | | 1,764,239 | |
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers: | | | | | | | | | | |
Lease revenue(1) | | (17,247) | | | (57,242) | | | | | — | | | (74,489) | |
(Gains) losses from futures contracts included in product sales revenue(2) | | (82,109) | | | 483 | | | | | — | | | (81,626) | |
Affiliate management fee revenue | | (4,676) | | | (11,219) | | | | | — | | | (15,895) | |
Total revenue from contracts with customers under ASC 606 | | $ | 1,199,993 | | | $ | 397,329 | | | | | $ | (5,093) | | | $ | 1,592,229 | |
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(1) Lease revenue 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.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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| | Nine Months Ended September 30, 2021 |
| | Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation | | $ | 667,148 | | | $ | 172,922 | | | | | 0 | | $ | 840,070 | |
Terminalling | | 74,223 | | | 12,615 | | | | | 0 | | 86,838 | |
Storage | | 135,938 | | | 87,237 | | | | | (4,441) | | | 218,734 | |
Ancillary services | | 94,640 | | | 23,224 | | | | | 0 | | 117,864 | |
Lease revenue | | 12,946 | | | 55,819 | | | | | 0 | | 68,765 | |
Transportation and terminals revenue | | 984,895 | | | 351,817 | | | | | (4,441) | | | 1,332,271 | |
Product sales revenue | | 487,551 | | | 88,024 | | | | | — | | | 575,575 | |
Affiliate management fee revenue | | 4,802 | | | 11,123 | | | | | — | | | 15,925 | |
Total revenue | | 1,477,248 | | | 450,964 | | | | | (4,441) | | | 1,923,771 | |
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers: | | | | | | | | | | |
Lease revenue(1) | | (12,946) | | | (55,819) | | | | | — | | | (68,765) | |
(Gains) losses from futures contracts included in product sales revenue(2) | | 108,595 | | | 14,165 | | | | | — | | | 122,760 | |
Affiliate management fee revenue | | (4,802) | | | (11,123) | | | | | — | | | (15,925) | |
Total revenue from contracts with customers under ASC 606 | | $ | 1,568,095 | | | $ | 398,187 | | | | | $ | (4,441) | | | $ | 1,961,841 | |
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(1) Lease revenue 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)millions):
| | | December 31, 2020 | | September 30, 2021 | | December 31, 2021 | | March 31, 2022 |
Accounts receivable from contracts with customers | Accounts receivable from contracts with customers | | $ | 103,275 | | | $ | 132,586 | | Accounts receivable from contracts with customers | | $ | 134.8 | | | $ | 125.1 | |
Contract assets | Contract assets | | $ | 12,220 | | | $ | 12,284 | | Contract assets | | $ | 12.5 | | | $ | 13.8 | |
Contract liabilities | Contract liabilities | | $ | 102,702 | | | $ | 106,879 | | Contract liabilities | | $ | 100.1 | | | $ | 112.4 | |
For the respective three and nine months ended September 30, 2021,March 31, 2022, we recognized $2.9 million and $76.7$67.7 million of transportation and terminals revenue that was recorded in deferred revenue as of December 31, 2020.2021.
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 September 30, 2021March 31, 2022 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)millions):
| | | Refined Products | | Crude Oil | | | Total | | Refined Products | | Crude Oil | | | Total |
Balances at September 30, 2021 | | $ | 1,937,717 | | | $ | 1,111,166 | | | | $ | 3,048,883 | | |
Balances at March 31, 2022 | | Balances at March 31, 2022 | | $ | 1,800.9 | | | $ | 1,023.5 | | | | $ | 2,824.4 | |
Remaining terms | Remaining terms | | 1 - 17 years | | 1 - 10 years | | | Remaining terms | | 1 - 17 years | | 1 - 10 years | | |
Estimated revenues from UPOs to be recognized in the next 12 months | Estimated revenues from UPOs to be recognized in the next 12 months | | $ | 365,383 | | | $ | 263,798 | | | | $ | 629,181 | | Estimated revenues from UPOs to be recognized in the next 12 months | | $ | 370.4 | | | $ | 249.5 | | | | $ | 619.9 | |
5.Investments in Non-Controlled Entities
Our equity investments in non-controlled entities at September 30, 2021March 31, 2022 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”) | | 25% |
Powder Springs Logistics, LLC (“Powder Springs”) | | 50% |
Saddlehorn Pipeline Company, LLC (“Saddlehorn”) | | 30% |
Seabrook Logistics, LLC (“Seabrook”) | | 50% |
Texas Frontera, LLC (“Texas Frontera”) | | 50% |
.
In April 2021, we sold nearly half of our membership interest in MVP. As a result of the sale, we received proceeds of $272.1 million and recorded a gain of $70.4 million on our consolidated statements of income. Following the sale, we own approximately 25% of MVP and remain the operator of the facility.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 receive 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 $0.7$0.5 million and $0.9$1.9 million during the three months ended September 30, 2020March 31, 2021 and 2021, respectively, and $2.9 million and $2.1 million during the nine months ended September 30, 2020 and 2021,2022, respectively.
We recorded the following revenue and expense transactions from certain of these non-controlled entities in our consolidated statements of income (in millions):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2021 | | 2022 | | | | |
Transportation and terminals revenue: | | | | | | | | |
BridgeTex, pipeline capacity and storage | | $ | 10.7 | | | $ | 11.0 | | | | | |
Double Eagle, throughput revenue | | $ | 1.0 | | | $ | 0.7 | | | | | |
Saddlehorn, storage revenue | | $ | 0.6 | | | $ | 0.6 | | | | | |
Operating expense: | | | | | | | | |
Seabrook, storage lease and ancillary services | | $ | 5.3 | | | $ | 4.2 | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Our consolidated balance sheets reflected the following balances related to transactions with our non-controlled entities (in millions):
| | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Trade Accounts Receivable | | Other Accounts Receivable | | Other Accounts Payable | | |
BridgeTex | | $ | 1.2 | | | $ | — | | | $ | 0.3 | | | |
Double Eagle | | $ | 0.2 | | | $ | — | | | $ | — | | | |
HoustonLink | | $ | — | | | $ | — | | | $ | 0.2 | | | |
MVP | | $ | — | | | $ | 0.6 | | | $ | 2.2 | | | |
| | | | | | | | |
Saddlehorn | | $ | — | | | $ | 0.2 | | | $ | — | | | |
Seabrook | | $ | — | | | $ | 0.1 | | | $ | 3.2 | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 |
| | Trade Accounts Receivable | | Other Accounts Receivable | | Other Accounts Payable | | |
BridgeTex | | $ | 1.9 | | | $ | — | | | $ | — | | | |
Double Eagle | | $ | 0.2 | | | $ | — | | | $ | — | | | |
HoustonLink | | $ | — | | | $ | — | | | $ | 0.2 | | | |
MVP | | $ | — | | | $ | 0.9 | | | $ | 5.2 | | | |
| | | | | | | | |
Saddlehorn | | $ | 0.2 | | | $ | 0.2 | | | $ | — | | | |
Seabrook | | $ | 0.2 | | | $ | 0.2 | | | $ | 0.9 | | | |
| | | | | | | | |
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 September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2021 | | 2020 | | 2021 |
Transportation and terminals revenue: | | | | | | | | |
BridgeTex, pipeline capacity and storage | | $ | 9,323 | | | $ | 10,669 | | | $ | 32,748 | | | $ | 34,367 | |
Double Eagle, throughput revenue | | $ | 995 | | | $ | 631 | | | $ | 4,016 | | | $ | 2,464 | |
Saddlehorn, storage revenue | | $ | 580 | | | $ | 594 | | | $ | 1,711 | | | $ | 1,753 | |
Operating expense: | | | | | | | | |
Seabrook, storage lease and ancillary services | | $ | 7,175 | | | $ | 4,477 | | | $ | 21,553 | | | $ | 15,336 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Other operating income: | | | | | | | | |
Seabrook, gain on sale of air emission credits | | $ | — | | | $ | — | | | $ | 1,410 | | | $ | 434 | |
| | | | | | | | |
Our consolidated balance sheets reflected the following balances related to transactions with our non-controlled entities (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Trade Accounts Receivable | | Other Accounts Receivable | | Other Accounts Payable | | Long-Term Receivables |
BridgeTex | | $ | 355 | | | $ | 27 | | | $ | 970 | | | $ | — | |
Double Eagle | | $ | 277 | | | $ | — | | | $ | — | | | $ | — | |
HoustonLink | | $ | — | | | $ | — | | | $ | 144 | | | $ | — | |
MVP | | $ | — | | | $ | 467 | | | $ | 2,297 | | | $ | — | |
Powder Springs | | $ | — | | | $ | — | | | $ | — | | | $ | 10,223 | |
Saddlehorn | | $ | — | | | $ | 121 | | | $ | — | | | $ | — | |
Seabrook | | $ | — | | | $ | — | | | $ | 7,274 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 |
| | Trade Accounts Receivable | | Other Accounts Receivable | | Other Accounts Payable | | Long-Term Receivables |
BridgeTex | | $ | 2,310 | | | $ | 15 | | | $ | — | | | $ | — | |
Double Eagle | | $ | 213 | | | $ | — | | | $ | — | | | $ | — | |
HoustonLink | | $ | — | | | $ | — | | | $ | 96 | | | $ | — | |
MVP | | $ | — | | | $ | 542 | | | $ | — | | | $ | — | |
Powder Springs | | $ | 8 | | | $ | — | | | $ | — | | | $ | 12,429 | |
Saddlehorn | | $ | — | | | $ | 187 | | | $ | — | | | $ | — | |
Seabrook | | $ | — | | | $ | 11 | | | $ | 810 | | | $ | — | |
| | | | | | | | |
We entered into a long-term terminalling and storage contract with Seabrook for our exclusive use of dedicated tankage that provides our customers with crude oil storage capacity and dock access for crude oil imports and exports on the Texas Gulf Coast (see Note 8 – Leases for more details regarding this lease).
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The financial results from MVP, Powder Springs and Texas Frontera are included in our refined products segment and the financial results from BridgeTex, Double Eagle, HoustonLink, Saddlehorn and Seabrook are included in our crude oil segment, each as earnings of non-controlled entities.
A summary of our investments in non-controlled entities (representing only our proportionate interest) follows (in thousands)millions):
| | | | | | | | |
| | |
Investments at December 31, 20202021 | | $ | 1,213,856980.8 | |
Additional investment | | 5,6160.8 | |
Sale of ownership interest in MVP | | (201,673) | |
| | |
Earnings of non-controlled entities: | | |
Proportionate share of earnings | | 117,41335.8 | |
| | |
Amortization of excess investment and capitalized interest | | (1,306)(0.4) | |
Earnings of non-controlled entities | | 116,10735.4 | |
Less: | | |
Distributions from operations of non-controlled entities | | 140,61638.4 | |
| | |
Investments at September 30, 2021March 31, 2022 | | $ | 993,290978.6 | |
| | |
6.Inventory
Inventory at December 31, 20202021 and September 30, 2021March 31, 2022 was as follows (in thousands)millions):
| | | December 31, 2020 | | September 30, 2021 | | December 31, 2021 | | March 31, 2022 |
Refined products | Refined products | $ | 71,982 | | | $ | 86,362 | | Refined products | $ | 138.0 | | | $ | 181.6 | |
Transmix | | Transmix | 72.4 | | | 64.5 | |
LPGs | | LPGs | 42.0 | | | 27.9 | |
Crude oil | Crude oil | 32,431 | | | 28,269 | | Crude oil | 25.4 | | | 29.7 | |
Liquefied petroleum gases | 25,040 | | | 54,604 | | |
Transmix | 23,397 | | | 47,978 | | |
Additives | Additives | 5,354 | | | 5,354 | | Additives | 3.3 | | | 4.5 | |
Total inventory | Total inventory | $ | 158,204 | | | $ | 222,567 | | Total inventory | $ | 281.1 | | | $ | 308.2 | |
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7.Debt
Long-term debt at December 31, 20202021 and September 30, 2021March 31, 2022 was as follows (in thousands)millions):
| | | | | | | | | | | | | | |
| | December 31, 2020 | | September 30, 2021 |
Commercial paper | | $ | — | | | $ | 123,000 | |
| | | | |
3.20% Notes due 2025 | | 250,000 | | | 250,000 | |
5.00% Notes due 2026 | | 650,000 | | | 650,000 | |
3.25% Notes due 2030 | | 500,000 | | | 500,000 | |
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 | | | 500,000 | |
3.95% Notes due 2050 | | 800,000 | | | 800,000 | |
Face value of long-term debt | | 5,000,000 | | | 5,123,000 | |
Unamortized debt issuance costs(1) | | (40,143) | | | (38,419) | |
Net unamortized debt premium(1) | | 18,834 | | | 18,645 | |
| | | | |
| | | | |
| | | | |
Long-term debt, net | | $ | 4,978,691 | | | $ | 5,103,226 | |
| | | | |
| | | | | | | | | | | | | | |
| | December 31, 2021 | | March 31, 2022 |
Commercial paper | | $ | 108.0 | | | $ | 336.0 | |
| | | | |
3.20% Notes due 2025 | | 250.0 | | | 250.0 | |
5.00% Notes due 2026 | | 650.0 | | | 650.0 | |
3.25% Notes due 2030 | | 500.0 | | | 500.0 | |
6.40% Notes due 2037 | | 250.0 | | | 250.0 | |
4.20% Notes due 2042 | | 250.0 | | | 250.0 | |
5.15% Notes due 2043 | | 550.0 | | | 550.0 | |
4.20% Notes due 2045 | | 250.0 | | | 250.0 | |
4.25% Notes due 2046 | | 500.0 | | | 500.0 | |
4.20% Notes due 2047 | | 500.0 | | | 500.0 | |
4.85% Notes due 2049 | | 500.0 | | | 500.0 | |
3.95% Notes due 2050 | | 800.0 | | | 800.0 | |
Face value of long-term debt | | 5,108.0 | | | 5,336.0 | |
Unamortized debt issuance costs(1) | | (37.8) | | | (37.2) | |
Net unamortized debt premium(1) | | 18.6 | | | 18.4 | |
| | | | |
| | | | |
| | | | |
Long-term debt, net | | $ | 5,088.8 | | | $ | 5,317.2 | |
| | | | |
(1) Debt issuance costs and note discounts and premiums 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.
Other Debt
Revolving Credit Facility. At September 30, 2021,March 31, 2022, the total borrowing capacity under our revolving credit facility maturing in May 2024 was $1.0 billion. Any borrowings outstanding under this facility are classified as long-term debt on our consolidated balance sheets. Borrowings under the facility are unsecured and bear interest at LIBOR plus a spread ranging from 0.875% to 1.500% based on our credit ratings. Additionally, an unused commitment fee is assessed at a rate between 0.075% and 0.200% depending on our credit ratings. The unused commitment fee was 0.125% at September 30, 2021.March 31, 2022. Borrowings under this facility may be used for general purposes, including capital expenditures. As of December 31, 20202021 and September 30, 2021,March 31, 2022, there were no borrowings outstanding under this facility and $3.5 million was obligated for letters of credit. Amounts obligated for letters of credit are not reflected as debt on our consolidated balance sheets, but decrease our borrowing capacity under this facility.
Our revolving credit facility requires us to maintain a specified ratio of consolidated debt to EBITDA (as defined in the credit agreement) of no greater than 5.0 to 1.0. In addition, the revolving credit facility and the indentures under which our senior notes were issued contain covenants that limit our ability to, among other things, incur indebtedness secured by certain liens or encumber our assets, engage in certain sale-leaseback transactions and consolidate, merge or dispose of all or substantially all of our assets. We were in compliance with these covenants as of and during the three months ended March 31, 2022.
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
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. Commercial paper borrowings outstanding at September 30, 2021March 31, 2022 were $123.0$336.0 million. The weighted-averageweighted average interest rate for commercial paper borrowings based on the number of days outstanding was 0.2%0.5% for the ninethree months ended September 30, 2021.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2022.
8.Leases
Operating Leases – Lessee
Related-Party Operating Lease. We entered into a long-term terminalling and storage contract with Seabrook for our exclusive use of dedicated tankage that provides our customers with crude oil storage capacity and dock access for crude oil imports and exports on the Texas Gulf Coast.
The following tables provide information about our third-party and Seabrook operating leases (in thousands)millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2021 |
| | Third-Party Leases | | Seabrook Lease | | All Leases | | Third-Party Leases | | Seabrook Lease | | All Leases |
Total lease expense | | $ | 6,474 | | | $ | 7,175 | | | $ | 13,649 | | | $ | 6,321 | | | $ | 4,288 | | | $ | 10,609 | |
| | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2021 |
| | Third-Party Leases | | Seabrook Lease | | All Leases | | Third-Party Leases | | Seabrook Lease | | All Leases |
Total lease expense | | $ | 18,173 | | | $ | 21,553 | | | $ | 39,726 | | | $ | 20,266 | | | $ | 15,147 | | | $ | 35,413 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2021 | | Three Months Ended March 31, 2022 |
| | Third-Party Leases | | Seabrook Lease | | All Leases | | Third-Party Leases | | Seabrook Lease | | All Leases |
Total lease expense | | $ | 7.0 | | | $ | 5.3 | | | $ | 12.3 | | | $ | 6.2 | | | $ | 4.2 | | | $ | 10.4 | |
| | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | December 31, 2020 | | September 30, 2021 | | December 31, 2021 | | March 31, 2022 |
| | Third-Party Leases | | Seabrook Lease | | All Leases | | Third-Party Leases | | Seabrook Lease | | All Leases | | Third-Party Leases | | Seabrook Lease | | All Leases | | Third-Party Leases | | Seabrook Lease | | All Leases |
Current lease liability | Current lease liability | | $ | 17,099 | | | $ | 10,434 | | | $ | 27,533 | | | $ | 17,733 | | | $ | 7,885 | | | $ | 25,618 | | Current lease liability | | $ | 17.8 | | | $ | 8.0 | | | $ | 25.8 | | | $ | 21.0 | | | $ | 9.7 | | | $ | 30.7 | |
Long-term lease liability | Long-term lease liability | | $ | 84,982 | | | $ | 52,501 | | | $ | 137,483 | | | $ | 105,095 | | | $ | 46,555 | | | $ | 151,650 | | Long-term lease liability | | $ | 102.8 | | | $ | 44.5 | | | $ | 147.3 | | | $ | 97.7 | | | $ | 40.8 | | | $ | 138.5 | |
Right-of-use asset | Right-of-use asset | | $ | 103,142 | | | $ | 62,936 | | | $ | 166,078 | | | $ | 126,029 | | | $ | 54,441 | | | $ | 180,470 | | Right-of-use asset | | $ | 121.7 | | | $ | 52.5 | | | $ | 174.2 | | | $ | 117.8 | | | $ | 50.5 | | | $ | 168.3 | |
|
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9.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, including expense related to discontinued operations, were $2.8$3.1 million and $2.7$4.1 million for the three months ended September 30, 2020March 31, 2021 and 2021, respectively, and $9.7 million and $8.1 million for the nine months ended September 30, 2020 and 2021,2022, respectively.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In addition, we sponsor 2 pension plans, including 1 for all non-union employees and 1 that covers union employees, and a postretirement benefit plan for certain employees. The following disclosures related to these plans include amounts related to discontinued operations. Net periodic benefit expense for the three and nine months ended September 30, 2020March 31, 2021 and 20212022 were as follows (in thousands)millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Three Months Ended |
| September 30, 2020 | | September 30, 2021 |
| Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
Components of net periodic benefit costs: | | | | | | | |
Service cost | $ | 6,898 | | | $ | 64 | | | $ | 6,953 | | | $ | 75 | |
Interest cost | 2,738 | | | 121 | | | 2,395 | | | 103 | |
Expected return on plan assets | (2,829) | | | — | | | (2,960) | | | — | |
Amortization of prior service credit | (46) | | | — | | | (46) | | | — | |
Amortization of actuarial loss | 1,346 | | | 127 | | | 1,273 | | | 160 | |
Settlement cost | — | | | — | | | 1,300 | | | — | |
| | | | | | | |
| | | | | | | |
Net periodic benefit cost | $ | 8,107 | | | $ | 312 | | | $ | 8,915 | | | $ | 338 | |
| | | Nine Months Ended | | Nine Months Ended | | Three Months Ended | | Three Months Ended |
| | September 30, 2020 | | September 30, 2021 | | | March 31, 2021 | | March 31, 2022 |
| | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits | | | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
Components of net periodic benefit costs: | Components of net periodic benefit costs: | | | | | | | | Components of net periodic benefit costs: | | | | | | | | |
Service cost | Service cost | $ | 20,836 | | | $ | 193 | | | $ | 21,269 | | | $ | 225 | | Service cost | | $ | 7.4 | | | $ | 0.1 | | | $ | 7.1 | | | $ | 0.1 | |
Interest cost | Interest cost | 8,251 | | | 360 | | | 7,078 | | | 310 | | Interest cost | | 2.4 | | | 0.1 | | | 2.7 | | | 0.1 | |
Expected return on plan assets | Expected return on plan assets | (8,524) | | | — | | | (8,927) | | | — | | Expected return on plan assets | | (3.1) | | | — | | | (3.4) | | | — | |
Amortization of prior service credit | (136) | | | — | | | (136) | | | — | | |
| Amortization of actuarial loss | Amortization of actuarial loss | 4,080 | | | 382 | | | 4,058 | | | 478 | | Amortization of actuarial loss | | 1.5 | | | 0.1 | | | 1.1 | | | 0.1 | |
Settlement cost | 969 | | | — | | | 2,751 | | | — | | |
Settlement gain on disposition of assets | (1,342) | | | — | | | — | | | — | | |
| Net periodic benefit cost | Net periodic benefit cost | $ | 24,134 | | | $ | 935 | | | $ | 26,093 | | | $ | 1,013 | | Net periodic benefit cost | | $ | 8.2 | | | $ | 0.3 | | | $ | 7.5 | | | $ | 0.3 | |
|
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 (income) expense in our consolidated statements of income.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The changes in accumulated other comprehensive loss (“AOCL”) related to employee benefit plan assets and benefit obligations for the three and nine months ended September 30, 2020March 31, 2021 and 20212022 were as follows (in thousands)millions):
| | | Three Months Ended | | Three Months Ended | | Three Months Ended | | Three Months Ended |
| | September 30, 2020 | | September 30, 2021 | | March 31, 2021 | | March 31, 2022 |
Gains (Losses) Included in AOCL | Gains (Losses) Included in AOCL | | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits | Gains (Losses) Included in AOCL | | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
Beginning balance | Beginning balance | | $ | (98,610) | | | $ | (9,269) | | | $ | (101,270) | | | $ | (11,656) | | Beginning balance | | $ | (117.8) | | | $ | (10.4) | | | $ | (92.8) | | | $ | (10.7) | |
| Recognition of prior service credit amortization in income | | (46) | | | — | | | (46) | | | — | | |
| Recognition of actuarial loss amortization in income | Recognition of actuarial loss amortization in income | | 1,346 | | | 127 | | | 1,273 | | | 160 | | Recognition of actuarial loss amortization in income | | 1.5 | | | 0.1 | | | 1.1 | | | 0.1 | |
Recognition of settlement cost in income | | — | | | — | | | 1,300 | | | — | | |
| Ending balance | Ending balance | | $ | (97,310) | | | $ | (9,142) | | | $ | (98,743) | | | $ | (11,496) | | Ending balance | | $ | (116.3) | | | $ | (10.3) | | | $ | (91.7) | | | $ | (10.6) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | | Nine Months Ended |
| | September 30, 2020 | | September 30, 2021 |
Gains (Losses) Included in AOCL | | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
Beginning balance | | $ | (104,739) | | | $ | (8,378) | | | $ | (117,782) | | | $ | (10,409) | |
Net actuarial gain (loss) | | 813 | | | (1,146) | | | 12,366 | | | (1,565) | |
Curtailment gain | | 1,703 | | | — | | | — | | | — | |
Recognition of prior service credit amortization in income | | (136) | | | — | | | (136) | | | — | |
Recognition of actuarial loss amortization in income | | 4,080 | | | 382 | | | 4,058 | | | 478 | |
Recognition of settlement cost in income | | 969 | | | — | | | 2,751 | | | — | |
Ending balance | | $ | (97,310) | | | $ | (9,142) | | | $ | (98,743) | | | $ | (11,496) | |
| | | | | | | | |
Contributions estimated to be paid into the plans in 20212022 are $27.6$37.2 million and $0.9$0.5 million for the pension plans and other postretirement benefit plan, respectively.
10.Long-Term Incentive Plan
The compensation committee of our general partner’s board of directors administers our long-term incentive plan (“LTIP”) covering certain of our employees and the independent directors of our general partner. In April 2021, our compensation committee and our limited partners approved an amendment to the LTIP increasing the number of common units available for issuance from 11.9 million to 13.7 million.board. The LTIP primarily consists of phantom units and permits the grant of awards covering an aggregate payout of 13.7 million of our common units. The estimated units remaining available under the LTIP at September 30, 2021March 31, 2022 totaled approximately 2.41.8 million.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Equity-based incentive compensation expense for the three and nine months ended September 30, 2020March 31, 2021 and 2021,2022, primarily recorded as G&A expense on our consolidated statements of income, was as follows (in thousands)millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2021 | | 2020 | | 2021 |
Performance-based awards | | $ | (1,121) | | | $ | 3,053 | | | $ | (1,247) | | | $ | 7,923 | |
Time-based awards | | 2,290 | | | 2,573 | | | 6,827 | | | 7,763 | |
Total | | $ | 1,169 | | | $ | 5,626 | | | $ | 5,580 | | | $ | 15,686 | |
| | | | | | | | |
During 2020, LTIP expense related to performance-based awards was reduced due to the impacts of COVID-19 and the significant decline in commodity prices on our financial results. | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2021 | | 2022 | | | | |
Performance-based awards | | $ | 2.2 | | | $ | 8.0 | | | | | |
Time-based awards | | 2.5 | | | 6.4 | | | | | |
Total | | $ | 4.7 | | | $ | 14.4 | | | | | |
| | | | | | | | |
On February 5, 2021, 558,5169, 2022, 622,986 unit awards were granted pursuant to our LTIP. These awards included both performance-based and time-based awards and have a three-year vesting period that will end on December 31, 2023.2024.
Basic and Diluted Net Income Per Common Unit
The difference between our actual common units outstanding and our weighted-averageweighted average number of common units outstanding used to calculate basic net income per common unit is due to the impact of: (i) the phantom units issued to our independent directors, (ii) unit awards issuedgranted to non-employee directorsretirees or employees of retirement age and (ii)(iii) the weighted average effect of units actually issued or repurchased during a period. The difference between the weighted-averageweighted average number of common units outstanding used for basic and diluted net income per unit calculations on our consolidated statements of income is primarily due to the dilutive effect of phantom unit awards associated withgranted pursuant to our LTIP thatlong-term incentive plan, which have not yet vested.vested in periods where contingent performance metrics have been met.
11.Derivative Financial Instruments
Commodity Derivatives
Our open futures contracts at September 30, 2021March 31, 2022 were as follows:
| | | | | | | | | | | | | | |
Type of Contract/Accounting Methodology | | Product Represented by the Contract and Associated Barrels | | Maturity Dates |
| | | | |
| | | | |
FuturesCommodity derivatives contract - Economic Hedgeshedges | | 4.95.3 million barrels of refined products and crude oil | | Between October 2021April 2022 and November 2022February 2023 |
FuturesCommodity derivatives contract - Economic Hedgeshedges | | 1.20.7 million barrels of gas liquids | | Between October 2021April 2022 and April 2022February 2023 |
Commodity Derivatives Contracts and Deposits Offsets
At December 31, 20202021 and September 30, 2021,March 31, 2022, we had made margin deposits of $34.2$46.3 million and $47.6$130.8 million, respectively, for our futurescommodity derivatives contracts with our counterparties, which were recorded as current assets under commodity derivatives deposits on our consolidated balance sheets. We have the right to offset the combined fair values of our open futuresderivatives 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 futuresderivatives contracts separately from the related margin deposits on our consolidated balance sheets. Additionally, we have the right to offset the fair values of our futuresderivatives 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
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
derivative amounts we have offset and the deposit amounts we could offset under a master netting arrangementarrangements are provided below as of December 31, 20202021 and September 30, 2021March 31, 2022 (in thousands)millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Description | | Gross Amounts of Recognized Liabilities | | Gross Amounts of Assets Offset in the Consolidated Balance Sheets | | Net Amounts of Liabilities Presented in the Consolidated Balance Sheets | | Margin Deposit Amounts Not Offset in the Consolidated Balance Sheets | | Net Asset Amount(1) |
As of December 31, 2020 | | $ | (21,748) | | | $ | 1,201 | | | $ | (20,547) | | | $ | 34,165 | | | $ | 13,618 | |
As of September 30, 2021 | | $ | (44,605) | | | $ | 22,325 | | | $ | (22,280) | | | $ | 47,609 | | | $ | 25,329 | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Description | | Gross Amounts of Recognized Liabilities | | Gross Amounts of Assets Offset in the Consolidated Balance Sheets | | Net Amounts of Liabilities Presented in the Consolidated Balance Sheets | | Margin Deposit Amounts Not Offset in the Consolidated Balance Sheets | | Net Asset Amount(1) |
As of December 31, 2021 | | $ | (22.3) | | | $ | 5.1 | | | $ | (17.2) | | | $ | 46.3 | | | $ | 29.1 | |
As of March 31, 2022 | | $ | (59.2) | | | $ | 11.8 | | | $ | (47.4) | | | $ | 130.8 | | | $ | 83.4 | |
| | | | | | | | | | |
(1) Amount represents the maximum loss we would incur if all of our counterparties failed to perform on their derivative contracts.
Basis Derivative Agreement
During 2019, we entered into a basis derivative agreement with a joint venture co-owner’s affiliate, and, contemporaneously, that affiliate entered into an intrastate transportation services agreement with the joint venture. Settlements under the basis derivative agreement are determined based on the basis differential of crude oil prices at different market locations and a notional volume of 30,000 barrels per day. As a result, we account for this agreement as a derivative. The agreement will expire in early 2022. Wederivative and recognize the changes in fair value of this agreement based on forward price curves for crude oil in West Texas and the Houston Gulf Coast in other operating income (expense) in our consolidated statements of income. The liability for this agreement at December 31, 2020 and September 30, 2021 was $10.2 million and $3.1 million, respectively.$1.5 million.
Impact of Derivatives on Our Financial Statements
Comprehensive Income
The changes in derivative activity included in AOCL for the three and nine months ended September 30, 2020March 31, 2021 and 20212022 were as follows (in thousands)millions):
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
| | September 30, | | September 30, | | | March 31, | |
Derivative Losses Included in AOCL | Derivative Losses Included in AOCL | 2020 | | 2021 | | 2020 | | 2021 | Derivative Losses Included in AOCL | | 2021 | | 2022 | |
Beginning balance | Beginning balance | $ | (57,748) | | | $ | (53,224) | | | $ | (48,960) | | | $ | (54,999) | | Beginning balance | | $ | (55.0) | | | $ | (51.5) | | |
Net loss on cash flow hedges | — | | | — | | | (10,444) | | | — | | |
| Reclassification of net loss on cash flow hedges to income | Reclassification of net loss on cash flow hedges to income | 896 | | | 887 | | | 2,552 | | | 2,662 | | Reclassification of net loss on cash flow hedges to income | | 0.9 | | | 0.9 | | |
Ending balance | Ending balance | $ | (56,852) | | | $ | (52,337) | | | $ | (56,852) | | | $ | (52,337) | | Ending balance | | $ | (54.1) | | | $ | (50.6) | | |
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following is a summary of the effect on our consolidated statements of income for the three and nine months ended September 30, 2020March 31, 2021 and 20212022 of derivatives that were designated as cash flow hedges (in thousands)millions):
| | | | | | | | | | | | | | | | | | | | |
| | Interest Rate Contracts |
| | Amount of 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 September 30, 2020 | | $ | — | | | Interest expense | | $ | (896) | |
Three Months Ended September 30, 2021 | | $ | — | | | Interest expense | | $ | (887) | |
Nine Months Ended September 30, 2020 | | $ | (10,444) | | | Interest expense | | $ | (2,552) | |
Nine Months Ended September 30, 2021 | | $ | — | | | Interest expense | | $ | (2,662) | |
| | | | | | | | | | | | | | | | |
| | | | Interest Rate Contracts |
| | | | Location of Loss Reclassified from AOCL into Income | | Amount of Loss Reclassified from AOCL into Income |
Three Months Ended March 31, 2021 | | | | Interest expense | | $ | (0.9) | |
Three Months Ended March 31, 2022 | | | | Interest expense | | $ | (0.9) | |
| | | | | | |
| | | | | | |
As of September 30, 2021,March 31, 2022, the net loss estimated to be classified to interest expense over the next twelve months from AOCL is approximately $3.5 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 and nine months ended September 30, 2020 and 2021 of derivatives that were not designated as hedging instruments (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Amount of Gain (Loss) Recognized on Derivatives |
| | | | Three Months Ended | | Nine Months Ended |
| | Location of Gain (Loss) Recognized on Derivatives | | September 30, | | September 30, |
Derivative Instrument | | | 2020 | | 2021 | | 2020 | | 2021 |
Futures contracts | | Product sales revenue | | $ | (7,444) | | | $ | (29,626) | | | $ | 81,626 | | | $ | (122,760) | |
| | | | | | | | | | |
Futures contracts | | Cost of product sales | | 1,261 | | | 19,303 | | | (2,756) | | | 26,910 | |
Basis derivative agreement | | Other operating income (expense) | | (3,155) | | | (1,702) | | | (2,654) | | | (3,629) | |
| | Total | | $ | (9,338) | | | $ | (12,025) | | | $ | 76,216 | | | $ | (99,479) | |
The impact of the derivatives in the above table was reflected as cash from operations on our consolidated statements of cash flows.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides a summary of the effect on our consolidated statements of income for the three months ended March 31, 2021 and 2022 of derivatives that were not designated as hedging instruments (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Amount of Gain (Loss) Recognized on Derivatives |
| | | | Three Months Ended | | |
| | Location of Gain (Loss) Recognized on Derivatives | | March 31, | | |
Derivative Instrument | | | 2021 | | 2022 | | | | |
Commodity derivatives contracts | | Product sales revenue | | $ | (52.7) | | | $ | (116.4) | | | | | |
| | | | | | | | | | |
Commodity derivatives contracts | | Cost of product sales | | $ | 1.4 | | | $ | 8.6 | | | | | |
Basis derivative agreement | | Other operating income (expense) | | $ | (0.7) | | | $ | (2.1) | | | | | |
| | Total | | $ | (52.0) | | | $ | (109.9) | | | | | |
The impact of the derivatives in the above table was reflected as cash from operations on our consolidated statements of cash flows.
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 not designated as hedging instruments as of December 31, 20202021 and September 30, 2021March 31, 2022 (in thousands)millions):
| | | | December 31, 2020 | | | December 31, 2021 |
| | | Asset Derivatives | | Liability Derivatives | | | Asset Derivatives | | Liability Derivatives |
Derivative Instrument | Derivative Instrument | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | Derivative Instrument | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
Futures contracts | | Commodity derivatives contracts, net | | $ | 127 | | | Commodity derivatives contracts, net | | $ | 21,748 | | |
Future contracts | | Other noncurrent assets | | 1,074 | | | Other noncurrent liabilities | | — | | |
Basis derivative agreement | | Other current assets | | — | | | Other current liabilities | | 8,774 | | |
Commodity derivatives contracts | | Commodity derivatives contracts | | Commodity derivatives contracts, net | | $ | 5.1 | | | Commodity derivatives contracts, net | | $ | 22.3 | |
| Basis derivative agreement | Basis derivative agreement | | Other noncurrent assets | | — | | | Other noncurrent liabilities | | 1,468 | | Basis derivative agreement | | Other current assets | | — | | | Other current liabilities | | 1.5 | |
| | Total | | $ | 1,201 | | | Total | | $ | 31,990 | | |
| | | | | | Total | | $ | 5.1 | | | Total | | $ | 23.8 | |
| | | September 30, 2021 | | | | |
| | | Asset Derivatives | | Liability Derivatives | | | March 31, 2022 |
| | | | Asset Derivatives | | Liability Derivatives |
Derivative Instrument | Derivative Instrument | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | Derivative Instrument | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
Futures contracts | | Commodity derivatives contracts, net | | $ | 22,325 | | | Commodity derivatives contracts, net | | $ | 40,206 | | |
Futures contracts | | Other noncurrent assets | | — | | | Other noncurrent liabilities | | 4,399 | | |
Basis derivative agreement | | Other current assets | | — | | | Other current liabilities | | 3,120 | | |
Commodity derivatives contracts | | Commodity derivatives contracts | | Commodity derivatives contracts, net | | $ | 11.8 | | | Commodity derivatives contracts, net | | $ | 59.2 | |
| | | Total | | $ | 22,325 | | | Total | | $ | 47,725 | | |
|
12.Fair Value
Fair Value Methods and Assumptions - Financial Assets and Liabilities
We used the following methods and assumptions in estimating fair value of our financial assets and liabilities:
•Commodity derivatives contracts. These include exchange-traded futuresand over-the-counter derivative contracts related to petroleum products. These contracts are carried at fair value on our consolidated balance sheets andsheets. The exchange-traded contracts are valued based on quoted prices in active markets.markets, while the over-the-counter contracts are valued based on observable market data inputs including published commodity pricing data. See Note 11 – Derivative Financial Instruments for further disclosures regarding these contracts.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
•Basis derivative agreement. During 2019, we entered into a basis derivative agreement with a joint venture co-owner’s affiliate, and, contemporaneously, that affiliate entered into an intrastate transportation services agreement with the joint venture. Settlements under the basis derivative agreement are determined based on the basis differential of crude oil prices at different market locations and a notional volume of 30,000 barrels per day (see Note 11 - Derivative Financial Instruments for further disclosures regarding this agreement). The fair value of this derivative was calculated based on observable market data inputs, including published commodity pricing data and market interest rates. The key inputs in the fair value calculation include the forward price curves for crude oil, the implied forward correlation in crude oil prices between West Texas and the Houston Gulf Coast, and the implied forward volatility for crude oil futures contracts.
•Long-term receivables. These include payments receivable under a sales-type leasing arrangement and cost reimbursement agreements.payments due to us for environmental liability insurance. These receivables were recorded at fair value on our
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
consolidated balance sheets, using then-current market rates to estimate the present value of future cash flows.
•Contractual obligations. At September 30, 2021,March 31, 2022, these primarily includeincluded a long-term contractual obligation we entered into in connection with the 2020 sale of 3 marine terminals to a subsidiary of Buckeye. This obligation requires us to perform certain environmental remediation work on Buckeye’s behalf at the New Haven, Connecticut terminal. This contractual obligation was recorded at fair value on our consolidated balance sheets upon initial recognition and was calculated using our best estimate of potential outcome scenarios to determine our liability for the remediation costs required in this agreement.
•Debt. The fair value of our publicly traded notes was based on the prices of those notes at December 31, 20202021 and September 30, 2021;March 31, 2022; however, where recent observable market trades were not available, prices were determined using adjustments to the last traded value for that debt issuance or by adjustments to the prices of similar debt instruments of peer entities that are actively traded. The carrying amount of borrowings, if any, under our revolving credit facility and our commercial paper program approximates fair value due to the frequent repricing of these obligations.
Fair Value Measurements - Financial Assets and Liabilities
The following tables summarize the carrying amounts, fair values and fair value measurements recorded or disclosed as of December 31, 20202021 and September 30, 2021March 31, 2022 based on the three levels established by ASC 820, Fair Value Measurements and Disclosures (in thousands)millions):
| Assets (Liabilities) | Assets (Liabilities) | | | | Fair Value Measurements as of December 31, 2020 using: | Assets (Liabilities) | | | | Fair Value Measurements as of December 31, 2021 using: |
| Carrying Amount | | Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Carrying Amount | | Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Commodity derivatives contracts | Commodity derivatives contracts | | $ | (20,547) | | | $ | (20,547) | | | $ | (20,547) | | | $ | — | | | $ | — | | Commodity derivatives contracts | | $ | (17.2) | | | $ | (17.2) | | | $ | (18.6) | | | $ | 1.4 | | | $ | — | |
| Basis derivative agreement | Basis derivative agreement | | $ | (10,242) | | | $ | (10,242) | | | $ | — | | | $ | (10,242) | | | Basis derivative agreement | | $ | (1.5) | | | $ | (1.5) | | | $ | — | | | $ | (1.5) | | | 0 |
Long-term receivables | Long-term receivables | | $ | 22,755 | | | $ | 22,755 | | | $ | — | | | $ | — | | | $ | 22,755 | | Long-term receivables | | $ | 10.1 | | | $ | 10.1 | | | $ | — | | | $ | — | | | $ | 10.1 | |
Contractual obligations | Contractual obligations | | $ | (11,207) | | | $ | (11,207) | | | $ | — | | | $ | — | | | $ | (11,207) | | Contractual obligations | | $ | (9.8) | | | $ | (9.8) | | | $ | — | | | $ | — | | | $ | (9.8) | |
Debt | Debt | | $ | (4,978,691) | | | $ | (5,880,850) | | | $ | — | | | $ | (5,880,850) | | | $ | — | | Debt | | $ | (5,088.8) | | | $ | (5,711.5) | | | $ | — | | | $ | (5,711.5) | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets (Liabilities) | | | | | | Fair Value Measurements as of September 30, 2021 using: |
| Carrying Amount | | Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | | | | | | | | | |
Commodity derivatives contracts | | $ | (22,280) | | | $ | (22,280) | | | $ | (22,280) | | | $ | — | | | $ | — | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Basis derivative agreement | | $ | (3,120) | | | $ | (3,120) | | | $ | — | | | $ | (3,120) | | | $ | — | |
Long-term receivables | | $ | 22,768 | | | $ | 22,768 | | | $ | — | | | $ | — | | | $ | 22,768 | |
Contractual obligations | | $ | (9,806) | | | $ | (9,806) | | | $ | — | | | $ | — | | | $ | (9,806) | |
Debt | | $ | (5,103,226) | | | $ | (5,786,692) | | | $ | — | | | $ | (5,786,692) | | | $ | — | |
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets (Liabilities) | | | | | | Fair Value Measurements as of March 31, 2022 using: |
| Carrying Amount | | Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | | | | | | | | | |
Commodity derivatives contracts | | $ | (47.4) | | | $ | (47.4) | | | $ | (50.5) | | | $ | 3.1 | | | $ | — | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Long-term receivables | | $ | 9.8 | | | $ | 9.8 | | | $ | — | | | $ | — | | | $ | 9.8 | |
Contractual obligations | | $ | (9.6) | | | $ | (9.6) | | | $ | — | | | $ | — | | | $ | (9.6) | |
Debt | | $ | (5,317.2) | | | $ | (5,409.5) | | | $ | — | | | $ | (5,409.5) | | | $ | — | |
13.Commitments and Contingencies
Corpus Christi Terminal Proceeding. On April 11, 2022, the State of Texas, through its Attorney General on behalf of the Texas Commission on Environmental Quality (“TCEQ”), brought an action for alleged violations of the Texas Clean Air Act in connection with a December 2020 fire at our Corpus Christi, Texas terminal. The TCEQ is seeking statutory civil penalties and statutory attorney’s fees over $0.3 million but not more than $1.0 million. While the outcome cannot be predicted with certainty, we believe the ultimate resolution of this matter will not have a material adverse effect on our business.
Hurricane Harvey Enforcement Proceeding. In July 2018, we received a Notice of Enforcement letter from the TCEQ alleging two air emission violations at our Galena Park, Texas terminal that occurred during Hurricane Harvey in third quarter 2017. The penalties associated with these alleged violations are expected to be approximately $0.4 million. While the outcome cannot be predicted with certainty, we believe the ultimate resolution of this matter will not have a material adverse effect on our business.
Butane Blending Patent Infringement Proceeding
Proceeding.
OnIn October 4, 2017, Sunoco Partners Marketing & Terminals L.P. (“Sunoco”) brought an action for patent infringement in the U.S. District Court for the District of Delaware alleging Magellan Midstream Partners, L.P. (“Magellan”) and Powder Springs Logistics, LLC (“Powder Springs”) have infringedwere infringing patents relatedrelating to butane blending at the Powder Springs facility located in Powder Springs, Georgia. Sunoco subsequently submitted pleadings alleging that Magellan iswas also infringing various patents related to butane blending at 98 Magellan facilities, in addition to Powder Springs. Sunoco is seekingsought monetary damages, attorneys’ fees and a permanent injunction enjoining Magellan and Powder Springs from infringing the subject patents. We denyA jury trial concluded on December 6, 2021, at which the jury found Magellan willfully infringed the 3 patents in suit and are vigorously defendingawarded damages of approximately $9.4 million against all claims assertedMagellan relating to the 8 Magellan facilities at issue. The jury further found that Powder Springs willfully infringed the 1 patent at issue relating to the Powder Springs facility and awarded approximately $2.8 million against Magellan and Powder Springs relating to that facility. Sunoco requested that the court enhance the damages award based upon the jury’s finding of willfulness, and that the court award additional damages and pre- and post-judgment interest. Magellan and Powder Springs have filed post-trial pleadings opposing Sunoco’s request for enhanced damages and challenging the findings of liability and willfulness. The final determination of the trial court is subject to potential future appeals by Sunoco.either or both parties to the litigation. The amounts we have accrued in relation to the claims are immaterial, and although it is not possible to predict the ultimate outcome, we believe the ultimatefinal resolution of this matter will not have a material adverse impacteffect on our results of operations, financial position or cash flows.business.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Environmental Liabilities
Liabilities recognized for estimated environmental costs were $14.3$9.8 million and $11.8$9.7 million at December 31, 20202021 and September 30, 2021,March 31, 2022, respectively. We have classified environmental liabilities as other current or noncurrent based on management’s estimates regarding the timing of actual payments. Environmental expenses recognized as a result of changes in our environmental liabilities are included in operating expenseexpenses on our consolidated statements of income. Environmental expenses were $0.1$1.1 million and $0.4$0.9 million for the three months ended September 30, 2020March 31, 2021 and 2021, respectively, and $1.3 million and $2.4 million for the nine months ended September 30, 2020 and 2021,2022, respectively.
Other
In first quarter 2020, we entered into a long-term contractual obligation in connection with the sale of 3 marine terminals to Buckeye. This obligation requires us to perform certain environmental remediation work on Buckeye’s behalf at the New Haven, Connecticut terminal. At December 31, 20202021, our balance sheet includesincluded a current liability of $0.6$0.5 million and a noncurrent liability of $10.2$8.9 million, and as of September 30, 2021March 31, 2022, our balance sheet includesincluded a current liability of $0.5$0.3 million and a noncurrent liability of $8.9 million, reflecting the fair values of these obligations.
We have entered into an agreement to guarantee our 50% pro rata share, up to $25.0 million, of contractual obligations under the Powder Springs’ credit facility. As of September 30, 2021,March 31, 2022, our consolidated balance sheets reflected a $0.4 million other current liability and a corresponding increase in investmentsour investment in non-controlled entities on our consolidated balance sheets to reflect the fair value of this guarantee.
We and the non-controlled entities in which we own an interest are a party to various other claims, legal actions and complaints. While the results cannot be predicted with certainty, management believes the ultimate resolution of these claims, legal actions and complaints after consideration of amounts accrued, insurance coverage or other indemnification arrangements will not have a material adverse effect on our results of operations, financial position or cash flows.business.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14.Related Party Transactions
Stacy Methvin is an independent member of our general partner’s board of directors and also serves as a director of one of our customers. We received tariff, terminalling and other ancillary revenue from this customer of $8.6$11.1 million and $23.2$15.1 million for the three months ended September 30, 2020March 31, 2021 and 2021, respectively, and $24.3 million and $51.6 million for the nine months ended September 30, 2020 and 2021,2022, respectively. We occasionally have transmix settlements with this customer as well. We recorded receivables of $3.9$5.4 million and $2.3$5.1 million from this customer at December 31, 20202021 and September 30, 2021,March 31, 2022, respectively.
See Note 5 – Investments in Non-Controlled Entities and Note 8 – Leases for details of transactions with our joint ventures.
15.Partners’ Capital and Distributions
Partners’ Capital
In 2020, we announced that our general partner’s board of directors had authorized the repurchase of up to $750 million of our common units through 2022. During the third quarter of 2021, we completed the repurchases authorized under this program (see Note 16 - Subsequent Events regarding a subsequent expansion of this program).
The following table details the changes in the number of our common units outstanding from December 31, 2020 through September 30, 2021:
| | | | | | | | |
Common units outstanding on December 31, 2020 | | 223,119,811 | |
Units repurchased during 2021 | | (9,837,580) | |
January 2021–Settlement of employee LTIP awards | | 150,435 | |
During 2021–Other(1)
| | 12,572 | |
Common units outstanding on September 30, 2021 | | 213,445,238 | |
| | |
(1) Common units issued to settle the equity-based retainers paid to independent directors of our
general partner.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15.Partners’ Capital and Distributions
Distributions we paid during 2020Partners’ Capital
Our board authorized the repurchase of up to $1.5 billion of our common units through 2024. The timing, price and 2021 were as follows (in thousands, except per unit amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Payment Date | | Per Unit Distribution Amount | | Total Distribution |
02/14/2020 | | | $ | 1.0275 | | | | | $ | 234,774 | | |
05/15/2020 | | | 1.0275 | | | | | 231,245 | | |
08/14/2020 | | | 1.0275 | | | | | 231,245 | | |
Through 09/30/2020 | | | 3.0825 | | | | | 697,264 | | |
11/13/2020 | | | 1.0275 | | | | | 229,853 | | |
Total | | | $ | 4.1100 | | | | | $ | 927,117 | | |
| | | | | | | | |
02/12/2021 | | | $ | 1.0275 | | | | | 229,423 | | |
05/14/2021 | | | 1.0275 | | | | 228,962 | | |
08/13/2021 | | | 1.0275 | | | | 226,633 | | |
Through 09/30/2021 | | | 3.0825 | | | | 685,018 | | |
11/12/2021(1) | | | 1.0375 | | | | 221,449 | | |
Total | | | $ | 4.1200 | | | | | $ | 906,467 | | |
| | | | | | | | |
(1) Our general partner’s board of directors declared this distribution in October 2021 to be paid on November 12, 2021 to unitholders of record at the close of business on November 5, 2021. The estimated total distribution is based upon theactual number of common units currently outstanding.
16.Subsequent Events
Recognizable events
No recognizable events occurred subsequent to September 30, 2021.
Non-recognizable events
Distribution. In October 2021, our general partner’s board of directors declared a quarterly distribution of $1.0375 per unit for the period of July 1, 2021 through September 30, 2021. This quarterly distribution will be paid on November 12, 2021 to unitholders of record on November 5, 2021.
Unit Repurchase Program. Following the completion of the $750 million repurchase program announced in 2020, our general partner’s board of directors in October 2021 authorized the expansion of our unit repurchase program by $750 million for a total of $1.5 billion and extended the program through 2024. The expanded program allows unit repurchases in compliance with Securities Exchange Act Rules 10b-18, 10b5-1 or both. Our unit repurchase program does not obligate us to acquire a specific number of units during any period, and our decision to commence, discontinue or resume repurchases in any periodrepurchased will depend on a number of factors including our expected expansion capital spending needs, excess cash available, balance sheet metrics, legal and regulatory requirements, market conditions and the trading price of our common units. The repurchase program does not obligate us to acquire any particular amount of common units and may be suspended or discontinued at any time.
The following table details the changes in the number of our common units outstanding from December 31, 2021 through March 31, 2022:
| | | | | | | | |
Common units outstanding on December 31, 2021 | | 212,387,990 |
Units repurchased during 2022 | | (1,042,035) |
January 2022—Settlement of employee LTIP awards | | 200,949 |
During 2022—Other(1) | | 14,460 |
Common units outstanding on March 31, 2022 | | 211,561,364 |
| | |
(1) Common units issued to settle the equity-based retainers paid to certain independent directors of our board.
Distributions
Distributions we paid during 2021 and 2022 were as follows (in millions, except per unit amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Payment Date | | Per Unit Distribution Amount | | Total Distribution |
2/12/2021 | | | $ | 1.0275 | | | | | $ | 229.4 | | |
5/14/2021 | | | 1.0275 | | | | | 229.0 | | |
8/13/2021 | | | 1.0275 | | | | | 226.6 | | |
11/12/2021 | | | 1.0375 | | | | | 221.4 | | |
Total | | | $ | 4.1200 | | | | | $ | 906.4 | | |
| | | | | | | | |
2/14/2022 | | | $ | 1.0375 | | | | | $ | 220.6 | | |
5/13/2022(a) | | | 1.0375 | | | | | 219.5 | | |
| | | | | | | | |
| | | | | | | | |
Total | | | $ | 2.0750 | | | | | $ | 440.1 | | |
| | | | | | | | |
(a) Our board declared this distribution in April 2022 to be paid on May 13, 2022 to unitholders of record at the close of business on May 2, 2022.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16.Subsequent Events
Recognizable events
No recognizable events occurred subsequent to March 31, 2022.
Non-recognizable events
On April 21, 2022, Robert G. Croyle notified the board of his decision to retire effective April 30, 2022 after 13 years of service. Following Mr. Croyle’s retirement, Sivasankaran Somasundaram was elected as an independent board member beginning May 1, 2022.
Distribution. In April 2022, our board declared a quarterly distribution of $1.0375 per unit for the period of January 1, 2022 through March 31, 2022. This quarterly distribution will be paid on May 13, 2022 to unitholders of record on May 2, 2022.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
We are a publicly traded limited partnership principally engaged in the transportation, storage and distribution of refined petroleum products and crude oil. As of September 30, 2021,March 31, 2022, 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 3739 million barrels of aggregate storage capacity, of which approximately 2729 million barrels are used for contract storage. Approximately 1,000 miles of these pipelines, the condensate splitter and 3031 million barrels of this storage capacity (including 2425 million barrels used for contract storage) are wholly-owned, with the remainder owned through joint ventures.
The following discussion provides an analysis of the results for each of our operating segments, an overview of our liquidity and capital resources and other items related to our partnership. The following discussion and analysis should be read in conjunction with (i) our accompanying interim consolidated financial statements and related notes and (ii) our consolidated financial statements, related notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Recent Developments
Discontinued Operations.Tariff Rate Reduction. In JuneJanuary 2022, the FERC issued an order on rehearing lowering the previously approved 5-year index methodology, which began July 1, 2021, we entered into an agreementfrom the producer price index for finished goods (“PPI-FG”) plus 0.78% 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 in ItemPPI-FG minus 0.21% effective March 1, of Part I2022. As a result of this report for further details.
Sale of Partial Interest in MVP Terminalling, LLC. In April 2021,order, on March 1, 2022, we sold nearly halfreduced the tariff rates on the portion of our membership interest in MVP and received proceedsrefined products shipments that are regulated by this index methodology representing approximately 30% of $272.1 million. Following the sale, we own approximately 25% of MVP and remain the operator of the facility.our total refined products shipments.
Distribution. In October 2021,April 2022, our general partner’s board of directors declared a quarterly distribution of $1.0375 per unit for the period of JulyJanuary 1, 20212022 through September 30, 2021.March 31, 2022. This quarterly distribution will be paid on November 12, 2021May 13, 2022 to unitholders of record on November 5, 2021.May 2, 2022.
Results of Operations
We believe that investors benefit from having access to the same financial measures utilized by management. Operating margin, which is presented in the following tables,table, is an important measure used by management to evaluate the economic performance of our core operations. Operating margin is not a U.S. generally accepted accounting principles (“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 theits nearest comparable GAAP financial measure, is included in the following tables.table. Operating profit includes expense items, such as depreciation, amortization and impairment expense and general and administrative (“G&A”) expense, which management does not focus on when evaluating the core profitability of our separate operating segments. Additionally, product margin, which management primarily uses to evaluate the profitability of our commodity-related activities, is provided in these tables.this table. Product margin is a non-GAAP measure but the components of product sales revenue and cost of product sales are determined in accordance with GAAP. Our gas liquids blending, fractionation and other commodity-related activities generate significant revenue. However, we believe the product margin from these activities, which takes into account the related cost of product sales, better represents theits importance to our results of operations.
Three Months Ended September 30, 2020March 31, 2021 compared to Three Months Ended September 30, 2021March 31, 2022
| | | Three Months Ended September 30, | | Variance Favorable (Unfavorable) | | Three Months Ended March 31, | | Variance Favorable (Unfavorable) |
| | 2020 | | 2021 | | $ Change | | % Change | | 2021 | | 2022 | | $ Change | | % Change |
Financial Highlights ($ in millions, except operating statistics) | Financial Highlights ($ in millions, except operating statistics) | | | | | | | | Financial Highlights ($ in millions, except operating statistics) | | | | | | | |
Transportation and terminals revenue: | Transportation and terminals revenue: | | Transportation and terminals revenue: | |
Refined products | Refined products | $ | 307.2 | | | $ | 349.4 | | | $ | 42.2 | | | 14 | Refined products | $ | 297.6 | | | $ | 309.5 | | | $ | 11.9 | | | 4 |
Crude oil | Crude oil | 154.6 | | | 116.9 | | | (37.7) | | | (24) | Crude oil | 116.2 | | | 114.7 | | | (1.5) | | | (1) |
Intersegment eliminations | Intersegment eliminations | (1.9) | | | (1.4) | | | 0.5 | | | 26 | Intersegment eliminations | (1.8) | | | (1.3) | | | 0.5 | | | 28 |
Total transportation and terminals revenue | Total transportation and terminals revenue | 459.9 | | | 464.9 | | | 5.0 | | | 1 | Total transportation and terminals revenue | 412.0 | | | 422.9 | | | 10.9 | | | 3 |
Affiliate management fee revenue | Affiliate management fee revenue | 5.3 | | | 5.3 | | | — | | | — | Affiliate management fee revenue | 5.4 | | | 5.7 | | | 0.3 | | | 6 |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Refined products | Refined products | 114.2 | | | 114.6 | | | (0.4) | | | — | Refined products | 91.5 | | | 88.2 | | | 3.3 | | | 4 |
Crude oil | Crude oil | 47.0 | | | 35.1 | | | 11.9 | | | 25 | Crude oil | 39.2 | | | 38.8 | | | 0.4 | | | 1 |
Intersegment eliminations | Intersegment eliminations | (3.5) | | | (3.1) | | | (0.4) | | | (11) | Intersegment eliminations | (3.4) | | | (2.8) | | | (0.6) | | | (18) |
Total operating expenses | Total operating expenses | 157.7 | | | 146.6 | | | 11.1 | | | 7 | Total operating expenses | 127.3 | | | 124.2 | | | 3.1 | | | 2 |
Product margin: | Product margin: | | Product margin: | |
Product sales revenue | Product sales revenue | 111.2 | | | 168.8 | | | 57.6 | | | 52 | Product sales revenue | 213.7 | | | 246.1 | | | 32.4 | | | 15 |
Cost of product sales | Cost of product sales | 89.4 | | | 145.8 | | | (56.4) | | | (63) | Cost of product sales | 170.9 | | | 243.4 | | | (72.5) | | | (42) |
Product margin | Product margin | 21.8 | | | 23.0 | | | 1.2 | | | 6 | Product margin | 42.8 | | | 2.7 | | | (40.1) | | | (94) |
Other operating income (expense) | Other operating income (expense) | (2.9) | | | 2.6 | | | 5.5 | | | n/a | Other operating income (expense) | (0.4) | | | (2.0) | | | (1.6) | | | (400) |
Earnings of non-controlled entities | Earnings of non-controlled entities | 39.2 | | | 36.5 | | | (2.7) | | | (7) | Earnings of non-controlled entities | 39.1 | | | 35.4 | | | (3.7) | | | (9) |
Operating margin | Operating margin | 365.6 | | | 385.7 | | | 20.1 | | | 5 | Operating margin | 371.6 | | | 340.5 | | | (31.1) | | | (8) |
Depreciation, amortization and impairment expense | Depreciation, amortization and impairment expense | 68.4 | | | 61.4 | | | 7.0 | | | 10 | Depreciation, amortization and impairment expense | 54.6 | | | 57.7 | | | (3.1) | | | (6) |
G&A expense | G&A expense | 37.5 | | | 46.7 | | | (9.2) | | | (25) | G&A expense | 46.0 | | | 62.8 | | | (16.8) | | | (37) |
Operating profit | Operating profit | 259.7 | | | 277.6 | | | 17.9 | | | 7 | Operating profit | 271.0 | | | 220.0 | | | (51.0) | | | (19) |
Interest expense (net of interest income and interest capitalized) | Interest expense (net of interest income and interest capitalized) | 52.7 | | | 56.6 | | | (3.9) | | | (7) | Interest expense (net of interest income and interest capitalized) | 56.4 | | | 56.8 | | | (0.4) | | | (1) |
Gain on disposition of assets | Gain on disposition of assets | — | | | (3.2) | | | 3.2 | | | — | Gain on disposition of assets | — | | | (0.2) | | | 0.2 | | | — |
Other (income) expense | Other (income) expense | 1.4 | | | 2.1 | | | (0.7) | | | (50) | Other (income) expense | 1.1 | | | 0.6 | | | 0.5 | | | 45 |
Income from continuing operations before provision for income taxes | Income from continuing operations before provision for income taxes | 205.6 | | | 222.1 | | | 16.5 | | | 8 | Income from continuing operations before provision for income taxes | 213.5 | | | 162.8 | | | (50.7) | | | (24) |
Provision for income taxes | Provision for income taxes | 0.9 | | | 0.8 | | | 0.1 | | | 11 | Provision for income taxes | 0.8 | | | 0.8 | | | — | | | — |
Income from continuing operations | Income from continuing operations | 204.7 | | | 221.3 | | | 16.6 | | | 8 | Income from continuing operations | 212.7 | | | 162.0 | | | (50.7) | | | (24) |
Income from discontinued operations | Income from discontinued operations | 6.9 | | | 15.3 | | | 8.4 | | | 122 | Income from discontinued operations | 8.6 | | | 3.5 | | | (5.1) | | | (59) |
Net income | Net income | $ | 211.6 | | | $ | 236.6 | | | $ | 25.0 | | | 12 | Net income | $ | 221.3 | | | $ | 165.5 | | | $ | (55.8) | | | (25) |
| Operating Statistics: | | |
Operating Statistics | | Operating Statistics | |
Refined products: | Refined products: | | Refined products: | |
Transportation revenue per barrel shipped | Transportation revenue per barrel shipped | $ | 1.719 | | | $ | 1.724 | | | Transportation revenue per barrel shipped | $ | 1.672 | | | $ | 1.635 | | |
Volume shipped (million barrels): | Volume shipped (million barrels): | | | Volume shipped (million barrels): | | |
Gasoline | Gasoline | 71.9 | | | 80.3 | | | Gasoline | 65.0 | | | 75.6 | | |
Distillates | Distillates | 42.5 | | | 53.0 | | | Distillates | 46.5 | | | 47.6 | | |
Aviation fuel | Aviation fuel | 4.7 | | | 8.4 | | | Aviation fuel | 6.1 | | | 7.4 | | |
Liquefied petroleum gases | 0.1 | | | 0.1 | | | |
LPGs | | LPGs | 0.5 | | | 0.6 | | |
Total volume shipped | Total volume shipped | 119.2 | | | 141.8 | | | Total volume shipped | 118.1 | | | 131.2 | | |
Crude oil: | Crude oil: | | | | | Crude oil: | | | | |
Magellan 100%-owned assets: | Magellan 100%-owned assets: | | | Magellan 100%-owned assets: | | |
Transportation revenue per barrel shipped(1) | Transportation revenue per barrel shipped(1) | $ | 1.401 | | | $ | 0.803 | | | Transportation revenue per barrel shipped(1) | $ | 0.789 | | | $ | 0.843 | | |
Volume shipped (million barrels)(1) | Volume shipped (million barrels)(1) | 45.1 | | | 49.2 | | | Volume shipped (million barrels)(1) | 46.5 | | | 41.9 | | |
Terminal average utilization (million barrels per month) | Terminal average utilization (million barrels per month) | 25.9 | | | 24.9 | | | Terminal average utilization (million barrels per month) | 25.5 | | | 25.2 | | |
Select joint venture pipelines: | Select joint venture pipelines: | | | Select joint venture pipelines: | | |
BridgeTex - volume shipped (million barrels)(2) | BridgeTex - volume shipped (million barrels)(2) | 30.6 | | | 29.1 | | | BridgeTex - volume shipped (million barrels)(2) | 26.9 | | | 25.5 | | |
Saddlehorn - volume shipped (million barrels)(3) | Saddlehorn - volume shipped (million barrels)(3) | 15.1 | | | 19.9 | | | Saddlehorn - volume shipped (million barrels)(3) | 16.1 | | | 20.0 | | |
(1) Volume shipped includesIncludes shipments related to our crude oil marketing activities.
(2) These volumes reflect the total shipments for the BridgeTex pipeline, which is owned 30% by us.
(3) These volumes reflect the total shipments for the Saddlehorn pipeline, which is owned 30% by us.
Transportation and terminals revenue increased $5.0$10.9 million primarily resulting from:
•an increase in refined products revenue of $42.2$11.9 million primarily due to increased transportation revenuevolumes as a result of higher volumes versus the continued demand recovery from pandemic levels of 2020 due to the recovery in travel, economic and drilling activity as well as additional contributions from our Texas pipeline expansion projects. Transportation revenues forAverage transportation rates were slightly lower as a higher proportion of short-haul shipments, which move at a lower tariff, more than offset the current period also benefited from our mid-year 2021 overall tariff increase. These favorable items were partially offset by lowerWe also earned less storage revenuesrevenue due to lower utilization and rates following recent contract expirations; and
•a decrease in crude oil revenue of $37.7$1.5 million primarily due to less storage revenue due to lower utilization and rates following recent contract expirations. Otherwise, higher average tariff rates on our Longhorn pipeline and reduced storage revenues. Average tariff rates decreased primarilyhigher terminal throughput fees as a result of more customers utilizing a simplified pricing structure for services in the late 2020 expiration of several higher-priced contractsHouston area offset fewer tariff movements on our Longhorn pipeline, with much of this volume replaced by activities of our marketing affiliate. In addition, deficiency revenue recognized in the year-ago period did not recur in third quarter 2021. Storage revenues decreased primarily due to the 2020 period benefiting from increased short-term storage utilization at higher rates, with recent contract renewals at lower rates in the current period.Houston distribution system.
Operating expenses decreased by $11.1$3.1 million primarily resulting from:
•an increasea decrease in refined products expenses of $0.4$3.3 million. An increaseMore favorable product overages (which reduce operating expenses), related in part to higher commodity prices in the current period, more than offset higher property taxes as a result of recent expansion projects, higher integrity spending related to the timing of maintenance work and higher power costs, primarily due to higher volume shipped and higher property taxes were mainly offsetthe benefit of gains on our power hedges in the prior year driven by favorable product overages (which reduce operating expenses);the 2021 winter storms; and
•a decrease in crude oil expenses of $11.9 million primarily due to a decrease in$0.4 million. Lower integrity spending related to the timing of maintenance work and lower fees paid to Seabrook for ancillary services and favorable product overages.pipeline rental costs resulting from new agreements were mostly offset by higher power costs, as the prior year benefited from gains on power hedges during the 2021 winter storms.
Product margin increased $1.2decreased $40.1 million primarily due to recognition of losses on futures contracts in third quarter 2020the current year versus gains in the prior year, slightly offset by lowerhigher margins and lower sales volumes on our gas liquids blending and fractionation activities in the current period.
Other operating income (expense)expense was $5.5$1.6 million favorableunfavorable in part due to reduced estimates for retained liabilities related to our 2020 marine terminals sale and lowerhigher losses recognized on a basis derivative agreement during the current period.
Earnings of non-controlled entities decreased $2.7$3.7 million primarily due to the sale of a portion of our interest in MVP during second quarter 2021. We also earned less from Seabrook due to lower throughput fees and additional depreciation for recently-constructed assets and BridgeTex due to less favorable product overages. These decreases were partially offset by additional earnings from Powder Springs due to gains on futures contracts in the current quarter.
Depreciation, amortization and impairment expense decreased $7.0increased $3.1 million primarily due to the impairment in third quarter 2020 of certain terminalling assets.asset additions.
G&A expense increased $9.2$16.8 million primarily due to higher incentive compensation costs as a result of expenses related to the retirement agreement for our former chief executive officer as well as overall improved financial results in 2021.results.
Interest expense, net of interest income and interest capitalized, increased $3.9$0.4 million primarily due to lower capitalized interest as a result of reduced ongoing expansion capital spending and higher debt outstanding. Our weighted-averageweighted average debt outstanding was $5.3 billion in first quarter 2022 compared to $5.1 billion in thirdfirst quarter 2021 compared to $4.9 billion in third quarter 2020.2021. The weighted average interest rate was 4.2% in first quarter 2022 compared to 4.4% in thirdfirst quarter 2021 compared to 4.3% in third quarter 2020.
Gain on disposition of assets of $3.2 million in the current period resulted from true-ups for previous asset sales, including the final working capital adjustments related to the sale of a portion of our interest in MVP.2021.
Income from discontinued operations increaseddecreased by $8.4$5.1 million primarily due to improved product margin for our independent terminals as a result of higherunrealized losses on futures contracts associated with gas liquids blending volume soldhedges at increased pricing and less depreciation now that the assets are classified as held for sale.independent terminals.
Nine Months Ended September 30, 2020 compared to Nine Months Ended September 30, 2021
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Variance Favorable (Unfavorable) |
| 2020 | | 2021 | | $ Change | | % Change |
Financial Highlights ($ in millions, except operating statistics) | | | | | | | |
Transportation and terminals revenue: | | | | | | | |
Refined products | $ | 876.4 | | | $ | 984.9 | | | $ | 108.5 | | | 12 |
Crude oil | 433.9 | | | 351.8 | | | (82.1) | | | (19) |
Intersegment eliminations | (5.1) | | | (4.4) | | | 0.7 | | | 14 |
Total transportation and terminals revenue | 1,305.2 | | | 1,332.3 | | | 27.1 | | | 2 |
Affiliate management fee revenue | 15.9 | | | 15.9 | | | — | | | — |
Operating expenses: | | | | | | | |
Refined products | 316.3 | | | 314.2 | | | 2.1 | | | 1 |
Crude oil | 139.7 | | | 118.1 | | | 21.6 | | | 15 |
Intersegment eliminations | (9.9) | | | (9.4) | | | (0.5) | | | (5) |
Total operating expenses | 446.1 | | | 422.9 | | | 23.2 | | | 5 |
Product margin: | | | | | | | |
Product sales revenue | 443.1 | | | 575.6 | | | 132.5 | | | 30 |
Cost of product sales | 364.9 | | | 488.6 | | | (123.7) | | | (34) |
Product margin | 78.2 | | | 87.0 | | | 8.8 | | | 11 |
Other operating income (expense) | 0.5 | | | 4.0 | | | 3.5 | | | 700 |
Earnings of non-controlled entities | 116.5 | | | 116.1 | | | (0.4) | | | — |
Operating margin | 1,070.2 | | | 1,132.4 | | | 62.2 | | | 6 |
Depreciation, amortization and impairment expense | 183.2 | | | 168.3 | | | 14.9 | | | 8 |
G&A expense | 115.5 | | | 148.7 | | | (33.2) | | | (29) |
Operating profit | 771.5 | | | 815.4 | | | 43.9 | | | 6 |
Interest expense (net of interest income and interest capitalized) | 168.0 | | | 169.3 | | | (1.3) | | | (1) |
Gain on disposition of assets | (12.9) | | | (72.9) | | | 60.0 | | | 465 |
Other (income) expense | 3.7 | | | 18.1 | | | (14.4) | | | (389) |
Income from continuing operations before provision for income taxes | 612.7 | | | 700.9 | | | 88.2 | | | 14 |
Provision for income taxes | 2.2 | | | 2.0 | | | 0.2 | | | 9 |
Income from continuing operations | 610.5 | | | 698.9 | | | 88.4 | | | 14 |
Income from discontinued operations | 22.5 | | | 39.4 | | | 16.9 | | | 75 |
Net income | $ | 633.0 | | | $ | 738.3 | | | $ | 105.3 | | | 17 |
| | | | | | | |
Operating Statistics: | | | | | | | |
Refined products: | | | | | | | |
Transportation revenue per barrel shipped | $ | 1.658 | | | $ | 1.697 | | | | | |
Volume shipped (million barrels): | | | | | | | |
Gasoline | 199.4 | | | 224.1 | | | | | |
Distillates | 127.6 | | | 152.4 | | | | | |
Aviation fuel | 16.8 | | | 21.7 | | | | | |
Liquefied petroleum gases | 0.5 | | | 0.6 | | | | | |
Total volume shipped | 344.3 | | | 398.8 | | | | | |
Crude oil: | | | | | | | |
Magellan 100%-owned assets: | | | | | | | |
Transportation revenue per barrel shipped | $ | 1.145 | | | $ | 0.803 | | | | | |
Volume shipped (million barrels)(1) | 167.9 | | | 145.3 | | | | | |
Terminal average utilization (million barrels per month) | 24.7 | | | 25.1 | | | | | |
Select joint venture pipelines: | | | | | | | |
BridgeTex - volume shipped (million barrels)(2) | 99.9 | | | 84.6 | | | | | |
Saddlehorn - volume shipped (million barrels)(3) | 46.5 | | | 56.0 | | | | | |
(1) Volume shipped includes shipments related to our crude oil marketing activities.
(2) These volumes reflect the total shipments for the BridgeTex pipeline, which is owned 30% by us.
(3) These volumes reflect the total shipments for the Saddlehorn pipeline, which was owned 40% by us through January 31, 2020 and 30% thereafter.
Transportation and terminals revenue increased $27.1 million resulting from:
•an increase in refined products revenue of $108.5 million primarily due to increased transportation revenue as a result of higher volumes versus the pandemic levels of 2020 due to the recovery in travel, economic and drilling activity as well as additional contributions from our Texas pipeline expansion projects. Revenues also benefited from an increase in the average tariff rate in the current period as a result of the 2020 and 2021 mid-year adjustments. These favorable items were partially offset by the absence of revenues in the current period associated with the three marine terminals we sold in March 2020 and lower storage revenues due to lower utilization and lower rates following recent contract expirations; and
•a decrease in crude oil revenue of $82.1 million primarily due to lower average tariff rates, less volume shipped and reduced storage revenues. Average tariff rates decreased primarily as a result of the late 2020 expiration of several higher-priced contracts on our Longhorn pipeline. In addition, deficiency revenue recognized in the year-ago period did not recur in 2021. Transportation volumes also declined partially due to those Longhorn contract expirations, with much of this volume replaced by activities of our marketing affiliate, as well as short-term supply disruptions caused by the 2021 winter storm that negatively impacted shipments mainly on our Houston distribution system. Storage revenues decreased primarily due to the 2020 period benefiting from increased short-term storage utilization at higher rates and contract renewals at lower rates in the current period.
Operating expenses decreased by $23.2 million primarily resulting from:
•a decrease in refined products expenses of $2.1 million. Favorable product overages and the absence of costs in the current period associated with the divested marine terminals were partially offset by higher compensation costs and more integrity spending due to timing of project work; and
•a decrease in crude oil expenses of $21.6 million primarily due to lower power costs as a result of our recent optimization efforts as well as gains on power hedges driven by the winter storm in first quarter 2021, lower fees paid to Seabrook for ancillary services and lower integrity spending.
Product margin increased $8.8 million primarily due to lower of cost or net realizable value adjustments that negatively impacted 2020 as a result of the significant decrease in commodity prices that year and higher margins on our fractionator and crude over/short activities, partially offset by reduced margins on our gas liquids blending activities in the current year.
Other operating income (expense) was $3.5 million favorable primarily due to sales of unused air emission credits and reduced estimates for retained liabilities related to our 2020 marine terminals sale.
Earnings of non-controlled entities decreased $0.4 million. Lower earnings from MVP following the sale of a portion of our interest during second quarter 2021 and from Powder Springs due to lower gains recognized in the current year on futures contracts were mostly offset by contributions from expansion projects at MVP and Saddlehorn.
Depreciation, amortization and impairment expense decreased $14.9 million primarily due to impairment losses recognized in 2020 related to certain terminalling assets.
G&A expense increased $33.2 million primarily due to higher incentive compensation costs as a result of improved financial results, as well as higher benefits costs in 2021.
Interest expense, net of interest income and interest capitalized, increased $1.3 million primarily due to lower capitalized interest in the current year as a result of reduced ongoing expansion capital spending. Our weighted-average debt outstanding was $5.1 billion in the 2021 period compared to $4.9 billion in 2020. The weighted average interest rate was 4.4% in 2021 compared to 4.5% in 2020.
Gain on disposition of assets of $72.9 million in 2021 was primarily the result of the sale of a portion of our interest in MVP and $12.9 million recognized in 2020 was due to the sale of a portion of our interest in Saddlehorn.
Other expense was $14.4 million unfavorable primarily due to amounts recognized in second quarter 2021 related to certain legal matters.
Income from discontinued operations increased by $16.9 million due to improved product margin for our independent terminals as a result of higher gas liquids blending volume sold at increased pricing and less depreciation now that the assets are classified as held for sale.
Adjusted EBITDA, Distributable Cash Flow and Free Cash Flow
We believe that investors benefit from having access to the same financial measures utilized by management. In the following tables, we present the financial measures of adjusted EBITDA, distributable cash flow (“DCF”) and free cash flow (“FCF”), which are non-GAAP measures. These measures include the results of our discontinued operations.
Adjusted EBITDA is an important measure utilized by management and the investment community to assess the financial results of a company. A reconciliation of adjusted EBITDA to net income, the nearest comparable GAAP measure, is included in the table below.
Our partnership agreement requires that all of our available cash, less amounts reserved by our general partner’s board, of directors, be distributed to our unitholders. DCF is used by management to determine the amount of cash that our operations generated, after maintenance capital spending, that is available for distribution to our unitholders, as well as a basis for recommending to our general partner’s board of directors the amount of distributions to be paid each period. We also use DCF as the basis for calculating our performance-based equity long-term incentive compensation. A reconciliation of DCF to net income, the nearest comparable GAAP measure, is included in the table below.
FCF is a financial metric used by many investors and others in the financial community to measure the amount of cash generated by a company during a period after accounting for all investing activities, including both maintenance and expansion capital spending, as well as proceeds from divestitures. We believe FCF is important to the financial community as it reflects the amount of cash available for distributions, unitadditional expansion capital opportunities, equity repurchases, debt reduction additional investments or other partnership uses. A reconciliation of FCF to net income and to net cash provided by operating activities, which is the nearest comparable GAAP measure, is included in the following tables.
Since the non-GAAP measures presented here include adjustments specific to us, they may not be comparable to similarly-titled measures of other companies.
Adjusted EBITDA, DCF and FCF are non-GAAP measures. A reconciliation of each of these measures to net income for the ninethree months ended September 30, 2020March 31, 2021 and 20212022 is as follows (in millions):
| | | Nine Months Ended September 30, | | | | Three Months Ended March 31, | | |
| | 2020 | | 2021 | | | | 2021 | | 2022 | | |
Net income | Net income | | $ | 633.0 | | | $ | 738.3 | | | | Net income | | $ | 221.3 | | | $ | 165.5 | | | |
Interest expense, net | Interest expense, net | | 168.0 | | | 169.3 | | | | Interest expense, net | | 56.3 | | | 56.8 | | | |
Depreciation, amortization and impairment(1) | Depreciation, amortization and impairment(1) | | 193.4 | | | 174.4 | | | | Depreciation, amortization and impairment(1) | | 59.2 | | | 57.7 | | | |
Equity-based incentive compensation(2) | Equity-based incentive compensation(2) | | (9.1) | | | 9.5 | | | | Equity-based incentive compensation(2) | | (1.5) | | | 5.5 | | | |
| Gain on disposition of assets(3) | Gain on disposition of assets(3) | | (10.5) | | | (68.5) | | | | Gain on disposition of assets(3) | | — | | | (0.2) | | | |
| Commodity-related adjustments: | Commodity-related adjustments: | | | Commodity-related adjustments: | | |
Derivative (gains) losses recognized in the period associated with future transactions(4) | Derivative (gains) losses recognized in the period associated with future transactions(4) | | 6.7 | | | 21.1 | | | | Derivative (gains) losses recognized in the period associated with future transactions(4) | | 17.4 | | | 56.7 | | | |
Derivative gains (losses) recognized in previous periods associated with transactions completed in the period(4) | Derivative gains (losses) recognized in previous periods associated with transactions completed in the period(4) | | (18.9) | | | (32.2) | | | | Derivative gains (losses) recognized in previous periods associated with transactions completed in the period(4) | | (22.4) | | | (11.2) | | | |
Inventory valuation adjustments(5) | Inventory valuation adjustments(5) | | 9.6 | | | 2.4 | | | | Inventory valuation adjustments(5) | | 1.4 | | | 2.8 | | | |
Total commodity-related adjustments | Total commodity-related adjustments | | (2.6) | | | (8.7) | | | | Total commodity-related adjustments | | (3.6) | | | 48.3 | | | |
Distributions from operations of non-controlled entities in excess of earnings | Distributions from operations of non-controlled entities in excess of earnings | | 36.2 | | | 24.5 | | | | Distributions from operations of non-controlled entities in excess of earnings | | 12.3 | | | 3.0 | | | |
| Adjusted EBITDA | Adjusted EBITDA | | 1,008.4 | | | 1,038.8 | | | | Adjusted EBITDA | | 344.0 | | | 336.6 | | | |
Interest expense, net, excluding debt issuance cost amortization(6) | Interest expense, net, excluding debt issuance cost amortization(6) | | (152.4) | | | (167.0) | | | | Interest expense, net, excluding debt issuance cost amortization(6) | | (55.5) | | | (56.0) | | | |
Maintenance capital(7)(6) | Maintenance capital(7)(6) | | (81.2) | | | (50.2) | | | | Maintenance capital(7)(6) | | (12.1) | | | (15.2) | | | |
Distributable cash flow | Distributable cash flow | | 774.8 | | | 821.6 | | | | Distributable cash flow | | $ | 276.4 | | | $ | 265.4 | | | |
Expansion capital(8)(7) | Expansion capital(8)(7) | | (310.0) | | | (67.6) | | | | Expansion capital(8)(7) | | (10.5) | | | (26.1) | | | |
Proceeds from asset sales | | 334.6 | | | 270.7 | | | | |
Proceeds from disposition of assets(3) | | Proceeds from disposition of assets(3) | | 0.6 | | | 0.2 | | | |
Free cash flow | Free cash flow | | 799.4 | | | 1,024.7 | | | | Free cash flow | | $ | 266.5 | | | $ | 239.5 | | | |
Distributions paid | Distributions paid | | (697.3) | | | (685.0) | | | | Distributions paid | | (229.4) | | | (220.6) | | | |
Free cash flow after distributions | Free cash flow after distributions | | $ | 102.1 | | | $ | 339.7 | | | | Free cash flow after distributions | | $ | 37.1 | | | $ | 18.9 | | | |
|
(1) Depreciation, amortization and impairment expense is excluded from DCF to the extent it represents a non-cash expense.
(2) Because we intend to satisfy vesting of unit awards under our equity-based long-term incentive compensation plan with the issuance of common units, expenses related to this plan generally are deemed non-cash and excluded for DCF purposes. The amounts above have been reduced by cash payments associated with the plan, which are primarily related to tax withholdings.
(3) Gains on disposition of assets are excluded from DCF to the extent they are not related to our ongoing operations.operations, while proceeds from disposition of assets exclude the related gains to the extent they are already included in our calculation of DCF.
(4) Certain derivatives have not been designated as hedges for accounting purposes and the mark-to-market changes of these derivatives are recognized currently in net income. We exclude the net impact of these derivatives from our determination of DCF until the transactions are settled and, where applicable, the related products are sold. In the period in which these transactions are settled and any related products are sold, the net impact of the derivatives is included in DCF.
(5) We adjust DCF for lower of average cost or net realizable value adjustments related to inventory and firm purchase commitments as well as market valuation of short positions recognized each period as these are non-cash items. In subsequent periods when we physically sell or purchase the related products, we adjust DCF for therecognize these valuation adjustments previously recognized.in DCF.
(6) Interest expense includes debt prepayment costs of $12.9 million in the nine months ended September 30, 2020, which are excluded from DCF as they are financing activities and not related to our ongoing operations.
(7) Maintenance capital expenditures maintain our existing assets and do not generate incremental DCF (i.e. incremental returns to our unitholders). For this reason, we deduct maintenance capital expenditures to determine DCF.
(8)(7) Includes additions to property, plant and equipment (excluding maintenance capital and capital-related changes in accounts payable and other current liabilities), acquisitions and investments in non-controlled entities, net of distributions from returns of investments in non-controlled entities and deposits from undivided joint interest third parties.
A reconciliation of FCF to net cash provided by operating activities for the ninethree months ended September 30, 2020March 31, 2021 and 20212022 is as follows (in millions):
| | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2020 | | 2021 | | 2021 | | 2022 |
Net cash provided by operating activities | Net cash provided by operating activities | | $ | 840.1 | | | $ | 879.1 | | Net cash provided by operating activities | | $ | 240.4 | | | $ | 100.4 | |
Changes in operating assets and liabilities | Changes in operating assets and liabilities | | 30.4 | | | 0.6 | | Changes in operating assets and liabilities | | 57.7 | | | 145.5 | |
Net cash provided (used) in investing activities | Net cash provided (used) in investing activities | | (110.3) | | | 160.1 | | Net cash provided (used) in investing activities | | (31.2) | | | (46.6) | |
Payments associated with settlement of equity-based incentive compensation | Payments associated with settlement of equity-based incentive compensation | | (14.7) | | | (6.2) | | Payments associated with settlement of equity-based incentive compensation | | (6.2) | | | (8.9) | |
Settlement gain, amortization of prior service credit and actuarial loss | | (4.0) | | | (7.2) | | |
Settlement cost, amortization of prior service credit and actuarial loss | | Settlement cost, amortization of prior service credit and actuarial loss | | (1.6) | | | (1.2) | |
Changes in accrued capital items | Changes in accrued capital items | | 52.8 | | | (4.0) | | Changes in accrued capital items | | 9.3 | | | 5.5 | |
Commodity-related adjustments(1) | Commodity-related adjustments(1) | | (2.6) | | | (8.7) | | Commodity-related adjustments(1) | | (3.6) | | | 48.3 | |
Other | Other | | 7.7 | | | 11.0 | | Other | | 1.7 | | | (3.5) | |
Free cash flow | Free cash flow | | 799.4 | | | 1,024.7 | | Free cash flow | | $ | 266.5 | | | $ | 239.5 | |
Distributions paid | Distributions paid | | (697.3) | | | (685.0) | | Distributions paid | | (229.4) | | | (220.6) | |
Free cash flow after distributions | Free cash flow after distributions | | $ | 102.1 | | | $ | 339.7 | | Free cash flow after distributions | | $ | 37.1 | | | $ | 18.9 | |
|
(1) Please refer to the preceding table for a description of these commodity-related adjustments.
Liquidity and Capital Resources
Cash Flows and Capital Expenditures
Operating Activities. Net cash provided by operating activities was $840.1$240.4 million and $879.1$100.4 million for the ninethree months ended September 30, 2020March 31, 2021 and 2021,2022, respectively. The $39.0$140.0 million increasedecrease in 20212022 was due to higherchanges in our working capital and lower net income as previously described, and changes in our working capital, partiallyslightly offset by adjustments for non-cash items and distributions in excess of earnings of our non-controlled entities.
Investing Activities. Net cash used by investing activities for the ninethree months ended September 30, 2020March 31, 2021 and 2022 was $110.3$31.2 million and net cash provided by investing activities for the nine months ended September 30, 2021 was $160.1 million. During the 2021 period, we$46.6 million, respectively, including $29.7 million and $44.9 million used $106.5 million for capital expenditures. Also, duringexpenditures for those same periods in 2021 we sold a portion of our interest in MVP for cash proceeds of $271.0 million. During the 2020 period, we used $357.1 million for capital expenditures. Also during 2020, we sold three marine terminals for cash proceeds of $251.8 million and sold a portion of our interest in Saddlehorn for cash proceeds of $79.9 million. Additionally, we contributed capital of $73.7 million in conjunction with our joint venture capital projects, which we account for as investments in non-controlled entities.2022, respectively.
Financing Activities. Net cash used by financing activities for the ninethree months ended September 30, 2020March 31, 2021 and 20212022 was $794.1$218.6 million and $1,041.2$51.5 million, respectively. During the 20212022 period, we paid distributions of $685.0$220.6 million to our unitholders and repurchased common units for $473.1$50.0 million. Additionally, we had net commercial paper borrowings of $123.0$228.0 million. Also, in January 2022, our equity-based incentive compensation awards that vested December 31, 2021 were settled by issuing 215,409 common units and distributing those units to the long-term incentive plan (“LTIP”) participants, resulting in payments primarily associated with tax withholdings of $8.9 million. During the 2021 period, we paid distributions of $229.4 million to our unitholders and had net commercial paper borrowings of $17.0 million. Also, in January 2021, our equity-based incentive compensation awards that vested December 31, 2020 were settled by issuing 163,007 common units and distributing those units to the long-term incentive plan (“LTIP”)LTIP participants, resulting in payments primarily associated with tax withholdings of $6.2 million. During the 2020 period, we paid distributions of $697.3 million to our unitholders and repurchased common units for $252.0 million. Additionally, we received net proceeds of $499.4 million from the issuance of long-term senior notes and had net commercial paper borrowings of $248.0 million, which collectively were used to repay our $550.0 million of 4.25% notes due 2021. Also, in January 2020, our equity-based incentive compensation awards that vested December 31, 2019 were settled by issuing 284,643 common units and distributing those units to the LTIP participants, resulting in payments primarily associated with tax withholdings of $14.7 million.
The quarterly distribution amount related to thirdfirst quarter 20212022 earnings is $1.0375 per unit (to be paid in fourthsecond quarter 2021)2022). If we were to continue paying distributions at this level on the number of common units
currently outstanding, total distributions of approximately $898$878 million would be paid to our unitholders related to 20212022 earnings. Management believes we will have sufficient DCF to fund these distributions.
Capital Requirements
Capital spending for our business consists primarily of:
•Maintenance capital expenditures. These expenditures include costs required to maintain equipment reliability and safety and to address environmental orand other regulatory requirements rather than to generate incremental DCF; and
•Expansion capital expenditures. These expenditures are undertaken primarily to generate incremental DCF and include costs to acquire additional assets to grow our business and to expand or upgrade our existing facilities and to construct new assets, which we refer to collectively as organic growth projects. Organic growth projects include, for example, capital expenditures that increase storage or throughput volumes or develop pipeline connections to new supply sources.
For the ninethree months ended September 30, 2021,March 31, 2022, our maintenance capital spending was $50.2$15.2 million, including $1.5$1.1 million for discontinued operations. For 2021,2022, we expect to spend approximately $80 million on maintenance capital.
During the first ninethree months of 2021,2022, we spent $62.0$25.3 million for our expansion capital projects including $0.2 million for discontinued operations, and contributed $5.6$0.8 million for expansion capital projects in conjunction with our joint ventures. Based on the progress of expansion projects already underway,committed, we expect to spend approximately $80 million in 2021 and $20$70 million in 2022 to complete our current slate of expansion capital projects.
In addition, we may repurchase our common units through our unit repurchase program (see Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds of Part II of this report for additional details). We may also repurchase portions of our existing long-term debt from time-to-time through open market transactions, tender offers or privately-negotiated transactions.
Liquidity
Cash generated from operations is a key source of liquidity for funding debt service, maintenance capital expenditures, quarterly distributions and repurchases of our common units. Additional liquidity for purposes other than quarterly distributions, such as expansion capital expenditures, is available through borrowings under our commercial paper program and revolving credit facility, as well as from other borrowings or issuances of debt or common units (see Note 7 – Debtand Note 15 – Partners’Partners’ Capital and Distributions of the consolidated financial statements included in Item 1I of Part Iof this report for detail of our borrowings and changes in partners’ capital).
Off-Balance Sheet Arrangements
None.
Other Items
Executive Officer Promotions.Board of Director Changes. Mark B. Roles, who previously heldOn April 21, 2022, Robert G. Croyle notified the positionboard of Vice President, Business Optimization,his decision to retire effective April 30, 2022 after 13 years of service. Following Mr. Croyle’s retirement, Sivasankaran Somasundaram was elected as an independent board member beginning May 1, 2022.
Collective Bargaining Agreement. Approximately 13% of our employees are represented by the United Steel Workers (“USW”) and covered by a collective bargaining agreement that expired at the end of January 2022. We are operating under a 24-hour rolling extension of this agreement while negotiations for a new agreement continue. We continue to make progress on these negotiations and expect that we will reach a new long-term agreement with the USW; however, a prolonged work stoppage by a majority of these employees could have a material adverse effect on our general partner’s board of directors as Senior Vice President, Commercial - Refined Products effective May 22, 2021. He has served in various positions of increasing responsibilities in commercial and operations since joining us and our predecessor company in 1998.business.
Pipeline Tariff Changes. Historically, the tariff rates on approximately 40% of our refined products shipments have been regulated by the Federal Energy Regulatory Commission (“FERC”) primarily through an annual index methodology, and nearly all the remaining rates are adjustable at our discretion based on market factors. Due to the recent expansion of our Texas refined products pipeline system, for which rates are not regulated by the FERC, we expect a smaller percent of our total refined products shipments to be subject to the index methodology in the future. The new 5-year FERC index beginning July 2021 is based on the change in the producer price index for finished goods plus 0.78%. Based on this methodology, we decreased our index rates by approximately 0.6% on July 1, 2021, with an average increase of more than 4% on the remainder of our refined products tariff rates, resulting in an overall average refined products mid-year tariff increase of nearly 3%. Most of the tariffs on our long-haul crude oil pipelines are established at negotiated rates that generally provide for annual adjustments in line with changes in the FERC index, subject to certain modifications. As a result, we also changed the rates on our crude oil pipelines between 0% and 2% in July 2021.
Commodity Derivative Agreements. Certain of our business activities result in our owning various commodities, which exposes us to commodity price risk. We generally use forward physical commodity contracts and exchange-traded futures contractsderivative instruments to hedge against changes in prices of the commodities that we expect to sell or purchase in future periods. We are a party to a basis derivative agreement for which settlements are determined based on the basis differential of crude oil prices at different market locations.
See Item 3. Quantitative and Qualitative Disclosures about Market Risk for further information regarding the quantities of refined products and crude oil hedged at September 30, 2021March 31, 2022 and the fair value of open hedge and basis derivative contracts at that date.
Related Party Transactions. See Note 14 – Related Party Transactions in Item 1 of Part I of this report for detail of our related party transactions.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We may be exposed to market risk through changes in commodity prices and interest rates and have established policies to monitor and mitigate these market risks. We use derivative agreements to help manage our exposure to commodity price and interest rate risks.
Commodity Price Risk
Our commodity price risk primarily arises from our gas liquids blending, fractionation and fractionationpetroleum products marketing activities, andas well as from managing product overages and shortages associated with our refined products and crude oil pipelines and terminals. We generally use derivatives such as forward physical contracts and exchange-traded futures contractsderivative instruments to help us manage our commodity price risk.
Forward physical contracts that qualify for and are elected as normal purchases and sales are accounted for using traditional accrual accounting. As of September 30, 2021,March 31, 2022, we had commitments under forward purchase and sale contracts as follows (in millions):
| | | Total | | 2021 | | 2022-2025 | | Beyond 2025 | | Total | | 2022 | | 2023-2026 | | Beyond 2026 |
Forward purchase contracts – notional value | Forward purchase contracts – notional value | $ | 516.8 | | | $ | 172.2 | | | $ | 205.0 | | | $ | 139.6 | | Forward purchase contracts – notional value | $ | 519.0 | | | $ | 238.2 | | | $ | 160.0 | | | $ | 120.8 | |
Forward purchase contracts – barrels | Forward purchase contracts – barrels | 11.4 | | | 2.6 | | | 4.3 | | | 4.5 | | Forward purchase contracts – barrels | 10.6 | | | 3.3 | | | 3.7 | | | 3.6 | |
Forward sales contracts – notional value | Forward sales contracts – notional value | $ | 78.2 | | | $ | 72.5 | | | $ | 5.7 | | | $ | — | | Forward sales contracts – notional value | $ | 49.4 | | | $ | 49.4 | | | $ | — | | | $ | — | |
Forward sales contracts – barrels | Forward sales contracts – barrels | 0.9 | | | 0.8 | | | 0.1 | | | — | | Forward sales contracts – barrels | 0.4 | | | 0.4 | | | — | | | — | |
We generally use derivative instruments including exchange-traded futures contracts and over-the-counter forward contracts to hedge against changes in the price of the petroleum products we expect to sell or purchase. We did not elect hedge accounting treatment under ASCAccounting Standards Codification 815, Derivatives
and Hedging, for our open contracts and as a result we accounted for these contracts as economic hedges, with changes in fair value recognized currently in earnings. The fair value of these open futures contracts, representing 4.95.3 million barrels of petroleum products we expect to sell and 1.20.7 million barrels of gas liquids we expect to purchase, was a net liability of $22.3 million.$47.4 million as of March 31, 2022. With respect to these contracts, a $10.00 per barrel increase (decrease) in the prices of petroleum products we expect to sell would result in a $49.0$53.0 million decrease (increase) in our operating profit, while a $10.00 per barrel increase (decrease) in the price of gas liquids we expect to purchase would result in a $12.0$7.0 million increase (decrease) in our operating profit. These increases or decreases in operating profit would be substantially offset by higher or lower product sales revenue or cost of product sales when the physical sale or purchase of those products occurs, respectively. These contracts may be for the purchase or sale of products in markets different from those in which we are attempting to hedge our exposure, and the related hedges may not eliminate all price risks.
Interest Rate Risk
Our use of variable rate debt and any future issuances of fixed rate debt expose us to interest rate risk. As of September 30, 2021,March 31, 2022, we did not have anyhad $336.0 million of variable rate debtcommercial paper outstanding.
ITEM 4.CONTROLS AND PROCEDURES
We performed an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. We performed this evaluation under the supervision and with the participation of our management, including our general partner’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based upon that evaluation, our general partner’s CEO and CFO concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and procedures designed so that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to management, including the CEO and the CFO, as appropriate, to allow timely decisions regarding required disclosure. There has been no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2021March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
Corpus Christi Terminal Proceeding. On April 11, 2022, the State of Texas, through its Attorney General on behalf of the Texas Commission on Environmental Quality (“TCEQ”), brought an action for alleged violations of the Texas Clean Air Act in connection with a December 2020 fire at our Corpus Christi, Texas terminal. The TCEQ is seeking statutory civil penalties and statutory attorney’s fees over $0.3 million but not more than $1.0 million. While the outcome cannot be predicted with certainty, we believe the ultimate resolution of this matter will not have a material adverse effect on our business.
Hurricane Harvey Enforcement Proceeding. In July 2018, we received a Notice of Enforcement letter from the TCEQ alleging two air emission violations at our Galena Park, Texas terminal that occurred during Hurricane Harvey in third quarter 2017. The penalties associated with these alleged violations are expected to be $0.4 million. While the outcome cannot be predicted with certainty, we believe the ultimate resolution of this matter will not have a material adverse effect on our business.
Butane Blending Patent Infringement Proceeding. On October 4, 2017, Sunoco Partners Marketing & Terminals L.P. (“Sunoco”) brought an action for patent infringement in the U.S. District Court for the District of Delaware alleging Magellan Midstream Partners, L.P. (“Magellan”) and Powder Springs Logistics, LLC (“Powder Springs”) arewere infringing patents relatedrelating to butane blending at the Powder Springs facility located in Powder Springs, Georgia. Sunoco subsequently submitted pleadings alleging that Magellan iswas also infringing various patents related to butane blending at nineeight Magellan facilities, in addition to Powder Springs. Sunoco is seekingsought monetary damages, attorneys’ fees and a permanent injunction enjoining Magellan and Powder Springs from infringing the subject patents. We denyA jury trial concluded on December 6, 2021, at which the jury found Magellan willfully infringed the three patents in suit and awarded damages of approximately $9.4 million against Magellan relating to the eight Magellan facilities at issue. The jury further found that Powder Springs willfully infringed the one patent at issue relating to the Powder Springs facility and awarded approximately $2.8 million against Magellan and Powder Springs relating to that facility. Sunoco requested that the court enhance the damages award based upon the jury’s finding of willfulness, and that the court award additional damages and pre- and post-judgment interest. Magellan and Powder Springs have filed post-trial pleadings opposing Sunoco’s request for enhanced damages and challenging the findings of liability and willfulness. The final determination of the trial court is subject to potential future appeals by either or both parties to the litigation. The amounts we have accrued in relation to the claims are vigorously defending against all claims asserted by Sunoco. Althoughimmaterial, and although it is not possible to predict the ultimate outcome, we believe the ultimatefinal resolution of this matter will not have a material adverse impacteffect on our results of operations, financial position or cash flows.business.
We and the non-controlled entities in which we own an interest are a party to various other claims, legal actions and complaints. While the results cannot be predicted with certainty, management believes the ultimate resolution of these claims, legal actions and complaints after consideration of amounts accrued, insurance coverage or other indemnification arrangements will not have a material adverse effect on our future results of operations, financial position or cash flows.business.
ITEM 1A.RISK FACTORS
In addition to the information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020,2021, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not our only risks. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also could materially adversely affect our business, financial condition or operating results.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In 2020, we initiated a $750 million common unitOur board authorized the repurchase program, which allowed usof up to repurchase units through 2022. We completed the repurchases authorized under this program in September 2021. In October 2021, this program was expanded by $750 million to allow unit repurchases totaling $1.5 billion of our common units through December 31, 2024. We intend to purchase our common units from time-to-time through a variety of methods, including open market purchases and negotiated transactions, all in compliance with Securities Exchange Act Rules 10b-18, 10b5-1 or both and other applicable legal requirements. The timing, price and actual number of common units repurchased will depend on a number of factors including our expected expansion capital spending, excess cash available, balance sheet metrics, legal and regulatory requirements, market conditions and the trading price of our common units. The program does not obligate us to acquire any particular amount of common units and the repurchase program may be suspended or discontinued at any time.
The following table provides details ofbelow reflects our unit repurchases incommon units repurchased during 2020, 2021, under our initial $750 million program:2022 and inception-to-date.
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Period | | Total Number of Common Units Purchased | | Average Price Paid Per Unit | | Total Number of Units Purchased as Part of Publicly Announced Program | | Approximate Dollar Value of Units That May Yet Be Purchased under the Program (in millions) |
Year Ended 2020 | | 5,568,260 | | | $ | 49.74 | | | 5,568,260 | | | $ | 473.1 | |
January 1-31, 2021 | | — | | | | | — | | | $ | 473.1 | |
February 1-28, 2021 | | — | | | | | — | | | $ | 473.1 | |
March 1-31, 2021 | | — | | | | | — | | | $ | 473.1 | |
First Quarter 2021 | | — | | | | | — | | | |
April 1-30, 2021 | | — | | | | | — | | | $ | 473.1 | |
May 1-31, 2021 | | 1,723,188 | | | $ | 47.77 | | | 1,723,188 | | | $ | 390.7 | |
June 1-30, 2021 | | — | | | | | — | | | $ | 390.7 | |
Second Quarter 2021 | | 1,723,188 | | | $ | 47.77 | | | 1,723,188 | | | |
July 1-31, 2021 | | 251,947 | | | $ | 47.24 | | | 251,947 | | | $ | 378.8 | |
August 1-31, 2021 | | 6,289,504 | | | $ | 47.94 | | | 6,289,504 | | | $ | 77.3 | |
September 1-30, 2021 | | 1,572,941 | | | $ | 49.14 | | | 1,572,941 | | | $ | — | |
Third Quarter 2021 | | 8,114,392 | | | $ | 48.15 | | | 8,114,392 | | | |
Year-to-Date 2021 | | 9,837,580 | | | $ | 48.09 | | | 9,837,580 | | | |
Total Inception-to-Date | | 15,405,840 | | | $ | 48.68 | | | 15,405,840 | | | $ | — | |
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Period | | Total Number of Common Units Purchased | | Average Price Paid Per Unit | | Total Number of Units Purchased as Part of Publicly Announced Program | | Approximate Dollar Value of Units That May Yet Be Purchased under the Program (in millions)(1) |
Year Ended 2020 | | 5,568,260 | | | $ | 49.74 | | | 5,568,260 | | | $ | 1,223.1 | |
Year Ended 2021 | | 10,894,828 | | | $ | 48.01 | | | 10,894,828 | | | $ | 700.0 | |
January 1-31, 2022 | | — | | | — | | | — | | | $ | 700.0 | |
February 1-28, 2022 | | 430,670 | | | $ | 47.87 | | | 430,670 | | | $ | 679.4 | |
March 1-31, 2022 | | 611,365 | | | $ | 48.06 | | | 611,365 | | | $ | 650.0 | |
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Year-to-Date 2022 | | 1,042,035 | | | $ | 47.98 | | | 1,042,035 | | | |
Total Inception-to-Date | | 17,505,123 | | | | | 17,505,123 | | | |
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(1) Our program has $1.5 billion authorized for unit repurchases, which includes $750 million approved in 2020 and an additional $750 million approved in October 2021. Our program will expire on December 31, 2024.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.OTHER INFORMATION
None.
ITEM 6.EXHIBITS
The exhibits listed below on the Index to Exhibits are filed or incorporated by reference as part of this report.
INDEX TO EXHIBITS
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| Exhibit Number | | Description |
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| Exhibit 3.1 | — | |
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| Exhibit 10.1 | — | |
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| Exhibit 31.1 | — | |
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| Exhibit 31.2 | — | |
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| Exhibit 32.1 | — | |
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| Exhibit 32.2 | — | |
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| Exhibit 101.INS | — | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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| Exhibit 101.SCH | — | XBRL Taxonomy Extension Schema Document. |
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| Exhibit 101.CAL | — | XBRL Taxonomy Extension Calculation Linkbase Document. |
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| Exhibit 101.DEF | — | XBRL Taxonomy Extension Definition Linkbase Document. |
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| Exhibit 101.LAB | — | XBRL Taxonomy Extension Label Linkbase Document. |
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| Exhibit 101.PRE | — | XBRL Taxonomy Extension Presentation Linkbase Document. |
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized in Tulsa, Oklahoma on November 2, 2021.May 5, 2022.
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MAGELLAN MIDSTREAM PARTNERS, L.P. |
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By: | | Magellan GP, LLC, |
| | its general partner |
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/s/ Jeff Holman |
Jeff Holman |
Chief Financial Officer |
(Principal Accounting and Financial Officer) |