UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to___________
Commission file number: 1-4998
ATLAS PIPELINE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 23-3011077
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
311 Rouser Road, Moon Township, Pennsylvania 15108
(Address of principal executive offices)
(Zip code)
(412) 262-2830
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of August 11, 2000, there were outstanding 1,500,000 Common Units
and 1,641,026 Subordinated Units
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated and Combined Balance Sheets as of June 30, 2000 (Partnership) (Unaudited)
and December 31, 1999 (Predecessor)................................................................. 3
Consolidated and Combined Statements of Income for the three months ended June 30, 2000
(Partnership) and the three months ended June 30, 1999 (Predecessor)(Unaudited)..................... 4
Consolidated and Combined Statements of Income for the period from January 28, 2000
(Commencement of Operations) to June 30, 2000 (Partnership) and for the periods
January 1, 2000 to January 27, 2000, January 1, 1999 to
June 30, 1999 (Predecessor) (Unaudited)............................................................. 5
Consolidated and Combined Statements of Cash Flow for the period from January 28, 2000
(Commencement of Operations) to June 30, 2000 (Partnership) and for the periods
January 1, 2000 to January 27, 2000, January 1, 1999 to
June 30, 1999 (Predecessor) (Unaudited)............................................................. 6
Consolidated Statement of Partners' Capital (Deficit) for the period from January 28, 2000
(Commencement of Operations) to June 30, 2000 (Unaudited)........................................... 7
Notes to Consolidated and Combined Financial Statements (Unaudited)................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................................... 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................ 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................................................... 16
SIGNATURES ...................................................................................................... 16
2
PART I
ITEM 1. FINANCIAL STATEMENTS
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED BALANCE SHEETS
Partnership Predecessor
------------- -------------
June 30, December 31,
2000 1999
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 816,200 $ 3,500
Accounts receivable - affiliates............................................... 807,000 373,800
Prepaid expenses............................................................... 54,200 -
------------- -------------
Total current assets......................................................... 1,677,400 377,300
Property and equipment:
Gas gathering and transmission facilities...................................... 18,107,200 16,744,100
Less - accumulated depreciation................................................ (2,414,800) (1,858,200)
------------- --------------
Net property and equipment................................................... 15,692,400 14,885,900
Goodwill (net of accumulated amortization of $153,600 and $110,000)................. 2,436,400 2,480,000
------------- -------------
$ 19,806,200 $ 17,743,200
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities......................................... $ 25,000 $ 33,100
Advances from parent............................................................. - 12,969,700
Distribution payable............................................................. 675,000 -
------------- -------------
Total current liabilities.................................................... 700,000 13,002,800
Combined equity..................................................................... - 4,740,400
Partners' capital (deficit):
Common unitholders 1,500,000 units outstanding................................... 17,794,700 -
Subordinated unitholders 1,641,026 units outstanding............................. 1,326,200 -
General partner.................................................................. (14,700) -
------------- -------------
Total partners' capital...................................................... 19,106,200 -
------------- -------------
$ 19,806,200 $ 17,743,200
============= =============
See accompanying notes to consolidated and combined financial statements
3
ATLAS PIPELINE PARTNERS, L.P.
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(Unaudited)
Partnership Predecessor
------------- -------------
Three Months Three Months
Ended Ended
June 30, 2000 June 30, 1999
------------- -------------
Revenues:
Transportation and compression revenue....................................... $ 2,294,200 $ 878,600
Other income................................................................. 1,200 -
------------- ------------
Total revenues............................................................. 2,295,400 878,600
Costs and expenses:
Transportation and compression............................................... 218,900 157,100
General and administrative................................................... 110,600 91,000
Property tax................................................................. 900 3,700
Interest expense............................................................. - 101,700
Depreciation and amortization................................................ 325,700 123,900
------------- ------------
Total costs and expenses................................................... 656,100 477,400
------------- ------------
Income from operations.......................................................... 1,639,300 401,200
Provision for income taxes...................................................... - 160,500
------------- ------------
Net income...................................................................... $ 1,639,300 $ 240,700
============= ============
Net income - limited partners................................................... $ 1,606,500
=============
Net income - general partner.................................................... $ 32,800
=============
Basic and diluted net income per limited partner unit........................... $ .51
=============
Weighted average units outstanding.............................................. 3,141,026
=============
See accompanying notes to consolidated and combined financial statements
4
ATLAS PIPELINE PARTNERS, L.P.
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(Unaudited)
Partnership
----------------
For the Predecessor
Period from -------------------------------------
January 28, 2000 For the For the
(Commencement Period from Period from
of Operations) January 1, 2000 January 1, 1999
to to to
June 30, 2000 January 27, 2000 June 30, 1999
--------------- ---------------- -------------
Revenues:
Transportation and compression revenue....................... $ 3,434,400 $ 330,000 $ 1,590,800
Other income................................................. 10,900 - -
-------------- ------------ ------------
Total revenues............................................. 3,445,300 330,000 1,590,800
Costs and expenses:
Transportation and compression............................... 345,200 44,700 290,400
General and administrative................................... 178,500 40,600 182,300
Property tax................................................. 2,000 800 3,700
Interest expense............................................. - 36,200 178,000
Depreciation and amortization................................ 514,700 86,900 263,000
-------------- ------------ ------------
Total costs and expenses................................... 1,040,400 209,200 917,400
-------------- ------------ ------------
Income from operations.......................................... 2,404,900 120,800 673,400
Provision for income taxes...................................... - 48,300 269,300
-------------- ------------ ------------
Net income...................................................... $ 2,404,900 $ 72,500 $ 404,100
============== ============ ============
Net income - limited partners................................... $ 2,356,800
==============
Net income - general partner.................................... $ 48,100
==============
Basic and diluted net income per limited partner unit........... $ .75
==============
Weighted average units outstanding.............................. 3,141,026
==============
See accompanying notes to consolidated and combined financial statements
5
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOW
(Unaudited)
Partnership
----------------
For the Predecessor
Period from -------------------------------------
January 28, 2000 For the For the
(Commencement Period from Period from
of Operations) January 1, 2000 January 1, 1999
to to to
June 30, 2000 January 27, 2000 June 30, 1999
---------------- ---------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................................... $ 2,404,900 $ 72,500 $ 404,100
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization................................ 514,700 86,900 263,000
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable-affiliates and
prepaid expenses........................................... (861,200) 1,600 (36,300)
Increase (decrease) in accounts payable and
accrued liabilities........................................ 25,000 (33,100) (1,000)
-------------- ------------ -------------
Net cash provided by operating activities.................... 2,083,400 127,900 629,800
-------------- ----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment of debt................................................. (12,810,900) - -
Acquisition of gathering systems................................ (3,824,200) - -
Capital expenditures............................................ (787,800) (164,200) (610,000)
-------------- ------------ -------------
Net cash used in investing activities........................ (17,422,900) (164,200) (610,000)
-------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from initial public offering....................... 18,135,000 - -
Payment of formation costs...................................... (750,000) - -
Distributions to partners....................................... (1,229,300) - -
Advances from (to) parent....................................... - 38,100 (25,800)
-------------- ------------ -------------
Net cash provided by (used in) financing activities.......... 16,155,700 38,100 (25,800)
-------------- ------------ -------------
Increase (decrease) in cash and cash equivalents................ 816,200 1,800 (6,000)
Cash and cash equivalents, beginning of period.................. - 3,500 9,000
-------------- ------------ -------------
Cash and cash equivalents, end of period........................ $ 816,200 $ 5,300 $ 3,000
============== ============ =============
See accompanying notes to consolidated and combined financial statements
6
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
FOR THE PERIOD FROM JANUARY 28, 2000 (COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 2000
(Unaudited)
Number of Limited Total
Partner Units Partners'
---------------------------- General Capital
Common Subordinated Common Subordinated Partner (Deficit)
----------------------------------------------------------------------------------------
Balance at commencement of operations
January 28, 2000....................... - - $ - $ - $ - $ -
Issuance of units ........................ 1,500,000 - 18,135,000 - - 18,135,000
Contribution of net assets of Predecessor. - 1,641,026 - 21,333,300 - 21,333,300
Distribution at time of formation......... - - - (20,112,700) - (20,112,700)
Payment of offering expenses.............. - - (352,500) (382,400) (15,100) (750,000)
Distribution to partners.................. - - (443,100) (738,500) (47,700) (1,229,300)
Distribution payable...................... - - (675,000) - - (675,000)
Net income................................ - - 1,130,300 1,226,500 48,100 2,404,900
----------- --------- ------------- ------------- ---------- -------------
Balance at June 30, 2000.................. 1,500,000 1,641,026 $ 17,794,700 $ 1,326,200 $ (14,700) $ 19,106,200
=========== ========= ============= ============= ========== =============
See accompanying notes to consolidated and combined financial statements
7
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS
The Partnership
Atlas Pipeline Partners, L.P. ("the Partnership") is a Delaware limited
partnership formed in May 1999 to acquire, own and operate natural gas gathering
systems theretofore owned by Atlas America, Inc. ("Atlas"), Viking Resources
Corporation ("VRC") and Resource Energy, Inc. ("REI") ("the Predecessor"), all
of which are wholly-owned subsidiaries of Resource America, Inc. ("RAI"or
"Parent").
The accompanying financial statements and related notes present the
Partnership's consolidated financial position as of June 30, 2000 and the
results of its operations, cash flows and changes in partners' capital for the
period from commencement of operations on January 28, 2000 to June 30, 2000. All
material intercompany transactions and accounts have been eliminated. The
combined financial statements of the Predecessor are for the periods indicated
and are presented for comparative purposes.
These consolidated and combined financial statements and notes thereto
for interim periods are unaudited except for the Predecessor combined balance
sheet as of December 31, 1999. However, in the opinion of management, these
financial statements reflect all adjustments necessary for a fair presentation
of the results for the periods presented. Results for interim periods are not
indicative of results for a full year.
Initial Public Offering and Concurrent Transactions
On January 28, 2000, the Partnership completed its initial public
offering (the "IPO") of 1,500,000 common units ("Common Units") representing
limited partner interests in the Partnership at a price of $13.00 per unit. The
Partnership used the $18.1 million of proceeds, after underwriters' commissions,
from the IPO to retire debt, acquire the gathering systems from the Predecessor
and to pay certain formation costs.
Consistent with guidance provided by the Emerging Issues Task Force in
Issue no. 87-21 "Change of Accounting Basis in Master Limited Partnership
Transactions", the Partnership maintained the historical gas gathering and
transmission facilities cost of $17.3 million, which was the carrying value of
those assets by the Predecessor.
Partnership Structure and Management
The Partnership's operations are conducted through subsidiary entities
whose equity interests are owned by an operating partnership ("the Operating
Partnership"). The General Partner, Atlas Pipeline Partners GP, Inc. (a
wholly-owned subsidiary of RAI), owns a 2% general partner interest in the
consolidated pipeline operations. The remaining 98% is owned by limited partner
interests of which 47% consists of Common Units and 51% consists of subordinated
units ("Subordinated Units"). The holders of these Subordinated Units have
different rights to participate in distributions and their rights are
subordinated to the rights of the holders of common units. Through the ownership
of these interests, the General Partner will effectively manage and control both
the Partnership and the Operating Partnership.
8
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS - (Continued)
Analysis of Pro Forma Results of Operations
The pro forma information presented for the six months ended June 30,
2000 and 1999, was derived from the historical consolidated financial statements
of the Partnership from the commencement of operations on January 28, 2000
through June 30, 2000 and from the historical combined financial statements of
the Predecessor for the periods from January 1, 2000 through January 27, 2000
and January 1, 1999 through June 30, 1999. The pro forma information reflects
the following pro forma adjustments to the historical results of operations as
if the Partnership had been formed on January 1, 1999:
(i) increasing revenues to the amount which would have been earned
under the master natural gas gathering agreement between the
Partnership and Atlas which became effective at the completion of
the IPO,
(ii) removing interest on debt of the Predecessor, and
(iii) eliminating income tax expense as income taxes will be borne by
the partners and not the Partnership.
For the six months ended June 30, 2000 and 1999, the pro forma total
revenues would have been approximately $3,986,400 and $2,431,600, respectively.
For the six months ended June 30, 2000 and 1999, the pro forma net income would
have been approximately $2,782,300 and $1,253,700 and net income per limited
partner unit would have been $.87 and $.39, respectively.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying consolidated and combined financial
statements follows.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Partnership and its substantially subsidiaries. All material intercompany
transactions have been eliminated.
Use of Estimates
Preparation of the consolidated and combined financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Property and Equipment
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated service
lives. Gas gathering and transmission facilities are depreciated over 15 or 25
years using the double declining balance and straight-line methods. Other
equipment is depreciated over 5 to 10 years using the straight-line method.
9
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Impairment of Long-Lived Assets
The Partnership reviews its long-lived assets for impairment whenever
events or circumstances indicate that the carrying amount of an asset may not be
recoverable. If it is determined that an asset's estimated future cash flows
will not be sufficient to recover its carrying amount, an impairment charge will
be recorded to reduce the carrying amount for that asset to its estimated fair
value.
Goodwill
Goodwill is associated with the Partnership's purchase of the gas
gathering assets of Atlas and is being amortized over a period of 30 years,
using the straight-line method.
Federal Income Taxes
The Partnership is a limited partnership. As a result, the
Partnership's income for federal income tax purposes is reportable on the tax
returns of the individual partners. Accordingly, no recognition has been given
to income taxes in the accompanying financial statements of the Partnership. The
Predecessor filed a consolidated federal income tax return with its ultimate
parent, RAI. Federal and state taxes are reflected as if the Predecessor filed
on a separate company basis utilizing an effective federal tax rate of 34%.
Revenue Recognition
Revenues are recognized at the time the natural gas is transmitted
through the gathering systems.
Fair Value of Financial Instruments
For cash and cash equivalents, receivable and payables, the carrying
amounts approximate fair value because of the short maturity of these
instruments.
Net Income Per Unit
There is no difference between basic and diluted net income per limited
partner unit since there are no potentially dilutive units outstanding. Net
income per limited partner unit is determined by dividing net income, after
deducting the General Partner's 2% interest, by the weighted average number of
outstanding Common Units and Subordinated Units (a total of 3,141,026 units as
of June 30, 2000).
Comprehensive Income
The Partnership is subject to the provisions of Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income," which requires
disclosure of comprehensive income and its components. Comprehensive income
includes net income and all other changes in equity of a business during a
period from non-owner sources. These changes, other than net income, are
referred to as "other comprehensive income". The Partnership has no material
elements of comprehensive income, other than net income, to report.
10
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Cash Flow Statements
For purposes of the statement of cash flows, all highly liquid debt
instruments purchased with a maturity of three months or less are considered to
be cash equivalents.
Supplemental Disclosure of Cash Flow Information
Information for the six months ended June 30, 2000 and 1999 is as
follows:
Six Months Ended
---------------------------
June 30,
---------------------------
2000 1999
------------- -----------
Cash paid for:
Interest............................................................................... $ 36,200 $ 168,900
============== ===========
Income taxes (Predecessor)............................................................. $ 38,200 $ 231,700
============== ===========
Non-cash activities:
Issuance of subordinated units in exchange for gas gathering and
transmission facilities.............................................................. $ 21,333,300 $ -
============== ===========
NOTE 3 - RELATED PARTY TRANSACTIONS
Accounts Receivable - Affiliates
The Partnership is affiliated with Atlas, VRC and REI ("Affiliates")
which are subsidiaries of RAI. The Partnership is dependent upon the resources
and services provided by RAI and these Affiliates. Accounts
receivable-affiliates represents the net balance due from these affiliates for
gas transported through the gathering systems, net of reimbursements of
Partnership costs and expenses paid by these Affiliates.
The Partnership does not currently directly employ any persons to
manage or operate its business. These functions are provided by the General
Partner and employees of RAI and/or its Affiliates who are retained by the
General Partner. The General Partner does not receive a management fee or other
compensation in connection with its management of the Partnership. The
Partnership reimburses the General Partner for all direct and indirect costs of
services provided, including the cost of employees, officer and managing board
member compensation and benefits properly allocable to the Partnership, and all
other expenses necessary or appropriate to the conduct of the business of, and
allocable to, the Partnership. The partnership agreement provides that the
General Partner will determine the expenses that are allocable to the
Partnership in any reasonable manner determined by the General Partner at its
sole discretion. Total costs reimbursed to the General Partner by the
Partnership were approximately $89,000 for the period from January 28, 2000 to
June 30, 2000.
11
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 3 - RELATED PARTY TRANSACTIONS - (Continued)
Credit Facility
Atlas has agreed to provide the Partnership with financing for the cost
of constructing new gathering system expansions for a period of five years from
January 28, 2000, on a stand-by basis. If the Partnership chooses to use this
stand-by commitment, the financing will be provided through the issuance of
Common Units to Atlas. The number of Common Units issued will be based upon the
construction costs advanced and the fair value of the Common Units at the time
of such advances. The commitment is for a maximum of $1.5 million in any
contract year. As of June 30, 2000, no such advances have been made under this
credit facility.
NOTE 4 - DISTRIBUTION DECLARED
On June 20, 2000, the Partnership declared a cash distribution of $.45
per unit on its outstanding Common Units and Subordinated Units. The
distribution represents the available cash flow for the three months ended June
30, 2000. The $675,000 distribution, was paid on August 10, 2000 to unit holders
of record on June 30, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Forward-Looking Statements
WHEN USED IN THIS FORM 10-Q, THE WORDS "BELIEVES," "ANTICIPATES,"
"EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD LOOKING
STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. THE RISKS AND UNCERTAINIES ARE
DISCUSSED IN THE REGISTRATION STATEMENT FILED IN CONNECTION WITH OUR INITIAL
PUBLIC OFFERING UNDER THE HEADING "RISK FACTORS." READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD LOOKING STATEMENTS WHICH SPEAK ONLY AS OF
THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE
RESULTS OF ANY REVISIONS TO FORWARD LOOKING STATEMENTS WHICH MAY BE MADE TO
REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS.
The Predecessor's operations consist of gathering systems owned by RAI
through its subsidiary, REI, and, beginning with their acquisitions on September
28, 1998 and August 31, 1999, gathering systems owned through Atlas and VRC,
respectively. The gathering systems gather natural gas from wells in Eastern
Ohio, Western New York, and Western Pennsylvania and transport the natural gas
primarily to public utility pipelines. To a lesser extent, the gathering systems
transport natural gas to end-users. The historical results of operations
discussed below are derived from the historical financial statements of the
Predecessor. The Predecessor's operations were acquired by the Partnership at
the close of the initial public offering. Since historical results of operations
of the Predecessor include VRC only from its date of purchase, and revenues were
based on lower rates than those earned under the master natural gas gathering
agreement, results of operations for the three months and six months ended June
30, 2000 are not comparable to the similar prior year period.
12
RESULTS OF OPERATIONS
The following table sets forth the average volumes transported,
transportation rates and revenues received by the Partnership for the periods
indicated:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- ---------------------------------
Percent Percent
2000 1999 Change 2000 1999 Change
----------- ---------- -------- ----------- ----------- ------
Average daily throughput volumes (mcf) (1)................ 45,036 36,363 24% 43,583 35,948 21%
Accrual adjustment ....................................... (1,023) -- (1,023) --
----------- ---------- ----------- -----------
Average daily paid volumes ............................... 44,013 36,363 21% 42,560 35,948 18%
----------- ---------- ----------- -----------
Average transportation rate............................... $ .57 $ .27 111% $ .49 $ .25 96%
Total transportation and compression revenues............. $ 2,294,200 $ 878,600 161% $ 3,764,400 $ 1,590,800 137%
=========== ========== =========== ===========
- - - -----------------
(1) In units of 1,000 cubic feet ("mcf").
Three Months Ended June 30, 2000 as Compared to Three Months Ended June 30, 1999
Revenues. Transportation volumes were favorably impacted by the
acquisition of VRC in August 1999. Without the addition of VRC, transportation
volumes would have been 37,446 mcf per day in the three months ended June 30,
2000, resulting in an overall increase of 1,083 mcf per day compared to the
three months ended June 30, 1999. Transportation revenues would have been
$1,888,700 for the three months ended June 30, 2000, resulting in an increase of
$1,010,100 (115%) compared to the three months ended June 30, 1999. Gross margin
(transportation revenues less direct expenses of transportation, operation and
maintenance) was $2,075,300 for the three months ended June 30, 2000, an
increase of $1,353,800 (188%) from the $721,500 reported for the same period in
1999. The gross margin percentage was 90% for the three months ended June 30,
2000 as compared to 82% for the three months ended June 30, 1999. The increase
in transportation and compression revenues is the result of the higher
transportation rates earned by the Partnership under the master natural gas
gathering agreement ($1,016,900) and increased volumes ($398,700) due primarily
to the acquisition of VRC.
Other income of $1,200 consists of interest earned on funds temporarily
invested.
Cost and Expenses. Transportation and compression expense was $218,900
in the three months ended June 30, 2000, an increase of $61,800 (39%) from
$157,100 in the three months ended June 30, 1999, due to an increase in
compressor rent and repairs.
General and administrative expense was $110,600 in the three months
ended June 30, 2000, an increase of $19,600 (22%) from $91,000 in the three
months ended June 30, 1999, a result of expenses related to the operations of
the Partnership as a public entity.
Interest expense in the three months ended June 30, 1999 was associated
with advances from parent which were paid off upon completion of the
Partnership's IPO.
Depreciation and amortization expense was $325,700 in the three months
ended June 30, 2000, an increase of $201,800 (163%) from $123,900 in the three
months ended June 30, 1999 as a result of additional depreciation related to the
acquisition of the VRC pipelines and gathering system extensions.
13
RESULTS OF OPERATIONS
In comparing the six months ended June 30, 2000 to the six months ended
June 30, 1999, the Partnership and Predecessor periods for the current fiscal
period have been combined.
Six Months Ended June 30, 2000 as Compared to Six Months Ended June 30, 1999
Revenues. Transportation volumes were favorably impacted by the
acquisition of VRC in August 1999. Without the addition of VRC, transportation
volumes would have been 34,057 mcf per day in the six months ended June 30,
2000, resulting in an overall decrease of $1,891 mcf per day compared to the six
months ended June 30, 1999. Transportation revenues would have been $3,034,000
in the six months ended June 30, 2000, resulting in an increase of $1,443,200
(91%) compared to the six months ended June 30, 1999. Gross margin
(transportation revenues less direct expenses of transportation, operation and
maintenance) was $3,374,500 for the six months ended June 30, 2000, an increase
of $2,074,100 (159%) from the $1,300,400 reported for the same period in 1999.
The gross margin percentage was 90% for the six months ended June 30, 2000 as
compared to 82% for the six months ended June 30, 1999. The increase in
transportation and compression revenues is the result of the higher
transportation rates earned by the Partnership under the master natural gas
gathering agreement ($1,571,300) and increased volumes ($602,300) due primarily
to the acquisition of VRC.
Other income of $10,900 consists of interest earned on funds
temporarily invested.
Cost and Expenses. Transportation and compression expense was $389,900
in the six months ended June 30, 2000, an increase of $99,500 (34%) from
$290,400 in the six months ended June 30, 1999, due to an increase in compressor
rent and repairs.
General and administrative expense was $219,100 in the six months ended
June 30, 2000 an increase of $36,800 (20%) from $182,300 in the six months ended
June 30, 1999, a result of expenses related to the operations of the Partnership
as a public entity.
Interest expense was $36,200 in the six months ended June 30, 2000, a
decrease of $141,800 (80%) from $178,000 in the six months ended June 30, 1999,
a result of the payoff of the advance from parent upon completion of the
Partnership's IPO.
Depreciation and amortization expense increased to $601,600 in the six
months ended June 30, 2000, an increase of $338,600 (129%) from $263,000 in the
six months ended June 30, 1999 as a result of additional depreciation on the
cost of the VRC pipelines following their acquisition and gathering system
extensions.
Liquidity and Capital Resources
The Partnership is required to distribute, within 45 days of the end of
each quarter, all of its available cash for that quarter. For each quarter
during the subordination period, to the extent there is sufficient cash
available, the Common Unit holders have the right to receive a minimum quarterly
distribution ("MQD") of $.42 per unit.
14
Quarterly distributions will be made from operating surplus or capital
surplus. Operating surplus equals cash and cash equivalents on hand at the date
the Partnership began operations, plus cash received, less operating expenses,
debt payments, capital expenditures and reserves. After twelve consecutive
quarters in which operating surplus equals or exceeds the MQD, the Subordinated
Units will be converted to Common Units. The operating surplus for the quarter
ended June 30, 2000 is as follows:
Cash and cash equivalents, April 1, 2000.................. $ 120,100
Cash receipts less operating expenses.................. 1,037,300
Capital expenditures................................... (341,200)
-------------
Cash and cash equivalents, June 30, 2000.................. 816,200
Reserves............................................... (141,200)
-------------
Operating surplus......................................... $ 675,000
=============
The operating surplus does not include amounts due to the General
Partner and Subordinated Unit holders which were netted out of amounts due the
General Partner and, accordingly, were deemed to have been paid to the
Partnership and subsequently distributed.
Net cash provided by operating activities increased $1,581,500 in the
six months ended June 30, 2000 as compared to the six months ended June 30, 1999
due to an increase in net income before depreciation partially offset by an
increase in accounts receivable. Net cash used in investing activities increased
$17.0 million in the six months ended June 30, 2000 as compared to June 30,
1999, a result of the payment of debt associated with the acquisition of the
Partnership's gathering systems and an increase in capital expenditures
associated with gathering system extensions. Net cash provided by financing
activities increased $16.2 million in the six months ended June 30, 2000 as
compared to June 30, 1999, a result of net proceeds received in the
Partnership's IPO partially offset by the distribution of cash to partners.
Inflation and Changes in Prices
Inflation affects the operating expenses of the gathering systems.
Increases in those expenses are not necessarily offset by increases in
transportation rates that the Partnership is able to charge. The value of the
gathering systems has been and will continue to be affected by changes in
natural gas prices. Natural gas prices are subject to fluctuations, which we are
unable to control or accurately predict.
Environmental Regulation
A continued trend to greater environmental and safety awareness and
increasing environmental regulation has resulted in higher operating costs for
the oil and gas industry and the Partnership's gathering operations. The
Predecessor has monitored the compliance of Partnership's gathering systems with
environmental and safety laws and believe they are in compliance with such laws.
To date, compliance with environmental laws has not had a material impact on the
capital expenditures, earnings or competitive position of the gathering systems.
The Partnership believes, however, that environmental and safety costs will
increase in the future. There can be no assurance that compliance with such laws
will not have material impact upon the Partnership in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All of the Predecessor's transactions were, and all of the
Partnership's transactions are, denominated in U.S. dollars and, as a result,
the Partnership does not have material exposure to currency exchange-rate risks.
The Predecessor did not, and the Partnership does not, engage in any
interest rate, foreign currency exchange rate or commodity price-hedging
transactions.
15
PART II. OTHER INFORMATION
ITEM 6. Exhibits And Reports On Form 8-K
(a) Exhibits:
27 Financial Data Schedule.
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ATLAS PIPELINE PARTNERS, L.P.
(Registrant)
Date: August 14, 2000 By: /s/ Tony C. Banks
--------------------------------------
TONY C. BANKS
President
Date: August 14, 2000 By: /s/ Michael L. Staines
--------------------------------------
MICHAEL L. STAINES
Chief Operating Officer and Secretary
Date: August 14, 2000 By: /s/ William Seiler
--------------------------------------
WILLIAM SEILER
Vice President and Controller
Date: August 14, 2000 By: /s/ Nancy J. McGurk
--------------------------------------
NANCY J. McGURK
Chief Accounting Officer
16