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 March 31, 2002
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 office) (Zip code)
Registrant's telephone number, including area code: (412) 262-2830
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 May 1, 2002, there were outstanding 1,621,159 Common Units and
1,641,026 Subordinated Units
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2002 (Unaudited) and December 31, 2001.................... 3
Consolidated Statements of Income for the Three Months Ended March 31, 2002 and
March 31, 2001 (Unaudited).......................................................................... 4
Consolidated Statement of Partners' Capital (Deficit) (Unaudited) for the Three Months
Ended March 31, 2002................................................................................ 5
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and
March 31, 2001 (Unaudited).......................................................................... 6
Notes to Consolidated Financial Statements - March 31, 2002 (Unaudited)............................... 7 - 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................10 - 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................ 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................................................... 18
SIGNATURES ...................................................................................................... 19
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2002 (Unaudited) AND DECEMBER 31, 2001
March 31, December 31,
2002 2001
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 2,009,900 $ 2,162,200
Accounts receivable - affiliates................................................. 349,600 1,312,300
Prepaid expenses................................................................. 1,616,700 123,500
------------- -------------
Total current assets........................................................... 3,976,200 3,598,000
Property and equipment:
Gas gathering and transmission facilities........................................ 25,415,700 24,153,400
Less - accumulated depreciation.................................................. (4,489,400) (4,144,000)
------------- -------------
Net property and equipment..................................................... 20,926,300 20,009,400
Goodwill (net of accumulated amortization of $285,300).............................. 2,304,600 2,304,600
Other Assets (net of accumulated amortization of $64,600 and $53,300)............... 93,100 89,800
------------- -------------
$ 27,300,200 $ 26,001,800
============= =============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities......................................... $ 1,436,800 $ 189,600
Distribution payable............................................................. 1,785,900 2,049,600
------------- -------------
Total current liabilities...................................................... 3,222,700 2,239,200
Long-term debt...................................................................... 2,817,500 2,089,000
Partners' capital (deficit):
Common unitholders, 1,621,159 units outstanding.................................. 19,927,700 20,128,700
Subordinated unitholder, 1,641,026 units outstanding............................. 1,457,500 1,660,900
General partner.................................................................. (125,200) (116,000)
------------- -------------
Total partners' capital........................................................ 21,260,000 21,673,600
------------- -------------
$ 27,300,200 $ 26,001,800
============= =============
See accompanying notes to consolidated financial statements
3
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(Unaudited)
2002 2001
-------------- -------------
Revenues:
Transportation and compression....................................................... $ 2,576,100 $ 4,271,100
Interest income...................................................................... 1,500 9,600
-------------- -------------
Total revenues..................................................................... 2,577,600 4,280,700
Costs and expenses:
Transportation and compression....................................................... 512,100 299,300
General and administrative........................................................... 310,000 280,600
Depreciation and amortization........................................................ 345,400 322,200
Interest............................................................................. 37,800 42,300
-------------- -------------
Total costs and expenses........................................................... 1,205,300 944,400
-------------- -------------
Net income.............................................................................. $ 1,372,300 $ 3,336,300
============== =============
Net income - limited partners........................................................... $ 1,291,900 $ 2,987,600
============== =============
Net income - general partner............................................................ $ 80,400 $ 348,700
============== =============
Basic and diluted net income per limited partner unit................................... $ .40 $ .92
============== =============
Weighted average limited partner units outstanding...................................... 3,262,185 3,231,193
============== =============
See accompanying notes to consolidated financial statements
4
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(Unaudited)
Number of Limited Capital (Deficit) Total
Partner Units ------------------------------------------------- Partners'
----------------------------- General Capital
Common Subordinated Common Subordinated Partner (Deficit)
------------ --------------- ------------- -------------- ------------- -------------
Balance at January 1, 2002..... 1,621,159 1,641,026 $ 20,128,700 $ 1,660,900 $ (116,000) $ 21,673,600
Distribution payable........... - - (843,000) (853,300) (89,600) (1,785,900)
Net income..................... - - 642,000 649,900 80,400 1,372,300
----------- ----------- -------------- -------------- ------------- -------------
Balance at March 31, 2002...... 1,621,159 1,641,026 $ 19,927,700 $ 1,457,500 $ (125,200) $ 21,260,000
=========== =========== ============== ============== ============== =============
See accompanying notes to consolidated financial statements
5
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(Unaudited)
2002 2001
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................................................... $ 1,372,300 $ 3,336,300
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................... 345,400 322,200
Amortization of deferred finance costs........................................... 11,300 16,100
Changes in operating assets and liabilities:
Increase in accounts receivable-affiliates and prepaid expenses.................. (530,500) (927,600)
Increase in accounts payable and accrued liabilities............................. 1,247,200 47,000
-------------- -------------
Net cash provided by operating activities...................................... 2,445,700 2,794,000
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of gathering systems................................................... (165,000) (1,400,000)
Capital expenditures................................................................ (1,097,300) (370,400)
-------------- -------------
Net cash used in investing activities.......................................... (1,262,300) (1,770,400)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on long-term debt........................................................ 728,500 1,400,000
Capital contributions............................................................... - 45,500
Distribution paid to partners....................................................... (2,049,600) (1,883,300)
Increase in other assets............................................................ (14,600) (3,000)
-------------- -------------
Net cash used in financing activities.......................................... (1,335,700) (440,800)
-------------- -------------
(Decrease) increase in cash and cash equivalents.................................... (152,300) 582,800
Cash and cash equivalents, beginning of period...................................... 2,162,200 2,043,500
-------------- -------------
Cash and cash equivalents, end of period............................................ $ 2,009,900 $ 2,626,300
============== =============
See accompanying notes to consolidated financial statements
6
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(Unaudited)
NOTE 1 - MANAGEMENT'S OPINION REGARDING INTERIM FINANCIAL STATEMENTS
In the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair statement of the results of operations
for the interim period included herein have been made.
Certain reclassifications have been made to the consolidated financial
statements for the three months ended March 31, 2001 to conform with the three
months ended March 31, 2002.
The accounting policies followed by the Partnership are set forth in
Note 2 to the Partnership's consolidated financial statements included in the
Partnership's Annual Report on Form 10-K for the fiscal year ended December 31,
2001.
NOTE 2 - THE PARTNERSHIP
The accompanying financial statements and related notes present the
Partnership's consolidated financial position as of March 31, 2002 and December
31, 2001 and the results of its consolidated operations, changes in partners'
capital (deficit) and cash flows for the three months ended March 31, 2002 and
2001.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fair Value of Financial Instruments
For cash and cash equivalents, receivables 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% and incentive interests, by the weighted
average number of outstanding Common Units and Subordinated Units (a total of
3,262,185 and 3,231,193 units as of March 31, 2002 and 2001, respectively).
Comprehensive Income
The Partnership is subject to the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income," which
requires disclosure of comprehensive income and its components. Comprehensive
income includes net income and all other changes in the 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 elements
of comprehensive income, other than net income, to report.
Cash Flow Statements
For purposes of the statements of cash flows, all highly liquid debt
instruments purchased with a maturity of three months or less are considered to
be cash equivalents.
7
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2002
(Unaudited)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Supplemental Disclosure of Cash Flow Information
Information for the three months and period ended March 31, 2002 and
2001, respectively, is as follows:
2002 2001
------------- -------------
Cash paid for:
Interest....................................................................... $ 8,400 $ -
============= =============
Non-cash activities:
Issuance of common units in exchange for
gas gathering and transmission facilities.................................... $ - $ 2,250,000
============= =============
New Accounting Standards
In June 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations," SFAS 142, "Goodwill and Other Intangible Assets,"
and SFAS 143, "Accounting for Asset Retirement Obligations."
SFAS 141 requires that the purchase method of accounting be used for
all business combinations initiated or completed after June 2001. SFAS 141 also
specifies criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill. The
adoption of SFAS 141 as of July 2001 had no impact on the Partnership's
consolidated financial statements.
SFAS 142 requires that goodwill no longer be amortized, but instead
tested for impairment at least annually. Any goodwill and any intangible asset
determined to have an indefinite useful life that is acquired in a purchase
business combination completed after June 2001 is not amortized, but is
evaluated for impairment in accordance with the appropriate existing accounting
literature. The Partnership adopted SFAS 142 on January 1, 2002, at that date,
the Partnership had unamortized goodwill in the amount of $2,304,600, which was
subject to the transition provisions of SFAS 142. The adoption of SFAS 142 as of
January 1, 2002 will reduce amortization expense for the year ended December 31,
2002 by approximately $88,000 as compared to the year ended December 31, 2001.
For the three months ended March 31, 2001, the Partnership's goodwill
amortization expense was approximately $22,000. Pro forma net income for the
three months ended March 31, 2001 would have been $3,358,300 excluding goodwill
amortization expense. Pro forma basic and diluted income per limited partner for
the three months ended March 31, 2001 would have been $.93.
SFAS 143 requires entities to record the fair value of a liability for
an asset retirement obligation in the period in which it is incurred and a
corresponding increase in the carrying amount of the related long-lived asset.
SFAS 143 will be effective for fiscal years beginning after June 15, 2002. The
Partnership is evaluating the impact of SFAS 143.
8
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2002
(Unaudited)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
In August 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Live Assets" was issued. SFAS 144 requires that one accounting
model be used for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and broadens the presentation of
discontinued operations to include more disposal transactions. The adoption of
SFAS 144 as of January 1, 2002 had no impact on the Partnership's operations or
financial position.
NOTE 4 - DISTRIBUTION DECLARED
On March 21, 2002, the Partnership declared a cash distribution of $.52
per unit on its outstanding Common Units and Subordinated Units. The
distribution represents the available cash flow for the three months ended March
31, 2002. The $1,785,900 distribution, which includes a distribution of $89,600
to the General Partner, will be paid on May 10, 2002 to unit holders of record
on March 31, 2002.
NOTE 5 - PENDING ACQUISITION
On January 18, 2002, the Partnership announced that it entered into an
agreement to acquire Triton Coal Company, LLC ("Triton"), from New Vulcan Coal
Holdings, L.L.C. and one of its affiliates (collectively, "Vulcan"). Vulcan will
make a $6.0 million cash contribution to the Partnership, which will be paid out
to the Partnership's Common Unitholders as a one-time cash distribution of $3.70
per outstanding Common Unit promptly after closing. The Partnership will issue
to Vulcan 7.0 million Common Units, 4.0 million Subordinated Units and 17.6
million deferred participation units (representing a right to receive
Subordinated Units if certain financial thresholds are achieved). The
Partnership presently has outstanding 1.62 million Common Units and 1.64 million
Subordinated Units. In connection with the Triton transaction, the General
Partner's 1.64 million subordinated units will convert into 1.48 million Common
Units, which will constitute 14.7% of the Common Units and 10.5% of the Common
and Subordinated Units in the aggregate. The current Common Unitholders, who
currently own 100% of the outstanding Common Units and approximately 49.7% of
the total outstanding Common and Subordinated Units in the aggregate, will own
approximately 16.1% of the total Common Units and 11.5% of the Common and
Subordinated Units in the aggregate. The acquisition is contingent upon approval
by the Partnership's unitholders, refinancing of Triton's and the Partnership's
debt at acceptable terms and certain other conditions customary in transactions
of this nature.
As part of the transaction, the master gathering agreement between
Atlas America, Inc. and the Partnership relating to the Partnership's
transportation of natural gas produced by Atlas and its affiliates, will be
modified so that Atlas America will continue to control, manage, maintain and
extend the gas gathering system in return for a fee and reimbursement of certain
of its expenses. Atlas will continue to sell interests in drilling partnerships
and, connect completed wells that are within the parameters established by the
agreement which remains largely unchanged, to the Partnership's gas gathering
systems.
Simultaneously with the closing of the acquisition of Triton, Atlas
will sell its interest in the General Partner to Vulcan. Both acquisition
agreements may be terminated if the transactions are not consummated by May 15,
2002, subject to an extension to June 30, 2002.
9
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 more
particularly described in Item 1, under the caption "Risk Factors", in our
annual report on Form 10-K for fiscal 2001. These risks and uncertainties could
cause actual results to differ materially. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. We undertake no obligation to publicly release the results of any
revisions to forward-looking statements which we may make to reflect events or
circumstances after the date of this Form 10-Q or to reflect the occurrence of
unanticipated events.
The following discussion provides information to assist in
understanding our financial condition and results of operation. This discussion
should be read in conjunction with our consolidated financial statements and
related notes appearing elsewhere in this report.
General
Our principal business objective is to generate income for distribution
to our unitholders from the transportation of natural gas through our gathering
systems. We completed an initial public offering of our common units in February
2000 and used the proceeds of that offering to acquire the gathering systems
formerly owned by Atlas America, Inc. and its affiliates, all subsidiaries of
Resource America, Inc. 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.
In January 2001, we acquired the gas gathering system of Kingston Oil
Corporation. The gas gathering system consists of approximately 100 miles of
pipeline located in southeastern Ohio. In March 2001, we acquired the gas
gathering system of American Refining and Exploration Company. The gas gathering
system consists of approximately 20 miles of pipeline located in Fayette County,
Pennsylvania. These acquisitions were accounted for under the purchase method of
accounting and, accordingly, we allocated the purchase prices to the assets
acquired based on their fair values at the dates of acquisition. Our results of
operations include the operations of these gathering systems from their
respective dates of acquisition.
On January 18, 2002 we entered into an agreement to acquire
substantially all of the equity interests in Triton from Vulcan. The Vulcan
entities will contribute 98% of the equity interests in Triton and $6.0 million
in cash to us in exchange for approximately 7.0 million common units,
approximately 4.0 million newly created subordinated units and approximately
17.6 million newly created deferred participation units. The deferred
participation units will convert into subordinated units only if our combined
operations meet specified target levels for distributions and available cash
from operations. In addition, Vulcan will acquire our general partner.
Triton is a coal mining company that owns and operates two large,
surface coal mines located in the Southern Powder River Basin near Gillette,
Wyoming that produce environmentally compliant, sub-bituminous coal for use by
electric utilities. Triton is one of the ten largest domestic producers of coal
in total tons produced.
10
Upon the closing of the Triton acquisition, we will make a special,
one-time distribution of $3.70 per common unit to holders of common units as of
the date of the special meeting of unitholders called to approve the
acquisition. In addition, the 1.64 million outstanding subordinated units held
by our general partner will be transferred to Resource America and will convert
into 1.48 million common units. As a result of these transactions, the Vulcan
entities will own approximately 69.2% of our outstanding common units and
approximately 77.9% of our outstanding common and subordinated units in the
aggregate. If all deferred participation units convert into subordinated units,
the Vulcan entities will own approximately 90.2% of our common and subordinated
units in the aggregate
As conditions to the completion of the Triton acquisition, we will
also:
o amend and restate our limited partnership agreement and the
limited partnership agreement of our operating subsidiary,
Atlas Pipeline Operating Partnership;
o amend, restate and consolidate our master natural gas
gathering agreement and omnibus agreement with Atlas America,
which will allow Atlas America to continue to operate our
pipeline systems and include a new commitment from Resource
America and Atlas America to drill and connect 500 wells to
our gathering systems;
o terminate our distribution support agreement with our general
partner; and
o enter into a registration rights agreement with respect to the
common units we will issue to the Vulcan entities and Resource
America.
We will need the affirmative vote of a majority of our outstanding
common units and outstanding subordinated units, each voting separately as a
class, to approve the Triton acquisition. Our general partner holds all of our
outstanding subordinated units and has agreed to vote all of them in favor of
the proposal. Accordingly, the class vote for the subordinated units approving
the Triton acquisition is assured. The Triton acquisition is also conditioned
upon the refinancing of Triton's and our debt and other conditions customary in
transactions of this nature.
The Triton acquisition agreement and the agreement by New Vulcan to
acquire our general partner will terminate if the transactions are not
consummated by May 15, 2002, subject to extension to June30, 2002 if specified
conditions are met, including the mailing of a proxy statement to our common
unitholders by May 15, 2002. We filed a preliminary proxy statement, which
describes the Triton acquisition, with the Securities and Exchange Commission on
February 15, 2002. The proxy statement has not been sent to common unitholders
as of the date of this report.
Results of Operations
Our revenues for the three months ended March 31, 2002, other than
interest income, was transportation and compression revenue. Two variables which
affect our transportation and compression revenues are:
o the volumes of natural gas transported by us, which are in
turn a function of the demand for natural gas in the regions
served by our gathering systems, and
o the transportation fees paid to us which, in turn, depend upon
the price of the natural gas we transport.
11
The following table sets forth the average volumes transported, average
transportation rates and revenues received by us for the periods indicated.
Three Months Ended
----------------------------------
March 31,
----------------------------------
2002 2001
--------------- -------------
Average daily throughput volumes in mcf............................................. 49,918 42,669
=============== =============
Average transportation rate per mcf................................................. $ .57 $ 1.11
=============== =============
Transportation and compression revenues............................................. $ 2,576,100 $ 4,271,100
=============== =============
12
Three Months Ended March 31, 2002 Compared to March 31, 2001
Revenues. Our transportation and compression revenue decreased to
$2,576,100 in the three months ended March 31, 2002 from $4,271,100 in the three
months ended March 31, 2001. The decrease of $1,695,000 (40%) resulted from a
decrease in the average transportation fees paid to us, partially offset by an
increase in the volumes of natural gas we transported.
Our average daily throughput volumes were 49,918 mcfs in the three
months ended March 31, 2002 as compared to 42,669 mcfs in the three months ended
March 31, 2001, an increase of 7,249 mcfs (17%). The increase in the average
daily throughput volume resulted principally from volumes associated with
pipelines acquired during the three months ended March 31, 2001 and new wells
added to our pipeline system; 196 wells were connected to our gathering system
and began production in the year ended December 31, 2001. These increases were
partially offset by the natural decline in production volumes inherent in the
life of a well.
Our transportation rates are primarily at fixed percentages of the
sales price of natural gas transported. Our transportation rates for natural gas
produced by Atlas America and its affiliates also have specified minimums. Our
average transportation rate was $.57 per mcf in the three months ended March 31,
2002 as compared to $1.11 per mcf in the three months ended March 31, 2001, a
decrease of $.54 per mcf (49%). In the first quarter of 2001, natural gas prices
had increased significantly over historical prices. During subsequent quarters,
prices returned to previous levels. As a result, our average transportation rate
decreased.
Interest income of $1,500 consists of interest earned on funds
temporarily invested in short-term money market accounts, a decrease of $8,100
(84%) from $9,600 for the three months ended March 31, 2001, as a result of a
decrease in funds invested and lower rates earned on those funds.
Costs and Expenses. Our transportation and compression expenses
increased to $512,100 in the three months ended March 31, 2002 as compared to
$299,300 in the three months ended March 31, 2001, an increase of $212,800
(71%). Our average cost per mcf of transportation and compression was $.11 in
the three months ended March 31, 2002 as compared to $.08 in the three months
ended March 31, 2001, an increase of $.03 (38%). This increase resulted from an
increase in compressor expenses, including lease payments, in the three months
ended March 31, 2002 as compared to the prior year, due to upgrades and
additions, and increased costs approximating $52,000 associated with operating
pipelines acquired in the three months ended March 31, 2001.
Our general and administrative expenses increased to $310,000 in the
three months ended March 31, 2002 as compared to $280,600 in the three months
ended March 31, 2001, an increase of $29,400 (10%). This increase primarily
resulted from an increase in our cost of insurance, reflecting an increase in
our operating activities and assets and insurance rates in general.
Our depreciation and amortization expense increased to $345,400 in the
three months ended March 31, 2002 as compared to $322,200 in the three months
ended December 31, 2001, an increase of $23,200 (7%). This increase resulted
from the increased asset base associated with pipeline extensions and
acquisitions.
Our interest expense decreased to $37,800 in the three months ended
March 31, 2002 as compared to $42,300 in the three months ended March 31, 2001.
This decrease of $4,500 (11%) resulted from a decrease in amortization of
deferred finance costs in the current period as compared to the prior period.
13
Liquidity and Capital Resources
Our primary cash requirements, in addition to normal operating
expenses, are debt service, sustaining capital expenditures, expansion capital
expenditures and quarterly distributions to our common unitholders, subordinated
unitholders and general partner. In addition to utilizing cash generated from
our operations, we could meet our cash requirements through borrowings under our
credit facility or through contributions from our general partner pursuant to
the distribution support agreement.
The following table summarizes our financial condition for the periods
indicated:
March 31,
----------------------------------
2002 2001
------------- -------------
Current ratio.............................................................. 1.23 to 1 1.61 to 1
Working capital............................................................ $ 753,500 $ 1,358,800
Ratio of long-term debt to total partners' capital......................... .13 to 1 .10 to 1
During the three months ended March 31, 2002, net cash provided by
operations of $2,445,700 was derived principally from $1,729,000 of income from
operations before depreciation and amortization. In the six months ended March
31, 2001 net cash provided by operations totaled $2,794,000. This decrease of
$348,300 in cash provided by operations from the prior fiscal period resulted
primarily from a decrease in income from operations before depreciation and
amortization of $1,945,600 offset by changes in operating assets and liabilities
of $1,597,300. The decrease in cash flow provided by operations was principally
due to a decrease in transportation revenue of $1,695,000 due to a decrease in
the average price per mcf received by us in the three months ended March 31,
2002 as compared to the three months ended March 31, 2001.
Net cash used in investing activities was $1,262,300 for the three
months ended March 31, 2002, a decrease of $508,100 from $1,770,400 the three
months ended March 31, 2001. Net cash used in investing activities during the
three months ended March 31, 2001 consisted of the acquisition of two small
pipelines from third parties ($1,400,000) and capital expenditures associated
with extensions and compressor upgrades to our existing pipeline systems. In the
current year, we used $165,000 for the acquisition of one small gathering system
and incurred capital expenditures of $1,097,300 associated with extensions and
compressor upgrades.
Net cash used in financing activities was $1,335,700 for the three
months ended March 31, 2002, an increase of $894,900 from cash used in financing
activities of $440,800 in the three months ended March 31, 2001. Distributions
paid to partners in the quarter increased $166,300 over the three months ended
March 31, 2001. Net borrowings of $728,500 were used to fund pipeline
extensions. In the prior fiscal period, we borrowed $1,400,000 to fund two small
pipeline acquisitions.
Commitments
Through March 31, 2002, we have incurred costs of approximately
$1,420,900 and estimate that total costs associated with the Triton acquisition,
for which we will be responsible if the transaction does not close, will
ultimately exceed $3.0 million. We would then have the right to seek
reimbursement of up to $1.2 million from the Vulcan entities if Triton had not
obtained the $225.0 million of financing that is a condition of closing. While
we will attempt to receive additional reimbursement from Atlas America, there is
no written agreement to the effect and our obligation to pay any remaining
un-reimbursed costs could adversely affect our ability to pay future minimum
quarterly distributions. If the transaction closes, we expect to use the Triton
financing to pay the transaction costs, which we estimate will be $21.0 million.
14
Contractual Obligations and Commercial Commitments
We had no commercial commitments at March 31, 2002. The following table
summarizes our contractual obligations at March 31, 2002:
Payments Due By Period
Less than 1 - 3 4 - 5 After 5
Contractual cash obligations Total 1 Year Years Years Years
Long-term debt......................... $ 2,817,500 $ - $ 2,817,500 $ - $ -
Capital lease obligations.............. - - - - -
Operating leases....................... 487,500 479,000 $ 8,500 - -
Unconditional purchase obligations..... - - - - -
Other long-term obligations............ - - - - -
------------ ----------- ------------- ----------- -----------
Total contractual cash obligations..... $ 3,305,000 $ 479,000 $ 2,826,000 $ - $ -
============ ============ ============= =========== ===========
The operating leases represent lease commitments for compressors with
varying expiration dates. These commitments are routine and were made in the
normal course of our business.
Long-Term Debt
We entered into a $10.0 million revolving credit facility in October
2000. Our principal purpose in obtaining the facility was to fund the expansion
of our existing gathering systems and the acquisitions of other gas gathering
systems. In the three months ended March 31, 2002, we used $728,500 of the
facility to fund capital expenditures for expansions of our existing gathering
systems and compressors. At March 31, 2002, $2,817,500 was outstanding on this
facility.
Capital Expenditures
Our property and equipment was approximately 77% of our total
consolidated assets at both March 31, 2002 and December 31, 2001. Capital
expenditures, other than the acquisitions of pipelines, were $1,097,300 and
$370,400 for the quarters ended March 31, 2002 and 2001, respectively. These
capital expenditures principally consisted of costs relating to expansion of our
existing gathering systems as a result of new wells connected to our system and
compressor upgrades. Future capital expenditures will be funded by a combination
of cash generated from operations and from our existing credit facility. Our
capital expenditures could increase materially if the number of wells connected
to our gathering systems in fiscal 2002 exceeds our current expectations.
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Critical Accounting Policies and Estimates
Certain amounts included in or affecting our consolidated financial
statements and related disclosures must be estimated, requiring us to make
certain assumptions with respect to values or conditions that cannot be known
with certainty at the time the financial statements are prepared.
The preparation of our consolidated financial statements in conformity
with generally accepted accounting principles requires our management to make
estimates and assumptions that affect:
o the amount we report for assets and liabilities;
o our disclosure of contingent assets and liabilities at the
date of the consolidated financial statements; and
o the amounts we report for revenues and costs and expenses
during the reporting period.
Therefore, the reported amounts of our assets and liabilities, revenues
and costs and expenses and associated disclosures with respect to contingent
assets and obligations are necessarily affected by these estimates. We evaluate
these estimates on an ongoing basis, utilizing historical experience,
consultation with experts and other methods we consider reasonable in the
particular circumstances. Nevertheless, actual results may differ significantly
from our estimates. Any effects on our business, financial position or results
of operations resulting from revisions to these estimates are recorded in the
period in which the facts that give rise to the revision become known.
In preparing our consolidated financial statements and related
disclosures, we must use estimates in determining the economic useful lives of
our assets, provisions for uncollectable accounts receivable, exposures under
contractual indemnifications and various other recorded or disclosed amounts.
However, we believe that certain accounting policies are of more significance in
our financial statement preparation process than others are. Refer to Note 2 of
the consolidated financial statements included in the Partnership" Annual Report
on Form 10-K for the fiscal year ended December 31, 2001 for further
information. With respect to our environmental exposure, we utilize both
internal and external experts to assist us in identifying environmental issues.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All of our assets and liabilities are denominated in U.S. dollars, and
as a result, we do not have exposure to currency exchange risks.
We do not engage in any interest rate, foreign currency exchange rate
or commodity price-hedging transactions, and as a result, we do not have
exposure to derivatives risk.
Market risk inherent in our debt is the potential change arising from
increases or decreases in interest rates. Changes in variable rate debt usually
do not affect the fair value of the debt instrument, but may affect our future
earnings and cash flows.
We have a $10.0 million revolving credit facility to fund the expansion
of our existing gathering systems and the acquisition of other gas gathering
systems. The carrying value of our debt was $2,817,500 and the weighted average
interest rate was 3.0% at March 31, 2002. A hypothetical 10% change in the
average interest rate applicable to this debt would result in a change of
approximately $9,000 in our net income and would not affect the market value of
this debt.
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PART II. OTHER INFORMATION
ITEM 6. Exhibits And Reports On Form 8-K
(a) Exhibits:
3(i) (1) First Amended and Restated Agreement of Limited
Partnership
3(ii) (1) Certificate of Limited Partnership of Atlas Pipeline
Partners, L.P.
3(iii)(1) Amended and Restated Agreement of Limited Partnership
of Atlas Pipeline Operating Partnership, L.P.
3(iv) (1) Certificate of Limited Partnership of Atlas Pipeline
Operating Partnership, L.P.
10(i) (2) Triton Purchase Agreement
- ------------
(1) Previously filed as an exhibit to the Partnership's registration statement
on Form S-1, Registration No. 333-85193 and incorporated herein by
reference.
(2) Previously filed as an exhibit to the Partnership's current report on form
8-K dated January 22, 2002, and incorporated herein by reference.
(b) Reports on Form 8K:
During the quarter for which this report is being filed, the
Partnership filed a current report on Form 8K dated January
22, 2002 regarding the proposed acquisition of Triton Coal
Company.
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SIGNATURES
ATLAS PIPELINE PARTNERS, L.P.
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.
By: Atlas Pipeline Partners GP, LLC,
its General Partner
Date: May 13, 2002 By: /s/ Michael L. Staines
---------------------------
MICHAEL L. STAINES
President, Chief Operating Officer,
Secretary and Managing Board Member
of the General Partner
Date: May 13, 2002 By: /s/ Nancy J. McGurk
---------------------------
NANCY J. McGURK
Chief Accounting Officer
of the General Partner
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