Magellan Midstream Partners Announces Record Quarterly Financial Results for Second...

Magellan Midstream Partners Announces Record Quarterly Financial Results for
Second Quarter
Generates 54% Higher Net Income, 34% Higher Operating Profit than Previous
Year

TULSA, Okla., Aug. 5 /PRNewswire-FirstCall/ -- Magellan Midstream
Partners, L.P. (NYSE: MMP) today reported record quarterly operating profit,
net income and distributable cash flow.
Second-quarter 2008 operating profit of $106.1 million represented a 34%
increase compared to $79.2 million for second quarter 2007. Net income grew to
$94.4 million during second quarter 2008, which is a 54% increase over the
$61.5 million reported for second quarter 2007.
"Even though our refined products transportation volumes were down 2.5%
compared to last year, our company's fee-based pipeline and terminal services
continued to generate solid results," said Don Wellendorf, chief executive
officer. "Further, our commodity-related activities produced substantially
higher profits, benefiting from increased commodity prices."
An analysis of variances by segment comparing second quarter 2008 to
second quarter 2007 is provided below based on operating margin, a financial
measure that reflects operating profit before affiliate general and
administrative (G&A) expense and depreciation and amortization:
Petroleum products pipeline system. Pipeline operating margin was $111.8
million, an increase of $18.9 million and a quarterly record for this segment.
Transportation revenues increased between periods primarily due to higher
average rates per barrel shipped. Transportation volumes increased slightly
between periods as higher shipments of liquefied petroleum gases (LPGs)
exceeded 2.5% lower refined products shipments during second quarter 2008. The
2008 period also benefited from higher fees earned for leased storage,
capacity leases and ethanol blending services.
Operating expenses declined due to a favorable settlement of an
environmental matter related to historical product releases, which resulted in
the partnership reducing its liability accrual by $12.1 million during second
quarter 2008, partially offset by increased maintenance expenses and $5.3
million less favorable product overages in the current period.
Product margin increased primarily due to higher fractionation margins
during second quarter 2008 resulting from the sale of unprocessed transmix and
increasing commodity prices, more than offsetting reduced product margin from
the partnership's supply agreement that was assigned to another party in early
2008.
Petroleum products terminals. Terminals operating margin was $26.2
million, an increase of $5.7 million. The current period benefited from
increased revenues due to expansion projects and excess throughput fees at the
partnership's marine terminals and higher additive fees at its inland
terminals, which more than offset lower inland throughput volumes. Operating
expenses increased primarily due to higher personnel costs, property taxes and
maintenance spending. Product margin increased between periods due to the sale
of additional product overages.
Ammonia pipeline system. Ammonia operating margin was $3.2 million, an
increase of $4.7 million. Revenues increased between periods due to higher
average tariff rates and additional shipments. Operating expenses declined
primarily due to lower maintenance and environmental expenses in the 2008
period.
Depreciation and amortization increased due to recent capital spending.
Net interest expense decreased in the current quarter as a result of lower
interest rates in part due to the partnership's refinancing of debt in second
quarter 2007, which resulted in $3.5 million of refinancing costs in the 2007
period.
Basic and diluted net income per limited partner unit was 80 cents for
second quarter 2008 and 66 cents for second quarter 2007. Virtually all of the
favorable impact of the $12.1 million liability reduction for the petroleum
pipeline environmental settlement, which lowered operating expenses during the
2008 period, related to previously indemnified matters which the partnership
has settled with a former affiliate. Because the initial expense for these
items had been charged to the partnership's general partner, the 2008 expense
reduction also was allocated to the general partner, resulting in no impact to
net income per limited partner unit in second quarter 2008.
Distributable cash flow, which represents the amount of cash generated
during the period that is available to pay distributions, grew 25% to $96.2
million during second quarter 2008 from $77.2 million for the corresponding
2007 quarter.
Reflecting financial results to date and expectations for the remainder of
2008, management is increasing its 2008 net income per unit guidance to
approximately $3.25, with a third-quarter 2008 estimate of 70 cents. This
guidance includes management's continued expectation that total 2008 petroleum
products pipeline volumes will be in-line with 2007 volumes as higher LPG
volumes are expected to offset about 2% lower refined products volumes this
year.
Management remains committed to its stated goal of increasing
distributions by 8% to 10% per year through 2010.
The partnership continues to project that the large majority of its
operating margin will be generated by its fee-based operations. Including
results to date and outlook for the remainder of 2008, management currently
expects product margin to account for about 20% of total operating margin
based on continuation of high petroleum prices. Future product margin
estimates include results from the partnership's petroleum products blending
activity, transmix fractionation and terminals product overages.
Management remains focused on developing growth opportunities for the
partnership. Based on the progress of expansion projects already underway, the
partnership expects to spend approximately $300 million of growth capital
during 2008, with spending of $170 million in 2009 and $80 million in 2010
required to complete these projects. The partnership continues to analyze
potential acquisitions and more than $500 million of potential growth projects
in earlier stages of development, which have been excluded from these spending
estimates.
SemGroup bankruptcy
One of the partnership's customers, SemGroup, L.P., filed for chapter 11
bankruptcy during late July. Magellan's business activities with SemGroup and
its subsidiaries included transportation and storage services as well as the
sale and purchase of commodities associated with Magellan's commodity-related
activities. Amounts owed to Magellan were insignificant at the time of
SemGroup's bankruptcy filing. Additionally, the partnership mitigated its
credit exposure to SemGroup through the use of letters of credit and liens
against product transported in its pipeline or stored in its terminals.
Management does not expect that overall demand for the partnership's services
will be materially changed as a result of SemGroup's bankruptcy filing. As a
result, management does not expect SemGroup's financial situation to have a
material adverse impact on the partnership.
An analyst call with management regarding second-quarter earnings and
outlook for the remainder of 2008 is scheduled today at 1:30 p.m. Eastern. To
participate, dial (800) 478-6251 and provide code 4897703. Investors also may
listen to the call via the partnership's web site at
http://www.magellanlp.com/webcasts.asp.
Audio replays of the conference call will be available from 4:30 p.m.
Eastern today through midnight on Aug. 11. To access the replay, dial
(888) 203-1112 and provide code 4897703. The replay also will be available at
http://www.magellanlp.com.
Management believes that investors benefit from having access to the same
financial measures utilized by the partnership. As a result, this news release
and supporting schedules include the non-generally accepted accounting
principles measures of operating margin and distributable cash flow, which are
important performance measures used by management to evaluate the economic
success of the partnership's operations. Operating margin reflects operating
profit before G&A expense and depreciation and amortization, and distributable
cash flow is an indicator of the cash available to pay distributions.
Reconciliations of operating margin to operating profit and distributable cash
flow to net income accompany this news release.
About Magellan Midstream Partners, L.P.
Magellan Midstream Partners, L.P. (NYSE: MMP) is a publicly traded
partnership formed to own, operate and acquire a diversified portfolio of
energy assets. The partnership primarily transports, stores and distributes
refined petroleum products. More information is available at
http://www.magellanlp.com.
Portions of this document constitute forward-looking statements as defined
by federal law. Although management believes any such statements are based on
reasonable assumptions, there is no assurance that actual outcomes will not be
materially different. Among the key risk factors that may have a direct impact
on the partnership's results of operations and financial condition are: (1)
its ability to identify growth projects or to complete identified projects on
time and at projected costs; (2) price fluctuations for natural gas liquids
and refined petroleum products; (3) overall demand for natural gas liquids,
refined petroleum products, natural gas, oil and ammonia in the United States;
(4) changes in the partnership's tariff rates implemented by the Federal
Energy Regulatory Commission, the United States Surface Transportation Board
and state regulatory agencies; (5) shut-downs or cutbacks at major refineries,
petrochemical plants, ammonia production facilities or other businesses that
use or supply the partnership's services; (6) changes in the throughput or
interruption in service on petroleum products pipelines owned and operated by
third parties and connected to the partnership's petroleum products terminals
or petroleum products pipeline system; (7) the occurrence of an operational
hazard or unforeseen interruption for which the partnership is not adequately
insured; (8) the treatment of the partnership as a corporation for federal or
state income tax purposes or if the partnership becomes subject to significant
forms of other taxation; and (9) an increase in the competition the
partnership's operations encounter. Additional information about issues that
could lead to material changes in performance is contained in the
partnership's filings with the Securities and Exchange Commission. The
partnership undertakes no obligation to revise its forward-looking statements
to reflect events or circumstances occurring after today's date.
Contact: Paula Farrell
(918) 574-7650
paula.farrell@magellanlp.com

MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per unit amounts)
(Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
2007 2008 2007 2008

Transportation and terminals
revenues $150,070 $162,367 $293,221 $306,959
Product sales revenues 177,902 110,364 326,565 312,082
Affiliate management fee
revenue 183 183 356 366

Total revenues 328,155 272,914 620,142 619,407
Costs and expenses:
Operating 60,027 56,965 121,002 112,557
Product purchases 156,588 75,292 290,568 252,860
Depreciation and amortization 15,695 17,434 31,135 34,610
Affiliate general and
administrative 17,741 18,454 35,426 36,234

Total costs and expenses 250,051 168,145 478,131 436,261
Gain on assignment of supply
agreement - - - 26,492
Equity earnings 1,106 1,377 1,869 1,782

Operating profit 79,210 106,146 143,880 211,420
Interest expense 15,072 12,751 29,939 25,687
Interest income (746) (291) (1,117) (584)
Interest capitalized (1,205) (1,110) (2,102) (2,412)
Debt placement fee
amortization 1,154 169 1,799 337
Debt prepayment premium 1,984 - 1,984 -
Other (income) expense 699 (249) 699 (249)

Income before provision for
income taxes 62,252 94,876 112,678 188,641
Provision for income taxes 800 502 1,524 945

Net income $61,452 $94,374 $111,154 $187,696

Allocation of net income:
Limited partners' interest $43,790 $53,736 $80,641 $113,356
General partner's interest 17,662 40,638 30,513 74,340

Net income $61,452 $94,374 $111,154 $187,696

Basic net income per limited
partner unit $0.66 $0.80 $1.21 $1.70

Weighted average number of
limited partner units
outstanding used for basic
net income per unit
calculation 66,549 66,851 66,543 66,812

Diluted net income per
limited partner unit $0.66 $0.80 $1.21 $1.70

Weighted average number of
limited partner units
outstanding used for diluted
net income per unit
calculation 66,549 66,851 66,547 66,812

MAGELLAN MIDSTREAM PARTNERS, L.P.
OPERATING STATISTICS

Three Months Ended Six Months Ended
June 30, June 30,
2007 2008 2007 2008
Petroleum products pipeline system:
Transportation revenue per barrel
shipped $1.146 $1.169 $1.149 $1.161

Volume shipped (million barrels) 76.9 77.3 148.2 146.2

Petroleum products terminals:
Marine terminal average storage
utilized (million barrels per month) 21.3 22.8 21.5 22.8

Inland terminal throughput
(million barrels) 29.3 28.3 57.5 55.4

Ammonia pipeline system:
Volume shipped (thousand tons) 186 227 400 447

MAGELLAN MIDSTREAM PARTNERS, L.P.
OPERATING MARGIN RECONCILIATION TO OPERATING PROFIT
(Unaudited, in thousands)

Three Months Ended Six Months Ended
June 30, June 30,
2007 2008 2007 2008
Petroleum products pipeline
system:
Transportation and
terminals revenues $114,385 $121,169 $221,696 $227,492
Less: Operating expenses 42,314 39,977 85,256 82,237

Transportation and
terminals margin 72,071 81,192 136,440 145,255

Product sales revenues 174,471 102,585 318,736 295,482
Less: Product purchases 154,933 73,577 286,359 248,198
Product margin 19,538 29,008 32,377 47,284
Add: Affiliate
management fee revenue 183 183 356 366
Equity earnings 1,106 1,377 1,869 1,782
Gain on assignment of
supply agreement - - - 26,492

Operating margin $92,898 $111,760 $171,042 $221,179

Petroleum products
terminals:
Transportation and
terminals revenues $32,014 $35,970 $63,763 $69,571
Less: Operating expenses 13,145 15,685 27,106 28,214

Transportation and
terminals margin 18,869 20,285 36,657 41,357

Product sales revenues 3,431 7,779 7,829 16,600
Less: Product purchases 1,786 1,845 4,468 4,922

Product margin 1,645 5,934 3,361 11,678

Operating margin $20,514 $26,219 $40,018 $53,035

Ammonia pipeline system:
Transportation and
terminals revenues $4,498 $5,986 $9,413 $11,406
Less: Operating expenses 5,981 2,812 11,520 5,066

Operating margin (loss) $(1,483) $3,174 $(2,107) $6,340

Segment operating margin $111,929 $141,153 $208,953 $280,554
Add: Allocated corporate
depreciation costs 717 881 1,488 1,710

Total operating margin 112,646 142,034 210,441 282,264

Less: Depreciation and
amortization 15,695 17,434 31,135 34,610
Affiliate general
and administrative 17,741 18,454 35,426 36,234

Total operating profit $79,210 $106,146 $143,880 $211,420

Note: Amounts may not sum to figures shown on the consolidated statement
of income due to intersegment eliminations and allocated corporate
depreciation costs.

MAGELLAN MIDSTREAM PARTNERS, L.P.
ALLOCATION OF NET INCOME
(In thousands, unless otherwise noted)
(Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
2007 2008 2007 2008

Net income $61,452 $94,374 $111,154 $187,696
Direct charges to the general
partner:
Reimbursable general and
administrative costs (a) 1,604 408 1,880 816
Previously indemnified
environmental charges 622 (11,291) 2,872 (9,762)

Total direct charges (credits)
to general partner 2,226 (10,883) 4,752 (8,946)

Income before direct charges
(credits) to general partner 63,678 83,491 115,906 178,750
General partner's share of
income(b) 31.23% 35.64% 30.43% 36.58%

General partner's allocated
share of net income before
direct charges (credits) 19,888 29,755 35,265 65,394
Direct charges (credits) to
general partner 2,226 (10,883) 4,752 (8,946)

Net income allocated to
general partner $17,662 $40,638 $30,513 $74,340

Net income $61,452 $94,374 $111,154 $187,696
Less: net income allocated to
general partner 17,662 40,638 30,513 74,340

Net income allocated to
limited partners $43,790 $53,736 $80,641 $113,356

(a) Reimbursable G&A costs for the three and six months ended June 30,
2007 include a $1.3 million unusual non-cash expense related to a
payment by MGG Midstream Holdings, L.P., an affiliate indirectly
owning a portion of the partnership's general partner. This item did
not impact cash available for distributions.

(b) For periods when the distributions the partnership pays exceed its
net income, the general partner's percentage share of income is its
proportion of cash distributions paid for the period. For periods
when net income exceeds the cash distributions the partnership pays,
the general partner's percentage share of income is its proportion of
theoretical cash distributions that equal net income (before direct
charges to the general partner). For the second quarter of 2007 and
2008, a per unit theoretical cash distribution of $0.658 and $0.805,
respectively, would have resulted in total distributions equal to net
income before direct charges to the general partner for each period.
The general partner's share of net income for the six months ended
June 30, 2007 is based on its share of actual distributions paid for
the first quarter and theoretical distributions for the second
quarter. The general partner's share of net income for the six
months ended June 30, 2008 is based on its share of theoretical
distributions for the first and second quarters of the year.

MAGELLAN MIDSTREAM PARTNERS, L.P.
DISTRIBUTABLE CASH FLOW
(Unaudited, in millions)

Three Months Ended Six Months Ended
June 30, June 30,
2007 2008 2007 2008

Net income $61.5 $94.4 $111.2 $187.7
Add: Depreciation and amortization (1) 16.8 17.6 32.9 34.9
Equity-based incentive
compensation (2) 2.2 1.4 1.6 (1.0)
Direct charges (credits) to
general partner 2.2 (10.9) 4.7 (9.0)
Asset retirements and
impairments 3.5 1.6 4.4 1.7
Less: Maintenance capital (net of
expected reimbursements and
indemnified spending) (3) 8.6 7.4 13.9 14.8
Gain on assignment of supply - - - 26.5
Other 0.4 0.5 1.9 0.5

Distributable cash flow (4) $77.2 $96.2 $139.0 $172.5

(1) Depreciation and amortization includes debt placement fee
amortization.

(2) Because the partnership intends to satisfy vesting of units under its
equity-based incentive compensation program with the issuance of
limited partner units, expenses related to this program generally are
deemed non-cash and added back for distributable cash flow purposes.
Total equity-based incentive compensation expense for the six months
ended June 30, 2007 and 2008 was $5.9 million and $3.5 million,
respectively. However, the figures above include an adjustment for
tax withholdings paid by the partnership during first quarter 2007
and 2008 of $4.3 million and $4.5 million, respectively, for
equity-based incentive compensation units that vested on the previous
year end.

(3) The partnership paid the following additional amounts for indemnified
maintenance capital projects related to its indemnification
settlement or for which it expects third-party reimbursement: for the
three months ended June 30, 2007 and 2008, $1.1 million and $3.2
million, respectively; and for the six months ended June 30, 2007 and
2008, $2.1 million and $3.5 million, respectively.

(4) Distributable cash flow does not include fluctuations related to
working capital or spending for which the partnership has received,
or expects to receive, reimbursement through third party
indemnifications. Through June 30, 2007 and 2008, the partnership has
either paid or accrued liabilities totaling $82.5 million and $80.2
million, respectively, which were covered by an indemnification
settlement for which the partnership has received the full amount of
$117.5 million.

SOURCE Magellan Midstream Partners, L.P.

Paula Farrell of Magellan Midstream Partners, L.P., +1-918-574-7650,
paula.farrell@magellanlp.com