TULSA, Okla. – Magellan Midstream Partners, L.P. (NYSE: MMP) today reported increased operating profit, net income and net income per limited partner unit for third-quarter 2005 compared to third-quarter 2004.
Third-quarter 2005 operating profit was $53.7 million compared to $39.2 million for third-quarter 2004, representing a 37% increase. Net income increased to $40.8 million during third-quarter 2005 from $30.6 million in the corresponding 2004 period, a 33% increase. Net income per limited partner unit was 56 cents during third-quarter 2005 compared to 48 cents during 2004, a 17% increase.
“The quarter benefited from acquisitions and growth projects completed over the last twelve months and from higher profits associated with our commodity management and supply activities,” said Don Wellendorf, chief executive officer. “Our assets continue to produce strong cash flows substantially in excess of the increased distribution level announced last week.”
An analysis of variances by segment comparing third-quarter 2005 to third-quarter 2004 is provided below based on operating margin, a financial measure that reflects operating profit before general and administrative (G&A) expenses and depreciation and amortization:
Petroleum products pipeline system. Pipeline operating margin was $66.9 million, an increase of $22.9 million and a quarterly record for this segment. Record quarterly transportation barrels shipped primarily due to the pipeline system acquired during Oct. 2004 and higher commodity margins were the principal contributors to the increase. Although the partnership generally does not own the product it transports, its petroleum products management business and third-party supply agreement benefited from the sale of product during the current high price environment. Non-cash asset retirements and higher expenses associated with historical environmental incidents negatively impacted the current quarter.
Petroleum products terminals. Terminals operating margin was $15.6 million, an increase of $0.7 million. The addition of the East Houston, Texas marine terminal, which was acquired as part of the pipeline system acquisition in Oct. 2004, and the Wilmington, Delaware marine facility, which was acquired in Sept. 2005, increased operating results during third-quarter 2005. In addition, the partnership's terminals business benefited in the current period from recently completed expansion projects at two marine facilities, increased throughput at its inland terminals and higher ancillary revenues. Expenses increased between periods primarily due to increased estimates for expected remediation costs related to historical environmental incidents and asset write-offs for two docks that must be replaced at the partnership's Marrero, Louisiana marine facility following damage from Hurricane Katrina.
Ammonia pipeline system. Ammonia operating margin was $0.6 million, a decrease of $2.2 million. The positive impact of higher tariffs associated with the partnership's new transportation agreements, which became effective July 1, 2005, was more than offset by increased environmental accruals, higher property taxes due to a positive adjustment during the 2004 period and increased system integrity costs.
Depreciation and amortization, G&A and interest expenses increased between periods, all principally due to acquisitions completed over the past year. G&A also increased due to higher equity-based incentive expense related to a higher unit price and additional unit awards.
Management currently expects net income per limited partner unit for 2005 of approximately $2.00, which results in a fourth-quarter 2005 estimate of approximately 42 cents per unit.
An analyst call with management regarding third-quarter 2005 financial results is scheduled today at 1:30 p.m. Eastern. To participate, dial (800) 475-3716 and provide code 1736421. Investors also may listen to the call via the partnership's web site at http://www.magellanlp.com/webcasts.aspx.
Audio replays of the conference call will be available from 4:30 p.m. Eastern today through midnight on Nov. 2. To access the replay, dial (888) 203-1112 and provide code 1736421. The replay also will be available at http://www.magellanlp.com.
Management believes that investors benefit from having access to the same financial measures being utilized by the partnership. As a result, this news release includes a discussion of operating margin, which is an important performance measure used by management to evaluate the economic success of the partnership's operations. Operating margin is a non-GAAP measure that reflects operating profit before G&A expenses and depreciation and amortization. A reconciliation of operating margin to operating profit accompanies this release.
About Magellan Midstream Partners, L.P.
Magellan Midstream Partners, L.P. 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.
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Portions of this document may constitute forward-looking statements as defined by federal law. Although the partnership believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. 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.