Magellan Midstream Delivers Record Quarterly and Annual Financial Results

  Magellan Midstream Delivers Record Quarterly and Annual Financial Results

Targets Annual Distribution Growth of 10% for 2013 and at Least 10% for 2014

PR Newswire

TULSA, Okla., Feb. 5, 2013

TULSA, Okla., Feb. 5, 2013 /PRNewswire/ -- Magellan Midstream Partners, L.P.
(NYSE: MMP) today reported record quarterly operating profit of $182.7 million
for fourth quarter 2012, an increase of $42.9 million, or 31%, compared to
$139.8 million for fourth quarter 2011.

Net income grew 39% to a quarterly record of $153.8 million for fourth quarter
2012 compared to $110.3 million for fourth quarter 2011, and diluted net
income per limited partner unit increased to a record 68 cents in fourth
quarter 2012 versus 49 cents in the corresponding 2011 period. Diluted net
income per unit excluding mark-to-market (MTM) commodity-related pricing
adjustments, a non-generally accepted accounting principles (non-GAAP)
financial measure, was 69 cents for fourth quarter 2012, slightly higher than
the 68-cent guidance provided by management in Oct. 2012. All net income per
unit amounts reflect the partnership's Oct. 2012 two-for-one split of its
units.

Distributable cash flow (DCF), a non-GAAP financial measure that represents
the amount of cash generated during the period that is available to pay
distributions, increased to a quarterly record of $179.4 million for fourth
quarter 2012 compared to $131.3 million during fourth quarter 2011.

"Magellan produced exceptional returns during 2012, generating record
operating and financial results from our current assets, launching new crude
oil opportunities that solidify our position as a key storage and logistics
provider in the crude oil space and increasing cash distributions to our
investors by 18% for the year," said Michael Mears, chief executive officer.
"We enter 2013 poised for an exciting year, with our solid business model,
strong balance sheet and attractive fee-based growth projects expected to
provide significant benefit for our investors and customers for years to
come."

An analysis by segment comparing fourth quarter 2012 to fourth quarter 2011 is
provided below based on operating margin, a non-GAAP financial measure that
reflects operating profit before general and administrative (G&A) expense and
depreciation and amortization:

Petroleum pipeline system. Pipeline operating margin was $193.4 million, an
increase of $43.2 million and a quarterly record for this segment.
Transportation and terminals revenues increased between periods primarily due
to a 10% increase in transportation volumes, driven by significantly increased
crude oil and gasoline shipments, and the partnership's mid-2012 tariff
increase. Crude volumes increased 54% resulting from deliveries to additional
locations that are now connected to the partnership's pipeline system and
increased deliveries to existing customers. Gasoline shipments increased 7%
primarily attributable to higher volumes on the partnership's South Texas
pipeline segments. The average tariff rate increased only slightly between
periods as the benefit from the 8.6% rate increase implemented on July 1, 2012
was mostly offset by more crude oil and South Texas gasoline movements, which
ship at a lower rate than the partnership's other pipeline shipments.

Operating expenses increased between periods primarily due to less favorable
product overages (which reduce operating expenses) in fourth quarter 2012,
partially offset by lower environmental accruals and less integrity spending
in the current period based on the timing of maintenance projects.

Product margin (defined as product sales revenues less product purchases)
increased $35.3 million between periods, including a $21.3 million increase
associated with the timing of MTM adjustments for New York Mercantile Exchange
(NYMEX) positions used to economically hedge the partnership's
commodity-related activities and other inventory adjustments. Details of these
items can be found on the Distributable Cash Flow Reconciliation to Net Income
schedule that accompanies this news release. The partnership's actual cash
product margin, which reflects only transactions that settled during the
quarter, increased between periods primarily due to higher petroleum products
blending profits as a result of selling more product at higher margins.

Petroleum terminals. Terminals operating margin was $50.1 million, an increase
of $5.3 million and a quarterly record for this segment. The current period
primarily benefited from new refined products tanks and higher rates at the
partnership's marine terminals. Operating expenses decreased due to accruals
in fourth quarter 2011 for potential historical air emission fees and
increased integrity spending, partially offset by favorable adjustments in
2011 for property taxes and an insurance settlement to replace historical
hurricane-damaged assets, with no such items benefitting fourth-quarter 2012
results. Product margin increased due to the sale of additional product
overages in the current period.

Ammonia pipeline system. Ammonia operating margin was $4.3 million, an
increase of $1 million. Revenues increased due to a higher average rate
resulting from the partnership's mid-2012 tariff increase and more volumes
transported under a higher-rate movement in 2012. Expenses decreased slightly
because of lower asset integrity costs resulting from hydrostatic testing
conducted on the pipeline during 2011.

Other items. Depreciation and amortization increased due to recent expansion
capital expenditures, and G&A expenses increased primarily due to higher
personnel costs resulting from increased benefit costs and enhanced payout
expectations for equity-based incentive compensation programs due to the
partnership's better-than-expected current and projected financial results.
Net interest expense also increased in the current quarter as a result of
additional borrowings due to the partnership's Nov. 2012 debt offering to fund
capital spending. As of Dec. 31, 2012, the partnership had $2.4 billion of
debt outstanding and $328.3 million of cash on hand.

Annual results

The partnership also produced record annual financial results in 2012. For the
year ended Dec. 31, 2012, operating profit was $552.1 million compared to
$522.9 million in the corresponding 2011 timeframe. Annual net income was
$435.7 million in 2012 compared to $413.6 million in 2011, and full-year
diluted net income per limited partner unit was $1.92 in 2012 and $1.83 in
2011. Annual DCF was a record $539.8 million in 2012, or 1.3 times the amount
needed to pay distributions related to 2012, compared to $460.5 million in
2011.

Expansion capital spending expectations

Management remains focused on expansion opportunities, making significant
progress on its current slate of projects with a record $365 million spent
during 2012 on organic growth construction projects. Based on the progress of
expansion projects already underway, the partnership plans to spend
approximately $700 million during 2013 with an additional $290 million of
spending in 2014 to complete these projects.

Magellan's Crane-to-Houston pipeline project (also known as the Longhorn
pipeline) remains on schedule, with the partnership expecting to begin filling
the reversed pipeline with crude oil in mid-March 2013 and beginning partial
operations at an estimated 75,000 barrels per day (bpd) in mid-April,
increasing to its full 225,000-bpd capacity in the third quarter of 2013. The
Double Eagle joint venture is also proceeding and expected to be partially
operational in March 2013, with full operation expected in the third quarter
of 2013.

The recently-launched BridgeTex pipeline joint venture is underway, with
right-of-way and permitting work in process. This pipeline is still expected
to be operational in mid-2014.

The partnership also continues to evaluate more than $500 million of potential
growth projects in earlier stages of development as well as possible
acquisitions, both of which have been excluded from these spending estimates.

Financial guidance for 2013

Management currently expects to generate record DCF in 2013 of $570 million
and is targeting annual distribution growth of 10% for 2013. Net income per
limited partner unit is estimated to be $2.20 for 2013, with first-quarter
guidance of 45 cents. Guidance excludes future NYMEX MTM adjustments on the
partnership's commodity-related activities.

Based on the progress of Magellan's active growth projects, management
currently believes it will be able to achieve annual distribution growth of at
least 10% for 2014.

Management continues to believe the large majority of the partnership's
operating margin will be generated by fee-based transportation and terminals
services, with commodity-related activities contributing 15% or less of the
partnership's operating margin.

Earnings call details

An analyst call with management regarding fourth-quarter results and 2013
guidance is scheduled today at 1:30 p.m. Eastern. To participate, dial (888)
389-5988 and provide code 1041722. Investors also may listen to the call via
the partnership's website at www.magellanlp.com/webcasts.aspx.

Audio replays of the conference call will be available from 4:30 p.m. Eastern
today through midnight on Feb. 11. To access the replay, dial (888) 203-1112
and provide code 1041722. The replay also will be available at
www.magellanlp.com.

Non-GAAP financial measures

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-GAAP financial measures of operating
margin, product margin, DCF and net income per unit excluding MTM
commodity-related pricing adjustments, which are important performance
measures used by management.

Operating margin reflects operating profit before G&A expense and depreciation
and amortization. This measure forms the basis of the partnership's internal
financial reporting and is used by management to evaluate the economic
performance of the partnership's operations.

Product margin, which is calculated as product sales revenues less product
purchases, is used by management to evaluate the profitability of the
partnership's commodity-related activities.

DCF is important in determining the amount of cash generated from the
partnership's operations that is available for distribution to its
unitholders. Management uses this measure as a basis for recommending to the
board of directors the amount of cash distributions to be paid each period.

Reconciliations of operating margin to operating profit and DCF to net income
accompany this news release.

The partnership uses NYMEX futures contracts to hedge against price changes of
petroleum products associated with its commodity-related activities. Most of
these NYMEX contracts do not qualify for hedge accounting treatment. However,
because these NYMEX contracts are generally effective at hedging price
changes, management believes the partnership's profitability should be
evaluated excluding the unrealized NYMEX gains and losses associated with
petroleum products that will be sold in future periods. Further, because the
financial guidance provided by management generally excludes future MTM
commodity-related pricing adjustments, a reconciliation of actual results to
those excluding these adjustments is provided for comparability to previous
financial guidance.

The partnership's supporting schedules also include the non-GAAP financial
measure of Adjusted EBITDA, which is an important financial measure utilized
by the investment community to assess the financial results of an entity. A
reconciliation of Adjusted EBITDA to net income accompanies this news release.

Because the non-GAAP measures presented in this news release include
adjustments specific to the partnership, they may not be comparable to
similarly-titled measures of other companies.

About Magellan Midstream Partners, L.P.

Magellan Midstream Partners, L.P. (NYSE: MMP) is a publicly traded partnership
that primarily transports, stores and distributes petroleum products. The
partnership owns the longest refined petroleum products pipeline system in the
country, with access to more than 40% of the nation's refining capacity, and
can store 80 million barrels of petroleum products such as gasoline, diesel
fuel and crude oil. More information is available at www.magellanlp.com.

Forward-Looking Statement Disclaimer

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 expected costs; (2) price fluctuations and changes in demand for
refined petroleum products, crude oil and natural gas liquids, or changes in
demand for transportation or storage of those commodities through its existing
or planned facilities; (3) changes in the partnership's tariff rates imposed
by the Federal Energy Regulatory Commission, the United States Surface
Transportation Board or state regulatory agencies; (4) shut-downs or cutbacks
at major refineries, petrochemical plants, ammonia production facilities or
other businesses that use or supply the partnership's services; (5) changes in
the throughput or interruption in service on petroleum pipelines owned and
operated by third parties and connected to the partnership's terminals or
pipelines; (6) the occurrence of an operational hazard or unforeseen
interruption for which the partnership is not adequately insured; (7) 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; (8) an increase in the competition the partnership's operations
encounter; (9) disruption in the debt and equity markets that negatively
impacts the partnership's ability to finance its capital spending; and (10)
failure of customers to meet or continue contractual obligations to the
partnership. 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, including the partnership's Annual Report
on Form 10-K for the fiscal year ended Dec. 31, 2011 and subsequent reports on
Forms 8-K and 10-Q. The partnership undertakes no obligation to revise its
forward-looking statements to reflect events or circumstances occurring after
today's date.

MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per unit amounts)
(Unaudited)
                                 Three Months Ended    Year Ended
                                 December 31,          December 31,
                                 2011       2012       2011       2012
Transportation and terminals     $ 232,705  $ 248,937  $ 893,369  $ 970,744
revenues
Product sales revenues           254,036    252,906    854,528    799,382
Affiliate management fee revenue 192        1,352      770        1,948
Total revenues                   486,933    503,195    1,748,667  1,772,074
Costs and expenses:
Operating                        73,273     74,404     306,415    328,454
Product purchases                216,654    178,179    706,270    657,108
Depreciation and amortization    30,918     33,324     121,179    128,012
General and administrative       28,328     32,694     98,669     109,403
Total costs and expenses         349,173    318,601    1,232,533  1,222,977
Equity earnings (loss)           1,998      (1,914)    6,763      2,961
Operating profit                 139,758    182,680    522,897    552,058
Interest expense                 29,063     30,627     108,869    117,981
Interest income                  (39)       (27)       (61)       (107)
Interest capitalized             (648)      (2,864)    (3,174)    (6,195)
Debt placement fee amortization  651        531        1,831      2,087
expense
Income before provision for      110,731    154,413    415,432    438,292
income taxes
Provision for income taxes       469        610        1,866      2,622
Net income                       $ 110,262  $ 153,803  $ 413,566  $ 435,670
Allocation of net income (loss):
Limited partners' interest       $ 110,262  $ 153,803  $ 413,629  $ 435,670
Non-controlling owners' interest —          —          (63)       —
Net income                       $ 110,262  $ 153,803  $ 413,566  $ 435,670
Basic and diluted net income per $ 0.49     $ 0.68     $ 1.83     $ 1.92
limited partner unit
Weighted average number of
limited partner units            225,748    226,434    225,674    226,369
outstanding used for basic net
income per unit calculation
Weighted average number of
limited partner units            226,936    227,383    225,974    226,608
outstanding used for diluted net
income per unit calculation

MAGELLAN MIDSTREAM PARTNERS, L.P.
OPERATING STATISTICS
                                        Three Months Ended  Year Ended
                                        December 31,        December 31,
                                        2011      2012      2011      2012
Petroleum pipeline system:
Transportation revenue per barrel       $ 1.067   $ 1.069   $ 1.082   $ 1.086
shipped
Volume shipped (million barrels):
Refined products:
Gasoline                                55.8      59.9      208.9     223.7
Distillates                             37.0      36.8      136.0     136.7
Aviation fuel                           5.0       4.8       25.3      21.5
Liquefied petroleum gases               0.4       0.6       4.9       8.5
Crude oil                               13.4      20.6      43.2      72.0
Total volume shipped                    111.6     122.7     418.3     462.4
Petroleum terminals:
Storage terminal average utilization    34.2      34.4      32.1      34.5
(million barrels per month)
Inland terminal throughput (million     29.3      28.5      115.6     116.2
barrels)
Ammonia pipeline system:
Volume shipped (thousand tons)          181       178       727       770

MAGELLAN MIDSTREAM PARTNERS, L.P.
OPERATING MARGIN RECONCILIATION TO OPERATING PROFIT
(Unaudited, in thousands)
                                Three Months Ended      Year Ended
                                December 31,            December 31,
                                2011        2012        2011        2012
Petroleum pipeline system:
Transportation and terminals    $ 165,034   $ 178,652   $ 637,764   $ 691,714
revenues
Less: Operating expenses        49,411      51,682      199,933     225,139
Transportation and terminals    115,623     126,970     437,831     466,575
margin
Product sales revenues          246,952     244,605     824,763     766,967
Less: Product purchases         214,558     176,932     697,927     644,958
Product margin                  32,394      67,673      126,836     122,009
Add: Affiliate management fee  192         1,138       770         1,734
revenue
Equity earnings (loss)          1,997       (2,336)     6,761       2,583
Operating margin                $ 150,206   $ 193,445   $ 572,198   $ 592,901
Petroleum terminals:
Transportation and terminals    $ 62,154    $ 63,927    $ 234,965   $ 254,121
revenues
Less: Operating expenses        21,628      20,761      93,031      95,160
Transportation and terminals    40,526      43,166      141,934     158,961
margin
Product sales revenues          7,730       8,301       31,175      32,879
Less: Product purchases         3,442       1,961       12,761      15,447
Product margin                  4,288       6,340       18,414      17,432
Add: Affiliate management fee  —           214         —           214
revenue
Equity earnings                 1           422         2           378
Operating margin                $ 44,815    $ 50,142    $ 160,350   $ 176,985
Ammonia pipeline system:
Transportation and terminals    $ 6,217     $ 7,072     $ 23,648    $ 27,742
revenues
Less: Operating expenses        2,963       2,814       16,369      11,110
Operating margin                $ 3,254     $ 4,258     $ 7,279     $ 16,632
Segment operating margin        $ 198,275   $ 247,845   $ 739,827   $ 786,518
Add: Allocated corporate        729         853         2,918       2,955
depreciation costs
Total operating margin          199,004     248,698     742,745     789,473
Less:
Depreciation and amortization   30,918      33,324      121,179     128,012
expense
General and administrative      28,328      32,694      98,669      109,403
expense
Total operating profit          $ 139,758   $ 182,680   $ 522,897   $ 552,058

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.
RECONCILIATION OF NET INCOME AND NET INCOME PER LIMITED PARTNER UNIT
EXCLUDING MARK-TO-MARKET COMMODITY-RELATED PRICING ADJUSTMENTS
TO GAAP MEASURE
(Unaudited, in thousands except per unit amounts)
                                 Three Months Ended
                                 December 31, 2012
                                             Basic Net Income  Diluted Net
                                 Net Income  Per Limited       Income Per
                                             Partner Unit      Limited Partner
                                                               Unit
As reported                      $ 153,803   $    0.68         $   0.68
Deduct: Unrealized derivative
gains associated with future     (26)        —                 —
physical product transactions
Add: Lower-of-cost-or-market    2,000       0.01              0.01
adjustments
Excluding commodity-related      $ 155,777   $    0.69         $   0.69
adjustments
Weighted average number of
limited partner units            226,434
outstanding used for basic net
income per unit calculation
Weighted average number of
limited partner units            227,383
outstanding used for diluted
net income per unit calculation

*Please see Distributable Cash Flow Reconciliation to Net Income for further
descriptions of the commodity-related adjustments.

MAGELLAN MIDSTREAM PARTNERS, L.P.
DISTRIBUTABLE CASH FLOW RECONCILIATION TO NET INCOME
(Unaudited, in thousands)
                        Three Months Ended    Year Ended
                        December 31,          December 31,          2013
                        2011       2012       2011       2012       Guidance
Net income              $ 110,262  $ 153,803  $ 413,566  $ 435,670  $ 500,000
Interest expense, net   28,376     27,736     105,634    111,679    120,000
Depreciation and        31,569     33,855     123,010    130,099    148,000
amortization ^(1)
Equity-based incentive  5,924      8,481      10,243     8,038      7,000
compensation ^(2)
Asset retirements and   1,070      2,047      8,599      12,622     7,000
impairments
Commodity-related
adjustments:
Derivative
losses/(gains)
recognized in the       7,925      (26)       (5,909)    6,424
period associated with
future product
transactions ^(3)
Derivative gains
(losses) recognized in
previous periods        12,019     (18,171)   (15,162)   (12,893)
associated with product
sales completed in the
period ^ (4)
Lower-of-cost-or-market (1,967)    2,000      1,017      983
adjustments
Houston-to-El Paso cost
of sales                (2,702)    10,153     (2,316)    18,380
adjustments^(5)
Total commodity-related 15,275     (6,044)    (22,370)   12,894     (8,000)
adjustments
Other                   (1,114)    4,413      (2,504)    4,850      (9,000)
Adjusted EBITDA         191,362    224,291    636,178    715,852    765,000
Interest expense, net   (28,376)   (27,736)   (105,634)  (111,679)  (120,000)
Maintenance capital     (31,717)   (17,202)   (70,002)   (64,396)   (75,000)
Distributable cash flow $ 131,269  $ 179,353  $ 460,542  $ 539,777  $ 570,000
Distributable cash flow
per limited partner     $ 0.58     $ 0.79     $ 2.04     $ 2.39     $ 2.51
unit
Weighted average number
of limited partner      226,200    226,679    225,656    226,320    226,679
units paid
distributions

^(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 years ended December 31, 2011 and 2012
was $17.6 million and $21.0 million, respectively. However, the figures above
include an adjustment for minimum statutory tax withholdings paid by the
partnership in 2011 and 2012 of $7.4 million and $13.0 million, respectively,
for equity-based incentive compensation units that vested on the previous year
end, which reduce distributable cash flow.

^(3) Certain derivatives the partnership uses as economic hedges have not
been designated as hedges for accounting purposes and the mark-to-market
changes of these derivatives are recognized currently in earnings. These
amounts represent the gains or losses from economic hedges in the
partnership's earnings for the period associated with products that had not
yet been physically sold as of the period end date.

^(4) When the partnership physically sells products that it has economically
hedged (but were not designated as hedges for accounting purposes), it
includes in its distributable cash flow calculations the full amount of the
change in fair value of the associated derivative agreement.

^(5) Cost of goods sold adjustment related to commodity activities for the
partnership's Houston-to-El Paso pipeline to more closely resemble current
market prices for distributable cash flow purposes rather than average
inventory costing as used to determine the partnership's results of
operations.

Contact: Paula Farrell
         (918) 574-7650
         paula.farrell@magellanlp.com



SOURCE Magellan Midstream Partners, L.P.

Website: http://www.magellanlp.com
 
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