XNYS:MMP Magellan Midstream Partners, L.P. Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ________________________________________
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2012
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 No.: 1-16335
 __________________________________________
 Magellan Midstream Partners, L.P.
(Exact name of registrant as specified in its charter)
Delaware
 
73-1599053
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
One Williams Center, P.O. Box 22186, Tulsa, Oklahoma 74121-2186
(Address of principal executive offices and zip code)
(918) 574-7000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
Large accelerated filer  x        Accelerated filer  £      Non-accelerated filer  £        Smaller reporting company  £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes  £    No  x
As of August 1, 2012, there were 113,100,436 outstanding limited partner units of Magellan Midstream Partners, L.P. that trade on the New York Stock Exchange under the ticker symbol "MMP."
 
 
 
 
 



TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
 
ITEM 1.
CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 
 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
 
 
1.
 
 
2.
 
 
3.
 
 
4.
 
 
5.
 
 
6.
 
 
7.
 
 
8.
 
 
9.
 
 
10.
 
 
11.
 
 
12.
 
 
13.
 
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
 
 
 
 
 
 
 
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4.
CONTROLS AND PROCEDURES
 
 
 
PART II
OTHER INFORMATION
 
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.

 


1


PART I
FINANCIAL INFORMATION

ITEM 1.
CONSOLIDATED FINANCIAL STATEMENTS

MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per unit amounts)
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2011
 
2012
 
2011
 
2012
Transportation and terminals revenues
$
223,192

 
$
248,761

 
$
428,600

 
$
466,315

Product sales revenues
159,943

 
200,568

 
397,239

 
476,298

Affiliate management fee revenue
192

 
198

 
385

 
397

Total revenues
383,327

 
449,527

 
826,224

 
943,010

Costs and expenses:
 
 
 
 
 
 
 
Operating
81,323

 
82,326

 
143,684

 
150,778

Product purchases
118,836

 
144,498

 
330,066

 
393,110

Depreciation and amortization
30,664

 
31,486

 
60,027

 
62,996

General and administrative
25,281

 
25,414

 
49,871

 
49,158

Total costs and expenses
256,104

 
283,724

 
583,648

 
656,042

Equity earnings
1,443

 
1,478

 
2,810

 
3,126

Operating profit
128,666

 
167,281

 
245,386

 
290,094

Interest expense
25,988

 
29,118

 
52,474

 
58,241

Interest income
(1
)
 
(29
)
 
(11
)
 
(64
)
Interest capitalized
(1,190
)
 
(1,028
)
 
(1,861
)
 
(1,892
)
Debt placement fee amortization expense
385

 
518

 
770

 
1,037

Income before provision for income taxes
103,484

 
138,702

 
194,014

 
232,772

Provision for income taxes
485

 
881

 
950

 
1,427

Net income
$
102,999

 
$
137,821

 
$
193,064

 
$
231,345

Allocation of net income (loss):
 
 
 
 
 
 
 
Non-controlling owners’ interest
$

 
$

 
$
(63
)
 
$

Limited partners’ interest
102,999

 
137,821

 
193,127

 
231,345

Net income
$
102,999

 
$
137,821

 
$
193,064

 
$
231,345

Basic and diluted net income per limited partner unit
$
0.91

 
$
1.22

 
$
1.71

 
$
2.04

Weighted average number of limited partner units outstanding used for basic and diluted net income per unit calculation
112,847

 
113,214

 
112,804

 
113,153


See notes to consolidated financial statements.


2


MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2011
 
2012
 
2011
 
2012
Net income
$
102,999

 
$
137,821

 
$
193,064

 
$
231,345

Other comprehensive income:
 
 

 
 
 

Net gain on interest rate cash flow hedges

 
1,008

 

 
1,008

Net gain on commodity cash flow hedges
4,613

 
1,667

 
4,613

 
1,667

Reclassification of net gain on interest rate cash flow hedges to interest expense
(41
)
 
(41
)
 
(82
)
 
(82
)
Amortization of prior service credit and actuarial loss
77

 
853

 
155

 
1,705

Total other comprehensive income
4,649

 
3,487

 
4,686

 
4,298

Comprehensive income
107,648

 
141,308

 
197,750

 
235,643

Comprehensive loss attributable to non-controlling owners’ interest in consolidated subsidiaries

 

 
(63
)
 

Comprehensive income attributable to partners’ capital
$
107,648

 
$
141,308

 
$
197,813

 
$
235,643

See notes to consolidated financial statements.

 

3


MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 
December 31,
2011
 
June 30,
2012
ASSETS
 
 
(Unaudited)
Current assets:
 
 
 
Cash and cash equivalents
$
209,620

 
$
233,716

Trade accounts receivable (less allowance for doubtful accounts of $68 and $0 at December 31, 2011 and June 30, 2012, respectively)
82,497

 
82,201

Other accounts receivable
10,079

 
11,400

Inventory
258,860

 
215,667

Energy commodity derivatives contracts, net
4,914

 
13,878

Energy commodity derivatives deposits, net
26,917

 
8,239

Reimbursable costs
5,891

 
5,042

Other current assets
13,412

 
21,707

Total current assets
612,190

 
591,850

Property, plant and equipment
4,080,484

 
4,173,150

Less: accumulated depreciation
830,762

 
883,467

Net property, plant and equipment
3,249,722

 
3,289,683

Equity investments
35,594

 
51,439

Long-term receivables
2,534

 
3,097

Goodwill
53,260

 
53,260

Other intangibles (less accumulated amortization of $14,813 and $15,955 at December 31, 2011 and June 30, 2012, respectively)
15,176

 
14,035

Debt placement costs (less accumulated amortization of $5,799 and $6,836 at December 31, 2011 and June 30, 2012, respectively)
14,615

 
13,578

Tank bottom inventory
59,473

 
55,025

Other noncurrent assets
2,437

 
3,022

Total assets
$
4,045,001

 
$
4,074,989

LIABILITIES AND PARTNERS' CAPITAL
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
66,384

 
$
67,235

Accrued payroll and benefits
30,184

 
21,696

Accrued interest payable
40,547

 
40,547

Accrued taxes other than income
27,570

 
24,856

Environmental liabilities
17,852

 
12,422

Deferred revenue
39,983

 
41,035

Accrued product purchases
59,800

 
55,142

Energy commodity derivatives deposits, net

 
17,196

Other current liabilities
28,735

 
19,144

Total current liabilities
311,055

 
299,273

Long-term debt
2,151,775

 
2,148,432

Long-term pension and benefits
67,080

 
69,771

Other noncurrent liabilities
19,905

 
15,283

Environmental liabilities
31,783

 
31,147

Commitments and contingencies
 
 
 
Partners’ capital:
 
 
 
Limited partner unitholders (112,737 units and 113,100 units outstanding at December 31, 2011 and June 30, 2012, respectively)
1,510,604

 
1,553,986

Accumulated other comprehensive loss
(47,201
)
 
(42,903
)
Total partners’ capital
1,463,403

 
1,511,083

Total liabilities and partners' capital
$
4,045,001

 
$
4,074,989

See notes to consolidated financial statements.

4


MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
 
Six Months Ended June 30,
 
2011
 
2012
Operating Activities:
 
 
 
Net income
$
193,064

 
$
231,345

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization expense
60,027

 
62,996

Debt placement fee amortization
770

 
1,037

Loss on sale, retirement and impairment of assets
7,106

 
7,359

Equity earnings
(2,810
)
 
(3,126
)
Distributions from equity investments
2,710

 
3,126

Equity-based incentive compensation expense
9,017

 
7,008

Amortization of prior service credit and actuarial loss
155

 
1,705

Changes in operating assets and liabilities:
 
 
 
Restricted cash
14,379

 

Trade accounts receivable and other accounts receivable
9,830

 
(1,025
)
Inventory
(69,588
)
 
43,193

Energy commodity derivatives contracts, net of derivatives deposits
(14,159
)
 
25,665

Reimbursable costs
5,925

 
849

Accounts payable
7,001

 
(9,882
)
Accrued payroll and benefits
(7,220
)
 
(8,488
)
Accrued interest payable
372

 

Accrued taxes other than income
(3,412
)
 
(2,714
)
Accrued product purchases
(1,063
)
 
(4,658
)
Contingent liabilities
14,025

 
(805
)
Current and noncurrent environmental liabilities
6,866

 
(6,066
)
Other current and noncurrent assets and liabilities
(14,940
)
 
(9,033
)
Net cash provided by operating activities
218,055

 
338,486

Investing Activities:
 
 
 
Property, plant and equipment:
 
 
 
Additions to property, plant and equipment
(95,273
)
 
(108,098
)
Proceeds from sale and disposition of assets
753

 
237

Increase in accounts payable related to capital expenditures
532

 
9,533

Acquisition of assets
(17,798
)
 

Acquisition of non-controlling owners' interests
(40,500
)
 

Equity investments
(3,500
)
 
(15,872
)
Distributions in excess of equity investment earnings

 
1,227

Other
(1,100
)
 

Net cash used by investing activities
(156,886
)
 
(112,973
)
Financing Activities:
 
 
 
Distributions paid
(172,205
)
 
(187,181
)
Net borrowings under revolver
135,000

 

Decrease in outstanding checks
(11,045
)
 
(1,235
)
Settlement of tax withholdings on long-term incentive compensation
(7,410
)
 
(13,001
)
Net cash used by financing activities
(55,660
)
 
(201,417
)
Change in cash and cash equivalents
5,509

 
24,096

Cash and cash equivalents at beginning of period
7,483

 
209,620

Cash and cash equivalents at end of period
$
12,992

 
$
233,716

Supplemental non-cash financing activity:
 
 
 
Issuance of limited partner units in settlement of equity-based incentive plan awards
$
4,315

 
$
7,295

See notes to consolidated financial statements.

5

MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.
Organization and Basis of Presentation
Organization
Unless indicated otherwise, the terms “our,” “we,” “us” and similar language refer to Magellan Midstream Partners, L.P. together with its subsidiaries. We are a Delaware limited partnership and our limited partner units are traded on the New York Stock Exchange under the ticker symbol “MMP.” Magellan GP, LLC, a Delaware limited liability company that is wholly owned by us, serves as our general partner.
We operate and report in three business segments: the petroleum pipeline system, the petroleum terminals and the ammonia pipeline system. Our reportable segments offer different products and services and are managed separately because each requires different marketing strategies and business knowledge.
Basis of Presentation
In the opinion of management, our accompanying consolidated financial statements, which are unaudited except for the consolidated balance sheet as of December 31, 2011, which is derived from our audited financial statements, include all normal and recurring adjustments necessary to present fairly our financial position as of June 30, 2012, the results of operations for the three and six months ended June 30, 2011 and 2012 and cash flows for the six months ended June 30, 2011 and 2012. The results of operations for the six months ended June 30, 2012 are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.
Pursuant to the rules and regulations of the Securities and Exchange Commission, the financial statements in this report do not include all of the information and notes normally included with financial statements prepared in accordance with accounting principles generally accepted in the United States. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2011.
 

2.
Product Sales Revenues
The amounts reported as product sales revenues on our consolidated statements of income include revenues from the physical sale of petroleum products and mark-to-market adjustments from New York Mercantile Exchange ("NYMEX") contracts. We use NYMEX contracts to hedge against changes in the prices of petroleum products we expect to sell from our business activities in which we acquire or produce petroleum products. Some of these NYMEX contracts qualify for hedge accounting treatment, and we designate and account for these as either cash flow or fair value hedges. The effective portion of the fair value changes in contracts designated as cash flow hedges are recognized as adjustments to product sales when the hedged product is physically sold. Any ineffectiveness in these contracts is recognized as an adjustment to product sales in the period the ineffectiveness occurs. Changes in the fair value and any ineffectiveness of contracts designated as fair value hedges are recorded to other income/expense. We account for certain NYMEX contracts that do not qualify for hedge accounting treatment as economic hedges, with the period changes in fair value recognized as product sales. See Note 7 - Derivative Financial Instruments for further disclosures regarding our NYMEX contracts.
For the three and six months ended June 30, 2011 and 2012, product sales revenues included the following (in thousands):
 

6

MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2011
 
2012
 
2011
 
2012
Physical sale of petroleum products
$
157,793

 
$
163,418

 
$
433,422

 
$
471,124

NYMEX contract adjustments:
 
 
 
 
 
 
 
Change in value of NYMEX contracts that did not qualify for hedge accounting treatment and the effective portion of gains and losses of matured NYMEX contracts that qualified for hedge accounting treatment associated with our petroleum products blending and fractionation activities(1)
(1,078
)
 
27,850

 
(21,058
)
 
2,961

Change in value of NYMEX contracts that did not qualify for hedge accounting treatment associated with the Houston-to-El Paso pipeline section linefill working inventory(1)
3,228

 
9,020

 
(15,199
)
 
1,921

Other

 
280

 
74

 
292

Total NYMEX contract adjustments
2,150

 
37,150

 
(36,183
)
 
5,174

Total product sales revenues
$
159,943

 
$
200,568

 
$
397,239

 
$
476,298

 
 
 
 
 
 
 
 
(1) The associated petroleum products for these activities are, to the extent still owned as of the statement date, or were, to the extent no longer owned as of the statement date, classified as inventory in current assets on our consolidated balance sheets.


3.
Segment Disclosures
Our reportable segments are strategic business units that offer different products and services. Our segments are managed separately because each segment requires different marketing strategies and business knowledge. Management evaluates performance based on segment operating margin, which includes revenues from affiliates and external customers, operating expenses, product purchases and equity earnings. Transactions between our business segments are conducted and recorded on the same basis as transactions with third-party entities.
We believe that investors benefit from having access to the same financial measures used by management. Operating margin, which is presented in the following tables, is an important measure used by management to evaluate the economic performance of our core operations. Operating margin is not a generally accepted accounting principles ("GAAP") measure but the components of operating margin are computed using amounts that are determined in accordance with GAAP. A reconciliation of operating margin to operating profit, which is its nearest comparable GAAP financial measure, is included in the tables below. Operating profit includes depreciation and amortization expense and general and administrative ("G&A") expenses that management does not focus on when evaluating the core profitability of our separate operating segments.



7

MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


 
Three Months Ended June 30, 2011
 
(in thousands)
 
Petroleum
Pipeline
System
 
Petroleum
Terminals
 
Ammonia
Pipeline
System
 
Intersegment
Eliminations
 
Total
Transportation and terminals revenues
$
161,168

 
$
56,969

 
$
5,755

 
$
(700
)
 
$
223,192

Product sales revenues
152,891

 
7,140

 

 
(88
)
 
159,943

Affiliate management fee revenue
192

 

 

 

 
192

Total revenues
314,251

 
64,109

 
5,755

 
(788
)
 
383,327

Operating expenses
51,737

 
26,627

 
3,726

 
(767
)
 
81,323

Product purchases
117,540

 
2,084

 

 
(788
)
 
118,836

Equity earnings
(1,443
)
 

 

 

 
(1,443
)
Operating margin
146,417

 
35,398

 
2,029

 
767

 
184,611

Depreciation and amortization expense
19,291

 
10,243

 
363

 
767

 
30,664

G&A expenses
18,783

 
5,838

 
660

 

 
25,281

Operating profit
$
108,343

 
$
19,317

 
$
1,006

 
$

 
$
128,666


 
 
 
Three Months Ended June 30, 2012
 
(in thousands)
 
Petroleum
Pipeline
System
 
Petroleum
Terminals
 
Ammonia
Pipeline
System
 
Intersegment
Eliminations
 
Total
Transportation and terminals revenues
$
178,757

 
$
64,053

 
$
6,659

 
$
(708
)
 
$
248,761

Product sales revenues
193,040

 
7,699

 

 
(171
)
 
200,568

Affiliate management fee revenue
198

 

 

 

 
198

Total revenues
371,995

 
71,752

 
6,659

 
(879
)
 
449,527

Operating expenses
56,377

 
24,440

 
2,179

 
(670
)
 
82,326

Product purchases
140,810

 
4,567

 

 
(879
)
 
144,498

Equity earnings
(1,494
)
 
16

 

 

 
(1,478
)
Operating margin
176,302

 
42,729

 
4,480

 
670

 
224,181

Depreciation and amortization expense
19,875

 
10,516

 
425

 
670

 
31,486

G&A expenses
18,539

 
6,189

 
686

 

 
25,414

Operating profit
$
137,888

 
$
26,024

 
$
3,369

 
$

 
$
167,281





8

MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


 
Six Months Ended June 30, 2011
 
(in thousands)
 
Petroleum
Pipeline
System
 
Petroleum
Terminals
 
Ammonia
Pipeline
System
 
Intersegment
Eliminations
 
Total
Transportation and terminals revenues
$
305,230

 
$
112,190

 
$
12,787

 
$
(1,607
)
 
$
428,600

Product sales revenues
379,879

 
17,558

 

 
(198
)
 
397,239

Affiliate management fee revenue
385

 

 

 

 
385

Total revenues
685,494

 
129,748

 
12,787

 
(1,805
)
 
826,224

Operating expenses
89,447

 
48,623

 
7,057

 
(1,443
)
 
143,684

Product purchases
326,013

 
5,858

 

 
(1,805
)
 
330,066

Equity earnings
(2,810
)
 

 

 

 
(2,810
)
Operating margin
272,844

 
75,267

 
5,730

 
1,443

 
355,284

Depreciation and amortization expense
37,843

 
20,014

 
727

 
1,443

 
60,027

G&A expenses
37,238

 
11,309

 
1,324

 

 
49,871

Operating profit
$
197,763

 
$
43,944

 
$
3,679

 
$

 
$
245,386


 
 
 
Six Months Ended June 30, 2012
 
(in thousands)
 
Petroleum
Pipeline
System
 
Petroleum
Terminals
 
Ammonia
Pipeline
System
 
Intersegment
Eliminations
 
Total
Transportation and terminals revenues
$
327,487

 
$
127,233

 
$
13,008

 
$
(1,413
)
 
$
466,315

Product sales revenues
459,297

 
17,464

 

 
(463
)
 
476,298

Affiliate management fee revenue
397

 

 

 

 
397

Total revenues
787,181

 
144,697

 
13,008

 
(1,876
)
 
943,010

Operating expenses
102,931

 
44,622

 
4,629

 
(1,404
)
 
150,778

Product purchases
385,691

 
9,295

 

 
(1,876
)
 
393,110

Equity earnings
(3,163
)
 
37

 

 

 
(3,126
)
Operating margin
301,722

 
90,743

 
8,379

 
1,404

 
402,248

Depreciation and amortization expense
39,538

 
21,245

 
809

 
1,404

 
62,996

G&A expenses
35,994

 
11,855

 
1,309

 

 
49,158

Operating profit
$
226,190

 
$
57,643

 
$
6,261

 
$

 
$
290,094



9

MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


4.
Inventory
Inventory at December 31, 2011 and June 30, 2012 was as follows (in thousands):
 
 
December 31, 2011
 
June 30, 2012
Refined petroleum products
$
127,999

 
$
81,655

Natural gas liquids
55,490

 
60,984

Transmix
60,251

 
53,067

Crude oil
8,065

 
12,116

Additives
7,055

 
7,845

Total inventory
$
258,860

 
$
215,667


The decrease in refined petroleum products was primarily due to the reduction in volumes of our Houston-to-El Paso linefill inventory.

5.
Employee Benefit Plans
We sponsor two union pension plans for certain employees and a pension plan primarily for salaried employees, a postretirement benefit plan for selected employees and a defined contribution plan. The following tables present our consolidated net periodic benefit costs related to these plans for the three and six months ended June 30, 2011 and 2012 (in thousands):
 
 
Three Months Ended June 30, 2011
 
Three Months Ended June 30, 2012
 
Pension
Benefits
 
Other  Post-
Retirement
Benefits
 
Pension
Benefits
 
Other  Post-
Retirement
Benefits
Components of net periodic benefit costs:
 
 
 
 
 
 
 
Service cost
$
1,985

 
$
91

 
$
3,190

 
$
137

Interest cost
950

 
260

 
1,204

 
258

Expected return on plan assets
(1,022
)
 

 
(1,176
)
 

Amortization of prior service cost (credit)
77

 
(213
)
 
77

 
(211
)
Amortization of actuarial loss
151

 
62

 
826

 
161

Net periodic benefit cost
$
2,141

 
$
200

 
$
4,121

 
$
345


 
 
Six Months  Ended
June 30, 2011
 
Six Months  Ended
June 30, 2012
 
Pension
Benefits
 
Other  Post-
Retirement
Benefits
 
Pension
Benefits
 
Other  Post-
Retirement
Benefits
Components of net periodic benefit costs:
 
 
 
 
 
 
 
Service cost
$
3,970

 
$
182

 
$
6,380

 
$
275

Interest cost
1,899

 
519

 
2,407

 
515

Expected return on plan assets
(2,043
)
 

 
(2,352
)
 

Amortization of prior service cost (credit)
154

 
(426
)
 
154

 
(424
)
Amortization of actuarial loss
302

 
125

 
1,653

 
322

Net periodic benefit cost
$
4,282

 
$
400

 
$
8,242

 
$
688


Net periodic benefit costs for the pension plans increased in 2012 primarily due to a decrease in the discount rate at December 31, 2011.
Contributions estimated to be paid into the plans in 2012 are $13.3 million and $0.3 million for the pension and other

10

MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

postretirement benefit plans, respectively.


6.
Debt
Consolidated debt at December 31, 2011 and June 30, 2012 was as follows (in thousands):
 
 
 
 
Weighted-Average Interest Rate at June 30, 2012 (a)
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
June 30, 2012
 
Revolving credit facility
 
$

 
$

 
—%
$250.0 million of 6.45% Notes due 2014
 
249,844

 
249,874

 
6.3%
$250.0 million of 5.65% Notes due 2016
 
252,037

 
251,823

 
5.6%
$250.0 million of 6.40% Notes due 2018
 
263,477

 
262,445

 
5.3%
$550.0 million of 6.55% Notes due 2019
 
578,521

 
576,804

 
5.6%
$550.0 million of 4.25% Notes due 2021
 
558,932

 
558,514

 
4.0%
$250.0 million of 6.40% Notes due 2037
 
248,964

 
248,972

 
6.4%
Total debt
 
$
2,151,775

 
$
2,148,432

 
5.3%
 
 
 
 
 
 
 
(a)
Weighted-average interest rate includes the impact of interest rate swaps, the amortization/accretion of discounts and premiums and the amortization/accretion of gains and losses realized on historical cash flow and fair value hedges on interest expense (see Note 7—Derivative Financial Instruments for detailed information regarding fair value hedges and interest rate swaps).

The revolving credit facility and notes detailed in the table above are senior indebtedness.

The face value of our debt at December 31, 2011 and June 30, 2012 was $2.1 billion. The difference between the face value and carrying value of the debt outstanding is the unamortized portion of various terminated fair value hedges and the unamortized discounts and premiums on debt issuances. Realized gains and losses on fair value hedges and note discounts and premiums are being amortized or accreted to the applicable notes over the respective lives of those notes.

Revolving Credit Facility. The total borrowing capacity under our revolving credit facility, which matures in October 2016, is $800.0 million. Borrowings under the facility are unsecured and bear interest at LIBOR plus a spread ranging from 0.875% to 1.75% based on our credit ratings and amounts outstanding under the facility. Additionally, an unused commitment fee is assessed at a rate from 0.125% to 0.3%, depending on our credit ratings, which was 0.2% at June 30, 2012. Borrowings under this facility may be used for general purposes, including capital expenditures. As of June 30, 2012, there were no borrowings outstanding under this facility and $5.0 million was obligated for letters of credit. Amounts obligated for letters of credit are not reflected as debt on our consolidated balance sheets, but decrease our borrowing capacity under the facility.


7.
Derivative Financial Instruments

Commodity Derivatives

Our petroleum products blending activities produce gasoline products, and we can estimate the timing and quantities of sales of these products. We use a combination of forward purchase and sale contracts, NYMEX contracts and butane swap agreements to help manage price changes, which has the effect of locking in most of the product margin realized from our blending activities that we choose to hedge.

We account for the forward purchase and sale contracts we use in our blending and fractionation activities as normal purchases and sales. Derivatives that qualify for and are designated as normal purchases and sales are accounted for using traditional accrual accounting. As of June 30, 2012, we had commitments under these forward purchase and sale contracts as follows (in millions):
 
Amount
 
Barrels
Forward purchase contracts
$
41.2


0.6
Forward sale contracts
$
27.4


0.3

We use NYMEX contracts to hedge against changes in the price of petroleum products we expect to sell in future periods. Our NYMEX contracts fall into one of three categories:

11

MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Hedge Type
 
Hedge Purpose
 
Accounting Treatment
Qualifies For Hedge Accounting Treatment
    Cash Flow Hedge
 
To hedge the variability in cash flows related to a forecasted transaction.
 
The effective portion of changes in the value of the hedge are recorded to accumulated other comprehensive income/loss and reclassified to earnings when the forecasted transaction occurs. Any ineffectiveness is recognized currently in earnings.
    Fair Value Hedge
 
To hedge against changes in the fair value of a recognized asset or liability.
 
The effective portion of changes in the value of the hedge are recorded as adjustments to the asset or liability being hedged. Any ineffectiveness is recognized currently in earnings.
Does Not Qualify For Hedge Accounting Treatment
    Economic Hedge
 
To effectively serve as either a fair value or a cash flow hedge; however, the derivative agreement does not qualify for hedge accounting treatment or is not designated as a hedge in accordance with Accounting Standards Codification ("ASC") 815, Derivatives and Hedging.
 
Changes in the value of these agreements are recognized currently in earnings.

We also use butane swap agreements, which are not designated as hedges for accounting purposes, to hedge against changes in the price of selected butane purchases we expect to complete in the future. Changes in the fair value of these agreements are recognized currently in earnings. As outlined in the table below, we had the following open NYMEX contracts at June 30, 2012:

Type of Contract/Accounting Methodology
 
Product Represented by the Contract and Associated Barrels
 
Maturity Dates
NYMEX - Fair Value Hedges
 
0.7 million barrels of crude oil
 
Between August 2012 and November 2013
NYMEX - Economic Hedges
 
2.6 million barrels of refined petroleum products
 
Between July 2012 and April 2013
NYMEX - Cash Flow Hedges
 
0.1 million barrels of refined petroleum products
 
September 2012
Butane Swap Agreements - Economic Hedges
 
0.4 million barrels of butane
 
Between August 2012 and March 2013

At June 30, 2012, we held $17.2 million in margin deposits for our NYMEX contracts, which were recorded as a current liability under energy commodity derivatives deposits on our consolidated balance sheet. We have the right to offset the combined fair values of our open NYMEX contracts and our open butane swap agreements against our margin deposits under a master netting arrangement with each of our counterparties; however, we have elected to disclose the combined fair values of our open NYMEX and butane swap agreements separately from the related margin deposits on our consolidated balance sheet. Additionally, we have the right to offset the fair values of our NYMEX agreements and butane swap agreements together for each counterparty, which we have elected to do, and we report the combined net balances on our consolidated balance sheets.
Interest Rate Derivatives
In June 2012, we entered into a total of $100.0 million of forward-starting interest rate swap agreements to hedge against the variability of future interest payments on debt that we anticipate issuing between December 1, 2013 and December 1, 2014 to refinance our $250.0 million of 6.45% notes due June 1, 2014. Under the terms of these agreements, we will pay a weighted-average fixed interest rate of 2.7% and receive LIBOR. The hedges have a 30-year maturity, which matches the expected maturity of the anticipated debt issuance. We account for these agreements as cash flow hedges.
Impact of Derivatives on Income Statement, Balance Sheet and AOCL
The changes in derivative activity included in accumulated other comprehensive loss ("AOCL") for the three and six

12

MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

months ended June 30, 2011 and 2012 were as follows (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Derivative Gains Included in AOCL
2011
 
2012
 
2011
 
2012
Beginning balance
$
3,284

 
$
3,120

 
$
3,325

 
$
3,161

Net gain on interest rate cash flow hedges

 
1,008

 

 
1,008

Net gain on commodity cash flow hedges
4,613

 
1,667

 
4,613

 
1,667

Reclassification of net gain on interest rate cash flow hedges to interest expense
(41
)
 
(41
)
 
(82
)
 
(82
)
Ending balance
$
7,856

 
$
5,754

 
$
7,856

 
$
5,754


As of June 30, 2012, the net gain estimated to be classified to interest expense and product sales revenues over the next twelve months from AOCL is approximately $0.2 million and $1.7 million, respectively.

The following table provides a summary of the effect on our consolidated statements of income for the three and six months ended June 30, 2011 of derivatives accounted for under ASC 815-25, Derivatives and Hedging—Fair Value Hedges, that were designated as hedging instruments (in thousands):
 
 
 
Location of Gain Recognized on Derivative
 
Amount of Gain Recognized on Derivative
 
Amount of Interest Expense Recognized on Fixed-Rate Debt (Related Hedged Item)
 
 
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
Derivative Instrument
 
 
June 30, 2011
Interest rate swap agreements
 
Interest expense
 
$
808

 
$
1,011

 
$
4,001

 
$
6,223

 
 
 
 
 
 
 
 
 
 
 
 
During 2012, we had open NYMEX contracts on 0.7 million barrels of crude oil that were designated as fair value hedges. Because there was no ineffectiveness recognized on these hedges, the unrealized losses of $1.9 million from the agreements as of June 30, 2012 were fully offset by an increase of $2.0 million to tank bottom inventory and a decrease of $0.1 million to other current assets; therefore, there was no net impact from these agreements on other income/expense.
The following tables provide a summary of the effect on our consolidated statements of income for the three and six months ended June 30, 2011 and 2012 of the effective portion of derivatives accounted for under ASC 815-30, Derivatives and Hedging—Cash Flow Hedges, that were designated as hedging instruments (in thousands).

 
 
Three Months Ended June 30, 2011
Derivative Instrument
 
Amount of Gain Recognized in AOCL on Derivative
 
Location of Gain Reclassified from AOCL into Income
 
Amount of Gain Reclassified from AOCL into Income
Interest rate swap agreements
 
 
$

 
 
Interest expense
 
 
$
41

 
NYMEX commodity contracts
 
 
4,613

 
 
Product sales revenues
 
 

 
Total cash flow hedges
 
 
$
4,613

 
 
Total
 
 
$
41

 
 
 
Three Months Ended June 30, 2012
Derivative Instrument
 
Amount of Gain Recognized in AOCL on Derivative
 
Location of Gain Reclassified from AOCL into Income
 
Amount of Gain Reclassified from AOCL into Income
Interest rate swap agreements
 
 
$
1,008

 
 
Interest expense
 
 
$
41

 
NYMEX commodity contracts
 
 
1,667

 
 
Product sales revenues
 
 

 
Total cash flow hedges
 
 
$
2,675

 
 
Total
 
 
$
41

 



13

MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 
 
Six Months Ended June 30, 2011
Derivative Instrument
 
Amount of Gain Recognized in AOCL on Derivative
 
Location of Gain Reclassified from AOCL into Income
 
Amount of Gain Reclassified from AOCL into Income
Interest rate swap agreements
 
 
$

 
 
Interest expense
 
 
$
82

 
NYMEX commodity contracts
 
 
4,613

 
 
Product sales revenues
 
 

 
Total cash flow hedges
 
 
$
4,613

 
 
Total
 
 
$
82

 
 
 
Six Months Ended June 30, 2012
Derivative Instrument
 
Amount of Gain Recognized in AOCL on Derivative
 
Location of Gain Reclassified from AOCL into Income
 
Amount of Gain Reclassified from AOCL into Income
Interest rate swap agreements
 
 
$
1,008

 
 
Interest expense
 
 
$
82

 
NYMEX commodity contracts
 
 
1,667

 
 
Product sales revenues
 
 

 
Total cash flow hedges
 
 
$
2,675

 
 
Total
 
 
$
82

 

There was no ineffectiveness recognized on the financial instruments disclosed in the above tables during the three and six months ended June 30, 2011 or 2012.
The following table provides a summary of the effect on our consolidated statements of income for the three and six months ended June 30, 2011 and 2012 of derivatives accounted for under ASC 815-10-35; Derivatives and Hedging—Overall—Subsequent Measurement, that were not designated as hedging instruments (in thousands):
 
 
 
 
Amount of Gain (Loss) Recognized on Derivative
 
 
 
Three Months Ended
 
Six Months Ended
Derivative Instrument
Location of Gain (Loss)
Recognized on Derivative
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
NYMEX commodity contracts
Product sales revenues
 
$
2,150

 
$
37,150

 
$
(36,183
)
 
$
5,174

NYMEX commodity contracts
Operating expenses
 
1,568

 
9,701

 
1,521

 
4,517

Butane swap agreements
Product purchases
 
(839
)
 
(4,670
)
 
(839
)
 
(4,627
)
 
Total
 
$
2,879

 
$
42,181

 
$
(35,501
)
 
$
5,064

The following tables provide a summary of the fair value of derivatives accounted for under ASC 815, Derivatives and Hedging, which are presented on a net basis in our consolidated balance sheets, that were designated as hedging instruments as of December 31, 2011 and June 30, 2012 (in thousands):
 
December 31, 2011
 
Asset Derivatives
 
Liability Derivatives
Derivative Instrument
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
NYMEX commodity contracts
Energy commodity derivatives contracts
 
$
31

 
Energy commodity derivatives contracts
 
$

NYMEX commodity contracts
Other noncurrent assets
 

 
Other noncurrent liabilities
 
6,457

 
Total
 
$
31

 
Total
 
$
6,457

 
 
June 30, 2012
 
Asset Derivatives
 
Liability Derivatives
Derivative Instrument
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
NYMEX commodity contracts
Energy commodity derivatives contracts
 
$
1,790

 
Energy commodity derivatives contracts
 
$

NYMEX commodity contracts
Other noncurrent assets
 

 
Other noncurrent liabilities
 
2,008

Forward-starting interest rate swap agreements
Other noncurrent assets
 
1,008

 
Other noncurrent liabilities
 

 
Total
 
$
2,798

 
Total
 
$
2,008

 

The following tables provide a summary of the fair value of derivatives accounted for under ASC 815, Derivatives and

14

MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Hedging, which are presented on a net basis in our consolidated balance sheets, that were not designated as hedging instruments as of December 31, 2011 and June 30, 2012 (in thousands):
 
December 31, 2011
 
Asset Derivatives
 
Liability Derivatives
Derivative Instrument
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
NYMEX commodity contracts
Energy commodity derivatives contracts
 
$
6,403

 
Energy commodity derivatives contracts
 
$
1,514

Butane swap agreements
Energy commodity derivatives contracts
 
28

 
Energy commodity derivatives contracts
 
34

 
Total
 
$
6,431

 
Total
 
$
1,548

 
 
 
 
 
 
 
 
 
June 30, 2012
 
Asset Derivatives
 
Liability Derivatives
Derivative Instrument
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
NYMEX commodity contracts
Energy commodity derivatives contracts
 
$
21,912

 
Energy commodity derivatives contracts
 
$
5,149

Butane swap agreements
Energy commodity derivatives contracts
 

 
Energy commodity derivatives contracts
 
4,675

 
Total
 
$
21,912

 
Total
 
$
9,824

 

8.
Commitments and Contingencies

Clean Air Act - Section 185 Liability

Section 185 of the Clean Air Act ("CAA 185") requires states under certain conditions to collect annual fees from major source facilities located in severe or extreme nonattainment ozone areas. Imposition of the fee is mandated for each calendar year after the attainment date until the area is redesignated as an attainment area for ozone. The Environmental Protection Agency ("EPA") is required to collect the fees if a state does not administer and enforce CAA 185. The Houston-Galveston region was initially determined to be a severe nonattainment area that did not meet its 2007 attainment deadline and, as such, would be subject to CAA 185. The Texas Commission on Environmental Quality ("TCEQ") drafted a “Failure to Attain Rule” to implement the requirements of CAA 185. The initial Failure to Attain Rule was scheduled to be final in the spring of 2010 and would have provided for the collection of an annual failure to attain fee for emissions from calendar year 2008 forward.  We have certain facilities in the Houston area that would have been subject to the TCEQ's Rule. The initial Failure to Attain Rule was rejected by a federal court decision in July 2011. The TCEQ is now considering a new rule.

Management believes it is probable that the TCEQ will move forward with a new CAA 185 rule making process.  A number of potential alternative outcomes exist, including the possibility no CAA 185 fees will be assessed to us for the period of 2008 through 2010.  However, management believes it is probable we will be assessed fees for excess emissions at our Houston-area facilities for that period and estimates that the range of fees that could be assessed to us to be between $6.4 million and $13.7 million. We have recorded an accrual of $8.9 million related to this matter for the period of 2008 through 2010. This accrual is reflected as a long-term environmental liability at June 30, 2012.

Osage Complaint

On June 25, 2012, HollyFrontier Refining & Marketing LLC (“HollyFrontier”) filed a complaint with the Federal Energy Regulatory Commission ("FERC") alleging that Osage Pipe Line Company, LLC (“Osage”) has been over-earning on its rates for transportation on Osage's crude oil pipeline system from Cushing, Oklahoma to El Dorado, Kansas.  We own 50% of Osage and serve as its operator.  We believe that it is reasonably possible that Osage could incur a liability as a result of this complaint.  As a 50% owner of Osage, we currently estimate that our ultimate exposure in this matter will be within a range of zero to approximately $5.5 million.  We believe the claims should be denied and are defending the Osage rates vigorously.

MF Global Holdings Ltd. Bankruptcy

In October 2011, MF Global Holdings Ltd., the parent of MF Global Inc. (“MF Global”), filed for bankruptcy protection

15

MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

under Chapter 11 of the U.S. bankruptcy laws, and a trustee was appointed to oversee the liquidation of MF Global under the Securities Investor Protection Act ("SIPA").  At that time, MF Global served as our sole clearing agent for NYMEX futures contracts. 

The Chicago Mercantile Exchange (“CME”) requires us to maintain adequate margin against our NYMEX positions, which our clearing agent is required to hold on our behalf in a segregated account.  In October 2011, MF Global disclosed to the CME that it had a “significant shortfall” in its segregated customer accounts.  We transferred our existing trading positions at MF Global to a new clearing agent in November 2011, and all of our NYMEX activity is now being conducted with a different clearing agent. 

As of the date of transfer of our account, MF Global owed us $29.4 million; however, we have subsequently received $21.2 million as partial payment on our account.  We have submitted a claim with the Trustee for the SIPA liquidation of MF Global for $8.2 million, which represents the remaining amount owed to us by MF Global.  At this point it is uncertain what additional funds MF Global will have available for distribution to its former customers as well as how the claims against MF Global's remaining assets may be prioritized. As of June 30, 2012, we have not reserved any of our MF Global receivable balance.

Environmental Liabilities

Liabilities recognized for estimated environmental costs were $49.6 million and $43.6 million at December 31, 2011 and June 30, 2012, respectively. We have classified environmental liabilities as current or noncurrent based on management’s estimates regarding the timing of actual payments. Management estimates that expenditures associated with these environmental liabilities will be paid over the next 10 years. Environmental expenses recognized as a result of changes in our environmental liabilities are included in operating expenses on our consolidated statements of income. Environmental expenses were $8.6 million and $0.1 million for the three months ended June 30, 2011 and 2012, respectively, and $12.5 million and $2.7 million for the six months ended June 30, 2011 and 2012, respectively. The higher environmental expenses in 2011 were primarily due to the CAA 185 liability accrual (described above).

Environmental Receivables

Receivables from insurance carriers and other third parties related to environmental matters at December 31, 2011 were $7.7 million, of which $5.2 million and $2.5 million were recorded to other accounts receivable and long-term receivables, respectively, on our consolidated balance sheets. Receivables from insurance carriers related to environmental matters at June 30, 2012 were $7.8 million, of which $4.7 million and $3.1 million were recorded to other accounts receivable and long-term receivables, respectively, on our consolidated balance sheets.
Unrecognized Product Gains
Our petroleum terminals operations generate product overages and shortages that result from metering inaccuracies and product evaporation, expansion, releases and contamination. Most of the contracts we have with our customers state that we bear the risk of loss (or gain) from these conditions. When our petroleum terminals experience net product shortages, we recognize expense for those losses in the periods in which they occur. When our petroleum terminals experience net product overages, we have product on hand for which we have no cost basis. Therefore, these net overages are not recognized in our financial statements until the associated barrels are either sold or used to offset product losses. The net unrecognized product overages for our petroleum terminals operations had a market value of approximately $2.8 million as of June 30, 2012. However, the actual amounts we will recognize in future periods will depend on product prices at the time the associated barrels are either sold or used to offset net future product shortages.
Other
We are a party to various other claims, legal actions and complaints arising in the ordinary course of business. While the results cannot be predicted with certainty, management believes the ultimate resolution of these claims, legal actions and complaints after consideration of amounts accrued, insurance coverage or other indemnification arrangements will not have a material adverse effect on our results of operations, financial position or cash flows.

9.
Long-Term Incentive Plan
We have a long-term incentive plan (“LTIP”) for certain of our employees and for directors of our general partner. The LTIP primarily consists of phantom units and, as of June 30, 2012, permits the grant of awards covering an aggregate of

16

MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4.7 million of our limited partner units. The remaining units available under the LTIP at June 30, 2012 total 1.2 million. The compensation committee of our general partner’s board of directors administers our LTIP.
 
Our equity-based incentive compensation expense was as follows (in thousands):
 
 
Three Months Ended
June 30, 2011
 
Six Months Ended
June 30, 2011
 
Equity
Method
 
Liability
Method
 
Total
 
Equity
Method
 
Liability
Method
 
Total
2009 awards
$
2,308

 
$
1,583

 
$
3,891

 
$
3,235

 
$
2,205

 
$
5,440

2010 awards
387

 
165

 
552

 
1,337

 
519

 
1,856

2011 awards
562

 
144

 
706

 
1,124

 
289

 
1,413

Retention awards
118

 

 
118

 
308

 

 
308

Total
$
3,375

 
$
1,892

 
$
5,267

 
$
6,004

 
$
3,013

 
$
9,017

 
 
 
 
 
 
 
 
 
 
 
 
Allocation of LTIP expense on our consolidated statements of income:
G&A expense
 
 
 
 
$
4,663

 
 
 
 
 
$
8,320

Operating expense
 
 
 
 
604

 
 
 
 
 
697

Total
 
 
 
 
$
5,267

 
 
 
 
 
$
9,017

 
 
Three Months Ended
June 30, 2012
 
Six Months Ended
June 30, 2012
 
Equity
Method
 
Liability
Method
 
Total
 
Equity
Method
 
Liability
Method
 
Total
2010 awards
$
1,655

 
$
770

 
$
2,425

 
$
2,177

 
$
1,178

 
$
3,355

2011 awards
684

 
182

 
866

 
1,427

 
455

 
1,882

2012 awards
569

 
147

 
716

 
1,130

 
298

 
1,428

Retention awards
158

 

 
158

 
343

 

 
343

Total
$
3,066

 
$
1,099

 
$
4,165

 
$
5,077

 
$
1,931

 
$
7,008

 
 
 
 
 
 
 
 
 
 
 
 
Allocation of LTIP expense on our consolidated statements of income:
G&A expense
 
 
 
 
$
3,715

 
 
 
 
 
$
6,220

Operating expense
 
 
 
 
450

 
 
 
 
 
788

Total
 
 
 
 
$
4,165

 
 
 
 
 
$
7,008



10.
Distributions
Distributions we paid during 2011 and 2012 were as follows (in thousands, except per unit amounts):

17

MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 
Payment Date
 
Per Unit Cash
Distribution
Amount
 
Total Cash Distribution to Limited Partners
2/14/2011
 
 
$
0.7575

 
 
 
$
85,398

 
5/13/2011
 
 
0.7700

 
 
 
86,807

 
Through 6/30/2011
 
 
1.5275

 
 
 
172,205

 
8/12/2011
 
 
0.7850

 
 
 
88,498

 
11/14/2011
 
 
0.8000

 
 
 
90,189

 
Total
 
 
$
3.1125

 
 
 
$
350,892

 
 
 
 
 
 
 
 
 
 
2/14/2012
 
 
$
0.8150

 
 
 
$
92,177

 
5/15/2012
 
 
0.8400

 
 
 
95,004

 
Through 6/30/2012
 
 
1.6550

 
 
 
187,181

 
8/14/2012(a)
 
 
0.9425

 
 
 
106,597

 
Total
 
 
$
2.5975

 
 
 
$
293,778

 
 
 
 
 
 
 
 
 
 
(a)
Our general partner's board of directors declared this cash distribution on July 26, 2012 to be paid on August 14, 2012 to unitholders of record at the close of business on August 7, 2012.
 

11.
Fair Value
Fair Value of Financial Instruments
We used the following methods and assumptions in estimating our fair value disclosure for financial instruments:
Cash and cash equivalents. The carrying amounts reported on our consolidated balance sheets approximate fair value due to the short-term maturity or variable rates of these instruments.
Energy commodity derivatives deposits. This asset (liability) represents short-term deposits we paid (held) associated with our energy commodity derivatives contracts. The carrying amount reported on our consolidated balance sheets approximates fair value as the deposits paid (held) change daily in relation to the change in value of the associated contracts.
Long-term receivables. Fair value was determined by estimating the present value of future cash flows using a risk-free rate of interest.
Energy commodity derivatives contracts. These include NYMEX and butane swap purchase agreements related to petroleum products. These contracts are carried at fair value on our consolidated balance sheets and are valued based on quoted prices in active markets. See Note 7 - Derivative Financial Instruments for further disclosures regarding these contracts.
Forward-starting interest rate swap agreements. Fair value was determined based on an assumed exchange, at the end of each period, in an orderly transaction with a market participant in the market in which the financial instrument is traded, adjusted for the effect of counterparty credit risk. We calculated the exchange value using present value techniques on estimated future cash flows based on forward interest rate curves.
Debt. The fair value of our publicly traded notes was based on the prices of those notes at December 31, 2011 and June 30, 2012. The carrying amount of borrowings, if any, under our revolving credit facility approximates fair value due to the variable rates of that instrument.
 
The following table reflects the carrying amounts and fair values of our financial instruments as of December 31, 2011 and June 30, 2012 (in thousands):

18

MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Assets (Liabilities)
December 31, 2011
 
June 30, 2012
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Cash and cash equivalents
$
209,620

 
$
209,620

 
$
233,716

 
$
233,716

Energy commodity derivatives deposits (current assets)
$
26,917

 
$
26,917

 
$
8,239

 
$
8,239

Energy commodity derivatives deposits (current liabilities)
$

 
$

 
$
(17,196
)
 
$
(17,196
)
Long-term receivables
$
2,534

 
$
2,510

 
$
3,097

 
$
3,065

Energy commodity derivatives contracts (current assets)
$
4,914

 
$
4,914

 
$
13,878

 
$
13,878

Forward-starting interest rate swap agreements (noncurrent)
$

 
$

 
$
1,008

 
$
1,008

Energy commodity derivatives contracts (noncurrent liabilities)
$
(6,457
)
 
$
(6,457
)
 
$
(2,008
)
 
$
(2,008
)
Debt
$
(2,151,775
)
 
$
(2,389,700
)
 
$
(2,148,432
)
 
$
(2,426,955
)
Fair Value Measurements
The following tables summarize the recurring fair value measurements of our long-term receivables, NYMEX commodity contracts, forward-starting interest rate swap agreements and debt as of December 31, 2011 and June 30, 2012, based on the three levels established by ASC 820-10-50; Fair Value Measurements and Disclosures—Overall—Disclosure (in thousands):
Assets (Liabilities)
 
 
Fair Value Measurements as of
December 31, 2011 using:
Total
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Long-term receivables
$
2,510

 
$

 
$

 
$
2,510

Energy commodity derivatives contracts (current assets)
$
4,914

 
$
4,914

 
$

 
$

Energy commodity derivatives contracts (noncurrent liabilities)
$
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