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 September 30, ~~2018~~2019



£☐	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, Oklahoma74121-2186

(Address of principal executive offices and zip code)

~~(918)~~ (918) 574-7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Units representing limited partnership units	MMP	New York Stock Exchange

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. Yesx No £☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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). Yesx No £☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerx Accelerated filer £☐ Non-accelerated filer £☐

Smaller reporting company £ ☐Emerging growth company £☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £☐

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 October ~~31, 2018,~~30, 2019, there were ~~228,195,160~~228,403,428 outstanding common units representing 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.	ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS		ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS
				CONSOLIDATED STATEMENTS OF INCOME		2
				CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME		3
	CONSOLIDATED STATEMENTS OF INCOME		2	CONSOLIDATED BALANCE SHEETS		4
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME		3	CONSOLIDATED STATEMENTS OF CASH FLOWS		5
	CONSOLIDATED BALANCE SHEETS		4	CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL		6
	CONSOLIDATED STATEMENTS OF CASH FLOWS		5	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:			1.	Organization, Description of Business and Basis of Presentation	8
	1.	Organization, Description of Business and Basis of Presentation	6	2.	Revenue from Contracts with Customers	10
	2.	Revenue from Contracts with Customers	10	3.	Segment Disclosures	14
	3.	Segment Disclosures	14	4.	Investments in Non-Controlled Entities	16
	4.	Investments in Non-Controlled Entities	17	5.	Inventory	18
	5.	Inventory	19	6.	Employee Benefit Plans	18
	6.	Employee Benefit Plans	19	7.	Leases	20
	7.	Debt	21	8.	Debt	24
	8.	Derivative Financial Instruments	22	9.	Derivative Financial Instruments	25
	9.	Commitments and Contingencies	26	10.	Commitments and Contingencies	29
	10.	Long-Term Incentive Plan	27	11.	Long-Term Incentive Plan	30
	11.	Partners’ Capital and Distributions	29	12.	Partners’ Capital and Distributions	31
	12.	Fair Value	30	13.	Fair Value	32
	13.	Related Party Transactions	31	14.	Related Party Transactions	34
	14.	Subsequent Events	31	15.	Subsequent Events	35
ITEM 2.	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Introduction		32	Introduction		36
	Growth Projects and Recent Developments		32	Recent Developments		36
	Results of Operations		33	Results of Operations		37
	Distributable Cash Flow		39	Distributable Cash Flow		44
	Liquidity and Capital Resources		40	Liquidity and Capital Resources		45
	Off-Balance Sheet Arrangements		41	Off-Balance Sheet Arrangements		46
	Environmental		42	Environmental		47
	Other Items		43	Other Items		48
ITEM 3.	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	45	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	50
ITEM 4.	ITEM 4.	CONTROLS AND PROCEDURES	46	ITEM 4.	CONTROLS AND PROCEDURES	51
Forward-Looking Statements	Forward-Looking Statements		47	Forward-Looking Statements		52
PART II OTHER INFORMATION	PART II OTHER INFORMATION			PART II OTHER INFORMATION
ITEM 1.	ITEM 1.	LEGAL PROCEEDINGS	49	ITEM 1.	LEGAL PROCEEDINGS	54
ITEM 1A.	ITEM 1A.	RISK FACTORS	50	ITEM 1A.	RISK FACTORS	55
ITEM 2.	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	50	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	55
ITEM 3.	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	50	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	55
ITEM 4.	ITEM 4.	MINE SAFETY DISCLOSURES	50	ITEM 4.	MINE SAFETY DISCLOSURES	55
ITEM 5.	ITEM 5.	OTHER INFORMATION	50	ITEM 5.	OTHER INFORMATION	55
ITEM 6.	ITEM 6.	EXHIBITS	50	ITEM 6.	EXHIBITS	55
Index to Exhibits			51
Signatures			52
INDEX TO EXHIBITS				INDEX TO EXHIBITS		56
SIGNATURES				SIGNATURES		57

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						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
	2017			2018			2017			2018			2018			2019			2018			2019
Transportation and terminals revenue	$	446,935		$	488,775		$	1,272,845		$	1,392,960		$	488,775		$	506,432		$	1,392,960		$	1,473,629
Product sales revenue	121,010			144,403			548,634			552,792			144,403			144,807			552,792			497,791
Affiliate management fee revenue	4,903			4,842			12,883			15,138			4,842			5,357			15,138			15,810
Total revenue	572,848			638,020			1,834,362			1,960,890			638,020			656,596			1,960,890			1,987,230
Costs and expenses:
Operating	165,368			172,115			442,254			475,256			172,115			169,387			475,256			484,341
Cost of product sales	121,819			120,510			440,670			473,781			120,510			108,757			473,781			430,727
Depreciation and amortization	49,909			56,228			146,103			161,726
Depreciation, amortization and impairment													56,228			56,627			161,726			181,028
General and administrative	37,202			47,389			120,876			147,235			47,389			51,156			147,235			149,534
Total costs and expenses	374,298			396,242			1,149,903			1,257,998			396,242			385,927			1,257,998			1,245,630
Other operating income (expense)													—			(379		)	—			1,538
Earnings of non-controlled entities	31,151			53,795			78,173			130,843			53,795			50,189			130,843			122,229
Operating profit	229,701			295,573			762,632			833,735			295,573			320,479			833,735			865,367
Interest expense	51,895			55,133			154,653			168,535			55,133			53,750			168,535			165,322
Interest capitalized	(3,424		)	(3,099		)	(10,804		)	(13,354		)	(3,099		)	(5,831		)	(13,354		)	(14,419		)
Interest income	(240		)	(501		)	(788		)	(1,460		)	(501		)	(648		)	(1,460		)	(2,646		)
Gain on sale of asset	(18,505		)	(353,797		)	(18,505		)	(353,797		)
Other expense	549			1,694			3,762			10,299
Gain on disposition of assets													(353,797		)	(2,532		)	(353,797		)	(28,966		)
Other (income) expense													1,694			2,602			10,299			9,222
Income before provision for income taxes	199,426			596,143			634,314			1,023,512			596,143			273,138			1,023,512			736,854
Provision for income taxes	926			1,609			2,678			3,659			1,609			100			3,659			2,450
Net income	$	198,500		$	594,534		$	631,636		$	1,019,853		$	594,534		$	273,038		$	1,019,853		$	734,404
Basic net income per limited partner unit	$	0.87		$	2.60		$	2.77		$	4.47		$	2.60		$	1.19		$	4.47		$	3.21
Diluted net income per limited partner unit	$	0.87		$	2.60		$	2.77		$	4.46		$	2.60		$	1.19		$	4.46		$	3.21
Weighted average number of limited partner units outstanding used for basic net income per unit calculation	228,199			228,397			228,167			228,368			228,397			228,720			228,368			228,642
Weighted average number of limited partner units outstanding used for diluted net income per unit calculation	228,260			228,449			228,222			228,412			228,449			228,754			228,412			228,667

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2019			2018			2019
Net income	$	594,534		$	273,038		$	1,019,853		$	734,404
Other comprehensive income (loss):
Derivative activity:
Net gain (loss) on cash flow hedges	6,852			(14,181		)	13,963			(25,216		)
Reclassification of net loss on cash flow hedges to income	740			699			2,219			1,927
Changes in employee benefit plan assets and benefit obligations recognized in other comprehensive income:
Net actuarial loss	—			—			(5,291		)	(10,913		)
Amortization of prior service credit	(45		)	(46		)	(136		)	(136		)
Amortization of actuarial loss	1,806			1,412			8,623			4,385
Settlement cost	—			439			—			2,499
Total other comprehensive income (loss)	9,353			(11,677		)	19,378			(27,454		)
Comprehensive income	$	603,887		$	261,361		$	1,039,231		$	706,950

Three Months Ended September 30, Nine Months Ended September 30,
2017 2018 2017 2018
Net income $ 198,500
$ 594,534
$ 631,636
$ 1,019,853
Other comprehensive income:

Derivative activity:
Net gain (loss) on cash flow hedges (228 ) 6,852
(1,735 ) 13,963
Reclassification of net loss on cash flow hedges to income
740
740
2,219
2,219
Changes in employee benefit plan assets and benefit obligations recognized in other comprehensive income:
Net actuarial loss —
—
—
(5,291 )
Amortization of prior service credit (45 ) (45 ) (136 ) (136 )
Amortization of actuarial loss 1,568
1,806
4,779
8,623
Settlement cost 289
—
2,015
—
Total other comprehensive income 2,324
9,353
7,142
19,378
Comprehensive income $ 200,824
$ 603,887
$ 638,778
$ 1,039,231

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands)


	December 31, 2017			September 30, 2018			December 31, 2018			September 30, 2019
ASSETS				(Unaudited)						(Unaudited)
Current assets:
Cash and cash equivalents	$	160,840		$	217,423		$	218,283		$	135,486
Trade accounts receivable	138,779			137,618			104,164			131,746
Other accounts receivable	14,561			24,025			25,007			22,379
Inventory	182,345			179,366			185,735			205,952
Energy commodity derivatives contracts, net							55,011			4,839
Energy commodity derivatives deposits	36,690			47,354			—			21,811
Other current assets	63,396			66,221			58,143			45,631
Total current assets	596,611			672,007			646,343			567,844
Property, plant and equipment	7,235,468			7,570,759			7,628,592			8,248,181
Less: accumulated depreciation	1,682,633			1,835,824			1,830,411			1,983,694
Net property, plant and equipment	5,552,835			5,734,935			5,798,181			6,264,487
Investments in non-controlled entities	1,082,511			1,005,392			1,076,306			1,206,040
Right-of-use asset, operating leases							—			162,463
Long-term receivables	27,676			23,520			20,844			20,789
Goodwill	53,260			53,260			53,260			53,260
Other intangibles (less accumulated amortization of $1,389 and $2,493 at December 31, 2017 and September 30, 2018, respectively)	52,764			51,660
Other intangibles (less accumulated amortization of $2,979 and $5,588 at December 31, 2018 and September 30, 2019, respectively)							51,174			48,565
Restricted cash	15,228			42,807			90,978			56,006
Other noncurrent assets	13,490			12,087			10,451			12,732
Total assets	$	7,394,375		$	7,595,668		$	7,747,537		$	8,392,186

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable	$	104,852		$	137,169		$	138,735		$	205,410
Accrued payroll and benefits	56,261			53,285			70,276			56,677
Accrued interest payable	70,657			49,309			63,258			48,198
Accrued taxes other than income	51,343			52,307			53,093			63,375
Environmental liabilities	6,235			10,537			9,153			7,752
Deferred revenue	117,795			121,247			121,085			107,852
Accrued product liabilities	96,159			80,195			75,482			108,884
Energy commodity derivatives contracts, net	25,694			32,244
Energy commodity derivatives deposits							37,328			—
Current portion of operating lease liability							—			22,997
Current portion of long-term debt, net	250,974			552,898			59,489			—
Other current liabilities	56,540			37,873			48,657			59,500
Total current liabilities	836,510			1,127,064			676,556			680,645
Long-term operating lease liability							—			135,689
Long-term debt, net	4,273,518			3,718,607			4,211,380			4,705,775
Long-term pension and benefits	111,305			125,088			122,580			131,676
Other noncurrent liabilities	30,350			64,425			82,240			55,085
Environmental liabilities	13,039			13,064			11,347			8,860
Commitments and contingencies
Partners’ capital:
Limited partner unitholders (228,025 units and 228,195 units outstanding at December 31, 2017 and September 30, 2018, respectively)	2,267,231			2,665,620
Limited partner unitholders (228,195 units and 228,403 units outstanding at December 31, 2018 and September 30, 2019, respectively)							2,763,925			2,822,401
Accumulated other comprehensive loss	(137,578		)	(118,200		)	(120,491		)	(147,945		)
Total partners’ capital	2,129,653			2,547,420			2,643,434			2,674,456
Total liabilities and partners’ capital	$	7,394,375		$	7,595,668		$	7,747,537		$	8,392,186

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Nine Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2018			2018			2019
Operating Activities:
Net income	$	631,636		$	1,019,853		$	1,019,853		$	734,404
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	146,103			161,726
Depreciation, amortization and impairment expense							161,726			181,028
Gain on sale and retirement of assets	(10,924		)	(347,541		)	(347,541		)	(29,227		)
Earnings of non-controlled entities	(78,173		)	(130,843		)	(130,843		)	(122,229		)
Distributions from operations of non-controlled entities	97,691			147,950			147,950			138,140
Equity-based incentive compensation expense	14,183			24,612			24,612			22,577
Settlement cost, amortization of prior service credit and actuarial loss	6,658			8,487			8,487			6,748
Debt prepayment costs							—			8,270
Changes in operating assets and liabilities:
Trade accounts receivable and other accounts receivable	(14,413		)	(8,303		)	(8,303		)	(24,954		)
Inventory	(34,384		)	2,979			2,979			(20,217		)
Energy commodity derivatives contracts, net of derivatives deposits	1,135			(4,505		)
Accounts payable	15,576			27,498			27,498			29,014
Accrued payroll and benefits	(5,608		)	(2,976		)	(2,976		)	(13,599		)
Accrued interest payable	(23,386		)	(21,348		)	(21,348		)	(15,060		)
Accrued taxes other than income	(322		)	964			964			10,282
Accrued product liabilities	67,972			(15,964		)	(15,964		)	33,402
Deferred revenue	14,806			5,353			5,353			(13,233		)
Current and noncurrent environmental liabilities	(3,352		)	4,327
Other current and noncurrent assets and liabilities	(11,497		)	(8,488		)	(8,666		)	(2,749		)
Net cash provided by operating activities	813,701			863,781			863,781			922,597
Investing Activities:
Additions to property, plant and equipment, net⁽¹⁾	(418,239		)	(374,320		)	(374,320		)	(718,605		)
Proceeds from sale and disposition of assets	44,303			579,448			579,448			65,574
Investments in non-controlled entities	(114,078		)	(147,048		)	(147,048		)	(158,145		)
Distributions from returns of investments in non-controlled entities	52,738			1,786			1,786			7,500
Deposits received from undivided joint interest third party	—			41,571			41,571			68,928
Net cash provided (used) by investing activities	(435,276		)	101,437			101,437			(734,748		)
Financing Activities:
Distributions paid	(596,854		)	(642,370		)	(642,370		)	(688,635		)
Net commercial paper borrowings	218,984			—
Borrowings under long-term notes							—			996,405
Payments on notes	—			(250,000		)	(250,000		)	(550,000		)
Debt placement costs	—			(326		)	(326		)	(12,012		)
Net receipt on financial derivatives	—			20,925
Net receipt (payment) on financial derivatives							20,925			(33,342		)
Payments associated with settlement of equity-based incentive compensation	(13,875		)	(9,285		)	(9,285		)	(9,764		)
Debt prepayment costs							—			(8,270		)
Net cash used by financing activities	(391,745		)	(881,056		)	(881,056		)	(305,618		)
Change in cash, cash equivalents and restricted cash	(13,320		)	84,162			84,162			(117,769		)
Cash, cash equivalents and restricted cash at beginning of period	14,701			176,068			176,068			309,261
Cash, cash equivalents and restricted cash at end of period	$	1,381		$	260,230		$	260,230		$	191,492

Supplemental non-cash investing and financing activities:
Contribution of property, plant and equipment to a non-controlled entity	$	93,051		$	—
Issuance of limited partner units in settlement of equity-based incentive plan awards	$	1,669		$	120

Supplemental non-cash investing activities:
⁽¹⁾ Additions to property, plant and equipment	$	(443,439	)	$	(375,599	)	$	(375,599	)	$	(775,109	)
Changes in accounts payable and other current liabilities related to capital expenditures	25,200			1,279			1,279			56,504
Additions to property, plant and equipment, net	$	(418,239	)	$	(374,320	)	$	(374,320	)	$	(718,605	)

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

(Unaudited, in thousands)



	Limited Partners			Accumulated Other Comprehensive Loss				Total Partners’ Capital
Balance, July 1, 2018	$	2,281,845			$	(127,553	)	$	2,154,292
Comprehensive income:
Net income	594,534				—			594,534
Total other comprehensive income	—				9,353			9,353
Total comprehensive income	594,534				9,353			603,887
Distributions	(218,497		)		—			(218,497		)
Equity-based incentive compensation expense	7,933				—			7,933
Other	(195		)		—			(195		)
Three Months Ended September 30, 2018	$	2,665,620			$	(118,200	)	$	2,547,420

Balance, July 1, 2019	$	2,774,047			$	(136,268	)	$	2,637,779
Comprehensive income:
Net income	273,038				—			273,038
Total other comprehensive loss	—				(11,677		)	(11,677		)
Total comprehensive income	273,038				(11,677		)	261,361
Distributions	(231,258		)		—			(231,258		)
Equity-based incentive compensation expense	6,773				—			6,773
Other	(199		)		—			(199		)
Three Months Ended September 30, 2019	$	2,822,401			$	(147,945	)	$	2,674,456



MAGELLAN MIDSTREAM PARTNERS, L.P. CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL (Continued) (Unaudited, in thousands)

	Limited Partners			Accumulated Other Comprehensive Loss				Total Partners’ Capital
Balance, January 1, 2018	$	2,267,231			$	(137,578	)	$	2,129,653
Comprehensive income:
Net income	1,019,853				—			1,019,853
Total other comprehensive income	—				19,378			19,378
Total comprehensive income	1,019,853				19,378			1,039,231
Distributions	(642,370		)		—			(642,370		)
Equity-based incentive compensation expense	24,612				—			24,612
Issuance of limited partner units in settlement of equity-based incentive plan awards	120				—			120
Payments associated with settlement of equity-based incentive compensation	(9,285		)		—			(9,285		)
ASC 606 cumulative effect	5,975				—			5,975
Other	(516		)		—			(516		)
Nine Months Ended September 30, 2018	$	2,665,620			$	(118,200	)	$	2,547,420

Balance, January 1, 2019	$	2,763,925			$	(120,491	)	$	2,643,434
Comprehensive income:
Net income	734,404				—			734,404
Total other comprehensive loss	—				(27,454		)	(27,454		)
Total comprehensive income	734,404				(27,454		)	706,950
Distributions	(688,635		)		—			(688,635		)
Equity-based incentive compensation expense	22,577				—			22,577
Issuance of limited partner units in settlement of equity-based incentive plan awards	480				—			480
Payments associated with settlement of equity-based incentive compensation	(9,764		)		—			(9,764		)
Other	(586		)		—			(586		)
Nine Months Ended September 30, 2019	$	2,822,401			$	(147,945	)	$	2,674,456

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	Organization, Description of Business 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. Magellan Midstream Partners, L.P. is a Delaware limited partnership, and its limited partner units are traded on the New York Stock Exchange under the ticker symbol “MMP.” Magellan GP, LLC, a wholly-owned Delaware limited liability company, serves as its general partner.

Description of Business

We are principally engaged in the transportation, storage and distribution of refined petroleum products and crude oil. As of September 30, ~~2018,~~2019, our asset portfolio ~~including the assets of our joint ventures,~~ consisted of:


•	our refined products segment, comprised of our approximately 9,700-mile refined products pipeline system with 53 terminals as well as 25 independent terminals not connected to our pipeline system and our 1,100-mile ammonia pipeline system;

~~our refined products segment, comprised of our~~ ~~9,700-mile refined products pipeline system with~~ 53 ~~terminals as well as~~ 26 ~~independent terminals not connected to our pipeline system and our~~ ~~1,100-mile ammonia pipeline system;~~

our crude oil segment, comprised of approximately 2,200 miles of crude oil pipelines, ~~our~~a condensate splitter and ~~storage facilities with an~~33 million barrels of aggregate storage capacity, ~~of approximately 33 million barrels,~~ of which approximately 21 million barrels are used for contract ~~storage;~~storage. Approximately 1,000 miles of these pipelines, the condensate splitter and 28 million barrels of this storage capacity (including 19 million barrels used for contract storage) are wholly-owned, with the remainder owned through joint ventures; and

our marine storage segment, consisting of ~~five~~6 marine terminals located along coastal waterways with an aggregate storage capacity of approximately 2627 million barrels. NaN of these terminals and approximately 25 million barrels of this storage capacity are wholly-owned, with the remainder owned through joint ventures.

Terminology common in our industry includes the following terms, which describe products that we transport, store and distribute through our pipelines and terminals:


•	refined products are the output from refineries and are primarily used as fuels by consumers. Refined products include gasoline, diesel fuel, aviation fuel, kerosene and heating oil. Collectively, diesel fuel, kerosene and heating oil are referred to as distillates;


•	liquefied petroleum gases, or LPGs, are produced as by-products of the crude oil refining process and in connection with natural gas production. LPGs include butane and propane;


•	blendstocks are blended with refined products to change or enhance their characteristics such as increasing a gasoline’s octane or oxygen content. Blendstocks include alkylates, oxygenates and natural gasoline;


•	heavy oils and feedstocks are used as burner fuels or feedstocks for further processing by refineries and petrochemical facilities. Heavy oils and feedstocks include No. 6 fuel oil and vacuum gas oil;


•	crude oil, which includes condensate, is used as feedstock by refineries, splitters and petrochemical facilities; and

~~refined products~~ are the output from refineries and are primarily used as fuels by consumers. Refined products include gasoline, diesel fuel, aviation fuel, kerosene and heating oil. Collectively, diesel fuel, aviation fuel, kerosene and heating oil are referred to as distillates;

~~liquefied petroleum gases, or LPGs,~~ ~~are produced as by-products of the crude oil refining process and in connection with natural gas production. LPGs include butane and propane;~~

~~blendstocks~~ ~~are blended with refined products to change or enhance their characteristics such as increasing a gasoline’s octane or oxygen content. Blendstocks include alkylates, oxygenates and natural gasoline;~~

~~heavy oils and feedstocks~~ ~~are used as burner fuels or feedstocks for further processing by refineries and petrochemical facilities. Heavy oils and feedstocks include No. 6 fuel oil and vacuum gas oil;~~

~~crude oil and condensate~~ ~~are used as feedstocks by refineries and petrochemical facilities;~~

~~biofuels, such as ethanol and biodiesel, are typically blended with other refined products as required by government mandates; and~~

~~ammonia~~ ~~is primarily used as a nitrogen fertilizer.~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


•	biofuels, such as ethanol and biodiesel, are typically blended with other refined products as required by government mandates.

~~Except for ammonia, we~~We use the term petroleum products to describe any, or a combination, of the above-noted products.

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, ~~2017,~~2018, which is derived from our audited financial statements, include all normal and recurring adjustments necessary to present fairly our financial position as of September 30, ~~2018,~~2019, the results of operations for the three and nine months ended September 30, ~~2017~~2018 and ~~2018~~2019 and cash flows for the nine months ended September 30, ~~2017~~2018 and ~~2018.~~2019. The results of operations for the nine months ended September 30, ~~2018~~2019 are not necessarily indicative of the results to be expected for the full year ending December 31, ~~2018~~2019 for several reasons. Profits from our butane blending activities are realized largely during the first and fourth quarters of each year. Additionally, gasoline demand, which drives transportation volumes and revenues on our refined products pipeline system, generally trends higher during the summer driving months. Further, the volatility of commodity prices impacts the profits from our commodity activities and ~~to a lesser extent,~~ the volume of petroleum products we transport on our pipelines.

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 U.S. generally accepted accounting principles (“GAAP”). 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, ~~2017~~2018.

~~Reclassifications.~~ ~~Prior year amounts related to restricted cash have been reclassified to conform with the current period’s presentation.~~

Use of Estimates

The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities that exist at the date of our consolidated financial statements, as well as their impact on the reported amounts of revenue and expense during the reporting periods. Actual results could differ from those estimates.

~~Restricted Cash~~

Restricted cash includes cash held by us, which is contractually required to be used for the construction of fixed assets, and is unavailable for general use. It is classified as noncurrent due to its designation to be used for the construction of noncurrent assets.

~~Correction of Actuarial Valuation Error~~

In first quarter 2018, an error was discovered in our third-party actuary’s valuation of our pension liabilities and net periodic pension expenses dating back to 2010. The impacts of the error were not material to any of our prior period financial statements and the cumulative impact was corrected with a one-time adjustment in the first quarter of 2018. As a result, during first quarter 2018, net periodic pension expenses were increased by $16.0 million ($5.7 million operating expense, $3.4 million general and administrative (“G&A”) costs and $6.9 million other expense below operating profit on our consolidated statements of income). In addition, long-term pension and benefits was increased $18.8 million and accumulated other comprehensive loss was increased by $2.8 million on our consolidated balance sheets.

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

New Accounting Pronouncements - Adopted by us on January 1, 2019

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). This ASU requires lessees to recognize a ~~right of use~~right-of-use asset and lease liability on the balance sheet for all leases, with the exception of short-term leases. The new accounting model for lessors remains largely the same, although some changes have been made to align it with the new lessee model and the new revenue recognition guidance. This update also requires companies to include additional disclosures regarding their lessee and lessor agreements. ~~For public companies,~~We adopted this ~~ASU is effective for fiscal years that start after December 15, 2018,~~standard on January 1, 2019, and ~~early adoption is permitted. This standard will~~it did not have a material impact on our consolidated statements of ~~income. Based on~~income or our ~~current population of leases, we expect the impact~~leverage ratio as defined in our credit agreement. Adoption of this ASU toresulted in an initial increase in our assets and liabilities by approximately ~~$80.0~~$172 million due to the recognition of ~~right of use~~right-of-use assets and lease liabilities. See Note 7 – Leases for our lease disclosures.

~~New Accounting Pronouncements - Adopted January 1, 2018~~

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~. This update changes GAAP’s hedge accounting requirements to simplify some of the specialized treatment’s most complex areas. These simplifications are intended to expand opportunities to use hedge accounting and better align the accounting treatment with existing risk management activities. The ASU is effective for public companies starting after December 15, 2018, and we early-adopted the new standard on January 1, 2018. The adoption of this ASU did not have a material impact on our consolidated financial statements.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments: A Consensus of the FASB Emerging Issues Task Force~~. This ASU includes a requirement to make an accounting policy election to classify distributions received from equity method investees under either (1) the cumulative earnings approach, where distributions in excess of equity earnings are considered a return of capital and classified as cash inflows from investing activities, or (2) the nature of the distribution approach, where each distribution is evaluated on the basis of the source of the payment and classified as either operating or investing cash inflows. We adopted this standard on January 1, 2018 using the retrospective transition method and made an accounting policy election to use the nature of the distribution approach, which resulted in the following adjustments to our September 30, 2017 comparative statement of cash flows (in thousands):

Nine Months Ended September 30, 2017, as Reported ASU 2016-15 Adjustment Nine Months Ended September 30, 2017, as Adjusted
Operating activities:
Distributions from operations of non-controlled entities $ 78,562
$ 19,129
$ 97,691
Net cash provided by operating activities $ 794,572
$ 19,129
$ 813,701

Investing activities:
Distributions from returns of investments in non-controlled entities $ 71,867
$ (19,129 ) $ 52,738
Net cash used by investing activities $ (416,147 ) $ (19,129 ) $ (435,276 )

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606).~~ This ASU amends the existing accounting standards for revenue recognition and is based on the principle that revenue should be recognized to depict the transfer of goods or services to a customer at an amount that reflects the consideration a company expects to receive in exchange for those goods or services. On January 1, 2018, we adopted the new Accounting Standards Codification (“ASC”) 606, ~~Revenue from Contracts with Customers~~ ~~and all related~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

amendments using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of partners’ capital. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

~~The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet resulting from the adoption of the new revenue standard was as follows (in thousands):~~

Balance at December 31, 2017 Adjustments Due to ASU 2014-09 Balance at January 1, 2018
Assets:
Property, plant and equipment $ 7,235,468
$ 8,516
$ 7,243,984
Accumulated depreciation (1,682,633 ) (325 ) (1,682,958 )
Net property, plant and equipment $ 5,552,835
$ 8,191
$ 5,561,026
Investments in non-controlled entities $ 1,082,511
$ 502
$ 1,083,013

Liabilities:
Deferred revenue $ 117,795
$ (1,901 ) $ 115,894
Other noncurrent liabilities $ 30,350
$ 4,619
$ 34,969

Partners’ capital:
Limited partner unitholders $ 2,267,231
$ 5,975
$ 2,273,206

The primary changes impacting our financial statements under the new revenue standard include the requirement for us to estimate deficiencies in our customers’ use of our services contracted as minimum commitments and adjust the amount of revenue recognized in proportion to our customers’ pattern of exercised rights. This change results in accelerating the timing of revenue recognized for specific contracts for which we estimate our customers will not ship their minimum commitments. In addition, we periodically receive payments from customers seeking to expand their access to our pipeline systems and terminals. Prior to the adoption of the new revenue standard, these payments were recorded as reductions to our property, plant and equipment (“PP&E”) expenditures. Under the new revenue standard, these payments are recorded to deferred revenue and other noncurrent liabilities and are recognized as revenue in proportion to the related services provided. The impact of this change increases our revenues, contract liabilities, PP&E and depreciation expense. We expect the impact of the adoption of the new revenue standard, including these changes, to be immaterial to our net income on an ongoing basis.

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~


2.	Revenue from Contracts with Customers

~~Adoption of ASC 606, Revenue from Contracts with Customers~~

The table below provides the amount by which financial statement line items are affected in the current reporting period by the application of the new revenue standard, as compared with the guidance that was in effect before the change (in thousands):

As Reported Amounts without adoption of ASC 606
Effect of Change
Higher/(Lower)
Statements of Income:
Three Months Ended September 30, 2018
Transportation and terminals revenue $ 488,775
$ 486,801
$ 1,974
Depreciation and amortization $ 56,228
$ 56,108
$ 120

Nine Months Ended September 30, 2018
Transportation and terminals revenue $ 1,392,960
$ 1,383,404
$ 9,556
Depreciation and amortization $ 161,726
$ 161,486
$ 240

Balance Sheet:
As of September 30, 2018
Assets:
Property, plant and equipment $ 7,570,759
$ 7,555,758
$ 15,001
Accumulated depreciation 1,835,824
1,835,259
565
Net property, plant and equipment $ 5,734,935
$ 5,720,499
$ 14,436
Investments in non-controlled entities $ 1,005,392
$ 1,004,890
$ 502
Liabilities:
Deferred revenue $ 121,247
$ 129,458
$ (8,211 )
Other noncurrent liabilities $ 64,425
$ 56,567
$ 7,858
Partners’ capital:
Limited partner unitholders $ 2,665,620
$ 2,650,329
$ 15,291

~~Revenue recognition policies~~

Revenue is recognized upon the satisfaction of each performance obligation required by our customer contracts. Transportation and terminals revenue is recognized over time as our customers receive the benefits of our service as it is performed on their behalf using an output method based on actual deliveries. Revenue for our storage services is recognized over time using an output method based on the capacity of storage under contract with our customers. Product sales revenue is recognized at a point in time when our customers take control of the commodities purchased. We record back-to-back purchases and sales of petroleum products where we are acting as an agent on a net basis.

We recognize pipeline transportation revenue for crude oil and ammonia shipments when our customers’ product arrives at the customer-designated destination. For shipments of refined products under published tariffs that combine transportation and terminalling services, we recognize revenue when our customers take delivery of their product from our system. For shipments where terminalling services are not included in the tariff, we recognize revenue when our customers’ product arrives at the customer-designated destination. We have certain contracts that

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

require counterparties to ship a minimum volume over an agreed-upon time period, which are contracted as minimum dollar or volume commitments. Revenue pursuant to these take-or-pay contracts is recognized when the customers utilize their committed volumes. Additionally, when we estimate that the customers will not utilize all or a portion of their committed volumes, we recognize revenue in proportion to the pattern of exercised rights for the respective commitment period.

Our interstate common carrier petroleum products pipeline operations are subject to rate regulation by the Federal Energy Regulatory Commission (“FERC”) under the Interstate Commerce Act, the Energy Policy Act of 1992 and rules and orders promulgated pursuant thereto. FERC regulation requires that interstate pipeline rates be filed with the FERC, be posted publicly and be nondiscriminatory and “just and reasonable.” The rates on approximately 40% of the shipments on our refined products pipeline system are regulated by the FERC primarily through an index methodology. As an alternative to cost-of-service or index-based rates, interstate pipeline companies may establish rates by obtaining authority to charge market-based rates in competitive markets or by negotiation with unaffiliated shippers. Approximately 60% of our refined products pipeline system’s markets are either subject to regulations by the states in which we operate or are approved for market-based rates by the FERC, and in both cases these rates can generally be adjusted at our discretion based on market factors. Most of the tariffs on our crude oil pipelines are established by negotiated rates that generally provide for annual adjustments in line with changes in the FERC index, subject to certain modifications.

For both our index-based rates and our market-based rates, our published tariffs serve as contracts, and shippers nominate the volume to be shipped up to a month in advance. These tariffs include provisions which allow us to deduct from our customer’s inventory a small percentage of the products our customers transport on our pipeline systems. We refer to this non-monetary consideration as tender deduction revenue. We receive tender deductions from our customers as consideration for product losses during the transportation of petroleum products within our pipeline systems. Tender deduction revenue is generally recognized as transportation revenue when the customer's transported commodities reach their destination and is recorded at the fair value of the product received on the date received or the contract date, as applicable.

Product sales revenue pricing is contractually specified, and we have determined that each barrel sold represents a separate performance obligation. Transaction prices for our other services including terminalling, storage and ancillary services are typically contracted as a single performance obligation with our customers. In circumstances where multiple performance obligations are contractually required, we allocate the transaction price to the various performance obligations based on their relative standalone selling price.

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

Statement of Income Disclosures

The following tables provide details of our revenues disaggregated by key activities that comprise our performance obligations by operating segment (in thousands):


	Three Months Ended September 30, 2018															Three Months Ended September 30, 2018
	Refined Products			Crude Oil			Marine Storage			Intersegment Eliminations			Total			Refined Products			Crude Oil			Marine Storage			Intersegment Eliminations			Total
Transportation	$	197,235		$	91,086		$	—		$	—		$	288,321		$	197,235		$	91,086		$	—		$	—		$	288,321
Terminalling	46,213			2,528			616			—			49,357			46,213			2,528			616			—			49,357
Storage	25,137			29,094			33,890			(923		)	87,198			25,137			29,094			33,890			(923		)	87,198
Ancillary services	28,808			6,278			5,857			—			40,943			28,808			6,278			5,857			—			40,943
Lease revenue	2,641			16,132			4,183			—			22,956			2,641			16,132			4,183			—			22,956
Transportation and terminals revenue	300,034			145,118			44,546			(923		)	488,775			300,034			145,118			44,546			(923		)	488,775
Product sales revenue	129,926			12,666			1,811			—			144,403			129,926			12,666			1,811			—			144,403
Affiliate management fee revenue	351			3,463			1,028			—			4,842			351			3,463			1,028			—			4,842
Total revenue	430,311			161,247			47,385			(923		)	638,020			430,311			161,247			47,385			(923		)	638,020
Revenue not under the guidance of ASC 606:
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers:
Lease revenue⁽¹⁾	(2,641		)	(16,132		)	(4,183		)	—			(22,956		)	(2,641		)	(16,132		)	(4,183		)	—			(22,956		)
Losses from futures contracts included in product sales revenue⁽²⁾	24,253			102			—			—			24,355			24,253			102			—			—			24,355
Affiliate management fee revenue	(351		)	(3,463		)	(1,028		)	—			(4,842		)	(351		)	(3,463		)	(1,028		)	—			(4,842		)
Total revenue from contracts with customers under ASC 606	$	451,572		$	141,754		$	42,174		$	(923	)	$	634,577		$	451,572		$	141,754		$	42,174		$	(923	)	$	634,577

⁽¹⁾Lease revenue in 2018 is accounted for under ASC 840, Leases.

⁽²⁾ The impact on product sales revenue from futures contracts falls under the guidance of ASC 815, Derivatives and Hedging.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	Nine Months Ended September 30, 2018															Three Months Ended September 30, 2019
	Refined Products			Crude Oil			Marine Storage			Intersegment Eliminations			Total			Refined Products			Crude Oil			Marine Storage			Intersegment Eliminations			Total
Transportation	$	548,733		$	254,964		$	—		$	—		$	803,697		$	205,824		$	85,859		$	—		$	—		$	291,683
Terminalling	136,135			2,528			1,920			—			140,583			47,483			3,176			946			—			51,605
Storage	75,353			87,620			101,420			(2,753		)	261,640			25,788			35,371			34,230			(1,556		)	93,833
Ancillary services	83,055			19,512			18,928			—			121,495			29,284			7,164			7,205			—			43,653
Lease revenue	8,216			44,705			12,624			—			65,545			2,103			19,356			4,199			—			25,658
Transportation and terminals revenue	851,492			409,329			134,892			(2,753		)	1,392,960			310,482			150,926			46,580			(1,556		)	506,432
Product sales revenue	513,634			32,387			6,771			—			552,792			134,755			8,343			1,709			—			144,807
Affiliate management fee revenue	1,000			11,328			2,810			—			15,138			432			3,592			1,333			—			5,357
Total revenue	1,366,126			453,044			144,473			(2,753		)	1,960,890			445,669			162,861			49,622			(1,556		)	656,596
Revenue not under the guidance of ASC 606:
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers:
Lease revenue⁽¹⁾	(8,216		)	(44,705		)	(12,624		)	—			(65,545		)	(2,103		)	(19,356		)	(4,199		)	—			(25,658		)
Losses from futures contracts included in product sales revenue⁽²⁾	64,558			5,582			—			—			70,140
(Gains) losses from futures contracts included in product sales revenue⁽²⁾																(17,061		)	(564		)	—			—			(17,625		)
Affiliate management fee revenue	(1,000		)	(11,328		)	(2,810		)	—			(15,138		)	(432		)	(3,592		)	(1,333		)	—			(5,357		)
Total revenue from contracts with customers under ASC 606	$	1,421,468		$	402,593		$	129,039		$	(2,753	)	$	1,950,347		$	426,073		$	139,349		$	44,090		$	(1,556	)	$	607,956

⁽¹⁾Lease revenue in 2019 is accounted for under ASC ~~840,~~ 842, Leases.

⁽²⁾ The impact on product sales revenue from futures contracts falls under the guidance of ASC 815, Derivatives and Hedging.

~~Balance Sheet Disclosures~~

We invoice customers on our refined products pipelines for transportation services when their product enters our system. At each period end, we record all invoiced amounts associated with products that have not yet been delivered (in-transit products) as a contract liability. This liability is presented as deferred revenue on our consolidated balance sheets. Deferred revenue is also recorded for pre-payments received in conjunction with take-or-pay contracts, storage contracts and other service offerings in which the service to our customers remains unfulfilled. Additionally, at each period end, we defer the direct costs we have incurred associated with our customers’ in-transit products as contract assets. Contract assets are presented on our consolidated balance sheets as other current assets. These direct costs are estimated based on our per-barrel direct delivery cost for the current period multiplied by the total in-transit barrels in our system at the end of the period multiplied by 50% to reflect the average transportation costs incurred for all products across all of our pipeline systems. We use 50% of the in-transit barrels because that best represents the average delivery point of all barrels in our pipeline system. These contract assets and contract liabilities are determined using judgments and assumptions that management considers reasonable.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	Nine Months Ended September 30, 2018
	Refined Products			Crude Oil			Marine Storage			Intersegment Eliminations			Total
Transportation	$	548,733		$	254,964		$	—		$	—		$	803,697
Terminalling	136,135			2,528			1,920			—			140,583
Storage	75,353			87,620			101,420			(2,753		)	261,640
Ancillary services	83,055			19,512			18,928			—			121,495
Lease revenue	8,216			44,705			12,624			—			65,545
Transportation and terminals revenue	851,492			409,329			134,892			(2,753		)	1,392,960
Product sales revenue	513,634			32,387			6,771			—			552,792
Affiliate management fee revenue	1,000			11,328			2,810			—			15,138
Total revenue	1,366,126			453,044			144,473			(2,753		)	1,960,890
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers:
Lease revenue⁽¹⁾	(8,216		)	(44,705		)	(12,624		)	—			(65,545		)
Losses from futures contracts included in product sales revenue⁽²⁾	64,558			5,582			—			—			70,140
Affiliate management fee revenue	(1,000		)	(11,328		)	(2,810		)	—			(15,138		)
Total revenue from contracts with customers under ASC 606	$	1,421,468		$	402,593		$	129,039		$	(2,753	)	$	1,950,347

⁽¹⁾Lease revenue in 2018 is accounted for under ASC 840, Leases.

⁽²⁾ The impact on product sales revenue from futures contracts falls under the guidance of ASC 815, Derivatives and Hedging.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	Nine Months Ended September 30, 2019
	Refined Products			Crude Oil			Marine Storage			Intersegment Eliminations			Total
Transportation	$	578,024		$	262,551		$	—		$	—		$	840,575
Terminalling	136,435			13,145			2,535			—			152,115
Storage	77,698			104,661			103,933			(3,835		)	282,457
Ancillary services	83,308			19,796			20,671			—			123,775
Lease revenue	8,237			53,950			12,520			—			74,707
Transportation and terminals revenue	883,702			454,103			139,659			(3,835		)	1,473,629
Product sales revenue	473,122			19,351			5,318			—			497,791
Affiliate management fee revenue	1,314			10,724			3,772			—			15,810
Total revenue	1,358,138			484,178			148,749			(3,835		)	1,987,230
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers:
Lease revenue⁽¹⁾	(8,237		)	(53,950		)	(12,520		)	—			(74,707		)
Losses from futures contracts included in product sales revenue⁽²⁾	39,761			1,743			—			—			41,504
Affiliate management fee revenue	(1,314		)	(10,724		)	(3,772		)	—			(15,810		)
Total revenue from contracts with customers under ASC 606	$	1,388,348		$	421,247		$	132,457		$	(3,835	)	$	1,938,217

⁽¹⁾Lease revenue in 2019 is accounted for under ASC 842, Leases.

⁽²⁾ The impact on product sales revenue from futures contracts falls under the guidance of ASC 815, Derivatives and Hedging.

Balance Sheet Disclosures

The following table summarizes our accounts receivable, contract assets and contract liabilities resulting from contracts with customers (in thousands):



	December 31, 2018		September 30, 2019
Accounts receivable from contracts with customers	$	102,684	$	129,017
Contract assets	$	8,487	$	7,685
Contract liabilities	$	122,129	$	110,519

January 1, 2018 September 30, 2018
Accounts receivable from contracts with customers $ 133,084
$ 135,269
Contract assets $ 8,615
$ 8,053
Contract liabilities $ 106,933
$ 119,841

For the three and nine months ended September 30, ~~2018,~~2019, we recognized ~~$10.7~~$6.0 million and ~~$77.0~~$90.0 million ~~respectively,~~ of transportation and terminals revenue that was recorded in deferred revenue as of ~~January 1,~~December 31, 2018.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unfulfilled Performance Obligations

We have certain contracts with customers that represent customer commitments to purchase a minimum amount of our services over specified time periods. These contracts require us to provide services to our customers in the future and result in our having unfulfilled performance obligations (“UPOs”) to our customers related to the periods remaining under each contract. We have UPOs in many of our core business services, including transportation, terminalling and storage services. The UPOs will be recognized as revenue in the future as our customers utilize our services or when we estimate that our customers are not likely to use all or a portion of their commitments.

The following table provides the aggregate amount of the transaction price allocated to our ~~UPOs~~unfulfilled performance obligations (“UPOs”) as of September 30, ~~2018~~2019 by operating segment, including the range of years remaining on our contracts with customers and an estimate of revenues expected to be recognized over the next 12 months (dollars in thousands):



	Refined Products		Crude Oil		Marine Storage		Total
Balances at September 30, 2019	$	2,034,378	$	1,206,147	$	223,219	$	3,463,744
Remaining terms	1 - 19 years		1 - 10 years		1 - 5 years
Estimated revenues from UPOs to be recognized in the next 12 months	$	289,478	$	337,928	$	122,047	$	749,453

Refined Products Crude Oil Marine Storage Total
Balances at September 30, 2018 $ 2,176,871
$ 1,419,449
$ 341,673
$ 3,937,993
Remaining terms 1 - 20 years
1 - 10 years
1 - 6 years

Estimated revenues from UPOs to be recognized in the next 12 months $ 395,872
$ 328,844
$ 147,795
$ 872,511

In computing the value of these future revenues, we have used the current rates in effect as of September 30, 2018 and have not included any estimates for future rate changes due to changes in the FERC index or other contractually negotiated rate escalations. Our UPO balances include the full amount of our customer commitments as of September 30, 2018 through the expiration of the related contracts. The UPO balances disclosed exclude all performance obligations for which the original expected term is one year or less, the consideration is variable or the future use of our services is fully at the discretion of our customers.


3.	Segment Disclosures

Our reportable segments are strategic business units that offer different products and services. Our segments are managed separately as each segment requires different marketing strategies and business knowledge. Management evaluates performance based on segment operating margin, which includes revenue from affiliates and external customers, operating expenses, cost of product sales and earnings of non-controlled entities.

We believe that investors benefit from having access to the same financial measures used by management. Management evaluates performance based on segment operating margin. Operating margin, which is presented in the following tables, is an important measure used by management to

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

evaluate the economic performance of our core operations. Operating margin is not a 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 (presented in thousands). Operating profit includes depreciation, amortization and ~~amortization~~impairment expense and general and administrative (“G&A&A”) expense that management does not consider when evaluating the core profitability of our separate operating segments.


	Three Months Ended September 30, 2017														Three Months Ended September 30, 2018
	Refined Products		Crude Oil			Marine Storage			Intersegment Eliminations			Total			Refined Products			Crude Oil			Marine Storage			Intersegment Eliminations			Total
Transportation and terminals revenue	$	289,030	$	116,305		$	42,501		$	(901	)	$	446,935		$	300,034		$	145,118		$	44,546		$	(923	)	$	488,775
Product sales revenue	107,175		12,370			1,465			—			121,010			129,926			12,666			1,811			—			144,403
Affiliate management fee revenue	353		3,703			847			—			4,903			351			3,463			1,028			—			4,842
Total revenue	396,558		132,378			44,813			(901		)	572,848			430,311			161,247			47,385			(923		)	638,020
Operating expenses	118,665		31,163			17,723			(2,183		)	165,368			112,279			45,195			17,178			(2,537		)	172,115
Cost of product sales	103,391		16,630			1,798			—			121,819			106,756			11,590			2,164			—			120,510
(Earnings) losses of non-controlled entities	700		(31,244		)	(607		)	—			(31,151		)
Earnings of non-controlled entities															(3,393		)	(49,420		)	(982		)	—			(53,795		)
Operating margin	173,802		115,829			25,899			1,282			316,812			214,669			153,882			29,025			1,614			399,190
Depreciation and amortization expense	27,469		12,584			8,574			1,282			49,909
Depreciation, amortization and impairment expense															30,440			15,145			9,029			1,614			56,228
G&A expense	23,808		9,266			4,128			—			37,202			28,751			12,766			5,872			—			47,389
Operating profit	$	122,525	$	93,979		$	13,197		$	—		$	229,701		$	155,478		$	125,971		$	14,124		$	—		$	295,573

Three Months Ended September 30, 2018
Refined Products Crude Oil Marine Storage
Intersegment
Eliminations
Total
Transportation and terminals revenue $ 300,034
$ 145,118
$ 44,546
$ (923 ) $ 488,775
Product sales revenue 129,926
12,666
1,811
—
144,403
Affiliate management fee revenue 351
3,463
1,028
—
4,842
Total revenue 430,311
161,247
47,385
(923 ) 638,020
Operating expenses 112,279
45,195
17,178
(2,537 ) 172,115
Cost of product sales 106,756
11,590
2,164
—
120,510
Earnings of non-controlled entities (3,393 ) (49,420 ) (982 ) —
(53,795 )
Operating margin 214,669
153,882
29,025
1,614
399,190
Depreciation and amortization expense 30,440
15,145
9,029
1,614
56,228
G&A expense 28,751
12,766
5,872
—
47,389
Operating profit $ 155,478
$ 125,971
$ 14,124
$ —
$ 295,573

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	Three Months Ended September 30, 2019
	Refined Products			Crude Oil			Marine Storage			Intersegment Eliminations			Total
Transportation and terminals revenue	$	310,482		$	150,926		$	46,580		$	(1,556	)	$	506,432
Product sales revenue	134,755			8,343			1,709			—			144,807
Affiliate management fee revenue	432			3,592			1,333			—			5,357
Total revenue	445,669			162,861			49,622			(1,556		)	656,596
Operating expenses	111,839			42,529			17,921			(2,902		)	169,387
Cost of product sales	98,144			8,341			2,272			—			108,757
Other operating (income) expense	(1,046		)	3,629			(2,204		)	—			379
Earnings of non-controlled entities	(3,373		)	(46,047		)	(769		)	—			(50,189		)
Operating margin	240,105			154,409			32,402			1,346			428,262
Depreciation, amortization and impairment expense	31,752			14,810			8,719			1,346			56,627
G&A expense	30,650			13,666			6,840			—			51,156
Operating profit	$	177,703		$	125,933		$	16,843		$	—		$	320,479


	Nine Months Ended September 30, 2017														Nine Months Ended September 30, 2018
	Refined Products		Crude Oil			Marine Storage			Intersegment Eliminations			Total			Refined Products			Crude Oil			Marine Storage			Intersegment Eliminations			Total
Transportation and terminals revenue	$	808,818	$	329,813		$	136,702		$	(2,488	)	$	1,272,845		$	851,492		$	409,329		$	134,892		$	(2,753	)	$	1,392,960
Product sales revenue	509,068		34,876			4,690			—			548,634			513,634			32,387			6,771			—			552,792
Affiliate management fee revenue	1,035		10,311			1,537			—			12,883			1,000			11,328			2,810			—			15,138
Total revenue	1,318,921		375,000			142,929			(2,488		)	1,834,362			1,366,126			453,044			144,473			(2,753		)	1,960,890
Operating expenses	312,911		89,991			45,753			(6,401		)	442,254			319,670			109,963			52,835			(7,212		)	475,256
Cost of product sales	396,292		37,814			6,564			—			440,670			434,632			32,401			6,748			—			473,781
(Earnings) losses of non-controlled entities	167		(76,388		)	(1,952		)	—			(78,173		)
Earnings of non-controlled entities															(5,614		)	(122,879		)	(2,350		)	—			(130,843		)
Operating margin	609,551		323,583			92,564			3,913			1,029,611			617,438			433,559			87,240			4,459			1,142,696
Depreciation and amortization expense	81,440		35,947			24,803			3,913			146,103
Depreciation, amortization and impairment expense															89,855			40,648			26,764			4,459			161,726
G&A expense	75,429		30,376			15,071			—			120,876			90,825			38,127			18,283			—			147,235
Operating profit	$	452,682	$	257,260		$	52,690		$	—		$	762,632		$	436,758		$	354,784		$	42,193		$	—		$	833,735

Nine Months Ended September 30, 2018
Refined Products Crude Oil Marine Storage
Intersegment
Eliminations
Total
Transportation and terminals revenue $ 851,492
$ 409,329
$ 134,892
$ (2,753 ) $ 1,392,960
Product sales revenue 513,634
32,387
6,771
—
552,792
Affiliate management fee revenue 1,000
11,328
2,810
—
15,138
Total revenue 1,366,126
453,044
144,473
(2,753 ) 1,960,890
Operating expenses 319,670
109,963
52,835
(7,212 ) 475,256
Cost of product sales 434,632
32,401
6,748
—
473,781
Earnings of non-controlled entities (5,614 ) (122,879 ) (2,350 ) —
(130,843 )
Operating margin 617,438
433,559
87,240
4,459
1,142,696
Depreciation and amortization expense 89,855
40,648
26,764
4,459
161,726
G&A expense 90,825
38,127
18,283
—
147,235
Operating profit $ 436,758
$ 354,784
$ 42,193
$ —
$ 833,735

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	Nine Months Ended September 30, 2019
	Refined Products			Crude Oil			Marine Storage			Intersegment Eliminations			Total
Transportation and terminals revenue	$	883,702		$	454,103		$	139,659		$	(3,835	)	$	1,473,629
Product sales revenue	473,122			19,351			5,318			—			497,791
Affiliate management fee revenue	1,314			10,724			3,772			—			15,810
Total revenue	1,358,138			484,178			148,749			(3,835		)	1,987,230
Operating expenses	317,328			123,569			51,404			(7,960		)	484,341
Cost of product sales	404,814			19,715			6,198			—			430,727
Other operating (income) expense	(2,398		)	8,112			(7,252		)	—			(1,538		)
(Earnings) losses of non-controlled entities	2,275			(122,084		)	(2,420		)	—			(122,229		)
Operating margin	636,119			454,866			100,819			4,125			1,195,929
Depreciation, amortization and impairment expense	102,024			45,812			29,067			4,125			181,028
G&A expense	89,385			40,378			19,771			—			149,534
Operating profit	$	444,710		$	368,676		$	51,981		$	—		$	865,367


4.	Investments in Non-Controlled Entities

Our investments in non-controlled entities at September 30, ~~2018~~2019 were comprised of:



Entity		Ownership Interest
BridgeTex Pipeline Company, LLC (“BridgeTex”)		30%
Double Eagle Pipeline LLC (“Double Eagle”)		50%
HoustonLink Pipeline Company, LLC (“HoustonLink”)		50%
MVP Terminalling, LLC (“MVP”)		50%
Powder Springs Logistics, LLC (“Powder Springs”)		50%
Saddlehorn Pipeline Company, LLC (“Saddlehorn”)		40%
Seabrook Logistics, LLC (“Seabrook”)		50%
Texas Frontera, LLC (“Texas Frontera”)		50%

In September 2018, we sold a 20% interest in BridgeTex to an affiliate of OMERS Infrastructure Management, Inc. (“OMERS”), which reduced our ongoing investment in BridgeTex to a 30% interest. We received $578.5 million in cash from the sale, and we recorded a gain of $353.8 million on our consolidated statements of income. See Note 9 – ~~Commitments and Contingencies~~ ~~for details regarding our indemnity to OMERS that was recorded in relation to the sale.~~

We serve as operator of BridgeTex, HoustonLink, MVP, Powder Springs, Saddlehorn, Texas Frontera and the pipeline activities of Seabrook. We receive fees for management services as well as reimbursement or payment to us for certain direct operational payroll and other overhead costs. The management fees we ~~have received~~receive are reported as affiliate management fee revenue on our consolidated statements of income. Cost reimbursements we receive from these entities in connection with our operating services are included as reductions to costs and expenses on our consolidated statements of income and totaled ~~$0.7~~$0.9 million and ~~$0.9~~$1.2 million during the three months ended September 30, ~~2017~~2018 and ~~2018,~~2019, respectively, and ~~$3.1~~$2.6 million and ~~$2.6~~$3.8 million during the nine months ended September 30, ~~2017~~2018 and ~~2018,~~2019, respectively.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We recorded the following revenue and expense transactions from certain of these non-controlled entities in our consolidated statements of income (in ~~millions)~~thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2018		2017		2018		2018		2019		2018		2019
Transportation and terminals revenue:
BridgeTex, pipeline capacity	$	9.1	$	9.9	$	27.0	$	29.5
BridgeTex, pipeline capacity and storage									$	9,958	$	10,737	$	29,519	$	31,063
Double Eagle, throughput revenue	$	1.3	$	1.0	$	3.1	$	3.9	$	1,005	$	1,582	$	3,892	$	4,813
Saddlehorn, storage revenue	$	0.5	$	0.5	$	1.6	$	1.6	$	552	$	566	$	1,628	$	1,669
Operating costs:
Seabrook, storage and ancillary services	$	—	$	4.0	$	—	$	4.0
Seabrook, storage lease and ancillary services									$	3,982	$	6,267	$	3,982	$	19,417
Product sales revenue:
Powder Springs, butane sales	$	—	$	—	$	—	$	4.9	$	—	$	—	$	4,899	$	—
Cost of product sales:
Powder Springs, butane purchases	$	—	$	—	$	—	$	0.4	$	—	$	—	$	410	$	—
Other income:
MVP, easement sale									$	—	$	289	$	—	$	289

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

Our consolidated balance sheets reflected the following balances related to our investments in non-controlled entities (in ~~millions)~~thousands):


	December 31, 2017						September 30, 2018						December 31, 2018
	Trade Accounts Receivable		Other Accounts Receivable		Other Accounts Payable		Trade Accounts Receivable		Other Accounts Receivable		Other Accounts Payable		Trade Accounts Receivable		Other Accounts Receivable		Other Accounts Payable		Long-Term Receivables
BridgeTex	$	—	$	—	$	—	$	0.2	$	0.1	$	—	$	318	$	1,549	$	—	$	—
Double Eagle	$	0.5	$	—	$	—	$	0.3	$	—	$	—	$	546	$	—	$	—	$	—
HoustonLink	$	—	$	—	$	0.1	$	—	$	—	$	—
MVP	$	—	$	0.4	$	—	$	—	$	1.2	$	—	$	—	$	397	$	—	$	—
Powder Springs	$	—	$	0.9	$	—	$	—	$	2.1	$	—	$	—	$	—	$	—	$	2,221
Saddlehorn	$	—	$	0.1	$	—	$	—	$	0.2	$	—	$	—	$	183	$	—	$	—
Seabrook	$	—	$	0.2	$	—	$	—	$	—	$	2.1	$	—	$	—	$	1,140	$	—



	September 30, 2019
	Trade Accounts Receivable		Other Accounts Receivable		Other Accounts Payable		Long-Term Receivables
BridgeTex	$	385	$	31	$	530	$	—
Double Eagle	$	440	$	—	$	—	$	—
HoustonLink	$	77	$	—	$	—	$	—
MVP	$	—	$	364	$	—	$	—
Powder Springs	$	—	$	10	$	—	$	4,892
Saddlehorn	$	—	$	120	$	—	$	—
Seabrook	$	753	$	332	$	1,223	$	—

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The financial results from MVP and Texas Frontera are included in our marine storage segment, the financial results from BridgeTex, Double Eagle, HoustonLink, Saddlehorn and Seabrook are included in our crude oil segment and the financial results from Powder Springs are included in our refined products segment, each as earnings of non-controlled entities.

A summary of our investments in non-controlled entities follows (in thousands):




Investments at 12/31/2018	$	1,076,306
Additional investment	158,145
Indemnification settlement	(5,000		)
Earnings of non-controlled entities:
Proportionate share of earnings	123,621
Amortization of excess investment and capitalized interest	(1,392		)
Earnings of non-controlled entities	122,229
Less:
Distributions from operations of non-controlled entities	138,140
Distributions from returns of investments in non-controlled entities	7,500
Investments at 9/30/2019	$	1,206,040

Investments at December 31, 2017 $ 1,082,511
Additional investment 147,048
Sale of ownership interest in BridgeTex (205,776 )
Other adjustments 502
Earnings of non-controlled entities:
Proportionate share of earnings 132,647
Amortization of excess investment and capitalized interest (1,804 )
Earnings of non-controlled entities 130,843
Less:
Distributions from operations of non-controlled entities 147,950
Distributions from returns of investments in non-controlled entities 1,786
Investments at September 30, 2018 $ 1,005,392

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~


5.	Inventory

Inventory at December 31, ~~2017~~2018 and September 30, ~~2018~~2019 was as follows (in thousands):



	December 31, 2018		September 30, 2019
Refined products	$	92,751	$	106,406
Liquefied petroleum gases	46,612		47,057
Transmix	28,497		32,849
Crude oil	11,220		13,260
Additives	6,655		6,380
Total inventory	$	185,735	$	205,952

December 31, 2017 September 30,
2018
Refined products $ 73,845
$ 60,390
Liquefied petroleum gases 45,553
53,080
Transmix 33,319
43,588
Crude oil 23,763
16,129
Additives 5,865
6,179
Total inventory $ 182,345
$ 179,366


6.	Employee Benefit Plans

We sponsor a defined contribution plan in which we match our employees’ qualifying contributions, resulting in additional expense to us. Expenses related to the defined contribution plan were ~~$2.0~~$2.7 million and ~~$2.7~~$2.8 million for the three months ended September 30, ~~2017~~2018 and ~~2018,~~2019, respectively, and ~~$7.4~~$8.8 million and ~~$8.8~~$9.3 million for the nine months ended September 30, ~~2017~~2018 and ~~2018,~~2019, respectively.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Additionally, we sponsor ~~two~~2 union pension plans that cover certain union employees, a pension plan for all non-union employees and a postretirement benefit plan for certain employees. Net periodic benefit expense for the three and nine months ended September 30, ~~2017~~2018 and ~~2018~~2019 was as follows (in thousands):


	Three Months Ended					Three Months Ended					Three Months Ended					Three Months Ended
	September 30, 2017					September 30, 2018					September 30, 2018					September 30, 2019
	Pension Benefits			Other Postretirement Benefits		Pension Benefits			Other Postretirement Benefits		Pension Benefits			Other Postretirement Benefits		Pension Benefits			Other Postretirement Benefits
Components of net periodic benefit costs:
Service cost	$	5,125		$	51	$	6,424		$	58	$	6,424		$	58	$	6,260		$	48
Interest cost	2,466			111		2,816			104		2,816			104		3,026			126
Expected return on plan assets	(2,566		)	—		(3,055		)	—		(3,055		)	—		(2,354		)	—
Amortization of prior service credit	(45		)	—		(45		)	—		(45		)	—		(46		)	—
Amortization of actuarial loss	1,406			162		1,659			147		1,659			147		1,352			60
Settlement cost	289			—		—			—		—			—		439			—
Net periodic benefit cost	$	6,675		$	324	$	7,799		$	309	$	7,799		$	309	$	8,677		$	234

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~


	Nine Months Ended					Nine Months Ended					Nine Months Ended					Nine Months Ended
	September 30, 2017					September 30, 2018					September 30, 2018					September 30, 2019
	Pension Benefits			Other Postretirement Benefits		Pension Benefits			Other Postretirement Benefits		Pension Benefits			Other Postretirement Benefits		Pension Benefits			Other Postretirement Benefits
Components of net periodic benefit costs:
Service cost	$	15,373		$	182	$	28,393		$	174	$	28,393		$	174	$	19,145		$	145
Interest cost	7,398			356		12,054			312		12,054			312		9,136			380
Expected return on plan assets	(7,699		)	—		(9,057		)	—		(9,057		)	—		(7,045		)	—
Amortization of prior service credit	(136		)	—		(136		)	—		(136		)	—		(136		)	—
Amortization of actuarial loss	4,217			562		8,182			441		8,182			441		4,137			248
Settlement cost	2,015			—		—			—		—			—		2,499			—
Net periodic benefit cost	$	21,168		$	1,100	$	39,436		$	927	$	39,436		$	927	$	27,736		$	773

The service component of our net periodic benefit costs is presented in operating expense and G&A expense, and the non-service components are presented in other (income) expense in our consolidated statements of income.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The changes in accumulated other comprehensive loss (“AOCL”) related to employee benefit plan assets and benefit obligations for the three and nine months ended September 30, ~~2017~~2018 and ~~2018~~2019 were as follows (in thousands):


	Three Months Ended						Three Months Ended						Three Months Ended						Three Months Ended
	September 30, 2017						September 30, 2018						September 30, 2018						September 30, 2019
Gains (Losses) Included in AOCL	Pension Benefits			Other Postretirement Benefits			Pension Benefits			Other Postretirement Benefits			Pension Benefits			Other Postretirement Benefits			Pension Benefits			Other Postretirement Benefits
Beginning balance	$	(54,138	)	$	(7,481	)	$	(96,352	)	$	(6,036	)	$	(96,352	)	$	(6,036	)	$	(93,876	)	$	(6,105	)
Amortization of prior service credit	(45		)	—			(45		)	—			(45		)	—			(46		)	—
Amortization of actuarial loss	1,406			162			1,659			147			1,659			147			1,352			60
Settlement cost	289			—			—			—			—			—			439			—
Ending balance	$	(52,488	)	$	(7,319	)	$	(94,738	)	$	(5,889	)	$	(94,738	)	$	(5,889	)	$	(92,131	)	$	(6,045	)



	Nine Months Ended						Nine Months Ended
	September 30, 2018						September 30, 2019
Gains (Losses) Included in AOCL	Pension Benefits			Other Postretirement Benefits			Pension Benefits			Other Postretirement Benefits
Beginning balance	$	(97,226	)	$	(6,597	)	$	(88,602	)	$	(5,409	)
Net actuarial gain (loss)	(5,558		)	267			(10,029		)	(884		)
Amortization of prior service credit	(136		)	—			(136		)	—
Amortization of actuarial loss	8,182			441			4,137			248
Settlement cost	—			—			2,499			—
Ending balance	$	(94,738	)	$	(5,889	)	$	(92,131	)	$	(6,045	)

Nine Months Ended Nine Months Ended
September 30, 2017 September 30, 2018
Gains (Losses) Included in AOCL Pension Benefits Other Postretirement Benefits Pension Benefits Other Postretirement Benefits
Beginning balance $ (58,584 ) $ (7,881 ) $ (97,226 ) $ (6,597 )
Net actuarial gain (loss) —
—
(5,558 ) 267
Amortization of prior service credit (136 ) —
(136 ) —
Amortization of actuarial loss 4,217
562
8,182
441
Settlement cost 2,015
—
—
—
Ending balance $ (52,488 ) $ (7,319 ) $ (94,738 ) $ (5,889 )

Contributions estimated to be paid into the plans in 2019 are $31.6 million and $0.8 million for the pension plans and other postretirement benefit plan, respectively.

~~The net periodic benefit costs~~


7.	Leases

As of January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842) using the modified retrospective method of adoption. We elected to use the transition option that allows us to initially apply the new lease standard at the adoption date and ~~AOCL presented~~recognize a cumulative-effect adjustment, if any, to the opening balance of retained earnings in the ~~tables above~~year of adoption. Comparable periods continue to be presented under the guidance of the previous standard, ASC 840. ASC 842 requires lessees to recognize a lease liability and right-of-use asset on the balance sheet for operating leases. For lessors, the ~~nine month period ending September 30, 2018 include one-time corrections~~new accounting model remains largely the same, although some changes have been made to align it with the new lessee model and the new revenue recognition guidance, ASC 606, Revenue from Contracts with Customers. Our adoption of ASC 842 did not result in ~~first quarter 2018 resulting from an error~~any material adjustments to retained earnings, changes in the timing or amounts of lease costs or changes to our leverage ratio as defined in our ~~third-party actuary’s valuation of our pension liabilities and net periodic pension expenses. See Note 1 –~~ ~~Organization, Description of Business and Basis of Presentation~~ ~~for more details regarding this error correction.~~credit agreement.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We have both lessee and lessor arrangements. Our leases are evaluated at inception or at any subsequent modification. Depending on the terms, leases are classified as either operating or finance leases if we are the lessee, or as operating, sales-type or direct financing leases if we are the lessor, as appropriate under ASC 842. Our lessee arrangements primarily include a terminalling and storage contract where we have exclusive use of dedicated tankage, leased pipelines and office buildings. Our lessor arrangements include pipeline capacity and storage contracts and our condensate splitter tolling agreement that qualify as operating leases under ASC 842. In addition, we have a long-term throughput and deficiency agreement with a customer that is being accounted for as a sales-type lease under ASC 842.

~~Contributions estimated~~

In accordance with ASC 842, we have made an accounting policy election to ~~be paid~~not apply the new standard to lessee arrangements with a term of one year or less and no purchase option that is reasonably certain of exercise. We will continue to account for these short-term arrangements by recognizing payments and expenses as incurred, without recording a lease liability and right-of-use asset.

We have also made an accounting policy election for both our lessee and lessor arrangements to combine lease and non-lease components. This election is applied to all of our lease arrangements as our non-lease components are not material and do not result in significant timing differences in the recognition of rental expenses or income.

Operating Leases – Lessee

We recognize a lease liability for each lease based on the present value of remaining minimum fixed rental payments (which includes payments under any renewal option that we are reasonably certain to exercise), using a discount rate that approximates the rate of interest we would have to pay to borrow on a collateralized basis over a similar term. We also recognize a right-of-use asset for each lease, valued at the lease liability, adjusted for prepaid or accrued rent balances existing at the time of initial recognition. The lease liability and right-of-use asset are reduced over the term of the lease as payments are made and the assets are used.

Related Party Operating Lease. In 2018, we entered into a long-term terminalling and storage contract with Seabrook for exclusive use of dedicated tankage that provides our customers with crude oil storage capacity and dock access for crude oil imports and exports on the ~~plans~~Texas Gulf Coast.

Minimum fixed rental payments are recognized on a straight-line basis over the life of the lease as costs and expenses on our consolidated statements of income. Variable and short-term rental payments are recognized as costs and expenses as they are incurred. Variable payments consist of amounts that exceed the contractual minimum rental payment (for example, payment increases tied to a change in ~~2018~~a market index).Future minimum rental payments under operating leases with initial terms greater than one year as of September 30, 2019 are ~~$31.7~~as follows (in thousands):



	Third Party Leases		Seabrook Lease		All Leases
2019	$	2,643	$	2,607	$	5,250
2020	18,607		10,429		29,036
2021	18,994		8,973		27,967
2022	18,870		6,612		25,482
2023	18,349		6,612		24,961
Thereafter	34,086		37,473		71,559
Total future minimum rental payments	111,549		72,706		184,255
Present value discount	13,207		12,362		25,569
Total operating lease liability	$	98,342	$	60,344	$	158,686

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables provide further information about our operating leases (dollars in thousands):



	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	Third Party Leases		Seabrook Lease		All Leases		Third Party Leases		Seabrook Lease		All Leases
Fixed lease cost	$	4,792	$	2,608	$	7,400	$	14,375	$	7,951	$	22,326
Short-term lease cost	405		—		405		1,215		—		1,215
Variable lease cost	1,009		—		1,009		2,041		—		2,041
Total lease cost	$	6,206	$	2,608	$	8,814	$	17,631	$	7,951	$	25,582



	As of and for the Nine Months Ended September 30, 2019
	Third Party Leases		Seabrook Lease		All Leases
Current lease liability	$	14,925	$	8,072	$	22,997
Long-term lease liability	$	83,417	$	52,272	$	135,689
Right-of-use asset	$	102,119	$	60,344	$	162,463

Operating cash flows for operating leases	$	17,990	7,969		$	25,959
Weighted average remaining lease term (years)	6		9		7
Weighted-average discount rate	3.9%		4.3%		4.1%

Rent expense was $11.8 million and ~~$0.6~~$30.3 million, respectively, for three and nine months ended September 30, 2018 and was recognized in accordance with ASC 840.

Operating Leases – Lessor

We recognize fixed rental income on a straight-line basis over the life of the lease as revenue on our consolidated statements of income. Variable rental payments are recognized as revenue in the period in which the circumstances on which the variable lease payments are based occur.

Future minimum payments receivable under operating leases with initial terms greater than one year as of September 30, 2019 are estimated as follows (in thousands):



2019	$	9,624
2020	36,614
2021	36,560
2022	23,855
2023	7,663
Thereafter	15,631
Total	$	129,947

We recognized variable lease revenue of $15.4 million and $43.3 million, respectively, for the ~~pension plans~~three and nine months ended September 30, 2019, primarily related to our condensate splitter in Corpus Christi, Texas.

At September 30, 2019, property, plant and equipment utilized by our customers in operating lease arrangements consisted of: $224.1 million of processing equipment; $72.9 million of storage tanks; $49.2 million of pipeline and station equipment; and $29.9 million of other ~~postretirement benefit plan, respectively.~~assets. The processing equipment primarily relates to our condensate splitter.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Sales-Type Lease - Lessor

We entered into a long-term throughput and deficiency agreement with a customer on a pipeline and related assets that we constructed in Texas and New Mexico, which contains minimum payment commitments. Our customer has the option to purchase this pipeline and related assets at the end of the lease term for a nominal amount. This agreement was previously accounted for as a direct-financing lease under ASC 840 and is now being accounted for as a sales-type lease under ASC 842. The net investment under this arrangement as of December 31, 2018 and September 30, 2019 was as follows (in thousands):



	December 31, 2018		September 30, 2019
Total minimum lease payments receivable	$	17,468	$	16,158
Less: Unearned income	3,422		2,961
Recorded net investment in sales-type lease	$	14,046	$	13,197

The net investment in sales-type leases was classified in the consolidated balance sheets as follows (in thousands):



	December 31, 2018		September 30, 2019
Other accounts receivable	$	1,138	$	1,177
Long-term receivables	12,908		12,020
Total	$	14,046	$	13,197

Future minimum payments receivable under this lease are $0.4 million in 2019, $1.7 million in 2020, $1.7 million in 2021, $1.7 million in 2022, $1.7 million in 2023 and $8.7 million thereafter.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


7.8.	Debt

Long-term debt at December 31, ~~2017~~2018 and September 30, ~~2018~~2019 was as follows (in thousands):


	December 31, 2017			September 30, 2018			December 31, 2018			September 30, 2019
Commercial paper	$	—		$	—
6.40% Notes due 2018	250,000			—
6.55% Notes due 2019	550,000			550,000			$	550,000		$	—
4.25% Notes due 2021	550,000			550,000			550,000			550,000
3.20% Notes due 2025	250,000			250,000			250,000			250,000
5.00% Notes due 2026	650,000			650,000			650,000			650,000
6.40% Notes due 2037	250,000			250,000			250,000			250,000
4.20% Notes due 2042	250,000			250,000			250,000			250,000
5.15% Notes due 2043	550,000			550,000			550,000			550,000
4.20% Notes due 2045	250,000			250,000			250,000			250,000
4.25% Notes due 2046	500,000			500,000			500,000			500,000
4.20% Notes due 2047	500,000			500,000			500,000			500,000
4.85% Notes due 2049							—			500,000
3.95% Notes due 2050							—			500,000
Face value of long-term debt	4,550,000			4,300,000			4,300,000			4,750,000
Unamortized debt issuance costs⁽¹⁾	(29,472		)	(27,683		)	(27,070		)	(35,770		)
Net unamortized debt premium (discount)⁽¹⁾	215			(2,127		)
Net unamortized debt discount⁽¹⁾							(2,927		)	(8,455		)
Net unamortized amount of gains from historical fair value hedges⁽¹⁾	3,749			1,315			866			—
Long-term debt, net, including current portion	4,524,492			4,271,505			4,270,869			4,705,775
Less: current portion of long-term debt, net	250,974			552,898
Less: Current portion of long-term debt, net							59,489			—
Long-term debt, net	$	4,273,518		$	3,718,607		$	4,211,380		$	4,705,775


(1)	Debt issuance costs, note discounts and premiums and realized gains and losses of historical fair value hedges are being amortized or accreted to the applicable notes over the respective lives of those notes.

All of the instruments detailed in the table above are senior indebtedness.

2019 Debt Issuances

On August 19, 2019, we issued $500.0 million of 3.95% senior notes due 2050 in an underwritten public

offering. The notes were issued at 99.91% of par. Net proceeds from this offering were approximately $494.4 million after underwriting discounts and offering expenses. The net proceeds from this offering will be used for general partnership purposes, including expansion capital projects.

On January 18, 2019, we issued $500.0 million of 4.85% senior notes due 2049 in an underwritten public

offering. The notes were issued at 99.371% of par. Net proceeds from this offering were approximately $491.5 million after underwriting discounts and offering expenses. The net proceeds from this offering along with cash on hand were used to early redeem our $550.0 million of 6.55% senior notes due 2019 on February 11, 2019. In connection with this offering, we recognized $8.3 million of debt prepayment costs that were recorded as interest expense in our consolidated statements of income.

Other Debt

Revolving Credit Facilities. At September 30, ~~2018,~~2019, the total borrowing capacity under our revolving credit facility maturing ~~October 26, 2022~~in May 2024 was $1.0 billion. Any borrowings outstanding under this facility are classified as long-term debt on our consolidated balance sheets. Borrowings under this facility are unsecured and bear interest at

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

LIBOR plus a spread ranging from ~~1.000%~~0.875% to ~~1.625%~~1.500% based on our credit ratings. Additionally, an unused commitment fee is assessed at a rate between ~~0.100%~~0.075% and ~~0.275%~~0.200% depending on our credit ratings. The unused commitment fee was 0.125% at September 30, ~~2018.~~2019. Borrowings under this facility may be used for general partnership purposes, including capital expenditures. As of ~~both~~ December 31, ~~2017~~2018 and September 30, ~~2018,~~2019, there were no0 borrowings outstanding under this facility, with ~~$6.3~~$6.8 million and $3.5 million, respectively, 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 this facility.

We entered into a $500.0 million 364-day revolving credit facility, which matures in May 2020. Borrowings under this facility are unsecured and generally bear interest at LIBOR plus a spread ranging from 1.000% to 1.250% based on our credit ratings. Additionally, an unused commitment fee is assessed at a rate between 0.075% and 0.125%. The unused commitment fee was 0.100% at September 30, 2019. Borrowings under this facility may be used for general purposes, including capital expenditures. As of September 30, 2019, there were 0 borrowings outstanding under this facility.

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

Commercial Paper Program. We have a commercial paper program under which we may issue commercial paper notes in an amount up to the available capacity under our $1.0 billion revolving credit facility. The maturities of the commercial paper notes vary, but may not exceed 397 days from the date of issuance. Because the commercial paper we can issue is limited to amounts available under our revolving credit facility, amounts outstanding under the program are classified as long-term debt. The commercial paper notes are sold under customary terms in the commercial paper market and are issued at a discount from par, or alternatively, are sold at par and bear varying interest rates on a fixed or floating basis. The weighted-average interest rate for commercial paper borrowings based on the number of days outstanding was ~~1.3%~~2.3% for the year ended December 31, ~~2017~~2018 and ~~2.3%~~2.7% for the nine months ended September 30, ~~2018.~~2019.


8.9.	Derivative Financial Instruments

Interest Rate Derivatives

We periodically enter into interest rate derivatives to hedge the fair value of debt or hedge against variability in

interest rates. We record any ineffectiveness on interest rate derivatives designated as hedging instruments to interest expense and the change in fair value of interest rate derivatives that we do not designate as hedging instruments to other income or expense in our results of operations. For ~~the effective portion of~~ interest rate cash flow hedges, we record the ~~noncurrent portion of~~ unrealized gains or losses as an adjustment to other comprehensive ~~income with the current portion recorded~~income. The realized gains and losses from our cash flow hedges are recognized into earnings as an adjustment to our periodic interest ~~expense.~~expense over the life of the related debt issuance. For ~~the effective portion of~~ fair value hedges on long-term debt, we record the ~~noncurrent portion of~~unrealized gains or losses as an adjustment to long-term debt, ~~with the current portion recorded~~and realized amounts as an adjustment to our periodic interest expense. Adjustments resulting from discontinued hedges continue to be recognized in accordance with their historic hedging relationships.

~~During 2018, we entered into $200.0~~In third quarter 2019, upon issuance of our $500.0 million of 3.95% notes due 2050, we terminated and settled treasury lock agreements ~~to protect against the risk of variability of a portion of debt issuances~~ we anticipate to occur in 2018 and 2019. The fair value of these interest rate derivative agreements at September 30, 2018 was recorded as a current asset of $5.2 million, with the offset recorded to other comprehensive income. We account for these agreements as cash flow hedges.

Wehad previously entered into ~~$100.0 million of interest rate swap agreements in 2016~~ to protect against the variability of ~~future~~ interest payments on this anticipated debt issuance for a ~~portion~~loss of ~~debt we anticipated issuing~~$25.3 million, which was included in ~~2018.~~our statements of cash flows as a net payment on financial derivatives. These agreements were accounted for as cash flow hedges. ~~In September 2018, we terminated and settled these agreements for a gain of $20.9 million.~~ The ~~gain~~loss was recorded to other comprehensive income (loss) and will be recognized into earnings as an adjustment to our periodic interest ~~accruals~~expense over the life of the ~~expected~~associated notes.

In first quarter 2019, upon issuance of $500.0 million of 4.85% notes due 2049, we terminated and settled treasury lock agreements that we had previously entered into to protect against the variability of interest payments on this anticipated debt ~~issuance.~~issuance for a loss of $8.0 million, which was included in our statements of cash flows as a net payment on financial derivatives. These agreements were accounted for as cash flow hedges. The loss was

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

recorded to other comprehensive income (loss) and will be recognized into earnings as an adjustment to our periodic interest expense over the life of the associated notes.

Commodity Derivatives

Our butane blending activities produce gasoline, and we can reasonably estimate the timing and quantities of sales of these products. We use a combination of exchange-traded commodities futures contracts and forward purchase and sale contracts to help manage commodity price changes and mitigate the risk of decline in the product margin realized from our butane blending activities. Further, certain of our other commercial operations generate petroleum products, and we also use futures contracts to hedge against price changes for some of these commodities.

Forward physical purchase and sale contracts that qualify for and are elected as normal purchases and sales are accounted for using traditional accrual accounting, whereby changes in the mark-to-market values of such contracts are not recognized in income; rather the revenues and expenses associated with such transactions are recognized during the period when commodities are physically delivered or received. ~~Physical forward~~Forward physical commodity contracts subject to this exception are evaluated for the probability of future delivery and are periodically tested once the

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

forecasted period has passed to determine whether similar forward contracts are probable of physical delivery in the future.

We record the effective portion of the gains or losses for commodity-based contracts designated as fair value hedges as adjustments to the assets being hedged and the ineffective portions as well as amounts excluded from the assessment of hedge effectiveness as adjustments to other income or expense. We recognize the change in fair value of economic hedges that hedge against changes in the price of petroleum products that we expect to sell or purchase in the future currently in earnings as adjustments to product sales revenue, cost of product sales or operating expenses, as applicable.

Our open futures contracts at September 30, ~~2018~~2019 were as follows:



Type of Contract/Accounting Methodology	Product Represented by the Contract and Associated Barrels	Maturity Dates
Futures - Economic Hedges	~~5.4~~4.5 million barrels of refined products and crude oil	Between October ~~2018~~2019 and April ~~2019~~2020
Futures - Economic Hedges	~~1.7~~1.5 million barrels of butane and natural gasoline	Between October ~~2018~~2019 and April ~~2019~~2020

Energy Commodity Derivatives Contracts and Deposits Offsets

At ~~December 31, 2017 and~~ September 30, ~~2018,~~2019, we had made margin deposits of ~~$36.7~~$21.8 million ~~and $47.4 million, respectively,~~ for our future contracts with our counterparties, which were recorded as current assets under energy commodity derivatives deposits on our consolidated balance sheets. At December 31, 2018, we held margin deposits of $37.3 million for our future contracts with our counterparties, which were recorded as current liabilities under energy commodity derivatives deposits on our consolidated balance sheets. We have the right to offset the combined fair values of our open futures contracts against our margin deposits under a master netting arrangement for each counterparty; however, we have elected to present the combined fair values of our open futures contracts separately from the related margin deposits on our consolidated balance sheets. Additionally, we have the right to offset the fair values of our futures contracts together for each counterparty, which we have elected to do, and we report the combined net balances on our consolidated balance sheets. A schedule of the derivative amounts we have offset and the deposit amounts we could offset under a master netting arrangement are provided below as of December 31, ~~2017~~2018 and September 30, ~~2018~~2019 (in thousands):

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Description Gross Amounts of Recognized Liabilities Gross Amounts of Assets Offset in the Consolidated Balance Sheets
Net Amounts of Liabilities Presented in the Consolidated Balance Sheets⁽²⁾
Margin Deposit Amounts Not Offset in the Consolidated Balance Sheets
Net Asset Amount⁽¹⁾
As of December 31, 2017 $ (38,936 ) $ 12,851
$ (26,085 ) $ 36,690
$ 10,605
As of September 30, 2018 $ (55,087 ) $ 22,843
$ (32,244 ) $ 47,354
$ 15,110



Description	Gross Amounts of Recognized Assets (Liabilities)		Gross Amounts of Assets (Liabilities) Offset in the Consolidated Balance Sheets			Net Amounts of Assets (Liabilities) Presented in the Consolidated Balance Sheets		Margin Deposit Amounts Not Offset in the Consolidated Balance Sheets			Net Asset Amount⁽¹⁾
As of 12/31/2018	$	62,166	$	(7,155	)	$	55,011	$	(37,328	)	$	17,683
As of 9/30/2019	$	16,978	$	(12,139	)	$	4,839	$	21,811		$	26,650


(1)	Amount represents the maximum loss we would incur if all of our counterparties failed to perform on their derivative contracts.


~~(2)~~	Net amount includes energy commodity derivative contracts classified as current liabilities of $25,694 and noncurrent liabilities of $391 at December 31, 2017. Net amount includes energy commodity derivative contracts classified as current liabilities of $32,244 at September 30, 2018.

Basis Derivative Agreement

During 2019, we entered into a basis derivative agreement with a joint venture co-owner’s affiliate, and, contemporaneously, that affiliate entered into an intrastate transportation services agreement with the joint venture. Settlements under the basis derivative agreement are determined based on the basis differential of crude oil prices at different market locations and a notional volume of 30,000 barrels per day. As a result, we account for this agreement as a derivative. The agreement will expire in early 2022. We recognize the changes in fair value of this agreement based on forward price curves for crude oil in West Texas and the Houston Gulf Coast in other operating income (expense) in our consolidated statements of income. The liability for this agreement at September 30, 2019 was $17.8 million.

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

Impact of Derivatives on Our Financial Statements

Comprehensive Income

The changes in derivative activity included in AOCL for the three and nine months ended September 30, ~~2017~~2018 and ~~2018~~2019 were as follows (in thousands):



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
Derivative Losses Included in AOCL	2018			2019			2018			2019
Beginning balance	$	(25,165	)	$	(36,287	)	$	(33,755	)	$	(26,480	)
Net gain (loss) on cash flow hedges	6,852			(14,181		)	13,963			(25,216		)
Reclassification of net loss on cash flow hedges to income	740			699			2,219			1,927
Ending balance	$	(17,573	)	$	(49,769	)	$	(17,573	)	$	(49,769	)

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three Months Ended Nine Months Ended
September 30, September 30,
Derivative Losses Included in AOCL 2017 2018 2017 2018
Beginning balance $ (34,804 ) $ (25,165 ) $ (34,776 ) $ (33,755 )
Net gain (loss) on cash flow hedges (228 ) 6,852
(1,735 ) 13,963
Reclassification of net loss on cash flow hedges to income 740
740
2,219
2,219
Ending balance $ (34,292 ) $ (17,573 ) $ (34,292 ) $ (17,573 )

The following is a summary of the effect on our consolidated statements of income for the three and nine months ended September 30, ~~2017~~2018 and ~~2018~~2019 of derivatives that were designated as cash flow hedges (in thousands):

Interest Rate Contracts
Amount of Gain (Loss) Recognized in AOCL on Derivative Location of Loss Reclassified from AOCL into Income Amount of Loss Reclassified from AOCL into Income
Three Months Ended September 30, 2017 $ (228 ) Interest expense $ (740 )



	Interest Rate Contracts
	Amount of Gain (Loss) Recognized in AOCL on Derivatives		Location of Loss Reclassified from AOCL into Income	Amount of Loss Reclassified from AOCL into Income
Three Months Ended September 30, 2018	$	6,852	Interest expense	$	(740	)



Three Months Ended September 30, 2019	$	(14,181	)	Interest expense	$	(699	)

Three Months Ended September 30, 2018 $ 6,852
Interest expense $ (740 )

~~Nine Months Ended September 30, 2017 $ (1,735 ) Interest expense $ (2,219 )~~



Nine Months Ended September 30, 2018	$	13,963	Interest expense	$	(2,219	)



Nine Months Ended September 30, 2019	$	(25,216	)	Interest expense	$	(1,927	)

As of September 30, ~~2018,~~2019, the net loss estimated to be classified to interest expense over the next twelve months from AOCL is approximately ~~$2.3~~$3.2 million. This amount relates to the amortization of losses on interest rate contracts over the life of the related debt instruments.

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

We used futures contracts designated as fair value hedges to hedge against changes in the fair value of crude oil that was contractually reserved as tank bottoms and included with other noncurrent assets on our consolidated balance sheets. During September 2017, as a result of contract renegotiations, we sold a portion of the tank bottoms, settled the related hedges and transferred the permanent portion of the tank bottoms from noncurrent assets to PP&E. The effective portions of the fair value gains or losses on these futures contracts were offset by fair value gains or losses on the crude oil, and there was no ineffectiveness recognized. The cash flows from settled contracts were recorded in operating activities in our consolidated statements of cash flows. The gains (losses) on these futures contracts and the underlying crude oil were as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2018 2017 2018
Gain (loss) recognized in other income/expense on derivatives (futures contracts) $ (1,661 ) $ 122
$ 5,107
(427 )
Gain (loss) recognized in other income/expense on hedged item (crude oil) $ 1,661
$ (122 ) $ (5,107 ) 427

The differential between the current spot price and forward price was excluded from the assessment of hedge effectiveness for these fair value hedges. For the three and nine months ended September 30, 2017, we recognized a gain of $0.7 million and $2.4 million, respectively, for the amounts we excluded from the assessment of effectiveness of these fair value hedges, which we reported as other (income) expense on our consolidated statements of income.

The following table provides a summary of the effect on our consolidated statements of income for the three and nine months ended September 30, ~~2017~~2018 and ~~2018~~2019 of derivatives ~~accounted for~~that were not designated as ~~economic hedges~~hedging instruments (in thousands):



		Amount of Gain (Loss) Recognized on Derivatives
		Three Months Ended						Nine Months Ended
	Location of Gain (Loss) Recognized on Derivatives	September 30,						September 30,
Derivative Instrument	Location of Gain (Loss) Recognized on Derivatives	2018			2019			2018			2019
Futures contracts	Product sales revenue	$	(24,354	)	$	17,626		$	(70,140	)	$	(41,504	)
Futures contracts	Cost of product sales	11,665			(5,581		)	16,058			(9,456		)
Basis derivative agreement	Other operating income (expense)	—			(3,910		)	—			(8,869		)
	Total	$	(12,689	)	$	8,135		$	(54,082	)	$	(59,829	)

Amount of Gain (Loss) Recognized on Derivatives
Three Months Ended Nine Months Ended

Location of Gain (Loss)
Recognized on Derivatives
September 30, September 30,
Derivative Instrument 2017 2018 2017 2018
Futures contracts Product sales revenue $ (47,336 ) $ (24,354 ) $ (4,442 ) $ (70,140 )
Futures contracts Operating expenses 663
—
663
—
Futures contracts Cost of product sales 19,660
11,665
19,713
16,058
Total $ (27,013 ) $ (12,689 ) $ 15,934
$ (54,082 )

The impact of the derivatives in the above table was reflected as cash from operations on our consolidated statements of cash flows.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Balance Sheets

The following ~~tables provide~~table provides a summary of the fair value of derivatives, which are presented on a net basis in our consolidated balance sheets, that were designated as hedging instruments as of December 31, ~~2017 and~~2018 (in thousands). There were no balances outstanding at September 30, ~~2018 (in thousands):~~2019.


	December 31, 2017						December 31, 2018
	Asset Derivatives			Liability Derivatives			Asset Derivatives			Liability Derivatives
Derivative Instrument	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Futures contracts	Energy commodity derivatives contracts, net	$	—	Energy commodity derivatives contracts, net	$	173	Energy commodity derivatives contracts, net	$	462	Energy commodity derivatives contracts, net	$	—
Interest rate contracts	Other current assets	12,177		Other current liabilities	—		Other current assets	312		Other current liabilities	8,438
	Total	$	12,177	Total	$	173	Total	$	774	Total	$	8,438

September 30, 2018
Asset Derivatives Liability Derivatives
Derivative Instrument Balance Sheet Location Fair Value Balance Sheet Location Fair Value
Futures contracts Energy commodity derivatives contracts, net $ —
Energy commodity derivatives contracts, net $ 189
Interest rate contracts Other current assets 5,215
Other current liabilities —
Total $ 5,215
Total $ 189

The following tables provide a summary of the fair value of derivatives, which are presented on a net basis in our consolidated balance sheets, that were not designated as hedging instruments as of December 31, ~~2017~~2018 and September 30, ~~2018~~2019 (in thousands):

December 31, 2018

Asset Derivatives

Liability Derivatives

Derivative Instrument

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Futures contracts

Energy commodity derivatives contracts, net

61,704

Energy commodity derivatives contracts, net

7,155

September 30, 2019

Asset Derivatives

Liability Derivatives

Derivative Instrument

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Futures contracts

Energy commodity derivatives contracts, net

16,978

Energy commodity derivatives contracts, net

12,139

Basis derivative agreement

Other current assets

—

Other current liabilities

8,957

Basis derivative agreement

Other noncurrent assets

—

Other noncurrent liabilities

8,798

Total

16,978

Total

29,894

December 31, 2017
Asset Derivatives Liability Derivatives
Derivative Instrument Balance Sheet Location Fair Value Balance Sheet Location Fair Value
Futures contracts Energy commodity derivatives contracts, net $ 12,605
Energy commodity derivatives contracts, net $ 38,126
Futures contracts Other noncurrent assets 246
Other noncurrent liabilities 637
Total $ 12,851
Total $ 38,763

September 30, 2018
Asset Derivatives Liability Derivatives
Derivative Instrument Balance Sheet Location Fair Value Balance Sheet Location Fair Value
Futures contracts Energy commodity derivatives contracts, net $ 22,843
Energy commodity derivatives contracts, net $ 54,898


9.10.	Commitments and Contingencies

Butane Blending Patent Infringement Proceeding

On October 4, 2017, Sunoco Partners Marketing & Terminals L.P. (“Sunoco”) brought an action for patent infringement in the U.S. District Court for the District of Delaware alleging Magellan Midstream Partners, L.P. (“Magellan”) and Powder Springs Logistics, LLC (“Powder Springs”) have infringed patents relating to butane

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

blending at the Powder Springs facility located in Powder Springs, Georgia. Sunoco has since submitted pleadings alleging that Magellan has also infringed various patents relating to butane blending at ~~nine~~9 Magellan facilities, in addition to Powder Springs. Sunoco is seeking ~~an undetermined amount of~~monetary damages, attorneys’ fees and a permanent injunction enjoining Magellan and Powder Springs from infringing on the subject patents. We deny and are vigorously defending against all claims asserted by Sunoco. Although it is not possible to predict the ultimate outcome, we believe ~~based on our current understanding of the applicable facts and law, that~~ the ultimate resolution of this matter will not have a material adverse impact on our results of operations, financial position or cash flows.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Environmental Liabilities

Liabilities recognized for estimated environmental costs were ~~$19.3~~$20.5 million and ~~$23.6~~$16.6 million at December 31, ~~2017~~2018 and September 30, ~~2018,~~2019, respectively. We have classified environmental liabilities as current or noncurrent based on management’s estimates regarding the timing of actual payments. Environmental expenses recognized as a result of changes in our environmental liabilities are generally included in operating expenses on our consolidated statements of income. Environmental expenses were ~~$3.0~~$5.5 million and ~~$5.5~~$0.8 million for the three months ended September 30, ~~2017~~2018 and ~~2018,~~2019, respectively, and ~~$7.5~~$10.8 million and ~~$10.8~~$4.2 million for the nine months ended September 30, ~~2017~~2018 and ~~2018,~~2019, respectively.

Environmental Receivables

Receivables from insurance carriers and other third parties related to environmental matters were ~~$7.2~~$4.1 million at December 31, ~~2017,~~2018, of which ~~$0.5~~$2.4 million and ~~$6.7~~$1.7 million were recorded to other accounts receivable and long-term receivables, respectively, on our consolidated balance sheets. Receivables from insurance carriers and other third parties related to environmental matters were ~~$6.7~~$3.0 million at September 30, ~~2018,~~2019, of which ~~$0.7~~$1.4 million and ~~$6.0~~$1.6 million were recorded to other accounts receivable and long-term receivables, respectively, on our consolidated balance sheets.

Other

~~In connection with the sale of part of our interest in BridgeTex (see Note 4 –~~ ~~Investments in Non-ControlledEntities~~), we agreed to indemnify an affiliate of OMERS for certain claims involving BridgeTex. The maximum obligation is limited to the net proceeds we received. We probability-weighted potential outcome scenarios to estimate the value of such indemnification obligations. As a result, we reduced the gain recognized on the transaction by $16.0 million and recorded the same estimate in other noncurrent liabilities on our consolidated balance sheets this period. We believe, however, that the most likely outcome is that no significant liability will result from such obligations.

We have entered into an agreement to guarantee our 50% pro rata share, up to $25.0 million, of obligations under Powder Springs’ credit facility. As of September 30, ~~2018,~~2019, our consolidated balance sheets reflected a $0.4 million other current liability and a corresponding increase in our investment in non-controlled entities on our consolidated balance sheets to reflect the fair value of this guarantee.

We and the non-controlled entities in which we own an interest are a party to various other claims, legal actions and ~~complaints arising in the ordinary course of business.~~complaints. 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.


~~10.~~11.	Long-Term Incentive Plan

The compensation committee of our general partner’s board of directors administers our long-term incentive plan (“LTIP”) covering certain of our employees and the independent directors of our general partner. The LTIP primarily consists of phantom units and permits the grant of awards covering an aggregate payout of 11.9 million of our limited partner units. The estimated units remaining available under the LTIP at September 30, ~~2018~~2019 total ~~2.1~~1.6 million.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Our equity-based incentive compensation expense was as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2018		2017		2018		2018		2019		2018		2019
Performance-based awards	$	2,728	$	7,087	$	12,119	$	22,176	$	7,087	$	5,162	$	22,176	$	18,123
Time-based awards	738		846		2,064		2,436		846		1,611		2,436		4,454
Total	$	3,466	$	7,933	$	14,183	$	24,612	$	7,933	$	6,773	$	24,612	$	22,577

Allocation of LTIP expense on our consolidated statements of income:
G&A expense	$	3,430	$	7,867	$	14,062	$	24,412	$	7,867	$	6,704	$	24,412	$	22,377
Operating expense	36		66		121		200		66		69		200		200
Total	$	3,466	$	7,933	$	14,183	$	24,612	$	7,933	$	6,773	$	24,612	$	22,577

On February 1, ~~2018, 294,054~~2019, 347,473 unit awards were granted pursuant to our LTIP. These awards included both performance-based and time-based awards and have a three-year vesting period that will end on December 31, ~~2020.~~2021.

Basic and Diluted Net Income Per Limited Partner Unit

The difference between our actual limited partner units outstanding and our weighted-average number of limited partner units outstanding used to calculate basic net income per unit is due to the impact of: (i) the unit awards issued to non-employee directors and (ii) the weighted average effect of units actually issued during a period. The difference between the weighted-average number of limited partner units outstanding used for basic and diluted net income per unit calculations on our consolidated statements of income is primarily due to the dilutive effect of unit awards associated with our LTIP that have not yet vested.

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~


~~11.~~12.	Partners’ Capital and Distributions

Partners’ Capital

In May 2017, we filed a prospectus supplement to the shelf registration statement for our continuous equity offering program (which we refer to as an at-the-market program, or “ATM”) pursuant to which we may issue up to $750.0 million of common units in amounts, at prices and on terms to be determined by market conditions at the time. The net proceeds from any sales under the ATM, after deducting the sales agents’ commissions and our offering expenses, will be used for general partnership purposes, including repayment of indebtedness or capital expenditures. NoNaN units have been issued pursuant to this program.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table details the changes in the number of our limited partner units outstanding from December 31, ~~2017~~2018 through September 30, ~~2018:~~2019:



Limited partner units outstanding on December 31, ~~2017~~2018		~~228,024,556~~228,195,160
~~January 2018–~~February 2019–Settlement of employee LTIP awards		~~168,913~~199,792
During ~~2018–~~2019–Other^(a)		~~1,691~~8,476
Limited partner units outstanding on September 30, ~~2018~~2019		~~228,195,160~~228,403,428

(a) Limited partner units issued to settle the equity-based ~~retainer~~retainers paid to an4 independent ~~director~~directors of our general partner.

Distributions

Distributions we paid during ~~2017~~2018 and ~~2018~~2019 were as follows (in thousands, except per unit amounts):


Payment Date	Per Unit Cash Distribution Amount			Total Cash Distribution to Limited Partners			Per Unit Cash Distribution Amount			Total Cash Distribution to Limited Partners
02/14/2017		$	0.8550		$	194,961
05/15/2017		0.8725			198,951
08/14/2017		0.8900			202,942
Through 09/30/2017		2.6175			596,854
11/14/2017		0.9050			206,362
Total		$	3.5225		$	803,216

02/14/2018		$	0.9200		$	209,940		$	0.9200		$	209,940
05/15/2018		0.9375			213,933			0.9375			213,933
08/14/2018		0.9575			218,497			0.9575			218,497
Through 09/30/2018		2.8150			642,370			2.8150			642,370
11/14/2018^(a)		0.9775			223,061
11/14/2018								0.9775			223,061
Total		$	3.7925		$	865,431		$	3.7925		$	865,431

02/14/2019								$	0.9975		$	227,832
05/15/2019								1.0050			229,545
08/14/2019								1.0125			231,258
Through 09/30/2019								3.0150			688,635
11/14/2019^(a)								1.0200			232,971
Total								$	4.0350		$	921,606

(a) Our general partner’s board of directors declared this cash distribution in October ~~2018~~2019 to be paid on November 14, ~~2018~~2019 to unitholders of record at the close of business on November 7, ~~2018.~~2019.

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~


~~12.~~13.	Fair Value

Fair Value Methods and Assumptions - Financial Assets and Liabilities.

We used the following methods and assumptions in estimating fair value of our financial assets and liabilities:


•	Energy commodity derivatives contracts. These include exchange-traded futures contracts 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 9 – Derivative Financial Instruments for further disclosures regarding these contracts.


•	Interest rate contracts. These include forward-starting interest rate hedge agreements to protect against the risk of variability of interest payments on future debt. These contracts are carried at fair value on our consolidated balance sheets and are valued based on an assumed exchange, at the

~~Energy commodity derivatives contracts~~. These include exchange-traded futures contracts 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 8 – ~~Derivative Financial Instruments~~ ~~for further disclosures regarding these contracts.~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~Interest rate contracts.~~ These include interest rate hedge agreements to protect against the risk of variability of interest payments on future debt. These contracts are carried at fair value on our consolidated balance sheets and are valued 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. The exchange value was calculated using present value techniques on estimated future cash flows based on forward interest rate curves. See Note 89 – Derivative Financial Instruments for further disclosures regarding these contracts.

•

Basis Derivative Agreement. During 2019, we entered into a basis derivative agreement with a joint venture co-owner’s affiliate, and, contemporaneously, that affiliate entered into an intrastate transportation services agreement with the joint venture. Settlements under the basis derivative agreement are determined based on the basis differential of crude oil prices at different market locations and a notional volume of 30,000 barrels per day (see Note 9 - Derivative Financial Instruments for further disclosures regarding this agreement). The fair value of this derivative was calculated based on observable market data inputs, including published commodity pricing data and market interest rates. The key inputs in the fair value calculation include the forward price curves for crude oil, the implied forward correlation in crude oil prices between West Texas and the Houston Gulf Coast, and the implied forward volatility for crude oil futures contracts.


•	Long-term receivables. These primarily include payments receivable under a sales-type leasing arrangement and cost reimbursement payments receivable. These receivables were recorded at fair value on our consolidated balance sheets, using then-current market rates to estimate the present value of future cash flows.

~~Long-term receivables.~~ These primarily include payments receivable under a direct-financing leasing arrangement and cost reimbursement payments receivable. These receivables were recorded at fair value on our consolidated balance sheets, using then-current market rates to estimate the present value of future cash flows.

•

Guarantees. At December 31, 2018, these guarantees primarily included an indemnification agreement we entered into in connection with the partial sale of our interest in BridgeTex. This indemnification was recorded at fair value on our consolidated balance sheets upon initial recognition, using probability-weighted potential outcome scenarios to estimate our possible liability for specific events covered by this indemnification. In first quarter 2019, certain litigation subject to the indemnification agreement was settled, which resulted in our paying $5.0 million under the indemnification agreement and recognizing the reduction of the remaining $11.0 million liability as an additional gain on disposition of assets on our consolidated statements of income.

•

Debt. The fair value of our publicly traded notes was based on the prices of those notes at December 31, 2018 and September 30, 2019; however, where recent observable market trades were not available, prices were determined using adjustments to the last traded value for that debt issuance or by adjustments to the prices of similar debt instruments of peer entities that are actively traded. The carrying amount of borrowings, if any, under our revolving credit facility and our commercial paper program approximates fair value due to the frequent repricing of these obligations.

~~Debt.~~ ~~The fair value of our publicly traded notes was based on the prices of those notes at~~ ~~December 31, 2017~~ and September 30, 2018; however, where recent observable market trades were not available, prices were determined using adjustments to the last traded value for that debt issuance or by adjustments to the prices of similar debt instruments of peer entities that are actively traded. The carrying amount of borrowings, if any, under our revolving credit facility and our commercial paper program approximates fair value due to the frequent repricing of these obligations.

Fair Value Measurements - Financial Assets and Liabilities

The following tables summarize the carrying amounts, fair values and fair value measurements recorded or disclosed as of December 31, ~~2017~~2018 and September 30, ~~2018~~2019 based on the three levels established by ASC 820, Fair Value Measurements and Disclosures (in thousands):

December 31, 2017
Assets (Liabilities) Fair Value Measurements using:
Carrying Amount Fair Value
Quoted Prices in Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Energy commodity derivatives contracts $ (26,085 ) $ (26,085 ) $ (26,085 ) $ —
$ —
Interest rate contracts $ 12,177
$ 12,177
$ —
$ 12,177
$ —
Long-term receivables $ 27,676
$ 27,676
$ —
$ —
$ 27,676
Debt $ (4,524,492 ) $ (4,826,480 ) $ —
$ (4,826,480 ) $ —

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	September 30, 2018														December 31, 2018
Assets (Liabilities)							Fair Value Measurements using:														Fair Value Measurements using:
Assets (Liabilities)	Carrying Amount			Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Carrying Amount			Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Energy commodity derivatives contracts	$	(32,244	)	$	(32,244	)	$	(32,244	)	$	—		$	—	$	55,011		$	55,011		$	55,011	$	—		$	—
Interest rate contracts	$	5,215		$	5,215		$	—		$	5,215		$	—	$	(8,126	)	$	(8,126	)	$	—	$	(8,126	)	$	—
Long-term receivables	$	23,520		$	23,520		$	—		$	—		$	23,520	$	20,844		$	20,844		$	—	$	—		$	20,844
Guarantees															$	(16,409	)	$	(16,409	)	$	—	$	—		$	(16,409	)
Debt	$	(4,271,505	)	$	(4,314,870	)	$	—		$	(4,314,870	)	$	—	$	(4,270,869	)	$	(4,224,373	)	$	—	$	(4,224,373	)	$	—



	September 30, 2019
Assets (Liabilities)							Fair Value Measurements using:
Assets (Liabilities)	Carrying Amount			Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Energy commodity derivatives contracts	$	4,839		$	4,839		$	4,839	$	—		$	—
Basis derivative agreement	$	(17,755	)	$	(17,755	)	$	—	$	(17,755	)	$	—
Long-term receivables	$	20,789		$	20,789		$	—	$	—		$	20,789
Guarantees	$	(408	)	$	(408	)	$	—	$	—		$	(408	)
Debt	$	(4,705,775	)	$	(5,185,750	)	$	—	$	(5,185,750	)	$	—


~~13.~~14.	Related Party Transactions

Stacy P. Methvin is an independent member of our general partner’s board of directors and is also a director of one of our customers. We received tariff and other ancillary revenue from this customer of ~~$4.1~~$6.0 million and ~~$6.0~~$7.1 million for the three months ended September 30, ~~2017~~2018 and ~~2018,~~2019, respectively, and ~~$12.5~~$14.4 million and ~~$14.4~~$21.4 million for the nine months ended September 30, ~~2017~~2018 and ~~2018,~~2019, respectively. We recorded receivables of ~~$1.6~~$1.9 million and ~~$3.0~~$2.7 million from this customer at December 31, ~~2017~~2018 and September 30, ~~2018,~~2019, respectively. The tariff revenue we recognized from this customer was in the normal course of business, with rates determined in accordance with published tariffs. We also made a one-time payment of $0.2 million in second quarter 2019 to a subsidiary of this customer for an easement related to one of our expansion projects.

See Note 4 – Investments in Non-Controlled Entitiesand Note 7 –Leases for details of transactions with our joint ventures.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


~~14.~~15.	Subsequent Events

Recognizable events

No recognizable events occurred subsequent to September 30, ~~2018.~~2019.

Non-recognizable events

Cash Distribution. In October ~~2018,~~2019, our general partner’s board of directors declared a quarterly cash distribution of ~~$0.9775~~$1.02 per unit for the period of July 1, ~~2018~~2019 through September 30, ~~2018.~~2019. This quarterly cash distribution will be paid on November 14, ~~2018~~2019 to unitholders of record on November 7, ~~2018.~~2019. The total cash distributions expected to be paid under this declaration are approximately ~~$223.1~~$233.0 million.


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

We are a publicly traded limited partnership principally engaged in the transportation, storage and distribution of refined petroleum products and crude oil. As of September 30, ~~2018,~~2019, our asset portfolio ~~including the assets of our joint ventures,~~ consisted of:

our refined products segment, comprised of our ~~9,700-mile~~approximately 9,700-mile refined products pipeline system with 53 terminals as well as 2625 independent terminals not connected to our pipeline system and our ~~1,100-mile~~1,100-mile ammonia pipeline system;

our crude oil segment, comprised of approximately 2,200 miles of crude oil pipelines, ~~our~~a condensate splitter and ~~storage facilities with an~~33 million barrels of aggregate storage capacity, of ~~approximately 33 million barrels, of~~ which ~~approximately~~ 21 million barrels are used for contract ~~storage;~~storage. Approximately 1,000 miles of these pipelines, the condensate splitter and 28 million barrels of this storage capacity (including 19 million barrels used for contract storage) are wholly-owned, with the remainder owned through joint ventures; and

our marine storage segment, consisting of ~~five~~six marine terminals located along coastal waterways with an aggregate storage capacity of approximately 2627 million barrels. Five of these terminals and approximately 25 million barrels of this storage capacity are wholly-owned, with the remainder owned through joint ventures.

The following discussion provides an analysis of the results for each of our operating segments, an overview of our liquidity and capital resources and other items related to our partnership. The following discussion and analysis should be read in conjunction with (i) our accompanying interim consolidated financial statements and related notes and (ii) our consolidated financial statements, related notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018.

~~Growth Projects~~

~~Permian Gulf Coast Pipeline~~. In September 2018, we announced plans for a joint project with Energy Transfer LP, MPLX LP and Delek US Holdings, Inc. to construct a new 30-inch diameter common carrier pipeline to transport crude oil from the Permian Basin to the Texas Gulf Coast region. The 600-mile pipeline system has received sufficient commitments to proceed with construction and is expected to be operational in mid-2020, subject to receipt of customary regulatory and board approvals of the respective entities. As currently contemplated, we expect our portion of this project to cost approximately $500 million.

~~West Texas Expansion.~~ In response to shipper demand and in connection with our previously-announced East Houston to Hearne, Texas pipeline project, we are expanding the western leg of our refined petroleum products pipeline system in Texas to approximately 175,000 barrels per day (bpd) from our current capacity of 100,000 bpd. The expansion is supported by long-term customer commitments and will be accomplished by a combination of increased pipeline diameter along our existing route and construction of 140 miles of new pipe. We expect this project to cost a total of approximately $500 million, with the expanded capacity available mid-2020, subject to receipt of all necessary permits and approvals.

Recent Developments

~~Investment in BridgeTex Pipeline Company, LLC (“BridgeTex”)~~. In September 2018, we sold a 20% interest in BridgeTex to an affiliate of OMERS Infrastructure Management, Inc., which reduced our ongoing investment in BridgeTex to a 30% interest. We received $578.5 million in cash from the sale, and we recorded a gain of $353.8 million on our consolidated statements of income. We continue to serve as the operator of BridgeTex.

Cash Distribution. In October ~~2018, the~~2019, our general partner’s board of directors ~~of our general partner~~ declared a quarterly cash distribution of ~~$0.9775~~$1.02 per unit for the period of July 1, ~~2018~~2019 through September 30, ~~2018.~~2019. This quarterly cash

distribution will be paid on November 14, ~~2018~~2019 to unitholders of record on November 7, ~~2018. Total~~2019. The total cash distributions expected to be paid under this declaration are approximately ~~$223.1~~$233.0 million.

Results of Operations

We believe that investors benefit from having access to the same financial measures utilized 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 following tables. Operating profit includes expense items, such as depreciation, amortization and ~~amortization~~impairment expense and general and administrative (“G&A”) expense, which management does not focus on when evaluating the core profitability of our separate operating segments. Additionally, product margin, which management primarily uses to evaluate the profitability of our commodity-related activities, is provided in ~~this table.~~these tables. Product margin is a non-GAAP ~~measure; however,~~measure but its components of product sales revenue and cost of product sales are determined in accordance with GAAP. Our butane blending, fractionation and other commodity-related activities generate significant revenue. WeHowever, we believe the product margin from these activities, which takes into account the related cost of product sales, better represents its importance to our results of operations.

In first quarter 2018, an error was discovered in our third-party actuary’s valuation of our pension liabilities and net periodic pension expenses dating back to 2010. The impacts of the error were not material to any of our prior period financial statements and were corrected in first quarter 2018. As a result, our financial results for the nine months ended September 30, 2018 include a one-time $16.0 million pension correction, which included a $5.7 million increase to operating expenses, $3.4 million increase to G&A costs and $6.9 million increase to other expense below operating profit. See Note 1 – ~~Organization, Description of Business and Basis of Presentation in Item 1 of Part I~~ ~~of this report for further information.~~

Three Months Ended September 30, ~~2017~~2018 compared to Three Months Ended September 30, ~~2018~~2019


	Three Months Ended September 30,						Variance Favorable (Unfavorable)				Three Months Ended September 30,						Variance Favorable (Unfavorable)
	2017			2018			$ Change			% Change	2018			2019			$ Change			% Change
Financial Highlights ($ in millions, except operating statistics)
Transportation and terminals revenue:
Refined products	$	289.0		$	300.0		$	11.0		4	$	300.0		$	310.5		$	10.5		4
Crude oil	116.3			145.1			28.8			25	145.1			150.9			5.8			4
Marine storage	42.5			44.6			2.1			5	44.6			46.6			2.0			4
Intersegment eliminations	(0.8		)	(0.9		)	(0.1		)	(13)	(0.9		)	(1.6		)	(0.7		)	(78)
Total transportation and terminals revenue	447.0			488.8			41.8			9	488.8			506.4			17.6			4
Affiliate management fee revenue	4.9			4.8			(0.1		)	(2)	4.8			5.3			0.5			10
Operating expenses:
Refined products	118.7			112.3			6.4			5	112.3			111.8			0.5			—
Crude oil	31.2			45.2			(14.0		)	(45)	45.2			42.6			2.6			6
Marine storage	17.8			17.1			0.7			4	17.1			17.9			(0.8		)	(5)
Intersegment eliminations	(2.3		)	(2.5		)	0.2			9	(2.5		)	(3.0		)	0.5			20
Total operating expenses	165.4			172.1			(6.7		)	(4)	172.1			169.3			2.8			2
Product margin:
Product sales revenue	121.0			144.4			23.4			19	144.4			144.8			0.4			—
Cost of product sales	121.9			120.6			1.3			1	120.6			108.7			11.9			10
Product margin	(0.9		)	23.8			24.7			n/a	23.8			36.1			12.3			52
Other operating income (expense)											—			(0.4		)	(0.4		)	n/a
Earnings of non-controlled entities	31.2			53.8			22.6			72	53.8			50.1			(3.7		)	(7)
Operating margin	316.8			399.1			82.3			26	399.1			428.2			29.1			7
Depreciation and amortization expense	49.9			56.2			(6.3		)	(13)
Depreciation, amortization and impairment expense											56.2			56.6			(0.4		)	(1)
G&A expense	37.2			47.4			(10.2		)	(27)	47.4			51.1			(3.7		)	(8)
Operating profit	229.7			295.5			65.8			29	295.5			320.5			25.0			8
Interest expense (net of interest income and interest capitalized)	48.3			51.5			(3.2		)	(7)	51.5			47.3			4.2			8
Gain on sale of asset	(18.5		)	(353.8		)	335.3			1,812
Other expense	0.5			1.7			(1.2		)	(240)
Gain on disposition of assets											(353.8		)	(2.6		)	(351.2		)	(99)
Other (income) expense											1.7			2.6			(0.9		)	(53)
Income before provision for income taxes	199.4			596.1			396.7			199	596.1			273.2			(322.9		)	(54)
Provision for income taxes	0.9			1.5			(0.6		)	(67)	1.5			0.2			1.3			87
Net income	$	198.5		$	594.6		$	396.1		200	$	594.6		$	273.0		$	(321.6	)	(54)
Operating Statistics:
Refined products:
Transportation revenue per barrel shipped	$	1.521		$	1.600						$	1.600		$	1.618
Volume shipped (million barrels):
Gasoline	75.8			73.4							73.4			74.5
Distillates	41.0			45.6							45.6			47.0
Aviation fuel	6.7			8.1							8.1			11.1
Liquefied petroleum gases	3.9			4.4							4.4			3.8
Total volume shipped	127.4			131.5							131.5			136.4
Crude oil:
Magellan 100%-owned assets:
Transportation revenue per barrel shipped	$	1.332		$	1.266						$	1.266		$	0.935
Volume shipped (million barrels)	48.4			62.8							62.8			79.2
Crude oil terminal average utilization (million barrels per month)	14.9			16.0							16.0			20.5
Select joint venture pipelines:
BridgeTex - volume shipped (million barrels)⁽¹⁾	25.7			36.5							36.5			40.8
Saddlehorn - volume shipped (million barrels)⁽²⁾	4.4			6.7							6.7			17.0
Marine storage:
Marine terminal average utilization (million barrels per month)	22.5			22.6							22.6			23.6

(1) These volumes reflect the total shipments for the BridgeTex pipeline, which was owned 50% by us through September 28, 2018 and 30% thereafter.

(2) These volumes reflect the total shipments for the Saddlehorn pipeline, which is owned 40% by us.

Transportation and terminals revenue increased ~~$41.8~~$17.6 million resulting from:

an increase in refined products revenue of ~~$11.0 million. Higher shipments in the current period resulted from stronger~~$10.5 million primarily due to higher transportation volumes and a slightly higher average rate per barrel. Volumes increased due to continued solid demand for refined products ~~in large part due to increased distillate demand in crude oil production regions. Additionally, the~~coupled with incremental shipments associated with a recent connection near El Paso, Texas and our new East Houston-to-Hearne pipeline segment. The average rate per barrel in the current period was favorably impacted by the mid-year tariff ~~adjustments;~~adjustment, partially offset by more short-haul movements that ship at lower rates;

an increase in crude oil revenue of ~~$28.8~~$5.8 million primarily due to ~~more spot shipments on the Longhorn pipeline due~~higher revenues from system storage that we provide to ~~the favorable pricing differential between the Permian Basin~~our customers in conjunction with new tanks at Cushing, Oklahoma and ~~Houston which resulted in more volume at a higher average rate. We also benefited from higher volumes from our condensate splitter at~~ Corpus Christi, ~~higher~~Texas as well as capacity we lease from the Seabrook Logistics, LLC (“Seabrook”) export facility. Higher transportation volumes on our Houston distribution system ~~and higher revenues from new system storage and ancillary services that we provided~~primarily due to the increased shipments to Seabrook were more than offset by lower transportation revenue on our ~~shippers~~Longhorn pipeline as a result of lower average rates following contract renewals in ~~conjunction with capacity from our storage contracts with Seabrook Logistics, LLC (“Seabrook”).~~late 2018. Overall, the average crude oil transportation rate per barrel decreased between periods due to significantly higher volumes on our Houston distribution system, which move at a lower ~~rate;~~rate, and the lower average Longhorn rates; and

an increase in marine storage revenue of ~~$2.1~~$2.0 million primarily due to higher ~~rates~~storage availability related to timing of maintenance work and ~~more ancillary~~throughput fees ~~reflecting increased customer activity as the prior year was negatively impacted by Hurricane Harvey.~~from new dock capacity at our Galena Park, Texas facility.

Operating expenses ~~increased~~decreased by ~~$6.7~~$2.8 million primarily resulting from:

a decrease in refined products expenses of ~~$6.4~~$0.5 million primarily due to lower spending for asset integrity as a result of maintenance work timing, partially offset by higher property taxes in part due to a favorable adjustment in the 2018 period;

a decrease in crude oil expenses of $2.6 million primarily due to lower environmental accruals and more favorable product overages (which reduce operating expenses), partially offset by ~~higher property taxes due to a favorable adjustment in the 2017 period and more integrity spending in the current year;~~

~~an increase in crude oil expenses of $14.0 million primarily due to~~ fees we paid to Seabrook for ~~contract~~leased storage capacity and ~~ancillary services that we utilized to provide services to our shippers, higher environmental accruals, higher power costs~~dock services; and ~~less favorable product overages; and~~


•	an increase in marine storage expenses of $0.8 million primarily due to additional asset integrity spending and higher property taxes.

~~a decrease in marine storage expenses of~~ ~~$0.7~~Product margin increased $12.3 million primarily due to ~~environmental accruals~~recognition of higher gains on futures contracts and ~~clean-up work~~lower costs on butane blending product sales.

Other operating expense of $0.4 million in third quarter 2019 primarily relates to unrealized fair value adjustments associated with a basis derivative agreement, net of realized amounts received under this agreement, largely offset by insurance settlement proceeds related to Hurricane ~~Harvey that negatively impacted the 2017 period.~~

Harvey.

~~Product sales revenue resulted primarily from our butane blending activities, transmix fractionation and the sale~~Earnings of tender deductions and product overages from our operations. We utilize futures contracts to hedge against changes in the price of petroleum products we expect to sell in future periods, as well as to hedge against changes in the price of butane we expect to purchase. See Note 8 – ~~Derivative Financial Instruments~~ ~~in Item 1 of Part I for a discussion of our hedging strategies and how our use of futures contracts impacts our product margin, and~~ ~~Other Items – Commodity Derivative Agreements – Impact of Commodity Derivatives on Results of Operations~~ ~~below for more information about our futures contracts. Product margin increased $24.7~~non-controlled entities decreased $3.7 million primarily due to lower ~~unrealized losses on futures contracts recognized in the current period compared to third quarter 2017.~~

~~Earnings of non-controlled entities increased $22.6 million primarily due to increased~~ earnings from BridgeTex ~~mainly attributable to incremental shipments related to new commitments that began~~Pipeline Company, LLC (“BridgeTex”) following the sale of a portion of our investment, representing a 20% interest, in ~~first quarter~~late 2018 ~~for recently added pipeline capacity and more spot shipments due to the favorable pricing differential between the Permian Basin and Houston. Earnings~~partially offset by higher earnings from Saddlehorn Pipeline Company, LLC (“Saddlehorn”) ~~were higher~~due to new commitments received in connection with the expansion of the pipeline as well ~~primarily~~as increased volumes as a result of a contractual step-up in committed shipments beginning September 2017 and again in September 2018. Increased butane blending volumes and margins resulted in higher earnings from Powder Springs Logistics, LLC (“Powder Springs”), and recently completed construction of additional storage contributed to higher earnings from Seabrook.incentive tariff arrangements.

Depreciation, amortization and ~~amortization~~impairment expense increased ~~$6.3~~$0.4 million primarily due to ~~the commencement of expansion capital projects recently placed into service.~~an increase in asset retirements.

G&A expense increased ~~$10.2~~$3.7 million primarily due to higher ~~personnel~~compensation costs resulting from an increase in employee ~~headcount as a result of the growth of our business and higher incentive compensation expense due to company performance in 2018.~~headcount.

Interest expense, net of interest income and interest capitalized, ~~increased $3.2 million in third quarter 2018.~~decreased $4.2 million. Our average outstanding debt ~~increased~~decreased from ~~$4.3 billion in third quarter 2017 to~~ $4.7 billion in third quarter 2018 to $4.6 billion in third quarter 2019, and our weighted-average interest rate of 4.6% in third quarter 2019 was slightly lower than third quarter 2018.

Gain on disposition of assets was $351.2 million unfavorable in third quarter 2019 primarily due to ~~borrowings for expansion capital expenditures. Our weighted-average interest rate~~the gain we recognized in third quarter 2018 ~~was 4.6% compared to 4.7% in third quarter 2017.~~

~~Gain on sale of asset was $335.3 million favorable. We recognized a $353.8 million gain~~ on the sale of a portion of our interest in ~~BridgeTex in third quarter 2018 (see Note 4 –~~ ~~Investments in Non-Controlled Entities~~ in Item 1 of Part I for further details about this sale). In third quarter 2017, we recognized an $18.5 million gain in connection with the sale of an inactive terminal along our refined products pipeline system.BridgeTex.

Other expense was ~~$1.2~~$0.9 million unfavorable primarily due to ~~less favorable valuation adjustments associated with our crude oil tank bottoms.~~higher pension settlement costs in the current quarter.

Provision for income taxes was ~~$0.6~~$1.3 million ~~unfavorable~~favorable primarily due to ~~higher earnings~~a reduction of deferred tax accruals in the current period.

Nine Months Ended September 30, ~~2017~~2018 compared to Nine Months Ended September 30, ~~2018~~2019


	Nine Months Ended September 30,						Variance Favorable (Unfavorable)				Nine Months Ended September 30,						Variance Favorable (Unfavorable)
	2017			2018			$ Change			% Change	2018			2019			$ Change			% Change
Financial Highlights ($ in millions, except operating statistics)
Transportation and terminals revenue:
Refined products	$	808.8		$	851.5		$	42.7		5	$	851.5		$	883.7		$	32.2		4
Crude oil	329.8			409.3			79.5			24	409.3			454.1			44.8			11
Marine storage	136.7			134.9			(1.8		)	(1)	134.9			139.7			4.8			4
Intersegment eliminations	(2.4		)	(2.7		)	(0.3		)	(13)	(2.7		)	(3.9		)	(1.2		)	(44)
Total transportation and terminals revenue	1,272.9			1,393.0			120.1			9	1,393.0			1,473.6			80.6			6
Affiliate management fee revenue	12.9			15.1			2.2			17	15.1			15.8			0.7			5
Operating expenses:
Refined products	312.9			319.7			(6.8		)	(2)	319.7			317.3			2.4			1
Crude oil	90.0			110.0			(20.0		)	(22)	110.0			123.6			(13.6		)	(12)
Marine storage	45.8			52.8			(7.0		)	(15)	52.8			51.4			1.4			3
Intersegment eliminations	(6.4		)	(7.2		)	0.8			13	(7.2		)	(8.0		)	0.8			11
Total operating expenses	442.3			475.3			(33.0		)	(7)	475.3			484.3			(9.0		)	(2)
Product margin:
Product sales revenue	548.6			552.8			4.2			1	552.8			497.8			(55.0		)	(10)
Cost of product sales	440.7			473.8			(33.1		)	(8)	473.8			430.7			43.1			9
Product margin	107.9			79.0			(28.9		)	(27)	79.0			67.1			(11.9		)	(15)
Other operating income (expense)											—			1.5			1.5			n/a
Earnings of non-controlled entities	78.2			130.8			52.6			67	130.8			122.2			(8.6		)	(7)
Operating margin	1,029.6			1,142.6			113.0			11	1,142.6			1,195.9			53.3			5
Depreciation and amortization expense	146.1			161.7			(15.6		)	(11)
Depreciation, amortization and impairment expense											161.7			181.0			(19.3		)	(12)
G&A expense	120.9			147.2			(26.3		)	(22)	147.2			149.5			(2.3		)	(2)
Operating profit	762.6			833.7			71.1			9	833.7			865.4			31.7			4
Interest expense (net of interest income and interest capitalized)	143.1			153.7			(10.6		)	(7)	153.7			148.3			5.4			4
Gain on sale of asset	(18.5		)	(353.8		)	335.3			1,812
Gain on disposition of assets											(353.8		)	(29.0		)	(324.8		)	(92)
Other expense	3.7			10.3			(6.6		)	(178)	10.3			9.2			1.1			11
Income before provision for income taxes	634.3			1,023.5			389.2			61	1,023.5			736.9			(286.6		)	(28)
Provision for income taxes	2.7			3.6			(0.9		)	(33)	3.6			2.5			1.1			31
Net income	$	631.6		$	1,019.9		$	388.3		61	$	1,019.9		$	734.4		$	(285.5	)	(28)
Operating Statistics:
Refined products:
Transportation revenue per barrel shipped	$	1.489		$	1.524						$	1.524		$	1.600
Volume shipped (million barrels):
Gasoline	218.7			219.0							219.0			207.4
Distillates	119.6			132.7							132.7			138.8
Aviation fuel	20.2			21.3							21.3			29.8
Liquefied petroleum gases	9.6			10.4							10.4			8.9
Total volume shipped	368.1			383.4							383.4			384.9
Crude oil:
Magellan 100%-owned assets:
Transportation revenue per barrel shipped	$	1.412		$	1.325						$	1.325		$	0.952
Volume shipped (million barrels)	137.0			168.4							168.4			239.1
Crude oil terminal average utilization (million barrels per month)	15.5			16.1							16.1			20.3
Select joint venture pipelines:
BridgeTex - volume shipped (million barrels)⁽¹⁾	66.4			100.0							100.0			117.3
Saddlehorn - volume shipped (million barrels)⁽²⁾	12.1			18.5							18.5			39.4
Marine storage:
Marine terminal average utilization (million barrels per month)	23.4			22.6							22.6			23.8

(1) These volumes reflect the total shipments for the BridgeTex pipeline, which was owned 50% by us through September 28, 2018 and 30% thereafter.

(2) These volumes reflect the total shipments for the Saddlehorn pipeline, which is owned 40% by us.

Transportation and terminals revenue increased ~~$120.1~~$80.6 million resulting from:

an increase in refined products revenue of ~~$42.7 million. Shipments increased~~$32.2 million primarily due to a higher average transportation rate per barrel. The average rate per barrel in the current period ~~primarily due to stronger demand for refined products~~was favorably impacted by the 2018 and 2019 mid-year tariff adjustments, partially offset by more short-haul movements that ship at lower rates. Volume increased slightly between periods as additional shipments associated with a recent connection near El Paso and our new East Houston-to-Hearne pipeline segment were mainly offset by less short-haul movements on the South Texas pipelines, with these supply-driven barrels causing the fluctuations in large part due to higher distillate demand in crude oil production regions. We also benefited from higher storage and other ancillary service fees along our pipeline system due to increased customer activity;product mix transported as well;

an increase in crude oil revenue of ~~$79.5~~$44.8 million primarily due to higher revenues from system storage that we provide to our ~~condensate splitter~~customers in conjunction with new tanks at Cushing and Corpus Christi ~~that began commercial operations in June 2017,~~ as well as ~~more spot shipments on~~capacity we lease from the ~~Longhorn pipeline due to~~Seabrook export facility. Higher transportation volumes as a result of the favorable pricing differential between ~~the Permian Basin~~Midland and Houston ~~which resulted~~and incremental shipments to Seabrook were partially offset by lower transportation revenue on our Longhorn pipeline as a result of lower average rates following long-term contract renewals in ~~more volume at a higher average rate.~~late 2018. Overall, the average crude oil transportation rate per barrel decreased between periods due to significantly higher volumes on our Houston distribution system, which move at a lower ~~rate;~~rate, and the lower average Longhorn rates; and

~~a decrease~~an increase in marine storage revenue of ~~$1.8~~$4.8 million primarily due to ~~lower utilization resulting from the~~higher storage availability related to timing of maintenance work and ~~the impact of tanks damaged by Hurricane Harvey.~~additional fees from new dock capacity at our Galena Park facility.

Operating expenses increased by ~~$33.0~~$9.0 million primarily resulting from:

~~an increase~~a decrease in refined products expenses of ~~$6.8~~$2.4 million primarily due to ~~higher personnel costs, which include~~ a ~~one-time~~ pension valuation correction ~~higher~~that negatively impacted 2018 results as well as lower environmental accruals and spending for asset integrity, ~~spending and~~partially offset by higher property taxes ~~partially offset by more~~and less favorable product ~~overages;~~overages (which reduce operating expenses);

an increase in crude oil expenses of ~~$20.0~~$13.6 million primarily due to ~~costs associated with our condensate splitter that began commercial operations in June 2017,~~ fees we paid to Seabrook for ~~contract~~leased storage capacity and ancillary services that we utilized to provide services to our shippers, higher power costs associated with increased pipeline movements and higher personnel costs resulting from higher incentive compensation accrual as well as a one-time pension correction;dock services; and

~~an increase~~a decrease in marine storage expenses of ~~$7.0~~$1.4 million primarily due to ~~higher personnel costs mainly resulting from higher incentive compensation accrual as well as a one-time pension correction, combined with~~ demolition costs ~~incurred~~in 2018 in connection with the construction of a new dock, partially offset by higher property taxes.

Product margin decreased $11.9 million primarily due to recognition of losses on futures contracts in 2019 compared to gains in 2018, partially offset by increased butane blending margins on product sales.

Other operating income of $1.5 million relates to insurance proceeds received in 2019 related to Hurricane Harvey, partially offset by unrealized fair value adjustments associated with a basis derivative agreement net of realized amounts received under this agreement.

Earnings of non-controlled entities decreased $8.6 million primarily due to lower earnings from BridgeTex following the sale of a portion of our investment, representing a 20% interest, in late 2018 partially offset by higher earnings from Saddlehorn due to increased volume from a contractual step-up in committed shipments in September 2018, new commitments received in connection with the expansion of ~~our Galena Park, Texas dock facilities in 2018.~~

~~Product margin decreased $28.9 million primarily due to lower butane blending volumes~~the pipeline as well as recently implemented incentive tariff arrangements and ~~higher butane costs, resulting in lower butane blending margins.~~

Earnings of non-controlled entities increased $52.6 million primarily due to increased earnings from BridgeTex attributable to incremental shipments related to new commitments that began in 2018 for recently added pipeline capacity and increased spot shipments. Earnings from Saddlehorn were higher primarily due to a contractual step-up in committed shipments beginning September 2017. Earnings from Powder Springs and Double Eagle Pipeline LLC (“Double Eagle”) were also higher, and completed construction of additional storage contributed to higher earnings from ~~Seabrook.~~Seabrook due to the initiation of export capabilities in August 2018.

Depreciation, amortization and ~~amortization~~impairment expense increased ~~$15.6~~$19.3 million primarily due to the commencement of ~~expansion capital~~depreciation on projects recently placed into ~~service.~~service and an increase in asset retirements.

G&A expense ~~increased $26.3~~was $2.3 million unfavorable primarily due to higher ~~personnel~~compensation costs resulting from an increase in employee ~~headcount as a result of the growth of our business and higher incentive compensation expense due to company performance in 2018, as well as an increase from a one-time pension correction.~~headcount.

Interest expense, net of interest income and interest capitalized, ~~increased $10.6~~decreased $5.4 million ~~in 2018~~ primarily due to ~~higher~~lower outstanding debt and a lower weighted average interest rate, partially offset by $8.3 million of debt prepayment costs

in first quarter 2019 related to the ~~current period.~~early extinguishment of our 6.55% notes that were due July 2019. Our average outstanding debt ~~increased~~decreased from ~~$4.2 billion in 2017 to~~ $4.6 billion in 2018 ~~primarily due~~ to ~~borrowings for expansion capital expenditures. Our~~$4.5 billion in 2019, and our weighted-average interest rate ofdecreased from 4.7% in 2018 ~~was comparable~~ to ~~2017.~~

4.6% in 2019.

Gain on disposition of assets was $324.8 million unfavorable in 2019. In 2019, we recognized a deferred gain of $11.0 million related to the 2018 sale of ~~asset~~our investment in BridgeTex, $12.7 million related to our discontinued Delaware Basin pipeline construction project that was ~~$335.3~~subsequently sold to a third party and $5.3 million ~~favorable. We~~resulting from the sale of an inactive terminal along our refined products pipeline system. In 2018, we recognized a $353.8 million gain on the sale of a portion of our interest in ~~BridgeTex in 2018. In 2017, we recognized an $18.5 million gain in connection with the sale of an inactive terminal along our refined products pipeline system.~~BridgeTex.

Other expense was ~~$6.6~~$1.1 million ~~unfavorable primarily due to~~favorable as 2018 included the impact of a ~~one-time~~ pension ~~correction in 2018 and less favorable~~ valuation ~~adjustments associated with our crude oil tank bottoms, partially offset by a payment received in second quarter 2018 related to a 2016 asset transfer.~~correction.

Provision for income taxes was ~~$0.9~~$1.1 million ~~unfavorable~~favorable primarily due to ~~higher earnings~~a reduction of deferred tax accruals in the current ~~period.~~year.

Distributable Cash Flow

We calculate the non-GAAP measures of distributable cash flow (“DCF”) and adjusted EBITDA in the table below. Management uses DCF as a basis for recommending to our general partner’s board of directors the amount of cash distributions to be paid to our limited partners each period. Management also uses DCF as a basis for determining the payouts for the performance-based awards issued under our equity-based compensation plan. Adjusted EBITDA is an important measure that we and the investment community use to assess the financial results of an entity. We believe that investors benefit from having access to the same financial measures utilized by management for these evaluations. A reconciliation of DCF and adjusted EBITDA for the nine months ended September 30, ~~2017~~2018 and ~~2018~~2019 to net income, which is its nearest comparable GAAP financial measure, follows (in millions):

Nine Months Ended September 30, Increase (Decrease)
2017 2018
Net income $ 631.6
$ 1,019.9
$ 388.3
Interest expense, net 143.1
153.7
10.6
Depreciation and amortization 146.1
161.7
15.6
Equity-based incentive compensation⁽¹⁾
0.3
15.3
15.0
Loss on sale and retirement of assets 7.6
6.3
(1.3 )
Gain on sale of asset⁽²⁾
(18.5 ) (351.2 ) (332.7 )
Commodity-related adjustments:
Derivative losses recognized in the period associated with future product transactions⁽³⁾
13.5
33.9
20.4
Derivative losses recognized in previous periods associated with product sales completed in the period⁽³⁾
(25.5 ) (38.9 ) (13.4 )
Inventory valuation adjustments⁽⁴⁾
4.0
0.2
(3.8 )
Total commodity-related adjustments (8.0 ) (4.8 ) 3.2
Distributions from operations of non-controlled entities in excess of earnings 19.5
17.1
(2.4 )
Other⁽⁵⁾
3.8
3.7
(0.1 )
Adjusted EBITDA 925.5
1,021.7
96.2
Interest expense, net, excluding debt issuance cost amortization (140.6 ) (151.3 ) (10.7 )
Maintenance capital⁽⁶⁾
(71.8 ) (63.1 ) 8.7
DCF $ 713.1
$ 807.3
$ 94.2



	Nine Months Ended September 30,							Increase (Decrease)
	2018			2019				Increase (Decrease)
Net income	$	1,019.9		$	734.4			$	(285.5	)
Interest expense, net	153.7			148.3				(5.4		)
Depreciation, amortization and impairment⁽¹⁾	168.0			176.9				8.9
Equity-based incentive compensation⁽²⁾	15.3			12.8				(2.5		)
Gain on disposition of assets⁽³⁾	(351.2		)	(16.3		)	��	334.9
Commodity-related adjustments:
Derivative (gains) losses recognized in the period associated with future transactions⁽⁴⁾	33.9			13.7				(20.2		)
Derivative gains (losses) recognized in previous periods associated with transactions completed in the period⁽⁴⁾	(38.9		)	71.2				110.1
Inventory valuation adjustments⁽⁵⁾	0.2			(9.7		)		(9.9		)
Total commodity-related adjustments	(4.8		)	75.2				80.0
Distributions from operations of non-controlled entities in excess of earnings	17.1			15.9				(1.2		)
Other⁽⁶⁾	3.7			—				(3.7		)
Adjusted EBITDA	1,021.7			1,147.2				125.5
Interest expense, net, excluding debt issuance cost amortization⁽⁷⁾	(151.3		)	(137.5		)		13.8
Maintenance capital⁽⁸⁾	(63.1		)	(70.1		)		(7.0		)
DCF	$	807.3		$	939.6			$	132.3


(1)	Prior year amounts have been reclassified to conform with the current year’s presentation. Depreciation, amortization and impairment expense is excluded from DCF to the extent it represents a non-cash expense.

(2)

Because we intend to satisfy vesting of unit awards under our equity-based long-term incentive compensation plan with the issuance of limited partner units, expenses related to this plan generally are deemed non-cash and added back for DCF purposes. The ~~equity-based compensation adjustment for the nine months ended September 30, 2017 and 2018 was $14.2~~amounts above have been reduced by $9.3 million and ~~$24.6~~$9.8 million ~~respectively.~~for 2018 and 2019, respectively, for cash payments associated with the plan, which are primarily related to tax withholdings.

~~However,~~(3) Gains on disposition of assets are excluded from DCF to the ~~figures above include adjustments of $13.9 million and $9.3 million, respectively, for cash payments associated with~~extent they are not related to our ~~equity-based incentive compensation plan, which primarily include tax withholdings.~~


~~(2)~~	In September 2018, we recognized a $353.8 million gain from the sale of a portion of our interest in BridgeTex, of which $351.2 million has been deducted from the calculation of DCF, as it is not related to our ongoing operations. The remaining $2.6 million represents a purchase price adjustment related to September operations and, as such, is included in DCF.

~~In September 2017, we recognized an $18.5~~ongoing operations. The 2019 period includes a $12.7 million gain ~~in connection with~~on the sale of ~~an inactive terminal along our refined products pipeline system,~~residual assets related to the development of expansion projects which ~~has been deducted~~are considered ongoing in nature, and as such are included in DCF. The 2018 period includes the portion of the gain recognized from the ~~calculation~~sale of ~~DCF because it~~our interest in BridgeTex that is not related to our ongoing operations.

~~(3)~~(4) Certain derivatives ~~we use 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 net income. We exclude the net impact of these ~~hedges~~derivatives from our determination of DCF until the transactions are settled and, where applicable, the related products are ~~physically~~ sold. In the period in which these ~~hedged~~transactions are settled and any related products are ~~physically~~ sold, the net impact of the ~~associated hedges~~derivatives is included in ~~our determination of~~ DCF.


~~(4)~~(5)	We adjust DCF for lower of average cost or net realizable value adjustments related to inventory and firm purchase commitments as well as market valuation of short positions recognized each period as these are non-cash items. In subsequent periods when we physically sell or purchase the related products, we adjust DCF for the valuation adjustments previously recognized.

~~(5)~~(6)

Other adjustments in 2018 include a ~~$3.6~~$3.7 million ~~one-time~~ adjustment recorded to partners’ capital as required by our adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers. The amount represents cash that we had previously received for deficiency payments, but did not yet recognize in net income under the previous revenue recognition standard. Other adjustments in 2017 are comprised of payments received from HollyFrontier Corporation in conjunction with the February 2016 Osage Pipe Line Company, LLC ("Osage") exchange transaction. These payments replaced distributions we would have received had the Osage transaction not occurred and are, therefore, included in our calculation of DCF.


~~(6)~~(7)	Interest expense in 2019 includes $8.3 million of debt prepayment costs which are excluded from DCF as they are financing activities and are not related to our ongoing operations.


(8)	Maintenance capital expenditures maintain our existing assets and do not generate incremental DCF (i.e. incremental returns to our unitholders). For this reason, we deduct maintenance capital expenditures to determine DCF.

Liquidity and Capital Resources

Cash Flows and Capital Expenditures

Operating Activities. ~~Operating cash flows consist of net income adjusted for certain non-cash items and changes in certain assets and liabilities.~~

Net cash provided by operating activities was ~~$813.7 million~~ ~~and~~ $863.8 million and $922.6 million for the nine months ended September 30, ~~2017~~ 2018 and ~~2018,~~2019, respectively. The $~~50.1~~58.8 million increase in ~~2018~~2019 was due to ~~higher net income as previously described, partially offset by~~ adjustments for non-cash items and changes in our working ~~capital.~~capital, partially offset by lower net income as previously described.

Investing Activities. ~~Investing cash flows consist primarily of capital expenditures and investments in non-controlled entities.~~

Net ~~cash used by investing activities for the nine months ended September 30, 2017 was $435.3 million and net~~ cash provided by investing activities for the nine months ended September 30, 2018 was $101.4 million and net cash used by investing activities for the nine months ended September 30, 2019 was $734.7 million. During the 2019 period, we incurred $775.1 million for capital expenditures, which included $70.1 million for maintenance capital, $617.1 million for our expansion capital projects and $87.9 million for undivided joint interest projects for which cash was received from a third party. Additionally, we contributed net capital of $150.6 million in conjunction with our joint ventures, which we account for as investments in non-controlled entities, of which $145.6 million related to capital projects. During the 2018 period, we sold a ~~portion of our~~20% interest in BridgeTex for cash proceeds of $578.5 million. ~~Also during the 2018 period, we~~We also incurred $375.6 million for capital expenditures, which included $63.1 million for maintenance capital, $276.1 million for our expansion capital projects and $36.4 million for undivided joint interest projects for which cash was received from a third party. Additionally, we contributed capital of $147.0 million in conjunction with our joint venture capital projects, which we account for as investments in non-controlled entities. During the 2017 period, we incurred $443.4 million for capital expenditures, which included $71.8 million for maintenance capital and $371.6 million for expansion capital, and we contributed capital of $114.1 million in conjunction with our joint venture capital projects.

Financing Activities. ~~Financing cash flows consist primarily of distributions to our unitholders and borrowings and repayments under our commercial paper program.~~

Net cash used by financing activities for the nine months ended September 30, ~~2017~~2018 and ~~2018~~2019 was ~~$391.7~~$881.1 million and ~~$881.1~~$305.6 million, respectively. During the 2019 period, we paid cash distributions of $688.6 million to our unitholders. Additionally, we received net proceeds of $996.4 million from borrowings under long-term notes, which were used to repay our $550.0 million of 6.55% notes due 2019 and outstanding commercial paper borrowings at that time. Also, in January 2019, our equity-based incentive compensation awards that vested December 31, 2018 were settled by issuing 208,268 limited partner units and distributing those units to the long-term incentive plan (“LTIP”) participants, resulting in payments primarily associated with tax withholdings of $9.8 million. During the 2018 period, we paid cash distributions of $642.4 million to our unitholders and repaid our $250.0 million of 6.40% notes due 2018. Also, in January 2018, our equity-based incentive compensation awards that vested December 31, 2017 were settled by issuing 168,913 limited partner units and distributing those units to the ~~long-term incentive plan (“LTIP”) participants, resulting in payments primarily~~

associated with tax withholdings of $9.3 million. During the 2017 period, we paid cash distributions of $596.9 million to our unitholders. Additionally, net commercial paper borrowings during the 2017 period were $219.0 million. Also, in January 2017, the cumulative amounts of our LTIP awards that vested December 31, 2016 were settled by issuing 216,679 limited partner units and distributing those units to the LTIP participants, resulting in payments primarily associated with tax withholdings of ~~$13.9~~$9.3 million.

The quarterly distribution amount related to our third quarter ~~2018~~2019 financial results (to be paid in fourth quarter ~~2018)~~2019) is ~~$0.9775~~$1.02 per unit. If we are able to meet management’s targeted distribution growth of ~~8% during 2018~~5% for 2019 and the number of outstanding limited partner units remains at ~~228.2~~228.4 million, total cash distributions of approximately ~~$885~~$928 million will be paid to our unitholders related to ~~2018 financial results.~~2019 earnings. Management believes we will have sufficient ~~cash flows~~DCF to fund these distributions.

Capital Requirements

Our businesses require continual investments to maintain, upgrade or enhance existing operations and to ensure compliance with safety and environmental regulations. Capital spending consists primarily of:

Maintenance capital expenditures. These expenditures include costs required to maintain equipment reliability and safety and to address environmental or other regulatory requirements rather than to generate incremental DCF; and

Expansion capital expenditures. These expenditures are undertaken primarily to generate incremental DCF and include costs to acquire additional assets to grow our business and to expand or upgrade our existing facilities, which we refer to as organic growth projects. Organic growth projects include, for example, capital expenditures that increase storage or throughput volumes or develop pipeline connections to new supply sources.

For the nine months ended September 30, ~~2018,~~ 2019, our maintenance capital spending was $~~63.1~~70.1 million. For ~~2018,~~2019, we expect to spend approximately ~~$90~~$95 million on maintenance capital.

During the first nine months of ~~2018,~~2019, we spent ~~$276.1~~$617.1 million for our expansion capital projects and contributed ~~$147.0~~$145.6 million for capital projects in conjunction with our joint ventures. Based on the progress of expansion projects already underway, ~~including expansion of the western leg of our refined products pipeline system in Texas and our share of spending for the Permian Gulf Coast pipeline,~~ we expect to spend approximately ~~$800 million in 2018, $1.3~~$1.0 billion in 2019 and $400 million in 2020 to complete our current projects.

Liquidity

Cash generated from operations is our primary source of liquidity for funding debt service, maintenance capital expenditures and quarterly distributions to our unitholders. Additional liquidity for other purposes, such as expansion capital expenditures and debt repayments, is available through borrowings under our commercial paper program and revolving credit facility, as well as from other borrowings or issuances of debt or limited partner units (see Note 78 – Debt and Note 1112 – Partners’ Capital and Distributions of the consolidated financial statements included in Item 1 of Part I of this report for detail of our borrowings and changes in partners’ capital). If capital markets do not permit us to issue additional debt and equity securities, our business may be adversely affected, and we may not be able to acquire additional assets and businesses, fund organic growth projects or continue paying cash distributions at the current level.

Off-Balance Sheet Arrangements

None.

Environmental

Our operations are subject to federal, state and local environmental laws and regulations. We have accrued liabilities for estimated costs at our facilities and properties. We record liabilities when environmental costs are probable and can be reasonably estimated. The determination of amounts recorded for environmental liabilities involves significant judgments and assumptions by management. Due to the inherent uncertainties involved in determining environmental liabilities, it is reasonably possible that the actual amounts required to extinguish these liabilities could be materially different from those we have recognized.

Other Items

~~FERC Policy Change~~Executive Officer Retirements and Promotions. Larry J. Davied, Senior Vice President of Technical Services, retired in September 2019 after 26 years of service with us or our predecessors. Michael C. Pearson has been elected by our general partner’s board of directors to succeed Mr. Davied in this position. Before his promotion, Mr. Pearson was the Vice President of Asset Integrity and has been with us since our inception.

Saddlehorn Pipeline Expansion. In August 2019, Saddlehorn announced the expansion of its pipeline capacity by a total of 100 thousand barrels per day (“bpd”) to a new total capacity of approximately 290 thousand bpd. The higher capacity is expected to be available in late 2020 following the addition of incremental pumping and storage capabilities. Increases to equity earnings as a result of higher capacity will be partially offset by lower tariff rates negotiated for new committed volumes. In conjunction with the increased volume commitments, Noble Midstream Partners LP (“NBLX”), through its affiliate Black Diamond Gathering LLC, has an option to buy up to a 20% ownership interest in Saddlehorn. If the option is exercised, we and one of our joint venture partners, an affiliate of Plains All American Pipeline, L.P., would each sell up to a 10% interest in Saddlehorn to NBLX.

Crude Oil Revenues. The revenues generated by our crude oil assets partially depend upon the difference in commodity prices between different markets. When price differentials between origin and destination points on our crude oil pipelines are lower than our uncommitted (or spot) tariff rates, it is generally uneconomical for customers without contractual obligations to ship. We have benefited from favorable price differentials in recent periods, as the pricing differential between Midland and Houston has generally been above our spot rates, encouraging high utilization of our crude oil transportation and dock assets. However, pricing differentials can be volatile, and the differential between Midland and Houston has recently decreased, primarily due to the addition of new crude oil pipeline capacity in the region. As a result, we expect lower volumes on our crude oil assets at our spot rates. In ~~March~~addition, customers will likely be less willing to make term commitments for our crude oil services, and ~~July 2018,~~the rates at which customers will be willing to pay for both term commitments and uncommitted capacity will decrease from the levels we experienced previously. Due to these reduced volumes and lower rates, we expect crude oil revenues from our wholly-owned and joint venture crude oil assets to decrease. To optimize utilization of our crude oil assets, we have developed new tariff arrangements that make our services more economical for our shippers. In addition, we have initiated crude oil marketing activities to facilitate intrastate shipments on our Texas assets.

Pipeline Tariff Changes. The Federal Energy Regulatory Commission (“FERC”) regulates the rates charged on interstate common carrier pipelines primarily through an indexing methodology, which establishes the maximum amount by which tariff rates can be adjusted each year. Approximately 40% of our refined products tariffs are subject to this indexing methodology. The remaining 60% of our refined products tariffs are either subject to regulations by the states in which we operate or are approved for market-based rates by the FERC, ~~issued a revised policy statement~~ and ~~order~~in both cases these rates can be adjusted at our discretion based on ~~rehearing in which it expressed a general policy that it will no longer permit an income tax allowance to be included~~market factors. The current FERC-approved indexing method is the annual change in the ~~cost-of-service rates~~producer price index for ~~interstate pipelines structured as pass-through entities. The FERC also indicated that it will incorporate the effects~~finished goods plus 1.23%. Based on this indexing methodology, we increased virtually all of the revised policy statement in its review of the oil pipeline index level to be effective July 1, 2021. We do not have cost-of-service rates that would be immediately impacted by this policy change. The majority of our tariffs are at market-based or negotiated rates; however, approximately 40% of the shipments on our refined products pipeline ~~system~~rates by approximately 4.3% on July 1, 2019. Most of the tariffs on our crude oil pipelines are ~~regulated by~~established at negotiated rates that generally provide for annual adjustments in line with changes in the FERC ~~through an indexing methodology. Further, some of our negotiated crude oil tariffs utilize the FERC indexing methodology as a basis for future tariff rate escalations~~index, subject to certain ~~negotiated~~ modifications. ~~Depending~~We also increased the rates on ~~how~~ the FERC incorporates its most recent tax policy statement into its next index review, to become effective in 2021, our ability to increase our index-based rates could be negatively impacted. However, we believe the ultimate resolution of this matter will not have a material impact on our results of operation, financial position or cash flows.

~~Longhorn Pipeline Contracts Renewal.~~ ~~The initial term~~majority of our ~~contracts for~~crude oil pipelines by approximately 4% in July 2019.

Collective Bargaining Agreement. Certain of our employees assigned to our refined products segment are represented by the ~~Longhorn pipeline expired on September 30, 2018. All committed shippers have now either elected to extend their contracts under current terms for an additional two years or have executed~~United Steel Workers (“USW”) and are covered by a collective bargaining agreement. In August 2019, a new ~~contracts~~long-term agreement with ~~lower incentive tariff rates and terms up to 10 years, resulting in an average contract term of five years and a lower average tariff rate. We do not expect~~ the ~~reduced tariff to have a material impact on our results of operations, financial position or cash flows.~~USW was ratified effective February 1, 2019 through January 31, 2022.

Commodity Derivative Agreements. Certain of the business activities in which we engage result in our owning various commodities, which exposes us to commodity price risk. We use forward physical commodity contracts and exchange-traded futures contracts to help manage this commodity price risk. We use forward physical contracts to purchase butane and sell refined products. We account for these forward physical contracts as normal purchase and sale contracts, using traditional accrual accounting. We use futures contracts to hedge against changes in prices of petroleum products that we expect to sell or purchase in future periods. We use and account for those futures contracts that qualify for hedge accounting treatment as either cash flow or fair value hedges, and we use and account for those futures contracts that do not qualify for hedge accounting treatment as economic hedges.

As of September 30, ~~2018,~~2019, our open derivative contracts and the impact of the derivatives we settled during the period were comprised of futures contracts used to hedge sales and purchases of refined products, crude oil and butane related to our ~~tender deductions, product overages,~~ butane blending and fractionation ~~activities.~~activities, tender deductions and product overages. These contracts were accounted for as economic hedges, with the change in fair value of contracts that hedge future sales recorded to product sales, and the change in fair value of contracts that hedge future purchases recorded to cost of product sales.

For further information regarding the quantities of refined products and crude oil hedged at September 30, ~~2018~~2019 and the fair value of open hedge contracts at that date, please see Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The following tables provide a summary of the impacts of the mark-to-market gains and losses associated with these futures contracts on our results of operations for the respective periods presented (in millions):


	Nine Months Ended September 30, 2017												Nine Months Ended September 30, 2018
	Product Sales Revenue			Cost of Product Sales		Operating Expense		Other Income		Net Impact on Net Income			Product Sales Revenue			Cost of Product Sales			Net Impact on Net Income
Gains (losses) recorded on open futures contracts during the period	$	(31.6	)	$	17.2	$	0.7	$	2.4	$	(11.3	)	$	(51.7	)	$	20.8		$	(30.9	)
Gains recognized on settled futures contracts during the period	27.2			2.5		—		—		29.7
Losses recognized on settled futures contracts during the period													(18.4		)	(4.7		)	(23.1		)
Net impact of futures contracts	$	(4.4	)	$	19.7	$	0.7	$	2.4	$	18.4		$	(70.1	)	$	16.1		$	(54.0	)


	Nine Months Ended September 30, 2018													Nine Months Ended September 30, 2019
	Product Sales Revenue			Cost of Product Sales			Operating Expense		Other Income		Net Impact on Net Income			Product Sales Revenue			Cost of Product Sales			Net Impact on Net Income
Gains (losses) recorded on open futures contracts during the period	$	(51.7	)	$	20.8		$	—	$	—	$	(30.9	)	$	16.0		$	(11.2	)	$	4.8
Losses recognized on settled futures contracts during the period	(18.4		)	(4.7		)	—		—		(23.1		)
Gains (losses) recognized on settled futures contracts during the period														(57.5		)	1.7			(55.8		)
Net impact of futures contracts	$	(70.1	)	$	16.1		$	—	$	—	$	(54.0	)	$	(41.5	)	$	(9.5	)	$	(51.0	)

Related Party Transactions. See Note 1314 – Related Party Transactions in Item 1 of Part I of this report for detail of our related party transactions.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We may be exposed to market risk through changes in commodity prices and interest rates and have established policies to monitor and control these market risks. We use derivative agreements to help manage our exposure to commodity price and interest rate risks.

Commodity Price Risk

Our commodity price risk primarily arises from our butane blending and fractionation activities, and from managing product overages associated with our refined products and crude oil ~~pipelines.~~pipelines and terminals. We use derivatives such as forward physical contracts and exchange-traded futures contracts to help us manage commodity price risk.

Forward physical contracts that qualify for and are elected as normal purchases and sales are accounted for using traditional accrual accounting. As of September 30, ~~2018,~~2019, we had commitments under forward purchase and sale contracts as follows (in millions):


	Total		2018		2019 - 2020		Total		2019		2020-2021
Forward purchase contracts – notional value	$	242.2	$	122.9	$	119.3	$	101.5	$	58.7	$	42.8
Forward purchase contracts – barrels	4.7		2.4		2.3		3.0		1.8		1.2
Forward sales contracts – notional value	$	61.6	$	46.2	$	15.4	$	45.1	$	30.6	$	14.5
Forward sales contracts – barrels	0.7		0.5		0.2		0.7		0.5		0.2

We also use exchange-traded futures contracts to hedge against changes in the price of petroleum products we expect to sell or purchase. Virtually all of our open contracts did not qualify for hedge accounting treatment under ASC 815, Derivatives and Hedging, and we accounted for these contracts as economic hedges, with changes in fair value recognized currently in earnings. The fair value of these open futures contracts, representing ~~5.4~~4.5 million barrels of petroleum products we expect to sell and ~~1.7~~1.5 million barrels of butane and natural gasoline we expect to purchase, was a net liability of ~~$32.1~~$4.8 million. With respect to these contracts, a $10.00 per barrel increase (decrease) in the prices of petroleum products we expect to sell would result in a ~~$54.0~~$45.0 million decrease (increase) in our operating profit, while a $10.00 per barrel increase (decrease) in the price of butane we expect to purchase would result in ~~$17.0~~$15.0 million increase (decrease) in our operating profit. These increases or decreases in operating profit would be substantially offset by higher or lower product sales revenue or cost of product sales when the physical sale or purchase of those products occurs. These contracts may be for the purchase or sale of products in markets different from those in which we are attempting to hedge our exposure, and the resulting hedges may not eliminate all price risks.

During 2019, we entered into a basis derivative agreement with a joint venture co-owner’s affiliate, and, contemporaneously, that affiliate entered into an intrastate transportation services agreement with the joint venture. Settlements under the basis derivative agreement are determined based on the basis differential of crude oil prices at different market locations and a notional volume of 30,000 barrels per day. As a result, we are exposed to the differential in the forward price curves for crude oil in West Texas and the Houston Gulf Coast. With respect to this agreement, a $1.00 per barrel increase (decrease) in the differential would result in an approximately $10.0 million increase (decrease) in our operating profit.

Interest Rate Risk

Our use of variable rate debt and any forecasted issuances of fixed rate debt expose us to interest rate risk.

We have entered into $200.0 million of interest rate derivatives to protect against the risk of variability of interest payments on debt we anticipate issuing in the future. The fair value of these contracts at September 30, 2018 was a net asset of $5.2 million. We account for these agreements as cash flow hedges. A 0.125% decrease in interest rates would result in a decrease in the fair value of this asset of approximately $4.8 million. A 0.125% increase in interest rates would result in an increase in the fair value of approximately $4.6 million.


ITEM 4.	CONTROLS AND PROCEDURES

We performed an evaluation of the effectiveness of the design and operation of our ~~disclosure~~“disclosure controls and ~~procedures~~procedures” (as defined in ~~rule 13a-14(c) of~~Rule 13a-15(e) and 15d-15(e) under the Securities Exchange ~~Act)~~Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by ~~the date of~~ this report. We performed this evaluation under the supervision and with the participation of our management, including our general partner’s Chief Executive Officer (“CEO”) and Chief Financial ~~Officer.~~Officer (“CFO”). Based upon that evaluation, our general partner’s ~~Chief Executive Officer~~CEO and ~~Chief Financial Officer~~CFO concluded that, ~~these~~as of the end of the period covered by this report, our disclosure controls and ~~practices are~~procedures were effective ~~in providing~~to provide reasonable assurance ~~that all required disclosures are included in the current report. Additionally, these disclosure controls and practices are effective in ensuring~~ that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and procedures designed so that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to ~~our Chief Executive Officer~~management, including the CEO and ~~Chief Financial Officer~~the CFO, as appropriate, to allow timely decisions regarding required ~~disclosures.~~disclosure. There has been no change in our internal control over financial reporting ~~(as defined in Rule 13a-15(f) of the Securities Exchange Act)~~that occurred during the quarter ended September 30, ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Forward-Looking Statements

Certain matters discussed in this Quarterly Report on Form 10-Q include forward-looking statements within the meaning of the federal securities laws that discuss our expected future results based on current and pending business operations. Forward-looking statements can be identified by words such as “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “guidance,” “intends,” “may,” “might,” “plans,” “potential,” “projected,” “scheduled,” “should,” “will” and other similar expressions. Although we believe our forward-looking statements are based on reasonable assumptions, statements made regarding future results are not guarantees of future performance and are subject to numerous assumptions, uncertainties and risks that are difficult to predict. Therefore, actual outcomes and results may be materially different from the results stated or implied in such forward-looking statements included in this report.

The following are among the important factors that could cause future results to differ materially from any expected, projected, forecasted, estimated or budgeted amounts, events or circumstances we have discussed in this report:

overall demand for refined products, crude oil and liquefied petroleum gases ~~and ammonia~~ in the U.S.;

price fluctuations for refined products, crude oil and liquefied petroleum gases ~~and ammonia~~ and expectations about future prices for these products;

changes in the production of crude oil in the basins served by our pipelines;

changes in general economic conditions, interest rates and price levels;

changes in the financial condition of our customers, vendors, derivatives counterparties, lenders or joint venture co-owners;

our ability to secure financing in the credit and capital markets in amounts and on terms that will allow us to execute our growth strategy, refinance our existing obligations when due and maintain adequate liquidity;

development of alternative energy sources, including but not limited to natural gas, solar power, wind power, electric and battery-powered engines and geothermal energy, increased use of biofuels such as ethanol and biodiesel, increased conservation or fuel efficiency, increased use of electric vehicles, as well as regulatory developments or other trends that could affect demand for our services;

population decreases in the markets served by our refined products pipeline system and changes in consumer preferences, driving patterns or rates of automobile ownership;

changes in the product quality, throughput or interruption in service of refined products or crude oil pipelines owned and operated by third parties and connected to our assets;

changes in demand for storage in our refined products, crude oil or marine terminals;

changes in supply and demand patterns for our facilities due to geopolitical events, the activities of the Organization of the Petroleum Exporting Countries, changes in U.S. trade policies or in laws governing the importing and exporting of petroleum products, technological developments or other factors;

our ability to manage interest rate and commodity price exposures;

changes in our tariff rates or other terms of service implemented by the FERC ~~the U.S. Surface Transportation Board~~ or state regulatory agencies;

shut-downs or cutbacks at refineries, oil wells, petrochemical plants ~~ammonia production facilities~~ or other customers or businesses that use or supply our services;

the effect of weather patterns and other natural phenomena, including climate change, on our operations and demand for our services;

an increase in the competition our operations encounter;

the occurrence of natural disasters, terrorism, sabotage, protests or activism, operational hazards, equipment failures, system failures or unforeseen interruptions;

our ability to obtain adequate levels of insurance at a reasonable cost, and the potential for losses to exceed the insurance coverage we do obtain;

the treatment of us as a corporation for federal or state income tax purposes or if we become subject to significant forms of other taxation or more aggressive enforcement or increased assessments under existing forms of taxation;

our ability to identify expansion projects with acceptable expected returns or to complete identified expansion projects on time and at projected costs;

our ability to make and integrate accretive acquisitions and joint ventures and successfully execute our business strategy;

uncertainty of estimates, including accruals and costs of environmental remediation;

our ability to cooperate with and rely on our joint venture co-owners;

actions by rating agencies concerning our credit ratings;

our ability to timely obtain and maintain all necessary approvals, consents and permits required to operate our existing assets and to construct, acquire and operate any new or modified assets;

our ability to promptly obtain all necessary services, materials, labor, supplies and rights-of-way required for construction of our growth projects, and to complete construction without significant delays, disputes or cost overruns;

risks inherent in the use and security of information systems in our business and implementation of new software and hardware;

changes in laws and regulations or the interpretations of such laws that govern our butane blending activities, including the potential applicability of the Carmack Amendment, which broadly covers claims for damage or loss incurred to goods transported by a carrier in interstate commerce, to such activities, or changes regarding product quality specifications or renewable fuel obligations that impact our ability to produce gasoline volumes through our butane blending activities or that require significant capital outlays for compliance;

changes in laws and regulations to which we or our customers are or could become subject, including tax withholding requirements, safety, security, employment, hydraulic fracturing, derivatives transactions, trade and environmental laws and regulations, including laws and regulations designed to address climate change;

the cost and effects of legal and administrative claims and proceedings against us, our subsidiaries or our joint ventures;

the amount of our indebtedness, which could make us vulnerable to general adverse economic and industry conditions, limit our ability to borrow additional funds, place us at competitive disadvantages compared to our competitors that have less debt or have other adverse consequences;

the effect of changes in accounting policies;

the potential that our internal controls may not be adequate, weaknesses may be discovered or remediation of any identified weaknesses may not be successful;

the ability and intent of our customers, vendors, lenders, joint venture co-owners or other third parties to perform on their contractual obligations to us;

petroleum product supply disruptions;

global and domestic repercussions from terrorist activities, including cyber attacks, and the government’s response thereto; and

other factors and uncertainties inherent in the transportation, storage and distribution of petroleum products and ~~ammonia, and~~ the operation, acquisition and construction of assets related to such activities.

This list of important factors is not exclusive. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changes in assumptions or otherwise.

PART II

OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

Butane Blending Patent Infringement Proceeding.On October 4, 2017, Sunoco Partners Marketing & Terminals L.P. (“Sunoco”) brought an action for patent infringement in the U.S. District Court for the District of Delaware alleging Magellan Midstream Partners, L.P. (“Magellan”) and Powder Springs Logistics, LLC (“Powder Springs”) have infringed patents relating to butane blending at the Powder Springs facility located in Powder Springs, Georgia. Sunoco has since submitted pleadings alleging that Magellan has also infringed various patents relating to butane blending at nine Magellan facilities, in addition to Powder Springs. Sunoco is seeking ~~an undetermined amount of~~monetary damages, attorneys’ fees and a permanent injunction enjoining Magellan and Powder Springs from infringing on the subject patents. We deny and are vigorously defending against all claims asserted by Sunoco. Although it is not possible to predict the ultimate outcome, we believe ~~based on our current understanding of the applicable facts and law, that~~ the ultimate resolution of this matter will not have a material adverse impact on our results of operations, financial position or cash flows.

Valves and Overfill Protection Systems Proceeding. In October 2019, we received a Notice of Probable Violation, Proposed Civil Penalty and Proposed Compliance Order from the Pipeline and Hazardous Materials Safety Administration alleging violations related to the records and maps necessary for the safe operation of remotely controlled valves at two facilities and the failure to inspect the overfill protection system on four breakout tanks at our terminal in Des Moines, Iowa. The penalties associated with these alleged violations could exceed $100,000. While the results cannot be predicted with certainty, we believe the ultimate resolution of this matter will not have a material impact on our results of operations, financial position or cash flows.

Hurricane Harvey Enforcement Proceeding.On In July ~~10,~~ 2018, we received a Notice of Enforcement letter from the Texas Commission on Environmental Quality alleging two air emission violations at our Galena Park, Texas terminal that occurred during Hurricane Harvey in third quarter 2017. The penalties associated with these alleged violations could exceed $100,000. While the results cannot be predicted with certainty, we believe the ultimate resolution of this matter will not have a material impact on our results of operations, financial position or cash flows.

Clean Air Act Enforcement Proceeding. In June 2017, we received an enforcement letter from the U.S. Department of Justice (“DOJ”) regarding a referral from the U.S. Environmental Protection Agency (“EPA”) relating to alleged Clean Air Act violations at our terminals in Mason City, Iowa, Great Bend and Kansas City, Kansas and Omaha, Nebraska. ~~In 2018,~~The DOJ has subsequently withdrawn from the ~~DOJ~~proceeding. On September 4, 2019, the EPA filed an Administrative Complaint and ~~EPA notified us~~Notice of ~~their intent to impose~~Opportunity for Hearing and is seeking penalties ~~as a result~~in excess of ~~these alleged violations which could exceed~~ $100,000. ~~We have been in active settlement discussions with the DOJ and EPA to settle these alleged violations on terms that are mutually agreeable.~~ While the results cannot be predicted with certainty, we believe the ultimate resolution of this matter will not have a material impact on our results of operations, financial position or cash flows.

U.S. Oil Recovery, EPA ID No.: TXN000607093 Superfund Site. We have liability at the U.S. Oil Recovery Superfund Site in Pasadena, Texas as a potential responsible party (“PRP”) under Section 107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). As a result of the EPA’s Administrative Settlement Agreement and Order on Consent for Removal Action, filed August 25, 2011, EPA Region 6, CERCLA Docket No. 06-10-11, we voluntarily entered into the PRP group responsible for the site investigation, stabilization and subsequent site cleanup. We have paid approximately $42,000 associated with the assessment phase. Until this assessment phase has been completed, we cannot reasonably estimate our proportionate share of the remediation costs associated with this site. While the results cannot be reasonably estimated, we believe the ultimate resolution of this matter will not have a material impact on our results of operations, financial position or cash flows.

Lake Calumet Cluster Site, EPA ID No.: ILD000716852 Superfund Site. We have liability at the Lake Calumet Cluster Superfund Site in Chicago, Illinois as a PRP under Sections 107(a) and 113(f)(1) of CERCLA. As a result of the EPA’s Administrative Settlement Agreement and Order for Remedial Investigation/Feasibility Study

of June 2013, we voluntarily entered into the PRP group responsible for the investigation, cleanup and installation of an appropriate clay cap over the site. We have paid ~~$8,000~~approximately $9,000 associated with the Remedial Investigation/Feasibility Study and cleanup costs to date. Our projected portion of the estimated cap installation is $55,000. While the results cannot be predicted with certainty, we believe the ultimate resolution of this matter will not have a material impact on our results of operations, financial position or cash flows.

We and the non-controlled entities in which we own an interest are a party to various other claims, legal actions and ~~complaints arising in the ordinary course of business.~~complaints. 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 future results of operations, financial position or cash flows.


ITEM 1A.	RISK FACTORS

In addition to the information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not our only risks. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also could materially adversely affect our business, financial condition or operating results.


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS

The exhibits listed below on the Index to Exhibits are filed or incorporated by reference as part of this report.

INDEX TO EXHIBITS




	Exhibit Number		Description

	Exhibit 2.14.1	—	~~Membership Interest Purchase Agreement~~ Tenth Supplemental Indenture dated as of August ~~20, 2018 by and among Plains Pipeline, L.P.,~~19, 2019 between Magellan ~~OLP,~~Midstream Partners, L.P. and ~~Mapleleaf Midstream, LLC~~U.S. Bank National Association, as trustee (filed as Exhibit ~~2.1~~4.2 to Form 8-K filed August ~~24, 2018)~~19, 2019).

	Exhibit 31.1	—	Certification of Michael N. Mears, principal executive officer.

	Exhibit 31.2	—	Certification of Jeff Holman, principal financial officer.

	Exhibit 1232.1	—	~~Ratio of earnings to fixed charges.~~

~~Exhibit 31.1~~	—	~~Certification of Michael N. Mears, principal executive officer.~~

~~Exhibit 31.2~~	—	~~Certification of Aaron L. Milford, principal financial officer.~~

~~Exhibit 32.1~~	—	Section 1350 Certification of Michael N. Mears, Chief Executive Officer.

	Exhibit 32.2	—	Section 1350 Certification of ~~Aaron L. Milford,~~Jeff Holman, Chief Financial Officer.

	Exhibit 101.INS	—	XBRL Instance ~~Document.~~Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

	Exhibit 101.SCH	—	XBRL Taxonomy Extension ~~Schema.~~Schema Document.

	Exhibit 101.CAL	—	XBRL Taxonomy Extension Calculation ~~Linkbase.~~Linkbase Document.

	Exhibit 101.DEF	—	XBRL Taxonomy Extension Definition ~~Linkbase.~~Linkbase Document.

	Exhibit 101.LAB	—	XBRL Taxonomy Extension Label ~~Linkbase.~~Linkbase Document.

	Exhibit 101.PRE	—	XBRL Taxonomy Extension Presentation ~~Linkbase.~~Linkbase Document.

_______________________

*Such exhibit has heretofore been filed with the Securities and Exchange Commission as part of the filing indicated and is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized in Tulsa, Oklahoma on ~~November 1, 2018.~~October 31, 2019.



MAGELLAN MIDSTREAM PARTNERS, L.P.

By:		Magellan GP, LLC,
		its general partner

/s/ ~~Aaron L. Milford~~Jeff Holman
~~Aaron L. Milford~~Jeff Holman
Chief Financial Officer
(Principal Accounting and Financial Officer)

5257



	Nine Months Ended September 30, 2017, as Reported			ASU 2016-15 Adjustment			Nine Months Ended September 30, 2017, as Adjusted
Operating activities:
Distributions from operations of non-controlled entities	$	78,562		$	19,129		$	97,691
Net cash provided by operating activities	$	794,572		$	19,129		$	813,701

Investing activities:
Distributions from returns of investments in non-controlled entities	$	71,867		$	(19,129	)	$	52,738
Net cash used by investing activities	$	(416,147	)	$	(19,129	)	$	(435,276	)



	Balance at December 31, 2017			Adjustments Due to ASU 2014-09			Balance at January 1, 2018
Assets:
Property, plant and equipment	$	7,235,468		$	8,516		$	7,243,984
Accumulated depreciation	(1,682,633		)	(325		)	(1,682,958		)
Net property, plant and equipment	$	5,552,835		$	8,191		$	5,561,026
Investments in non-controlled entities	$	1,082,511		$	502		$	1,083,013

Liabilities:
Deferred revenue	$	117,795		$	(1,901	)	$	115,894
Other noncurrent liabilities	$	30,350		$	4,619		$	34,969

Partners’ capital:
Limited partner unitholders	$	2,267,231		$	5,975		$	2,273,206



	As Reported		Amounts without adoption of ASC 606		Effect of Change Higher/(Lower)
Statements of Income:
	Three Months Ended September 30, 2018
Transportation and terminals revenue	$	488,775	$	486,801	$	1,974
Depreciation and amortization	$	56,228	$	56,108	$	120

	Nine Months Ended September 30, 2018
Transportation and terminals revenue	$	1,392,960	$	1,383,404	$	9,556
Depreciation and amortization	$	161,726	$	161,486	$	240

Balance Sheet:
	As of September 30, 2018
Assets:
Property, plant and equipment	$	7,570,759	$	7,555,758	$	15,001
Accumulated depreciation	1,835,824		1,835,259		565
Net property, plant and equipment	$	5,734,935	$	5,720,499	$	14,436
Investments in non-controlled entities	$	1,005,392	$	1,004,890	$	502
Liabilities:
Deferred revenue	$	121,247	$	129,458	$	(8,211	)
Other noncurrent liabilities	$	64,425	$	56,567	$	7,858
Partners’ capital:
Limited partner unitholders	$	2,665,620	$	2,650,329	$	15,291



	January 1, 2018		September 30, 2018
Accounts receivable from contracts with customers	$	133,084	$	135,269
Contract assets	$	8,615	$	8,053
Contract liabilities	$	106,933	$	119,841




Investments at December 31, 2017	$	1,082,511
Additional investment	147,048
Sale of ownership interest in BridgeTex	(205,776		)
Other adjustments	502
Earnings of non-controlled entities:
Proportionate share of earnings	132,647
Amortization of excess investment and capitalized interest	(1,804		)
Earnings of non-controlled entities	130,843
Less:
Distributions from operations of non-controlled entities	147,950
Distributions from returns of investments in non-controlled entities	1,786
Investments at September 30, 2018	$	1,005,392



Description	Gross Amounts of Recognized Liabilities			Gross Amounts of Assets Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets⁽²⁾			Margin Deposit Amounts Not Offset in the Consolidated Balance Sheets		Net Asset Amount⁽¹⁾
As of December 31, 2017	$	(38,936	)	$	12,851	$	(26,085	)	$	36,690	$	10,605
As of September 30, 2018	$	(55,087	)	$	22,843	$	(32,244	)	$	47,354	$	15,110



Nine Months Ended September 30, 2017	$	(1,735	)	Interest expense	$	(2,219	)