UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ________________________________________
FORM 10-Q
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20192020
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File No.: 1-16335
 __________________________________
 __________________________________

Magellan Midstream Partners, L.P.
(Exact name of registrant as specified in its charter)
Delaware73-1599053
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Units representing limited partnership unitsMMPNew 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.    Yes  x    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).    Yes  x    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 filer x    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 30, 2019,29, 2020, there were 228,403,428 outstanding223,700,943 common units representing limited partner units of Magellan Midstream Partners, L.P.
outstanding.





TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
ITEM 1.ITEM 1.CONSOLIDATED FINANCIAL STATEMENTS ITEM 1.CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
2
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
3
5
CONSOLIDATED BALANCE SHEETS
4
6
CONSOLIDATED STATEMENTS OF CASH FLOWS
5
7
CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL
6
CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
1. 
Organization, Description of Business and Basis of Presentation
8
1.
10
2. 
Revenue from Contracts with Customers
10
2.
12
3. 
Segment Disclosures
14
3.
15
4. 
Investments in Non-Controlled Entities
16
4.
18
5. 
Inventory
18
5.
20
6. 
Employee Benefit Plans
18
6.
21
7. Leases
20
7.
22
8. 
Debt
24
8.
22
9. 
Derivative Financial Instruments
25
9.
24
10. 
Commitments and Contingencies
29
10.
25
11. 
Long-Term Incentive Plan
30
11.
28
12. 
Partners’ Capital and Distributions
31
12.
30
13. 
Fair Value
32
13.
31
14. 
Related Party Transactions
34
14.
31
15. 
Subsequent Events
35
15.
33
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
36
34
Recent Developments
36
34
Results of Operations
37
35
Distributable Cash Flow
44
41
Liquidity and Capital Resources
45
42
Off-Balance Sheet Arrangements
46
43
Environmental
47
43
Other Items
48
ITEM 3.ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
50
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
44
ITEM 4.ITEM 4.CONTROLS AND PROCEDURES
51
ITEM 4.CONTROLS AND PROCEDURES
45
Forward-Looking Statements
52
PART II
OTHER INFORMATION
PART II
OTHER INFORMATION
PART II
OTHER INFORMATION
ITEM 1.ITEM 1.
LEGAL PROCEEDINGS
54
ITEM 1.
46
ITEM 1A.ITEM 1A.
RISK FACTORS
55
ITEM 1A.
47
ITEM 2.ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
55
ITEM 2.
47
ITEM 3.ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
55
ITEM 3.
48
ITEM 4.ITEM 4.
MINE SAFETY DISCLOSURES
55
ITEM 4.
48
ITEM 5.ITEM 5.
OTHER INFORMATION
55
ITEM 5.
48
ITEM 6.ITEM 6.
EXHIBITS
55
ITEM 6.
48
INDEX TO EXHIBITSINDEX TO EXHIBITS
56
INDEX TO EXHIBITS
49
SIGNATURESSIGNATURES
57
SIGNATURES
50
 
1


Forward-Looking Statements

Except for statements of historical fact, all statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may be identified by words like “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “guidance,” “intends,” “may,” “might,” “plans,” “potential,” “projected,” “scheduled,” “should,” “will” and other similar expressions. The absence of such words or expressions does not necessarily mean the statements are not forward-looking. Although we believe our forward-looking statements are reasonable, 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, including those described in Part II, Item 1A – Risk Factors of this Quarterly Report on Form 10-Q. Actual outcomes and results may be materially different from the results stated or implied in such forward-looking statements included in this report. You should not put any undue reliance on any forward-looking statement.
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;
•price fluctuations for refined products, crude oil and liquefied petroleum gases 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 business 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, biodiesel and renewable diesel, 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;
•changes in population 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 transportation or storage in our refined products or crude oil segments;
•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 Federal Energy Regulatory Commission or state regulatory agencies;
•shut-downs or cutbacks at refineries, oil wells, petrochemical plants 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, including the effects of capacity over-build in the areas where we operate;
•the occurrence of natural disasters, epidemics, terrorism, sabotage, protests or activism, operational hazards, equipment failures, system failures or unforeseen interruptions;
•changes in general economic conditions, including market and macro-economic disruptions resulting from the COVID-19 pandemic and related governmental responses;
2


•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 maintenance and operation of our current assets and construction of our growth projects, 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 gas liquids 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 gas liquids 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 their contractual obligations to us;
•petroleum product supply disruptions;
•global and domestic repercussions from terrorist activities, including cyberattacks, and the government’s response thereto; and
•other factors and uncertainties inherent in the transportation, storage and distribution of petroleum products and the operation, acquisition and construction of assets related to such activities.
This list of important factors is not exhaustive. The forward-looking statements in this Quarterly Report speak only as of the date hereof, and 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, unless required by law.
3


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 EndedNine Months Ended
 September 30,September 30,
 2019202020192020
Transportation and terminals revenue$506,432 $473,531 $1,473,629 $1,343,741 
Product sales revenue144,807 119,445 497,791 481,842 
Affiliate management fee revenue5,357 5,288 15,810 15,895 
Total revenue656,596 598,264 1,987,230 1,841,478 
Costs and expenses:
Operating169,387 161,982 484,341 457,597 
Cost of product sales108,757 96,119 430,727 395,864 
Depreciation, amortization and impairment56,627 71,822 181,028 193,896 
General and administrative51,156 38,016 149,534 117,092 
Total costs and expenses385,927 367,939 1,245,630 1,164,449 
Other operating income (expense)(379)(2,863)1,538 539 
Earnings of non-controlled entities50,189 39,135 122,229 116,484 
Operating profit320,479 266,597 865,367 794,052 
Interest expense53,750 54,212 165,322 179,371 
Interest capitalized(5,831)(1,272)(14,419)(10,451)
Interest income(648)(260)(2,646)(903)
Gain on disposition of assets(2,532)0 (28,966)(12,887)
Other (income) expense2,602 1,455 9,222 3,708 
Income before provision for income taxes273,138 212,462 736,854 635,214 
Provision for income taxes100 824 2,450 2,169 
Net income$273,038 $211,638 $734,404 $633,045 
Basic net income per common unit$1.19 $0.94 $3.21 $2.80 
Diluted net income per common unit$1.19 $0.94 $3.21 $2.80 
Weighted average number of common units outstanding used for basic net income per unit calculation228,720 225,222 228,642 226,045 
Weighted average number of common units outstanding used for diluted net income per unit calculation228,754 225,222 228,667 226,045 
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2018 2019 2018 2019
Transportation and terminals revenue$488,775
 $506,432
 $1,392,960
 $1,473,629
Product sales revenue144,403
 144,807
 552,792
 497,791
Affiliate management fee revenue4,842
 5,357
 15,138
 15,810
Total revenue638,020
 656,596
 1,960,890
 1,987,230
Costs and expenses:       
Operating172,115
 169,387
 475,256
 484,341
Cost of product sales120,510
 108,757
 473,781
 430,727
Depreciation, amortization and impairment56,228
 56,627
 161,726
 181,028
General and administrative47,389
 51,156
 147,235
 149,534
Total costs and expenses396,242
 385,927
 1,257,998
 1,245,630
Other operating income (expense)—
 (379) —
 1,538
Earnings of non-controlled entities53,795
 50,189
 130,843
 122,229
Operating profit295,573
 320,479
 833,735
 865,367
Interest expense55,133
 53,750
 168,535
 165,322
Interest capitalized(3,099) (5,831) (13,354) (14,419)
Interest income(501) (648) (1,460) (2,646)
Gain on disposition of assets(353,797) (2,532) (353,797) (28,966)
Other (income) expense1,694
 2,602
 10,299
 9,222
Income before provision for income taxes596,143
 273,138
 1,023,512
 736,854
Provision for income taxes1,609
 100
 3,659
 2,450
Net income$594,534
 $273,038
 $1,019,853
 $734,404
Basic net income per limited partner unit$2.60
 $1.19
 $4.47
 $3.21
Diluted net income per limited partner unit$2.60
 $1.19
 $4.46
 $3.21
Weighted average number of limited partner units outstanding used for basic net income per unit calculation228,397
 228,720
 228,368
 228,642
Weighted average number of limited partner units outstanding used for diluted net income per unit calculation228,449
 228,754
 228,412
 228,667

    



See notes to consolidated financial statements.

4



MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2019202020192020
Net income$273,038 $211,638 $734,404 $633,045 
Other comprehensive income (loss):
Derivative activity:
Net loss on cash flow hedges(14,181)0 (25,216)(10,444)
Reclassification of net loss on cash flow hedges to income
699 896 1,927 2,552 
Changes in employee benefit plan assets and benefit obligations recognized in other comprehensive income:
Net actuarial loss0 0 (10,913)(333)
Curtailment gain0 0 0 1,703 
Recognition of prior service credit amortization in income(46)(46)(136)(136)
Recognition of actuarial loss amortization in income1,412 1,473 4,385 4,462 
Recognition of settlement cost in income439 0 2,499 969 
Total other comprehensive income (loss)(11,677)2,323 (27,454)(1,227)
Comprehensive income$261,361 $213,961 $706,950 $631,818 
 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 hedges6,852
 (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 loss1,806
 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





























See notes to consolidated financial statements.

5



MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
2018		 September 30,
2019		December 31,
2019		September 30,
2020
ASSETS  (Unaudited)ASSETS(Unaudited)
Current assets:   Current assets:
Cash and cash equivalents$218,283
 $135,486
Cash and cash equivalents$58,030 $8,541 
Trade accounts receivable104,164
 131,746
Trade accounts receivable125,440 109,051 
Other accounts receivable25,007
 22,379
Other accounts receivable23,887 27,735 
Inventory185,735
 205,952
Inventory184,399 129,033 
Energy commodity derivatives contracts, net55,011
 4,839
Energy commodity derivatives deposits—
 21,811
Commodity derivatives depositsCommodity derivatives deposits27,415 14,031 
Reimbursable costsReimbursable costs7,878 17,065 
Other current assets58,143
 45,631
Other current assets32,359 35,787 
Total current assets646,343
 567,844
Total current assets459,408 341,243 
Property, plant and equipment7,628,592
 8,248,181
Property, plant and equipment8,431,227 8,319,400 
Less: accumulated depreciation1,830,411
 1,983,694
Less: accumulated depreciation2,027,193 2,036,351 
Net property, plant and equipment5,798,181
 6,264,487
Net property, plant and equipment6,404,034 6,283,049 
Investments in non-controlled entities1,076,306
 1,206,040
Investments in non-controlled entities1,240,551 1,211,079 
Right-of-use asset, operating leases—
 162,463
Right-of-use asset, operating leases171,868 152,082 
Long-term receivables20,844
 20,789
Long-term receivables20,782 21,850 
Goodwill53,260
 53,260
Goodwill53,260 52,830 
Other intangibles (less accumulated amortization of $2,979 and $5,588 at December 31, 2018 and September 30, 2019, respectively)51,174
 48,565
Other intangibles (less accumulated amortization of $6,255 and $8,575 at December 31, 2019 and September 30, 2020, respectively)Other intangibles (less accumulated amortization of $6,255 and $8,575 at December 31, 2019 and September 30, 2020, respectively)47,898 45,578 
Restricted cash90,978
 56,006
Restricted cash26,569 11,792 
Other noncurrent assets10,451
 12,732
Other noncurrent assets13,359 20,693 
Total assets$7,747,537
 $8,392,186
Total assets$8,437,729 $8,140,196 
   
LIABILITIES AND PARTNERS’ CAPITAL   LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:   Current liabilities:
Accounts payable$138,735
 $205,410
Accounts payable$150,992 $124,612 
Accrued payroll and benefits70,276
 56,677
Accrued payroll and benefits75,511 40,285 
Accrued interest payable63,258
 48,198
Accrued interest payable64,276 49,501 
Accrued taxes other than income53,093
 63,375
Accrued taxes other than income66,007 65,283 
Environmental liabilities9,153
 7,752
Deferred revenue121,085
 107,852
Deferred revenue109,654 92,227 
Accrued product liabilities75,482
 108,884
Accrued product liabilities90,788 79,388 
Energy commodity derivatives deposits37,328
 —
Commodity derivatives contracts, netCommodity derivatives contracts, net10,222 2,888 
Current portion of operating lease liability—
 22,997
Current portion of operating lease liability26,221 27,177 
Current portion of long-term debt, net59,489
 —
Other current liabilities48,657
 59,500
Other current liabilities73,205 50,258 
Total current liabilities676,556
 680,645
Total current liabilities666,876 531,619 
Long-term operating lease liability—
 135,689
Long-term operating lease liability144,023 121,764 
Long-term debt, net4,211,380
 4,705,775
Long-term debt, net4,706,075 4,900,311 
Long-term pension and benefits122,580
 131,676
Long-term pension and benefits145,992 142,154 
Other noncurrent liabilities82,240
 55,085
Other noncurrent liabilities59,735 55,904 
Environmental liabilities11,347
 8,860
Commitments and contingencies

 

Commitments and contingencies
Partners’ capital:   Partners’ capital:
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
Common unitholders (228,403 units and 223,701 units outstanding at December 31, 2019 and September 30, 2020, respectively)Common unitholders (228,403 units and 223,701 units outstanding at December 31, 2019 and September 30, 2020, respectively)2,877,105 2,551,748 
Accumulated other comprehensive loss(120,491) (147,945)Accumulated other comprehensive loss(162,077)(163,304)
Total partners’ capital2,643,434
 2,674,456
Total partners’ capital2,715,028 2,388,444 
Total liabilities and partners’ capital$7,747,537
 $8,392,186
Total liabilities and partners’ capital$8,437,729 $8,140,196 
   



See notes to consolidated financial statements.

6



MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 Nine Months Ended
September 30,
 20192020
Operating Activities:
Net income$734,404 $633,045 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and impairment expense181,028 193,896 
Gain on sale and retirement of assets(29,227)(13,330)
Earnings of non-controlled entities(122,229)(116,484)
Distributions from operations of non-controlled entities138,140 152,645 
Equity-based incentive compensation expense22,577 5,580 
Settlement gain, amortization of prior service credit and actuarial loss6,748 3,953 
Debt prepayment costs8,270 12,893 
Changes in operating assets and liabilities:
Trade accounts receivable and other accounts receivable(24,954)8,253 
Inventory(20,217)54,127 
Accounts payable29,014 9,040 
Accrued payroll and benefits(13,599)(35,226)
Accrued interest payable(15,060)(14,775)
Accrued taxes other than income10,282 1,101 
Accrued product liabilities33,402 (11,400)
Deferred revenue(13,233)(17,427)
Other current and noncurrent assets and liabilities(2,749)(25,786)
Net cash provided by operating activities922,597 840,105 
Investing Activities:
Additions to property, plant and equipment, net(1)
(718,605)(371,170)
Proceeds from sale and disposition of assets65,574 334,583 
Investments in non-controlled entities(158,145)(73,678)
Distributions from returns of investments in non-controlled entities7,500 0 
Deposits received from undivided joint interest third party68,928 0 
Net cash used by investing activities(734,748)(110,265)
Financing Activities:
Distributions paid(688,635)(697,264)
Net commercial paper borrowings0 248,000 
Borrowings under long-term notes996,405 499,400 
Payments on long-term notes(550,000)(550,000)
Debt placement costs(12,012)(4,255)
Net payment on financial derivatives(33,342)(10,444)
Payments associated with settlement of equity-based incentive compensation(9,764)(14,700)
Debt prepayment costs(8,270)(12,893)
Repurchases of common units0 (251,950)
Net cash used by financing activities(305,618)(794,106)
Change in cash, cash equivalents and restricted cash(117,769)(64,266)
Cash, cash equivalents and restricted cash at beginning of period309,261 84,599 
Cash, cash equivalents and restricted cash at end of period$191,492 $20,333 
Supplemental non-cash investing activities:
(1) Additions to property, plant and equipment
$(775,109)$(317,680)
 Changes in accounts payable and other current liabilities related to capital expenditures56,504 (53,490)
 Additions to property, plant and equipment, net$(718,605)$(371,170)
 Nine Months Ended
 September 30,
 2018 2019
Operating Activities:   
Net income$1,019,853
 $734,404
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation, amortization and impairment expense161,726
 181,028
Gain on sale and retirement of assets(347,541) (29,227)
Earnings of non-controlled entities(130,843) (122,229)
Distributions from operations of non-controlled entities147,950
 138,140
Equity-based incentive compensation expense24,612
 22,577
Settlement cost, amortization of prior service credit and actuarial loss8,487
 6,748
Debt prepayment costs—
 8,270
Changes in operating assets and liabilities:   
Trade accounts receivable and other accounts receivable(8,303) (24,954)
Inventory2,979
 (20,217)
Accounts payable27,498
 29,014
Accrued payroll and benefits(2,976) (13,599)
Accrued interest payable(21,348) (15,060)
Accrued taxes other than income964
 10,282
Accrued product liabilities(15,964) 33,402
Deferred revenue5,353
 (13,233)
Other current and noncurrent assets and liabilities(8,666) (2,749)
Net cash provided by operating activities863,781
 922,597
Investing Activities:   
Additions to property, plant and equipment, net(1)
(374,320) (718,605)
Proceeds from sale and disposition of assets579,448
 65,574
Investments in non-controlled entities(147,048) (158,145)
Distributions from returns of investments in non-controlled entities1,786
 7,500
Deposits received from undivided joint interest third party41,571
 68,928
Net cash provided (used) by investing activities101,437
 (734,748)
Financing Activities:   
Distributions paid(642,370) (688,635)
Borrowings under long-term notes—
 996,405
Payments on notes(250,000) (550,000)
Debt placement costs(326) (12,012)
Net receipt (payment) on financial derivatives20,925
 (33,342)
Payments associated with settlement of equity-based incentive compensation(9,285) (9,764)
Debt prepayment costs—
 (8,270)
Net cash used by financing activities(881,056) (305,618)
Change in cash, cash equivalents and restricted cash84,162
 (117,769)
Cash, cash equivalents and restricted cash at beginning of period176,068
 309,261
Cash, cash equivalents and restricted cash at end of period$260,230
 $191,492
    
Supplemental non-cash investing activities:   
(1)   Additions to property, plant and equipment
$(375,599) $(775,109)
Changes in accounts payable and other current liabilities related to capital expenditures1,279
 56,504
Additions to property, plant and equipment, net$(374,320) $(718,605)






See notes to consolidated financial statements.

7



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


Common Unitholders Accumulated Other Comprehensive LossTotal Partners’ Capital
Balance, July 1, 2019$2,774,047 $(136,268)$2,637,779 
Comprehensive income:
Net income273,038 — 273,038 
Total other comprehensive loss— (11,677)(11,677)
Total comprehensive income (loss)273,038 (11,677)261,361 
Distributions(231,258)— (231,258)
Equity-based incentive compensation expense6,773 — 6,773 
Other(199)— (199)
Three Months Ended September 30, 2019$2,822,401 $(147,945)$2,674,456 
Balance, July 1, 2020$2,620,365 $(165,627)$2,454,738 
Comprehensive income:
Net income211,638 — 211,638 
Total other comprehensive income— 2,323 2,323 
Total comprehensive income211,638 2,323 213,961 
Distributions(231,245)— (231,245)
Equity-based incentive compensation expense1,169 — 1,169 
Repurchases of common units(49,968)— (49,968)
Other(211)— (211)
Three Months Ended September 30, 2020$2,551,748 $(163,304)$2,388,444 
8


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

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

Common Unitholders Accumulated Other Comprehensive LossTotal Partners’ Capital
 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
Balance, January 1, 2019Balance, January 1, 2019$2,763,925 $(120,491)$2,643,434 
Comprehensive income:      Comprehensive income:
Net income 273,038
 —
 273,038
Net income734,404 — 734,404 
Total other comprehensive loss —
 (11,677) (11,677)Total other comprehensive loss— (27,454)(27,454)
Total comprehensive income 273,038
 (11,677) 261,361
Total comprehensive income (loss)Total comprehensive income (loss)734,404 (27,454)706,950 
Distributions (231,258) —
 (231,258)Distributions(688,635)— (688,635)
Equity-based incentive compensation expense 6,773
 —
 6,773
Equity-based incentive compensation expense22,577 — 22,577 
Issuance of limited partner units in settlement of equity-based incentive plan awardsIssuance of limited partner units in settlement of equity-based incentive plan awards480 — 480 
Payments associated with settlement of equity-based incentive compensationPayments associated with settlement of equity-based incentive compensation(9,764)— (9,764)
Other (199) —
 (199)Other(586)— (586)
Three Months Ended September 30, 2019 $2,822,401
 $(147,945) $2,674,456
Nine Months Ended September 30, 2019Nine Months Ended September 30, 2019$2,822,401 $(147,945)$2,674,456 
      
Balance, January 1, 2020Balance, January 1, 2020$2,877,105 $(162,077)$2,715,028 
Comprehensive income:Comprehensive income:
Net incomeNet income633,045 — 633,045 
Total other comprehensive lossTotal other comprehensive loss— (1,227)(1,227)
Total comprehensive income (loss)Total comprehensive income (loss)633,045 (1,227)631,818 
DistributionsDistributions(697,264)— (697,264)
Equity-based incentive compensation expenseEquity-based incentive compensation expense5,580 — 5,580 
Repurchases of common unitsRepurchases of common units(251,950)— (251,950)
Issuance of limited partner units in settlement of equity-based incentive plan awardsIssuance of limited partner units in settlement of equity-based incentive plan awards600 — 600 
Payments associated with settlement of equity-based incentive compensationPayments associated with settlement of equity-based incentive compensation(14,700)— (14,700)
OtherOther(668)— (668)
Nine Months Ended September 30, 2020Nine Months Ended September 30, 2020$2,551,748 $(163,304)$2,388,444 
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      




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.
9





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


1.Organization, Description of Business and Basis of Presentation
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 partnercommon 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.

During first quarter 2020, we completed a reorganization of our reportable segments.  This reorganization was effected to reflect changes in the management of our business in conjunction with the sale of 3 of our marine terminals.  Following this sale, 2 of our remaining marine terminals were combined with our refined products segment and 1 terminal was combined with our crude oil segment based on the predominant types of product stored at the facilities.  Accordingly, we have restated our segment disclosures for all previous periods included in this report.

Description of Business

On March 20, 2020, we sold 3 marine terminals to a subsidiary of Buckeye Partners, L.P. (“Buckeye”) for $251.8 million, net of working capital adjustments. These terminals are located in New Haven, Connecticut, Wilmington, Delaware and Marrero, Louisiana. We recognized a $6.2 million impairment loss related to the sale on our consolidated statements of income.

We are principally engaged in the transportation, storage and distribution of refined petroleum products and crude oil.  As of September 30, 2019,2020, our asset portfolio consisted of:

•
•our refined products segment, comprised of our approximately 9,800-mile refined products pipeline system with 54 connected terminals, as well as 25 independent terminals not connected to our pipeline system and 2 marine storage terminals (1 of which is owned through a joint venture); and

•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 crude oil segment, comprised of approximately 2,200 miles of crude oil pipelines, a condensate splitter and 3337 million barrels of aggregate storage capacity, of which approximately 2125 million barrels are used for contract storage. Approximately 1,000 miles of these pipelines, the condensate splitter and 2830 million barrels of this storage capacity (including 1922 million barrels used for contract storage) are wholly-owned, with the remainder owned through joint ventures; andventures.

our marine storage segment, consisting of 6 marine terminals located along coastal waterways with an aggregate storage capacity of approximately 27 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 crude oil refineries that are primarily used as fuels by consumers. Refined products include gasoline, diesel fuel, aviation fuel, kerosene and heating oil.  Diesel fuel, kerosene and heating oil are referred to as distillates;

•transmix is a mixture of refined products that forms when transported in pipelines. Transmix is fractionated and blended into usable refined products;

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

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

10





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


•blendstocks are products 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 products 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 a naturally occurring unrefined petroleum product recovered from underground that is used as feedstock by refineries, splitters and petrochemical facilities; and

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

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

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, 2018,2019, 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, 2019,2020, the results of operations for the three and nine months ended September 30, 20182019 and 20192020 and cash flows for the nine months ended September 30, 20182019 and 2019.2020. The results of operations for the nine months ended September 30, 20192020 are not necessarily indicative of the results to be expected for the full year ending December 31, 20192020 for several reasons. Profits from our butanegas liquids 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 the volume of petroleum products we transport on our pipelines.

  Finally, we expect the impact of COVID-19 on demand for petroleum products and the decline in commodity prices to continue to affect our results of operations in the remaining quarter of 2020, resulting in decreased transportation and terminalling revenues and reduced profits from our gas liquids blending activities.

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 Form 8-K filed with the Securities and Exchange Commission on May 4, 2020, which reflects changes in our reporting segments since the filing of our Annual Report on Form 10-K for the year ended December 31, 20182019.
.
Reclassifications

Prior period amounts related to intrastate crude oil volumes shipped by our marketing affiliate have been reclassified from product sales revenue to transportation revenue 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
11





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


on the reported amounts of revenue and expense during the reporting periods. Actual results could differ from those estimates.

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

In FebruaryJune 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,2016-13, LeasesFinancial Instruments - Credit Losses (Topic 842). 326)This ASU requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases, with the exception of short-term leases.. The new accountingguidance is effective for reporting periods beginning after December 15, 2019. The standard replaces the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for lessors remains largelyaccounts receivables, loans and other financial instruments. The standard requires a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the same, although some changes have been made to align it withbeginning of the first reporting period in which the guidance is effective. We adopted 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. We adopted this standard onguidance as of January 1, 2019,2020 using the modified retrospective approach related to our accounts receivables and itcontract assets, resulting in no cumulative adjustment to retained earnings. The adoption of this guidance did not have a material impact on our consolidated statements of income or our leverage ratio as defined in our credit agreement. Adoption of this ASU resulted in an initial increase in our assets and liabilities by approximately $172 million due to the recognition of right-of-use assets and lease liabilities. See Note 7 – Leasesfor our lease disclosures.







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



2.Revenue from Contracts with Customers

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
  Refined Products Crude Oil Marine Storage Intersegment Eliminations Total
Transportation $197,235
 $91,086
 $—
 $—
 $288,321
Terminalling 46,213
 2,528
 616
 —
 49,357
Storage 25,137
 29,094
 33,890
 (923) 87,198
Ancillary services 28,808
 6,278
 5,857
 —
 40,943
Lease revenue 2,641
 16,132
 4,183
 —
 22,956
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
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers:
 
 
 
   
Lease revenue(1)
 (2,641) (16,132) (4,183) —
 (22,956)
Losses from futures contracts included in product sales revenue(2)
 24,253
 102
 —
 —
 24,355
Affiliate management fee revenue (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

(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)



  Three Months Ended September 30, 2019
  Refined Products Crude Oil Marine Storage Intersegment Eliminations Total
Transportation $205,824
 $85,859
 $—
 $—
 $291,683
Terminalling 47,483
 3,176
 946
 —
 51,605
Storage 25,788
 35,371
 34,230
 (1,556) 93,833
Ancillary services 29,284
 7,164
 7,205
 —
 43,653
Lease revenue 2,103
 19,356
 4,199
 —
 25,658
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
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers:
          
Lease revenue(1)
 (2,103) (19,356) (4,199) —
 (25,658)
(Gains) losses from futures contracts included in product sales revenue(2)
 (17,061) (564) —
 —
 (17,625)
Affiliate management fee revenue (432) (3,592) (1,333) —
 (5,357)
Total revenue from contracts with customers under ASC 606 $426,073
 $139,349
 $44,090
 $(1,556) $607,956

(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.





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


For the three and nine monthsmonth periods ended September 30, 2019, we recognized $6.0 million and $90.0 million of transportation and terminals revenue that was recorded in deferred revenue as of December 31, 2018.2020. 






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



Unfulfilled Performance Obligations

The following table provides the aggregate amount of the transaction price allocated to our unfulfilled performance obligations (“UPOs”) as of September 30, 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



2.Segment Disclosures
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 third-party customers, operating expenses, cost of product sales, other operating (income) expense 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 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 impairment expense and general and administrative (“G&A”) expense that management does not consider when evaluating the core profitability of our separate operating segments.
12
 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 revenue129,926
 12,666
 1,811
 —
 144,403
Affiliate management fee revenue351
 3,463
 1,028
 —
 4,842
Total revenue430,311
 161,247
 47,385
 (923) 638,020
Operating expenses112,279
 45,195
 17,178
 (2,537) 172,115
Cost of product sales106,756
 11,590
 2,164
 —
 120,510
Earnings of non-controlled entities(3,393) (49,420) (982) —
 (53,795)
Operating margin214,669
 153,882
 29,025
 1,614
 399,190
Depreciation, amortization and impairment expense30,440
 15,145
 9,029
 1,614
 56,228
G&A expense28,751
 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 revenue134,755
 8,343
 1,709
 —
 144,807
Affiliate management fee revenue432
 3,592
 1,333
 —
 5,357
Total revenue445,669
 162,861
 49,622
 (1,556) 656,596
Operating expenses111,839
 42,529
 17,921
 (2,902) 169,387
Cost of product sales98,144
 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 margin240,105
 154,409
 32,402
 1,346
 428,262
Depreciation, amortization and impairment expense31,752
 14,810
 8,719
 1,346
 56,627
G&A expense30,650
 13,666
 6,840
 —
 51,156
Operating profit$177,703
 $125,933
 $16,843
 $—
 $320,479


 Three Months Ended September 30, 2019
 Refined ProductsCrude OilIntersegment
Eliminations		Total
Transportation and terminals revenue$352,611 $155,377 $(1,556)$506,432 
Product sales revenue136,464 8,343 0 144,807 
Affiliate management fee revenue1,764 3,593 0 5,357 
Total revenue490,839 167,313 (1,556)656,596 
Operating expenses127,328 44,961 (2,902)169,387 
Cost of product sales100,416 8,341 0 108,757 
Other operating (income) expense(3,249)3,628 0 379 
Earnings of non-controlled entities(4,142)(46,047)0 (50,189)
Operating margin270,486 156,430 1,346 428,262 
Depreciation, amortization and impairment expense39,660 15,621 1,346 56,627 
G&A expense36,806 14,350 0 51,156 
Operating profit$194,020 $126,459 $0 $320,479 
 Three Months Ended September 30, 2020
 Refined ProductsCrude OilIntersegment
Eliminations		Total
Transportation and terminals revenue$320,809 $154,652 $(1,930)$473,531 
Product sales revenue114,252 5,193 0 119,445 
Affiliate management fee revenue1,579 3,709 0 5,288 
Total revenue436,640 163,554 (1,930)598,264 
Operating expenses118,579 46,956 (3,553)161,982 
Cost of product sales86,356 9,763 0 96,119 
Other operating (income) expense(193)3,056 0 2,863 
Earnings of non-controlled entities(7,134)(32,001)0 (39,135)
Operating margin239,032 135,780 1,623 376,435 
Depreciation, amortization and impairment expense41,620 28,579 1,623 71,822 
G&A expense27,487 10,529 0 38,016 
Operating profit$169,925 $96,672 $0 $266,597 

13
 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 revenue513,634
 32,387
 6,771
 —
 552,792
Affiliate management fee revenue1,000
 11,328
 2,810
 —
 15,138
Total revenue1,366,126
 453,044
 144,473
 (2,753) 1,960,890
Operating expenses319,670
 109,963
 52,835
 (7,212) 475,256
Cost of product sales434,632
 32,401
 6,748
 —
 473,781
Earnings of non-controlled entities(5,614) (122,879) (2,350) —
 (130,843)
Operating margin617,438
 433,559
 87,240
 4,459
 1,142,696
Depreciation, amortization and impairment expense89,855
 40,648
 26,764
 4,459
 161,726
G&A expense90,825
 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 revenue473,122
 19,351
 5,318
 —
 497,791
Affiliate management fee revenue1,314
 10,724
 3,772
 —
 15,810
Total revenue1,358,138
 484,178
 148,749
 (3,835) 1,987,230
Operating expenses317,328
 123,569
 51,404
 (7,960) 484,341
Cost of product sales404,814
 19,715
 6,198
 —
 430,727
Other operating (income) expense(2,398) 8,112
 (7,252) —
 (1,538)
(Earnings) losses of non-controlled entities2,275
 (122,084) (2,420) —
 (122,229)
Operating margin636,119
 454,866
 100,819
 4,125
 1,195,929
Depreciation, amortization and impairment expense102,024
 45,812
 29,067
 4,125
 181,028
G&A expense89,385
 40,378
 19,771
 —
 149,534
Operating profit$444,710
 $368,676
 $51,981
 $—
 $865,367
          



 Nine Months Ended September 30, 2019
 Refined ProductsCrude OilIntersegment
Eliminations		Total
Transportation and terminals revenue$1,009,812 $467,652 $(3,835)$1,473,629 
Product sales revenue478,441 19,350 0 497,791 
Affiliate management fee revenue5,085 10,725 0 15,810 
Total revenue1,493,338 497,727 (3,835)1,987,230 
Operating expenses362,870 129,431 (7,960)484,341 
Cost of product sales411,012 19,715 0 430,727 
Other operating (income) expense(9,648)8,110 0 (1,538)
Earnings of non-controlled entities(145)(122,084)0 (122,229)
Operating margin729,249 462,555 4,125 1,195,929 
Depreciation, amortization and impairment expense128,724 48,179 4,125 181,028 
G&A expense107,179 42,355 0 149,534 
Operating profit$493,346 $372,021 $0 $865,367 
4.Investments in Non-Controlled Entities
 Nine Months Ended September 30, 2020
 Refined ProductsCrude OilIntersegment
Eliminations		Total
Transportation and terminals revenue$914,887 $433,947 $(5,093)$1,343,741 
Product sales revenue461,701 20,141 0 481,842 
Affiliate management fee revenue4,676 11,219 0 15,895 
Total revenue1,381,264 465,307 (5,093)1,841,478 
Operating expenses327,866 139,645 (9,914)457,597 
Cost of product sales365,314 30,550 0 395,864 
Other operating (income) expense(2,223)1,684 0 (539)
Earnings of non-controlled entities(25,946)(90,538)0 (116,484)
Operating margin716,253 383,966 4,821 1,105,040 
Depreciation, amortization and impairment expense128,708 60,367 4,821 193,896 
G&A expense84,802 32,290 0 117,092 
Operating profit$502,743 $291,309 $0 $794,052 


14





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


3.Revenue from Contracts with Customers

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, 2019
Refined ProductsCrude OilIntersegment EliminationsTotal
Transportation$208,073 $95,530 $0 $303,603 
Terminalling48,428 3,176 0 51,604 
Storage53,433 30,037 (1,556)81,914 
Ancillary services36,375 7,278 0 43,653 
Lease revenue6,302 19,356 0 25,658 
Transportation and terminals revenue352,611 155,377 (1,556)506,432 
Product sales revenue136,464 8,343 0 144,807 
Affiliate management fee revenue1,764 3,593 0 5,357 
Total revenue490,839 167,313 (1,556)656,596 
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers:
Lease revenue(1)
(6,302)(19,356)0 (25,658)
(Gains) losses from futures contracts included in product sales revenue(2)
(17,061)(564)0 (17,625)
Affiliate management fee revenue(1,764)(3,593)0 (5,357)
Total revenue from contracts with customers under ASC 606$465,712 $143,800 $(1,556)$607,956 

(1) Lease revenue is accounted for under Accounting Standards Codification (“ASC”) 842, Leases.
(2) The impact on product sales revenue from futures contracts falls under the guidance of ASC 815, Derivatives and Hedging.
15





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


Three Months Ended September 30, 2020
Refined ProductsCrude OilIntersegment EliminationsTotal
Transportation$192,194 $90,156 $0 $282,350 
Terminalling41,227 5,651 0 46,878 
Storage49,366 32,876 (1,930)80,312 
Ancillary services32,707 6,828 0 39,535 
Lease revenue5,315 19,141 0 24,456 
Transportation and terminals revenue320,809 154,652 (1,930)473,531 
Product sales revenue114,252 5,193 0 119,445 
Affiliate management fee revenue1,579 3,709 0 5,288 
Total revenue436,640 163,554 (1,930)598,264 
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers:
Lease revenue(1)
(5,315)(19,141)0 (24,456)
(Gains) losses from futures contracts included in product sales revenue(2)
6,850 884 0 7,734 
Affiliate management fee revenue(1,579)(3,709)0 (5,288)
Total revenue from contracts with customers under ASC 606$436,596 $141,588 $(1,930)$576,254 

(1) Lease revenue 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.
Nine Months Ended September 30, 2019
Refined ProductsCrude OilIntersegment EliminationsTotal
Transportation$584,662 $290,754 $0 $875,416 
Terminalling138,968 13,146 0 152,114 
Storage162,139 89,313 (3,835)247,617 
Ancillary services103,287 20,488 0 123,775 
Lease revenue20,756 53,951 0 74,707 
Transportation and terminals revenue1,009,812 467,652 (3,835)1,473,629 
Product sales revenue478,441 19,350 0 497,791 
Affiliate management fee revenue5,085 10,725 0 15,810 
Total revenue1,493,338 497,727 (3,835)1,987,230 
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers:
Lease revenue(1)
(20,756)(53,951)0 (74,707)
(Gains) losses from futures contracts included in product sales revenue(2)
39,761 1,743 0 41,504 
Affiliate management fee revenue(5,085)(10,725)0 (15,810)
Total revenue from contracts with customers under ASC 606$1,507,258 $434,794 $(3,835)$1,938,217 
(1) Lease revenue 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.
16





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


Nine Months Ended September 30, 2020
Refined ProductsCrude OilIntersegment EliminationsTotal
Transportation$533,451 $244,154 $0 $777,605 
Terminalling117,916 14,702 0 132,618 
Storage152,933 97,103 (5,093)244,943 
Ancillary services93,340 20,746 0 114,086 
Lease revenue17,247 57,242 0 74,489 
Transportation and terminals revenue914,887 433,947 (5,093)1,343,741 
Product sales revenue461,701 20,141 0 481,842 
Affiliate management fee revenue4,676 11,219 0 15,895 
Total revenue1,381,264 465,307 (5,093)1,841,478 
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers:
Lease revenue(1)
(17,247)(57,242)0 (74,489)
(Gains) losses from futures contracts included in product sales revenue(2)
(89,763)483 0 (89,280)
Affiliate management fee revenue(4,676)(11,219)0 (15,895)
Total revenue from contracts with customers under ASC 606$1,269,578 $397,329 $(5,093)$1,661,814 
(1) Lease revenue 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, 2019September 30, 2020
Accounts receivable from contracts with customers$124,701 $107,317 
Contract assets$8,071 $13,834 
Contract liabilities$111,670 $94,865 

For the three and nine months ended September 30, 2020, respectively, we recognized $9.3 million and $89.3 million of transportation and terminals revenue that was recorded in deferred revenue as of December 31, 2019.

17





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


Unfulfilled Performance Obligations

The following table provides the aggregate amount of the transaction price allocated to our unfulfilled performance obligations (“UPOs”) as of September 30, 2020 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 ProductsCrude OilTotal
Balances at September 30, 2020$2,137,259 $1,276,836 $3,414,095 
Remaining terms1 - 18 years1 - 11 years
Estimated revenues from UPOs to be recognized in the next 12 months$407,914 $269,156 $677,070 


4.Investments in Non-Controlled Entities

Our investments in non-controlled entities at September 30, 20192020 were comprised of:
EntityOwnership 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%30%
Seabrook Logistics, LLC (“Seabrook”)50%
Texas Frontera, LLC (“Texas Frontera”)50%

In the first quarter of 2020, we sold a 10% interest in Saddlehorn to an affiliate of Black Diamond Gathering LLC, which is majority-owned by Noble Midstream Partners LP, reducing our ongoing investment in Saddlehorn to a 30% interest. We received $79.9 million in cash from the sale, and we recorded a gain of $12.9 million on our consolidated statements of income for the nine month period ended September 30, 2020.

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 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 $0.9$1.2 million and $1.2$0.7 million during the three months ended September 30, 20182019 and 2019,2020, respectively, and $2.6$3.8 million and $3.8$2.9 million during the nine months ended September 30, 20182019 and 2019,2020, respectively.

18





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



We recorded the following revenue and expense transactions fromwith certain of these non-controlled entities in our consolidated statements of income (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2019202020192020
Transportation and terminals revenue:
BridgeTex, pipeline capacity and storage$10,737 $9,323 $31,063 $32,748 
Double Eagle, throughput revenue$1,582 $995 $4,813 $4,016 
Saddlehorn, storage revenue$566 $580 $1,669 $1,711 
Operating expenses:
Seabrook, storage lease and ancillary services$6,267 $7,175 $19,417 $21,553 
Other operating income:
Seabrook, gain on sale of air emission credits$0 $0 $0 $1,410 
MVP, easement sale$289 $0 $289 $0 
  Three Months Ended September 30, Nine Months Ended September 30,
  2018 2019 2018 2019
Transportation and terminals revenue:        
BridgeTex, pipeline capacity and storage $9,958
 $10,737
 $29,519
 $31,063
Double Eagle, throughput revenue $1,005
 $1,582
 $3,892
 $4,813
Saddlehorn, storage revenue $552
 $566
 $1,628
 $1,669
Operating costs:        
Seabrook, storage lease and ancillary services $3,982
 $6,267
 $3,982
 $19,417
Product sales revenue:        
Powder Springs, butane sales $—
 $—
 $4,899
 $—
Cost of product sales:        
Powder Springs, butane purchases $—
 $—
 $410
 $—
Other income:        
MVP, easement sale $—
 $289
 $—
 $289

Our consolidated balance sheets reflected the following balances related to our investments in non-controlled entities (in thousands):
December 31, 2019
Trade Accounts ReceivableOther Accounts ReceivableOther Accounts PayableLong-Term Receivables
BridgeTex$392 $26 $— $— 
Double Eagle$445 $— $— $— 
HoustonLink$60 $— $— $— 
MVP$— $418 $— $— 
Powder Springs$161 $— $— $6,006 
Saddlehorn$— $126 $— $— 
Seabrook$941 $— $1,349 $— 
 December 31, 2018September 30, 2020
 Trade Accounts Receivable Other Accounts Receivable Other Accounts Payable Long-Term ReceivablesTrade Accounts ReceivableOther Accounts ReceivableOther Accounts PayableLong-Term Receivables
BridgeTex $318
 $1,549
 $—
 $—
BridgeTex$382 $441 $225 $— 
Double Eagle $546
 $—
 $—
 $—
Double Eagle$286 $— $— $— 
MVP $—
 $397
 $—
 $—
MVP$— $460 $— $— 
Powder Springs $—
 $—
 $—
 $2,221
Powder Springs$— $— $— $8,970 
Saddlehorn $—
 $183
 $—
 $—
Saddlehorn$— $142 $— $— 
Seabrook $—
 $—
 $1,140
 $—
Seabrook$497 $— $4,267 $— 

  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
   


5.Inventory

Inventory at December 31, 2018 and September 30, 2019 was as follows (in thousands):
 December 31, 2018 September 30,
2019
Refined products$92,751
 $106,406
Liquefied petroleum gases46,612
 47,057
Transmix28,497
 32,849
Crude oil11,220
 13,260
Additives6,655
 6,380
Total inventory$185,735
 $205,952



6.Employee Benefit Plans

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






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



Additionally, we sponsor 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, 2018 and 2019 was as follows (in thousands):
 Three Months Ended Three Months Ended
 September 30, 2018 September 30, 2019
 
Pension
Benefits
 
Other  Postretirement
Benefits
 
Pension
Benefits
 
Other  Postretirement
Benefits
Components of net periodic benefit costs:       
Service cost$6,424
 $58
 $6,260
 $48
Interest cost2,816
 104
 3,026
 126
Expected return on plan assets(3,055) —
 (2,354) —
Amortization of prior service credit(45) —
 (46) —
Amortization of actuarial loss1,659
 147
 1,352
 60
Settlement cost—
 —
 439
 —
Net periodic benefit cost$7,799
 $309
 $8,677
 $234
 Nine Months Ended Nine Months Ended
 September 30, 2018 September 30, 2019
 
Pension
Benefits
 
Other  Postretirement
Benefits
 
Pension
Benefits
 
Other  Postretirement
Benefits
Components of net periodic benefit costs:       
Service cost$28,393
 $174
 $19,145
 $145
Interest cost12,054
 312
 9,136
 380
Expected return on plan assets(9,057) —
 (7,045) —
Amortization of prior service credit(136) —
 (136) —
Amortization of actuarial loss8,182
 441
 4,137
 248
Settlement cost—
 —
 2,499
 —
Net periodic benefit cost$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, 2018 and 2019 were as follows (in thousands):
  Three Months Ended Three 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 $(96,352) $(6,036) $(93,876) $(6,105)
Amortization of prior service credit (45) —
 (46) —
Amortization of actuarial loss 1,659
 147
 1,352
 60
Settlement cost —
 —
 439
 —
Ending balance $(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)
         

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.


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 recognize a cumulative-effect adjustment, if any, to the opening balance of retained earnings in the 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 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 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 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.

In accordance with ASC 842, we have made an accounting policy election to 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 Texas Gulf Coast.Coast (see Note 7 – Leases for more details regarding this lease).

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 a market index).Future minimum rental payments under operating leases with initial terms greater than one year as of September 30, 2019 are as follows (in thousands):
 Third Party Leases Seabrook Lease All Leases
2019$2,643
 $2,607
 $5,250
202018,607
 10,429
 29,036
202118,994
 8,973
 27,967
202218,870
 6,612
 25,482
202318,349
 6,612
 24,961
Thereafter34,086
 37,473
 71,559
Total future minimum rental payments111,549
 72,706
 184,255
Present value discount13,207
 12,362
 25,569
Total operating lease liability$98,342
 $60,344
 $158,686

19







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 millionThe financial results from MVP, Powder Springs and $30.3 million, respectively, for threeTexas Frontera are included in our refined products segment and nine months endedthe financial results from BridgeTex, Double Eagle, HoustonLink, Saddlehorn and Seabrook are included in our crude oil segment, each as earnings of non-controlled entities.

A summary of our investments in non-controlled entities follows (in thousands):
Investments at 12/31/2019$1,240,551
Additional investment73,678 
Sale of ownership interest in Saddlehorn(66,989)
Earnings of non-controlled entities:
Proportionate share of earnings117,848 
Amortization of excess investment and capitalized interest(1,364)
Earnings of non-controlled entities116,484 
Less:
Distributions from operations of non-controlled entities152,645 
Investments at 9/30/2020$1,211,079

5.Inventory

Inventory at December 31, 2019 and September 30, 2018 and2020 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):
December 31, 2019September 30,
2020
Refined products$96,128 $60,515 
Liquefied petroleum gases29,982 30,155 
Transmix39,546 20,821 
Crude oil12,714 12,872 
Additives6,029 4,670 
Total inventory$184,399 $129,033 
2019$9,624
202036,614
202136,560
202223,855
20237,663
Thereafter15,631
Total$129,947


We recognized variable lease revenue of $15.4 million and $43.3 million, respectively, for the 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 assets. The processing equipment primarily relates to our condensate splitter.

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



6.Debt

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 assetsLong-term debt 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, 20182019 and September 30, 20192020 was as follows (in thousands):
 December 31,
2019		September 30,
2020
Commercial paper$0 $248,000 
4.25% Notes due 2021550,000 0 
3.20% Notes due 2025250,000 250,000 
5.00% Notes due 2026650,000 650,000 
3.25% Notes due 20300 500,000 
6.40% Notes due 2037250,000 250,000 
4.20% Notes due 2042250,000 250,000 
5.15% Notes due 2043550,000 550,000 
4.20% Notes due 2045250,000 250,000 
4.25% Notes due 2046500,000 500,000 
4.20% Notes due 2047500,000 500,000 
4.85% Notes due 2049500,000 500,000 
3.95% Notes due 2050500,000 500,000 
Face value of long-term debt4,750,000 4,948,000 
Unamortized debt issuance costs(1)
(35,263)(37,407)
Net unamortized debt discount(1)
(8,662)(10,282)
Long-term debt, net$4,706,075 $4,900,311 
  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


(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.
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)



8.Debt
Long-term debt at December 31, 2018 and September 30, 2019 was as follows (in thousands):
  December 31,
2018		 September 30,
2019
6.55% Notes due 2019 $550,000
 $—
4.25% Notes due 2021 550,000
 550,000
3.20% Notes due 2025 250,000
 250,000
5.00% Notes due 2026 650,000
 650,000
6.40% Notes due 2037 250,000
 250,000
4.20% Notes due 2042 250,000
 250,000
5.15% Notes due 2043 550,000
 550,000
4.20% Notes due 2045 250,000
 250,000
4.25% Notes due 2046 500,000
 500,000
4.20% Notes due 2047 500,000
 500,000
4.85% Notes due 2049 —
 500,000
3.95% Notes due 2050 —
 500,000
Face value of long-term debt 4,300,000
 4,750,000
Unamortized debt issuance costs(1)
 (27,070) (35,770)
Net unamortized debt discount(1)
 (2,927) (8,455)
Net unamortized amount of gains from historical fair value hedges(1)
 866
 —
Long-term debt, net, including current portion 4,270,869
 4,705,775
Less: Current portion of long-term debt, net 59,489
 —
Long-term debt, net $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.

20192020 Debt IssuancesIssuance

On August 19, 2019,In May 2020, we issued $500.0 million of 3.95%3.25% senior notes due 20502030 in an underwritten public
offering. The notes were issued at 99.91%99.88% 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$495.2 million after underwriting discounts and offering expenses. The net proceeds from this offering, along with commercial paper borrowings and cash on hand, were used to early redeem our $550.0$550 million of 6.55% senior notes due 2019 on February 11, 2019. In connection with this offering, wein 2021. We recognized $8.3$12.9 million of debt prepayment costs that were recorded as interest expense in our consolidated statements of income.income related to this early redemption, partially offset by the recognition of a $0.7 million unamortized debt premium, for the nine months ended September 30, 2020.

Other Debt

Revolving Credit Facilities.Facility. At September 30, 2019,2020, the total borrowing capacity under our revolving credit facility maturing 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 0.875% to 1.500% based on our credit ratings. Additionally, an unused commitment fee is assessed at a rate between 0.075% and 0.200% depending on our credit ratings. The unused commitment fee was 0.125% at September 30, 2019.2020. Borrowings under this facility may be used for general partnership purposes, including capital expenditures. As of December 31, 20182019 and September 30, 2019,2020, there were 0 borrowings outstanding under this facility with $6.8 million and $3.5 million respectively,was obligated for letters of credit. Amounts obligated for letters of credit are not reflected as debt on our consolidated balance sheets, but decrease our borrowing capacity
21





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


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.

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. Commercial paper borrowings outstanding at September 30, 2020 were $248.0 million. The weighted-average interest rate for commercial paper borrowings based on the number of days outstanding was 2.3% for the year ended December 31, 2018 and 2.7%0.6% for the nine months ended September 30, 2019.2020.


9.Derivative Financial Instruments
7.Leases

Operating Leases – Lessee

Related-Party Operating Lease. We have 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 Texas Gulf Coast.

The following tables provide information about our third-party and Seabrook operating leases (dollars in thousands):
Three Months Ended September 30, 2019Three Months Ended September 30, 2020
Third-Party LeasesSeabrook LeaseAll LeasesThird-Party LeasesSeabrook LeaseAll Leases
Total lease expense$6,206 $6,267 $12,473 $6,474 $7,175 $13,649 
Nine Months Ended September 30, 2019Nine Months Ended September 30, 2020
Third-Party LeasesSeabrook LeaseAll LeasesThird-Party LeasesSeabrook LeaseAll Leases
Total lease expense$17,631 $19,417 $37,048 $18,173 $21,553 $39,726 
December 31, 2019September 30, 2020
Third-Party LeasesSeabrook LeaseAll LeasesThird-Party LeasesSeabrook LeaseAll Leases
Current lease liability$15,136 $11,085 $26,221 $15,721 $11,456 $27,177 
Long-term lease liability$81,508 $62,515 $144,023 $67,323 $54,441 $121,764 
Right-of-use asset$98,268 $73,600 $171,868 $86,185 $65,897 $152,082 


8.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 $2.8 million for each of the three months ended September 30, 2019 and 2020, and $9.3 million and $9.7 million for the nine months ended September 30, 2019 and 2020, respectively.

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


In addition, we sponsor 2 pension plans, including 1 for all non-union employees and 1 that covers union employees, and a postretirement benefit plan for certain employees. Prior to the March 2020 sale of our New Haven terminal (See Note 1 – Organization, Description of Business and Basis of Presentation), we sponsored an additional union pension plan that covered union employees at that terminal. Net periodic benefit expense for the three and nine months ended September 30, 2019 and 2020 was as follows (in thousands):
Three Months EndedThree Months Ended
 September 30, 2019September 30, 2020
 Pension
Benefits		Other  Postretirement
Benefits		Pension
Benefits		Other  Postretirement
Benefits
Components of net periodic benefit costs:
Service cost$6,260 $48 $6,898 $64 
Interest cost3,026 126 2,738 121 
Expected return on plan assets(2,354)0 (2,829)0 
Amortization of prior service credit(46)0 (46)0 
Amortization of actuarial loss1,352 60 1,346 127 
Settlement cost439 0 0 0 
Net periodic benefit cost$8,677 $234 $8,107 $312 
Nine Months EndedNine Months Ended
 September 30, 2019September 30, 2020
 Pension
Benefits		Other  Postretirement
Benefits		Pension
Benefits		Other  Postretirement
Benefits
Components of net periodic benefit costs:
Service cost$19,145 $145 $20,836 $193 
Interest cost9,136 380 8,251 360 
Expected return on plan assets(7,045)0 (8,524)0 
Amortization of prior service credit(136)0 (136)0 
Amortization of actuarial loss4,137 248 4,080 382 
Settlement cost2,499 0 969 0 
Settlement gain on disposition of assets0 0 (1,342)0 
Net periodic benefit cost$27,736 $773 $24,134 $935 

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.

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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, 2019 and 2020 were as follows (in thousands):
Three Months EndedThree Months Ended
September 30, 2019September 30, 2020
Gains (Losses) Included in AOCLPension BenefitsOther Postretirement BenefitsPension BenefitsOther Postretirement Benefits
Beginning balance$(93,876)$(6,105)$(98,610)$(9,269)
Recognition of prior service credit amortization in income(46)0 (46)0 
Recognition of actuarial loss amortization in income1,352 60 1,346 127 
Recognition of settlement cost in income439 0 0 0 
Ending balance$(92,131)$(6,045)$(97,310)$(9,142)

Nine Months EndedNine Months Ended
September 30, 2019September 30, 2020
Gains (Losses) Included in AOCLPension BenefitsOther Postretirement BenefitsPension BenefitsOther Postretirement Benefits
Beginning balance$(88,602)$(5,409)$(104,739)$(8,378)
Net actuarial gain (loss)(10,029)(884)813 (1,146)
Curtailment gain0 0 1,703 0 
Recognition of prior service credit amortization in income(136)0 (136)0 
Recognition of actuarial loss amortization in income4,137 248 4,080 382 
Recognition of settlement cost in income2,499 0 969 0 
Ending balance$(92,131)$(6,045)$(97,310)$(9,142)

Contributions estimated to be paid into the plans in 2020 are $29.3 million and $0.9 million for the pension plans and other postretirement benefit plan, respectively.


9.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 common units. The estimated units remaining available under the LTIP at September 30, 2020 total 1.0 million.
Equity-based incentive compensation expense for the three and nine months ended September 30, 2019 and 2020, primarily recorded as G&A expense on our consolidated statements of income, was as follows (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
 2019202020192020
Performance-based awards$5,162 $(1,121)$18,123 $(1,247)
Time-based awards1,611 2,290 4,454 6,827 
Total$6,773 $1,169 $22,577 $5,580 
24





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



During 2020, we reduced our LTIP accruals related to performance awards vesting in 2020 and 2021 to reflect the estimated impacts of COVID-19 related reductions in economic activity and the significant decline in commodity prices.

On January 31, 2020, 378,144 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, 2022.

Basic and Diluted Net Income Per Common Unit

The difference between our actual common units outstanding and our weighted-average number of common 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 or repurchased during a period.  The difference between the weighted-average number of common 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.


10.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. For interest rate cash flow hedges, we record the unrealized gains or losses as an adjustment to other comprehensive income. The realized gains and losses from our cash flow hedges are recognized into earnings as an adjustment to our periodic interest expense over the life of the related debt issuance. For fair value hedges on long-term debt, we record the unrealized gains or losses as an adjustment to long-term debt, 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.

In thirdsecond quarter 2019,2020, upon issuance of our $500.0 million of 3.95%3.25% notes due 2050,2030, we terminated and settled $100.0 million of treasury lock agreements that we had previously entered into to protect against the variability of future interest payments on this anticipated debt issuance for a loss of $25.3$10.4 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 recorded to other comprehensive income (loss) and will be recognized into earnings as an adjustment to our periodic interest expense over the lifeterm of the associated notes.hedged transaction in accordance with our hedging strategy.

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 for a loss of $8.0 million, which was included in our statements of cash flowsCommodity Derivatives

Our open futures contracts at September 30, 2020 were as a net payment on financial derivatives. These agreements were accounted for as cash flow hedges. The loss wasfollows:
Type of Contract/Accounting MethodologyProduct Represented by the Contract and Associated BarrelsMaturity Dates
Futures - Economic Hedges3.1 million barrels of refined products and crude oilBetween October 2020 and November 2022
Futures - Economic Hedges0.6 million barrels of gas liquidsBetween October and December 2020

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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. Forward physical commodity contracts subject to this exception are evaluated for the probability of future delivery and are periodically tested once the 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, 2019 were as follows:
Type of Contract/Accounting MethodologyProduct Represented by the Contract and Associated BarrelsMaturity Dates
Futures - Economic Hedges4.5 million barrels of refined products and crude oilBetween October 2019 and April 2020
Futures - Economic Hedges1.5 million barrels of butane and natural gasolineBetween October 2019 and April 2020


Energy Commodity Derivatives Contracts and Deposits Offsets

At December 31, 2019 and September 30, 2019,2020, we had made margin deposits of $21.8$27.4 million and $14.0 million, respectively, for our futurefutures 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, 20182019 and September 30, 20192020 (in thousands):

DescriptionGross Amounts of Recognized LiabilitiesGross Amounts of Assets Offset in the Consolidated Balance SheetsNet Amounts of Liabilities Presented in the Consolidated Balance SheetsMargin Deposit Amounts Not Offset in the Consolidated Balance Sheets
Net Asset Amount(1)
As of 12/31/2019$(11,033)$811 $(10,222)$27,415 $17,193 
As of 9/30/2020$(4,386)$2,740 $(1,646)$14,031 $12,385 

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



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



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.

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 December 31, 2019 and September 30, 20192020 was $17.8 million.$17.3 million and $12.3 million, respectively.

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, 20182019 and 20192020 were as follows (in thousands):
Three Months Ended Nine Months EndedThree Months EndedNine Months Ended
September 30, September 30, September 30,September 30,
Derivative Losses Included in AOCL2018 2019 2018 2019Derivative Losses Included in AOCL2019202020192020
Beginning balance$(25,165) $(36,287) $(33,755) $(26,480)Beginning balance$(36,287)$(57,748)$(26,480)$(48,960)
Net gain (loss) on cash flow hedges6,852
 (14,181) 13,963
 (25,216)
Net loss on cash flow hedgesNet loss on cash flow hedges(14,181)0 (25,216)(10,444)
Reclassification of net loss on cash flow hedges to income740
 699
 2,219
 1,927
Reclassification of net loss on cash flow hedges to income699 896 1,927 2,552 
Ending balance$(17,573) $(49,769) $(17,573) $(49,769)Ending balance$(49,769)$(56,852)$(49,769)$(56,852)

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



The following is a summary of the effect on our consolidated statements of income for the three and nine months ended September 30, 20182019 and 20192020 of derivatives that were designated as cash flow hedges (in thousands):
Interest Rate Contracts
Amount of Loss Recognized in AOCL on DerivativesLocation of Loss Reclassified from AOCL into  IncomeAmount of Loss Reclassified from AOCL into Income
Three Months Ended September 30, 2019$(14,181)Interest expense$(699)
Three Months Ended September 30, 2020$0 Interest expense$(896)
Nine Months Ended September 30, 2019$(25,216)Interest expense$(1,927)
Nine Months Ended September 30, 2020$(10,444)Interest expense$(2,552)
  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)

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, 2019,2020, the net loss estimated to be classified to interest expense over the next twelve months from AOCL is approximately $3.2$3.3 million. This amount relates to the amortization of losses on interest rate contracts over the life of the related debt instruments.
The following table provides a summary of the effect on our consolidated statements of income for the three and nine months ended September 30, 20182019 and 20192020 of derivatives that were not designated as 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  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 EndedNine Months Ended
 Location of Gain (Loss)
Recognized on Derivatives		September 30,September 30,
Derivative Instrument2019202020192020
Futures contractsProduct sales revenue$17,626 $(7,734)$(41,504)$89,280 
Futures contractsCost of product sales(5,581)1,815 (9,456)(2,529)
Basis derivative agreementOther operating income (expense)(3,910)(3,155)(8,869)(2,654)
Total$8,135 $(9,074)$(59,829)$84,097 
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 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, 2018 (in thousands). There were no balances outstanding at September 30, 2019.
  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 $462
 Energy commodity derivatives contracts, net $—
Interest rate contracts Other current assets 312
 Other current liabilities 8,438
  Total $774
 Total $8,438
27





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


Balance Sheets

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, 20182019 and September 30, 20192020 (in thousands):
 December 31, 2019
 Asset DerivativesLiability Derivatives
Derivative InstrumentBalance Sheet LocationFair ValueBalance Sheet LocationFair Value
Futures contractsCommodity derivatives contracts, net$811 Commodity derivatives contracts, net$11,033 
Basis derivative agreementOther current assets0 Other current liabilities8,457 
Basis derivative agreementOther noncurrent assets0 Other noncurrent liabilities8,847 
Total$811 Total$28,337 
 September 30, 2020
 Asset DerivativesLiability Derivatives
Derivative InstrumentBalance Sheet LocationFair ValueBalance Sheet LocationFair Value
Futures contractsCommodity derivatives contracts, net$1,095 Commodity derivatives contracts, net$3,983 
Futures contractsOther noncurrent assets1,645 Other noncurrent assets403 
Basis derivative agreementOther current assets0 Other current liabilities9,280 
Basis derivative agreementOther noncurrent assets0 Other noncurrent liabilities2,994 
Total$2,740 Total$16,660 
  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


11.Fair Value

10.Commitments and Contingencies
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:

•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 10 – 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 10 - 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.

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


•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.

•Guarantees and contractual obligations. At September 30, 2020, these primarily include a long-term contractual obligation we entered into in connection with the sale of our 3 marine terminals to a subsidiary of Buckeye. This obligation requires us to perform certain environmental remediation work on Buckeye’s behalf at the New Haven terminal.  The contractual obligation was recorded at fair value on our consolidated balance sheets upon initial recognition and was calculated using our best estimate of potential outcome scenarios to determine our liability for the remediation costs required in this agreement.

•Debt. The fair value of our publicly traded notes was based on the prices of those notes at December 31, 2019 and September 30, 2020; 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, 2019 and September 30, 2020 based on the three levels established by ASC 820, Fair Value Measurements and Disclosures (in thousands):
December 31, 2019
Assets (Liabilities) Fair Value Measurements using:
 Carrying AmountFair ValueQuoted Prices in Active Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Commodity derivatives contracts$(10,222)$(10,222)$(10,222)$— $— 
Basis derivative agreement$(17,304)$(17,304)$— $(17,304)
Long-term receivables$20,782 $20,782 $— $— $20,782 
Guarantees and contractual obligations$(408)$(408)$— $— $(408)
Debt$(4,706,075)$(5,192,685)$— $(5,192,685)$— 
29





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


September 30, 2020
Assets (Liabilities) Fair Value Measurements using:
 Carrying AmountFair ValueQuoted Prices in Active Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Commodity derivatives contracts$(1,646)$(1,646)$(1,646)$— $— 
Basis derivative agreement$(12,274)$(12,274)$— $(12,274)$— 
Long-term receivables$21,850 $21,850 $— $— $21,850 
Guarantees and contractual obligations$(11,239)$(11,239)$— $— $(11,239)
Debt$(4,900,311)$(4,872,340)$— $(4,872,340)$— 


12.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 infringedare infringing patents relatingrelated to butane blending at the Powder Springs facility located in Powder Springs, Georgia. Sunoco has sincesubsequently submitted pleadings alleging that Magellan hasis also infringedinfringing various patents relatingrelated to butane blending at 9 Magellan facilities, in addition to Powder Springs. Sunoco is seeking monetary damages, attorneys’ fees and a permanent injunction enjoining Magellan and Powder Springs from infringing 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 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 $20.5$14.9 million and $16.6$11.9 million at December 31, 20182019 and September 30, 2019,2020, 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 $5.5$0.8 million and $0.8$0.1 million for the three months ended September 30, 20182019 and 2019,2020, respectively, and $10.8$4.2 million and $4.2$1.3 million for the nine months ended September 30, 20182019 and 2019,2020, respectively.

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


Environmental Receivables

Receivables from insurance carriers and other third parties related to environmental matters were $4.1$2.9 million at December 31, 2018,2019, of which $2.4$1.8 million and $1.7$1.1 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 $3.0$1.8 million at September 30, 2019,2020, of which $1.4$1.0 million and $1.6$0.8 million were recorded to other accounts receivable and long-term receivables, respectively, on our consolidated balance sheets.

Other

In first quarter 2020, we entered into a long-term contractual obligation in connection with the sale of 3 marine terminals to Buckeye.  This obligation requires us to perform certain environmental remediation work on Buckeye’s behalf at the New Haven terminal.  As of September 30, 2020, our consolidated balance sheets reflected a current liability of $0.6 million and a noncurrent liability of $10.2 million to reflect the fair value of this obligation.

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, 2019,2020, 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. 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.


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, 2019 total 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,
  2018 2019 2018 2019
Performance-based awards $7,087
 $5,162
 $22,176
 $18,123
Time-based awards 846
 1,611
 2,436
 4,454
Total $7,933
 $6,773
 $24,612
 $22,577
         
Allocation of LTIP expense on our consolidated statements of income:        
G&A expense $7,867
 $6,704
 $24,412
 $22,377
Operating expense 66
 69
 200
 200
Total $7,933
 $6,773
 $24,612
 $22,577

On February 1, 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, 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.


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. NaN 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, 2018 through September 30, 2019:

Limited partner units outstanding on December 31, 2018228,195,160
February 2019–Settlement of employee LTIP awards199,792
During 2019–Other(a)
8,476
Limited partner units outstanding on September 30, 2019228,403,428
(a) Limited partner units issued to settle the equity-based retainers paid to 4 independent directors of our general partner.

Distributions

Distributions we paid during 2018 and 2019 were as follows (in thousands, except per unit amounts):
Payment Date 
Per Unit Cash
Distribution
Amount
 Total Cash Distribution to Limited Partners
02/14/2018  $0.9200
   $209,940
 
05/15/2018  0.9375
   213,933
 
08/14/2018  0.9575
   218,497
 
Through 09/30/2018  2.8150
   642,370
 
11/14/2018  0.9775
   223,061
 
Total  $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 2019 to be paid on November 14, 2019 to unitholders of record at the close of business on November 7, 2019.


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





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



end of each period, in an orderly transaction with a 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 9 – 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.

•
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.

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, 2018 and September 30, 2019 based on the three levels established by ASC 820, Fair Value Measurements and Disclosures (in thousands):





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



  December 31, 2018
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 $55,011
 $55,011
 $55,011
 $—
 $—
Interest rate contracts $(8,126) $(8,126) $—
 $(8,126) $—
Long-term receivables $20,844
 $20,844
 $—
 $—
 $20,844
Guarantees $(16,409) $(16,409) $—
 $—
 $(16,409)
Debt $(4,270,869) $(4,224,373) $—
 $(4,224,373) $—

  September 30, 2019
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 $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.Related Party Transactions
14.Related Party Transactions

Stacy 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, terminalling and other ancillary revenue from this customer of $6.0$7.1 million and $7.1$8.6 million for the three months ended September 30, 20182019 and 2019,2020, respectively, and $14.4$21.4 million and $21.4$24.3 million for the nine months ended September 30, 20182019 and 2019,2020, respectively. We recorded receivables of $1.9$3.8 million and $2.7$3.7 million from this customer at December 31, 20182019 and September 30, 2019,2020, 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 paymentreceived storage and other miscellaneous revenue of $0.2$0.1 million in second quarter 2019 toand $0.3 million for the three and nine months ended September 30, 2020, respectively, from a subsidiary of this customera separate company for an easement related to one of our expansion projects.which Stacy Methvin serves as a director.

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


14.Partners’ Capital and Distributions

Partners’ Capital

Our general partner’s board of directors authorized the repurchase of up to $750 million of our common units through 2022. The timing, price and actual number of common units repurchased will depend on a number of factors including our expected expansion capital spending needs, excess cash available, balance sheet metrics, legal and
31





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


regulatory requirements, market conditions and the trading price of our common units. The repurchase program does not obligate us to acquire any particular amount of common units, and the repurchase program may be suspended or discontinued at any time.

The following table details the changes in the number of our common units outstanding from December 31, 2019 through September 30, 2020:
15.Common units outstanding on December 31, 2019Subsequent Events228,403,428 
Units repurchased during 2020(4,987,128)
January 2020–Settlement of employee LTIP awards275,093 
During 2020–Other(a)
9,550 
Common units outstanding on September 30, 2020223,700,943 
(a) Common units issued to settle the equity-based retainers paid to independent directors of our general partner.

Distributions

Distributions we paid during 2019 and 2020 were as follows (in thousands, except per unit amounts):
Payment DatePer Unit Cash
Distribution
Amount		Total Cash Distribution
02/14/2019$0.9975 $227,832 
05/15/20191.0050 229,545 
08/14/20191.0125 231,258 
Through 09/30/20193.0150 688,635 
11/14/20191.0200 232,971 
Total$4.0350 $921,606 
02/14/2020$1.0275 $234,774 
05/15/20201.0275 231,245 
08/14/20201.0275 231,245 
Through 09/30/20203.0825 697,264 
11/13/2020(a)
1.0275 229,853 
Total$4.1100 $927,117 
(a) Our general partner’s board of directors declared this cash distribution in October 2020 to be paid on November 13, 2020 to unitholders of record at the close of business on November 6, 2020.


32





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


15.Subsequent Events

Recognizable events

No recognizable events occurred subsequent to September 30, 2019.2020.

Non-recognizable events

Cash Distribution. In October 2019,2020, our general partner’s board of directors declared a quarterly cash distribution of $1.02$1.0275 per unit for the period of July 1, 20192020 through September 30, 2019.2020. This quarterly cash distribution will be paid on November 14, 201913, 2020 to unitholders of record on November 7, 2019. The total cash distributions expected to be paid under this declaration are approximately $233.0 million.6, 2020.



33



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

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, 2019,2020, our asset portfolio consisted of:
•our refined products segment, comprised of our approximately 9,700-mile9,800-mile refined products pipeline system with 5354 connected terminals, as well as 25 independent terminals not connected to our pipeline system and our 1,100-mile ammonia pipeline system;two marine storage terminals (one of which is owned through a joint venture); and

•our crude oil segment, comprised of approximately 2,200 miles of crude oil pipelines, a condensate splitter and 3337 million barrels of aggregate storage capacity, of which 21approximately 25 million barrels are used for contract storage. Approximately 1,000 miles of these pipelines, the condensate splitter and 2830 million barrels of this storage capacity (including 1922 million barrels used for contract storage) are wholly-owned, with the remainder owned through joint ventures; andventures.

During first quarter 2020, we completed a reorganization of our reportable segments.  This reorganization was effected to reflect changes in the management of our business in conjunction with the sale of three of our marine storage segment, consistingterminals.  Following this sale, two of sixour remaining marine terminals located along coastal waterwayswere combined with an aggregate storage capacityour refined products segment and one terminal was combined with our crude oil segment based on the types of approximately 27 million barrels. Five of these terminals and approximately 25 million barrels ofproduct stored at the facilities.  Accordingly, we have restated our segment disclosures for all previous periods included in this storage capacity are wholly-owned, with the remainder owned through joint ventures.

report.

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 Form 8-K filed with the Securities and Exchange Commission on May 4, 2020, which reflects changes in our reporting segments since the filing of our Annual Report on Form 10-K for the year ended December 31, 20182019.
.


Recent Developments

COVID-19 and Decline in Commodity Prices.  This year’s unprecedented events impacting travel and economic activity have significantly reduced demand for refined products in the markets we serve.  The related declines in commodity prices have also significantly reduced the value of tender barrels we receive from our transportation customers and the margins we earn from our gas liquids blending activities.  The reduction in refined products demand and lower crude oil prices have combined to put significant downward pressure on domestic crude oil production.  While we benefit from take-or-pay commitments for the majority of the capacity of our long-haul crude oil pipelines, a sustained reduction in crude oil production could cause delays in the timing of our recognition of revenue from these commitments.  These factors have also significantly decreased the creditworthiness of certain of our crude oil transportation customers, resulting in an increased risk of customer defaults.  To date, our operations and our employees have successfully adapted to the current environment, enabling our customers to continue benefiting from the services they rely on from our critical infrastructure, and our customers have continued to meet their obligations to us.  Given the uncertain timing of a return of refined products demand to historical levels and a recovery in commodity prices, the extent of the impact these events will continue to have on our results of operations is unclear and could be material.  However, we do not believe these events will impact our ability to meet any of our financial obligations or result in any significant impairments to our assets.

Cash Distribution. In October 2019,2020, our general partner’s board of directors declared a quarterly cash distribution of $1.02$1.0275 per unit for the period of July 1, 20192020 through September 30, 2019.2020. This quarterly cash distribution will be paid on November 14, 201913, 2020 to unitholders of record on November 7, 2019. The total cash distributions expected to be paid under this declaration are approximately $233.0 million.6, 2020.
34






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 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 these tables. Product margin is a non-GAAP measure but its components of product sales revenue and cost of product sales are determined in accordance with GAAP. Our butanegas liquids blending, fractionation and other commodity-related activities generate significant revenue. However, 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.


During first quarter 2020, we revised our reporting segments. See Note 1 – Organization, Description of Business and Basis of Presentation of the consolidated financial statements included in Item 1 of Part I of this report for a discussion of this matter.

35




Three Months Ended September 30, 20182019 compared to Three Months Ended September 30, 20192020
 Three Months Ended September 30,Variance
Favorable  (Unfavorable)
 20192020$ Change% Change
Financial Highlights ($ in millions, except operating statistics)
Transportation and terminals revenue:
Refined products$352.6 $320.8 $(31.8)(9)
Crude oil155.3 154.6 (0.7)—
Intersegment eliminations(1.5)(1.9)(0.4)(27)
Total transportation and terminals revenue506.4 473.5 (32.9)(6)
Affiliate management fee revenue5.3 5.3 — —
Operating expenses:
Refined products127.4 118.5 8.9 7
Crude oil44.9 47.0 (2.1)(5)
Intersegment eliminations(3.0)(3.5)0.5 17
Total operating expenses169.3 162.0 7.3 4
Product margin:
Product sales revenue144.8 119.4 (25.4)(18)
Cost of product sales108.7 96.0 12.7 12
Product margin36.1 23.4 (12.7)(35)
Other operating income (expense)(0.4)(3.0)(2.6)(650)
Earnings of non-controlled entities50.1 39.2 (10.9)(22)
Operating margin428.2 376.4 (51.8)(12)
Depreciation, amortization and impairment expense56.6 71.8 (15.2)(27)
G&A expense51.1 38.0 13.1 26
Operating profit320.5 266.6 (53.9)(17)
Interest expense (net of interest income and interest capitalized)47.3 52.7 (5.4)(11)
Gain on disposition of assets(2.6)— (2.6)(100)
Other expense2.6 1.5 1.1 42
Income before provision for income taxes273.2 212.4 (60.8)(22)
Provision for income taxes0.2 0.8 (0.6)(300)
Net income$273.0 $211.6 $(61.4)(22)
Operating Statistics:
Refined products:
Transportation revenue per barrel shipped$1.618 $1.719 
Volume shipped (million barrels):
Gasoline74.5 71.9 
Distillates47.0 42.5 
Aviation fuel11.1 4.7 
Liquefied petroleum gases3.8 0.1 
Total volume shipped136.4 119.2 
Crude oil:
Magellan 100%-owned assets:
Transportation revenue per barrel shipped$0.935 $1.401 
Volume shipped (million barrels)(1)
79.2 45.1 
Terminal average utilization (million barrels per month)22.9 25.9 
Select joint venture pipelines:
BridgeTex - volume shipped (million barrels)(2)
40.8 30.6 
Saddlehorn - volume shipped (million barrels)(3)
17.0 15.1 
 Three Months Ended September 30, 
Variance
Favorable  (Unfavorable)
 2018 2019 $ Change % Change
Financial Highlights ($ in millions, except operating statistics)       
Transportation and terminals revenue:       
Refined products$300.0
 $310.5
 $10.5
 4
Crude oil145.1
 150.9
 5.8
 4
Marine storage44.6
 46.6
 2.0
 4
Intersegment eliminations(0.9) (1.6) (0.7) (78)
Total transportation and terminals revenue488.8
 506.4
 17.6
 4
Affiliate management fee revenue4.8
 5.3
 0.5
 10
Operating expenses:       
Refined products112.3
 111.8
 0.5
 —
Crude oil45.2
 42.6
 2.6
 6
Marine storage17.1
 17.9
 (0.8) (5)
Intersegment eliminations(2.5) (3.0) 0.5
 20
Total operating expenses172.1
 169.3
 2.8
 2
Product margin:       
Product sales revenue144.4
 144.8
 0.4
 —
Cost of product sales120.6
 108.7
 11.9
 10
Product margin23.8
 36.1
 12.3
 52
Other operating income (expense)—
 (0.4) (0.4) n/a
Earnings of non-controlled entities53.8
 50.1
 (3.7) (7)
Operating margin399.1
 428.2
 29.1
 7
Depreciation, amortization and impairment expense56.2
 56.6
 (0.4) (1)
G&A expense47.4
 51.1
 (3.7) (8)
Operating profit295.5
 320.5
 25.0
 8
Interest expense (net of interest income and interest capitalized)51.5
 47.3
 4.2
 8
Gain on disposition of assets(353.8) (2.6) (351.2) (99)
Other (income) expense1.7
 2.6
 (0.9) (53)
Income before provision for income taxes596.1
 273.2
 (322.9) (54)
Provision for income taxes1.5
 0.2
 1.3
 87
Net income$594.6
 $273.0
 $(321.6) (54)
Operating Statistics:       
Refined products:       
Transportation revenue per barrel shipped$1.600
 $1.618
    
Volume shipped (million barrels):       
Gasoline73.4
 74.5
    
Distillates45.6
 47.0
    
Aviation fuel8.1
 11.1
    
Liquefied petroleum gases4.4
 3.8
    
Total volume shipped131.5
 136.4
    
Crude oil:       
Magellan 100%-owned assets:       
Transportation revenue per barrel shipped$1.266
 $0.935
    
Volume shipped (million barrels)62.8
 79.2
    
Crude oil terminal average utilization (million barrels per month)16.0
 20.5
    
Select joint venture pipelines:       
BridgeTex - volume shipped (million barrels)(1)
36.5
 40.8
    
Saddlehorn - volume shipped (million barrels)(2)
6.7
 17.0
    
Marine storage:       
Marine terminal average utilization (million barrels per month)22.6
 23.6
    

(1) Volume shipped includes shipments related to our crude oil marketing activities. Volume shipped in 2020 reflects a change in the way our customers contract for our services pursuant to which customers are able to utilize crude oil storage capacity at East Houston and dock access at Seabrook. Subsequent to this change, the services we provide no longer include a transportation element. Therefore, revenues related to these services are reflected entirely as terminalling revenues and the related volumes are no longer reflected in our calculation of transportation volumes.
(2) These volumes reflect the total shipments for the BridgeTex pipeline, which wasis owned 50%30% by us through September 28, 2018 and 30% thereafter.us.
(2)(3) These volumes reflect the total shipments for the Saddlehorn pipeline, which iswas owned 40% by us.us through January 31, 2020 and 30% thereafter.
36




Transportation and terminals revenue increased $17.6decreased $32.9 million resulting from:
an increase•a decrease in refined products revenue of $10.5 million$31.8 million. Transportation volumes decreased primarily due to higher transportation volumeslower demand in the current year associated with the ongoing impact from COVID-19 and a slightly higher average rate per barrel. Volumes increasedrelated restrictions as well as reduced drilling activity in response to the lower commodity price environment. Revenues also decreased due to continued solid demand for refined products coupled with incremental shipments associated with a recent connection near El Paso, Texasthe sale of three marine terminals in first quarter 2020 and our new East Houston-to-Hearnediscontinuation of the ammonia pipeline segment. Theoperations in late 2019. These declines were partially offset by an increase in the average tariff rate per barrel in the current period was favorably impacted byas well as contributions from the recently-constructed East Houston-to-Hearne pipeline segment that became operational in late 2019 and the West Texas expansion that began operations in the third quarter of 2020. Average tariff rates increased as a result of the 2020 mid-year tariff adjustment partially offset by moreas well as reduced short-haul movements that shipshipments on the South Texas pipelines, which move at a lower rates;rate; and
an increase•a decrease in crude oil revenue of $5.8 million primarily due to higher revenues from system storage that we provide to our customers in conjunction with new tanks at Cushing, Oklahoma and Corpus Christi, Texas as well as capacity we lease from the Seabrook Logistics, LLC (“Seabrook”) export facility. Higher transportation volumes on our Houston distribution system primarily due to the increased$0.7 million. Lower third-party spot shipments to Seabrook were more than offset by lower transportation revenue on our Longhorn pipeline due to less favorable differentials between the Permian Basin and Houston were largely offset by the activities of our marketing affiliate. Average tariff rates increased as a result of lower average rates following contract renewals in late 2018. Overall, the average crude oil transportation rate per barrel decreased between periods due to significantly higher volumesshipments on our Houston distribution system, which move at a lower rate than longer-haul shipments. Lower transportation volume on our Houston distribution system resulted primarily from a change in the way customers now contract for services at our Seabrook export facility, and was offset by incremental revenue from the lower average Longhorn rates; and
an increase in marine storage revenue of $2.0 million primarilyrelated terminal transfer fee. Tender deduction revenues also decreased due to lower crude oil prices. These declines were partially offset by increased storage revenues as more contract storage was utilized at higher storage availability related to timing of maintenance work and throughput fees from new dock capacity at our Galena Park, Texas facility.rates.
Operating expenses decreased by $2.8$7.3 million primarily resulting from:
•a decrease in refined products expenses of $0.5$8.9 million primarily due to lowertiming of planned integrity spending for asset integrity as a result of maintenance work timing,well as no costs in the current period associated with the sold or discontinued assets, 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 moreless favorable product overages (which reduce operating expenses), partially offset by fees we paid; and
•an increase in crude oil expenses of $2.1 million due to Seabrook for leased storage capacitythe timing of integrity spending and dock services; andless favorable product overages.
•
an increase in marine storage expenses of $0.8 million primarily due to additional asset integrity spending and higher property taxes.

Product margin increased $12.3decreased $12.7 million primarily due to recognition of higher gainslosses on futures contracts and lower costs on butane blending product sales.in third quarter 2020 compared to gains in 2019, partially offset by higher sales volume related to our fractionation activities.
Other operating expense of $0.4income (expense) was $2.6 million unfavorable primarily due to insurance proceeds received 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.
Earnings of non-controlled entities decreased $3.7$10.9 million primarily due to lowerdecreased earnings from BridgeTex Pipeline Company, LLC (“BridgeTex”) following the salemainly due to lower volume resulting from less spot shipments based on unfavorable market conditions and customer use of a portion of our investment, representing a 20% interest, in late 2018 partially offset by higher earningspreviously earned credits. We also earned less from Saddlehorn Pipeline Company, LLC (“Saddlehorn”) due to new commitments received in connection withour reduced ownership interest. These decreases were partially offset by additional earnings from MVP Terminalling, LLC (“MVP”) from the expansionrecent start-up of the pipeline as well as increased volumes as a result of incentive tariff arrangements.newly-constructed storage and dock assets.
Depreciation, amortization and impairment expense increased $0.4$15.2 million primarily due to an increasethe impairment in asset retirements.third quarter 2020 of certain terminalling assets and more assets placed into service.
G&A expense increased $3.7decreased $13.1 million primarily due to higherlower incentive compensation costs resulting from an increaseaccruals to reflect the impacts of COVID-19 related reductions in employee headcount.economic activity and the significant decline in commodity prices.




Interest expense, net of interest income and interest capitalized, decreased $4.2 million.increased $5.4 million primarily due to lower capitalized interest as a result of lower ongoing construction project spending and higher outstanding debt. Our averageweighted-average debt outstanding debt decreased from $4.7was $4.9 billion in third quarter 20182020 compared to $4.6 billion in third quarter 2019, and our weighted-average2019. The weighted average interest rate ofwas 4.3% in third quarter 2020 compared to 4.6% in third quarter 2019 was slightly lower than third quarter 2018.2019.
37



Gain on disposition of assets was $351.2$2.6 million unfavorable due to additional gain recorded in third quarter 2019 primarily duerelated to the gain we recognized inour discontinued Delaware Basin pipeline construction project that was subsequently sold to a third quarter 2018 on the sale of a portion of our interest in BridgeTex.party.

Other expense was $0.9$1.1 million unfavorable primarilyfavorable due to higher pension settlementlower pension-related costs in the current quarter.

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


38


Nine Months Ended September 30, 20182019 compared to Nine Months Ended September 30, 20192020
Nine Months Ended September 30, 
Variance
Favorable  (Unfavorable)
 Nine Months Ended September 30,Variance
Favorable  (Unfavorable)
2018 2019 $ Change % Change 20192020$ Change% Change
Financial Highlights ($ in millions, except operating statistics)      Financial Highlights ($ in millions, except operating statistics)
Transportation and terminals revenue:      Transportation and terminals revenue:
Refined products$851.5
 $883.7
 $32.2
 4Refined products$1,009.8 $914.9 $(94.9)(9)
Crude oil409.3
 454.1
 44.8
 11Crude oil467.6 433.9 (33.7)(7)
Marine storage134.9
 139.7
 4.8
 4
Intersegment eliminations(2.7) (3.9) (1.2) (44)Intersegment eliminations(3.8)(5.1)(1.3)(34)
Total transportation and terminals revenue1,393.0
 1,473.6
 80.6
 6Total transportation and terminals revenue1,473.6 1,343.7 (129.9)(9)
Affiliate management fee revenue15.1
 15.8
 0.7
 5Affiliate management fee revenue15.8 15.9 0.1 1
Operating expenses:      Operating expenses:
Refined products319.7
 317.3
 2.4
 1Refined products362.9 327.8 35.1 10
Crude oil110.0
 123.6
 (13.6) (12)Crude oil129.4 139.7 (10.3)(8)
Marine storage52.8
 51.4
 1.4
 3
Intersegment eliminations(7.2) (8.0) 0.8
 11Intersegment eliminations(8.0)(9.9)1.9 24
Total operating expenses475.3
 484.3
 (9.0) (2)Total operating expenses484.3 457.6 26.7 6
Product margin:      Product margin:
Product sales revenue552.8
 497.8
 (55.0) (10)Product sales revenue497.8 481.8 (16.0)(3)
Cost of product sales473.8
 430.7
 43.1
 9Cost of product sales430.7 395.8 34.9 8
Product margin79.0
 67.1
 (11.9) (15)Product margin67.1 86.0 18.9 28
Other operating income (expense)—
 1.5
 1.5
 n/aOther operating income (expense)1.5 0.5 (1.0)(67)
Earnings of non-controlled entities130.8
 122.2
 (8.6) (7)Earnings of non-controlled entities122.2 116.5 (5.7)(5)
Operating margin1,142.6
 1,195.9
 53.3
 5Operating margin1,195.9 1,105.0 (90.9)(8)
Depreciation, amortization and impairment expense161.7
 181.0
 (19.3) (12)Depreciation, amortization and impairment expense181.0 193.9 (12.9)(7)
G&A expense147.2
 149.5
 (2.3) (2)G&A expense149.5 117.0 32.5 22
Operating profit833.7
 865.4
 31.7
 4Operating profit865.4 794.1 (71.3)(8)
Interest expense (net of interest income and interest capitalized)153.7
 148.3
 5.4
 4Interest expense (net of interest income and interest capitalized)148.3 168.0 (19.7)(13)
Gain on disposition of assets(353.8) (29.0) (324.8) (92)Gain on disposition of assets(29.0)(12.9)(16.1)(56)
Other expense10.3
 9.2
 1.1
 11Other expense9.2 3.8 5.4 59
Income before provision for income taxes1,023.5
 736.9
 (286.6) (28)Income before provision for income taxes736.9 635.2 (101.7)(14)
Provision for income taxes3.6
 2.5
 1.1
 31Provision for income taxes2.5 2.2 0.3 12
Net income$1,019.9
 $734.4
 $(285.5) (28)Net income$734.4 $633.0 $(101.4)(14)
Operating Statistics:      Operating Statistics:
Refined products:      Refined products:
Transportation revenue per barrel shipped$1.524
 $1.600
   Transportation revenue per barrel shipped$1.600 $1.658 
Volume shipped (million barrels):      Volume shipped (million barrels):
Gasoline219.0
 207.4
   Gasoline207.4 199.4 
Distillates132.7
 138.8
   Distillates138.8 127.6 
Aviation fuel21.3
 29.8
   Aviation fuel29.8 16.8 
Liquefied petroleum gases10.4
 8.9
   Liquefied petroleum gases8.9 0.5 
Total volume shipped383.4
 384.9
   Total volume shipped384.9 344.3 
Crude oil:      Crude oil:
Magellan 100%-owned assets:      Magellan 100%-owned assets:
Transportation revenue per barrel shipped$1.325
 $0.952
   Transportation revenue per barrel shipped$0.952 $1.145 
Volume shipped (million barrels)168.4
 239.1
   
Crude oil terminal average utilization (million barrels per month)16.1
 20.3
   
Volume shipped (million barrels)(1)
Volume shipped (million barrels)(1)
239.1 167.9 
Terminal average utilization (million barrels per month)Terminal average utilization (million barrels per month)22.7 24.7 
Select joint venture pipelines:      Select joint venture pipelines:
BridgeTex - volume shipped (million barrels)(1)
100.0
 117.3
   
Saddlehorn - volume shipped (million barrels)(2)
18.5
 39.4
   
Marine storage:      
Marine terminal average utilization (million barrels per month)22.6
 23.8
   
BridgeTex - volume shipped (million barrels)(2)
BridgeTex - volume shipped (million barrels)(2)
117.3 99.9 
Saddlehorn - volume shipped (million barrels)(3)
Saddlehorn - volume shipped (million barrels)(3)
39.4 46.5 
      
(1) Volume shipped includes shipments related to our crude oil marketing activities. Volume shipped in 2020 reflects a change in the way our customers contract for our services pursuant to which customers are able to utilize crude oil storage capacity at East Houston and dock access at Seabrook. Subsequent to this change, the services we provide no longer include a transportation element. Therefore, revenues related to these services are reflected entirely as terminalling revenues and the related volumes are no longer reflected in our calculation of transportation volumes.
(2) These volumes reflect the total shipments for the BridgeTex pipeline, which wasis owned 50%30% by us through September 28, 2018 and 30% thereafter.us.
(2)(3) These volumes reflect the total shipments for the Saddlehorn pipeline, which iswas owned 40% by us.

us through January 31, 2020 and 30% thereafter.
39



Transportation and terminals revenue increased $80.6decreased $129.9 million resulting from:
an increase•a decrease in refined products revenue of $32.2 million$94.9 million. Transportation volumes decreased primarily due to a higherlower demand during 2020 associated with the ongoing impact from COVID-19 and related restrictions as well as reduced drilling activity in response to the lower commodity price environment. Revenues also decreased due to the sale of three marine terminals in first quarter 2020 and discontinuation of the ammonia pipeline operations in late 2019. These declines were partially offset by an increase in the average transportationtariff rate per barrel. The average rate per barrel in the current period was favorably impacted byas a result of the 20182019 and 20192020 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 newwell as contributions from the recently-constructed East Houston-to-Hearne pipeline segment were mainly offset by less short-haul movements onthat became operational in late 2019 and the SouthWest Texas pipelines, with these supply-driven barrels causingexpansion that began operations in the fluctuations in product mix transported as well;third quarter of 2020; and
an increase•a decrease in crude oil revenue of $44.8 million primarily$33.7 million. Lower third-party spot shipments on our Longhorn pipeline due to higher revenues from system storage that we provide to our customers in conjunction with new tanks at Cushingless favorable differentials between the Permian Basin and Corpus Christi as well as capacity we lease from the Seabrook export facility. Higher transportation volumes as a result of the favorable pricing differential between Midland and Houston and incremental shipments to Seabrook were partially offset by lower transportation revenue onthe activities of our Longhorn pipelinemarketing affiliate. Average tariff rates increased as a result of lower average rates following long-term contract renewals in late 2018. Overall, the average crude oil transportation rate per barrel decreased between periods due to significantly higher volumesshipments on our Houston distribution system, which move at a lower rate than longer-haul shipments. Lower transportation volume on our Houston distribution system resulted primarily from a change in the way customers now contract for services at our Seabrook export facility, and was offset by incremental revenue from the lower average Longhorn rates; and
an increase in marine storage revenue of $4.8 million primarilyrelated terminal transfer fee. Tender deduction revenues also decreased due to lower crude oil prices. These declines were partially offset by increased storage revenues as more contract storage was utilized at higher storage availability related to timing of maintenance work and additional fees from new dock capacity at our Galena Park facility.rates.
Operating expenses increaseddecreased by $9.0$26.7 million primarily resulting from:
•a decrease in refined products expenses of $2.4$35.1 million primarily due to a pension valuation correction that negatively impacted 2018 resultstiming of planned integrity spending as well as lower environmental accruals and spending for asset integrity,no costs in the current period associated with the sold or discontinued assets, partially offset by higher property taxes and less favorable product overages (which reduce operating expenses);overages; and
•an increase in crude oil expenses of $13.6$10.3 million primarily due to fees we paid to Seabrook for leased storage capacitythe timing of integrity spending and dock services; and
a decrease in marine storage expenses of $1.4 million primarily due to demolition costs in 2018 in connection with the construction of a new dock, partially offset by higher property taxes.less favorable product overages.
Product margin decreased $11.9increased $18.9 million primarily due to recognition of lossesgains on futures contracts in 2019the current period compared to gainslosses in 2018,2019, partially offset by increased butanelower gas liquids blending margins on product sales.driven by lower sales volumes and lower commodity prices and unfavorable lower-of-cost-or-net-realizable-value adjustments during 2020 due to the significant decrease in commodity prices.
Other operating income of $1.5(expense) was $1.0 million relatesunfavorable in 2020 primarily due to insurance proceedssettlements received in 2019 related to Hurricane Harvey, partially offset by unrealized fair value adjustments associated withless losses recognized on a basis derivative agreement net of realized amounts received under this agreement.during the current period.
Earnings of non-controlled entities decreased $8.6$5.7 million primarily due to lower earnings from BridgeTex following the sale of a portion of our investment, representing a 20% interest,and Saddlehorn in late 20182020, partially offset by higheradditional earnings from Saddlehorn due toMVP from the recent start-up of newly-constructed storage and dock assets and increased volume from a contractual step-up in committed shipments in September 2018, new commitments received in connection with the expansion of the pipeline as well as recently implemented incentive tariff arrangements and higher earnings from Seabrook due to the initiation of export capabilities in August 2018.Powder Springs Logistics, LLC (“Powder Springs”).
Depreciation, amortization and impairment expense increased $19.3$12.9 million primarily due to the commencementimpairment of depreciation on projects recentlycertain terminalling assets in 2020 and more assets placed into service and an increase in asset retirements.service.
G&A expense was $2.3decreased $32.5 million unfavorable primarily due to higherlower incentive compensation costs resulting from an increaseaccruals to reflect the impacts of COVID-19 related reductions in employee headcount.economic activity and the significant decline in commodity prices.

Interest expense, net of interest income and interest capitalized, decreased $5.4increased $19.7 million primarily due to lowerhigher outstanding debt and ahigher costs associated with early debt retirement, as well as lower weighted averagecapitalized interest rate, partially offset by $8.3 million of debt prepayment costs



(due to lower ongoing construction project spending in first quarter 2019 related to the early extinguishment of our 6.55% notes that were due July 2019.2020). Our average outstanding debt decreasedincreased from $4.6 billion in 2018 to $4.5 billion in 2019 and ourto $4.9 billion in 2020. Our weighted-average interest rate decreased from 4.7% in 2018 to 4.6% in 2019.2019 to 4.5% in 2020.
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Gain on disposition of assets was $324.8$16.1 million unfavorableunfavorable. In 2020, we recognized a gain on the sale of a portion of our interest in 2019.Saddlehorn of $12.9 million. In 2019, we recognized a deferred gain of $11.0 million related to the 2018 sale of a portion of our investment in BridgeTex, a gain of $12.7 million related to our discontinued Delaware Basin crude oil pipeline construction project that was subsequently sold to a third party and a gain of $5.3 million 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.

Other expense was $1.1$5.4 million favorable as 2018 included the impact of a pension valuation correction.

Provision for income taxes was $1.1 million favorable primarily due to a reduction of deferred tax accrualslower pension-related costs in the current year.period.






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 partnerscommon unitholders 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, 20182019 and 20192020 to net income, which is its nearest comparable GAAP financial measure, follows (in millions):
Nine Months Ended September 30,Increase (Decrease)
20192020
Net income$734.4 $633.0 $(101.4)
Interest expense, net148.3 168.0 19.7 
Depreciation, amortization and impairment(1)
176.9 193.4 16.5 
Equity-based incentive compensation(2)
12.8 (9.1)(21.9)
Gain on disposition of assets(3)
(16.3)(10.5)5.8 
Commodity-related adjustments:
Derivative (gains) losses recognized in the period associated with future transactions(4)
13.7 6.7 (7.0)
Derivative gains (losses) recognized in previous periods associated with transactions completed in the period(4)
71.2 (18.9)(90.1)
Inventory valuation adjustments(5)
(9.7)9.5 19.2 
Total commodity-related adjustments75.2 (2.7)(77.9)
Distributions from operations of non-controlled entities in excess of earnings15.9 36.2 20.3 
Adjusted EBITDA1,147.2 1,008.3 (138.9)
Interest expense, net, excluding debt issuance cost amortization(6)
(137.5)(152.3)(14.8)
Maintenance capital(7)
(70.1)(81.2)(11.1)
DCF$939.6 $774.8 $(164.8)
  Nine Months Ended September 30, Increase (Decrease)
  2018 2019 
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)    Depreciation, amortization and impairment expense is excluded from DCF to the extent it represents a non-cash expense.
(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 amounts above have been reduced by $9.3 million and $9.8 million for 2018 and 2019, respectively, for cash payments associated with the plan, which are primarily related to tax withholdings.
(2)    Because we intend to satisfy vesting of unit awards under our equity-based long-term incentive compensation plan with the issuance of common units, expenses related to this plan generally are deemed non-cash and added back for DCF purposes. The amounts above have been reduced by cash payments associated with the plan, which are primarily related to tax withholdings.
(3) Gains on disposition of assets are excluded from DCF to the extent they are not related to our ongoing operations. The 2019 period includes a $12.7 million gain on the sale of residual assets related to the development of expansion projects which are considered ongoing in nature, and as such are included in DCF. The 2018 period includes the portion of the gain recognized from the sale of our interest in BridgeTex that is not related to our ongoing operations.
(4) Certain derivatives 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 derivatives from our determination of DCF until the
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transactions are settled and, where applicable, the related products are sold.  In the period in which these transactions are settled and any related products are sold, the net impact of the derivatives is included in DCF.
(5)
(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.


(6)    Interest expense includes $8.3 million of debt prepayment costs in 2019 and $12.9 million in 2020, which are excluded from DCF as they are financing activities and not related to our ongoing operations.

(6)
Other adjustments in 2018 include a $3.7 million 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.
(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)(7)    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. Net cash provided by operating activities was $863.8$922.6 million and $922.6$840.1 million for the nine months ended September 30, 2018 2019 and 2019,2020, respectively. The $58.8$82.5 million increase decrease in 20192020 was due to adjustments for non-cash itemslower net income as previously described and changes in our working capital, partially offset by lower net income as previously described.adjustments for non-cash items and distributions in excess of earnings of our non-controlled entities.
Investing Activities. 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 and 2020 was $734.7 million.million and $110.3 million, respectively. During the 20192020 period, we incurred $775.1used $371.2 million for capital expenditures, which included $70.1$0.2 million for maintenanceundivided joint interest projects for which cash was received from a third party. Also, during 2020, we sold three marine terminals for cash proceeds of $251.8 million and sold a portion of our interest in Saddlehorn for cash proceeds of $79.9 million. Additionally, we contributed capital $617.1of $73.7 million in conjunction with our joint venture capital projects, which we account for as investments in non-controlled entities. During the 2019 period, we used $718.6 million for our expansion capital projects andexpenditures, which included $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 20% interest in BridgeTex for cash proceeds of $578.5 million. 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.
Financing Activities. Net cash used by financing activities for the nine months ended September 30, 20182019 and 20192020 was $881.1$305.6 million and $305.6$794.1 million, respectively. During the 2020 period, we paid cash distributions of $697.3 million to our unitholders and made common unit repurchases of $252.0 million. Additionally, we received net proceeds of $499.4 million from the issuance of long-term senior notes and had net commercial paper borrowings of $248.0 million, which were used to repay our $550.0 million of 4.25% notes due 2021. Also, in January 2020, our equity-based incentive compensation awards that vested December 31, 2019 were settled by issuing 284,643 common units and distributing those units to the long-term incentive plan (“LTIP”) participants, resulting in payments primarily associated with tax withholdings of $14.7 million. 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 partnercommon units and distributing those units to the LTIP participants, resulting in payments primarily associated with tax withholdings of $9.3$9.8 million.
The quarterly distribution amount related to our third quarter 2019third-quarter 2020 financial results (to be paid in fourth quarter 2019)2020) is $1.02$1.0275 per unit.  If we are ablewere to meet management’s targeted distribution growth of 5% for 2019 andcontinue paying cash distributions at this level on the number of outstanding limited partnercommon units remains at 228.4 million,currently outstanding, total cash distributions of approximately $928$922 million willwould be paid to our unitholders related to 20192020 earnings. Management believes we will have sufficient DCF to fund these distributions.

During 2020, we initiated our common unit repurchase program, with authorization to repurchase up to $750 million of our common units through 2022. During the nine months ended September 30, 2020, we repurchased 5.0 million of our common units for $252 million. The timing, price and actual number of common units repurchased will depend on a number of factors including our expected expansion capital spending needs, excess cash available,
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balance sheet metrics, legal and regulatory requirements, market conditions and the trading price of our common units.

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 and to construct new assets, which we refer to collectively 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, 2019, 2020, our maintenance capital spending was $70.1 million.$81.2 million. For 2019,2020, we expect to spend approximately $95 million on maintenance capital.

During the first nine months of 2019,2020, we spent $617.1$236.3 million for our expansion capital projects and contributed $145.6$73.7 million for expansion capital projects in conjunction with our joint ventures. Based on the progress of expansion projects already underway, we expect to spend approximately $1.0 billion in 2019 and $400 million in 2020 and $40 million in 2021 to complete our current projects.
Liquidity

Cash generated from operations is our primarya key source of liquidity for funding debt service, maintenance capital expenditures, and quarterly distributions to our unitholders.and unit repurchases. Additional liquidity for purposes other purposes,than quarterly distributions, 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 partnercommon units (see Note 86 – Debt and Note 1214 – 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 permitprovide us access to capital or the ability to issue additional debt andor equity securities on acceptable terms, 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

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 addition, customers will likely be less willing to make term commitments for our crude oil services, and 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 our interstate common carrier pipelines primarily through an indexing methodology, which establishespipelines. We increased our rates by approximately 2.0% in the maximum amount by which tariff rates can be adjusted each year. Approximately 40% of our refined products tariffsmarkets that are subject to this indexing methodology. The remainingthe FERC’s index methodology on July 1, 2020. In the 60% of our remaining refined products tariffs are either subject to regulations by the states in whichmarkets, we operate or are approved for market-basedincreased our rates by the FERC, and in both cases these rates can be adjusted at our discretion based on market factors. The current FERC-approved indexing method is the annual change in the producer price indexan average of nearly 4.5%, for finished goods plus 1.23%. Based on this indexing methodology, we increased virtually all of ouran overall average refined products pipeline rates by approximately 4.3% on July 1, 2019.rate increase of 3.5%. Most of the tariffs on our crude oil pipelines are established at negotiated rates that generally provide for annual adjustments in line with changes in the FERC index, subject to certain modifications. WeAs a result, we also increased the rates on the majority of our crude oil pipelines by approximately 4%2.0% in July 2019.2020.

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Collective Bargaining Agreement.
The FERC-approved indexing method for the past five years has been the annual change in the producer price index for finished goods plus 1.23%.  In June 2020, the FERC issued a Notice of Inquiry (“NOI”) to initiate a review of the rate index to be utilized over the next five-year period beginning July 1, 2021.  The FERC’s Certainproposal in the NOI preliminarily recommends the use of our employees assignedthe producer price index for finished goods plus 0.09% as the new index level to our refined products segment are represented bycalculate annual tariff changes.  The FERC has received comments from industry participants on the United Steel Workers (“USW”)NOI and are covered by a collective bargaining agreement. In August 2019, ais in the process of finalizing the new long-term agreement with the USW was ratified effective February 1, 2019 through January 31, 2022.index level.




Commodity Derivative Agreements. Certain of theour business activities in which we engage result in our owning various commodities, which exposes us to commodity price risk. We generally 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 productsthe commodities that we expect to sell or purchase in future periods. We use and accountalso entered into a basis derivative agreement 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.

Aswhich settlements are determined based on the basis differential of September 30, 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 butane blending and fractionation 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.prices at different market locations.

For further information regarding the quantities of refined products and crude oil hedged at September 30, 20192020 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, 2018
 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
 $(30.9)
Losses recognized on settled futures contracts during the period(18.4) (4.7) (23.1)
Net impact of futures contracts$(70.1) $16.1
 $(54.0)

 Nine Months Ended September 30, 2019
 Product Sales Revenue Cost of Product Sales Net Impact on Net Income
Gains (losses) recorded on open futures contracts during the period$16.0
 $(11.2) $4.8
Gains (losses) recognized on settled futures contracts during the period(57.5) 1.7
 (55.8)
Net impact of futures contracts$(41.5) $(9.5) $(51.0)
      

Related Party Transactions. See Note 1413 – 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
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 controlmitigate 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 butanegas liquids blending and fractionation activities, and from managing product overages and shortages associated with our refined products and crude oil pipelines and terminals. We generally use derivatives such as forward physical contracts and exchange-traded futures contracts to help us manage our 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, 2019,2020, we had commitments under forward purchase and sale contracts as follows (in millions):
Total20202021-2022
Forward purchase contracts – notional value$53.5 $30.1 $23.4 
Forward purchase contracts – barrels1.4 0.8 0.6 
Forward sales contracts – notional value$19.5 $18.4 $1.1 
Forward sales contracts – barrels0.4 0.4 — 
 Total 2019 2020-2021
Forward purchase contracts – notional value$101.5
 $58.7
 $42.8
Forward purchase contracts – barrels3.0
 1.8
 1.2
Forward sales contracts – notional value$45.1
 $30.6
 $14.5
Forward sales contracts – barrels0.7
 0.5
 0.2
We alsogenerally use exchange-traded futures contracts to hedge against changes in the price of the petroleum products we expect to sell or purchase. Virtually all of our open contractsWe did not qualify forelect hedge accounting treatment under ASC 815, Derivatives and Hedging, for our open contracts and as a result 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 4.53.1 million barrels of petroleum products we expect to sell and 1.50.6 million barrels of butane and natural gasolinegas liquids we expect to purchase, was a net liability of $4.8$1.6 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 $45.0$31.0 million decrease (increase) in our operating profit, while a $10.00 per barrel increase (decrease) in the price of butanegas liquids we expect to purchase
44


would result in $15.0a $6.0 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$0.50 per barrel increase (decrease) in the differential would result in an approximately $10.0$2.0 million increase (decrease) in our operating profit.

Interest Rate Risk

Our use of variable rate debt and any forecastedfuture issuances of fixed rate debt expose us to interest rate risk. As of September 30, 2020, we did not have any variable rate debt outstanding.





ITEM 4.CONTROLS AND PROCEDURES
ITEM 4.CONTROLS AND PROCEDURES

We performed an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by 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 (“CFO”). Based upon that evaluation, our general partner’s CEO and CFO concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance 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 management, including the CEO and the CFO, as appropriate, to allow timely decisions regarding required disclosure. There has been no change in our internal control over financial reporting that occurred during the quarter ended September 30, 20192020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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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 in the U.S.;
price fluctuations for refined products, crude oil and liquefied petroleum gases 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 or state regulatory agencies;
shut-downs or cutbacks at refineries, oil wells, petrochemical plants 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 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
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 infringedare infringing patents relatingrelated to butane blending at the Powder Springs facility located in Powder Springs, Georgia. Sunoco has sincesubsequently submitted pleadings alleging that Magellan hasis also infringedinfringing various patents relatingrelated to butane blending at nine Magellan facilities, in addition to Powder Springs. Sunoco is seeking monetary damages, attorneys’ fees and a permanent injunction enjoining Magellan and Powder Springs from infringing 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 the ultimate resolution of this matter will not have a material adverse impact on our results of operations, financial position or cash flows.

New Tank Construction Proceeding. In May 2020, we received a Notice of Probable Violation and Proposed Civil Penalty from the Pipeline and Hazardous Materials Safety Administration alleging a violation related to a new tank construction project and associated release of product at our terminal in Cushing, Oklahoma. The matter was resolved in September 2020 for approximately $125,000.

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. In July 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.  The DOJ has subsequently withdrawn from the proceeding. On September 4, 2019, the EPA filed an Administrative Complaint and Notice of Opportunity for Hearing and is seeking penalties in excess of $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.

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 approximately $9,000 associated with the Remedial
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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. 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
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, 2018,2019, 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.

The COVID-19 pandemic has adversely affected, and could continue to adversely affect, our business.

The COVID-19 pandemic has negatively impacted the global economy.  In response to the pandemic, governments around the world have implemented stringent measures to help reduce the spread of the virus, including stay-at-home orders, travel restrictions and other measures.  Due to reductions in economic activity, the world is experiencing reduced demand for petroleum products and depressed petroleum products commodity prices, which has adversely affected our business.  Continuing uncertainty regarding the global impact of COVID-19 is likely to result in continued weakness in demand for the services we provide.  The reduction in refined products demand and lower crude oil prices have combined to put significant downward pressure on domestic crude oil production, and a sustained reduction in crude oil production could cause delays in the timing of our recognition of revenue from take-or-pay pipeline transportation commitments.  These factors have also significantly decreased the creditworthiness of certain of our crude oil transportation customers, resulting in an increased risk of customer defaults.  Customers and vendors could also seek to assert claims for relief from some of their obligations on the basis of force majeure. We may also experience disruptions to supply chains and the availability and efficiency of our workforce as a result of the pandemic, which could adversely affect our ability to conduct our business and operations.  The extent and duration of the impacts these events will have on our results of operations is unclear but will likely be material and may impact our ability to pay cash distributions. 



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

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Issuer Purchases of Common Units

In first quarter 2020, we announced that our general partner’s board of directors authorized the repurchase of up to $750 million of our common units through 2022. We intend to purchase our common units from time-to-time through a variety of methods, including open market purchases and negotiated transactions, all in compliance with the rules of the Securities and Exchange Commission and other applicable legal requirements. The timing, price and actual number of common units repurchased will depend on a number of factors including our expected expansion capital spending needs, excess cash available, balance sheet metrics, legal and regulatory requirements, market conditions and the trading price of our common units. The repurchase program does not obligate us to acquire any particular amount of common units, and the repurchase program may be suspended or discontinued at any time.

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Activity during 2020 is detailed in the following table:
PeriodTotal Number of Common Units PurchasedAverage Price Paid Per UnitTotal Number of Units Purchased as Part of Publicly Announced ProgramApproximate Dollar Value of Units That May Yet Be Purchased under the Program (in millions)
January 1-31, 2020— $— — $750.0 
February 1-29, 20201,514,719 $59.19 1,514,719 $660.4 
March 1-31, 20202,117,065 $53.06 2,117,065 $548.1 
First Quarter 20203,631,784 $55.62 3,631,784 
April 1-30, 2020— — $548.1 
May 1-31, 2020— — $548.1 
June 1-30, 2020— — $548.1 
Second Quarter 2020— — 
July 1-31, 2020— — $548.1 
August 1-31, 2020— — $548.1 
September 1-30, 20201,355,344 $36.87 1,355,344 $498.0 
Third Quarter 20201,355,344 $36.87 1,355,344 
Year-to-Date 20204,987,128 $50.52 4,987,128 


ITEM 3.DEFAULTS UPON SENIOR SECURITIES
ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.
 

ITEM 4.MINE SAFETY DISCLOSURES
ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.OTHER INFORMATION
ITEM 5.OTHER INFORMATION

None.


ITEM 6.EXHIBITS
ITEM 6.EXHIBITS

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




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INDEX TO EXHIBITS
Exhibit NumberDescription
Exhibit NumberDescription
Exhibit 3.1
Exhibit 4.1*—
Exhibit 31.1—
Exhibit 31.2—
Exhibit 32.1—
Exhibit 32.2—
Exhibit 101.INS—XBRL Instance 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 Document.
Exhibit 101.CAL—XBRL Taxonomy Extension Calculation Linkbase Document.
Exhibit 101.DEF—XBRL Taxonomy Extension Definition Linkbase Document.
Exhibit 101.LAB—XBRL Taxonomy Extension Label Linkbase Document.
Exhibit 101.PRE—XBRL Taxonomy Extension Presentation 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.


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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 October 31, 2019.30, 2020.
 
MAGELLAN MIDSTREAM PARTNERS, L.P.
MAGELLAN MIDSTREAM PARTNERS, L.P.
By:
By:Magellan GP, LLC,
its general partner
/s/ Jeff Holman
Jeff Holman
Chief Financial Officer
(Principal Accounting and Financial Officer)



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