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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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 number: 1-4998
ATLAS PIPELINE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 23-3011077
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
311 Rouser Road
Moon Township, Pennsylvania 15108
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (412) 262-2830
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 [ ]
As of April 18, 2003, there were outstanding 1,621,159 Common Units and
1,641,026 Subordinated Units
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
PART I. FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2003 (Unaudited) and December 31, 2002.................... 2
Consolidated Statements of Income for the Three Months Ended March 31, 2003 and
March 31, 2002 (Unaudited).......................................................................... 3
Consolidated Statement of Partners' Capital (Deficit) (Unaudited) for the Three Months
Ended March 31, 2003................................................................................ 4
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and
March 31, 2002 (Unaudited).......................................................................... 5
Notes to Consolidated Financial Statements - March 31, 2003 (Unaudited)............................... 6 - 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................10 - 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................ 16
Item 4. Evaluation of Disclosure Controls and Procedures...................................................... 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................................................... 17
SIGNATURES.......................................................................................................... 18
CERTIFICATES........................................................................................................19 - 20
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2003 2002
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 2,319,500 $ 1,858,600
Accounts receivable.............................................................. 251,500 500,000
Accounts receivable-affiliates................................................... 376,700 -
Prepaid expenses................................................................. 212,600 26,800
--------------- --------------
Total current assets........................................................... 3,160,300 2,385,400
Property and equipment:
Gas gathering and transmission facilities........................................ 30,575,700 29,384,000
Less-accumulated depreciation.................................................... (6,026,300) (5,619,600)
--------------- --------------
Net property and equipment..................................................... 24,549,400 23,764,400
Goodwill (net of accumulated amortization of $285,300).............................. 2,304,600 2,304,600
Other assets (net of accumulated amortization of $22,400 and $0).................... 303,300 60,900
--------------- --------------
$ 30,317,600 $ 28,515,300
=============== ==============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities......................................... $ 219,100 $ 107,800
Accounts payable-affiliates...................................................... - 347,200
Distribution payable............................................................. 1,961,700 1,873,800
--------------- --------------
Total current liabilities...................................................... 2,180,800 2,328,800
Long-term debt...................................................................... 8,500,000 6,500,000
Partners' capital (deficit):
Common unitholders, 1,621,159 units outstanding.................................. 19,140,200 19,163,500
Subordinated unitholder, 1,641,026 units outstanding............................. 660,000 683,700
General partner.................................................................. (163,400) (160,700)
--------------- --------------
Total partners' capital........................................................ 19,636,800 19,686,500
--------------- --------------
$ 30,317,600 $ 28,515,300
=============== ==============
See accompanying notes to consolidated financial statements
2
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)
2003 2002
-------------- -------------
Revenues:
Transportation and compression....................................................... $ 3,328,400 $ 2,576,100
Interest income...................................................................... 1,100 1,500
-------------- -------------
Total revenues..................................................................... 3,329,500 2,577,600
Costs and expenses:
Transportation and compression....................................................... 608,200 512,100
General and administrative........................................................... 319,100 310,000
Depreciation......................................................................... 406,700 345,400
Interest............................................................................. 83,500 37,800
-------------- -------------
Total costs and expenses........................................................... 1,417,500 1,205,300
-------------- -------------
Net income.............................................................................. $ 1,912,000 $ 1,372,300
============== =============
Net income - limited partners........................................................... $ 1,779,800 $ 1,291,900
============== =============
Net income - general partner............................................................ $ 132,200 $ 80,400
============== =============
Basic and diluted net income per limited partner unit................................... $ .55 $ .40
============== =============
Weighted average limited partner units outstanding...................................... 3,262,185 3,262,185
============== =============
See accompanying notes to consolidated financial statements
3
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 2003
(Unaudited)
Number of Limited
Partner Units Capital (Deficit) Total
----------------------- -------------------------------------------- Partners'
Common Subordinated Common Subordinated General Partner Capital (Deficit)
--------- ------------ ----------- ------------ --------------- -----------------
Balance at January 1, 2003......... 1,621,159 1,641,026 $19,163,500 $ 683,700 $ (160,700) $19,686,500
Distribution payable............... - - (907,800) (919,000) (134,900) (1,961,700)
Net income......................... - - 884,500 895,300 132,200 1,912,000
--------- ------------ ----------- ------------ --------------- --------------
Balance at March 31, 2003.......... 1,621,159 1,641,026 $19,140,200 $ 660,000 $ (163,400) $ 19,636,800
========= ============ =========== ============ =============== ==============
See accompanying notes to consolidated financial statements
4
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)
2003 2002
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................................................... $ 1,912,000 $ 1,372,300
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation..................................................................... 406,700 345,400
Amortization of deferred finance costs........................................... 22,400 11,300
Changes in operating assets and liabilities:
Increase in accounts receivable and prepaid expenses............................. (314,000) (530,500)
(Decrease) increase in accounts payable and accrued liabilities.................. (235,900) 1,247,200
-------------- -------------
Net cash provided by operating activities...................................... 1,791,200 2,445,700
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of gathering systems................................................... - (165,000)
Capital expenditures................................................................ (1,191,700) (1,097,300)
---------------- -------------
Net cash used in investing activities.......................................... (1,191,700) (1,262,300)
---------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under revolving credit facility.......................................... 2,000,000 728,500
Distribution paid to partners....................................................... (1,873,800) (2,049,600)
Increase in other assets............................................................ (264,800) (14,600)
---------------- -------------
Net cash used in financing activities.......................................... (138,600) (1,335,700)
---------------- -------------
Increase (decrease) in cash and cash equivalents.................................... 460,900 (152,300)
Cash and cash equivalents, beginning of period...................................... 1,858,600 2,162,200
---------------- -------------
Cash and cash equivalents, end of period............................................ $ 2,319,500 $ 2,009,900
================ =============
See accompanying notes to consolidated financial statements
5
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of the Partnership and its
wholly-owned subsidiaries as of March 31, 2003 and for the three month periods
ended March 31, 2003 and 2002 are unaudited. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted in this Form 10-Q pursuant to the rules and
regulations of the Securities and Exchange Commission. However, in the opinion
of management, these interim financial statements include all the necessary
adjustments to fairly present the results of the interim periods presented. The
unaudited interim consolidated financial statements should be read in
conjunction with the audited financial statements included in the Partnership's
Annual Report on Form 10-K for the year ended December 31, 2002. The results of
operations for the three month period ended March 31, 2003 may not necessarily
be indicative of the results of operations for the full year ending December 31,
2003.
Certain reclassifications have been made to the consolidated financial
statements for the three month period ended March 31, 2002 to conform to the
presentation for the three month period ended March 31, 2003.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fair Value of Financial Instruments
For cash and cash equivalents, receivables and payables, the carrying
amounts approximate fair values because of the short maturities of these items.
Net Income Per Unit
There is no difference between basic and diluted net income per limited
partner unit since there are no potentially dilutive units outstanding. Net
income per limited partner unit is determined by dividing net income, after
deducting the general partner's 2% and incentive interest, by the weighted
average number of outstanding common units and subordinated units.
Comprehensive Income
Comprehensive income includes net income and all other changes in the
equity of a business during a period from non-owner sources. These changes,
other than net income, are referred to as "other comprehensive income." The
Partnership has no elements of comprehensive income, other than net income, to
report.
Cash Flow Statements
For purposes of the statements of cash flows, all highly liquid debt
instruments purchased with a maturity of three months or less are considered to
be cash equivalents.
6
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2003
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Segment Information
The Partnership has one business segment, the transportation segment,
which derives its revenues primarily from the transportation of natural gas that
it receives from producers. Transportation revenues are, for the most part,
based on contractual arrangements with Atlas America, Inc. and its affiliates.
Supplemental Disclosure of Cash Flow Information
Information for the three months ended March 31, 2003 and 2002,
respectively, is as follows:
2003 2002
------------- -------------
Cash paid for:
Interest...................... $ 62,200 $ 8,400
============= =============
Goodwill
Goodwill is evaluated for impairment in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 142. As of January 1, 2002, the date
of adoption, the Partnership had unamortized goodwill in the amount of $2.3
million. In 2002, the Partnership completed the transitional impairment and
annual tests required by that standard, which involved the use of estimates
related to the fair market value of the business operations associated with the
goodwill. These tests did not indicate an impairment loss. The Partnership will
continue to evaluate its goodwill at least annually and will reflect the
impairment of goodwill, if any, in operating income in the income statement in
the period in which the impairment is indicated. The Partnership will perform
its annual impairment evaluation at year end.
Concentration of Credit Risk
Financial instruments, which potentially subject the Partnership to
concentrations of credit risk, consist principally of periodic temporary
investments of cash. The Partnership places its temporary cash investments in
high quality short-term money market instruments and deposits with high quality
financial institutions. At March 31, 2003, the Partnership and its subsidiaries
had $2.3 million in deposits at one bank, of which $2.2 million was over the
insurance limit of the Federal Deposit Insurance Corporation. No losses have
been experienced on such investments.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS
143 requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred and a corresponding
increase in the carrying amount of the related long-lived asset. The adoption of
SFAS 143 as of January 1, 2003 had no impact on the Partnership's results of
operations or financial position.
7
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2003
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
New Accounting Standards - (Continued)
In May 2002, SFAS 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections" was issued.
SFAS 145 rescinds the automatic treatment of gains and losses from
extinguishments of debt as extraordinary unless they meet the criteria for
extraordinary items as outlined in Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations, Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS 145 also requires sale-leaseback accounting for
certain lease modifications that have economic effects similar to a
sale-leaseback transaction and makes various corrections to existing
pronouncements. The provisions of this statement are effective for financial
statements issued by the Partnership in 2003. The adoption of SFAS 145 as of
January 1, 2003 did not have a material impact on the Partnership's results of
operations or its financial position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses
significant issues relating to the recognition, measurement, and reporting of
costs associated with exit and disposal activities, including restructuring
activities, and nullifies the guidance in Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". The provisions of this statement are effective for exit and
disposal activities that are initiated after December 31, 2002, with early
application encouraged. The adoption of SFAS 146 as of January 1, 2003 did not
have a material impact on the Partnership's results of operations or its
financial position.
NOTE 3 - DISTRIBUTION DECLARED
The Partnership will generally make quarterly cash distributions of
substantially all of its available cash, generally defined as cash on hand at
the end of the quarter less cash reserves deemed appropriate to provide for
future operating costs, potential acquisitions and future distributions.
On March 25, 2003, the Partnership declared a cash distribution of $.56
per unit on its outstanding common units and subordinated units. The
distribution represents the available cash flow for the three months ended March
31, 2003. The $1,961,700 distribution, which includes a distribution of $134,900
to the general partner, will be paid on May 9, 2003 to unitholders of record on
March 31, 2003.
Available cash is initially distributed 98% to our limited partners and
2% to our general partner. These distribution percentages are modified to
provide for incentive distributions to be paid to our general partner in the
event that quarterly distributions to unitholders exceed certain specified
targets. Incentive distributions are generally defined as all cash distributions
paid to our general partner that are in excess of 2% of the aggregate amount of
cash being distributed. The general partner's incentive distribution for the
distributions that we declared for the three months ended March 31, 2003 and
2002 was $95,500 and $66,000, respectively.
8
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2003
(Unaudited)
NOTE 4 - CREDIT FACILITY
In December 2002, the Partnership entered into a $7.5 million credit
facility administered by Wachovia Bank, National Association. The facility was
increased to $15.0 million through increases of $2.5 million and $5.0 million in
January and March 2003, respectively. Borrowings under the facility, which
amounted to $8.5 million at March 31, 2003, are secured by a lien on and
security interest in all the property of the Partnership and its subsidiaries,
including pledges by the Partnership of the issued and outstanding equity
interests in its subsidiaries. Up to $3.0 million of the facility may be used
for standby letters of credit. No such letters of credit have been issued under
the facility. The revolving credit facility has a term ending in December 2005
and bears interest at one of two rates, elected at the Partnership's option:
o the base rate plus the applicable margin; or
o the adjusted LIBOR plus the applicable margin.
The base rate for any day equals the higher of the federal funds rate
plus 1/2 of 1% or the Wachovia Bank prime rate. Adjusted LIBOR is LIBOR divided
by 1.00 minus the percentage prescribed by the Federal Reserve Board for
determining the reserve requirement for euro currency funding. The applicable
margin is as follows:
o where the Partnership's leverage ratio, as defined in the credit
facility agreement, is less than or equal to 1.5, the applicable
margin is 0.00% for base rate loans and 1.50% for LIBOR loans;
o where the Partnership's leverage ratio is greater than 1.5 but less
than or equal to 2.5, the applicable margin is 0.25% for base rate
loans and 1.75% for LIBOR loans; and
o where the Partnership's leverage ratio is greater than 2.5, the
applicable margin is 0.50% for base rate loans and 2.00% for LIBOR
loans.
At March 31, 2003, borrowings under the Wachovia credit facility bore
interest at rates ranging from 2.80% to 2.92%.
The Wachovia credit facility requires the Partnership to maintain
specified net worth and specified ratios of current assets to current
liabilities and debt to EBITDA, and requires it to maintain a specified interest
coverage ratio. The Partnership used this credit facility to pay off its
previous revolving credit facility at PNC Bank.
NOTE 5 -SUBSEQUENT EVENT
On April 2, 2003, the Partnership filed a registration statement on
From S-2 for a proposed public offering of up to 1,092,500 common units of
limited partner interest. The net proceeds from the proposed offering are
intended to pay down existing debt and fund capital expenditures.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
When used in this Form 10-Q, the words "believes" "anticipates"
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties more
particularly described in Item 1, under the caption "Risk Factors", in our
annual report on Form 10-K for 2002. These risks and uncertainties could cause
actual results to differ materially. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. We undertake no obligation to publicly release the results of any
revisions to forward-looking statements which we may make to reflect events or
circumstances after the date of this Form 10-Q or to reflect the occurrence of
unanticipated events.
The following discussion provides information to assist in
understanding our financial condition and results of operation. This discussion
should be read in conjunction with our consolidated financial statements and
related notes appearing elsewhere in this report.
General
Our principal business objective is to generate income for distribution
to our unitholders from the transportation of natural gas through our gathering
systems. We completed an initial public offering of our common units in February
2000 and used the proceeds of that offering to acquire the gathering systems
formerly owned by Atlas America and its affiliates, all subsidiaries of Resource
America. The gathering systems gather natural gas from wells in eastern Ohio,
western New York, and western Pennsylvania and transport the natural gas
primarily to public utility pipelines. To a lesser extent, the gathering systems
transport natural gas to end-users.
Results of Operations
In the three months ended March 31, 2003 and 2002, our principal
revenues came from the operation of our pipeline gathering systems which
transport and compress natural gas. Two variables which affect our
transportation revenues are:
o the volumes of natural gas transported by us which, in turn, depend
upon the number of wells connected to our gathering system, the amount
of natural gas they produce, and the demand for that natural gas; and
o the transportation fees paid to us which, in turn, depend upon the
price of the natural gas we transport, which itself is a function of
the relevant supply and demand in the Mid-Atlantic and North-Eastern
areas of the United States.
We set forth the average volumes we transported, our average
transportation rates per mcf and revenues received by us for the periods
indicated in the following table:
Three Months Ended
March 31,
----------------------------------
2003 2002
--------------- -------------
Average daily throughput volumes in mcf............................................. 50,045 49,918
=============== =============
Average transportation rate per mcf................................................. $ .74 $ .57
=============== =============
Transportation and compression revenues............................................. $ 3,328,400 $ 2,576,100
=============== =============
10
Three Months Ended March 31, 2003 Compared to March 31, 2002
Revenues. Our transportation and compression revenue increased to
$3,328,400 in the three months ended March 31, 2003 from $2,576,100 in the three
months ended March 31, 2002. The increase of $752,300 (29%) resulted from an
increase in the average transportation fee paid to us ($743,700) and an increase
in the volumes of natural gas we transported ($8,600).
Our average daily throughput volumes were 50,045 mcf in the three
months ended March 31, 2003 as compared to 49,918 mcf in the three months ended
March 31, 2002, an increase of 127 mcf. During the quarter ended March 31, 2003
we added 73 new wells to our system. Gas delivery associated with these new
wells, as well as volumes from wells already connected to our system, were
constrained by cold weather related operating problems experienced by many of
the wells that deliver gas into our system and by certain pipeline systems into
which we deliver natural gas. Furthermore, landowners, on whose land each well
is situated, have the contractual right to take natural gas from the well for
their personal use before it enters our gathering system, thus reducing the
amount of natural gas that we transport. Temperatures in our operating area were
relatively colder during the quarter ended March 31, 2003 compared to the
similar quarter of 2002 and, as a result, landowner gas usage was higher. In
addition, during the first quarter of 2003, gas delivery was held back pending
our completion of the first phase of a major expansion project to our system in
Crawford County, Pennsylvania. That phase, to add a delivery point onto a major
inter-state pipeline system, including significant compression capability, and
to expand pipeline size and system length, was completed and began operation in
mid-March 2003. We anticipate that additional transportation volumes will result
from the completion of this phase of the project beginning in the quarter ending
June 30, 2003. We expect to complete the second and final phase of the project
in June 2003.
Our transportation rates are primarily at fixed percentages of the
sales price of natural gas transported. Our transportation rates for most of the
natural gas produced by Atlas America and its affiliates also have specified
minimums. Our average transportation rate was $.74 per mcf in the three months
ended March 31, 2003 as compared to $.57 per mcf in the three months ended March
31, 2002, an increase of $.17 per mcf (30%). In the first quarter of 2003,
natural gas prices increased significantly over the prior year period. As a
result, our average transportation rate increased. We anticipate transportation
rates for the remainder of 2003 to be higher than the previous year.
Costs and Expenses. Our transportation and compression expenses
increased to $608,200 in the three months ended March 31, 2003 as compared to
$512,100 in the three months ended March 31, 2002, an increase of $96,100 (19%).
Our average cost per mcf of transportation and compression was $.14 in the three
months ended March 31, 2003 as compared to $.11 in the three months ended March
31, 2002, an increase of $.03 (27%). This increase resulted primarily from an
increase in compressor expenses due to increased lease rates and the addition of
more compressors in the three months ended March 31, 2003 as compared to the
prior year.
Our general and administrative expenses increased to $319,100 in the
three months ended March 31, 2003 as compared to $310,000 in the three months
ended March 31, 2002, an increase of $9,100 (3%). This increase primarily
resulted from an increase in our cost of insurance, reflecting an increase in
our operating activities and assets and insurance rates in general.
Our depreciation expense increased to $406,700 in the three months
ended March 31, 2003 as compared to $345,400 in the three months ended March 31,
2002, an increase of $61,300 (18%). This increase resulted from the increased
asset base associated with pipeline extensions.
Our interest expense increased to $83,500 in the three months ended
March 31, 2003 as compared to $37,800 in the three months ended March 31, 2002.
This increase of $45,700 (121%) resulted from an increase in amounts outstanding
on our credit facility to finance pipeline extensions and an increase in
amortization of deferred finance costs in the current period as compared to the
prior period due to costs associated with obtaining our new credit facility.
11
Liquidity and Capital Resources
Our primary cash requirements, in addition to normal operating
expenses, are for debt service, maintenance capital expenditures, expansion
capital expenditures and quarterly distributions to our unitholders and general
partner. In addition to cash generated from operations, we have the ability to
meet our cash requirements, (other than distributions to our unitholders and
general partner) through borrowings under our credit facility. In general, we
expect to fund:
o cash distributions, sustaining capital expenditures and interest
payments through existing cash and cash flows from operating
activities;
o expansion capital expenditures and working capital deficits through
the retention of cash and additional borrowings; and
o debt principal payments through additional borrowings as they become
due or by the issuance of additional common units.
At March 31, 2003, we had $6.5 million of remaining borrowing capacity
under our credit facility.
The following table summarizes our financial condition and liquidity at
the dates indicated:
March 31,
----------------------------------
2003 2002
------------- -------------
Current ratio.............................................................. 1.4x 1.0x
Working capital............................................................ $ 979,500 $ 56,600
Ratio of long-term debt to total partners' capital......................... .43x .33x
During the three months ended March 31, 2003, net cash provided by
operations of $1,791,200 was derived principally from $2,341,100 of income from
operations before depreciation and amortization. The decrease in cash flow
provided by operations from $2,445,700 in 2002, was principally due to the
increase, during the three months ended March 31, 2002, in our accounts payable
to Atlas America as a result of its advances to us in connection with expenses
associated with the then-pending acquisition of Triton Coal Company, and the
subsequent repayment of a substantial portion of those advances as we received
reimbursements from the sellers following termination of the transaction,
including reimbursements in the three months ended March 31, 2003. The increase
in net income was a result of an increase in the transportation rate per mcf we
received for the three months ended March 31, 2003 as compared to the previous
year.
Net cash used in financing activities was $138,600 for the three months
ended March 31, 2003, a decrease of $1,197,100 from cash used in financing
activities of $1,335,700 in the three months ended March 31, 2002. The principal
reason for the change was that we had borrowings of $2,000,000 which we used to
fund pipeline extensions and compressor upgrades in the three months ended March
31, 2003. In the prior fiscal period, we borrowed $728,500 to fund pipeline
extensions compressor upgrades. In addition, distributions paid to partners in
the quarter decreased $175,800 as compared to the three months ended March 31,
2002.
12
Capital Expenditures
Our property and equipment was approximately 81% and 83% of our total
consolidated assets at March 31, 2003 and December 31, 2002, respectively.
Capital expenditures, other than the acquisitions of pipelines, were $1,191,700
and $1,097,300 for the quarters ended March 31, 2003 and 2002, respectively.
These capital expenditures principally consisted of costs relating to expansion
of our existing gathering systems to accommodate new wells drilled in our
service area and compressor upgrades. During the three months ended March 31,
2003, we connected 73 wells to our gathering system. As of March 31, 2003, we
were committed to expend approximately $2.25 million for pipeline extensions of
which approximately $1.0 million is related to the Crawford County expansion
project. Our capital expenditures could increase materially if the number of
wells connected to our gathering systems in fiscal 2003 increases significantly.
Long-Term Debt
We increased our credit facility to $15.0 million in March 2003. Our
principal purpose in obtaining the increase in the facility was to enable us to
fund the expansion of our existing gathering systems and the acquisitions of
other gas gathering systems. In the three months ended March 31, 2003 and 2002,
we used $2,000,000 and $728,500, respectively, of the facility to fund capital
expenditures for expansions of our existing gathering systems and compressors.
At March 31, 2003, $8,500,000 was outstanding under this facility.
Contractual Obligations and Commercial Commitments
We had no commercial commitments at March 31, 2003. The following table
summarizes our contractual obligations at March 31, 2003:
Payments Due By Period
------------------------------------------------------------
Less than 1 - 3 4 - 5 After 5
Contractual cash obligations Total 1 Year Years Years Years
- ---------------------------- ------------- ---------- ------------- ----------- ------------
Long-term debt............................... $ 8,500,000 $ - $ 8,500,000 $ - $ -
Capital lease obligations.................... - - - - -
Operating leases............................. 562,300 198,900 342,000 21,400 -
Unconditional purchase obligations........... - - - - -
Other long-term obligations.................. - - - - -
------------ ----------- ------------- ----------- ----------
Total contractual cash obligations........... $ 9,062,300 $ 198,900 $ 8,842,000 $ 21,400 $ -
============ ============ ============= =========== ==========
The operating leases represent lease commitments for compressors with
varying expiration dates. These commitments are routine and were made in the
normal course of our business.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of actual revenues and
expenses during the reporting period. Although we believe our estimates are
reasonable, actual results could differ from those estimates. We summarize our
significant accounting policies in Note 2 to our Consolidated Financial
Statements in our annual report on Form 10-K for 2002. The critical accounting
policies and estimates that we have identified are discussed below.
13
Revenue and Expenses
We routinely make accruals for both revenues and expenses due to the
timing of receiving information from third parties and reconciling our records
with those of third parties. We have determined these estimates using available
market data and valuation methodologies. We believe our estimates for these
items are reasonable, but there is no assurance that actual amounts will not
vary from estimated amounts.
Depreciation and Amortization
We calculate our depreciation based on the estimated useful lives and
salvage values of our assets. However, factors such as usage, equipment failure,
competition, regulation or environmental matters could cause us to change our
estimates, thus impacting the future calculation of depreciation and
amortization.
Impairment of Assets
In accordance with SFAS No. 144, whenever events or changes in
circumstances indicate that the carrying amount of long-lived assets may not be
recoverable, we review our long-lived assets for impairment and recognize an
impairment loss if estimated future cash flows associated with an asset or group
of assets are less than the asset carrying amount.
Our gathering systems are subject to numerous factors which could
affect future cash flows. We continuously monitor these factors and pursue
alternative strategies to maintain or enhance cash flows associated with these
assets; however, we cannot assure you that we can mitigate the effects, if any,
on future cash flows related to any changes in these factors.
Goodwill
At March 31, 2003, we had $2.3 million of goodwill, all of which
relates to our acquisition of pipeline assets. We test our goodwill for
impairment each year. Our test during 2002 resulted in no impairment. We will
continue to evaluate our goodwill at least annually and will reflect the
impairment of goodwill, if any, in operating income in the income statement in
the period in which the impairment is indicated. Our next annual evaluation of
goodwill for impairment will be as of December 31, 2003.
Recently Issued Financial Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS
143 requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred and a corresponding
increase in the carrying amount of the related long-lived asset. The adoption of
SFAS 143 as of January 1, 2003 did not have a material impact on our results of
operations or financial position.
In May 2002, SFAS 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections" was issued.
SFAS 145 rescinds the automatic treatment of gains and losses from
extinguishments of debt as extraordinary unless they meet the criteria for
extraordinary items as outlined in Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations, Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS 145 also requires sale-leaseback accounting for
certain lease modifications that have economic effects similar to a
sale-leaseback transaction and makes various corrections to existing
pronouncements. The provisions of this statement are effective for financial
statements issued by us in 2003. The adoption of SFAS 145 as of January 1, 2003
did not have a material impact on our results of operations or financial
position.
14
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS 146 addresses significant
issues relating to the recognition, measurement, and reporting of costs
associated with exit and disposal activities, including restructuring
activities, and nullifies the guidance in Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". The provisions of this statement are effective for exit and
disposal activities that are initiated after December 31, 2002. The adoption of
SFAS 146 did not have a material impact on our results of operations or
financial position.
15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All of our assets and liabilities are denominated in U.S. dollars, and
as a result, we do not have exposure to currency exchange risks.
We do not engage in any interest rate, foreign currency exchange rate
or commodity price-hedging transactions, and as a result, we do not have
exposure to derivatives risk.
Our major market risk exposure is in the pricing applicable to natural
gas sales. Realized pricing is primarily driven by spot market prices for
natural gas. Pricing for natural gas production has been volatile and
unpredictable for several years.
Market risk inherent in our debt is the potential change arising from
increases or decreases in interest rates. Changes in variable rate debt usually
do not affect the fair value of the debt instrument, but may affect our future
earnings and cash flows.
We have a $15.0 million revolving credit facility to fund the expansion
of our existing gathering systems and the acquisition of other gas gathering
systems. The carrying value of our debt was $8,500,000 and $6,500,000 and the
weighted average interest rate was 2.9% and 2.9% at both March 31, 2003 and
December 31, 2002. A hypothetical 10% change in the average interest rate
applicable to this debt would result in a change of approximately $25,000 in our
annual net income and would not affect the market value of this debt.
ITEM 4. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Chief Executive Officer and Chief Financial Officer of our general
partner, after evaluating the effectiveness of our "disclosure controls and
procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c)
and 15d-14(c)) as of a date (the "Evaluation Date") within 90 days before the
filing date of this quarterly report, have concluded that as of the Evaluation
Date, our disclosure controls and procedures were adequate and designed to
ensure that material information relating to us would be made known to them by
others within the Partnership.
Changes in Internal Controls
There were no significant changes in the Partnership's internal
controls or in other factors that could significantly affect these controls
since the date of the Partnership's last evaluation of internal controls.
16
PART II. OTHER INFORMATION
ITEM 6. Exhibits And Reports On Form 8-K
(a) Exhibits:
3.1 (1) First Amended and Restated Agreement of Limited
Partnership
3.2 (1) Certificate of Limited Partnership of Atlas
Pipeline Partners, L.P.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of The Sarbanes-Oxley
Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of The Sarbanes-Oxley
Act of 2002
- -------------------
(1) Previously filed as an exhibit to the Partnership's registration
statement on Form S-1, Registration No. 333-85193 and incorporated
herein by reference.
(b) Reports on Form 8K:
None
17
SIGNATURES
ATLAS PIPELINE PARTNERS, L.P.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
By: Atlas Pipeline Partners GP, LLC,
its General Partner
Date: April 23, 2003 By: /s/ Edward E. Cohen
---------------------------
EDWARD E. COHEN
Chairman of the Managing
Board of the General Partner
(Chief Executive Officer of
the General Partner)
Date: April 23, 2003 By: /s/ Steven J. Kessler
---------------------------
STEVEN J. KESSLER
Chief Financial Officer of
the General Partner
Date: April 23, 2003 By: /s/ Michael L. Staines
---------------------------
MICHAEL L. STAINES
President, Chief Operating
Officer, Secretary and
Managing Board Member of the
General Partner
Date: April 23, 2003 By: /s/ NANCY J. McGURK
---------------------------
Chief Accounting Officer of
the General Partner
18
CERTIFICATIONS
I, Edward E. Cohen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Atlas Pipeline
Partners, L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: April 23, 2003
/s/ Edward E. Cohen
Edward E. Cohen
Chairman of the Managing Board of the General Partner
19
CERTIFICATIONS
I, Steven J. Kessler, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Atlas Pipeline
Partners, L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: April 23, 2003
/s/ Steven J. Kessler
Steven J. Kessler
Chief Financial Officer of the General Partner
20