<PAGE>
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 September 30, 2000
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 offices)
(Zip code)
(412) 262-2830
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 10, 2000, there were outstanding 1,500,000 Common Units
and 1,641,026 Subordinated Units
<PAGE>
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
PAGE
<S> <C>
Item 1. Financial Statements
Consolidated and Combined Balance Sheets as of September 30, 2000 (Partnership) (Unaudited)
and December 31, 1999 (Predecessor)................................................................. 3
Consolidated and Combined Statements of Income for the three months ended September 30, 2000
(Partnership) and the three months ended September 30, 1999 (Predecessor)(Unaudited)................ 4
Consolidated and Combined Statements of Income for the period from January 28, 2000
(Commencement of Operations) to September 30, 2000 (Partnership) and for the periods
January 1, 2000 to January 27, 2000, January 1, 1999 to
September 30, 1999 (Predecessor) (Unaudited)........................................................ 5
Consolidated and Combined Statements of Cash Flow for the period from January 28, 2000
(Commencement of Operations) to September 30, 2000 (Partnership) and for the periods
January 1, 2000 to January 27, 2000, January 1, 1999 to
September 30, 1999 (Predecessor) (Unaudited)........................................................ 6
Consolidated Statement of Partners' Capital (Deficit) for the period from January 28, 2000
(Commencement of Operations) to September 30, 2000 (Unaudited)...................................... 7
Notes to Consolidated and Combined Financial Statements (Unaudited)................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................................... 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................................................... 17
SIGNATURES ......................................................................................................... 17
</TABLE>
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
Partnership Predecessor
-------------- -------------
September 30, December 31,
2000 1999
-------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................................... $ 1,940,700 $ 3,500
Accounts receivable - affiliates............................................... 1,075,200 373,800
Prepaid expenses............................................................... 12,900 -
-------------- -------------
Total current assets......................................................... 3,028,800 377,300
Property and equipment:
Gas gathering and transmission facilities...................................... 18,420,300 16,744,100
Less - accumulated depreciation................................................ (2,722,300) (1,858,200)
-------------- -------------
Net property and equipment................................................... 15,698,000 14,885,900
Goodwill (net of accumulated amortization of $175,300 and $110,000)................. 2,414,700 2,480,000
-------------- -------------
$ 21,141,500 $ 17,743,200
============== =============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities......................................... $ 56,900 $ 33,100
Advances from parent............................................................. - 12,969,700
Distribution payable............................................................. 1,778,600 -
-------------- -------------
Total current liabilities.................................................... 1,835,500 13,002,800
Combined equity..................................................................... - 4,740,400
Partners' capital (deficit):
Common unitholders 1,500,000 units outstanding................................... 17,920,300 -
Subordinated unitholders 1,641,026 units outstanding............................. 1,473,500 -
General partner.................................................................. (87,800) -
-------------- -------------
Total partners' capital...................................................... 19,306,000 -
-------------- -------------
$ 21,141,500 $ 17,743,200
============== =============
</TABLE>
See accompanying notes to consolidated and combined financial statements
3
<PAGE>
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Partnership Predecessor
------------------ ------------------
Three Months Three Months
Ended Ended
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
Revenues:
Transportation and compression revenue....................................... $ 2,932,300 $ 914,200
Other income................................................................. 5,900 -
------------- ------------
Total revenues............................................................. 2,938,200 914,200
Costs and expenses:
Transportation and compression............................................... 352,300 249,600
General and administrative................................................... 250,600 91,300
Property tax................................................................. 12,800 7,700
Interest expense............................................................. - 107,000
Depreciation and amortization................................................ 329,200 145,000
------------- ------------
Total costs and expenses................................................... 944,900 600,600
------------- ------------
Income from operations.......................................................... 1,993,300 313,600
Provision for income taxes...................................................... - 125,700
------------- ------------
Net income...................................................................... $ 1,993,300 $ 187,900
============= ============
Net income - limited partners................................................... $ 1,953,400
=============
Net income - general partner.................................................... $ 39,900
=============
Basic and diluted net income per limited partner unit........................... $ .62
=============
Weighted average units outstanding.............................................. 3,141,026
=============
</TABLE>
See accompanying notes to consolidated and combined financial statements
4
<PAGE>
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Partnership Predecessor
-------------------- ---------------------------------------
For the
Period from
January 28, 2000 For the For the
(Commencement Period from Period from
of Operations) January 1, 2000 January 1, 1999
to to to
September 30, 2000 January 27, 2000 September 30, 1999
-------------------- ---------------- ------------------
<S> <C> <C> <C>
Revenues:
Transportation and compression revenue....................... $ 6,366,700 $ 330,000 $ 2,505,000
Other income................................................. 16,800 - -
-------------- ------------ ------------
Total revenues............................................. 6,383,500 330,000 2,505,000
Costs and expenses:
Transportation and compression............................... 697,500 44,700 540,000
General and administrative................................... 429,100 40,600 273,600
Property tax................................................. 14,800 800 11,400
Interest expense............................................. - 36,200 285,000
Depreciation and amortization................................ 843,900 86,900 408,000
-------------- ------------ ------------
Total costs and expenses................................... 1,985,300 209,200 1,518,000
-------------- ------------ ------------
Income from operations.......................................... 4,398,200 120,800 987,000
Provision for income taxes...................................... - 48,300 395,000
-------------- ------------ ------------
Net income...................................................... $ 4,398,200 $ 72,500 $ 592,000
============== ============ ============
Net income - limited partners................................... $ 4,310,200
==============
Net income - general partner.................................... $ 88,000
==============
Basic and diluted net income per limited partner unit........... $ 1.37
=============
Weighted average units outstanding.............................. 3,141,026
==============
</TABLE>
See accompanying notes to consolidated and combined financial statements
5
<PAGE>
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Partnership Predecessor
------------------ ---------------------------------------
For the
Period from
January 28, 2000 For the For the
(Commencement Period from Period from
of Operations) January 1, 2000 January 1, 1999
to to to
September 30, 2000 January 27, 2000 September 30, 1999
------------------ ---------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................................... $ 4,398,200 $ 72,500 $ 592,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization................................ 843,900 86,900 408,000
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable-affiliates and
prepaid expenses........................................... (1,088,100) 1,600 (99,000)
Increase (decrease) in accounts payable and
accrued liabilities........................................ 56,900 (33,100) (47,000)
-------------- ----------- -------------
Net cash provided by operating activities.................... 4,210,900 127,900 854,000
-------------- ----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment of debt................................................. (12,810,900) - -
Acquisition of gathering systems................................ (3,824,200) - -
Capital expenditures............................................ (1,100,900) (164,200) (1,009,000)
-------------- ------------ -------------
Net cash used in investing activities........................ (17,736,000) (164,200) (1,009,000)
-------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from initial public offering....................... 18,135,000 - -
Payment of formation costs...................................... (750,000) - -
Distributions to partners....................................... (1,919,200) - -
Advances from parent............................................ - 38,100 148,000
-------------- ------------ -------------
Net cash provided by financing activities.................... 15,465,800 38,100 148,000
-------------- ------------ -------------
Increase (decrease) in cash and cash equivalents................ 1,940,700 1,800 (7,000)
Cash and cash equivalents, beginning of period.................. - 3,500 9,000
-------------- ------------ -------------
Cash and cash equivalents, end of period........................ $ 1,940,700 $ 5,300 $ 2,000
============== ============ =============
</TABLE>
See accompanying notes to consolidated and combined financial statements
6
<PAGE>
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
FOR THE PERIOD FROM JANUARY 28, 2000 (COMMENCEMENT OF OPERATIONS)
TO SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Number of Limited Total
Partner Units Partners'
---------------------------- General Capital
Common Subordinated Common Subordinated Partner (Deficit)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at commencement of operations
January 28, 2000....................... - - $ - $ - $ - $ -
Issuance of units......................... 1,500,000 - 18,135,000 - - 18,135,000
Contribution of net assets of Predecessor. - 1,641,026 - 21,333,300 - 21,333,300
Distribution at time of formation......... - - - (20,112,700) - (20,112,700)
Payment of offering expenses.............. - - (352,500) (382,400) (15,100) (750,000)
Distribution to partners.................. - - (1,118,100) (738,500) (62,600) (1,919,200)
Distribution payable...................... - - (802,500) (878,000) (98,100) (1,778,600)
Net income................................ - - 2,058,400 2,251,800 88,000 4,398,200
--------- --------- ------------- ------------- ---------- -------------
Balance at September 30, 2000............. 1,500,000 1,641,026 $ 17,920,300 $ 1,473,500 $ (87,800) $ 19,306,000
========= ========= ============= ============= ========== =============
</TABLE>
See accompanying notes to consolidated and combined financial statements
7
<PAGE>
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS
The Partnership
Atlas Pipeline Partners, L.P. ("the Partnership") is a Delaware limited
partnership formed in May 1999 to acquire, own and operate natural gas gathering
systems theretofore owned by Atlas America, Inc. ("Atlas"), Viking Resources
Corporation ("VRC") and Resource Energy, Inc. ("REI") ("the Predecessor"), all
of which are wholly-owned subsidiaries of Resource America, Inc. ("RAI"or
"Parent").
The accompanying financial statements and related notes present the
Partnership's consolidated financial position as of September 30, 2000 and the
results of its consolidated operations, cash flows and changes in partners'
capital for the period from commencement of operations on January 28, 2000 to
September 30, 2000. All material intercompany transactions and accounts have
been eliminated. The combined financial statements of the Predecessor are for
the periods indicated and are presented for comparative purposes.
These consolidated and combined financial statements and notes thereto
for interim periods are unaudited except for the Predecessor combined balance
sheet as of December 31, 1999. However, in the opinion of management, these
financial statements reflect all adjustments necessary for a fair presentation
of the results for the periods presented. Results for interim periods are not
indicative of results for a full year.
Initial Public Offering and Concurrent Transactions
On January 28, 2000, the Partnership completed its initial public
offering (the "IPO") of 1,500,000 common units ("Common Units") representing
limited partner interests in the Partnership at a price of $13.00 per unit. The
Partnership used the $18.1 million of proceeds, after underwriters' commissions,
from the IPO to retire debt, acquire the gathering systems from the Predecessor
and to pay certain formation costs.
Consistent with guidance provided by the Emerging Issues Task Force in
Issue no. 87-21 "Change of Accounting Basis in Master Limited Partnership
Transactions," the Partnership maintained the historical gas gathering and
transmission facilities cost of $17.3 million, which was the carrying value of
those assets by the Predecessor.
Partnership Structure and Management
The Partnership's operations are conducted through subsidiary entities
whose equity interests are owned by an operating partnership (the "Operating
Partnership"). The General Partner, Atlas Pipeline Partners GP, LLC (a
wholly-owned subsidiary of RAI), owns a 2% general partner interest in the
consolidated pipeline operations. The remaining 98% is owned by limited partner
interests of which 47% consists of Common Units and 51% consists of subordinated
units ("Subordinated Units"). The rights of holders of the Subordinated Units
are different from and are subordinated to the rights of the holders of common
units to participate in distributions. Through the ownership of these
subordinated units, the General Partner effectively manages and controls both
the Partnership and the Operating Partnership.
8
<PAGE>
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS - (Continued)
Analysis of Pro Forma Results of Operations
The pro forma information presented below was derived from the
historical consolidated financial statements of the Partnership from the
commencement of operations on January 28, 2000 through September 30, 2000 and
from the historical combined financial statements of the Predecessor for the
periods from January 1, 2000 through January 27, 2000 and January 1, 1999
through September 30, 1999. The pro forma information reflects the following pro
forma adjustments to the historical results of operations as if the Partnership
had been formed on January 1, 1999:
(i) increasing revenues to the amount which would have been earned
under the master natural gas gathering agreement between the
Partnership and Atlas which became effective at the completion
of the IPO,
(ii) removing interest on debt of the Predecessor, and
(iii) eliminating income tax expense as income taxes will be borne by
the partners and not the Partnership.
For the nine months ended September 30, 2000 and 1999, the pro forma
total revenues would have been approximately $6,997,800 and $5,217,000,
respectively. For the nine months ended September 30, 2000 and 1999, the pro
forma net income would have been approximately $4,848,800 and $3,574,000 and net
income per limited partner unit would have been $1.51 and $1.12, respectively.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying consolidated and combined financial
statements follows.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Partnership and its substantially owned subsidiaries. All material intercompany
transactions have been eliminated.
Use of Estimates
Preparation of the consolidated and combined financial statements in
conformity with generally accepted accounting principles requires management 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 revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Property and Equipment
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated service
lives. Gas gathering and transmission facilities are depreciated over 15 or 25
years using the double declining balance and straight-line methods. Other
equipment is depreciated over 5 to 10 years using the straight-line method.
9
<PAGE>
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Impairment of Long-Lived Assets
The Partnership reviews its long-lived assets for impairment whenever
events or circumstances indicate that the carrying amount of an asset may not be
recoverable. If it is determined that an asset's estimated future cash flows
will not be sufficient to recover its carrying amount, an impairment charge will
be recorded to reduce the carrying amount for that asset to its estimated fair
value.
Goodwill
Goodwill is associated with the Partnership's purchase of the gas
gathering operations of the Predecessor and is being amortized over a period of
30 years, using the straight-line method.
Federal Income Taxes
The Partnership is a limited partnership. As a result, the
Partnership's income for federal income tax purposes is reportable on the tax
returns of the individual partners. Accordingly, no recognition has been given
to income taxes in the accompanying financial statements of the Partnership. The
Predecessor filed a consolidated federal income tax return with its ultimate
parent, RAI. Federal and state taxes for the Predecessor are reflected as if the
Predecessor filed on a separate company basis utilizing an effective federal tax
rate of 34%.
Revenue Recognition
Revenues are recognized at the time the natural gas is transmitted
through the gathering systems.
Fair Value of Financial Instruments
For cash and cash equivalents, receivable and payables, the carrying
amounts approximate fair value because of the short maturity of these
instruments.
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% interest, by the weighted average number of
outstanding Common Units and Subordinated Units (a total of 3,141,026 units as
of September 30, 2000).
Comprehensive Income
The Partnership is subject to the provisions of Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income," which requires
disclosure of comprehensive income and its components. Comprehensive income
includes net income and all other changes in 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 material
elements of comprehensive income, other than net income, to report.
10
<PAGE>
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Cash Flow Statements
For purposes of the statement of cash flows, all highly liquid debt
instruments purchased with a maturity of three months or less are considered to
be cash equivalents.
Supplemental Disclosure of Cash Flow Information
Information for the nine months ended September 30, 2000 and 1999 is as
follows:
<TABLE>
<CAPTION>
Partnership Predecessor
---------------------- -----------------------------------------
For the
Period from
January 28, 2000 For the For the
(Commencement Period from Period from
of Operations) January 1, 2000 January 1, 1999
to to to
September 30, 2000 January 27, 2000 September 30, 1999
---------------------- ---------------- ------------------
<S> <C> <C> <C>
Cash paid for:
Interest............................................... $ - $ 36,200 $ 275,000
================ ============= =============
Income taxes........................................... $ - $ 38,200 $ 333,000
================ ============= =============
Non-cash activities:
Issuance of subordinated units in exchange for
gas gathering and transmission facilities............ $ 21,333,300 $ - $ -
================ ============= =============
</TABLE>
NOTE 3 - RELATED PARTY TRANSACTIONS
Accounts Receivable - Affiliates
The Partnership is affiliated with Atlas, VRC and REI ("Affiliates")
which are subsidiaries of RAI. The Partnership is dependent upon the resources
and services provided by RAI and these Affiliates. Accounts
receivable-affiliates represents the net balance due from these affiliates for
gas transported through the gathering systems, net of reimbursements of
Partnership costs and expenses paid by these Affiliates.
The Partnership does not currently directly employ any persons to
manage or operate its business. These functions are provided by the General
Partner and employees of RAI and/or its Affiliates who are retained by the
General Partner. The General Partner does not receive a management fee or other
compensation in connection with its management of the Partnership. The
Partnership reimburses the General Partner for all direct and indirect costs of
services provided, including the cost of employees, officer and managing board
member compensation and benefits properly allocable to the Partnership, and all
other expenses necessary or appropriate to the conduct of the business of, and
allocable to, the Partnership. The partnership agreement provides that the
General Partner will determine the expenses that are allocable to the
Partnership in any reasonable manner determined by the General Partner at its
sole discretion. Total costs reimbursed to the General Partner by the
Partnership were approximately $266,000 for the period from January 28, 2000 to
September 30, 2000.
11
<PAGE>
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 3 - RELATED PARTY TRANSACTIONS - (Continued)
Credit Facility
Atlas has agreed to provide the Partnership with financing for the cost
of constructing new gathering system expansions for a period of five years from
January 28, 2000, on a stand-by basis. If the Partnership chooses to use this
stand-by commitment, the financing will be provided through the issuance of
Common Units to Atlas. The number of Common Units issued will be based upon the
construction costs advanced and the fair value of the Common Units at the time
of such advances. The commitment is for a maximum of $1.5 million in any
contract year. As of September 30, 2000, no such advances have been made under
this credit facility.
NOTE 4 - DISTRIBUTION DECLARED
On September 21, 2000, the Partnership declared a cash distribution of
$.535 per unit on its outstanding Common Units and Subordinated Units. The
distribution represents the available cash flow for the three months ended
September 30, 2000. The $1,778,600 distribution, which includes $98,100 to the
General Partner, was paid on November 10, 2000 to unit holders of record on
September 30, 2000.
NOTE 5 - SUBSEQUENT EVENT
In October 2000, the Partnership entered into a $10.0 million revolving
credit facility administered by PNC Bank. Up to $3.0 million of the borrowings
under the facility may be in the form of standby letters of credit. Borrowings
under the facility 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 units of its subsidiary. The revolving
credit facility has a term ending in October 2003 and bears interest at one of
two rates, elected at the Partnership's option: (i) the Base Rate plus the
Applicable Margin or (ii) the Euro Rate plus the Applicable Margin. As used in
the facility agreement, the Base Rate is the higher of (a) PNC Bank's prime rate
or (b) the sum of the federal funds rate plus 50 basis points. The Euro Rate is
(x) the average of specified LIBOR rates divided by (y) 1.00 minus the
percentage prescribed by the Federal Reserve Board for determining the reserve
requirements for euro currency funding. The Applicable Margin varies with the
Partnership's leverage ratio from between 150 to 200 basis points (for the Euro
Rate option) or 0 to 50 basis points (for the Base Rate option). Draws under any
letter of credit bear interest as specified under (i), above. The credit
facility contains financial covenants, including the requirement that the
Partnership maintain: (a) a leverage ratio not to exceed 3.00 to 1.0, (b) an
interest coverage ratio greater than 3.5 to 1.0 and (c) a minimum tangible net
worth of $14.0 million. In addition, the facility limits, among other things,
sales, leases or transfers of property by the Partnership, the incurrence by the
Partnership of other indebtedness and certain investments by the Partnership. As
of November 10, 2000, no borrowings have been made under this facility.
12
<PAGE>
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
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 WHICH
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. THE RISKS AND UNCERTAINIES ARE
DISCUSSED IN THE REGISTRATION STATEMENT FILED IN CONNECTION WITH OUR INITIAL
PUBLIC OFFERING UNDER THE HEADING "RISK FACTORS." READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD LOOKING STATEMENTS WHICH SPEAK ONLY AS OF
THE DATE HEREOF. THE PARTNERSHIP UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE
THE RESULTS OF ANY REVISIONS TO FORWARD LOOKING STATEMENTS WHICH MAY BE MADE TO
REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS.
The Predecessor's operations consist of gathering systems owned by
Resource America, Inc. through its subsidiary, Resource Energy, Inc., and,
beginning with the acquisition of Atlas America, Inc. on September 28, 1998 and
of Viking Resource Corporation on August 31, 1999, gathering systems owned by
Resource America through Atlas America and Viking, respectively. 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. The results of operations discussed below for the three and nine
months ended September 30, 1999 are derived from the historical financial
statements of the Predecessor. The Predecessor's operations were acquired by the
Partnership at the close of the initial public offering. Since historical
results of operations of the Predecessor include Viking only from its date of
purchase, and revenues were based on lower rates than those earned under the
master natural gas gathering agreement entered into between Atlas America and
the Partnership at the close of the limited public offering, results of
operations for the three months and nine months ended September 30, 2000 are not
comparable to the similar prior year period.
RESULTS OF OPERATIONS
The following table sets forth the average volumes transported,
transportation rates and revenues received by the Partnership and Predecessor
for the periods indicated. In comparing the nine months ended September 30, 2000
to the nine months ended September 30, 1999, the Partnership and Predecessor
periods for the current fiscal period have been combined.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- ---------------------------------
Percent Percent
2000 1999 Change 2000 1999 Change
------------ ---------- ------ ----------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Average daily throughput volumes (mcf) (1)................ 42,908 38,826 11% 42,893 35,562 21%
Accrual adjustment........................................ 1,768 - 4% 380 - 1%
------------ ---------- ------------ ----------
Average daily paid volumes................................ 44,676 38,826 15% 43,273 35,562 22%
============ ========== ============ ==========
Average transportation rate............................... $ .71 $ .27 163% $ .57 $ .26 119%
Total transportation and compression revenues............. $ 2,932,300 $ 914,200 221% $ 6,696,700 $ 2,505,000 167%
============ ========== ============ ============
</TABLE>
------------
(1) In units of 1,000 cubic feet ("mcf").
13
<PAGE>
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
RESULTS OF OPERATIONS - (Continued)
Three Months Ended September 30, 2000 as Compared to Three Months Ended
September 30, 1999
Revenues. Transportation volumes were favorably impacted by the
acquisition of Viking in August 1999. Without the addition of Viking,
transportation volumes would have been 36,290 and 35,195 thousand cubic feet
("mcf") per day in the three months ended September 30, 2000 and 1999,
respectively, resulting in an overall increase of 1,095 mcf per day as compared
to the three months ended September 30, 1999. Transportation revenues would have
been $2,322,300 and $778,600 for the three months ended September 30, 2000 and
1999, respectively, resulting in an increase of $1,543,700 (198%) as compared to
the three months ended September 30, 1999. Gross margin (transportation revenues
less direct expenses of transportation, operation and maintenance) was
$2,580,000 for the three months ended September 30, 2000, an increase of
$1,915,400 (288%) from the $664,600 reported for the same period in 1999. The
gross margin percentage was 88% for the three months ended September 30, 2000 as
compared to 73% for the three months ended September 30, 1999. The increase in
transportation and compression revenues is the result of the higher
transportation rates earned by the Partnership under the master natural gas
gathering agreement with Atlas America ($1,634,200) and increased volumes
($383,900) due primarily to the acquisition of Viking.
Other income of $5,900 consists of interest earned on funds temporarily
invested.
Cost and Expenses. Transportation and compression expense was $352,300
in the three months ended September 30, 2000, an increase of $102,700 (41%) from
$249,600 in the three months ended September 30, 1999, due to increases in
compressor rent and repairs.
General and administrative expense was $250,600 in the three months
ended September 30, 2000, an increase of $159,300 (174%) from $91,300 in the
three months ended September 30, 1999, a result of expenses related to the
operations of the Partnership as a public entity.
Interest expense in the three months ended September 30, 1999 was
associated with advances from parent which were paid off upon completion of the
Partnership's initial public offering.
Depreciation and amortization expense was $329,200 in the three months
ended September 30, 2000, an increase of $184,200 (127%) from $145,000 in the
three months ended September 30, 1999 as a result of additional depreciation
related to the acquisition of the Viking pipelines and gathering system
extensions.
Nine Months Ended September 30, 2000 as Compared to Nine Months Ended September
30, 1999
Revenues. Transportation volumes were favorably impacted by the
acquisition of Viking in August 1999. Without the addition of Viking,
transportation volumes would have been 35,596 and 34,339 mcf per day in the nine
months ended September 30, 2000 and 1999, respectively, resulting in an overall
increase of 1,257 mcf per day as compared to the nine months ended September 30,
1999. Transportation revenues would have been $5,463,000 and $2,369,400 in the
nine months ended September 30, 2000 and 1999, respectively, resulting in an
increase of $3,093,600 (131%) compared to the nine months ended September 30,
1999. Gross margin (transportation revenues less direct expenses of
transportation, operation and maintenance) was $5,954,500 for the nine months
ended September 30, 2000, an increase of $3,989,500 (203%) from the $1,965,000
reported for the same period in 1999. The gross margin percentage was 89% for
the nine months ended September 30, 2000 as compared to 78% for the nine months
ended September 30, 1999. The increase in transportation and compression
revenues is the result of the higher transportation rates earned by the
Partnership under the master natural gas gathering agreement ($2,998,500) and
increased volumes ($1,193,200) due primarily to the acquisition of Viking.
Other income of $16,800 consists of interest earned on funds
temporarily invested.
14
<PAGE>
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
RESULTS OF OPERATIONS - (Continued)
Cost and Expenses. Transportation and compression expense was $742,200
in the nine months ended September 30, 2000, an increase of $202,200 (37%) from
$540,000 in the nine months ended September 30, 1999, due to increases in
compressor rent and repairs.
General and administrative expense was $469,700 in the nine months
ended September 30, 2000 an increase of $196,100 (72%) from $273,600 in the nine
months ended September 30, 1999, a result of expenses related to the operations
of the Partnership as a public entity.
Interest expense was $36,200 in the nine months ended September 30,
2000, a decrease of $248,800 (87%) from $285,000 in the nine months ended
September 30, 1999, a result of the payoff of the advance from parent upon
completion of the Partnership's public offering.
Depreciation and amortization expense increased to $930,800 in the nine
months ended September 30, 2000, an increase of $522,800 (128%) from $408,000 in
the nine months ended September 30, 1999 as a result of additional depreciation
on the cost of the Viking pipelines following their acquisition and gathering
system extensions.
Liquidity and Capital Resources
The Partnership is required to distribute, within 45 days of the end of
each quarter, all of its available cash for that quarter. For each quarter
during the subordination period, to the extent there is sufficient cash
available, the common unit holders have the right to receive a minimum quarterly
distribution of $.42 per unit.
Quarterly distributions will be made from operating surplus or capital
surplus. Operating surplus equals cash and cash equivalents on hand at the date
the Partnership began operations, plus cash received, less operating expenses,
debt payments, capital expenditures and reserves. After twelve consecutive
quarters in which operating surplus equals or exceeds the minimum quarterly
distribution, the subordinated units will be converted to common units. The
operating surplus for the quarter ended September 30, 2000 is as follows:
Cash and cash equivalents, July 1, 2000..................... $ 816,200
Cash receipts less operating expenses.................... 2,112,600
Capital expenditures..................................... (313,100)
Distributions to partners................................ (675,000)
-------------
Cash and cash equivalents, September 30, 2000............... 1,940,700
Reserves................................................. (162,100)
-------------
Operating surplus........................................... $ 1,778,600
=============
Net cash provided by operating activities increased $3,484,800 in the
nine months ended September 30, 2000 as compared to the nine months ended
September 30, 1999 due to an increase in net income before depreciation
partially offset by an increase in accounts receivable. Net cash used in
investing activities increased $16,891,200 in the nine months ended September
30, 2000 as compared to September 30, 1999, as a result of the payment of debt
associated with the acquisition of the Partnership's gathering systems and with
gathering system extensions. Net cash provided by financing activities increased
$15,355,900 in the nine months ended September 30, 2000 as compared to September
30, 1999, as a result of net proceeds received in the Partnership's public
offering partially offset by distributions of cash to partners.
As discussed in Note 5 to the financial statements, the Partnership
entered into a $10.0 million revolving credit facility during October 2000. If
necessary, the Partnership may utilize the facility to help fund the expansion
of its existing gathering system, acquisitions of other gas gathering systems
and ongoing operations.
15
<PAGE>
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
RESULTS OF OPERATIONS - (Continued)
Inflation and Changes in Prices
Inflation affects the operating expenses of the gathering systems.
Increases in those expenses are not necessarily offset by increases in
transportation rates that the Partnership is able to charge. The value of the
gathering systems has been and will continue to be affected by changes in
natural gas prices. Natural gas prices are subject to fluctuations, which we are
unable to control or accurately predict.
Environmental Regulation
A continued trend to greater environmental and safety awareness and
increasing environmental regulation has resulted in higher operating costs for
the oil and gas industry. The Predecessor has monitored the compliance of
Partnership's gathering systems with environmental and safety laws and believe
they are in compliance with such laws. To date, compliance with environmental
laws has not had a material impact on the capital expenditures, earnings or
competitive position of the gathering systems. The Partnership believes,
however, that environmental and safety costs will increase in the future. There
can be no assurance that compliance with such laws will not have material impact
upon the Partnership in the future.
16
<PAGE>
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. Exhibits And Reports On Form 8-K
(a) Exhibits:
27 Financial Data Schedule.
(b) Reports on Form 8-K: None
SIGNATURES
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.
ATLAS PIPELINE PARTNERS, L.P.
(Registrant)
By: Atlas Pipeline Partners GP, LLC,
General Partners
Date: November 14, 2000 By: /s/ Tony C. Banks
----------------------------------
TONY C. BANKS
President
Date: November 14, 2000 By: /s/ Michael L. Staines
----------------------------------
MICHAEL L. STAINES
Chief Operating Officer and
Secretary
Date: November 14, 2000 By: /s/ William Seiler
----------------------------------
WILLIAM SEILER
Vice President and Controller
Date: November 14, 2000 By: /s/ Nancy J. McGurk
----------------------------------
NANCY J. McGURK
Chief Accounting Officer
17
