form10q.htm


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
Form 10-Q
 
S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2009
 
OR
 
£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number 1-12295

 
GENESIS ENERGY, L.P.
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdictions of incorporation or organization)
76-0513049
(I.R.S. Employer Identification No.)
   
919 Milam, Suite 2100, Houston, TX
(Address of principal executive offices)
77002
(Zip code)
 
Registrant's telephone number, including area code:
(713) 860-2500
 
Securities registered pursuant to Section 12(g) of the Act:
 
NONE
 
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 R   No £
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).
 
Yes £   No £
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer £
Accelerated filer R
Non-accelerated filer £
Smaller reporting company £
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2) of the Exchange Act).
 
Yes £   No R

 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  Common Units outstanding as of May 6, 2009:  39,456,774
 


 
 

 

GENESIS ENERGY, L.P.
 
Form 10-Q
 
INDEX
 
PART I.  FINANCIAL INFORMATION
 
Item 1.
Financial Statements
Page
 
3
 
4
 
5
 
6
 
7
 
8
     
Item 2.
29
Item 3.
40
Item 4.
41
     
PART II.  OTHER INFORMATION
Item 1.
42
Item 1A.
42
Item 2.
42
Item 3.
42
Item 4.
42
Item 5.
42
Item 6.
42
     
43

 
-2-

 
GENESIS ENERGY, L.P.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)

   
March 31,
   
December 31,
 
   
2009
   
2008
 
             
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 15,392     $ 18,985  
Accounts receivable - trade, net of allowance for doubtful accounts of $1,519 and $1,132 at March 31, 2009 and December 31, 2008,respectively
    107,224       112,229  
Accounts receivable - related party
    2,365       2,875  
Inventories
    25,390       21,544  
Net investment in direct financing leases, net of unearned income -current portion - related party
    3,865       3,758  
Other
    11,463       8,736  
Total current assets
    165,699       168,127  
                 
FIXED ASSETS, at cost
    364,305       349,212  
Less:  Accumulated depreciation
    (72,860 )     (67,107 )
Net fixed assets
    291,445       282,105  
                 
NET INVESTMENT IN DIRECT FINANCING LEASES, net of unearned income - related party
    176,195       177,203  
CO2 ASSETS, net of amortization
    23,380       24,379  
EQUITY INVESTEES AND OTHER INVESTMENTS
    20,997       19,468  
INTANGIBLE ASSETS, net of amortization
    158,781       166,933  
GOODWILL
    325,046       325,046  
OTHER ASSETS, net of amortization
    15,994       15,413  
                 
TOTAL ASSETS
  $ 1,177,537     $ 1,178,674  
                 
LIABILITIES AND PARTNERS' CAPITAL
               
CURRENT LIABILITIES:
               
Accounts payable - trade
  $ 85,090     $ 96,454  
Accounts payable - related party
    3,484       3,105  
Accrued liabilities
    19,442       26,713  
Total current liabilities
    108,016       126,272  
                 
LONG-TERM DEBT
    398,800       375,300  
DEFERRED TAX LIABILITIES
    16,833       16,806  
OTHER LONG-TERM LIABILITIES
    2,818       2,834  
COMMITMENTS AND CONTINGENCIES (Note 17)
               
                 
PARTNERS' CAPITAL:
               
Common unitholders, 39,457 units issued and outstanding
    610,699       616,971  
General partner
    16,515       16,649  
Accumulated other comprehensive loss
    (961 )     (962 )
Total Genesis Energy, L.P. partners' capital
    626,253       632,658  
Non-controlling interests
    24,817       24,804  
Total partners' capital
    651,070       657,462  
                 
TOTAL LIABILITIES AND PARTNERS' CAPITAL
  $ 1,177,537     $ 1,178,674  

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 
-3-


GENESIS ENERGY, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit amounts)

 
   
Three Months Ended March 31,
 
   
2009
   
2008
 
REVENUES:
           
Supply and logistics:
           
Unrelated parties
  $ 187,818     $ 429,393  
Related parties
    1,244       725  
Refinery services
    48,294       43,912  
Pipeline transportation, including natural gas sales:
               
Transportation services - unrelated parties
    3,401       5,909  
Transportation services - related parties
    8,294       1,052  
Natural gas sales revenues
    713       1,324  
CO2 marketing:
               
Unrelated parties
    3,052       3,163  
Related parties
    677       707  
Total revenues
    253,493       486,185  
                 
COSTS AND EXPENSES:
               
Supply and logistics costs:
               
Product costs - unrelated parties
    163,731       407,275  
Product costs - related parties
    1,713       -  
Operating costs
    17,269       16,582  
Refinery services operating costs
    35,333       30,324  
Pipeline transportation costs:
               
Pipeline transportation operating costs
    2,494       2,356  
Natural gas purchases
    654       1,286  
CO2 marketing costs:
               
Transportation costs - related party
    1,307       1,257  
Other costs
    16       15  
General and administrative
    8,754       8,524  
Depreciation and amortization
    15,419       16,789  
Net (gain) loss on disposal of surplus assets
    (218 )     18  
Total costs and expenses
    246,472       484,426  
OPERATING INCOME
    7,021       1,759  
                 
Equity in earnings of joint ventures
    1,906       178  
Interest income
    21       117  
Interest expense
    (3,056 )     (1,786 )
Income before income taxes
    5,892       268  
Income tax (expense) benefit
    (591 )     1,377  
NET INCOME
    5,301       1,645  
                 
Non-controlling interests
    (11 )     -  
NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P.
  $ 5,290     $ 1,645  

 
-4-

 
GENESIS ENERGY, L.P.
UNAUDITED CONSOLIDATED STATEMENTS
OF OPERATIONS - CONTINUED
(In thousands, except per unit amounts)
 
   
Three Months Ended March 31,
 
   
2009
   
2008
 
             
NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P.
           
PER COMMON UNIT:
           
BASIC
  $ 0.16     $ 0.03  
DILUTED
  $ 0.16     $ 0.03  
                 
OUTSTANDING COMMON UNITS:
               
BASIC
    39,457       38,253  
DILUTED
    39,566       38,297  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
GENESIS ENERGY, L.P.
 
UNAUDITED CONSOLIDATED STATEMENTS
 
OF COMPREHENSIVE INCOME
 
(In thousands)
 
             
   
Three Months Ended March 31,
 
   
2009
   
2008
 
             
Net income
  $ 5,301     $ 1,645  
Change in fair value of derivatives:
               
Current period reclassification to earnings
    132       -  
Changes in derivative financial instruments - interest rate swaps
    (128 )     -  
Comprehensive income
    5,305       1,645  
Comprehensive income attributable to non-controlling interests
    (3 )     -  
Comprehensive income attributable to Genesis Energy, L.P.
  $ 5,302     $ 1,645  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

 
-5-

 
GENESIS ENERGY, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(In thousands)
 
   
Partners' Capital
 
   
Number of Common Units
   
Common Unitholders
   
General Partner
   
Accumulated Other Comprehensive Loss
   
Non-Controlling Interests
   
Total Capital
 
                                     
Partners' capital, January 1, 2009
    39,457     $ 616,971     $ 16,649     $ (962 )   $ 24,804     $ 657,462  
Comprehensive income:
                                               
Net income
            6,481       (1,191 )             11       5,301  
Interest rate swap losses reclassified to interest expense
                            64       68       132  
Interest rate swap loss
                            (63 )     (65 )     (128 )
Cash distributions
            (13,021 )     (1,089 )             (1 )     (14,111 )
Contribution for executive compensation (See Note 12)
                    2,146                       2,146  
Unit based compensation expense
            268                               268  
Partners' capital, March 31, 2009
    39,457     $ 610,699     $ 16,515     $ (961 )   $ 24,817     $ 651,070  
                                                 
   
Partners' Capital
 
                                                 
   
Number of Common Units
   
Common Unitholders
   
General Partner
   
Accumulated Other Comprehensive Loss
   
Non-Controlling Interests
   
Total Capital
 
                                                 
Partners' capital, January 1, 2008
    38,253     $ 615,265     $ 16,539     $ -     $ 570     $ 632,374  
Comprehensive income:
                                               
Net income
            1,612       33                       1,645  
Cash distributions
            (10,903 )     (467 )             (1 )     (11,371 )
Partners' capital, March 31, 2008
    38,253     $ 605,974     $ 16,105     $ -     $ 569     $ 622,648  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

 
-6-

 
GENESIS ENERGY, L.P.
 
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(In thousands)
 
   
Three Months Ended March 31,
 
   
2009
   
2008
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 5,301     $ 1,645  
Adjustments to reconcile net income to net cash provided by operating activities -
               
Depreciation and amortization
    15,419       16,789  
Amortization of credit facility issuance costs
    480       268  
Amortization of unearned income and initial direct costs on direct financing leases
    (4,555 )     (148 )
Payments received under direct financing leases
    5,462       295  
Equity in earnings of investments in joint ventures
    (1,906 )     (178 )
Distributions from joint ventures - return on investment
    400       517  
Non-cash effect of unit-based compensation plans
    2,825       (912 )
Deferred and other tax liabilities
    459       (1,626 )
Other non-cash items
    (517 )     (148 )
Net changes in components of operating assets and liabilities (See Note 13)
    (20,211 )     881  
Net cash provided by operating activities
    3,157       17,383  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Payments to acquire fixed assets
    (17,076 )     (6,439 )
Distributions from joint ventures - return of investment
    -       161  
Investments in joint ventures and other investments
    (21 )     (2,210 )
Other, net
    529       (218 )
Net cash used in investing activities
    (16,568 )     (8,706 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Bank borrowings
    77,600       71,700  
Bank repayments
    (54,100 )     (69,700 )
Distributions to non-controlling interests
    (1 )     (1 )
Distributions to common unitholders
    (13,021 )     (10,903 )
Distributions to general partner interest
    (1,089 )     (467 )
Other, net
    429       274  
Net cash provided by (used in) financing activities
    9,818       (9,097 )
                 
Net decrease in cash and cash equivalents
    (3,593 )     (420 )
Cash and cash equivalents at beginning of period
    18,985       11,851  
                 
Cash and cash equivalents at end of period
  $ 15,392     $ 11,431  

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 
-7-

 
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.  Organization and Basis of Presentation and Consolidation
 
Organization
 
We are a growth-oriented limited partnership focused on the midstream segment of the oil and gas industry in the Gulf Coast area of the United States.  We conduct our operations through our operating subsidiaries and joint ventures.  We manage our businesses through four divisions:
 
 
·
Pipeline transportation of crude oil and carbon dioxide;
 
 
·
Refinery services involving processing of high sulfur (or “sour”) gas streams for refineries to remove the sulfur, and sale of the related by-product, sodium hydrosulfide (or NaHS, commonly pronounced nash);
 
 
·
Supply and logistics services, which includes terminaling, blending, storing, marketing, and transporting by trucks and barges of crude oil and petroleum products; and
 
 
·
Industrial gas activities, including wholesale marketing of CO2 and processing of syngas through a joint venture.
 
 Our 2% general partner interest is held by Genesis Energy, LLC, a Delaware limited liability company and an indirect subsidiary of Denbury Resources Inc.  Denbury and its subsidiaries are hereafter referred to as Denbury.  Our general partner and its affiliates also own 10.2% of our outstanding common units.
 
Our general partner manages our operations and activities and employs our officers and personnel, who devote 100% of their efforts to our management.
 
Basis of Presentation and Consolidation
 
Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end and the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year.  The consolidated financial statements included herein have been prepared by us without audit pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  Accordingly, they reflect all adjustments (which consist solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial results for interim periods.  Certain information and notes normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.  However, we believe that the disclosures are adequate to make the information presented not misleading when read in conjunction with the information contained in the periodic reports we file with the SEC pursuant to the Securities Exchange Act of 1934, including the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008.
 
Except per unit amounts, or as noted within the context of each footnote disclosure, the dollar amounts presented in the tabular data within these footnote disclosures are stated in thousands of dollars.
 
The accompanying unaudited consolidated financial statements and related notes present our consolidated financial position as of March 31, 2009 and December 31, 2008 and our results of operations, changes in comprehensive income and cash flows for the three months ended March 31, 2009 and 2008 and changes in capital for the three months ended March 31, 2009.  Intercompany transactions have been eliminated.  The accompanying unaudited consolidated financial statements include Genesis Energy, L.P. and its operating subsidiaries, Genesis Crude Oil, L.P. and Genesis NEJD Holdings, LLC, and their subsidiaries.
 
We participate in three joint ventures:  DG Marine Transportation, LLC (DG Marine), T&P Syngas Supply Company (T&P Syngas) and Sandhill Group, LLC (Sandhill).  We acquired our interest in DG Marine in July 2008, and, since then DG Marine has been consolidated in our financial statements.  We account for our 50% investments in T&P Syngas and Sandhill by the equity method of accounting.
 
Our general partner owns a 0.01% general partner interest in Genesis Crude Oil, L.P. and TD Marine, LLC (TD Marine), a related party, owns the remaining 51% economic interest in DG Marine.  The net interest of our general partner and TD Marine in our results of operations and financial position are reflected in our financial statements as non-controlling interests.
 
 
-8-

 
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
2.  Recent Accounting Developments
 
Implemented
 
SFAS 141(R)
 
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R) “Business Combinations” (SFAS 141(R)).  SFAS 141(R) replaces FASB Statement No. 141, “Business Combinations.”  This statement retains the purchase method of accounting used in business combinations but replaces SFAS 141 by establishing principles and requirements for the recognition and measurement of assets, liabilities and goodwill, including the requirement that most transaction costs and restructuring costs be charged to expense as incurred.  In addition, the statement requires disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  SFAS 141(R) will apply to acquisitions we make after December 31, 2008.  The impact to us will be dependent on the nature of the business combination.
 
SFAS 160
 
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51” (SFAS 160). This statement establishes accounting and reporting standards for noncontrolling interests, which have been referred to as minority interests in prior literature.  A noncontrolling interest is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent company.  This new standard requires, among other things, that (i) ownership interests of noncontrolling interests be presented as a component of equity on the balance sheet (i.e. elimination of the mezzanine “minority interest” category); (ii) elimination of minority interest expense as a line item on the statement of operations and, as a result, that net income be allocated between the parent and the noncontrolling interests on the face of the statement of operations; and (iii) enhanced disclosures regarding noncontrolling interests.  SFAS 160 is effective for fiscal years beginning after December 15, 2008.  We adopted SFAS 160 on January 1, 2009.  SFAS 160 changed the presentation of the interests in Genesis Crude Oil, L.P. held by our general partner and the interests in DG Marine held by our joint venture partner in our consolidated financial statements.  Amounts for prior periods have been changed to be consistent with the presentation required by SFAS 160.
 
SFAS 161
 
 In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No.133” (SFAS 161). This Statement requires enhanced disclosures about our derivative and hedging activities. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We adopted SFAS No. 161 on January 1, 2009, and have included the enhanced disclosures in Note 15.
 
EITF 07-4
 
In March 2008, the FASB ratified the consensus reached by the Emerging Issues Task Force (or EITF) of the FASB in issue EITF 07-4, “Application of the Two-Class Method under FASB Statement No. 128, Earnings per Share, to Master Limited Partnerships.”  Under this consensus, the computation of earnings per unit will be affected by the incentive distribution rights (“IDRs”) we are contractually obligated to distribute at the end of the current reporting period.  In periods when earnings are in excess of cash distributions, we will reduce net income or loss for the current reporting period (for purposes of calculating earnings or loss per unit) by the amount of available cash that will be distributed to our limited partners and general partner for its general partner interest and incentive distribution rights for the reporting period, and the remainder will be allocated to the limited partner and general partner in accordance with their ownership interests.  When cash distributions exceed current-period earnings, net income or loss (for purposes of calculating earnings or loss per unit) will be reduced (or increased) by cash distributions, and the resulting excess of distributions over earnings will be allocated to the general partner and limited partner based on their respective sharing of losses.  EITF 07-4 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.  We adopted EITF 07-4 on January 1, 2009 and have reflected the calculation of earnings per unit for the three months ended March 31, 2009 and 2008 in accordance with its provisions.  See Note 9.
 
 
-9-

 
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FASB Staff Position No. 142-3
 
In April 2008, the FASB issued FASB Staff Position No. 142-3, “Determination of the Useful Life of Intangible Assets” (FSP 142-3).  This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of an intangible asset under Statement of Financial Accounting Standards No. 142, “Goodwill and other Intangible Assets.” The purpose of this FSP is to develop consistency between the useful life assigned to intangible assets and the cash flows from those assets.  FSP 142-3 is effective for fiscal years beginning after December 31, 2008.  We adopted FSP 142-3 on January 1, 2009 and adoption had no effect on our consolidated financial statements.
 
SFAS 157
 
We adopted Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS 157), on January 1, 2008. On February 12, 2008 the Financial Accounting Standards Board (FASB) issued Staff Position No. 157-2, “Effective Date of FASB Statement No. 157” (FSP 157-2) which amends SFAS 157 to delay the effective date for all non-financial assets and non-financial liabilities, except for those that are recognized at fair value in the financial statements on a recurring basis, to January 1, 2009.  Non-recurring non-financial assets and non-financial liabilities for which we did not apply the provisions of SFAS 157 included those measured at fair value in goodwill impairment testing and asset retirement obligations initially measured at fair value.  We adopted the deferred provisions as of January 1, 2009.  SFAS 157 does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements.  The adoption of FSP 157-2 as described above had no material impact on us.  See Note 17 for further information regarding fair-value measurements.
 
3.  Consolidated Joint Venture – DG Marine
 
DG Marine is a joint venture we formed with TD Marine. TD Marine owns (indirectly) a 51% economic interest in DG Marine, and we own (directly and indirectly) a 49% economic interest.  This joint venture gives us the capability to provide transportation services of petroleum products by barge and complements our other supply and logistics operations.
 
We have entered into a subordinated loan agreement with DG Marine whereby we may (at our sole discretion) lend up to $25 million to DG Marine.  The loan agreement provides for DG Marine to pay us interest on any loans at a rate to be determined which is expected to be the prime rate plus 4%.  Those loans will mature on January 31, 2012.  Under that subordinated loan agreement, DG Marine is required to make monthly payments to us of principal and interest to the extent DG Marine has any available cash that otherwise would have been distributed to the owners of DG Marine in respect of their equity interest.  DG Marine also has a revolving credit facility with a syndicate of financial institutions that includes restrictions on DG Marine’s ability to make specified payments under our subordinated loan agreement and distributions in respect of our equity interest.  At March 31, 2009 and December 31, 2008, there were no amounts outstanding under the subordinated loan agreement. We have, however, provided a $7.5 million guaranty to the lenders under DG Marine’s credit facility.  That guaranty will be terminated on May 31, 2009, if DG Marine maintains a leverage ratio under its credit facility of less than 4.50 to 1.00 for the month ending May 31, 2009.
 
 
-10-

 
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
At March 31, 2009 and December 31, 2008, our unaudited consolidated balance sheets included the following amounts related to DG Marine:
 
   
March 31, 2009
   
December 31, 2008
 
Cash
  $ 282     $ 623  
Accounts receivable - trade
    2,117       2,812  
Other current assets
    504       859  
Fixed assets, at cost
    121,643       110,214  
Accumulated depreciation
    (4,868 )     (3,084 )
Intangible assets, net
    2,102       2,208  
Other assets
    1,964       2,178  
Total assets
  $ 123,744     $ 115,810  
                 
Accounts payable
  $ 941     $ 1,072  
Accrued liabilities
    8,948       9,258  
Long-term debt
    63,800       55,300  
Other long-term liabilities
    1,323       1,393  
Total liabilities
  $ 75,012     $ 67,023  
 
4.  Inventories
 
Inventories are valued at the lower of cost or market.  The costs of inventories did not exceed market values at March 31, 2009. The costs of inventories at December 31, 2008 exceeded market values by approximately $1.2 million, and are reflected below at those market values.  The major components of inventories were as follows:
 
   
March 31, 2009
   
December 31, 2008
 
Crude oil
    10,220       1,878  
Petroleum products
    5,312       5,589  
Caustic soda
    5,305       7,139  
NaHS
    4,534       6,923  
Other
    19       15  
Total inventories
  $ 25,390     $ 21,544  
 
5.  Fixed Assets and Asset Retirement Obligations
 
Fixed assets consisted of the following:
 
   
March 31, 2009
   
December 31, 2008
 
Land, buildings and improvements
  $ 13,549     $ 13,549  
Pipelines and related assets
    139,791       139,184  
Machinery and equipment
    22,963       22,899  
Transportation equipment
    32,774       32,833  
Barges and push boats
    116,304       96,865  
Office equipment, furniture and fixtures
    4,513       4,401  
Construction in progress
    23,032       27,906  
Other
    11,379       11,575  
Subtotal
    364,305       349,212  
Accumulated depreciation and impairment
    (72,860 )     (67,107 )
Total
  $ 291,445     $ 282,105  

 
-11-


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Asset Retirement Obligations
 
The following table summarizes the changes in our asset retirement obligations for the three months ended March 31, 2009.

 
Asset retirement obligations as of December 31, 2008
  $ 1,430  
Liabilities settled in the period
    (55 )
Accretion expense
    25  
Asset retirement obligations as of March 31, 2009
    1,400  
Less current portion included in accrued liabilities
    (150 )
Long-term asset retirement obligations as of March 31, 2009
  $ 1,250  
 
Certain of our unconsolidated affiliates have asset retirement obligations recorded at March 31, 2009 and December 31, 2008 relating to contractual agreements.  These amounts are immaterial to our financial statements.
 
6.  Intangible Assets and Goodwill
 
Intangible Assets
 
The following table reflects the components of intangible assets being amortized at the dates indicated:
 
         
March 31, 2009
   
December 31, 2008
 
   
Weighted Amortization Period in Years
   
Gross Carrying Amount
   
Accumulated Amortization
   
Carrying Value
   
Gross Carrying Amount
   
Accumulated Amortization
   
Carrying Value
 
                                           
Customer relationships:
                                         
Refinery services
  5     $ 94,654     $ 29,875     $ 64,779     $ 94,654     $ 26,017     $ 68,637  
Supply and logistics
  5       35,430       11,341       24,089       35,430       9,957       25,473  
Supplier relationships -
                                                     
Refinery services
  2       36,469       25,500       10,969       36,469       24,483       11,986  
Licensing Agreements -
                                                     
Refinery services
  6       38,678       8,302       30,376       38,678       7,176       31,502  
Trade names -
                                                     
Supply and logistics
  7       18,888       3,693       15,195       18,888       3,118       15,770  
Favorable lease -
                                                     
Supply and logistics
  15       13,260       789       12,471       13,260       671       12,589  
Other
  5       1,322       420       902       1,322       346       976  
Total
  5     $ 238,701     $ 79,920     $ 158,781     $ 238,701     $ 71,768     $ 166,933  
 
We are recording amortization of our intangible assets based on the period over which the asset is expected to contribute to our future cash flows.  Generally, the contribution to our cash flows of the customer and supplier relationships, licensing agreements and trade name intangible assets is expected to decline over time, such that greater value is attributable to the periods shortly after the acquisition was made.  The favorable lease and other intangible assets are being amortized on a straight-line basis.  Amortization expense on intangible assets was $8.2 million and $11.7 million for the three months ended March 31, 2009 and 2008, respectively.
 
Goodwill
 
The carrying amount of goodwill by business segment at March 31, 2009 and December 31, 2008 was $302.0 million to refinery services and $23.1 million to supply and logistics.
 
 
-12-

 
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
7.  Equity Investees and Other Investments
 
T&P Syngas Supply Company
 
We are accounting for our 50% ownership in T&P Syngas under the equity method of accounting.  We received distributions from T&P Syngas of $0.4 million and $0.6 million during the three months ended March 31, 2009 and 2008, respectively.  During the first quarter of 2009, “Equity in earnings of joint ventures” included $1.7 million of non-cash items related to T&P Syngas that increased earnings.
 
The tables below reflect summarized information for T&P Syngas:
 
   
Three Months Ended
   
Three Months Ended
 
   
March 31, 2009
   
March 31, 2008
 
             
Revenues
  $ 1,165     $ 1,209  
Operating expenses and depreciation
    (574 )     (367 )
Other income (expense)
    8       (7 )
Net income
  $ 599     $ 835  
                 
                 
   
March 31, 2009
   
December 31, 2008
 
                 
Current assets
  $ 3,539     $ 3,131  
Non-current assets
    18,595       18,906  
Total assets
  $ 22,134     $ 22,037  
                 
Current liabilities
  $ 836     $ 543  
Non-current liabilities
    203       198  
Partners' capital
    21,095       21,296  
Total liabilities and partners' capital
  $ 22,134     $ 22,037  

 
 
Sandhill Group, LLC
 
We are accounting for our 50% ownership in Sandhill under the equity method of accounting. We received a distribution from Sandhill of $124,000 during the three months ended March 31, 2008.
 
Other Projects
 
We have also invested $4.6 million in the Faustina Project, a petroleum coke to ammonia project that is in the development stage.  All of our investment may later be redeemed, with a return, or converted to equity after the project has obtained construction financing.  The funds we have invested are being used for project development activities, which include the negotiation of off-take agreements for the products and by-products of the plant to be constructed, securing permits and securing financing for the construction phase of the plant.  We have recorded our investment in this debt security at cost and classified it as held-to-maturity, since we have the intent and ability to hold it until it is redeemed.
 
No events or changes in circumstances have occurred that indicate a significant adverse effect on the fair value of our investment at March 31, 2009; therefore, our investment is included in our Unaudited Consolidated Balance Sheets at cost. 
 
 
-13-


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
8.  Debt
 
At March 31, 2009 our obligations under credit facilities consisted of the following:
 
   
March 31, 2009
   
December 31, 2008
 
             
Genesis Credit Facility
  $ 335,000     $ 320,000  
DG Marine Credit Facility
    63,800       55,300  
Total Long-Term Debt
  $ 398,800     $ 375,300  
 
Genesis Credit Facility
 
We have a $500 million credit facility, $100 million of which can be used for letters of credit, with a group of banks led by Fortis Capital Corp. and Deutsche Bank Securities Inc.  Our borrowing base is recalculated quarterly and at the time of material acquisitions.  Our borrowing base represents the amount that we can borrow or utilize for letters of credit, and it is calculated based on our EBITDA (earnings before interest, taxes, depreciation and amortization), as defined in accordance with the provisions of our credit facility.
 
The borrowing base may be increased to the extent of pro forma additional EBITDA, (as defined in the credit agreement), attributable to acquisitions or internal growth projects with approval of the lenders.  Our borrowing base as of March 31, 2009 exceeds $500 million.  At March 31, 2009, we had $335.0 million borrowed under our credit facility and we had $3.4 million in letters of credit outstanding.  The total amount available for borrowings at March 31, 2009 was $161.6 million under our credit facility.  Due to the revolving nature of loans under our credit facility, additional borrowings and periodic repayments and re-borrowings may be made until the maturity date of November 15, 2011.
 
DG Marine Credit Facility
 
DG Marine has a $90 million revolving credit facility with a syndicate of banks led by SunTrust Bank and BMO Capital Markets Financing, Inc. That facility, which matures on July 18, 2011, is secured by all of the equity interests issued by DG Marine and substantially all of DG Marine’s assets.  Other than the pledge of our equity interest in DG Marine, that facility is non-recourse to us and TD Marine.  At March 31, 2009, our Unaudited Consolidated Balance Sheet included $123.7 million of DG Marine’s assets in our total assets.
 
At March 31, 2009, DG Marine had $63.8 million outstanding under its credit facility.  The total amount available for borrowings at March 31, 2009 was $26.2 million under this credit facility.  Due to the revolving nature of loans under the DG Marine credit facility, additional borrowings and periodic repayments and re-borrowings may be made until the maturity date.
 
In August 2008, DG Marine entered into a series of interest rate swap agreements to effectively fix the underlying LIBOR rate on $32.9 million of its borrowings under its credit facility through July 18, 2011. The fixed interest rates in the swap agreements range from the three-month interest rate of 3.23% in effect at March 31, 2009 to 4.68% at July 18, 2011.
 
9.  Partners’ Capital and Distributions
 
Partners’ Capital
 
Partner’s capital at March 31, 2009 consists of 39,456,774 common units, including 4,028,096 units owned by our general partner and its affiliates, representing a 98% aggregate ownership interest in the Partnership and its subsidiaries (after giving affect to the general partner interest), and a 2% general partner interest.
 
Our general partner owns all of our general partner interest, our incentive distribution rights, and all of the 0.01% general partner interest in Genesis Crude Oil, L.P. (which is reflected as a non-controlling interest in our Unaudited Consolidated Balance Sheets) and operates our business.
 
Without obtaining unitholder approval, we may issue an unlimited number of additional limited partner interests and other equity securities, the proceeds from which could be used to provide additional funds for acquisitions or other needs.
 
 
-14-


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
Distributions
 
We will distribute 100% of our available cash (as defined by our partnership agreement) within 45 days after the end of each quarter to unitholders of record and to our general partner.  Available cash consists generally of all of our cash receipts less cash disbursements adjusted for net changes to reserves.
 
Pursuant to our partnership agreement, our general partner receives incremental incentive cash distributions when unitholders’ cash distributions exceed certain target thresholds.  The allocations of distributions between our common unitholders and our general partner (including its general partner interest and the incentive distribution rights) are as follows:
 
         
General
 
   
Unitholders
   
Partner
 
Quarterly Cash Distribution per Common Unit:
           
Up to and including $0.25 per Unit
  98.00%     2.00%  
First Target - $0.251 per Unit up to and including $0.28 per Unit
  84.74%     15.26%  
Second Target - $0.281 per Unit up to and including $0.33 per Unit
  74.53%     25.47%  
Over Second Target - Cash distributions greater than $.033 per Unit
  49.02%     50.98%  
 
We paid or will pay the following distributions in 2008 and 2009:
 
Distribution For
   
Date Paid
 
Per Unit Amount
   
Limited Partner Interests Amount
   
General Partner Interest Amount
   
General Partner Incentive Distribution Amount
   
Total Amount
 
                   
Fourth quarter 2007
   
February 2008
  $ 0.2850     $ 10,902     $ 222     $ 245     $ 11,369  
First quarter 2008
   
May 2008
  $ 0.3000     $ 11,476     $ 234     $ 429     $ 12,139  
Second quarter 2008
   
August 2008
  $ 0.3150     $ 12,427     $ 254     $ 633     $ 13,314  
Third quarter 2008
   
November 2008
  $ 0.3225     $ 12,723     $ 260     $ 728     $ 13,711  
Fourth quarter 2008
   
February 2009
  $ 0.3300     $ 13,021     $ 266     $ 823     $ 14,110  
First quarter 2009
   
May 2009 (1)
  $ 0.3375     $ 13,317     $ 271     $ 1,125     $ 14,713  
 
(1)  This distribution will be paid on May 15, 2009 to our general partner and unitholders of record as of May 4, 2009.
 
Net Income Allocation to Partners
 
Net income is allocated to our partners in the Consolidated Statements of Partners’ Capital as follows:
 
 
·
To our general partner – income in the amount of the incentive distributions paid in the period.
 
 
·
To our general partner – expense in the amount of the executive compensation expense to be borne by our general partner (See Note 12.).
 
 
·
To our limited partners and general partner – the remainder of net income in the ratio of 98% to the limited partners and 2% to our general partner.
 
Net Income Per Common Unit
 
Our net income is first allocated to our general partner based on the amount of incentive distributions to be paid for the quarter.  The adoption of EITF 07-4 effective January 1, 2009 resulted in a change in the calculation of net income per common unit by changing the amount of the incentive distributions to be considered in the calculation from the distributions paid during the quarter to the distributions to be paid with respect to the quarter.  As required by EITF 07-4, we have retrospectively applied the provisions of EITF 07-4 to the calculation of net income per common unit for the first quarter of 2008 in the table below.  As a result, basic and diluted net income per common unit both decreased by $0.01 from amounts previously reported for the three months ended March 31, 2008.

 
-15-

 
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
We then allocate to our general partner the expense related to the Class B Membership Awards to our executive officers, as our general partner will bear the cash cost of those awards.  The remainder of our net income is then allocated 98% to our limited partners and 2% to our general partner.  Basic net income per limited partner unit is determined by dividing net income attributable to limited partners by the weighted average number of outstanding limited partner units during the period.  Diluted net income per common unit is calculated in the same manner, but also considers the impact to common units for the potential dilution from phantom units outstanding. (See Note 12 for discussion of phantom units.)
 
The following table sets forth the computation of basic and diluted net income per common unit.
 
   
Three Months Ended March 31,
 
   
2009
   
2008
 
Numerators for basic and diluted net income per common unit:
           
Net income attributable to Genesis Energy, L.P.
  $ 5,290     $ 1,645  
Less: General partner's incentive distribution to to be paid for the period
    (1,125 )     (429 )
Add:  Expense for Class B Membership Awards (Note 12)
    2,146       -  
Subtotal
    6,311       1,216  
Less: General partner 2% ownership
    (126 )     (24 )
Income available for common unitholders
  $ 6,185     $ 1,192  
                 
Denominator for basic per common unit:
               
Common Units
    39,457       38,253  
                 
Denominator for diluted per common unit:
               
Common Units
    39,457       38,253  
Phantom Units
    109       44  
      39,566       38,297  
                 
Basic net income per common unit
  $ 0.16     $ 0.03  
Diluted net income per common unit
  $ 0.16     $ 0.03  
 
10.  Business Segment Information
 
Our operations consist of four operating segments:  (1) Pipeline Transportation – interstate and intrastate crude oil and CO2; (2) Refinery Services – processing high sulfur (or “sour”) gas streams as part of refining operations to remove the sulfur and selling the related by-product; (3) Supply and Logistics – terminaling, blending, storing, marketing, gathering and transporting by truck and barge crude oil and petroleum products, and (4) Industrial Gases – the sale of CO2 acquired under volumetric production payments to industrial customers and our investment in a syngas processing facility. All of our revenues are derived from, and all of our assets are located in the United States.
 

 
-16-

 
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
During the fourth quarter of 2008, we revised the manner in which we internally evaluate our segment performance.  As a result, we changed our definition of segment margin to include within segment margin all costs that are directly associated with the business segment.  Segment margin now includes costs such as general and administrative expenses that are directly incurred by the business segment.  Segment margin also includes all payments received under direct financing leases.  In order to improve comparability between periods, we exclude from segment margin the non-cash effects of our stock-based compensation plans which are impacted by changes in the market price for our common units.  Segment information for the three months ended March 31, 2008 has been retrospectively revised to conform to this segment presentation.  We now define segment margin as revenues less cost of sales, operating expenses (excluding non-cash charges, such as depreciation and amortization), and segment general and administrative expenses, plus our equity in distributable cash generated by our joint ventures.  Our segment margin definition also excludes the non-cash effects of our stock-based compensation plans, and includes the non-income portion of payments received under direct financing leases.  Our chief operating decision maker (our Chief Executive Officer) evaluates segment performance based on a variety of measures including segment margin, segment volumes where relevant and maintenance capital investment.
 
   
Pipeline Transportation
   
Refinery Services
   
Supply &Logistics
   
Industrial Gases (a)
   
Total
 
Three Months Ended March 31, 2009
                             
Segment margin excluding depreciation and amortization (b)
  $ 10,225     $ 12,759     $ 5,956     $ 3,023     $ 31,963  
                                         
Capital expenditures (c)
  $ 2,090     $ 1,800     $ 11,638     $ 21     $ 15,549  
Maintenance capital expenditures
  $ 274     $ 493     $ 181     $ -     $ 948  
                                         
Revenues:
                                       
External customers
  $ 11,315     $ 49,905     $ 188,544     $ 3,729     $ 253,493  
Intersegment (d)
    1,093       (1,611 )     518       -       -  
Total revenues of reportable segments
  $ 12,408     $ 48,294     $ 189,062     $ 3,729     $ 253,493  
                                         
Three Months Ended March 31, 2008
                                       
Segment margin excluding depreciation and amortization (b)
  $ 4,661     $ 12,430     $ 4,061     $ 3,199     $ 24,351  
                                         
Capital expenditures (c)
  $ 1,278     $ 1,151     $ 4,603     $ 2,210     $ 9,242  
Maintenance capital expenditures
  $ 165     $ 281     $ 330     $ -     $ 776  
                                         
Revenues:
                                       
External customers
  $ 6,788     $ 43,912     $ 431,615     $ 3,870     $ 486,185  
Intersegment (d)
    1,497       -       (1,497 )     -       -  
Total revenues of reportable segments
  $ 8,285     $ 43,912     $ 430,118     $ 3,870     $ 486,185  

 
-17-

 
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 
a)
Industrial gases includes our CO2 marketing operations and our equity income from our investments in T&P Syngas and Sandhill.
 
b)
A reconciliation of segment margin to income before income taxes and non-controlling interests for the periods presented is as follows:

 
   
Three Months Ended March 31,
 
   
2009
   
2008
 
Segment margin excluding depreciation and amortization
  $ 31,963     $ 24,351  
Corporate general and administrative expenses
    (7,501 )     (5,229 )
Depreciation and amortization
    (15,419 )     (16,789 )
Net gain (loss) on disposal of surplus assets
    218       (18 )
Interest expense, net
    (3,035 )     (1,669 )
Non-cash expenses not included in segment margin
    (716 )     192  
Other non-cash items affecting segment margin
    382       (570 )
Income before income taxes
  $ 5,892     $ 268  
 
 
c)
Capital expenditures includes fixed asset additions and acquisitions of businesses.
 
d)
Intersegment sales were conducted on an arm’s length basis.

 
11.  Transactions with Related Parties
 
Sales, purchases and other transactions with affiliated companies, in the opinion of management, are conducted under terms no more or less favorable than then-existing market conditions.  The transactions with related parties were as follows:
 
   
Three Months Ended March 31,
 
   
2009
   
2008
 
             
Truck transportation services provided to Denbury
  $ 1,048     $ 458  
Pipeline transportation services provided to Denbury
  $ 3,714     $ 1,295  
Payments received under direct financing leases from Denbury
  $ 5,462     $ 295  
Pipeline transportation income portion of direct financing lease fees
  $ 4,606     $ 162  
Pipeline monitoring services provided to Denbury
  $ 30     $ 30  
Directors' fees paid to Denbury
  $ 51     $ 30  
CO2 transportation services provided by Denbury
  $ 1,240     $ 1,257  
Crude oil purchases from Denbury
  $ 1,713     $ -  
Operations, general and administrative services provided by our general partner
  $ 16,380     $ 14,328  
Distributions to our general partner on its limited partner units and general partner interest, including incentive distributions
  $ 2,022     $ 1,274  
Sales of CO2 to Sandhill
  $ 677     $ 707  
Petroleum products sales to Davison family businesses
  $ 196     $ 266  
 
 
-18-

 
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Transportation Services
 
We provide truck transportation services to Denbury to move its crude oil from the wellhead to our Mississippi pipeline.  Denbury pays us a fee for that trucking service which varies with the distance we haul its crude oil.  Those fees are reflected in the Unaudited Consolidated Statements of Operations as supply and logistics revenues.
 
Denbury is the only shipper (other than us) on our Mississippi pipeline, and we earn tariffs for transporting its oil.  We earned fees from Denbury for the transportation of its CO2 on our Free State pipeline.  We also earned fees from Denbury under the direct financing lease arrangements for the Olive and Brookhaven crude oil pipelines and the Brookhaven and NEJD CO2 pipelines and recorded pipeline transportation income from those arrangements.
 
We also provide pipeline monitoring services to Denbury.  That revenue is included in pipeline revenues in our Unaudited Consolidated Statements of Operations.
 
Directors’ Fees
 
We paid Denbury for the services of each of four of Denbury’s officers who serve as directors of our general partner.  The annual rate and rate for attendance at meetings are the same as the rates at which our other directors were paid.
 
CO2 Operations and Transportation
 
Denbury charges us a transportation fee of $0.16 per Mcf (adjusted for inflation) to deliver CO2 for us to our customers.   In the first three months of 2009, the inflation-adjusted transportation fee averaged $0.1978 per Mcf.
 
Operations, General and Administrative Services
 
We do not directly employ any persons to manage or operate our business.  Those functions and personnel are provided by our general partner.  We reimburse our general partner for all direct and indirect costs of those services, excluding any payments to our management team pursuant to their Class B Membership Interests.  See Note 12.
 
Amounts due to and from Related Parties
 
At March 31, 2009 and December 31, 2008, we owed Denbury $2.6 million and $1.0 million, respectively, for CO2 transportation charges and purchases of crude oil.  Denbury owed us $1.6 million and $2.0 million for transportation services at March 31, 2009 and December 31, 2008, respectively.  We owed our general partner $0.8 million and $2.1 million for administrative services at March 31, 2009 and December 31, 2008, respectively.  At both March 31, 2009 and December 31, 2008, Sandhill owed us $0.7 million for purchases of CO2.
 
DG Marine Joint Venture
 
Our partner in the DG Marine joint venture is TD Marine, a joint venture consisting of three members of the Davison family.
 
Financing
 
Our credit facility is non-recourse to our general partner, except to the extent of its pledge of its 0.01% general partner interest in Genesis Crude Oil, L.P.  Our general partner’s principal assets are its general and limited partnership interests in us.  Our credit agreement obligations are not guaranteed by Denbury or any of its other subsidiaries.  
 
We guarantee 50% of the obligation of Sandhill to a bank.  At March 31, 2009, the total amount of Sandhill’s obligation to the bank was $3.0 million; therefore, our guarantee was for $1.5 million.
 
Approximately 14% of the outstanding common shares of Community Trust Bank are held by Davison family members.  Community Trust Bank is a 17% participant in the DG Marine credit facility.  James E. Davison, Jr., a member of our board of directors, also serves on the board of the holding company that owns Community Trust Bank.
 
 
-19-

 
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
As discussed in Note 12, we recorded a non-cash capital contribution from our general partner of $2.1 million for the three months ended March 31, 2009 related to the Class B Membership Awards for our executive management team.
 
12.  Equity-Based Compensation
 
We recorded charges and credits related to our equity-based compensation plans and awards for three months ended March 31, 2009 and 2008 as follows:
 
Expense (Credits to Expense) Related to Equity-Based Compensation
 
 
   
Three Months Ended
 
Statement of Operations
 
2009
   
2008
 
Pipeline operating costs
  $ 33     $ (140 )
Refinery services operating costs
    77       18  
Supply and logistics operating costs
    209       (127 )
General and administrative expenses
    2,510       (505 )
Total
  $ 2,829     $ (754 )

 
Stock Appreciation Rights Plan
 
The following table reflects rights activity under our plan during the three months ended March 31, 2009:
 
Stock Appreciation Rights
 
Rights
   
Weighted Average Exercise Price
   
Weighted Average Contractual Remaining Term (Yrs)
   
Aggregate Intrinsic Value
 
                         
Outstanding at January 1, 2009
    1,017,985     $ 18.09              
Granted during 2009
    228,215     $ 13.00              
Exercised during 2009
    (2,157 )   $ 11.10              
Forfeited or expired during 2009
    (27,579 )   $ -              
Outstanding at March 31, 2009
    1,216,464     $ 16.65       6.3     $ 89  
Exercisable at March 31, 2009
    455,290     $ 15.91       6.4     $ 87  

 
The weighted-average fair value at March 31, 2009 of rights granted during the first three months of 2009 was $2.04 per right, determined using the following assumptions:
 
Assumptions Used for Fair Value of Rights
 
Granted in First Quarter 2009
 
Expected life of rights (in years)
    6.25  
Risk-free interest rate
    2.20 %
Expected unit price volatility
    44.7 %
Expected future distribution yield
    6.00 %
 
 
The total intrinsic value of rights exercised during the first three months of 2009 was less than $0.1 million, which was paid in cash to the participants.
 
At March 31, 2009, there was $0.6 million of total unrecognized compensation cost related to rights that we expect will vest under the plan. For the awards outstanding at March 31, 2009, the remaining cost will be recognized over a weighted average period of one year.
 
 
-20-


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
2007 Long Term Incentive Plan
 
The following table summarizes information regarding our non-vested Phantom Unit grants as of March 31, 2009:
 
Non-vested Phantom Unit Grants
 
Number of Units
   
Weighted-Average Grant-Date Fair Value
 
             
Non-vested at January 1, 2009
    78,388     $ 19.32  
Granted
    82,501     $ 8.14  
Non-vested at March 31, 2009
    160,889     $ 13.59  
 
 
The weighted-average fair value of Phantom Units granted during the first quarter of 2009 was determined using the following assumptions:
 
Grant Date Price
  $ 10.19  
Expected Distribution Rate
  $ 0.33  
Risk Free Rate
    0.73% - 1.50 %
 
 
The aggregate grant date fair value of Phantom Unit awards granted during the three months ended March 31, 2009 was $0.7 million.  As of March 31, 2009, there was $1.3 million of unrecognized compensation expense related to these units.  This unrecognized compensation cost is expected to be recognized over a weighted-average period of one year.
 
Class B Membership Interests
 
As part of finalizing the compensation arrangements for our Senior Executives on December 31, 2008, our general partner awarded them an equity interest in our general partner as long-term incentive compensation. Those Class B Membership Interests compensate the holders thereof by providing rewards based on increased shares of the cash distributions attributable to our incentive distribution rights (or IDRs) (See Note 9) to the extent we increase Cash Available Before Reserves, or CABR (defined below) (from which we pay distributions on our common units) above specified targets.   CABR generally means Available Cash before Reserves, less Available Cash before Reserves generated from specific transactions with our general partner and its affiliates (including Denbury Resources Inc.) The Class B Membership Interests do not provide any Senior Executive with a direct interest in any assets (including our IDRs) owned by our general partner.
 
Our general partner has agreed that it will not seek reimbursement (on behalf of itself or its affiliates) under our partnership agreement for the costs of these Senior Executive compensation arrangements to the extent relating to their ownership of Class B Membership Interests (including current cash distributions made by the general partner out of its IDRs and payment of redemption amounts for those IDRs) and the deferred compensation amounts.  Although our general partner will not seek reimbursement for the costs of the Class B Membership Interests and deferred compensation plan arrangements, we will record non-cash compensation expense.   The Class B Membership Interests awarded to our senior executives are accounted for as liability awards under the provisions of SFAS 123(R).  As such, the fair value of the compensation cost we record for these awards is recomputed at each measurement date and the expense to be recorded is adjusted based on that fair value.  Management’s estimates of the fair value of these awards are based on assumptions regarding a number of future events, including estimates of the Available Cash before Reserves we will generate each quarter through the final vesting date of December 31, 2012, estimates of the future amount of incentive distributions we will pay to our general partner, and assumptions about appropriate discount rates.  Additionally the determination of fair value is affected by the distribution yield of ten publicly-traded entities that are the general partners in publicly-traded master limited partnerships, a factor over which we have no control.  Included within the assumptions used to prepare these estimates are projections of available cash and distributions to our common unitholders and general partner, including an assumed level of growth and the effects of future new growth projects during the four-year vesting period.  These assumptions were used to estimate the total amount that would be paid under the Class B Membership awards through the final vesting date and do not represent the contractual amounts payable under these awards at the reporting date.
 
 
-21-


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
At March 31, 2009, we computed the fair value of the awards utilizing a discount rate of 15%, representing the risks inherent in the assumptions we used and the time until final vesting.  Due to the limited number of participants in the Class B Membership awards, we assumed a forfeiture rate of zero.  At March 31, 2009, management estimates that the fair value of the Class B Membership Awards and the related deferred compensation awards granted to our Senior Executives on that date is approximately $19.9 million.  Management’s estimates of fair value are made in order to record non-cash compensation expense over the vesting period, and do not necessarily represent the contractual amounts payable under these awards at March 31, 2009.
 
The fair value of these incentive awards will be recomputed each quarter through the final settlement of the awards.  The fair value to be recorded by us as compensation expense in each quarterly period will be the excess of the recomputed estimated fair value over the previously recorded amounts, and will consider the vesting conditions for the awards.  This expense will be recorded on an accelerated basis to align with the requisite service period of the award.  Changes in our assumptions will change the amount of compensation cost we record.  For the three months ended March 31, 2009, we recorded expense of $2.1 million.
 
13.  Supplemental Cash Flow Information
 
The following table provides information regarding the net changes in components of operating assets and liabilities.
 
    Three Months Ended March 31,  
   
2009
   
2008
 
Decrease (increase) in:
           
Accounts receivable
  $ 3,971     $ (21,194 )
Inventories
    (2,851 )     (1,928 )
Other current assets
    (2,373 )     (371 )
Increase (decrease) in:
               
Accounts payable
    (10,099 )     26,699  
Accrued liabilities
    (8,859 )     (2,325 )
Net changes in components of operating assets and liabilities,  net of working capital acquired
  $ (20,211 )   $ 881  

 
Cash received by us for interest for the three months ended March 31, 2009 and 2008 was $3,000 and $78,000, respectively.  Payments of interest and commitment fees were $3,860,000 and $2,398,000 for the three months ended March 31, 2009 and 2008, respectively.
 
Cash paid for income taxes during the three months ended March 31, 2009 and 2008 were $917,000 and $62,000, respectively.
 
At March 31, 2009, we had incurred liabilities for fixed asset and other asset additions totaling $0.6 million that had not been paid at the end of the first quarter, and, therefore, are not included in the caption “Payments to acquire fixed assets” and “Other, net” under investing activities on the Unaudited Consolidated Statements of Cash Flows.  At March 31, 2008, we had incurred $1.3 million of liabilities that had not been paid at that date and are not included in “Payments to acquire fixed assets” under investing activities.
 
14.  Major Customers and Credit Risk
 
Due to the nature of our supply and logistics operations, a disproportionate percentage of our trade receivables consist of obligations of energy companies.  This industry concentration has the potential to impact our overall exposure to credit risk, either positively or negatively, in that our customers could be affected by similar changes in economic, industry or other conditions.  However, we believe that the credit risk posed by this industry concentration is offset by the creditworthiness of our customer base.  Our portfolio of accounts receivable is comprised in large part of integrated and large independent energy companies with stable payment experience.  The credit risk related to contracts which are traded on the NYMEX is limited due to the daily cash settlement procedures and other NYMEX requirements.
 
 
-22-


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
We have established various procedures to manage our credit exposure, including initial credit approvals, credit limits, collateral requirements and rights of offset.  Letters of credit, prepayments and guarantees are also utilized to limit credit risk to ensure that our established credit criteria are met.
 
Shell Oil Company accounted for 13% and 18% of total revenues in the three months ended March 31, 2009 and 2008, respectively.  The majority of the revenues from this customer in both periods relate to our crude oil supply and logistics operations.
 
15.  Derivatives
 
On January 1, 2009, we adopted SFAS 161 which requires enhanced disclosures about (1) how and why we use derivative instruments, (2) how derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), and (3) how derivative instruments and related hedged items affect our financial position, financial performance and cash flows.
 
Commodity Derivatives
 
We have exposure to commodity price changes related to our inventory and purchase commitments.  We utilize derivative instruments (primarily futures and options contracts traded on the NYMEX) to hedge our exposure to commodity prices, primarily crude oil, fuel oil and petroleum products; however only a portion of these instruments are designated as hedges under the provisions of SFAS 133. Our decision as to whether to designate derivative instruments as fair value hedges under SFAS 133 relates to our expectations of the length of time we expect to have the commodity price exposure and our expectations as to whether the derivative contract will qualify as highly effective under SFAS 133 in limiting our exposure to commodity price risk.  Most of the petroleum products, including fuel oil, that we supply cannot be hedged with a high degree of effectiveness with derivative contracts available on the NYMEX, therefore we do not designate derivative contracts utilized to limit our price risk related to these products as hedges for accounting purposes.  Typically we utilize crude oil and natural gas futures and option contracts to limit our exposure to the effect of fluctuations in petroleum products prices on the future sale of our inventory or commitments to purchase petroleum products, and we recognize any changes in fair value of the derivative contracts as increases or decreases in our cost of sales.  The recognition of changes in fair value of the derivative contracts not designated as hedges under SFAS 133 can occur in reporting periods that do not coincide with the recognition of gain or loss on the actual transaction being hedged, therefore we will, on occasion, report gains or losses in one period that will be partially offset by gains or losses in a future period when the hedged transaction is completed.
 
We have designated certain crude oil futures contracts as hedges of crude oil inventory due to our expectation that these contracts will be highly effective in hedging our exposure to fluctuations in crude oil prices during the period that we expect to hold that inventory.  We account for these derivative instruments as fair value hedges under the provisions of SFAS 133.  Changes in the fair value of these derivative instruments designated as fair value hedges are used to offset related changes in the fair value of the hedged crude oil inventory.  Any hedge ineffectiveness in these fair value hedges and any amounts excluded from effectiveness testing are recorded as a gain or loss in the consolidated statements of operations.
 
In accordance with NYMEX requirements, we fund the margin associated with our loss positions on commodity derivative contracts traded on the NYMEX.  The amount of the margin is adjusted daily based on the fair value of the commodity contracts.  The margin requirements are intended to mitigate a party’s exposure to market volatility and the associated contracting party risk.  We offset fair value amounts recorded for our hedge contracts against margin funded to the NYMEX in Other Current Assets in our Unaudited Consolidated Balance Sheets.
 
 
-23-


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
At March 31, 2009, we had the following outstanding derivative commodity futures, forwards and options contracts that were entered into to hedge inventory or fixed price purchase commitments:
 
   
Sell (Short)
   
Buy (Long)
 
   
Contracts
   
Contracts
 
Designated under SFAS 133:
           
Crude oil futures:
           
Contract volumes (1,000 bbls)
    312       124  
Weighted average contract price per bbl
  $ 51.89     $ 50.12  
                 
Not qualifying or not designated under SFAS 133:
               
Crude oil futures:
               
Contract volumes (1,000 bbls)
    147       42  
Weighted average contract price per bbl
  $ 49.40     $ 50.73  
                 
Crude oil forwards:
               
Contract volumes (1,000 bbls)
    90       18  
Weighted average contract price per bbl
  $ 45.70     $ 48.65  
                 
Heating oil futures:
               
Contract volumes (1,000 bbls)
    8          
Weighted average contract price per gal
  $ 1.48          
                 
Natural gas futures:
               
Contract volumes (10,000 mmBtus)
            5  
Weighted average contract price per mmbtu
          $ 4.02  
                 
Crude oil written/purchased call options:
               
Contract volumes (1,000 bbls)
    45       40  
Weighted average premium received/paid
  $ 2.76     $ 3.66  
 
 
Interest Rate Derivatives
 
DG Marine utilizes swap contracts with financial institutions to hedge interest rates for $32.9 million of its outstanding debt through July 2011.  The weighted average interest rate of these swap contracts is 4.04%.  Because DG Marine expects these interest rate swap contracts to be highly effective in limiting its exposure to fluctuations in market interest rates, we have designated these swap contracts as cash flow hedges under the provisions of SFAS 133.  The effective portion of the derivative represents the change in fair value of the hedge that offsets the change in fair value of the hedged item.  The effective portion of the gain or loss in the fair value of these swap contracts is reported as a component of Accumulated Other Comprehensive Income (Loss) (AOCI) and reclassified into future earnings contemporaneously as interest expense associated with the underlying debt under the DG Marine credit facility is recorded.  To the extent that the change in the fair value of the interest rate swaps do not perfectly offset the change in the fair value of our exposure to interest rates, the ineffective portion of the hedge will be immediately recognized in interest expense in our Unaudited Consolidated Statements of Operations.
 
 
-24-


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
Financial Statement Impacts
 
The following table summarizes the accounting treatment and classification of our derivative instruments on our Unaudited Consolidated Financial Statements.
 
       
Impact of Unrealized Gains and Losses
       
Unaudited Consolidated
 
Unaudited Consolidated
Derivative Instrument
 
Hedged Risk
 
Balance Sheets
 
Statements of Operations
Designated under SFAS 133:
           
Crude oil futures contracts(fair value hedge)
 
Volatility in crude oil prices - effect on market value of inventory
 
Derivative is recorded in Other Current Assets (offset against margin deposits) and offsetting change in fair value of inventory is recorded in Inventory
 
Excess, if any, over effective portion of hedge is recorded in Supply and Logistics - Cost of Sales. Effective portion is offset in Cost of Sales against change in value of inventory being hedged
             
Interest rate swaps(cash flow hedge)
 
Changes in interest rates
 
Entire hedge is recorded in Accrued Liabilities or Other Liabilities depending on duration
 
Expect hedge to fully offset hedged risk; no ineffectiveness recorded. Effective portion is recorded in interest expense.
             
Not qualifying or not designated under SFAS 133:
           
Commodity hedges consisting of crude oil, heating oil and natural gas futures and forward contracts and call options
 
Volatility in crude oil and petroleum products prices - effect on market value of inventory or purchase commitments.
 
Derivative is recorded in Other Current Assets (offset against margin deposits) or Accrued Liabilities
 
Entire amount of change in fair value of hedge is recorded in Supply and Logistics - Cost of Sales
 
 
Unrealized gains are subtracted from net income and unrealized losses are added to net income in determining cash flows from operating activities.  Additionally, the offsetting change in the fair value of inventory that is recorded for our fair value hedges is also eliminated from net income in determining cash flows from operating activities.   Changes in margin deposits necessary to fund unrealized losses also affect cash flows from operating activities.
 
 
-25-


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
The following tables reflected the estimated fair value gain (loss) position of our hedge derivatives and related inventory impact for qualifying hedges at March 31, 2009:
 
   
Fair Value of Derivative Assets and Liabilities
   
Derivative
Assets
 
Unaudited
Consolidated Balance
Sheets Location
 
Derivative
Liabilities
 
Unaudited
Consolidated Balance
Sheets Location
Commodity derivatives - futures and call options:
               
Hedges designated under SFAS 133as fair value hedges
  $ 640  
 Other Current Assets
  $ (497 ) (1)
 Other Current Assets
Undesignated hedges
    281  
 Other Current Assets
    (559 ) (1)
 Other Current Assets
Undesignated hedges
    18  (2)
 Accrued Liabilities
    (355 )
 Accrued Liabilities
Total commodity derivatives
    939         (1,411 )  
                     
Interest rate swaps designated as cash flow hedges:
                   
Portion expected to be reclassified into earnings within one year
              (766 )
 Accrued Liabilities
Portion expected to be reclassified into after one year
              (1,194 )
 Other Liabilities
                     
Total derivatives
  $ 939       $ (3,371 )  
 
 
(1)
These derivative liabilities have been funded with margin deposits recorded in our Unaudited Consolidated Balance Sheet in Other Current Assets.
 
 
(2)
These derivative assets are subject to netting agreements and are presented on a net basis in our Unaudited Consolidated Balance Sheet in Accrued Liabilities.
 
   
Effect on Unaudited Consolidated Statements of Operations
 
   
and Other Comprehensive Income (Loss)
 
   
Amount of Gain (Loss) Recognized in Income
 
                   
   
Supply &
   
Interest Expense
   
Other Comprehensive Income
 
   
Logistics - Product Costs
   
Reclassifed from AOCI
   
Effective Portion
 
                   
Commodity derivatives - futures and call options:
                 
Hedges designated under SFAS 133
  $ (529 ) (1)   $ -     $ -  
Undesignated hedges
    182                  
Total commodity derivatives
    (347 )     -       -  
                         
Interest rate swaps designated as cash flow hedges
            (132 )     (128 )
                         
Total derivatives
  $ (347 )   $ (132 )   $ (128 )
 
 
(1)
Represents the amount of loss recognized in income for derivatives related to the fair value hedge of inventory.  The amount excludes the gain on the hedged inventory under the fair value hedge of $1.0 million.
 
 
-26-


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
During the first quarter of 2009, DG Marine’s interest rate hedges fully offset the hedged risk; therefore, there was no ineffectiveness recorded for the hedges.
 
We expect to reclassify $0.8 million in unrealized losses from AOCI into interest expense during the next 12 months.  Because a portion of these losses are based on market prices at the current period end, actual amounts to be reclassified to earnings will differ and could vary materially as a result of changes in market conditions.  We have no derivative contracts with credit contingent features.
 
16.  Fair-Value Measurements
 
The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2009.  As required by SFAS 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.  Our assessment of the significance of a particular input to the fair value requires judgment and may affect the placement of assets and liabilities within the fair value hierarchy levels.
 
   
Fair Value at March 31, 2009
 
Recurring Fair Value Measures
 
Level 1
   
Level 2
   
Level 3
 
                   
Commodity derivatives, net
  $ (135 )   $ (337 )   $ -  
                         
Interest rate swaps
  $ -     $ -     $ (1,960 )
                         
 
Level 1
 
Included in Level 1 of the fair value hierarchy are commodity derivative contracts are exchange-traded futures and exchange-traded option contracts.  The fair value of these exchange-traded derivative contracts is based on unadjusted quoted prices in active markets and is, therefore, included in Level 1 of the fair value hierarchy.
 
Level 2
 
Included within Level 2 of the fair value hierarchy are physical commodity contracts that meet the definition of a derivative but are not excluded from SFAS 133 under the normal purchase and normal sale scope exception.   The fair value of the commodity contracts are measured with Level 1 inputs for similar but not identical instruments and therefore must be included in Level 2 of the hierarchy.
 
Level 3
 
Included within Level 3 of the fair value hierarchy are our interest rate swaps.  The fair value of our interest rate swaps is based on indicative broker price quotations. These derivatives are included in Level 3 of the fair value hierarchy because broker price quotations used to measure fair value are indicative quotations rather than quotations whereby the broker or dealer is ready and willing to transact.  However, the fair value of these Level 3 derivatives is not based upon significant management assumptions or subjective inputs.
 
 
-27-

 
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
The following table provides a reconciliation of changes in fair value of the beginning and ending balances for our derivatives measured at fair value using inputs classified as Level 3 in the fair value hierarchy:
 
   
Three Months Ended
 
   
March 31, 2009
 
Balance as of January 1, 2009
  $ (1,964 )
Realized and unrealized gains (losses)-
       
Reclassified into interest expense for settled contracts
    132  
Included in other comprehensive income
    (128 )
Balance as of March 31, 2009
  $ (1,960 )
         
Total amount of losses for the three months ended March 31, 2009, included in earnings attributable to the change in unrealized losses relating to liabilities still held at March 31, 2009
  $ (11 )

 
See Note 15 for additional information on our derivative instruments.
 
We generally apply fair value techniques on a non-recurring basis associated with (1) valuing the potential impairment loss related to goodwill pursuant to SFAS 142, (2) valuing asset retirement obligations pursuant, and (3) valuing potential impairment loss related to long-lived assets accounted for pursuant to SFAS 144.
 
17.  Contingencies
 
Guarantees
 
We guaranteed $1.2 million of residual value related to the leases of trailers from a lessor.  We believe the likelihood that we would be required to perform or otherwise incur any significant losses associated with this guarantee is remote.
 
We guaranteed 50% of the obligations of Sandhill under a credit facility with a bank.  At March 31, 2009, Sandhill owed $3.0 million; therefore our guaranty was $1.5 million.  Sandhill makes principal payments for this obligation totaling $0.6 million per year.
 
We are subject to various environmental laws and regulations.  Policies and procedures are in place to monitor compliance and to detect and address any releases of crude oil from our pipelines or other facilities; however, no assurance can be made that such environmental releases may not substantially affect our business.
 
Other Matters
 
Our facilities and operations may experience damage as a result of an accident or natural disaster.  Such hazards can cause personal injury or loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage and suspension of operations.  We maintain insurance that we consider adequate to cover our operations and properties, in amounts we consider reasonable.  Our insurance does not cover every potential risk associated with operating our facilities, including the potential loss of significant revenues.  The occurrence of a significant event that is not fully-insured could materially and adversely affect our results of operations.
 
We are subject to lawsuits in the normal course of business, as well as examinations by tax and other regulatory authorities.  We do not expect such matters presently pending to have a material adverse effect on our financial position, results of operations, or cash flows.
 
 
-28-


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Included in Management’s Discussion and Analysis are the following sections:
 
 
·
Overview
 
 
·
Available Cash before Reserves
 
 
·
Results of Operations
 
 
·
Liquidity and Capital Resources
 
 
·
Commitments and Off-Balance Sheet Arrangements
 
 
·
New Accounting Pronouncements
 
In the discussions that follow, we will focus on two measures that we use to manage the business and to review the results of our operations.  Those two measures are segment margin and Available Cash before Reserves.  During the fourth quarter of 2008, we revised the manner in which we internally evaluate our segment performance.  As a result, we changed our definition of segment margin to include within segment margin all costs that are directly associated with a business segment.  Segment margin now includes costs such as general and administrative expenses that are directly incurred by a business segment.  Segment margin also includes all payments received under direct financing leases.  In order to improve comparability between periods, we exclude from segment margin the non-cash effects of our stock-based compensation plans which are impacted by changes in the market price for our common units.  Previous periods have been retrospectively revised to conform to this segment presentation.  We now define segment margin as revenues less cost of sales, operating expenses (excluding non-cash charges, such as depreciation and amortization), and segment general and administrative expenses, plus our equity in distributable cash generated by our joint ventures.  In addition, our segment margin definition excludes the non-cash effects of our stock-based compensation plans, and includes the non-income portion of payments received under direct financing leases.  Our chief operating decision maker (our Chief Executive Officer) evaluates segment performance based on a variety of measures including segment margin, segment volumes where relevant, and maintenance capital investment.  A reconciliation of segment margin to income from before income taxes is included in our segment disclosures in Note 10 to the consolidated financial statements.
 
Available Cash before Reserves (a non-GAAP measure) is net income as adjusted for specific items, the most significant of which are the addition of non-cash expenses (such as depreciation), the substitution of cash generated by our joint ventures in lieu of our equity income attributable to such joint ventures, the elimination of gains and losses on asset sales (except those from the sale of surplus assets) and the subtraction of maintenance capital expenditures, which are expenditures that are necessary to sustain existing (but not to provide new sources of) cash flows.   For additional information on Available Cash before Reserves and a reconciliation of this measure to cash flows from operations, see “Liquidity and Capital Resources - Non-GAAP Reconciliation” below.
 
Overview
 
In the first quarter of 2009, we reported net income of $5.3 million, or $0.16 per common unit.  Non-cash expense related to our senior executive compensation arrangements totaling $2.1 million reduced net income during the first quarter.  See additional discussion of our senior executive compensation expense in “Results of Operations – Other Costs, Interest and Income Taxes” below.
 
During the first quarter of 2009, we generated $21.3 million of Available Cash before Reserves, and we will distribute $14.7 million to holders of our common units and general partner for the first quarter.  During the first quarter of 2009, cash provided by operating activities was $3.2 million.
 
Segment margin for most of our segments increased in the first quarter 2009 as compared to the first quarter of 2008.  A significant portion of the increase was attributable to acquisitions during 2008, specifically the two drop down transactions with Denbury in May 2008 and the acquisition of our interest in DG Marine in July 2008.
 
On April 7, 2009, we announced that our distribution to our common unitholders relative to the first quarter of 2009 will be $0.3375 per unit (to be paid in May 2009).   This distribution amount represents a 12.5% increase from our distribution of $0.30 per unit for the first quarter of 2008.  During the first quarter of 2009, we paid a distribution of $0.33 per unit related to the fourth quarter of 2008.
 
 
-29-

 
The current economic crisis has restricted the availability of credit and access to capital in our business environment.  Despite efforts by U.S. Treasury and banking regulators to provide liquidity to the financial sector, capital markets continue to remain constrained.  While we anticipate that the challenging economic environment will continue for the foreseeable future, we believe that our current cash balances, future internally-generated funds and funds available under our credit facility will provide sufficient resources to meet our current working capital needs.  The financial performance of our existing businesses, $177.0 million in cash and existing debt commitments and no need, other than opportunistically, to access the capital markets, may allow us to take advantage of acquisition and/or growth opportunities that may develop.
 
Our ability to fund large new projects or make large acquisitions in the near term may be limited by the current conditions in the credit and equity markets which may impact our ability to issue new debt or equity financing.  We may consider other arrangements to fund large growth projects and acquisitions such as private equity and joint venture arrangements.
 
Available Cash before Reserves
 
Available Cash before Reserves was as follows (in thousands):
 
   
Three Months Ended
 
   
March 31, 2009
   
March 31, 2008
 
Net income attributable to Genesis Energy, L.P.
  $ 5,290     $ 1,645  
Depreciation and amortization
    15,419       16,789  
Cash received from direct financing leases not included in income
    907       147  
Cash effects of sales of certain assets
    405       245  
Effects of available cash generated by equity method investees not included in income
    (1,289 )     423  
Cash effects of stock appreciation rights plan
    (4 )     (158 )
Non-cash tax expense
    460       (1,626 )
Earnings of DG Marine in excess of distributable cash
    (1,970 )     -  
Other non-cash items, net
    3,072       (902 )
Maintenance capital expenditures
    (948 )     (776 )
Available Cash before Reserves
  $ 21,342     $ 15,787  
 
 
We have reconciled Available Cash before Reserves (a non-GAAP measure) to cash flow from operating activities (the GAAP measure) for the three months ended March 31, 2009 in “Liquidity and Capital Resources – Non-GAAP Reconciliation” below.  For the three months ended March 31, 2009 and 2008, cash flows provided by operating activities were $3.2 million and 17.4 million, respectively.
 
 
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Results of Operations