Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

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   76-0513049

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

919 Milam, Suite 2100, Houston, TX   77002
(Address of principal executive offices)   (Zip code)
Registrant’s telephone number, including area code:   (713) 860-2500

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  þ    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  þ    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  þ    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  þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Class A Common Units outstanding as of November 2, 2011: 71,925,065

 

 

 


Table of Contents

GENESIS ENERGY, L.P.

Form 10-Q

INDEX

 

         Page  
 

PART I. FINANCIAL INFORMATION

  
Item 1.  

Financial Statements

  
 

Unaudited Condensed Consolidated Balance Sheets – September 30, 2011 and December 31, 2010

     3   
 

Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2011 and 2010

     4   
 

Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2011 and 2010

     5   
 

Unaudited Condensed Consolidated Statement of Partners’ Capital for the Nine Months Ended September 30, 2011 and 2010

     6   
 

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010

     7   
 

Notes to Unaudited Condensed Consolidated Financial Statements

     8   
Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     32   
Item 3.  

Quantitative and Qualitative Disclosures about Market Risk

     47   
Item 4.  

Controls and Procedures

     47   
  PART II. OTHER INFORMATION   
Item 1.  

Legal Proceedings

     47   
Item 1A.  

Risk Factors

     47   
Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

     47   
Item 3.  

Defaults upon Senior Securities

     48   
Item 4.  

(Removed and Reserved)

     48   
Item 5.  

Other Information

     48   
Item 6.  

Exhibits

     48   
SIGNATURES      49   

 

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GENESIS ENERGY, L.P.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

     September 30,     December 31,  
     2011     2010  

ASSETS

    

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 4,376      $ 5,762   

Accounts receivable—trade, net

     223,797        171,550   

Inventories

     89,730        55,428   

Other

     25,460        19,798   
  

 

 

   

 

 

 

Total current assets

     343,363        252,538   

FIXED ASSETS, at cost

     511,899        373,339   

Less: Accumulated depreciation

     (116,934     (108,283
  

 

 

   

 

 

 

Net fixed assets

     394,965        265,056   

NET INVESTMENT IN DIRECT FINANCING LEASES, net of unearned income

     164,712        168,438   

EQUITY INVESTEES

     331,703        343,434   

INTANGIBLE ASSETS, net of amortization

     101,323        120,175   

GOODWILL

     325,046        325,046   

OTHER ASSETS, net of amortization

     30,091        32,048   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 1,691,203      $ 1,506,735   
  

 

 

   

 

 

 

LIABILITIES AND PARTNERS’ CAPITAL

    

CURRENT LIABILITIES:

    

Accounts payable—trade

   $ 180,994      $ 165,978   

Accrued liabilities

     56,568        40,736   
  

 

 

   

 

 

 

Total current liabilities

     237,562        206,714   

SENIOR SECURED CREDIT FACILITIES

     367,900        360,000   

SENIOR UNSECURED NOTES

     250,000        250,000   

DEFERRED TAX LIABILITIES

     13,715        15,193   

OTHER LONG-TERM LIABILITIES

     6,384        5,564   

COMMITMENTS AND CONTINGENCIES (Note 14)

    

PARTNERS’ CAPITAL:

    

Common unitholders, 71,965 and 64,615 units issued and outstanding at September 30, 2011 and December 31, 2010, respectively

     815,642        669,264   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND PARTNERS’ CAPITAL

   $ 1,691,203      $ 1,506,735   
  

 

 

   

 

 

 

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

 

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GENESIS ENERGY, L.P.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit amounts)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2011     2010     2011     2010  

REVENUES:

        

Supply and logistics

   $ 765,714      $ 523,488      $ 2,091,854      $ 1,351,751   

Refinery services

     48,392        38,437        145,301        106,160   

Pipeline transportation services

     16,094        14,087        45,633        41,170   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     830,200        576,012        2,282,788        1,499,081   

COSTS AND EXPENSES:

        

Supply and logistics product costs

     710,355        490,358        1,961,038        1,251,777   

Supply and logistics operating costs

     33,478        25,656        83,516        73,285   

Refinery services operating costs

     30,136        22,251        89,986        60,268   

Pipeline transportation operating costs

     3,988        3,497        12,414        11,039   

General and administrative

     8,905        10,583        25,339        23,678   

Depreciation and amortization

     14,593        13,477        42,749        40,489   

Net loss on disposal of surplus assets

     113        7        351        25   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     801,568        565,829        2,215,393        1,460,561   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     28,632        10,183        67,395        38,520   

Equity in (losses) earnings of equity investees

     (412     377        3,377        922   

Interest expense

     (8,960     (6,542     (26,670     (13,506
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     19,260        4,018        44,102        25,936   

Income tax expense

     (172     (155     (626     (1,827
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

     19,088        3,863        43,476        24,109   

Net loss attributable to noncontrolling interests

     —          1,205        —          2,082   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P.

   $ 19,088      $ 5,068      $ 43,476      $ 26,191   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P. PER COMMON UNIT:

        

Basic and Diluted

   $ 0.27      $ 0.12      $ 0.65      $ 0.48   

WEIGHTED AVERAGE OUTSTANDING COMMON UNITS:

        

Basic and Diluted

     70,447        39,586        66,580        39,573   

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

 

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GENESIS ENERGY, L.P.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

(In thousands)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011      2010     2011      2010  

Net income

   $ 19,088       $ 3,863      $ 43,476       $ 24,109   

Change in fair value of derivatives:

          

Current period reclassification to earnings—interest rate swaps

     —           1,553        —           2,112   

Changes in derivative financial instruments—interest rate swaps

     —           (224     —           (424
  

 

 

    

 

 

   

 

 

    

 

 

 

Comprehensive income

     19,088         5,192        43,476         25,797   

Comprehensive loss attributable to noncontrolling interests

     —           529        —           1,223   
  

 

 

    

 

 

   

 

 

    

 

 

 

Comprehensive income attributable to Genesis Energy, L.P.

   $ 19,088       $ 5,721      $ 43,476       $ 27,020   
  

 

 

    

 

 

   

 

 

    

 

 

 

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

 

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GENESIS ENERGY, L.P.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(In thousands)

 

     Partners’ Capital  
     Number of         
     Common      Common  
     Units      Unitholders  

Partners’ capital, December 31, 2010

     64,615       $ 669,264   

Net income

     —           43,476   

Cash distributions

     —           (82,067

Issuance of units

     7,350         184,969   
  

 

 

    

 

 

 

Partners’ capital, September 30, 2011

     71,965       $ 815,642   
  

 

 

    

 

 

 

 

     Partners’ Capital  
                        Accumulated              
     Number of                  Other     Non-        
     Common      Common     General     Comprehensive     Controlling     Total  
     Units      Unitholders     Partner     Loss     Interests     Capital  

Partners’ capital, December 31, 2009

     39,488       $ 585,554      $ 11,152      $ (829   $ 23,056      $ 618,933   

Comprehensive income:

             

Net income

     —           20,052        6,139        —          (2,082     24,109   

Current period reclassification to earnings—interest rate swaps

     —           —          —          1,035        1,077        2,112   

Changes in derivative financial instruments—interest rate swaps

     —           —          —          (206     (218     (424

Cash contributions

     —           —          37        —          —          37   

Cash distributions

     —           (43,644     (7,909     —          (5     (51,558

Contribution for executive compensation

     —           —          1,289        —          —          1,289   

Unit based compensation expense

     98         20        —          —          —          20   

Acquisition of non-controlling interest in DG Marine

     —           (4,903     (100     —          (21,268     (26,271
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Partners’ capital, September 30, 2010

     39,586       $ 557,079      $ 10,608      $ —        $ 560      $ 568,247   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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GENESIS ENERGY, L.P.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

     Nine Months Ended September 30,  
             2011                     2010          

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 43,476      $ 24,109   

Adjustments to reconcile net income to net cash provided by operating activities—

    

Depreciation and amortization

     42,749        40,489   

Amortization and write-off of credit facility issuance costs

     2,102        2,498   

Amortization of unearned income and initial direct costs on direct financing leases

     (12,968     (13,275

Payments received under direct financing leases

     16,389        16,389   

Equity in earnings of investments in equity investees

     (3,377     (922

Cash distributions of earnings of equity investees

     6,725        1,494   

Non-cash effect of equity-based compensation plans

     (1,505     1,941   

Non-cash compensation credit

     —          1,289   

Deferred and other tax liabilities

     (27     649   

Unrealized (gains) losses on derivative transactions

     (4,370     2,284   

Other, net

     690        139   

Net changes in components of operating assets and liabilities, net of acquisitions (See Note 11)

     (50,738     (43,010
  

 

 

   

 

 

 

Net cash provided by operating activities

     39,146        34,074   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Payments to acquire fixed and intangible assets

     (15,157     (8,799

Cash distributions received from equity investees—return of investment

     8,577        308   

Investments in equity investees

     (194     —     

Acquisition of FMT assets

     (143,489     —     

Proceeds from asset sales

     4,444        1,127   

Other, net

     129        (371
  

 

 

   

 

 

 

Net cash used in investing activities

     (145,690     (7,735
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Bank borrowings

     571,700        561,429   

Bank repayments

     (563,800     (502,329

Credit facility issuance fees

     (3,018     (7,584

Issuance of common units for cash, net

     184,969        —     

General partner contributions

     —          37   

Noncontrolling interests contributions, net of distributions

     —          (5

Distributions to common unitholders

     (82,067     (43,644

Distributions to general partner interest

     —          (7,909

Acquisition of non-controlling interests in DG Marine

     —          (26,271

Other, net

     (2,626     (1,153
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     105,158        (27,429
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (1,386     (1,090

Cash and cash equivalents at beginning of period

     5,762        4,148   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 4,376      $ 3,058   
  

 

 

   

 

 

 

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

 

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation and Consolidation

Organization

We are a growth-oriented master 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 three divisions:

 

   

Pipeline transportation of crude oil and carbon dioxide (or CO2);

 

   

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); and

 

   

Supply and logistics services, which includes terminaling, blending, storing, marketing, and transporting crude oil, petroleum products and CO2.

In February 2010, new investors, together with members of our executive management team, acquired our general partner. At that time, our general partner owned all our 2% general partner interest and all of our incentive distribution rights, or IDRs. In respect of its general partner interest and IDRs, our general partner was entitled to over 50% of any increased distributions we would pay in respect of our outstanding equity.

On December 28, 2010, we permanently eliminated our IDRs and converted our 2% general partner interest into a non-economic interest, which we refer to as our IDR Restructuring. We issued Class A Units, Class B Units and Waiver Units to the former stakeholders of our general partner in exchange for the elimination of our IDRs. See additional information on our outstanding equity in Note 8.

Basis of Presentation and Consolidation

The accompanying Unaudited Condensed 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, and Genesis Energy, LLC, our general partner. The inclusion of Genesis Energy, LLC in our Consolidated Financial Statements was effective December 28, 2010 due to our IDR Restructuring.

Our 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 condensed 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, 2010.

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.

2. Recent Accounting Developments

Recently Issued

In September 2011, the Financial Accounting Standards Board (“FASB”) issued guidance that simplified how an entity tests goodwill for impairment. The revised guidance provides an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment. Under the revised guidance, an entity is permitted to first assess qualitative factors to determine whether goodwill impairment exists prior to performing analyses comparing the fair value of a reporting unit to its carrying amount. If, after assessing the totality of events or circumstances, an

 

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The guidance will be effective for us beginning January 1, 2012; however early adoption is permitted. We intend to adopt the FASB’s guidance early and do not believe the adoption of the guidance will have a significant impact on our financial position, results of operations or cash flows.

In June 2011, the FASB issued guidance that modified how comprehensive income is presented in an entity’s financial statements. The guidance issued requires an entity to present the total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements and eliminates the option to present the components of other comprehensive income as part of the statement of equity. The revised financial statement presentation for comprehensive income will be effective for us beginning January 1, 2012, with early adoption permitted. The adoption of this guidance is not expected to have a significant impact on our financial position, results of operations or cash flows.

Recently Adopted

In December 2010, the FASB revised its guidance for disclosure requirements of supplementary pro forma information for business combinations. The objective of the revised guidance is to address diversity in practice regarding pro forma disclosures for revenues and earnings of an acquired entity and specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments, which went into effect on January 1, 2011, will be adhered to any future material business combinations.

3. Acquisition

FMT Black Oil Barge Transportation Business

On August 9, 2011, Genesis completed the acquisition of the black oil barge transportation business of Florida Marine Transporters, Inc. and its affiliates, or FMT. The purchase price was $141 million plus customary adjustments. The acquired business is comprised of 30 barges (seven of which are being sub-leased under similar terms of an existing FMT lease) and 14 push/tow boats which transport heavy refined products, primarily serving refineries and storage terminals along the Gulf Coast, Intracoastal Canal and western river systems of the United States, including the Red, Ouachita and Mississippi Rivers. The barges have an average age of approximately three years with 13 having been in service three years or less.

The financial results of the acquired business will be included in the supply and logistics segment. The acquisition is intended to complement and further integrate certain existing operations, including the DG Marine inland barge business (comprised of 20 barges and 10 push/tow boats), storage and blending terminals and crude oil pipeline systems. The expanded fleet of 50 barges are capable of transporting heavy refined products, including asphalt, and with minor modifications, half of the barges (representing 750,000 barrels of capacity) will be capable of transporting crude oil as well.

The acquisition and related transaction costs were funded with a portion of the net proceeds from the July 2011 public offering of our common units. See Note 8 for additional information regarding the unit offering.

The total acquisition cost has been allocated to the assets acquired based on estimated preliminary fair values. Such preliminary fair values were developed by management. We do not expect any material adjustments to these preliminary purchase price allocations as a result of the final valuation.

 

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The preliminary allocation of the acquisition cost is summarized as follows:

 

Property and equipment:

  

Barges

   $ 84,942   

Boats

     56,117   

Spare parts inventory

     405   

Other current assets:

  

Fuel and lube oil in vessels

     2,025   
  

 

 

 

Total allocated cost

   $ 143,489   
  

 

 

 

4. Inventories

The major components of inventories were as follows:

 

     September 30, 2011      December 31, 2010  

Crude oil

   $ 11,130       $ 6,128   

Petroleum products

     61,253         38,588   

Caustic soda

     8,864         6,309   

NaHS

     8,483         4,387   

Other

     —           16   
  

 

 

    

 

 

 

Total inventories

   $ 89,730       $ 55,428   
  

 

 

    

 

 

 

Inventories are valued at the lower of cost or market. The costs of inventories exceeded market values by approximately $1.6 million at September 30, 2011, and we reduced the value of inventory in our unaudited condensed consolidated financial statements for this difference. At December 31, 2010, market values of our inventories exceeded recorded costs.

5. Equity Investees

We are accounting for our 50% ownership in Cameron Highway Oil Pipeline Company (“Cameron Highway”) under the equity method of accounting.

The following table reflects summarized income statement information for Cameron Highway for only the three and nine months ended September 30, 2011 as we did not acquire our 50% equity interest in Cameron Highway until November 23, 2010.

 

      Three Months
Ended
September 30, 2011
     Nine Months
Ended
September 30, 2011
 

Revenues

   $ 7,975       $ 32,819   

Operating Income

   $ 576       $ 11,768   

Net Income

   $ 576       $ 11,778   

We received cash distributions from Cameron Highway of $2.8 million and $13.8 million for the three and nine months ended September 30, 2011, respectively

Net income from Cameron Highway was reduced in the third quarter of 2011 as a result of lower throughput volumes by certain producers due to their field improvement activities.

 

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

6. Intangible Assets and Goodwill

Intangible Assets

The following table reflects the components of intangible assets being amortized as of:

 

     September 30, 2011      December 31, 2010  
     Gross
Carrying
Amount
     Accumulated
Amortization
     Carrying
Value
     Gross
Carrying
Amount
     Accumulated
Amortization
     Carrying
Value
 

Refinery services customer relationships

   $ 94,654       $ 59,868       $ 34,786       $ 94,654       $ 53,139       $ 41,515   

Supply and logistics customer relationships

     35,430         22,683         12,747         35,430         19,981         15,449   

Refinery services supplier relationships

     36,469         33,448         3,021         36,469         31,476         4,993   

Refinery services licensing agreements

     38,678         18,553         20,125         38,678         15,786         22,892   

Supply and logistics trade names

     18,888         13,776         5,112         18,888         7,530         11,358   

Intangibles associated with supply and logistics lease

     13,260         1,973         11,287         13,260         1,618         11,642   

Other

     16,692         2,447         14,245         13,776         1,450         12,326   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 254,071       $ 152,748       $ 101,323       $ 251,155       $ 130,980       $ 120,175   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Amortization expense on intangible assets was $7.7 million and $22.4 million for the three and nine months ended September 30, 2011, respectively. Amortization expense on intangible assets was $6.7 million and $20.0 million for the three and nine months ended September 30, 2010, respectively.

The following table reflects our estimated amortization expense for each of the five subsequent fiscal years:

 

Year Ended December 31,

   Amortization
Expense to
be Recorded
 

Remainder of 2011

   $ 8,762   

2012

   $ 19,930   

2013

   $ 14,370   

2014

   $ 12,109   

2015

   $ 10,304   

In the first quarter of 2011, we adjusted the useful lives of our supply and logistics trade names. As a result of this change in the amortization period of our assets, operating income and net income attributable to us for the three and nine months ended September 30, 2011 decreased $1.4 million, or $0.02 per common unit and $4.3 million, or $0.07 per common unit, respectively. The impact of this change on net income for the remainder of 2011 and 2012 is expected to total $1.4 million and $2.3 million, respectively, and not be material in future periods. The table of estimated future amortization expense above reflects this change.

Goodwill

The carrying amount of goodwill by business segment at both September 30, 2011 and December 31, 2010 was $301.9 million to refinery services and $23.1 million to supply and logistics.

 

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

7. Debt

On August 19, 2011, we amended our senior secured revolving credit facility to increase the committed amount from $525 million to $775 million and the accordion feature from $125 million to $225 million, giving us the ability to expand the size of the facility up to an aggregate $1 billion, subject to lenders’ consent. The amendment also increased the inventory financing sublimit tranche that we may use to finance the purchase and sale of certain petroleum products subject to sales contracts or hedging agreements and related storage and transportation costs from $75 million to $125 million. We deferred approximately $3.0 million of costs incurred in connection with this amendment and will amortize these costs over the remaining life of the credit facility.

All borrowings under our revolving credit facility bear interest, at our option, either at an alternate base rate or a Eurodollar rate. The applicable margin, which is a component of the interest on both the alternate base rate and the Eurodollar rate borrowings, previously varied from 1.5% to 2.5% per annum for alternate base rate borrowings and from 2.5% to 3.5% per annum for Eurodollar rate borrowings, depending on our leverage ratio. The amendment reduced the applicable margin to 1.0% to 2.0% per annum for alternate base rate borrowings and 2.0% to 3.0% per annum for Eurodollar borrowings, depending on our leverage ratio. In addition, the amendment changed the commitment fee on the unused commitment amount from 0.500% per annum to 0.375% to 0.500% per annum, depending on our leverage ratio.

As of September 30, 2011, we had $367.9 million borrowed under our senior secured credit facility, with $47.9 million of that amount designated as a loan under the inventory sublimit. Additionally, we had $4.3 million in letters of credit outstanding. 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 June 30, 2015. The total amount available for borrowings at September 30, 2011 was $402.8 million under our credit facility.

We believe the amounts included in our balance sheet for debt outstanding under our senior secured credit facility approximate fair value as interest rates reflect current market rates. At September 30, 2011, $250 million of senior unsecured notes were outstanding, which had a fair value of approximately $235.3 million.

We believe we were in compliance with the financial covenants contained in our credit facility and indenture as of September 30, 2011.

8. Partners’ Capital, Distributions and Net Income Per Common Unit

Partners’ Capital

At September 30, 2011, our outstanding equity consisted of 71,925,065 Class A Units and 39,997 Class B Units. Additionally 6,949,004 Waiver Units were outstanding. In July 2011, we issued 7,350,000 Class A Units in a public offering. We received proceeds, net of underwriting discounts and offering costs, of $185 million from the offering.

 

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Distributions

We paid or will pay the following distributions in 2010 and 2011:

 

Distribution For

   Date Paid   Per Unit Amount      Limited Partner
Interests Amount
     General Partner
Interest Amount
     General Partner
Incentive
Distribution Amount
     Total Amount  

Fourth quarter 2009

   February 2010   $ 0.3600       $ 14,251       $ 291       $ 2,037       $ 16,579   

First quarter 2010

   May 2010   $ 0.3675       $ 14,548       $ 297       $ 2,339       $ 17,184   

Second quarter 2010

   August 2010   $ 0.3750       $ 14,845       $ 303       $ 2,642       $ 17,790   

Third quarter 2010

   November 2010   $ 0.3875       $ 15,339       $ 313       $ 3,147       $ 18,799   

Fourth quarter 2010

   February 2011   $ 0.4000       $ 25,846       $ —         $ —         $ 25,846   

First quarter 2011

   May 2011   $ 0.4075       $ 26,343       $ —         $ —         $ 26,343   

Second quarter 2011

   August 2011 (1)   $ 0.4150       $ 29,878       $ —         $ —         $ 29,878   

Third quarter 2011

   November 2011 (2)   $ 0.4275       $ 30,777       $ —         $ —         $ 30,777   

 

  (1) This distribution included $3.1 million of distributions on the 7,350,000 Class A Common Units issued in July 2011.

 

  (2) This distribution will be paid on November 14, 2011 to unitholders of record as of November 3, 2011.

Net Income Per Common Unit

The following table sets forth the computation of basic and diluted net income per common unit.

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011      2010     2011      2010  

Numerators for basic and diluted net income per common unit:

          

Net income attributable to Genesis Energy, L.P.

   $ 19,088       $ 5,068      $ 43,476       $ 26,191   

Less: General partner's incentive distribution to be paid for the period

     —           (3,147     —           (8,128

Add: Expense for Class B Awards

     —           2,965        —           1,289   
  

 

 

    

 

 

   

 

 

    

 

 

 

Subtotal

     19,088         4,886        43,476         19,352   

Less: General partner 2% ownership

     —           (98     —           (387
  

 

 

    

 

 

   

 

 

    

 

 

 

Income available for common unitholders

   $ 19,088       $ 4,788      $ 43,476       $ 18,965   
  

 

 

    

 

 

   

 

 

    

 

 

 

Denominator for basic and diluted per common unit:

     70,447         39,586        66,580         39,573   
  

 

 

    

 

 

   

 

 

    

 

 

 

Basic and diluted net income per common unit

   $ 0.27       $ 0.12      $ 0.65       $ 0.48   
  

 

 

    

 

 

   

 

 

    

 

 

 

9. Business Segment Information

We define Segment Margin as revenues less product costs, 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 equity investees. Our Segment Margin definition also excludes the non-cash effects of our stock appreciation rights compensation plan, 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.

 

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Table of Contents

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

In the first quarter of 2011, we reorganized our operating segments as a result of a change in the way our Chief Executive Officer evaluates the performance of operations, develops strategy and allocates capital resources. The results of our CO2 marketing activities and processing of syngas through a joint venture, formerly reported in the industrial gases segment, are now included in our supply and logistics segment. The change in operating segments had no impact on our reportable units for goodwill purposes. The historical segment disclosures have been recast to be consistent with the current presentation. This recast also included combining revenues and costs and expenses for our industrial gases activities shown separately in our Unaudited Condensed Consolidated Statements of Operations in the 2010 period with revenues and costs and expenses for our supply and logistics activities.

 

      Pipeline
Transportation
     Refinery
Services
    Supply &
Logistics
    Total  

Three Months Ended September 30, 2011

         

Segment margin (a)

   $ 16,030       $ 17,992      $ 18,909      $ 52,931   
  

 

 

    

 

 

   

 

 

   

 

 

 

Maintenance capital expenditures

   $ 5       $ 852      $ 1,387      $ 2,244   
  

 

 

    

 

 

   

 

 

   

 

 

 

Revenues:

         

External customers

   $ 12,658       $ 50,982      $ 766,560      $ 830,200   

Intersegment (b)

     3,436         (2,590     (846     —     
  

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues of reportable segments

   $ 16,094       $ 48,392      $ 765,714      $ 830,200   
  

 

 

    

 

 

   

 

 

   

 

 

 

Three Months Ended September 30, 2010

         

Segment margin (a)

   $ 11,920       $ 16,218      $ 11,235      $ 39,373   
  

 

 

    

 

 

   

 

 

   

 

 

 

Maintenance capital expenditures

   $ 161       $ 354      $ 201      $ 716   
  

 

 

    

 

 

   

 

 

   

 

 

 

Revenues:

         

External customers

   $ 11,059       $ 40,246      $ 524,707      $ 576,012   

Intersegment (b)

     3,028         (1,809     (1,219     —     
  

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues of reportable segments

   $ 14,087       $ 38,437      $ 523,488      $ 576,012   
  

 

 

    

 

 

   

 

 

   

 

 

 

 

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Table of Contents

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

      Pipeline
Transportation
     Refinery
Services
    Supply &
Logistics
    Total  

Nine Months Ended September 30, 2011

         

Segment margin (a)

   $ 50,639       $ 54,887      $ 44,233      $ 149,759   
  

 

 

    

 

 

   

 

 

   

 

 

 

Maintenance capital expenditures

   $ 231       $ 1,219      $ 2,183      $ 3,633   
  

 

 

    

 

 

   

 

 

   

 

 

 

Revenues:

         

External customers

   $ 37,302       $ 151,899      $ 2,093,587      $ 2,282,788   

Intersegment (b)

     8,331         (6,598     (1,733     —     
  

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues of reportable segments

   $ 45,633       $ 145,301      $ 2,091,854      $ 2,282,788   
  

 

 

    

 

 

   

 

 

   

 

 

 

Nine Months Ended September 30, 2010

         

Segment margin (a)

   $ 33,756       $ 45,668      $ 28,463      $ 107,887   
  

 

 

    

 

 

   

 

 

   

 

 

 

Maintenance capital expenditures

   $ 295       $ 1,169      $ 795      $ 2,259   
  

 

 

    

 

 

   

 

 

   

 

 

 

Revenues:

         

External customers

   $ 33,969       $ 111,964      $ 1,353,148      $ 1,499,081   

Intersegment (b)

     7,201         (5,804     (1,397     —     
  

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues of reportable segments

   $ 41,170       $ 106,160      $ 1,351,751      $ 1,499,081   
  

 

 

    

 

 

   

 

 

   

 

 

 

 

  a) A reconciliation of Segment Margin to income before income taxes for the periods presented is as follows:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011     2010     2011     2010  

Segment margin

   $ 52,931      $ 39,373      $ 149,759      $ 107,887   

Corporate general and administrative expenses

     (8,194     (9,769     (23,267     (21,174

Depreciation and amortization

     (14,593     (13,477     (42,749     (40,489

Net loss on disposal of surplus assets

     (113     (7     (351     (25

Interest expense

     (8,960     (6,542     (26,670     (13,506

Distributable cash from equity investees in excess of equity in earnings

     (3,701     (123     (11,925     (880

Non-cash items not included in segment margin

     3,061        (4,301     2,729        (2,966

Cash payments from direct financing leases in excess of earnings

     (1,171     (1,136     (3,424     (2,911
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

   $ 19,260      $ 4,018      $ 44,102      $ 25,936   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

  b) Intersegment sales were conducted on an arm’s length basis.

 

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Table of Contents

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

10. 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. Affiliates of Denbury Resources, Inc. sold its interests in our general partner on February 5, 2010. Transactions with Denbury are included in the table below as related party transactions through February 5, 2010.

The transactions with related parties were as follows:

 

     Nine Months Ended
September 30,
 
     2011      2010  

Petroleum products sales to an affiliate of the Robertson Group

   $ 27,202       $ —     

Marine operating fuel and expenses provided by an affiliate of the Robertson Group

     2,722         1,932   

Sales of CO2 to Sandhill

     1,921         2,101   

Petroleum products sales to Davison family businesses

     1,224         832   

Operations, general and administrative services provided by our general partner (1)

     —           34,827   

Truck transportation services provided to Denbury

     —           182   

Pipeline transportation and monitoring services provided

     —           1,365   

to Denbury

     —           1,375   

Payments received under direct financing leases from

     

Denbury

     —           99   

Pipeline transportation income portion of direct financing lease fees from Denbury

     —           1,502   

CO2 transportation services provided by Denbury

     —           373   

 

  (1) Our general partner became a wholly-owned subsidiary in December 2010.

Amounts due to and from Related Parties

At September 30, 2011 and December 31, 2010, an affiliate of the Robertson Group owed us $0.2 million and $1.4 million, respectively, for petroleum products purchases, and we owed the affiliate $0.1 million and $0.2 million, respectively, for marine-related costs. Sandhill owed us $0.2 million for purchases of CO2 at September 30, 2011 and December 31, 2010.

11. Supplemental Cash Flow Information

The following table provides information regarding the net changes in components of operating assets and liabilities.

 

-16-


Table of Contents

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

      Nine Months Ended
September 30,
 
     2011     2010  

Decrease (increase) in:

    

Accounts receivable

   $ (52,355   $ (39,771

Inventories

     (34,757     (25,571

Other current assets

     1,515        831   

Increase (decrease) in:

    

Accounts payable

     16,953        22,503   

Accrued liabilities

     17,906        (1,002
  

 

 

   

 

 

 

Net changes in components of operating assets and liabilities

   $ (50,738   $ (43,010
  

 

 

   

 

 

 

Payments of interest and commitment fees were $20.3 million and $10.8 million for the nine months ended September 30, 2011 and 2010, respectively.

Cash paid for income taxes during the nine months ended September 30, 2011 and 2010 was $1.0 million and $2.2 million, respectively.

At September 30, 2011, we had incurred liabilities for fixed and intangible asset additions totaling $1.3 million that had not been paid at the end of the third quarter, and, therefore, are not included in the caption “Payments to acquire fixed and intangible assets” under investing activities on the Unaudited Condensed Consolidated Statements of Cash Flows. At September 30, 2010, we had incurred $2.0 million of such liabilities that had not been paid at that date and are not included in “Payments to acquire fixed and intangible assets” and “Other, net” under investing activities.

12. Derivatives

Commodity Derivatives

At September 30, 2011, we had the following outstanding derivative commodity futures, forwards and options contracts that were entered into to hedge inventory or fixed price purchase commitments. We had no outstanding derivative contracts that were designated as hedges under accounting rules.

 

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Table of Contents

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

     Sell (Short)
Contracts
     Buy (Long)
Contracts
 

Not qualifying or not designated as hedges under accounting rules:

     

Crude oil futures:

     

Contract volumes (1,000 bbls)

     369         342   

Weighted average contract price per bbl

   $ 85.51       $ 86.34   

Heating oil futures:

     

Contract volumes (1,000 bbls)

     135         30   

Weighted average contract price per gal

   $ 2.86       $ 2.98   

RBOB gasoline futures:

     

Contract volumes (1,000 bbls)

     13         —     

Weighted average contract price per gal

   $ 2.53       $ —     

#6 Fuel oil futures:

     

Contract volumes (1,000 bbls)

     705         45   

Weighted average contract price per bbl

   $ 97.18       $ 96.71   

Crude oil written options:

     

Contract volumes (1,000 bbls)

     120         —     

Weighted average premium received

   $ 2.31       $ —     

Heating oil written options:

     

Contract volumes (1,000 bbls)

     10         —     

Weighted average premium received

   $ 7.69       $ —     

 

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Table of Contents

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Financial Statement Impacts

The following tables reflect the estimated fair value gain (loss) position of our derivatives and related inventory impact for qualifying hedges at September 30, 2011 and December 31, 2010:

Fair Value of Derivative Assets and Liabilities

 

      Asset Derivatives  
    

Unaudited

Condensed

Consolidated

Balance Sheets

   Fair Value  
     Location    September 30, 2011     December 31, 2010  

Commodity derivatives—futures and call options:

       

Hedges designated under accounting guidance as fair value hedges

   Other Current Assets    $ —        $ 14   

Undesignated hedges

   Other Current Assets      5,966        493   
     

 

 

   

 

 

 

Total asset derivatives

      $ 5,966      $ 507   
     

 

 

   

 

 

 
      Liability Derivatives  
     Unaudited
Condensed
Consolidated
Balance Sheets
   Fair Value  
     Location    September 30, 2011     December 31, 2010  

Commodity derivatives—forwards futures and call options:

       

Hedges designated under accounting guidance as fair value hedges

   Other Current Assets    $ —        $ (191 )(1) 

Undesignated hedges

   Other Current Assets      (3,108 )(1)      (2,283 )(1) 
     

 

 

   

 

 

 

Total liability derivatives

        (3,108     (2,474
     

 

 

   

 

 

 

 

  (1) These derivative liabilities have been funded with margin deposits recorded in our Unaudited Condensed Consolidated Balance Sheets in Other Current Assets.

 

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Table of Contents

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

      Effect on Unaudited Condensed Consolidated Statements of Operations
and Comprehensive Income
 
     Amount of Gain (Loss) Recognized in Income  
      Supply & Logistics
Product Costs
    Interest Expense
Reclassified from AOCL
    Other Comprehensive
Loss

Effective  Portion
 
      Three Months
Ended September  30,
    Three Months
Ended September  30,
    Three Months
Ended September  30,
 
      2011     2010     2011      2010     2011      2010  

Commodity derivatives—forwards futures and call options:

              

Contracts designated as hedges under accounting guidance

   $ —   (1)    $ (354 )(1)    $ —         $ —        $ —         $ —     

Contracts not considered hedges under accounting guidance

     2,587        (138     —           —          —           —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total commodity derivatives

     2,587        (492     —           —          —           —     

Interest rate swaps designated as cash flow hedges under accounting guidance

     —          —          —           (1,553     —           (224
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total derivatives

   $ 2,587      $ (492   $ —         $ (1,553   $ —         $ (224
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

      Effect on Unaudited Condensed Consolidated Statements of Operations
and Comprehensive Income
 
     Amount of Gain (Loss) Recognized in Income  
      Supply & Logistics
Product Costs
    Interest Expense
Reclassified from AOCL
    Other Comprehensive Loss
Effective Portion
 
      Nine Months Ended
September 30,
    Nine Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011     2010     2011      2010     2011      2010  

Commodity derivatives—forwards futures and call options:

              

Contracts designated as hedges under accounting guidance

   $ (173 )(1)    $ 952 (1)    $ —         $ —        $ —         $ —     

Contracts not considered hedges under accounting guidance

     (11,050     4,287        —           —          —           —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total commodity derivatives

     (11,223     5,239        —           —          —           —     

Interest rate swaps designated as cash flow hedges under accounting guidance

     —          —          —           (2,112     —           (424
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total derivatives

   $ (11,223   $ 5,239      $ —         $ (2,112   $ —         $ (424
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

  (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 $0.8 million for the nine months ended September 30, 2011 and excludes the gain recorded on the hedged inventory of $0.8 million and $0.5 million for the three and nine months ended September 30, 2010.

 

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Table of Contents

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

13. 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 September 30, 2011. As required by fair value accounting guidance, 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 September 30, 2011      Fair Value at December 31, 2010  

Recurring Fair Value Measures

   Level 1     Level 2      Level 3      Level 1     Level 2      Level 3  

Commodity derivatives:

               

Assets

   $ 5,966      $ —         $ —         $ 507      $ —         $ —     

Liabilities

   $ (3,108   $ —         $ —         $ (2,474   $ —         $ —     

Level 1

Included in Level 1 of the fair value hierarchy as 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

At September 30, 2011 and December 31, 2010, we had no Level 2 fair value measurements.

Level 2 fair values are based on pricing inputs other than quoted prices in active markets (as reflected in Level 1 fair values) and are either directly or indirectly observable as of the measurement date. Level 2 fair values include instruments that are valued using financial models or other appropriate valuation methodologies. Such financial models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, the time value of money, volatility factors, current market and contractual prices for the underlying instruments and other relevant economic measures. Substantially all of these assumptions are: (i) observable in the marketplace throughout the full term of the instrument; (ii) can be derived from observable data; or (iii) are validated by inputs other than quoted prices (e.g., interest rate and yield curves at commonly quoted intervals). Our Level 2 fair values consist of forward commodity derivative instruments. The fair values of these derivative instruments are based on observable price quotes for similar products and locations.

Level 3

At September 30, 2011 and December 31, 2010, we had no Level 3 fair value measurements.

In 2010 and 2009, our interest rate swaps were included within Level 3 of the fair value hierarchy. These swaps were settled in July 2010 in connection with the acquisition of the 51% of DG Marine we did not own and the termination of DG Marine’s credit facility. 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:

 

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Table of Contents

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

      Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2010     2010  

Balance at beginning of period

     (1,329     (1,688

Realized and unrealized gains (losses)—

    

Reclassified into interest expense for settled contracts

     1,553        2,112   

Included in other comprehensive income

     (224     (424
  

 

 

   

 

 

 

Balance at end of period

   $ —        $ —     
  

 

 

   

 

 

 

Total amount of losses included in earnings attributable to the change in unrealized losses relating to liabilities still held at

    
    

 

 

 

September 30, 2010

     $ —     
    

 

 

 

See Note 12 for additional information on our derivative instruments.

We generally apply fair value techniques on a non-recurring basis associated with (1) valuing potential impairment loss related to goodwill, (2) valuing asset retirement obligations, and (3) valuing potential impairment loss related to long-lived assets.

14. Contingencies

We are subject to various environmental laws and regulations. Policies and procedures are in place to monitor compliance and to detect and address any material 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.

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 effect on our financial position, results of operations, or cash flows.

15. Subsequent Event – Acquisition of Interests in Gulf of Mexico Crude Oil Pipeline Systems

On October 28, 2011, we entered into definitive agreements to acquire from Marathon Oil Company, for $205.76 million, interests in several Gulf of Mexico crude oil pipeline systems, including its 28% interest in Poseidon Oil Pipeline Company, L.L.C., its 29% interest in Odyssey Pipeline L.L.C., and its 23% interest in the Eugene Island Pipeline System. The Poseidon system is comprised of a 367-mile network of crude oil pipelines, varying in diameter from 16 to 24 inches, with capacity to deliver approximately 400,000 barrels per day of crude oil from developments in the central and western offshore Gulf of Mexico to other pipelines and terminals onshore and offshore Louisiana. The Odyssey system is comprised of a 120-mile network of crude oil pipelines, varying in diameter from 12 to 20 inches, with capacity to deliver up to 300,000 barrels per day of crude oil from developments in the eastern Gulf of Mexico to other pipelines and terminals onshore Louisiana. The Eugene Island Pipeline System is comprised of a 183-mile network of crude oil pipelines, the main pipeline of which is 20 inches in diameter, with capacity to deliver approximately 200,000 barrels per day of crude oil from developments in the central Gulf of Mexico to other pipelines and terminals onshore Louisiana. The Poseidon and Odyssey interests are subject to the expiration or waiver of rights of first refusal, and we are not obligated to consummate any transaction unless we are ultimately successful in acquiring the interest in Poseidon. Additionally, Marathon Oil has the right to dispose of certain of the other oil pipeline assets prior to any final closing of a transaction with us. The purchase consideration is subject to usual and customary adjustments (e.g., for debt, working capital, etc.) and includes an estimated $29 million valuation of crude oil line fill at current market prices owned by the interests to be acquired. We expect to finance that acquisition with funds available under our revolving credit facility. Subject to the satisfaction or waiver of the conditions to closing, we expect to close that transaction in the fourth quarter of 2011.

 

-22-


Table of Contents

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

16. Condensed Consolidating Financial Information

The $250 million Senior Unsecured Notes co-issued by Genesis Energy, L.P. and Genesis Energy Finance Corporation are fully and unconditionally guaranteed jointly and severally by all of Genesis Energy, L.P.’s subsidiaries, except Genesis Free State Pipeline, LLC, Genesis NEJD Pipeline, LLC and certain other minor subsidiaries. Genesis NEJD Pipeline, LLC is 100% owned by Genesis Energy, L.P., the parent company. The remaining non-guarantor subsidiaries are owned by Genesis Crude Oil, L.P., a guarantor subsidiary. Genesis Energy Finance Corporation has no independent assets or operations. See Note 7 for additional information regarding our consolidated debt obligations.

As a result of our IDR Restructuring on December 28, 2010 (see Note 1), each guarantor subsidiary and the subsidiary co-issuer are 100% owned, directly or indirectly, by Genesis Energy, L.P.

The following is condensed consolidating financial information for Genesis Energy, L.P., the guarantor subsidiaries and the non-guarantor subsidiaries:

 

-23-


Table of Contents

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

     September 30, 2011  
      Genesis
Energy, L.P.
(Parent  and

Co-Issuer)
     Genesis
Energy  Finance
Corporation

(Co-Issuer)
     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Genesis
Energy,  L.P.
Consolidated
 
ASSETS               

Current assets:

              

Cash and cash equivalents

   $ 2       $ —         $ 3,654      $ 720      $ —        $ 4,376   

Other current assets

     569,326         —           327,727        29,607        (587,673     338,987   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     569,328         —           331,381        30,327        (587,673     343,363   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Fixed Assets, at cost

     —           —           436,290        75,609        —          511,899   

Less: Accumulated depreciation

     —           —           (108,180     (8,754     —          (116,934
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net fixed assets

     —           —           328,110        66,855        —          394,965   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill

     —           —           325,046        —          —          325,046   

Other assets, net

     15,611         —           285,810        163,435        (168,730     296,126   

Equity investees and other investments

     —           —           331,703        —          —          331,703   

Investments in subsidiaries

     855,635         —           88,411        —          (944,046     —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,440,574       $ —         $ 1,690,461      $ 260,617      $ (1,700,449   $ 1,691,203   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
LIABILITIES AND PARTNERS’ CAPITAL               

Current liabilities

   $ 7,032       $ —         $ 814,069      $ 3,806      $ (587,345   $ 237,562   

Senior secured credit facilities

     367,900         —           —          —          —          367,900   

Senior unsecured notes

     250,000         —           —          —          —          250,000   

Deferred tax liabilities

     —           —           13,715        —          —          13,715   

Other liabilities

     —           —           6,384        168,541        (168,541     6,384   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     624,932         —           834,168        172,347        (755,886     875,561   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Partners’ capital

     815,642         —           856,293        88,270        (944,563     815,642   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and partners’ capital

   $ 1,440,574       $ —         $ 1,690,461      $ 260,617      $ (1,700,449   $ 1,691,203   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

-24-


Table of Contents

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

     December 31, 2010  
      Genesis
Energy, L.P.
(Parent  and

Co-Issuer)
     Genesis
Energy  Finance
Corporation

(Co-Issuer)
     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Genesis
Energy,  L.P.
Consolidated
 

ASSETS

              

Current assets:

              

Cash and cash equivalents

   $ 1       $ —         $ 5,082      $ 679      $ —        $ 5,762   

Other current assets

     584,967         —           245,240        20,620        (604,051     246,776   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     584,968         —           250,322        21,299        (604,051     252,538   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Fixed Assets, at cost

     —           —           297,832        75,507        —          373,339   

Less: Accumulated depreciation

     —           —           (101,472     (6,811     —          (108,283
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net fixed assets

     —           —           196,360        68,696        —          265,056   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill

     —           —           325,046        —          —          325,046   

Other assets, net

     14,695         —           310,808        166,616        (171,458     320,661   

Equity investees and other investments

     —           —           343,434        —          —          343,434   

Investments in subsidiaries

     682,641         —           83,323        —          (765,964     —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,282,304       $ —         $ 1,509,293      $ 256,611      $ (1,541,473   $ 1,506,735   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND PARTNERS’ CAPITAL

              

Current liabilities

   $ 3,040       $ —         $ 805,381      $ 2,172      $ (603,879   $ 206,714   

Senior secured credit facilities

     360,000         —           —          —          —          360,000   

Senior unsecured notes

     250,000         —           —          —          —          250,000   

Deferred tax liabilities

     —           —           15,193        —          —          15,193   

Other liabilities

     —           —           5,564        171,266        (171,266     5,564   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     613,040         —           826,138        173,438        (775,145     837,471   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Partners’ capital

     669,264         —           683,155        83,173        (766,328     669,264   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and partners’ capital

   $ 1,282,304       $ —         $ 1,509,293      $ 256,611      $ (1,541,473   $ 1,506,735   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

-25-


Table of Contents

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

     Three Months Ended September 30, 2011  
      Genesis
Energy, L.P.
(Parent  and

Co-Issuer)
    Genesis
Energy  Finance
Corporation

(Co-Issuer)
     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Genesis
Energy,  L.P.
Consolidated
 

REVENUES:

             

Supply and logistics

   $ —        $ —         $ 765,714      $ —        $ —        $ 765,714   

Refinery services

     —          —           48,700        3,805        (4,113     48,392   

Pipeline transportation services

     —          —           9,388        6,706        —          16,094   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —          —           823,802        10,511        (4,113     830,200   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

COSTS AND EXPENSES:

             

Supply and logistics costs

     —          —           743,833        —          —          743,833   

Refinery services operating costs

     —          —           30,448        3,612        (3,924)        30,136   

Pipeline transportation operating costs

     —          —           3,818        170        —          3,988   

General and administrative

     —          —           8,905        —          —          8,905   

Depreciation and amortization

     —          —           13,944        649        —          14,593   

Net loss on disposal of surplus assets

     —          —           113        —          —          113   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     —          —           801,061        4,431        (3,924     801,568   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     —          —           22,741        6,080        (189     28,632   

Equity in losses of joint ventures

     —          —           (412     —          —          (412

Equity in earnings of subsidiaries

     28,032        —           1,945        —          (29,977     —     

Interest (expense) income

     (8,944     —           4,226        (4,242     —          (8,960
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     19,088        —           28,500        1,838        (30,166     19,260   

Income tax (expense) benefit

     —          —           (233     61        —          (172
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

     19,088        —           28,267        1,899        (30,166     19,088   

Net loss attributable to noncontrolling interests

     —          —           —          —          —          —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P.

   $ 19,088      $ —         $ 28,267      $ 1,899      $ (30,166   $ 19,088   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

-26-


Table of Contents

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

     Three Months Ended September 30, 2010  
      Genesis
Energy, L.P.
(Parent  and
Co-Issuer)
    Genesis
Energy  Finance
Corporation
(Co-Issuer)
     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Genesis
Energy,  L.P.
Consolidated
 

REVENUES:

             

Supply and logistics

   $ —        $ —         $ 523,488      $ —        $ —        $ 523,488   

Refinery services

     —          —           36,871        4,543        (2,977     38,437   

Pipeline transportation services

     —          —           7,630        6,457        —          14,087   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —          —           567,989        11,000        (2,977     576,012   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

COSTS AND EXPENSES:

             

Supply and logistics costs

     —          —           516,014        —          —          516,014   

Refinery services operating costs

     —          —           21,616        3,701        (3,066)        22,251   

Pipeline transportation operating costs

     —          —           3,410        87        —          3,497   

General and administrative

     —          —           10,583        —          —          10,583   

Depreciation and amortization

     —          —           12,826        651        —          13,477   

Net loss on disposal of surplus assets

     —          —           7        —          —          7   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     —          —           564,456        4,439        (3,066)        565,829   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     —          —           3,533        6,561        89        10,183   

Equity in earnings of joint ventures

     —          —           377        —          —          377   

Equity in earnings of subsidiaries

     9,126        —           2,231        —          (11,357     —     

Interest (expense) income

     (4,058     —           1,840        (4,324     —          (6,542
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     5,068        —           7,981        2,237        (11,268     4,018   

Income tax expense

     —          —           (101     (54     —          (155
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

     5,068        —           7,880        2,183        (11,268     3,863   

Net loss attributable to noncontrolling interests

     —          —           1,206        —          (1)        1,205   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P.

   $ 5,068      $ —         $ 9,086      $ 2,183      $ (11,269   $ 5,068   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

-27-


Table of Contents

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

    Nine Months Ended September 30, 2011  
     Genesis
Energy, L.P.
(Parent and
Co-Issuer)
    Genesis
Energy  Finance
Corporation

(Co-Issuer)
     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Genesis
Energy,  L.P.
Consolidated
 

REVENUES:

            

Supply and logistics

  $ —        $ —         $ 2,091,854      $ —        $ —        $ 2,091,854   

Refinery services

    —          —           142,992        12,953        (10,644     145,301   

Pipeline transportation services

    —          —           26,292        19,341        —          45,633   
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    —          —           2,261,138        32,294        (10,644     2,282,788   
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

COSTS AND EXPENSES:

            

Supply and logistics costs

    —          —           2,044,554        —          —          2,044,554   

Refinery services operating costs

    —          —           88,641        11,836        (10,491)        89,986   

Pipeline transportation operating costs

    —          —           11,937        477        —          12,414   

General and administrative

    —          —           25,339        —          —          25,339   

Depreciation and amortization

    —          —           40,802        1,947        —          42,749   

Net loss on disposal of surplus assets

    —          —           351        —          —          351   
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    —          —           2,211,624        14,260        (10,491)        2,215,393   
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

    —          —           49,514        18,034        (153     67,395   

Equity in earnings of joint ventures

    —          —           3,377        —          —          3,377   

Equity in earnings of subsidiaries

    70,092        —           5,238        —          (75,330     —     

Interest (expense) income

    (26,616     —           12,726        (12,780     —          (26,670
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    43,476        —           70,855        5,254        (75,483     44,102   

Income tax expense

    —          —           (467     (159     —          (626
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

    43,476        —           70,388        5,095        (75,483     43,476   

Net loss attributable to noncontrolling interests

    —          —           —          —          —          —     
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P.

  $ 43,476      $ —         $ 70,388      $ 5,095      $ (75,483   $ 43,476   
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

     Nine Months Ended September 30, 2010  
      Genesis
Energy, L.P.
(Parent  and

Co-Issuer)
    Genesis
Energy  Finance
Corporation

(Co-Issuer)
     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Genesis
Energy,  L.P.
Consolidated
 

REVENUES:

             

Supply and logistics

   $ —        $ —         $ 1,351,751      $ —        $ —        $ 1,351,751   

Refinery services

     —          —           102,644        11,083        (7,567     106,160   

Pipeline transportation services

     —          —           21,893        19,277        —          41,170   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —          —           1,476,288        30,360        (7,567     1,499,081   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

COSTS AND EXPENSES:

             

Supply and logistics costs

     —          —           1,325,062        —          —          1,325,062   

Refinery services operating costs

     —          —           58,382        9,318        (7,432)        60,268   

Pipeline transportation operating costs

     —          —           10,631        408        —          11,039   

General and administrative

     —          —           23,678        —          —          23,678   

Depreciation and amortization

     —          —           38,542        1,947        —          40,489   

Net loss on disposal of surplus assets

     —          —           25        —          —          25   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     —          —           1,456,320        11,673        (7,432)        1,460,561   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     —          —           19,968        18,687        (135     38,520   

Equity in earnings of joint ventures

     —          —           922        —          —          922   

Equity in earnings of subsidiaries

     30,249        —           5,406        —          (35,655     —     

Interest (expense) income

     (4,058     —           3,587        (13,035     —          (13,506
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     26,191        —           29,883        5,652        (35,790     25,936   

Income tax expense

     —          —           (1,433     (394     —          (1,827
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

     26,191        —           28,450        5,258        (35,790     24,109   

Net loss attributable to noncontrolling interests

     —          —           2,083        —          (1)        2,082   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P.

   $ 26,191      $ —         $ 30,533      $ 5,258      $ (35,791   $ 26,191   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

     Nine Months Ended September 30, 2011  
      Genesis
Energy, L.P.
(Parent  and

Co-Issuer)
    Genesis
Energy  Finance
Corporation

(Co-Issuer)
     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Genesis
Energy,  L.P.
Consolidated
 

Net cash (used in) provided by operating activities

   $ (4,881   $ —         $ 41,160      $ 2,844      $ 23      $ 39,146   

CASH FLOWS FROM INVESTING ACTIVITIES:

             

Payments to acquire fixed and intangible assets, including the acquisition of FMT assets

     —          —           (158,549     (97     —          (158,646

Distributions from joint ventures—return of investment

     82,067        —           8,577        —          (82,067     8,577   

Investments in joint ventures and other investments

     (184,969     —           (194     —          184,969        (194

Repayments on loan to non-guarantor subsidiary

     —          —           2,729        —          (2,729     —     

Other, net

     —          —           4,573        —          —          4,573   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (102,902     —           (142,864     (97     100,173        (145,690
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

             

Bank borrowings

     571,700        —           —          —          —          571,700   

Bank repayments

     (563,800     —           —          —          —          (563,800

Credit facility issuance fees

     (3,018     —           —          —          —          (3,018

Distributions to partners/owners

     (82,067     —           (82,067     —          82,067        (82,067

Issuance of ownership interests to partners for cash

     184,969        —           184,969        —          (184,969     184,969   

Other, net

     —          —           (2,626     (2,706     2,706        (2,626
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     107,784        —           100,276        (2,706     (100,196     105,158   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     1        —           (1,428     41        —          (1,386

Cash and cash equivalents at beginning of period

     1        —           5,082        679        —          5,762   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 2      $ —         $ 3,654      $ 720      $ —        $ 4,376   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

     Nine Months Ended September 30, 2010  
      Genesis
Energy, L.P.
(Parent  and

Co-Issuer)
    Genesis
Energy  Finance
Corporation

(Co-Issuer)
     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Genesis
Energy, L.P.
Consolidated
 

Net cash (used in) provided by operating activities

   $ (401,999   $ —         $ 448,018      $ 3,324      $ (15,269   $ 34,074   

CASH FLOWS FROM INVESTING ACTIVITIES:

             

Payments to acquire fixed and intangible assets

     —          —           (8,771     (28     —          (8,799

Distributions from joint ventures—return of investment

     36,264        —           308        —          (36,264     308   

Investments in joint ventures and other investments

     (1,326     —           —          —          1,326        —     

Repayments on loan to non-guarantor subsidiary

     —          —           2,465        —          (2,465     —     

Other, net

     —          —           756        —          —          756   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used) in investing activities

     34,938        —           (5,242     (28     (37,403     (7,735
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

             

Bank borrowings

     319,329        —           242,100        —          —          561,429   

Bank repayments

     (259,229     —           (243,100     —          —          (502,329

Transfer of senior secured credit facility to Parent

     364,772           (364,772     —          —          —     

Credit facility and senior unsecured notes issuance fees

     (7,584     —           —          —          —          (7,584

Issuance of ownership interests to partners for cash

     1,326        —           37        —          (1,326     37   

Noncontrolling interests contributions, net of distributions

     —          —           —          —          (5     (5

Distributions to partners/owners

     (51,553     —           (51,558     —          51,558        (51,553

Acquisition of non-controlling interests in DG Marine

     —             (26,271     —          —          (26,271

Other, net

     —          —           (1,153     (2,445     2,445        (1,153
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     367,061        —           (444,717     (2,445     52,672        (27,429
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     —          —           (1,941     851        —          (1,090

Cash and cash equivalents at beginning of period

     2        —           3,884        262        —          4,148   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 2      $ —         $ 1,943      $ 1,113      $ —        $ 3,058   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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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

 

   

Segment Reporting Change

 

   

Available Cash before Reserves

 

   

Results of Operations

 

   

Liquidity and Capital Resources

 

   

Non-GAAP Reconciliation

 

   

Commitments and Off-Balance Sheet Arrangements

 

   

Forward Looking Statements

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. We define Segment Margin as revenues less product costs, 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 equity investees. In addition, our Segment Margin definition excludes the non-cash effects of our stock appreciation rights plan, 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 before income taxes is included in our segment disclosures in Note 9 to our Unaudited Condensed 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 distributable cash generated by our equity investees in lieu of our equity income attributable to our equity investees, the elimination of gains and losses on asset sales (except those from the sale of surplus assets) and unrealized gains and losses on derivative transactions not designated as hedges for accounting purposes, the elimination of expenses related to acquiring assets that provide new sources of cash flows, the elimination of earnings of DG Marine in excess of distributable cash until July 29, 2010 when DG Marine’s credit facility was repaid, 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 its most directly comparable GAAP measure of cash provided by operating activities, see “Liquidity and Capital Resources—Non-GAAP Reconciliation” below.

Overview

In the third quarter of 2011, we reported net income attributable to the partnership of $19.1 million, or $0.27 per common unit. We generated $37.0 million of Available Cash before Reserves. In November 2011, we will distribute $0.4275 per common unit to our unitholders with respect to the third quarter. During the third quarter of 2011, cash provided by operating activities was $29.7 million.

Segment Margin increased by $13.6 million, or 34%, in the third quarter of 2011, as compared to the third quarter of 2010. This increase resulted from improvements in Segment Margin of approximately 34%, 11% and 68% in our pipeline transportation, refinery services and supply and logistics segments, respectively. The contribution to Segment Margin from our investment in Cameron Highway, combined with increased throughput on our onshore pipelines, were the primary factors increasing pipeline transportation Segment Margin. Our refinery services Segment Margin increased as a result of several factors, including operating efficiencies realized at several of our sour gas processing facilities as well as our favorable management of the acquisition and utilization of caustic soda in our operations. Our supply and logistics segment, which now includes the results of our CO2 marketing and other industrial gases activities, benefited from increased volumes, operating efficiencies and modifications to our existing crude oil and petroleum products commercial arrangements. Segment Margin generated by the operations of the recently acquired black oil barge transportation business of FMT also increased the results of our supply and logistics segment.

 

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Table of Contents

In the fourth quarter of 2011, we expect to complete the previously announced transaction to acquire from Marathon Oil Company, for $205.76 million, interests in several Gulf of Mexico crude oil pipeline systems, including its 28% interest in Poseidon Oil Pipeline Company, L.L.C., its 29% interest in Odyssey Pipeline L.L.C., and its 23% interest in the Eugene Island Pipeline System. The Poseidon and Odyssey interests are subject to the expiration or waiver of rights of first refusal, and we are not obligated to consummate any transaction unless we are ultimately successful in acquiring the interest in Poseidon. Additionally, Marathon Oil has the right to dispose of certain of the other oil pipeline assets prior to any final closing of a transaction with us. The purchase consideration is subject to usual and customary adjustments (e.g., for debt, working capital, etc.) and includes an estimated $29 million valuation of crude oil line fill at current market prices owned by the interests to be acquired. We expect to finance the acquisition with funds available under our revolving credit facility. See additional discussion under Liquidity and Capital Resources – Capital Resources/Sources of Cash below.

We believe this acquisition will complement our existing infrastructure in the Gulf of Mexico and enhance our ability to provide attractive capacity and market optionality to producers for their existing and future developments as well as our refining customers onshore Texas and Louisiana. The Poseidon system is comprised of a 367-mile network of crude oil pipelines, varying in diameter from 16 to 24 inches, with capacity to deliver approximately 400,000 barrels per day of crude oil from developments in the central and western offshore Gulf of Mexico to other pipelines and terminals onshore and offshore Louisiana. Affiliates of Enterprise Products Partners L.P. and Shell Oil Company each own a 36% interest in Poseidon. An affiliate of Enterprise will continue in its role as operator of Poseidon. The Odyssey system is comprised of a 120-mile network of crude oil pipelines, varying in diameter from 12 to 20 inches, with capacity to deliver up to 300,000 barrels per day of crude oil from developments in the eastern Gulf of Mexico to other pipelines and terminals onshore Louisiana. An affiliate of Shell owns the remaining 71% interest in Odyssey, and an affiliate of Shell will continue to serve as the operator. The Eugene Island Pipeline System is comprised of a 183-mile network of crude oil pipelines, the main pipeline of which is 20 inches in diameter, with capacity to deliver approximately 200,000 barrels per day of crude oil from developments in the central Gulf of Mexico to other pipelines and terminals onshore Louisiana. Other owners in Eugene Island include affiliates of Exxon-Mobil, Chevron-Texaco, ConocoPhillips and Shell Oil Company. An affiliate of Shell will continue to serve as the operator.

On October 12, 2011, we increased our quarterly distribution rate to our common unitholders for the twenty-fifth consecutive quarter. In November of 2011, we will pay a distribution of $0.4275 per unit attributable to our third quarter of 2011, which represents an approximate 10.3% increase from our distribution of $0.3875 per unit for the third quarter of 2010. During the third quarter of 2011, we paid a distribution of $0.4150 per unit related to the second quarter of 2011.

Segment Reporting Change

In the first quarter of 2011, we reorganized our operating segments as a result of a change in the way our Chief Executive Officer, who is our chief operating decision maker, evaluates the performance of operations, develops strategy and allocates capital resources. We combined our supply and logistics segment and our industrial gases segment. Thus, the results of our CO2 marketing activities and processing of syngas through a joint venture are now included in our supply and logistics segment. Our disclosures related to prior periods have been recast to reflect our reorganized segments.

 

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Available Cash before Reserves

Available Cash before Reserves was as follows:

 

     Three Months Ended
September 30,
 
     2011     2010  
     (in thousands)  

Net income attributable to Genesis Energy, L.P.

   $ 19,088      $ 5,068   

Depreciation and amortization

     14,593        13,477   

Cash received from direct financing leases not included in income

     1,167        1,063   

Cash effects of sales of certain assets

     3,382        53   

Effects of available cash generated by equity method investees not included in income

     3,701        196   

Cash effects of equity-based compensation plans