UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 (I.R.S. Employer Identification No.)
incorporation or organization)
500 Dallas, Suite 2500, Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(713) 860-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
This report contains 13 pages
GENESIS ENERGY, L.P.
Form 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Condensed Consolidated Balance Sheets - March 31, 1998 and
December 31, 1997 3
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997 5
Condensed Consolidated Statement of Partners' Capital for the
Three Months Ended March 31, 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
GENESIS ENERGY, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
1998 1997
-------- --------
Assets (Unaudited)
Current Assets
Cash and cash equivalents $ 6,080 $ 11,812
Accounts receivable -
Trade 180,828 209,869
Related party 14,709 -
Inventories 4,017 7,033
Other 2,749 3,488
-------- --------
Total current assets 208,383 232,202
Property and Equipment, at cost 105,285 105,102
Less: Accumulated depreciation (16,159) (16,464)
-------- --------
Net property and equipment 89,126 88,638
Other Assets, net of amortization 10,460 10,274
-------- --------
Total Assets $307,969 $331,114
======== ========
Liabilities and Partners' Capital
Current Liabilities
Accounts payable -
Trade $193,250 $215,159
Related party 3,305 2,832
Accrued liabilities 7,080 6,547
-------- --------
Total current liabilities 203,635 224,538
Commitments and Contingencies (Note 8)
Minority Interests 28,656 28,225
Partners' Capital
Common unitholders, 8,625 units issued and
outstanding 74,163 76,783
General partner 1,515 1,568
-------- --------
Total partners' capital 75,678 78,351
-------- --------
Total Liabilities and Partners' Capital $307,969 $331,114
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
GENESIS ENERGY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit amounts)
(Unaudited)
Three Months Ended March 31,
1998 1997
-------- --------
REVENUES:
Gathering and marketing revenues
Unrelated parties $628,398 $729,521
Related parties 17,500 212,905
Pipeline revenues 4,359 4,056
-------- --------
Total revenues 650,257 946,482
COST OF SALES:
Crude costs, unrelated parties 626,342 903,962
Crude costs, related parties 12,353 30,916
Field operating costs 3,361 3,348
Pipeline operating costs 1,865 1,222
-------- --------
Total cost of sales 643,921 939,448
-------- --------
GROSS MARGIN 6,336 7,034
EXPENSES:
General and administrative 2,741 2,133
Depreciation and amortization 1,633 1,565
-------- --------
OPERATING INCOME 1,962 3,336
OTHER INCOME (EXPENSE):
Interest, net 178 92
Other, net 19 2
-------- --------
Income before minority interests 2,159 3,430
Minority interests 431 686
-------- --------
NET INCOME $ 1,728 $ 2,744
======== ========
NET INCOME PER COMMON UNIT - BASIC AND DILUTED $ 0.20 $ 0.31
======== ========
NUMBER OF COMMON UNITS OUTSTANDING 8,625 8,625
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
GENESIS ENERGY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES: -------- --------
Net income $ 1,728 $ 2,744
Adjustments to reconcile net income to net
cash provided by (used in) operating activities -
Depreciation 1,508 1,448
Amortization of intangible assets 125 117
Minority interests equity in earnings 431 686
Gain on asset dispositions (19) -
Other noncash charges 407 17
Changes in components of working capital -
Accounts receivable 14,332 43,106
Inventories 3,016 4,500
Other current assets 739 184
Accounts payable (21,436) (58,294)
Accrued liabilities 126 5,634
-------- --------
Net cash provided by operating activities 957 142
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (2,047) (457)
Increase in other assets (311) (7)
Proceeds from sale of assets 70 -
-------- --------
Net cash used in investing activities (2,288) (464)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions:
To common unitholders (4,313) -
To general partner (88) -
-------- --------
Net cash used in financing activities (4,401) -
-------- --------
Net decrease in cash and cash equivalents (5,732) (322)
Cash and cash equivalents at beginning of period 11,812 11,878
-------- --------
Cash and cash equivalents at end of period $ 6,080 $ 11,556
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
GENESIS ENERGY, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(In thousands)
(Unaudited)
Partners' Capital
------------------------------
Common General
Unitholders Partner Total
----------- ------- -------
Partners' capital at December 31, 1997 $76,783 $1,568 $78,351
Net income for the three months ended March 31, 1998 1,693 35 1,728
Cash distributions for the three months ended March 31, 1998 (4,313) (88) (4,401)
------- ------ -------
Partners' capital at March 31, 1998 $74,163 $1,515 $75,678
======= ====== =======
The accompanying notes are an integral part of these consolidated financial
statements.
GENESIS ENERGY, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Formation and Offering
In December 1996, Genesis Energy, L.P. ("GELP") completed an initial public
offering of 8.6 million Common Units at $20.625 per unit, representing limited
partner interests in GELP of 98%. Genesis Energy, L.L.C. (the "General
Partner") serves as general partner of GELP and its operating limited
partnership, Genesis Crude Oil, L.P. ("GCOLP"). The General Partner owns a 2%
general partner interest in GELP.
Transactions at Formation
At the closing of the offering, GELP contributed the net proceeds of the
offering to GCOLP in exchange for an 80.01% general partner interest in GCOLP.
With the net proceeds of the offering, GCOLP purchased a portion of the crude
oil gathering, marketing and pipeline operations of Howell Corporation
("Howell") and made a distribution to Basis Petroleum, Inc. ("Basis") in
exchange for its conveyance of a portion of its crude oil gathering and
marketing operations. GCOLP issued an aggregate of 2.2 million subordinated
limited partner units ("Subordinated OLP Units") to Basis and Howell to obtain
the remaining operations. Basis' Subordinated OLP units were transferred to its
then parent, Salomon Smith Barney Holdings Inc. ("Salomon") in May 1997.
Unless the context otherwise requires, the term "the Partnership" hereafter
refers to GELP and its operating limited partnership.
2. Basis of Presentation
The accompanying financial statements and related notes present the
consolidated financial position as of March 31, 1998 and 1997 for GELP and its
results of operations, cash flows and changes in partners' capital for the three
months ended March 31, 1998 and 1997.
The financial statements included herein have been prepared by the
Partnership 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) which 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, the Partnership believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1997 filed with the SEC.
Basic net income per Common Unit is calculated on the number of outstanding
Common Units of 8,625,000. For this purpose, the 2% General Partner interest is
excluded from net income. Diluted net income per Common Unit did not differ
from basic net income per Common Unit for either period presented. The Common
Units that will be issued in accordance with the Restricted Unit Plan are
antidilutive.
3. Adoption of Accounting Standards
SFAS No. 130, "Reporting Comprehensive Income", was issued in June 1997, with
adoption required for fiscal years beginning after December 31, 1997. SFAS No.
130 requires the presentation of an additional income measure (termed
"comprehensive income"), which adjusts traditional net income for certain items
that previously were only reflected as direct charges to equity. For the
quarters ended March 31, 1998 and 1997, there is not a difference between
"traditional" net income and comprehensive net income.
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", was issued in June 1997, establishing standards for the way that
public business enterprises report information about operating segments and
related information in interim and annual financial statements. The Partnership
has evaluated the applicability of the Statement and has concluded that the
Partnership does not meet the criteria which required business segment
reporting.
4. Credit Resources
GCOLP entered into credit facilities with Salomon (collectively, the "Credit
Facilities") pursuant to a Master Credit Support Agreement. GCOLP's obligations
under the Credit Facilities are secured by its receivables, inventories, general
intangibles and cash.
Guaranty Facility
Salomon is providing a Guaranty Facility through December 31, 1999 in
connection with the purchase, sale and exchange of crude oil by GCOLP. The
aggregate amount of the Guaranty Facility is limited to $400 million for the
year ending December 31, 1998 and $300 million for the year ending December 31,
1999 (to be reduced in each case by the amount utilized at any one time pursuant
to the Working Capital Facility, as described below, and by the amount of any
obligation to a third party to the extent that such third party has a prior
security interest in the collateral under the Master Credit Support Agreement as
described below). GCOLP pays a guarantee fee to Salomon which will increase
over its term, thereby increasing the cost of the credit support provided to
GCOLP under the Guaranty Facility from a below-market rate to a rate that may be
higher than rates paid to independent financial institutions for similar credit.
At March 31, 1998, the aggregate amount of obligations covered by guarantees was
$175.0 million, including $96.0 million in payable obligations and $79.0 million
of estimated crude oil purchase obligations for April 1998.
Working Capital Facility
Salomon has agreed to provide GCOLP, through June 30, 1998, with a Working
Capital Facility of up to $50 million, which amount includes direct cash
advances not to exceed $35 million outstanding at any one time and letters of
credit that may be required in the ordinary course of GCOLP's business. The
interest rate for the Working Capital Facility is equal to the federal funds
rate plus 5/8%. The Partnership had no letters of credit outstanding at March
31, 1998. No direct cash advances were outstanding at March 31, 1998. The
Partnership expects to arrange for a working capital facility through one or
more third party lenders prior to the expiration of the availability of the
Working Capital Facility.
There can be no assurance of the availability or the terms of credit for
the Partnership. The General Partner believes that the Credit Facilities will
be sufficient to support the Partnership's crude oil purchasing activities and
working capital requirements. No assurance, however, can be given that the
General Partner will not be required to reduce or restrict the Partnership's
gathering and marketing activities because of limitations on its ability to
obtain credit support and financing for its working capital needs.
5. 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
those conducted with unaffiliated parties.
Sales and Purchases of Crude Oil
A summary of sales to and purchases from related parties of crude oil is as
follows (in thousands).
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
--------- ---------
Sales to affiliates $17,500 $212,905
Purchases from affiliates $12,353 $ 30,916
General and Administrative Services
The Partnership does not directly employ any persons to manage or operate
its business. Those functions are provided by the General Partner. The
Partnership reimburses the General Partner for all direct and indirect costs of
these services. Total costs reimbursed to the General Partner by the
Partnership were $3,546,000 and $3,656,000 for the three months ended March 31,
1998 and 1997, respectively.
The Partnership entered into a Corporate Services Agreement with Basis
pursuant to which Basis, directly or through its affiliates, provided certain
administrative and support services for the benefit of the Partnership. Such
services included human resources, tax, accounting, data processing, NYMEX
transaction clearing and other similar administrative services. The Partnership
ceased to receive services under the agreement at December 31, 1997. Charges by
Basis under the Corporate Services Agreement were $353,000 for the three months
ended March 31, 1997.
Treasury Services
The Partnership entered into a Treasury Management Agreement with Basis.
Effective May 1, 1997, Salomon replaced Basis as a party to the Treasury
Management Agreement. Under the Treasury Management Agreement, the Partnership
invests excess cash with Salomon and earns interest at market rates. At March
31, 1998, the Partnership had $8.2 million in funds deposited with Salomon under
the Treasury Management Agreement. At March 31, 1997, the Partnership had $6.2
million in funds deposited with Basis under the Treasury Management Agreement.
Such amounts have been classified in the consolidated balance sheet as cash and
cash equivalents. For the three months ended March 31, 1998, the Partnership
earned interest of $151,000 on the investments with Salomon. For the three
months ended March 31, 1997, the Partnership earned interest of $97,000 on these
deposits by the Partnership with Basis.
Credit Facilities
As discussed in Note 4, Salomon provides Credit Facilities to the
Partnership. For the three months ended March 31, 1998 and 1997, the
Partnership paid Salomon $154,000 and $191,000, respectively, for guarantee fees
under the Credit Facilities. The Partnership paid Basis $82,000 for interest
under the Credit Facilities during the 1997 period.
6. Supplemental Cash Flow Information
Cash received by the Partnership for interest was $184,000 and $183,000 for
the three months ended March 31, 1998 and 1997, respectively. Payments of
interest were $8,000 and $59,000 for the three months ended March 31, 1998 and
1997, respectively.
7. Contingencies
The Partnership is subject to various environmental laws and regulations.
Policies and procedures are in place to monitor compliance. The Partnership's
management has made an assessment of its potential environmental exposure and
determined that such exposure is not material to its consolidated financial
position, results of operations or cash flows. As part of the formation of the
Partnership, Basis and Howell agreed to be responsible for certain environmental
conditions related to their ownership and operation of their respective assets
contributed to the Partnership and for any environmental liabilities which Basis
or Howell may have assumed from prior owners of these assets.
The Partnership is subject to lawsuits in the normal course of business and
examination by tax and other regulatory authorities. Such matters presently
pending are not expected to have a material adverse effect on the financial
position, results of operations or cash flows of the Partnership.
As part of the formation of the Partnership, Basis and Howell agreed to each
retain liability and responsibility for the defense of any future lawsuits
arising out of activities conducted by Basis and Howell prior to the formation
of the Partnership and have also agreed to cooperate in the defense of such
lawsuits.
8. Distributions
On April 8, 1998, the Board of Directors of the General Partner declared a
cash distribution of $0.50 per Unit for the three months ended March 31, 1998.
This distribution will be paid on May 15, 1998, to the General Partner and all
Common Unitholders of record as of the close of business on April 30, 1998. The
Subordinated OLP Unitholders will not receive a distribution for that period.
9. Subsequent Event
On April 17, 1998, the Partnership closed on an asset acquisition from Falco
S&D, Inc., a regional crude oil gathering and marketing company with operations
primarily in Louisiana and East Texas. The acquisition was funded from working
capital.
GENESIS ENERGY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Genesis Energy, L.P., operates crude oil common carrier pipelines and is one
of the largest independent gatherers and marketers of crude oil in North
America, with operations concentrated in Texas, Louisiana, Alabama, Florida,
Mississippi, New Mexico, Kansas and Oklahoma. The following review of the
results of operations and financial condition should be read in conjunction with
the Condensed Consolidated Financial Statements and Notes thereto.
Results of Operations - Three Months Ended March 31, 1998 Compared with Three
Months Ended March 31, 1997
Selected financial data for this discussion of the results of operations
follows, in thousands, except volumes per day.
Three Months Ended March 31,
1998 1997
---- ----
Gross margin
Gathering and marketing $3,842 $4,200
Pipeline $2,494 $2,834
General and administrative expenses $2,741 $2,133
Depreciation and amortization $1,633 $1,565
Operating income $1,962 $3,336
Interest income (expense), net $ 178 $ 92
Volumes per day
Wellhead 110,723 106,811
Bulk and exchange 342,908 339,467
Pipeline 89,519 80,789
Gross margin from gathering and marketing operations is generated by the
difference between the price of crude oil at the point of purchase and the price
of crude oil at the point of sale, minus the associated costs of aggregation and
transportation. The absolute price levels of crude oil do not necessarily bear
a relationship to gross margin, although such price levels significantly impact
revenues and cost of sales. As a result, period-to-period variations in
revenues and cost of sales are generally not meaningful in analyzing the
variation in gross margin. Such changes are not addressed in the following
discussion.
Pipeline gross margins are primarily a function of the level of throughput
and storage activity and are generated by the difference between the regulated
published tariff and the fixed and variable costs of operating the pipeline.
Changes in revenues, volumes and pipeline operating costs, therefore, are
relevant to the analysis of financial results of the Partnership's pipeline
operations.
Gross margin from gathering and marketing operations was $3.8 million for the
quarter ended March 31, 1998, as compared to $4.2 million for the quarter ended
March 31, 1997. In the first quarter of 1998, margins between sales prices for
crude oil and the prices paid to producers for the oil were narrower than in the
first quarter of 1997.
Pipeline gross margin was $2.5 million for the quarter ended March 31, 1998,
as compared to the pipeline gross margin of $2.8 million for the first quarter
of 1997. Pipeline throughput increased by 8,730 barrels per day between the two
periods. In the latter half of 1997, the Partnership began transporting crude
from a new area in Texas, increasing its revenues. Although volumes transported
increased, gross margin declined. This decline can be attributed primarily to
the cost of repairs that were required to the Main Pass pipeline.
General and administrative expenses were $2.7 million for the three months
ended March 31, 1998, an increase of $0.6 million over the 1997 period. The
increase in 1998 was primarily attributable to two factors. In the 1998
period,
the Partnership recorded a non-cash charge of $0.4 million related to its
Restricted Unit Plan. The estimated total charge for the Restricted Unit Plan
is being recognized ratably over the three-year vesting period beginning in
1998. In addition, in 1998 the Partnership no longer benefited from the sharing
of certain services with Basis Petroleum, Inc., under the terms of a Corporate
Services Agreement as it did in 1997. Depreciation and amortization was flat at
$1.6 million for the two periods.
Liquidity and Capital Resources
Cash Flows
Cash flows from operating activities were $1.0 million for the three months
ended March 31, 1998. The timing of payment for crude purchases utilized the
cash flows from net income. Operating activities in the prior year period
provided cash of $0.1 million primarily due to variations in the timing of
payment of crude purchase obligations.
For the three months ended March 31, 1998, cash flows utilized in investing
activities were $2.3 million as a result of additions in property and equipment,
primarily related to pipeline operations. In the 1997 first quarter, investing
activities utilized cash flows of $0.5 million also for property and equipment
additions.
Cash flows utilized in financing activities of $4.4 million in the quarter
ended March 31, 1998, were due to the payment of a distribution to common
unitholders and the General Partner.
Working Capital and Credit Resources
As discussed in Note 4 of the Notes to Condensed Consolidated Financial
Statements, Salomon extended the term of the Working Capital Facility to June
30, 1998. The Partnership expects to arrange for a working capital facility
through one or more third party lenders prior to the June 30, 1998 expiration.
Forward Looking Statements
The statements in this Report on Form 10-Q that are not historical
information are forward looking statements within the meaning of Section 27a of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Although the Partnership believes that its expectations regarding future
events are based on reasonable assumptions, it can give no assurance that its
goals will be achieved or that its expectations regarding future developments
will prove to be correct. Important factors that could cause actual results to
differ materially from those in the forward looking statements herein include
changes in regulations, the Partnership's success in obtaining additional lease
barrels, refiner demand for various grades of crude oil and the resulting
changes in pricing relationships, developments relating to possible acquisitions
or business combination opportunities, the success of the Partnership's risk
management activities and conditions of the capital markets and equity markets
during the periods covered by the forward looking statements.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Part I. Item 1. Note 7 to the Condensed Consolidated Financial
Statements entitled "Contingencies", which is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.18 Amended and Restated Restricted Unit Plan
10.19 Seventh Amendment to Master Credit Support Agreement
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENESIS ENERGY, L.P.
(A Delaware Limited Partnership)
By: GENESIS ENERGY, L.L.C., as
General Partner
Date: May 11, 1998 By: /s/ Allyn R. Skelton, II
-----------------------------
Allyn R. Skelton, II
Chief Financial Officer