-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FHkNOpIhzKVmVopq+IZei7JwYSRB9CR51oEWvCAbmVEV+blP7BB63MbNCjNFQwYL EFLFWcqey5nHhUPSiYhT7g== 0001022321-97-000009.txt : 19970813 0001022321-97-000009.hdr.sgml : 19970813 ACCESSION NUMBER: 0001022321-97-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970812 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENESIS ENERGY LP CENTRAL INDEX KEY: 0001022321 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PETROLEUM BULK STATIONS & TERMINALS [5171] IRS NUMBER: 760513049 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12295 FILM NUMBER: 97657186 BUSINESS ADDRESS: STREET 1: 500 DALLAS SUITE 3200 STREET 2: ONE ALLEN CENTER CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7136465466 MAIL ADDRESS: STREET 1: 500 DALLAS SUITE 3200 CITY: HOUSTON STATE: TX ZIP: 77002 10-Q 1 GENESIS ENERGY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 June 30, 1997 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 3200, Houston, Texas 77002 (Address of principal executive offices) (Zip Code) (713) 646-1200 (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 15 pages GENESIS ENERGY, L.P. Form 10-Q INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Page Condensed Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 3 Condensed Consolidated Statement of Operations for the Three and Six Months Ended June 30, 1997, Pro Forma Condensed Consolidated Statement of Operations for the Three and Six Months Ended June 30, 1996, and Condensed Statement of Operations for the Three and Six Months Ended June 30, 1996 (Predecessor) 4 Condensed Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1997, and Condensed Statement of Cash Flows for the Six Months Ended June 30, 1996 (Predecessor) 5 Condensed Consolidated Statement of Partners' Capital for the Six Months Ended June 30, 1997 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 15 Item 6. Exhibits and Reports on Form 8-K 15 GENESIS ENERGY, L.P. CONSOLIDATED BALANCE SHEETS (In thousands) June 30, December 31, 1997 1996 -------- -------- Assets (Unaudited) Current assets Cash and cash equivalents $ 13,461 $ 11,878 Accounts receivable - Trade 281,131 336,358 Related party 1,874 52,449 Inventories 5,186 8,290 Other 1,012 1,396 -------- -------- Total current assets 302,664 410,371 Property and equipment, at cost 100,959 100,097 Less: Accumulated depreciation (13,863) (11,160) -------- -------- Net property and equipment 87,096 88,937 Other assets, net of amortization 10,367 10,592 -------- -------- Total assets $400,127 $509,900 ======== ======== Liabilities and Partners' Capital Current liabilities Accounts payable - Trade $269,307 $387,322 Related party 11,807 3,430 Accrued liabilities 8,453 7,811 -------- -------- Total current liabilities 289,567 398,563 Commitments and contingencies (Note 8) Minority interests 27,263 26,257 Partners' capital Common unitholders, 8,625 units issued and outstanding 81,631 83,378 General partner 1,666 1,702 -------- -------- Total partners' capital 83,297 85,080 -------- -------- Total liabilities and partners' capital $400,127 $509,900 ======== ======== 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 June 30, Six Months Ended June 30, 1997 1996 1996 1997 1996 1996 -------- ---------- ---------- ---------- ---------- ---------- (Pro Forma) (Predecessor) (Pro Forma) (Predecessor) REVENUES: Gathering and marketing revenues Unrelated parties $840,537 $ 719,357 $ 566,939 $1,570,058 $1,308,895 $1,020,105 Related parties 45,597 533,960 532,252 258,502 941,543 937,705 Pipeline revenues 4,552 4,260 - 8,608 8,338 - -------- ---------- ---------- ---------- ---------- ---------- Total revenues 890,686 1,257,577 1,099,191 1,837,168 2,258,776 1,957,810 COST OF SALES: Crude costs, unrelated parties 862,496 1,144,301 999,121 1,766,458 2,021,502 1,744,640 Crude costs, related parties 18,738 94,564 90,414 49,654 203,621 195,321 Field operating costs 2,926 3,752 1,844 6,274 7,566 3,668 Pipeline operating costs 1,587 1,310 - 2,809 2,488 - -------- ---------- ---------- ---------- ---------- ---------- Total cost of sales 885,747 1,243,927 1,091,379 1,825,195 2,235,177 1,943,629 -------- ---------- ---------- ---------- ---------- ---------- GROSS MARGIN 4,939 13,650 7,812 11,973 23,599 14,181 EXPENSES: General and administrative 2,180 2,390 912 4,313 4,658 1,789 Depreciation and amortization 1,567 2,293 467 3,132 4,081 950 -------- ---------- ---------- ---------- ---------- ---------- OPERATING INCOME 1,192 8,967 6,433 4,528 14,860 11,442 OTHER INCOME (EXPENSE): Interest, net 369 - (10) 461 - 79 Other, net 41 - - 43 (79) (80) -------- ---------- ---------- ---------- ---------- ---------- Income before income taxes and minority interests 1,602 8,967 6,423 5,032 14,781 11,441 Income tax provision - - 2,415 - - 4,302 -------- ---------- ---------- ---------- ---------- ---------- Net income before minority interests 1,602 8,967 4,008 5,032 14,781 7,139 Minority interests 320 1,793 - 1,006 2,955 - -------- ---------- ---------- ---------- ---------- ---------- NET INCOME $ 1,282 $ 7,174 $ 4,008 $ 4,026 $ 11,826 $ 7,139 ======== ========== ========== ========== ========== ========== NET INCOME PER COMMON UNIT $ 0.15 $ 0.82 $ 0.46 $ 1.34 ======== ========== ========== ========== NUMBER OF COMMON UNITS OUTSTANDING 8,625 8,625 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) Six Months Ended June 30, 1997 1996 --------- -------- (Predecessor) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,026 $ 7,139 Adjustments to reconcile net income to net cash provided by (used in)operating activities - Depreciation 2,897 950 Amortization of intangible assets 235 - Minority interests equity in earnings 1,006 - (Gain) loss on sales of fixed assets (47) 82 Other noncash charges 33 (234) Changes in components of working capital - Accounts receivable 105,802 (90,180) Inventories 3,104 4,034 Other current assets 383 - Accounts payable (109,638) 80,374 Accrued liabilities 610 (513) Accrued income taxes - (1,493) --------- -------- Net cash provided by operating activities 8,411 159 --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (1,313) - Increase in other assets (10) - Proceeds from sales of assets 304 270 --------- -------- Net cash (used in) provided by investing activities (1,019) 270 --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions: To common unitholders (5,693) - To general partner (116) - Net advances from Basis - (429) Net cash used in financing activities (5,809) (429) --------- -------- Net increase in cash and cash equivalents 1,583 - Cash and cash equivalents at beginning of period 11,878 - --------- -------- Cash and cash equivalents at end of period $ 13,461 $ - ========= ======== 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 ----------- ------- Partners' capital at December 31, 1996 $83,378 $1,702 Net income for the six months ended June 30, 1997 3,946 80 Distributions during the six months ended June 30, 1997 (5,693) (116) ------- ------ Partners' capital at June 30, 1997 $81,631 $1,666 ======= ====== 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"). At June 30, 1997, the General Partner owned 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. Such operations acquired from Basis are hereafter referred to as the "Predecessor". Unless the context otherwise requires, the term "the Partnership" hereafter refers to GELP, its operating limited partnership and the Predecessor. 2. Basis of Presentation The accompanying financial statements and related notes present the consolidated financial position as of June 30, 1997 for GELP and its results of operations, cash flows and changes in partners' capital for the periods indicated. These financial statements also present the results of operations and cash flows of the Predecessor for the periods indicated. 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, 1996 filed with the SEC. These financial statements include the accounts of the Predecessor, a division of Basis, which, until May 1, 1997, was a wholly-owned subsidiary of Salomon Inc. Cash flows of the Predecessor not funded from operating activities were funded by Basis prior to the formation of the Partnership. The unaudited pro forma Condensed Consolidated Statements of Operations for the three and six months ended June 30, 1996 reflect certain pro forma adjustments to the historical results of operations of the Predecessor and Howell as if the Partnership had been formed on January 1, 1996. These pro forma adjustments reflect the inclusion of fees associated with the Master Credit Support Agreement, incremental fees related to execution of futures contracts on the New York Mercantile Exchange ("NYMEX") as a separate entity, and incremental general and administrative expenses and compensation costs for the operation of the Partnership as a separate public entity. The pro forma adjustments also include additional depreciation and amortization expense due to the increase in property and intangibles that resulted from applying the purchase method of accounting to the assets acquired from Howell. The pro forma adjustments eliminate net interest expense recorded by the Predecessor and Howell as the Partnership had no long-term debt as of the closing of the public offering. Income tax provisions have also been eliminated as the Partnership is not a taxable entity. The pro forma adjustments were made based upon available information and certain estimates and assumptions which management believes provide a reasonable basis for presentation. 3. Accounting Policies A summary of the Partnership's significant accounting policies is included in Note 3 of the Notes to Consolidated Financial Statements included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1996. Derivative Financial Instruments The Partnership routinely utilizes forward contracts, swaps, options and futures contracts in an effort to minimize the impact of market fluctuations on inventories and contractual commitments. Gains and losses on forward contracts, swaps, options and futures contracts used to hedge future contract purchases of unpriced domestic crude oil, where firm commitments to sell are required prior to establishment of the purchase price, are deferred until the margin from the underlying risk element of the hedged item is recognized in accordance with Statement of Financial Accounting Standards (SFAS) No. 80, "Accounting for Futures Contracts." Deferred gains and losses from derivative financial instruments are included in the Consolidated Balance Sheets in accrued liabilities or accounts receivable, respectively. Recognized gains and losses from derivative financial instruments are included in cost of crude in the Consolidated Statements of Operations. Based on the historical correlations between the NYMEX price for West Texas intermediate crude at Cushing, Oklahoma, and the various trading hubs at which the Partnership trades, the Partnership's management believes the hedging program has been effective in minimizing the overall price risk. The Partnership continuously monitors the basis differentials between its various trading hubs and Cushing, Oklahoma, to further manage its basis exposure. Should a derivative financial instrument cease to serve as a hedge of inventories or contractual commitments, the derivative financial instrument is accounted for under the marked-to-market method of accounting. Under this method, derivative financial instruments are reflected at market value and the resulting unrealized gains and losses are recognized currently in cost of crude in the Consolidated Statements of Operations. 4. Adoption of Accounting Standards In October 1996, the American Institute of Certified Public Accountants issued Statement of Position No. 96-1, "Environmental Remediation Liabilities," which established new accounting and reporting for the recognition and disclosure of environmental remediation liabilities. The provisions of the statement are effective for the Partnership for the year ending December 31, 1997 and was adopted on January 1, 1997. This new standard did not have a significant effect on the Partnership's consolidated financial position or results of operations. In June 1996, the Financial Accounting Standards Board issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which established new accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities. The statement is effective for the Partnership for the year ending December 31, 1997 and was adopted on January 1, 1997. The adoption of the new standard did not have a significant effect on the Partnership's consolidated financial position or results of operations. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share", which established new accounting and reporting standards for earnings per share. The statement is effective for the Partnership for the year ending December 31, 1997 and was adopted on January 1, 1997. The adoption of the new standard did not have an impact on the Partnership's consolidated financial position or results of operations. In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income", and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information". SFAS No. 130 establishes standards for reporting and displaying of comprehensive income and its components. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments and related information in interim and annual financial statements. SFAS No. 130 and 131 are effective for periods beginning after December 15, 1997. These two statements will not have any effect on the Partnership's 1997 financial statements; however, management is evaluating what, if any, additional disclosures may be required when these two statements are implemented. 5. Credit Resources Pursuant to a Master Credit Support Agreement, GCOLP has established credit facilities with Salomon Inc (the "Credit Facilities"). GCOLP's obligations under the Credit Facilities are secured by its receivables, inventories, general intangibles and cash. Guaranty Facility Salomon Inc 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 $500 million for the period July 1, 1997 to December 31, 1997, $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 Inc which will increase over the three-year period, 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 June 30, 1997, the aggregate amount of obligations covered by guarantees was $307 million, including $168 million in payable obligations and $139 million of estimated crude oil purchase obligations for July 1997. Working Capital Facility Salomon has agreed to provide GCOLP, through August 31, 1997, 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 Partnership had letters of credit in the amount of $2.2 million outstanding at June 30, 1997. No direct cash advances were outstanding at June 30, 1997. 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. 6. 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. Basis was a wholly-owned subsidiary of Salomon Inc until May 1, 1997, when Basis was sold to Valero Energy Corporation. Basis transferred its 54% interest in the general partner and its approximately 1.2 million Subordinated OLP Units to Salomon Inc on June 5, 1997. Sales and Purchases of Crude Oil A summary of sales to and purchases from related parties of crude oil is as follows (in thousands). Six Months Six Months Ended Ended June 30, June 30, 1997 1996 -------- -------- (Predecessor) Sales to affiliates $258,502 $937,705 Purchases from affiliates $ 49,654 $195,321 Clearing of Commodities Futures Transactions The Partnership cleared a portion of its commodity futures transactions on the NYMEX through Basis Clearing, Inc., a wholly-owned subsidiary of Basis. In April 1997, Basis Clearing, Inc., ceased its clearing activities for the Partnership. The Partnership paid commissions to Basis Clearing, Inc., of $29,000 for the six months ended June 30, 1997. The Predecessor cleared its NYMEX transactions through Basis Clearing, Inc., which was a wholly-owned subsidiary of Basis and Phibro Energy Clearing, Inc., a wholly-owned subsidiary of Phibro Inc., a wholly-owned subsidiary of Salomon Inc. The Predecessor paid commissions of $308,000 to these entities for the six months ended June 30, 1996. 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 $7,509,000 for the six months ended June 30, 1997. In December 1996, the Partnership entered into a Corporate Services Agreement with Basis pursuant to which Basis, directly or through its affiliates, agreed to provide certain administrative and support services for the benefit of the Partnership. Such services may include human resources, tax, accounting, data processing, NYMEX transaction clearing and other similar administrative services. Under such agreement, Basis does not receive a fee for such services but the Partnership reimburses Basis or its affiliates for (i) allocated personnel costs (such as salaries and employee benefits) of the personnel actually providing such services, (ii) rent on office space allocated to the General Partner in Basis' offices in Houston, Texas and (iii) all reasonable out-of-pocket expenses related to the provision of such services. Either the Partnership or Basis may terminate or reduce the level of services under certain circumstances as described in the Corporate Services Agreement. In the event the Corporate Services Agreement is terminated, the cost to the Partnership of obtaining the services covered thereby from third parties would likely be higher than the cost of such services under the Corporate Services Agreement. In addition, the Partnership has agreed to indemnify and hold harmless Basis and its affiliates from all claims and damages arising from the provision of services under the Corporate Services Agreement, unless due to the gross negligence or willful misconduct of Basis or its affiliates. Charges by Basis under the Corporate Services Agreement during the period in 1997 that Basis was a related party to the Partnership were approximately $100,000 per month. Basis allocated certain general and administrative costs to the Predecessor for ancillary services, insurance and office space. These costs amounted to approximately $600,000 for the six months ended June 30, 1996. Treasury Services The Partnership entered into a Treasury Management Agreement with Basis. Under the Treasury Management Agreement, the Partnership loans excess cash to Basis at an interest rate that is the mid-point between a market rate from third parties on invested funds and the cost to Basis of borrowing funds from Salomon Inc. Effective May 1, 1997, Salomon Inc replaced Basis as a party to the Treasury Management Agreement. At June 30, 1997, Salomon Inc owed the Partnership $10,000,000 under the Treasury Management Agreement. Such amount has been classified in the consolidated balance sheet as cash and cash equivalents. For the six months ended June 30, 1997, the Partnership earned interest of $299,000 on these loans by the Partnership to Basis and Salomon Inc. Credit Facilities As discussed in Note 5, Salomon Inc and Basis provide Credit Facilities to the Partnership. For the six months ended June 30, 1997, the Partnership paid Salomon Inc $403,000 for guarantee fees under the Credit Facilities. The Partnership paid Basis $85,000 for interest under the Credit Facilities during the same period. Sale of Basis As discussed above, on May 1, 1997, Salomon Inc sold 100% of the stock of Basis to Valero Energy Corporation. Basis subsequently transferred its Subordinated OLP interests and its interest in the General Partner to Salomon Inc. Additionally, Salomon Inc assumed Basis' obligations to the Partnership under the Master Credit Support Agreement and the Treasury Management Agreement. The Partnership has several other agreements in place with Basis. Salomon Inc will provide certain services under the Corporate Services Agreement, and Basis will continue to provide the remaining services under the Corporate Services Agreement through at least December 31, 1997, unless terminated earlier by the Partnership. As a result of the sale, the Partnership intends to relocate to new offices during the fourth quarter of 1997. The move will require the Partnership to purchase various items that were heretofore supplied by Basis pursuant to the Corporate Services Agreement. Additionally, the Partnership will hire additional personnel and contract with third party vendors to perform certain of the functions that were previously performed by Basis pursuant to the Corporate Services Agreement, including telecommunications related services, accounting and human resource services, corporate office services, and NYMEX brokering and clearing activities. The General Partner estimates that the Partnership will make expenditures of a one-time nature of approximately $1.7 million in connection with the foregoing. In order to mitigate the impact of these costs on the Partnership, Salomon Inc has agreed to amend the Master Credit Support Agreement, lowering the future costs of credit support. The present value of that benefit is approximately $1.7 million, assuming full utilization of the facility. The General Partner is evaluating the additional annual costs that will be incurred but anticipates that it will be substantially less than the $1.3 million stated in the Partnership's Prospectus, issued in relation to its recent initial public offering, to replace the services and employee benefit plans that are presently provided by Basis pursuant to the Corporate Services Agreement. The Partnership and Basis are parties to a non-competition agreement that continues through December 2, 2006. Management believes that Basis continues to be bound by that agreement subsequent to Valero Energy Corporation's purchase of Basis. No assurance can be given concerning the enforceability of the non- competition agreement against Basis, and it is not possible to quantify the significance of any such future competition. 7. Supplemental Cash Flow Information Cash received by the Partnership for interest was $615,000 for the six months ended June 30, 1997. Payments of interest were $115,000 for the six months ended June 30, 1997. Cash received by the Predecessor for imputed interest was $79,000 for the six months ended June 30, 1996. Cash paid for state income taxes and the imputed cash payments made by the Predecessor for federal income taxes totaled $6,030,000 during the six months ended June 30, 1996 related to 1995. 8. 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. No such matters are presently pending. 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. In July 1997, the Partnership signed a lease for office space which it expects to begin occupying in October 1997. The estimated future minimum lease payments under this lease and the Partnership's other operating leases are as follows. July 1, 1997 to December 31, 1997 $ 351,000 Year ended December 31, 1998 956,000 Year ended December 31, 1999 884,000 Year ended December 31, 2000 419,000 Year ended December 31, 2001 402,000 Year ended December 31, 2002 402,000 Thereafter 1,276,000 ---------- Total $4,690,000 ========== 9. Distributions On May 15, 1997, the Partnership paid a cash distribution of $0.66 per Unit for the period December 3, 1996 through March 31, 1997, to the General Partner and all other Common Unitholders of record as of the close of business on April 30, 1997. The Subordinated OLP Unitholders did not receive a distribution for that period. On July 14, 1997, the Board of Directors of the General Partner declared a cash distribution of $0.50 per Unit for the quarter ended June 30, 1997. The distribution will be paid August 15, 1997, to the General Partner and all other Common Unitholders of record as of the close of business on July 31, 1997. The Subordinated OLP Unitholders will not receive a distribution for the quarter. 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 - Six Months Ended June 30, 1997 Compared with Pro Forma Six Months Ended June 30, 1996 Selected financial data for this discussion of the results of operations follows, in thousands, except barrels per day. Six Months Ended June 30, 1997 1996 -------- -------- (Pro Forma) Gross margin Gathering and marketing $ 6,174 $ 17,749 Pipeline $ 5,799 $ 5,850 General and administrative expenses $ 4,313 $ 4,658 Depreciation and amortization $ 3,132 $ 4,081 Operating income $ 4,528 $ 14,860 Interest income (expense), net $ 461 $ - Barrels per day Wellhead 105,041 118,026 Bulk 159,613 199,239 Pipeline 87,163 85,961 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 $6.2 million for the six months ended June 30, 1997, as compared to $17.7 million for the pro forma six months ended June 30, 1996. In the 1996 period, crude oil inventories were at very low levels and demand for crude oil from refiners was strong. Gathering and marketing margins expanded as sale prices increased faster than prices paid to producers for crude oil at the wellhead. In the 1997 period, crude oil supply exceeded refiner demand and gathering and marketing margins declined as sale prices decreased much quicker than prices paid to producers. Margins in the 1997 period were also adversely impacted by increases in the cost to exchange sweet and sour grades of crude oil at Midland, Texas, for West Texas Intermediate at Cushing, Oklahoma. Pipeline gross margin was $5.8 million for the six months ended June 30, 1997, as compared to the pro forma pipeline gross margin of $5.9 million for the first six months of 1996. Pipeline barrels per day increased by 1,202 barrels between the two periods, slightly increasing pipeline revenue. Operating costs increased slightly in the 1997 period, resulting in the decrease in gross margin. General and administrative expenses were $4.3 million for the six months ended June 30, 1997, a slight decrease from the prior year period. Depreciation and amortization declined $0.9 million from the 1996 period to $3.1 million for the 1997 six month period, primarily attributable to certain assets becoming fully depreciated during 1996. Results of Operations - Three Months Ended June 30, 1997 Compared with Pro Forma Three Months Ended June 30, 1996 The results of operations for the three months ended June 30, 1997, for the Partnership as compared to the pro forma results for the three months ended June 30, 1996, reflect decreases in gathering and marketing gross margin, general and administrative expenses and depreciation and amortization expense. These declines resulted from the same conditions described above for the six month periods. Liquidity and Capital Resources Cash Flows Cash flows from operating activities were $8.4 million for the six months ended June 30, 1997. Operating activities of the Predecessor in the prior year period provided cash of $0.2 million primarily due to variations in the timing of payment of crude purchase obligations. For the six months ended June 30, 1997, cash flows utilized in investing activities were $1.0 million as a result of additions in property and equipment, primarily related to pipeline operations. In the 1996 first six months, investing activities of the Predecessor produced cash flows of $0.3 million as a result of the sale of surplus property and equipment. Cash flows used in financing activities by the Partnership during the first six months of 1997 totaled $5.8 million. This amount represents distributions paid to the common unitholders and the general partner. Cash flows used in financing activities of $0.4 million in the 1996 period resulted from advances to Basis by the Predecessor. Working Capital and Credit Resources As discussed in Note 5 of the Notes to Condensed Consolidated Financial Statements, Salomon Inc assumed Basis' obligations to the Partnership under the Master Credit Support Agreement and extended the term of these agreements to August 31, 1997. The Partnership expects to arrange for a working capital facility through one or more third party lenders prior to the August 31, 1997 expiration. The Partnership believes it has sufficient funds on hand to fund the one- time expenditures associated with relocating the Partnership offices as discussed in Note 6 of the Notes to Condensed Consolidated Financial Statements. The Partnership made its initial distribution to the Common Unitholders and the General Partner during the second quarter of 1997. A quarterly distribution of $0.50 per unit has been declared payable during the third quarter to the Common Unitholders and the General Partner. The holders of the Subordinated OLP Units did not receive a distribution during the second quarter and will not receive a distribution during the third quarter. 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 8 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. Exhibit 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: August 12, 1997 By: /s/ Allyn R. Skelton, II ----------------------------- Allyn R. Skelton, II Chief Financial Officer EX-27 2
5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-Q OF GENESIS ENERGY, L.P. FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED IN THAT FORM 10-Q. 1,000 6-MOS DEC-31-1997 JUN-30-1997 13,461 0 283,005 0 5,186 302,664 100,959 13,863 400,127 289,567 0 0 0 0 0 400,127 1,828,560 1,837,168 1,816,112 1,828,327 0 0 0 5,032 0 4,026 0 0 0 4,026 0 0 GENESIS ENERGY, L.P. IS A MASTER LIMITED PARTNERSHIP AND THEREFORE HAS NO COMMON STOCK OUTSTANDING. GENESIS ENERGY, L.P. IS A MASTER LIMITED PARTNERSHIP. ITS BALANCE SHEET INCLUDES MINORITY INTERESTS IN ITS SUBSIDIARY, GENESIS CRUDE OIL, L.P. OF $27,263 AND PARTNERS' CAPITAL CONSISTING OF THE CAPITAL OF THE COMMON UNITHOLDERS OF $81,631 AND THE CAPITAL OF THE GENERAL PARTNER OF $1,666. TOTAL COSTS INCLUDES DEPRECIATION AND AMORTIZATION OF $3,132. THE MINORITY INTERESTS IN NET INCOME OF GENESIS ENERGY, L.P. IS $1,006. NET INCOME PER COMMON UNIT IS $0.46.
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