Genesis Energy, L.P. (NYSE:GEL) today announced its third
quarter results.
Certain highlights of our results for the quarter ended
September 30, 2016 included the following items:
- We reported the following results for
the third quarter of 2016 compared to the same quarter in 2015:
- Net Income Attributable to Genesis
Energy, L.P. of $32.1 million, or $0.28 per unit, for the third
quarter of 2016 compared to $363.2 million, or $3.38 per unit, for
the same period in 2015, representing a decrease of $331.1 million
or 91%. After excluding the one-time non-cash gain of $335.3
million recognized in the third quarter of 2015 from a step up in
basis to fair value of our historical interests as result of
certain interests acquired in the acquisition of the offshore
pipeline and services business of Enterprise Products Partners,
L.P. and its affiliates (our "Enterprise acquisition"), Net Income
Attributable to Genesis Energy, L.P. would have been $27.9 million
for the third quarter of 2015.
- Cash Flows from Operating Activities of
$124.7 million for the third quarter of 2016 compared to $121.0
million for the same period in 2015, representing an increase of
$3.7 million or 3%.
- Available Cash before Reserves of $95.0
million in the third quarter of 2016, a decrease of $1.3 million
over the prior year quarter, or 1%, providing 1.15 coverage for our
quarterly distribution to unitholders attributable to that quarter,
which is discussed below.
- Adjusted EBITDA for the third quarter
of 2016 was $131.8 million, an increase of $4.9 million, or 4%,
over the prior year quarter. Our Adjusted Debt to Pro Forma EBITDA
ratio is 4.95 as of September 30, 2016. These amounts are
calculated and further discussed later in this press release.
- On November 14, 2016, we will pay
a total quarterly distribution of $82.6 million based on our
quarterly declared distribution of $0.70 per unit attributable to
our financial and operational results for the third quarter of
2016. This represents an increase in our distribution for the
forty-fifth consecutive quarter.
Grant Sims, CEO of Genesis Energy, said, “Given the continuing
challenging operating environment in the energy midstream space, we
are very pleased with the financial performance of our diversified,
yet increasingly integrated, businesses. Compared to the year
earlier period, for EBITDA to be up some 4% in the aggregate, in
the face of such headwinds, demonstrates the resiliency of our
assets and especially our people.
Less than 5% of our total gross margin in the quarter was
derived from minimum volume commitments or take-or-pay type
agreements. To us, that’s a good thing. It means our customers and
the market need our assets and services, even in what many have
called a historic down cycle in the energy space.
We are, in essence, mechanically complete with our significant
infrastructure projects in the Baton Rouge area and would expect to
see meaningful contribution beginning to ramp in the fourth
quarter. We are nearing completion with our repurposing project in
Texas and would expect to see volume and financial contribution
starting to ramp in the first quarter of 2017. At Raceland, in
south Louisiana, we would expect to see volumes starting to ramp in
mid-2017 as we will be fully capable of receiving and terminalling
heavy crudes via rail and medium sour crudes via pipeline.
During the quarter we issued 8 million common units in a bought
deal to bolster our liquidity and strengthen our balance sheet to
maintain our financial flexibility. Absent these units, our
coverage ratio would have been approximately 1.23 times our
increased distribution to be paid on November 14th. We expect that,
with the completion of our organic capital program, new projects
coming on stream will increase EBITDA and provide additional cash
flow which can be used to reduce debt. The combination of
additional EBITDA and debt reduction starting next year will result
in a decreasing leverage ratio. We issued no additional units under
our at-the-market program and wouldn’t anticipate doing so absent a
discrete opportunity.
Because of these financial steps, the continuing performance of
our businesses in an extremely challenging environment and the
growth we anticipate from our major organic projects which are
substantially complete and paid for, we believe we are well
positioned to continue to deliver long term value to all of our
stakeholders while never losing our absolute commitment to safe and
responsible operations.”
Financial Results
Segment Margin
Variances between the third quarter 2016 (the “2016 Quarter”)
and the third quarter of 2015 (or “2015 Quarter”) in these
components are explained below.
Segment results for the third quarters of 2016 and 2015 were as
follows:
Three Months Ended September 30, 2016 2015
(in thousands)
Offshore pipeline transportation $ 86,557 $ 70,943 Onshore pipeline
transportation 10,603 14,984 Refinery services 20,526 20,692 Marine
transportation 16,697 26,583 Supply and logistics 6,957 7,508 Total
Segment Margin $ 141,340 $ 140,710
Offshore Pipeline Transportation Segment Margin for the 2016
Quarter increased $15.6 million, or 22%, from the 2015 Quarter.
This increase is primarily due to our acquisition from Enterprise,
which closed on July 24, 2015. As a result of our Enterprise
acquisition, we obtained interests in approximately 2,350 miles of
offshore crude oil and natural gas pipelines (including increasing
our ownership interest in each of the Poseidon, SEKCO, and CHOPS
pipelines) and six offshore hub platforms. The operating results of
the offshore pipeline assets acquired from Enterprise continue to
meet or exceed our expectations, with a net increase in volumes
(compared to the third quarter of 2015) for the most significant of
those offshore crude oil pipelines.
Onshore Pipeline Transportation Segment Margin for the 2016
Quarter decreased $4.4 million, or 29%. This was primarily the
result of decreased volumes on our Texas pipeline system,
particularly delivery volumes to the Texas City refining market. We
believe such lower volumes to historical customers will last
indefinitely as those customers have made alternative arrangements
as a result of our endeavors to expand, extend and repurpose our
facilities into longer lived, higher value service. In addition,
our Louisiana system experienced lower volumes between the
respective quarters, as a major refinery customer emerged from a
turnaround during the 2016 Quarter. As such, we anticipate a ramp
up in such volumes during the fourth quarter. Volume variances on
our other onshore pipeline systems had a less significant impact on
the decrease in tariff revenues between the respective quarters due
to a mix of tariff rates amongst these systems and less significant
decreases in volumes.
Refinery Services Segment Margin for the 2016 Quarter decreased
$0.2 million, or 1%. NaHS volumes increased, primarily driven by an
increase in sales volumes to our South American mining customers
relative to the 2015 quarter. Sales volumes between quarters to
customers in South America can fluctuate due to the timing of third
party vessels available to transport bulk deliveries. The pricing
in our sales contracts for NaHS typically includes adjustments for
fluctuations in commodity benchmarks (primarily caustic soda),
freight, labor, energy costs and government indexes. The frequency
at which those adjustments are applied varies by contract,
geographic region and supply point. The mix of NaHS sales volumes
to which we are able to apply such adjustments may vary due to
timing or other factors such as competitive pressures, which had a
negative effect on margin realized from NaHS sales for the 2016
quarter and when combined with decreased sales of caustic soda,
offset the increase in NaHS sales volumes and revenues.
Marine Transportation Segment Margin for the 2016 Quarter
decreased $9.9 million, or 37%, from the 2015 Quarter. The decrease
in Segment Margin is primarily due to a combination of lower
utilization and lower day rates across our various marine asset
classes, excepting the M/T American Phoenix which is under long
term contract through September 2020. In our offshore barge fleet,
as a number of our units have come off longer term contracts, we
have chosen to primarily place them in spot service or short-term
(less than a year) service, as we believe the day rates currently
being offered by the market are at, or approaching, cyclical lows.
In our inland fleet, we saw somewhat of a strengthening in
utilization and stabilization in spot day rates towards the end of
the quarter, especially in the black oil, or heavy, intermediate
refined products trade, the trade to which we have almost
exclusively committed our inland barges.
Supply and Logistics Segment Margin decreased by $0.6 million,
or 7%, between the two quarters. In the 2016 Quarter, the decrease
in Segment Margin is primarily due to lower demand for our
services, compared to the 2015 Quarter, in our historical
back-to-back, or buy/sell, crude oil marketing business associated
with aggregating and trucking crude oil from producers' leases to
local or regional re-sale points. We have found it difficult to
compete with certain participants in the market who are willing to
lose money on such local gathering because they are attempting to
minimize their losses from minimum volume or take-or-pay
commitments they previously made in anticipation of new production
that has not yet and is unlikely to come online. In addition, a
portion of this decrease can be attributed to decreased rail
volumes. While rail volumes were down compared to the 2015 Quarter,
our results reflect the beginning of a ramp up as a major refinery
customer supported by our Baton Rouge facilities emerged from a
refinery turnaround during the 2016 Quarter and we expect this ramp
up to continue into the fourth quarter. These decreases were
partially offset by the improved performance of our now right-sized
heavy fuel oil business after reducing volumes and related
infrastructure to match new market realities resulting from the
general lightening of refineries' crude slates which has resulted
in a better supply/demand balance between heavy refined bottoms and
domestic coker and asphalt requirements.
Other Components of Net Income
In the 2016 Quarter, we recorded Net Income Attributable to
Genesis Energy, L.P. of $32.1 million compared to $363.2 million in
the 2015 Quarter.
Net income is impacted similarly by the overall increase in
Segment Margin previously discussed, which was principally due to
the contributions from the offshore Gulf of Mexico assets acquired
in our Enterprise acquisition. The 2015 quarter also included a
$335.3 million non-cash gain we recognized resulting from a step up
in basis to fair value of our historical interests in certain of
our equity investees (CHOPS and SEKCO) as a result of our acquiring
the remaining interest in those equity investees when we completed
our Enterprise acquisition in July 2015. In addition, depreciation
and amortization expense increased $13.1 million between the
quarterly periods primarily as a result of the effect of acquiring
assets and placing constructed assets in service during calendar
2015 (including the offshore pipelines and services assets acquired
as a result of our Enterprise acquisition) and 2016.
In addition, interest costs for the 2016 Quarter increased by
$5.1 million from the 2015 Quarter primarily due to an increase in
our average outstanding indebtedness from acquired and constructed
assets (primarily related to additional debt outstanding as a
result of financing our Enterprise acquisition). Interest costs, on
an ongoing basis, are net of capitalized interest costs
attributable to our growth capital expenditures.
General and administrative expenses included in net income
decreased by $15.6 million. This decrease is primarily due to
higher 2015 third party costs related to business development and
growth activities, i.e. financing, legal, accounting and business
development activities surrounding the Enterprise acquisition as
previously discussed.
Distributions
We have increased our quarterly distribution rate for the
forty-fifth consecutive quarter. Distributions attributable to each
quarter of 2016 and 2015, are as follows:
Per Unit Distribution For Date Paid Amount
2016
3rd Quarter November 14, 2016 $ 0.7000 2nd Quarter August 12, 2016
$ 0.6900 1st Quarter May 13, 2016 $ 0.6725
2015 4th Quarter
February 12, 2016 $ 0.6550 3rd Quarter November 13, 2015 $ 0.6400
2nd Quarter August 14, 2015 $ 0.6250 1st Quarter May 15, 2015 $
0.6100
Earnings Conference Call
We will broadcast our Earnings Conference Call on Thursday,
November 3, 2016, at 9:00 a.m. Central time (10:00 a.m.
Eastern time). This call can be accessed at www.genesisenergy.com.
Choose the Investor Relations button. For those unable to attend
the live broadcast, a replay will be available beginning
approximately one hour after the event and remain available on our
website for 30 days. There is no charge to access the event.
Genesis Energy, L.P. is a diversified midstream energy master
limited partnership headquartered in Houston, Texas. Genesis’
operations include onshore and offshore pipeline transportation,
refinery services, marine transportation and supply and logistics.
Genesis’ operations are primarily located in Texas, Louisiana,
Arkansas, Mississippi, Alabama, Florida, Wyoming and the Gulf of
Mexico.
GENESIS ENERGY, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS - UNAUDITED
(in thousands, except per unit
amounts)
Three Months Ended Nine Months Ended September
30, September 30, 2016 2015 2016 2015
REVENUES
$ 460,050 $ 572,334 $ 1,284,440 $ 1,755,518
COSTS AND EXPENSES:
Costs of sales 339,394 459,567 929,909 1,505,169 General and
administrative expenses 11,212 26,799 34,716 54,852 Depreciation
and amortization 54,265 41,170 156,800 96,500
OPERATING INCOME 55,179 44,798 163,015 98,997 Equity
in earnings of equity investees 12,488 14,260 35,362 48,440
Interest expense (34,735 ) (29,617 ) (104,657 ) (66,737 ) Gain on
basis step up on historical interest — 335,260 — 335,260 Other
income/(expense), net — — — (17,529 )
INCOME BEFORE INCOME TAXES 32,932 364,701 93,720 398,431
Income tax expense (949 ) (1,292 ) (2,959 ) (3,142 )
NET
INCOME 31,983 363,409 90,761 395,289 Net income (loss)
attributable to noncontrolling interests 118 (195 ) 370
(195 )
NET INCOME ATTRIBUTABLE TO GENESIS ENERGY,
L.P. $ 32,101 $ 363,214 $ 91,131 $ 395,094
NET INCOME PER COMMON UNIT:
Basic and Diluted $ 0.28 $ 3.38 $ 0.81
$ 3.93
WEIGHTED AVERAGE OUTSTANDING COMMON UNITS:
Basic and Diluted 115,718 107,617 111,906 100,653
GENESIS ENERGY, L.P.
OPERATING DATA - UNAUDITED
Three Months Ended Nine Months Ended September
30, September 30, 2016 2015 2016 2015
Offshore Pipeline Transportation
Segment
Crude oil pipelines (barrels/day unless otherwise noted):
CHOPS (1)
190,613 176,479 200,753 171,774 Poseidon (1) 263,519 264,862
259,446 256,277 Odyssey (1) 107,252 90,419 106,622 63,536 GOPL
6,287 17,049 5,839 14,028 Offshore
crude oil pipelines total 567,671 548,809 572,660
505,615 SEKCO (1) 82,022 78,008 73,225 56,962
Natural gas transportation volumes (MMbtus/d) (1) 775,546
727,295 656,452 727,295
Onshore Pipeline Transportation
Segment Crude oil pipelines (barrels/day): Texas 11,529 68,675
41,708 70,815 Jay 15,119 17,547 14,494 17,041 Mississippi 9,503
16,963 10,607 16,246 Louisiana 30,814 38,738 26,865 28,042 Wyoming
9,772 7,702 10,003 7,702
Onshore crude oil pipelines total
76,737 149,625 103,677 139,846
CO2 pipeline (Mcf/day)
Free State 88,026 145,947 101,157 167,805
Refinery Services Segment
NaHS (dry short tons sold) 34,299 30,721 96,116 95,654 NaOH
(caustic soda dry short tons sold) 19,653 23,907 59,802 67,223
Marine Transportation Segment Inland Fleet
Utilization Percentage (2) 87.6 % 97.6 % 91.4 % 97.7 % Offshore
Fleet Utilization Percentage (2) 96.2 % 99.9 % 91.2 % 99.8 %
Supply and Logistics Segment
Crude oil and petroleum products sales (barrels/day) 64,292 89,516
66,725 94,571 Rail load/unload volumes (barrels/day) (3) 13,091
37,767 13,344 24,043
(1) Volumes for our equity method
investees are presented on a 100% basis. As of July 24, 2015 we
owned 100% of CHOPS and SEKCO and 64% of Poseidon. As our SEKCO
volumes ultimately flow into Poseidon and thus are included within
our Poseidon volume statistics, we have excluded them from our
total for Offshore crude oil pipelines.
(2) Utilization rates are based on a 365
day year, as adjusted for planned downtime and dry-docking.
(3) Indicates total barrels for which fees
were charged for either loading or unloading at all rail
facilities.
GENESIS ENERGY, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(in thousands, except number of units)
September 30,
December 31,
2016 2015
ASSETS Cash and cash equivalents $ 3,447 $ 10,895
Accounts receivable - trade, net 210,808 219,532 Inventories 70,199
43,775 Other current assets 27,322 32,114
Total
current assets 311,776 306,316 Fixed assets, net 4,198,266
3,931,979 Investment in direct financing leases, net 134,640
139,728 Equity investees 417,214 474,392 Intangible assets, net
210,713 223,446 Goodwill 325,046 325,046 Other assets, net 57,829
58,692
Total assets $ 5,655,484 $
5,459,599
LIABILITIES AND PARTNERS’
CAPITAL
Accounts payable - trade $ 128,189 $ 140,726 Accrued liabilities
114,030 161,410
Total current liabilities
242,219 302,136 Senior secured credit facility 1,167,000 1,115,000
Senior unsecured notes 1,811,633 1,807,054 Deferred tax liabilities
24,644 22,586 Other long-term liabilities 227,879 192,072 Partners'
capital: Common unitholders 2,190,829 2,029,101 Noncontrolling
interests (8,720 ) (8,350 )
Total partners' capital
2,182,109 2,020,751
Total liabilities and
partners' capital $ 5,655,484 $ 5,459,599
Units Data:
Total common units outstanding 117,979,218 109,979,218
GENESIS ENERGY, L.P. RECONCILIATION
OF SEGMENT MARGIN AND ADJUSTED EBITDA TO NET INCOME - UNAUDITED
(in thousands)
Three Months Ended September 30, 2016 2015
Total Segment Margin (1) $ 141,340 $ 140,710 Corporate general and
administrative expenses (10,420 ) (25,940 ) Non-cash items included
in general and administrative costs 614 (585 ) Cash expenditures
not included in Adjusted EBITDA 363 12,766 Cash expenditures not
included in net income (86 ) (50 ) Adjusted EBITDA 131,811 126,901
Depreciation and amortization (54,265 ) (41,170 ) Interest expense,
net (34,735 ) (29,617 ) Cash expenditures not included in Adjusted
EBITDA or net income (277 ) (12,716 ) Adjustment to exclude
distributable cash generated by equity investees not included in
income and include equity in investees net income (9,063 ) (7,962 )
Non-cash legacy stock appreciation rights plan expense 113 553 Gain
on step up of historical basis in CHOPS and SEKCO — 335,260 Other
non-cash items (534 ) (6,743 ) Income tax expense (949 ) (1,292 )
Net income attributable to Genesis Energy, L.P. $ 32,101 $
363,214
(1) See definition of Segment Margin later
in this press release.
GENESIS ENERGY, L.P.
RECONCILIATIONS OF NET INCOME AND NET
CASH FLOWS FROM OPERATING ACTIVITIES TO AVAILABLE CASH BEFORE
RESERVES - UNAUDITED
(in thousands)
Three Months Ended September 30, 2016 2015
(in thousands)
Net income attributable to Genesis Energy, L.P. $ 32,101 $ 363,214
Depreciation and amortization 54,265 41,170 Cash received from
direct financing leases not included in income 1,586 1,448 Cash
effects of sales of certain assets 120 343 Effects of distributable
cash generated by equity method investees not included in income
9,063 7,962 Cash effects of legacy stock appreciation rights plan
(86 ) (50 ) Non-cash legacy stock appreciation rights plan expense
(113 ) (553 ) Expenses related to acquiring or constructing growth
capital assets 363 12,766 Unrealized (gain) loss on derivative
transactions excluding fair value hedges, net of changes in
inventory value (571 ) (192 ) Maintenance capital utilized (1)
(1,885 ) (1,044 ) Non-cash tax expense 649 992 Gain on step up of
historical basis — (335,260 ) Other items, net (480 ) 5,512
Available Cash before Reserves $ 95,012 $ 96,308
(1) Maintenance capital expenditures in
the 2016 Quarter and 2015 Quarter were $7.9 million and $10.0
million, respectively.
Three Months Ended September 30, 2016 2015 (in thousands)
Cash Flows from Operating Activities $ 124,725 $ 121,026
Maintenance capital utilized (1) (1,885 ) (1,044 ) Proceeds from
asset sales 120 343 Amortization and writeoff of debt issuance
costs, including premiums and discounts (2,571 ) (1,941 ) Effects
of available cash from joint ventures not included in operating
cash flows 4,801 7,870 Net effect of changes in operating accounts
not included in calculation of Available Cash before Reserves
(26,834 ) (42,420 ) Non-cash effect of equity based compensation
expense (2,047 ) (2,246 ) Expenses related to acquiring or
constructing growth capital assets 363 12,766 Other items affecting
available cash (1,660 ) 1,954 Available Cash before Reserves
$ 95,012 $ 96,308
(1) Maintenance capital expenditures in
the 2016 Quarter and 2015 Quarter were $7.9 million and $10.0
million, respectively.
GENESIS ENERGY, L.P.
RECONCILIATION OF NET CASH FLOWS FROM
OPERATING ACTIVITIES TO ADJUSTED EBITDA - UNAUDITED
(in thousands)
Three Months Ended September 30, 2016 2015
Cash Flows from Operating Activities $ 124,725 $ 121,026 Interest
Expense 34,735 29,617 Amortization and writeoff of debt issuance
costs, including premiums and discounts (2,571 ) (1,941 ) Effects
of available cash from equity method investees not included in
operating cash flows 4,801 7,870 Net effect of changes in
components of operating assets and liabilities not included in
calculation of Adjusted EBITDA (26,834 ) (42,420 ) Non-cash effect
of equity based compensation expense (2,047 ) (2,246 ) Expenses
related to acquiring or constructing growth capital assets 363
12,766 Other items, net (1,361 ) 2,229 Adjusted EBITDA $
131,811 $ 126,901
GENESIS ENERGY, L.P.
ADJUSTED DEBT-TO-PRO FORMA EBITDA RATIO
- UNAUDITED
(in thousands)
September 30, 2016 Senior secured credit facility $
1,167,000 Senior unsecured notes 1,811,633 Less: Outstanding
inventory financing sublimit borrowings (48,000 ) Less: Cash and
cash equivalents (3,447 ) Adjusted Debt (1) $ 2,927,186
Pro Forma LTM September 30, 2016 LTM Adjusted EBITDA (as
reported) (2) $ 536,683 Acquisitions and material projects EBITDA
adjustment (3) 54,469 Pro Forma EBITDA $ 591,152
Adjusted Debt-to-Pro Forma EBITDA 4.95
x
(1) We define Adjusted Debt as the amounts
outstanding under our senior secured credit facility and senior
unsecured notes (including any unamortized premiums or discounts)
less the amount outstanding under our inventory financing sublimit,
less cash and cash equivalents on hand at the end of the
period.
(2) Last twelve months ("LTM") Adjusted
EBITDA. The most comparable GAAP measure to Adjusted
EBITDA, Net Income Attributable to Genesis Energy L.P., was $27.4
million for the fourth quarter of 2015, $35.3 million for the first
quarter of 2016 , $23.7 million for the second quarter of 2016, and
$32.1 million for the third quarter of
2016. Reconciliations of Adjusted EBITDA to net income
for all periods presented are available on our website at
www.genesisenergy.com.
(3) This amount reflects the adjustment we
are permitted to make under our credit agreement for purposes of
calculating compliance with our leverage ratio. It
includes a pro rata portion of projected future annual EBITDA from
material projects (i.e. organic growth) and includes Adjusted
EBITDA (using historical amounts and other permitted amounts) since
the beginning of the calculation period attributable to each
acquisition completed during such calculation period, regardless of
the date on which such acquisition was actually completed. This
adjustment may not be indicative of future results.
This press release includes forward-looking statements as
defined under federal law. Although we believe that our
expectations are based upon reasonable assumptions, we can give no
assurance that our goals will be achieved. Actual results may vary
materially. All statements, other than statements of historical
facts, included in this press release that address activities,
events or developments that we expect, believe or anticipate will
or may occur in the future are forward-looking statements, and
historical performance is not necessarily indicative of future
performance. Those forward-looking statements rely on a number of
assumptions concerning future events and are subject to a number of
uncertainties, factors and risks, many of which are outside our
control, that could cause results to differ materially from those
expected by management. Such risks and uncertainties include, but
are not limited to, weather, political, economic and market
conditions, including a decline in the price and market demand for
products, the timing and success of business development efforts
and other uncertainties. Those and other applicable uncertainties,
factors and risks that may affect those forward-looking statements
are described more fully in our Annual Report on Form 10-K for the
year ended December 31, 2015 filed with the Securities and
Exchange Commission and other filings, including our Current
Reports on Form 8-K and Quarterly Reports on Form 10-Q. We
undertake no obligation to publicly update or revise any
forward-looking statement.
NON-GAAP MEASURES
This press release and the accompanying schedules include
non-generally accepted accounting principle (non-GAAP) financial
measures of Adjusted EBITDA and total Available Cash before
Reserves. In this press release, we also present total Segment
Margin as if it were a non-GAAP measure. Our Non-GAAP measures may
not be comparable to similarly titled measures of other companies
because such measures may include or exclude other specified items.
The accompanying schedules provide reconciliations of these
non-GAAP financial measures to their most directly comparable
financial measures calculated in accordance with generally accepted
accounting principles in the United States of America (GAAP). Our
non-GAAP financial measures should not be considered (i) as
alternatives to GAAP measures of liquidity or financial performance
or (ii) as being singularly important in any particular context;
they should be considered in a broad context with other
quantitative and qualitative information. Our Available Cash before
Reserves, Adjusted EBITDA and total Segment Margin measures are
just three of the relevant data points considered from time to
time.
When evaluating our performance and making decisions regarding
our future direction and actions (including making discretionary
payments, such as quarterly distributions) our board of directors
and management team has access to a wide range of historical and
forecasted qualitative and quantitative information, such as our
financial statements; operational information; various non-GAAP
measures; internal forecasts; credit metrics; analyst opinions;
performance, liquidity and similar measures; income; cash flow; and
expectations for us, and certain information regarding some of our
peers. Additionally, our board of directors and management team
analyze, and place different weight on, various factors from time
to time. We believe that investors benefit from having access to
the same financial measures being utilized by management, lenders,
analysts and other market participants. We attempt to provide
adequate information to allow each individual investor and other
external user to reach her/his own conclusions regarding our
actions without providing so much information as to overwhelm or
confuse such investor or other external user.
AVAILABLE CASH BEFORE RESERVES
Purposes, Uses and Definition
Available Cash before Reserves, also referred to as
distributable cash flow, is a quantitative standard used throughout
the investment community with respect to publicly-traded
partnerships and is commonly used as a supplemental financial
measure by management and by external users of financial statements
such as investors, commercial banks, research analysts and rating
agencies, to aid in assessing, among other things:
(1) the financial performance of our assets;
(2) our operating performance; (3)
the viability of potential projects,
including our cash and overall return on alternative capital
investments as compared to those of other companies in the
midstream energy industry;
(4) the ability of our assets to generate cash sufficient to
satisfy certain non-discretionary cash requirements, including
interest payments and certain maintenance capital requirements; and
(5) our ability to make certain discretionary payments, such as
distributions on our units, growth capital expenditures, certain
maintenance capital expenditures and early payments of indebtedness
.
We define Available Cash before Reserves as net income as
adjusted for specific items, the most significant of which are the
addition of certain non-cash gains or charges (such as depreciation
and amortization), the substitution of distributable cash generated
by our equity investees in lieu of our equity income attributable
to our equity investees (includes distributions attributable to the
quarter and received during or promptly following such quarter),
the elimination of gains and losses on asset sales (except those
from the sale of surplus assets), unrealized gains and losses on
derivative transactions not designated as hedges for accounting
purposes, the elimination of expenses related to acquiring or
constructing assets that provide new sources of cash flows and the
subtraction of maintenance capital utilized, which is described in
detail below.
Recent Change in Circumstances and Disclosure Format
We have implemented a modified format relating to maintenance
capital requirements because of our expectation that our future
maintenance capital expenditures may change materially in nature
(discretionary vs. non-discretionary), timing and amount from time
to time. We believe that, without such modified disclosure, such
changes in our maintenance capital expenditures could be confusing
and potentially misleading to users of our financial information,
particularly in the context of the nature and purposes of our
Available Cash before Reserves measure. Our modified disclosure
format provides those users with new information in the form of our
maintenance capital utilized measure (which we deduct to arrive at
Available Cash before Reserves). Our maintenance capital utilized
measure constitutes a proxy for non-discretionary maintenance
capital expenditures and it takes into consideration the
relationship among maintenance capital expenditures, operating
expenses and depreciation from period to period.
Maintenance Capital Requirements
Maintenance Capital Expenditures
Maintenance capital expenditures are capitalized costs that are
necessary to maintain the service capability of our existing
assets, including the replacement of any system component or
equipment which is worn out or obsolete. Maintenance capital
expenditures can be discretionary or non-discretionary, depending
on the facts and circumstances.
Historically, substantially all of our maintenance capital
expenditures have been (a) related to our pipeline assets and
similar infrastructure, (b) non-discretionary in nature and (c)
immaterial in amount as compared to our Available Cash before
Reserves measure. Those historical expenditures were
non-discretionary (or mandatory) in nature because we had very
little (if any) discretion as to whether or when we incurred them.
We had to incur them in order to continue to operate the related
pipelines in a safe and reliable manner and consistently with past
practices. If we had not made those expenditures, we would not have
been able to continue to operate all or portions of those
pipelines, which would not have been economically feasible. An
example of a non-discretionary (or mandatory) maintenance capital
expenditure would be replacing a segment of an old pipeline because
one can no longer operate that pipeline safely, legally and/or
economically in the absence of such replacement.
Prospectively, we believe a substantial amount of our
maintenance capital expenditures from time to time will be (a)
related to our assets other than pipelines, such as our marine
vessels, trucks and similar assets, (b) discretionary in nature and
(c) potentially material in amount as compared to our Available
Cash before Reserves measure. Those future expenditures will be
discretionary (or non-mandatory) in nature because we will have
significant discretion as to whether or when we incur them. We will
not be forced to incur them in order to continue to operate the
related assets in a safe and reliable manner. If we chose not make
those expenditures, we would be able to continue to operate those
assets economically, although in lieu of maintenance capital
expenditures, we would incur increased operating expenses,
including maintenance expenses. An example of a discretionary (or
non-mandatory) maintenance capital expenditure would be replacing
an older marine vessel with a new marine vessel with substantially
similar specifications, even though one could continue to
economically operate the older vessel in spite of its increasing
maintenance and other operating expenses.
In summary, as we continue to expand certain non-pipeline
portions of our business, we are experiencing changes in the nature
(discretionary vs. non-discretionary), timing and amount of our
maintenance capital expenditures that merit a more detailed review
and analysis than was required historically. Management’s recently
increasing ability to determine if and when to incur certain
maintenance capital expenditures is relevant to the manner in which
we analyze aspects of our business relating to discretionary and
non-discretionary expenditures. We believe it would be
inappropriate to derive our Available Cash before Reserves measure
by deducting discretionary maintenance capital expenditures, which
we believe are similar in nature in this context to certain other
discretionary expenditures, such as growth capital expenditures,
distributions/dividends and equity buybacks. Unfortunately, not all
maintenance capital expenditures are clearly discretionary or
non-discretionary in nature. Therefore, we developed a new measure,
maintenance capital utilized, that we believe is more useful in the
determination of Available Cash before Reserves. Our maintenance
capital utilized measure, which is described in more detail below,
constitutes a proxy for non-discretionary maintenance capital
expenditures and it takes into consideration the relationship among
maintenance capital expenditures, operating expenses and
depreciation from period to period.
Maintenance Capital Utilized
We believe our maintenance capital utilized measure is the most
useful quarterly maintenance capital requirements measure to use to
derive our Available Cash before Reserves measure. We define our
maintenance capital utilized measure as that portion of the amount
of previously incurred maintenance capital expenditures that we
utilize during the relevant quarter, which would be equal to the
sum of the maintenance capital expenditures we have incurred for
each project/component in prior quarters allocated ratably over the
useful lives of those projects/components.
Because we have not historically used our maintenance capital
utilized measure, our future maintenance capital utilized
calculations will reflect the utilization of solely those
maintenance capital expenditures incurred since December 31, 2013.
Further, we do not have the actual comparable calculations for our
prior periods, and we may not have the information necessary to
make such calculations for such periods. And, even if we could
locate and/or re-create the information necessary to make such
calculations, we believe it would be unduly burdensome to do so in
comparison to the benefits derived.
ADJUSTED EBITDA
Purposes, Uses and Definition
Adjusted EBITDA is commonly used as a supplemental financial
measure by management and by external users of financial statements
such as investors, commercial banks, research analysts and rating
agencies, to aid in assessing, among other things:
(1) the financial performance of our assets
without regard to financing methods, capital structures or
historical cost basis; (2) our operating performance as compared to
those of other companies in the midstream energy industry, without
regard to financing and capital structure; (3) the viability of
potential projects, including our cash and overall return on
alternative capital investments as compared to those of other
companies in the midstream energy industry; (4) the ability of our
assets to generate cash sufficient to satisfy certain
non-discretionary cash requirements, including interest payments
and certain maintenance capital requirements; and (5) our ability
to make certain discretionary payments, such as distributions on
our units, growth capital expenditures, certain maintenance capital
expenditures and early payments of indebtedness .
We define Adjusted EBITDA (“Adjusted EBITDA”) as net income or
loss plus net interest expense, income taxes, non-cash gains and
charges (other than certain non-cash equity based compensation
expense), depreciation and amortization plus other specific items,
the most significant of which are the addition of cash received
from direct financing leases not included in income, expenses
related to acquiring assets that provide new sources of cash flow
and the effects of available cash generated by equity method
investees not included in income. We also exclude the effect on net
income or loss of unrealized gains or losses on derivative
transactions.
SEGMENT MARGIN
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
capital investment. We define Segment Margin as revenues less
product costs, operating expenses (excluding non-cash gains and
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
legacy stock appreciation rights plan and unrealized gains and
losses on derivative transactions not designated as hedges for
accounting purposes. Our Segment Margin definition also includes
the non-income portion of payments received under direct financing
leases.
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version on businesswire.com: http://www.businesswire.com/news/home/20161103005469/en/
Genesis Energy, L.P.Bob Deere, 713-860-2516Chief Financial
Officer
Genesis Energy (NYSE:GEL)
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