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, 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)
Yes X No
------ ------
This report contains 14 pages
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GENESIS ENERGY, L.P.
Form 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Condensed Consolidated Balance Sheets - March 31, 1997
and December 31, 1996 3
Condensed Consolidated Statement of Operations for the
Three Months Ended March 31, 1997,
Pro Forma Condensed Consolidated Statement of Operations
for the Three Months Ended March 31, 1996, and
Condensed Statement of Operations for the Three Months
Ended March 31, 1996 (Predecessor) 4
Condensed Consolidated Statement of Cash Flows for the Three
Months Ended March 31, 1997, and
Condensed Statement of Cash Flows for the Three Months Ended
March 31, 1996 (Predecessor) 5
Condensed Consolidated Statement of Partners' Capital for
the Three Months Ended March 31, 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
<PAGE>
GENESIS ENERGY, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
1997 1996
-------- --------
Assets (Unaudited)
Current Assets
Cash and cash equivalents $ 11,556 $ 11,878
-------- --------
Accounts receivable -
Trade 262,304 336,358
Related party 83,397 52,449
Inventories 3,790 8,290
Other 1,212 1,396
-------- --------
Total current assets 362,259 410,371
Property and Equipment, at cost 100,554 100,097
Less: Accumulated depreciation (12,608) (11,160)
-------- --------
Net property and equipment 87,946 88,937
Other Assets, net of amortization 10,482 10,592
-------- --------
Total Assets $460,687 $509,900
======== ========
Liabilities and Partners' Capital
Current Liabilities
Accounts payable -
Trade $313,898 $387,322
Related party 18,560 3,430
Accrued liabilities 13,462 7,811
-------- --------
Total current liabilities 345,920 398,563
Commitments and Contingencies (Note 8)
Minority Interests 26,943 26,257
Partners' Capital
Common unitholders, 8,625 units issued
and outstanding 86,067 83,378
General partner 1,757 1,702
-------- --------
Total partners' capital 87,824 85,080
-------- --------
Total Liabilities and Partners' Capital $460,687 $509,900
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
GENESIS ENERGY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit amounts)
(Unaudited)
Three Months Ended March 31,
1997 1996 1996
-------- ---------- --------
(Pro Forma)(Predecessor)
REVENUES:
Gathering and marketing revenues
Unrelated parties $729,521 $ 589,538 $453,166
Related parties 212,905 407,583 405,453
Pipeline revenues 4,056 4,078 -
-------- ---------- --------
Total revenues 946,482 1,001,199 858,619
COST OF SALES:
Crude costs, unrelated parties 903,962 877,201 745,519
Crude costs, related parties 30,916 109,057 104,907
Field operating costs 3,348 3,814 1,824
Pipeline operating costs 1,222 1,178 -
-------- ---------- --------
Total cost of sales 939,448 991,250 852,250
-------- ---------- --------
GROSS MARGIN 7,034 9,949 6,369
EXPENSES:
General and administrative 2,133 2,268 877
Depreciation and amortization 1,565 1,788 483
-------- ---------- --------
OPERATING INCOME 3,336 5,893 5,009
OTHER INCOME (EXPENSE):
Interest, net 92 - 89
Other, net 2 (79) (80)
-------- ---------- --------
Income before income taxes and
minority interests 3,430 5,814 5,018
Income tax provision - - 1,887
-------- ---------- --------
Net income before minority interests 3,430 5,814 3,131
Minority interests 686 1,162 -
-------- ---------- --------
NET INCOME $ 2,744 $ 4,652 $ 3,131
======== ========== ========
NET INCOME PER COMMON UNIT $ 0.31 $ 0.53
======== ==========
NUMBER OF COMMON UNITS OUTSTANDING 8,625 8,625
======== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
GENESIS ENERGY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
1997 1996
------ ------
(Predecessor)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,744 $3,131
Adjustments to reconcile net income to net
cash provided by (used in) operating activities-
Depreciation 1,448 483
Amortization of intangible assets 117 -
Minority interests equity in earnings 686 -
Other noncash charges 17 12
Changes in components of working capital-
Accounts receivable 43,106 (67,902)
Inventories 4,500 2,043
Other current assets 184 -
Accounts payable (58,294) 44,790
Accrued liabilities 5,634 (76)
Accrued income taxes - (4,073)
-------- --------
Net cash provided by (used in) operating activities 142 (21,592)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (457) -
Increase in other assets (7) -
Proceeds from sale of assets - 270
-------- --------
Net cash (used in) provided by investing activities (464) 270
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances from Basis - 21,322
-------- --------
Net cash provided by financing activities - 21,322
-------- --------
Net decrease in cash and cash equivalents (322) -
Cash and cash equivalents at beginning of period 11,878 -
-------- --------
Cash and cash equivalents at end of period $ 11,556 $ -
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
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 three months ended March 31, 1997 2,689 55
------- ------
Partners' capital at March 31, 1997 $86,067 $1,757
======= ======
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 March 31, 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 March 31, 1997 for GELP and its results of operations,
cash flows and changes in partners' capital for the three months ended March 31,
1997, and the results of operations and cash flows for the three months ended
March 31, 1996 for the Predecessor.
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, 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 Statement of Operations for the
three months ended March 31, 1996 reflects 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. 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.
4. Credit Resources
GCOLP entered into credit facilities with Salomon Inc and Basis (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 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 $550 million through
June 30, 1997, $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 March 31, 1997, the aggregate
amount of obligations covered by guarantees was $366.4 million, including $200.9
million in payable obligations and $165.5 million of estimated crude oil
purchase obligations for April 1997.
Working Capital Facility
Basis has agreed to use its reasonable best efforts, to the extent it has
availability under its uncommitted credit lines, to provide GCOLP, through May
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 March 31, 1997. No direct cash advances were outstanding
at March 31, 1997. Salomon Inc has assumed Basis' obligations to the
Partnership under the Master Credit Support Agreement and extended the term of
the agreement to August 31, 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.
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,
1997 1996
-------- --------
(Predecessor)
Sales to affiliates $212,905 $405,453
Purchases from affiliates $30,916 $104,907
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
$14,000 for the three months ended March 31, 1997.
The Predecessor cleared its NYMEX transactions through Phibro Energy Clearing,
Inc., a wholly-owned subsidiary of Phibro Inc., a wholly-owned subsidiary of
Salomon Inc. The Predecessor paid commissions of $164,000 to this entity for
the three months ended March 31, 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
$3,656,000 for the three months ended March 31, 1997.
The Partnership entered into a Corporate Services Agreement with Basis pursuant
to which Basis, directly or through its affiliates, provides 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 were $353,000 for the three months ended March 31, 1997.
Basis allocated certain general and administrative costs to the Predecessor for
ancillary services, insurance and office space. These costs amounted to
approximately $300,000 for the three months ended March 31, 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. At
March 31, 1997, Basis owed the Partnership $6,200,000 under the Treasury
Management Agreement. Such amount has been classified in the consolidated
balance sheet as cash and cash equivalents. For the three months ended March
31, 1997, the Partnership earned interest of $97,000 on these loans by the
Partnership to Basis.
Credit Facilities
As discussed in Note 4, Salomon Inc and Basis provide Credit Facilities to the
Partnership. For the three months ended March 31, 1997, the Partnership paid
Salomon Inc $191,000 for guarantee fees under the Credit Facilities. The
Partnership paid Basis $82,000 for interest under the Credit Facilities during
the same period.
6. Supplemental Cash Flow Information
Cash received by the Partnership for interest was $183,000 for the three months
ended March 31, 1997. Payments of interest were $59,000 for the three months
ended March 31, 1997.
Cash received by the Predecessor for imputed interest was $91,000 for the three
months ended March 31, 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 three months
ended March 31, 1996 related to 1995.
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. 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.
8. Distributions
On April 2, 1997, the Board of Directors of the General Partner declared a cash
distribution of $0.66 per Unit for the period December 3, 1996 through March 31,
1997. This distribution will be paid on May 15, 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 will not receive a distribution for
that period.
9. Subsequent Event
On May 1, 1997, Salomon Inc sold 100% of the stock of Basis to Valero Energy
Corporation. In conjunction with the sale, Basis intends to transfer 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. The sale of
Basis by Salomon Inc may have a material effect on Genesis.
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.
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. The General Partner is evaluating
the additional annual costs that will be incurred, but anticipates that it
will be 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.
At formation of the Partnership, Howell, Basis and Salomon Inc entered into an
agreement not to compete with the Partnership for a period of ten years.
Management has not been privy to the Basis sale documents, but is of the opinion
that such non-competition agreement will continue to be binding on Basis after
the sale to Valero. Salomon Inc has informed the Partnership that they do not
agree with management's view on this issue. No assurance can be given
concerning the enforceability of the non-competition agreement.
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, 1997 Compared with Pro
Forma Three Months Ended March 31, 1996
Selected financial data for this discussion of the results of operations
follows, in thousands, except volumes per day.
Three Months Ended March 31,
1997 1996
-------- --------
(Pro Forma)
Gross margin
Gathering and marketing $ 4,200 $ 7,049
Pipeline $ 2,834 $ 2,900
General and administrative expenses $ 2,133 $ 2,268
Depreciation and amortization $ 1,565 $ 1,788
Operating income $ 3,336 $ 5,893
Interest income (expense), net $ 94 $ (79)
Volumes per day
Wellhead 106,811 109,699
Bulk 152,322 191,671
Pipeline 80,789 81,550
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 $4.2 million for the
quarter ended March 31, 1997, as compared to $7.0 million for the pro forma
quarter ended March 31, 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. Both trends have continued into the second
quarter of 1997, further depressing gross margin from gathering and marketing
activities.
Pipeline gross margin was $2.8 million for the quarter ended March 31, 1997, as
compared to the pro forma pipeline gross margin of $2.9 million for the first
quarter of 1996. Pipeline barrels per day decreased by 761 barrels between the
two periods, slightly reducing pipeline revenue. Operating costs increased
slightly in the 1997 period, contributing to the decrease in gross margin.
General and administrative expenses were $2.1 million for the three months ended
March 31, 1997, a slight decrease from the prior year period. Depreciation and
amortization declined $0.2 million from the 1996 period to $1.6 million for the
1997 first quarter, primarily attributable to certain assets becoming fully
depreciated during 1996.
Liquidity and Capital Resources
Cash Flows
Cash flows from operating activities were $0.1 million for the three months
ended March 31, 1997. The timing of payment for crude purchases utilized the
cash flows from net income. Operating activities of the Predecessor in the
prior year period utilized cash of $21.6 million primarily due to variations in
the timing of payment of crude purchase obligations.
For the three months ended March 31, 1997, cash flows utilized in investing
activities were $0.5 million as a result of additions in property and equipment,
primarily related to pipeline operations. In the 1996 first quarter, 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 provided by financing activities of $21.3 million in the quarter
ended March 31, 1996, resulted from advances by Basis to the Predecessor.
Working Capital and Credit Resources
As discussed in Note 4 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 9 of the Notes to Condensed Consolidated Financial Statements.
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. First Amendment to Master Credit Support Agreement
(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 15, 1997 By: /s/ Allyn R. Skelton, II
--------------------------
Allyn R. Skelton, II
Chief Financial Officer
FIRST AMENDMENT (this "Amendment") dated as of May 12, 1997, to the Master
Credit Support Agreement dated as of December 3, 1996 (the "Credit Agreement"),
between GENESIS CRUDE OIL, L.P., a Delaware limited partnership ("Genesis OLP"),
and SALOMON INC, a Delaware corporation ("Salomon").
A. Genesis OLP and Salomon are parties to the Credit Agreement, pursuant to
which Salomon has agreed to extend credit to Genesis OLP, subject to the terms
and conditions set forth therein. Capitalized terms used but not otherwise
defined herein have the meanings assigned to them in the Credit Agreement.
B. Basis Petroleum, Inc., a Texas corporation ("Basis"), has assigned all of
its rights, title and interests to Salomon, and Salomon has assumed all of
Basis' obligations, under the Credit Agreement. To make certain conforming
changes in connection with such assignment and assumption, and certain other
changes requested by Genesis OLP, the parties hereto desire to amend the Credit
Agreement as provided herein, subject to the terms and conditions set forth
herein.
Accordingly, in consideration of the mutual agreements herein contained and
other good and valuable consideration, the sufficiency and receipt of which are
hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. (a) References to Basis. The Credit Agreement is hereby amended as
follows:
(i) all references to Basis in its capacity as Agent under the Credit Agreement
shall be amended to refer instead to Salomon Brothers Holding Company Inc; and
(ii) all other references to Basis in the Credit Agreement shall be amended to
refer instead to Salomon.
(b) Appointment of Agent. Salomon hereby revokes the appointment of Basis as
Agent, and appoints Salomon Brothers Holding Company Inc as Agent from and after
the date of this Amendment.
SECTION 2. Amendments to Section 1.1. The following amendments are made to the
definitions contained in Section 1.1 of the Credit Agreement:
(i) The definition of "Receivable and Payable Report" is hereby amended to read
as follows:
"Receivable and Payable Report" shall mean a report itemizing in reasonable
detail the crude oil accounts receivable and payable of Genesis OLP as of the
Payment Day (as defined in Section 2.3(a) of this Agreement) for the month such
report is delivered as well as the total amount of royalties payable by check on
such Payment Day.
(ii) The definition of "Working Capital Facility Maturity Date" is hereby
amended to read as follows:
"Working Capital Facility Maturity Date" shall mean August 31, 1997.
SECTION 3. Amendments to Section 3.1. (a) Section 3.1(a) is hereby amended to
substitute $100,000 for $250,000 and to substitute 12:00 p.m. for 10:00 a.m.
(b) Section 3.1(b) is hereby amended to substitute 12:00 p.m. for 10:00 a.m.
SECTION 4. Amendment to Section 6.5(c). Section 6.5(c) is hereby amended in
its entirety to read as follows:
(c) Borrowing Base Reports. As soon as possible, and in any event within five
Business Days after the end of each month, a Borrowing Base Certificate as of
the last day of such preceding month, setting forth on an itemized basis a good
faith estimate of the Borrowing Base, and, as soon as possible, and in any event
by the Scheduling Day (as defined in Section 2.3(a) of this Agreement), a
Receivable and Payable Report, together with such other supporting documentation
and additional reports with respect to the Borrowing Base as the Agent shall
reasonably request; provided, however, that Genesis OLP shall provide the
information required by this paragraph (c) as often as may be reasonably
requested by Salomon Inc or the Agent if (i) a Default or Event of Default has
occurred and is continuing or (ii) Salomon Inc or the Agent otherwise determines
that a material adverse change has occurred with respect to the Loan Parties,
their management practices or the Collateral.
SECTION 5. Representations and Warranties. Genesis OLP hereby represents and
warrants to Salomon, on and as of the date hereof, that:
(a) This Amendment has been duly authorized, executed and delivered by Genesis
OLP, and each of this Amendment and the Credit Agreement as amended by this
Amendment constitutes a legal, valid and binding obligation of Genesis OLP,
enforceable in accordance with its terms.
(b) The representations and warranties set forth in Article V of the Credit
Agreement are true and correct in all material respects on and as of the date
hereof, and will be true and correct after giving effect to this Amendment.
(c) No Default or Event of Default has occurred and is continuing, or will have
occurred or be continuing after giving effect to this Amendment.
SECTION 6. Miscellaneous. (a) THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK.
(b) This Amendment may be executed in any number of counterparts, each of which
shall be an original but all of which, when taken together, shall constitute but
one instrument.
(c) Except as specifically amended or modified hereby, the Credit Agreement
shall continue in full force and effect in accordance with the provisions
thereof. As used therein, the terms "Agreement", "herein", "hereunder",
"hereinafter", "hereto", "hereof" and words of similar import shall, unless the
context otherwise requires, refer to the Credit Agreement as amended hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed by their respective authorized officers as of the date first written
above.
SALOMON INC,
By: /s/ Thomas W. Jasper
---------------------
Name: Thomas W. Jasper
Title: Treasurer
GENESIS CRUDE OIL, L.P., by GENESIS ENERGY, L.L.C., its operating general
partner,
By: /s/ Allyn R. Skelton, II
------------------------
Name: Allyn R. Skelton, II
Title: Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-Q OF
GENESIS ENERGY, L.P. FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED IN THAT FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,556
<SECURITIES> 0
<RECEIVABLES> 345,701
<ALLOWANCES> 0
<INVENTORY> 3,790
<CURRENT-ASSETS> 362,259
<PP&E> 100,554
<DEPRECIATION> 12,608
<TOTAL-ASSETS> 460,687
<CURRENT-LIABILITIES> 345,920
<BONDS> 0
0
0
<COMMON> 0<F1>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 460,687<F2>
<SALES> 942,426
<TOTAL-REVENUES> 946,482
<CGS> 934,878
<TOTAL-COSTS> 941,013<F3>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,430
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,744<F4>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,744
<EPS-PRIMARY> 0<F5>
<EPS-DILUTED> 0
<FN>
<F1>GENESIS ENERGY, L.P. IS A MASTER LIMITED PARTNERSHIP AND THERFORE HAS NO
COMMON STOCK OUTSTANDING.
<F2>GENESIS ENERGY, L.P. IS A MASTER LIMITED PARTNERSHIP. ITS BALANCE SHEET
INCLUDES MINORITY INTERESTS IN ITS SUBSIDIARY, GENESIS CRUDE OIL, L.P. OF
$26,943 AND PARTNERS' CAPITAL CONSISTING OF THE CAPITAL OF THE COMMON
UNITHOLDERS OF $86,067 AND THE CAPITAL OF THE GENERAL PARTNER OF $1,757.
<F3>TOTAL COSTS INCLUDES DEPRECIATION AND AMORTIZATION OF $1,565.
<F4>THE MINORITY INTERESTS IN NET INCOME OF GENESIS ENERGY, L.P. IS $686.
<F5>NET INCOME PER COMMON UNIT IS $0.31.
</FN>
</TABLE>
