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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-12295
GENESIS ENERGY, L.P.
(Exact name of registrant as specified in its charter)
Delaware 76-0513049
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 Dallas, Suite 2500, Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(713) 860-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
This report contains 14 pages
<PAGE> 2
GENESIS ENERGY, L.P.
Form 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Condensed Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and 1997 5
Condensed Consolidated Statement of Partners' Capital for the
Six Months Ended June 30, 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE> 3
GENESIS ENERGY, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
June 30, December 31,
1998 1997
-------- --------
Assets
Current assets
Cash and cash equivalents $ 3,737 $ 11,812
Accounts receivable -
Trade 193,912 209,869
Related party 302 -
Inventories 6,160 7,033
Other 4,904 3,488
-------- --------
Total current assets 209,015 232,202
Property and equipment, at cost 107,118 105,102
Less: Accumulated depreciation (17,361) (16,464)
-------- --------
Net property and equipment 89,757 88,638
Other assets, net of amortization 14,051 10,274
-------- --------
Total assets $312,823 $331,114
======== ========
Liabilities and Partners' Capital
Current liabilities
Accounts payable -
Trade $194,492 $215,159
Related party 2,696 2,832
Accrued liabilities 9,687 6,547
-------- --------
Total current liabilities 206,875 224,538
Long-term debt 5,000 -
Commitments and contingencies (Note 8)
Minority interests 28,859 28,225
Partners' capital
Common unitholders, 8,625 units issued and
outstanding 70,646 76,783
General partner 1,443 1,568
-------- --------
Total partners' capital 72,089 78,351
-------- --------
Total liabilities and partners' capital $312,823 $331,114
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 4
<TABLE>
GENESIS ENERGY, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit amounts)
(Unaudited)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Gathering and marketing revenues
Unrelated parties $556,831 $840,537 $1,185,229 $1,570,058
Related parties 966 45,597 18,466 258,502
Pipeline revenues 4,016 4,552 8,375 8,608
-------- -------- ---------- ----------
Total revenues 561,813 890,686 1,212,070 1,837,168
COST OF SALES:
Crude costs, unrelated parties 547,634 862,496 1,173,976 1,766,458
Crude costs, related parties 2,459 18,738 14,812 49,654
Field operating costs 3,643 2,926 7,004 6,274
Pipeline operating costs 2,030 1,587 3,895 2,809
-------- -------- ---------- ----------
Total cost of sales 555,766 885,747 1,199,687 1,825,195
-------- -------- ---------- ----------
GROSS MARGIN 6,047 4,939 12,383 11,973
EXPENSES:
General and administrative 2,780 2,180 5,521 4,313
Depreciation and amortization 2,005 1,567 3,638 3,132
Nonrecurring charge (Note 5) 373 - 373 -
-------- -------- ---------- ----------
OPERATING INCOME 889 1,192 2,851 4,528
OTHER INCOME (EXPENSE):
Interest, net 112 369 290 461
Other, net 13 41 32 43
-------- -------- ---------- ----------
Net income before minority
interests 1,014 1,602 3,173 5,032
Minority interests 203 320 634 1,006
-------- -------- ---------- ----------
NET INCOME $ 811 $ 1,282 $ 2,539 $ 4,026
======== ======== ========== ==========
NET INCOME PER COMMON
UNIT - BASIC AND DILUTED $ 0.09 $ 0.15 $ 0.29 $ 0.46
======== ======== ========== ==========
NUMBER OF COMMON UNITS
OUTSTANDING 8,625 8,625 8,625 8,625
======== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 5
GENESIS ENERGY, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
1998 1997
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,539 $4,026
Adjustments to reconcile net income to net cash
provided by (used in) operating activities -
Depreciation 3,171 2,897
Amortization of intangible assets 467 235
Minority interests equity in earnings 634 1,006
Loss (gain) on disposals of fixed assets 233 (47)
Other noncash charges 814 33
Changes in components of working capital -
Accounts receivable 15,655 105,802
Inventories 873 3,104
Other current assets (1,416) 383
Accounts payable (20,803) (109,638)
Accrued liabilities 2,326 610
-------- ---------
Net cash provided by operating activities 4,493 8,411
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (4,661) (1,313)
Increase in other assets (4,244) (10)
Proceeds from sales of assets 138 304
-------- ---------
Net cash used in investing activities (8,767) (1,019)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under Credit Facilities 5,000 -
Distributions:
To common unitholders (8,625) (5,693)
To general partner (176) (116)
-------- ---------
Net cash used in financing activities (3,801) (5,809)
-------- ---------
Net (decrease) increase in cash and cash equivalents (8,075) 1,583
Cash and cash equivalents at beginning of period 11,812 11,878
-------- ---------
Cash and cash equivalents at end of period $ 3,737 $ 13,461
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 6
<TABLE>
GENESIS ENERGY, L.P.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(In thousands)
(Unaudited)
<CAPTION>
Partners' Capital
---------------------------
Common General
Unitholders Partner Total
------- ------- -------
<S> <C> <C> <C>
Partners' capital at December 31, 1997 $76,783 $1,568 $78,351
Net income for the six months ended June 30, 1998 2,488 51 2,539
Distributions during the six months ended June 30, 1998 (8,625) (176) (8,801)
------- ------ -------
Partners' capital at June 30, 1998 $70,646 $1,443 $72,089
======= ====== =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 7
GENESIS ENERGY, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Formation and Offering
In December 1996, Genesis Energy, L.P. ("GELP") completed an initial public
offering of 8.6 million Common Units at $20.625 per unit, representing limited
partner interests in GELP of 98%. Genesis Energy, L.L.C. (the "General
Partner") serves as general partner of GELP and its operating limited
partnership, Genesis Crude Oil, L.P. ("GCOLP"). The General Partner owns a 2%
general partner interest in GELP.
Transactions at Formation
At the closing of the offering, GELP contributed the net proceeds of the
offering to GCOLP in exchange for an 80.01% general partner interest in GCOLP.
With the net proceeds of the offering, GCOLP purchased a portion of the crude
oil gathering, marketing and pipeline operations of Howell Corporation
("Howell") and made a distribution to Basis Petroleum, Inc. ("Basis") in
exchange for its conveyance of a portion of its crude oil gathering and
marketing operations. GCOLP issued an aggregate of 2.2 million subordinated
limited partner units ("Subordinated OLP Units") to Basis and Howell to obtain
the remaining operations. Basis' Subordinated OLP units were transferred to its
then parent, Salomon Smith Barney Holdings Inc. ("Salomon") in May 1997.
Unless the context otherwise requires, the term "the Partnership" hereafter
refers to GELP and its operating limited partnership.
2. Basis of Presentation
The accompanying financial statements and related notes present the
consolidated financial position as of June 30, 1998 and 1997 for GELP and its
results of operations, cash flows and changes in partners' capital for the three
and six months ended June 30, 1998 and 1997.
The financial statements included herein have been prepared by the
Partnership without audit pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Accordingly, they reflect all
adjustments (which consist solely of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
results for interim periods. Certain information and notes normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. However, the Partnership believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1997 filed with the SEC.
Basic net income per Common Unit is calculated on the number of outstanding
Common Units of 8,625,000. For this purpose, the 2% General Partner interest is
excluded from net income. Diluted net income per Common Unit did not differ
from basic net income per Common Unit for either period presented. The Common
Units that will be issued in accordance with the Restricted Unit Plan are
antidilutive.
3. Adoption of Accounting Standards
SFAS No. 130, "Reporting Comprehensive Income", was issued in June 1997, with
adoption required for fiscal years beginning after December 31, 1997. SFAS No.
130 requires the presentation of an additional income measure (termed
"comprehensive income"), which adjusts traditional net income for certain items
that previously were only reflected as direct charges to equity. For the three
and six month periods ended June 30, 1998 and 1997, there is not a difference
between "traditional" net income and comprehensive net income.
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", was issued in June 1997, establishing standards for the way that
public business enterprises report information about operating segments and
related information in interim and annual financial statements. The Partnership
has evaluated the applicability of the statement and has concluded that the
Partnership does not meet the criteria which required business segment
reporting.
<PAGE> 8
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
was issued in June 1998. This new standard, which the Partnership will be
required to adopt in the year 2000, will change the method of accounting for
changes in the fair value of certain derivative instruments by requiring that an
entity recognize the derivative at fair value as an asset or liability on its
balance sheet. Depending on the purpose of the derivative and the item it is
hedging, the changes in fair value of the derivative will be recognized in
current earnings or as a component of other comprehensive income in partners'
capital. The Partnership has started the process of evaluating the impact that
this statement will have on its results of operations and financial position.
This new standard could increase volatility in net income and comprehensive
income.
4. Credit Resources
GCOLP entered into credit facilities with Salomon (collectively, the "Credit
Facilities"), pursuant to a Master Credit Support Agreement. GCOLP's
obligations under the Credit Facilities are secured by its receivables,
inventories, general intangibles and cash.
Guaranty Facility
Salomon is providing a Guaranty Facility through December 31, 1999 in
connection with the purchase, sale and exchange of crude oil by GCOLP. The
aggregate amount of the Guaranty Facility is limited to $400 million for the
year ending December 31, 1998 and $300 million for the year ending December 31,
1999 (to be reduced in each case by the amount of any obligation to a third
party to the extent that such third party has a prior security interest in the
collateral). GCOLP pays a guarantee fee to Salomon which will increase over the
term of the facility, 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, 1998, the aggregate amount of obligations covered by
guarantees was $174 million, including $103 million in payable obligations and
$71 million of estimated crude oil purchase obligations for July 1998.
Working Capital Facility
Until replacement as described below, Salomon provided GCOLP with a Working
Capital Facility of up to $50 million, which amount included 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 no letters of credit outstanding at June 30, 1998. Direct cash
advances of $5 million were outstanding at June 30, 1998.
In August 1998, GCOLP entered into a revolving credit/loan agreement ("Loan
Agreement") with Bank One, Texas, N.A. ("Bank One") to replace the Working
Capital Facility that had been provided by Salomon. The Loan Agreement provides
for loans or letters of credit in the aggregate not to exceed the greater of $35
million or the Borrowing Base (as defined in the Loan Agreement). Loans will
bear interest at a rate chosen by GCOLP which would be one or more of the
following: (a) a Floating Base Rate (as defined in the Loan Agreement) that is
generally the prevailing prime rate less one percent; (b) a rate based on the
Federal Funds Rate plus one and one-half percent or (c) a rate based on LIBOR
plus one and one-quarter percent. The Loan Agreement provides for a revolving
period until August 14, 2000, with interest to be paid monthly. All loans
outstanding on August 14, 2000, are due at that time.
The Loan Agreement is collateralized by the accounts receivable and
inventory of GCOLP, subject to the terms of an Intercreditor Agreement between
Bank One and Salomon. There is no compensating balance requirement under the
Loan Agreement. A commitment fee of 0.35% on the available portion of the
commitment is provided for in the agreement. Material covenants and
restrictions include requirements to maintain a ratio of current assets to
current liabilities of at least 1:1 and to maintain tangible net worth, as
defined in the Loan Agreement, of $65 million.
There can be no assurance of the availability or the terms of credit for
the Partnership. The General Partner believes that the Loan Agreement and
Guaranty Facility will be sufficient to support the Partnership's crude oil
purchasing activities and working capital requirements during the terms of these
agreements. No assurance, however, can be given that the General Partner will
not be required to reduce or restrict the Partnership's gathering
<PAGE> 9
and marketing activities because of limitations on its ability to obtain
credit support and financing for its working capital needs.
5. Nonrecurring Charge
In the second quarter of 1998, the Partnership shut-in its Main Pass
pipeline. A charge of $373,000 was recorded, consisting of $109,000 of costs
related to the shut-in and a non-cash write-down of the asset of $264,000.
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.
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,
1998 1997
------- ---------
Sales to affiliates $18,466 $258,502
Purchases from affiliates $14,812 $ 49,654
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 $7,667,000 and $7,509,000 for the six months ended June 30,
1998 and 1997, respectively.
The Partnership entered into a Corporate Services Agreement with Basis
pursuant to which Basis, directly or through its affiliates, provided certain
administrative and support services for the benefit of the Partnership. Such
services included human resources, tax, accounting, data processing, NYMEX
transaction clearing and other similar administrative services. The Partnership
ceased to receive services under the agreement at December 31, 1997. Charges by
Basis under the Corporate Services Agreement during the period in 1997 that
Basis was a related party to the Partnership were approximately $400,000.
Treasury Services
The Partnership entered into a Treasury Management Agreement with Basis.
Effective May 1, 1997, Salomon replaced Basis as a party to the Treasury
Management Agreement. Under the Treasury Management Agreement, the Partnership
invests excess cash with Salomon and earns interest at market rates. At June
30, 1998, the Partnership had no funds deposited with Salomon. At June 30,
1997, Salomon 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, 1998, the
Partnership earned interest of $242,000 on the investments with Salomon. 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.
Credit Facilities
As discussed in Note 4, Salomon provides Credit Facilities to the
Partnership. For the six months ended June 30, 1998 and 1997, the Partnership
paid Salomon $317,000 and $403,000, respectively, for guarantee fees under the
Credit Facilities. The Partnership paid Salomon $5,000 for interest under the
Credit Facilities during the six months ended June 30, 1998. The Partnership
paid Basis $85,000 for interest under the Credit Facilities during the 1997
period.
<PAGE> 10
7. Supplemental Cash Flow Information
Cash received by the Partnership for interest was $306,000 and $615,000 for
the six months ended June 30, 1998 and 1997, respectively. Payments of interest
were $16,000 and $115,000 for the six months ended June 30, 1998 and 1997,
respectively.
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. Such matters presently
pending are not expected to have a material adverse effect on the financial
position, results of operations or cash flows of the Partnership.
As part of the formation of the Partnership, Basis and Howell agreed to each
retain liability and responsibility for the defense of any future lawsuits
arising out of activities conducted by Basis and Howell prior to the formation
of the Partnership and have also agreed to cooperate in the defense of such
lawsuits.
9. Distributions
On July 7, 1998, the Board of Directors of the General Partner declared a
cash distribution of $0.50 per Unit for the quarter ended June 30, 1998. The
distribution will be paid August 14, 1998, to the General Partner and all Common
Unitholders of record as of the close of business on July 31, 1998. The
Subordinated OLP Unitholders will not receive a distribution for the quarter.
<PAGE> 11
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
Selected financial data for this discussion of the results of operations
follows, in thousands, except barrels per day.
Three Months Ended Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
-------- -------- -------- --------
Gross margin
Gathering and marketing $ 4,061 $ 1,974 $ 7,903 $ 6,174
Pipeline $ 1,986 $ 2,965 $ 4,480 $ 5,799
General and administrative expenses $ 2,780 $ 2,180 $ 5,521 $ 4,313
Depreciation and amortization $ 2,005 $ 1,567 $ 3,638 $ 3,132
Nonrecurring charge $ 373 $ - $ 373 $ -
Operating income $ 889 $ 1,192 $ 2,851 $ 4,528
Interest income (expense), net $ 112 $ 369 $ 290 $ 461
Barrels per day
Wellhead 126,224 103,559 118,361 105,041
Bulk and exchange 320,137 391,592 331,577 365,808
Pipeline 84,753 93,466 87,123 87,163
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.
Six Months Ended June 30, 1998 Compared with Six Months Ended June 30, 1997
Gross margin from gathering and marketing operations was $7.9 million for
the six months ended June 30, 1998, as compared to $6.2 million for the six
months ended June 30, 1997. The increase primarily resulted from the
renegotiations of purchase contracts and the acquisition of the gathering and
marketing assets of Falco S&D, Inc. ("Falco") in April 1998.
Pipeline gross margin was $4.5 million for the six months ended June 30,
1998, as compared to the pipeline gross margin of $5.8 million for the first six
months of 1997. Pipeline revenues decreased $0.2 million. Although total
throughput was unchanged, a higher percentage of shipments were made on lower
tariff systems. Pipeline operating costs increased $1.1 million due to repairs
on the Main Pass pipeline during the first quarter of 1998, lease
<PAGE> 12
payments beginning in the second quarter of 1998 on a new segment of
pipeline and increased routine maintenance expenditures.
General and administrative expenses increased $1.2 million between the 1998
and 1997 six-month periods. This increase can be attributed to three items. In
the 1998 period, the Partnership recorded a non-cash charge of $0.8 million
related to its Restricted Unit Plan. The estimated total charge for the
Restricted Unit Plan is being recognized over the three-year vesting period
beginning in 1998. In addition, in 1998 the Partnership no longer benefited
from the sharing of certain services with Basis Petroleum, Inc., under the terms
of a Corporate Services Agreement, as it did in 1997. The third item relates to
the additional marketing and administrative personnel added by the Partnership
in April 1998 as a result of the Falco asset acquisition.
Depreciation and amortization increased $0.5 million between the six months
ended June 30, 1998 and the same period in 1997. This increase resulted
primarily from depreciation and amortization in the second quarter of 1998 on
the assets acquired from Falco.
In the 1998 six-month period, the Partnership recorded a nonrecurring
charge of $0.4 million as a result of the shut-in of its Main Pass pipeline.
The charge consisted of $0.1 million of costs related to the shut-in and a $0.3
million write-down of the asset.
Three Months Ended June 30, 1998 Compared with Three Months Ended June 30,
1997
Gross margin from gathering and marketing was $4.1 million for the three
months ended June 30, 1998, as compared to $2.0 million for the three months
ended June 30, 1997. The improvement primarily resulted from the renegotiations
of purchase contracts and the acquisition of the gathering and marketing assets
of Falco.
Pipeline gross margin was $2.0 million for the three months ended June 30,
1998, as compared to $3.0 million for the three months ended June 30, 1997.
This decrease of $1.0 million in gross margin can be attributed to a decline in
revenues of $0.5 million and the lease payment and increase in maintenance
expenditures discussed above. The revenue decrease between the second quarter
periods is primarily attributable to volume declines during the second quarter
of 1998 associated with low crude oil prices.
General and administrative expenses increased $0.6 million between the 1998
and 1997 quarters primarily as a result of the same factors that are discussed
above related to the increase in general and administrative expenses between the
six-month periods. The increase in depreciation and amortization between the
second quarter period is attributable to depreciation and amortization of the
assets acquired from Falco. Also, as discussed above, the Partnership recorded
a nonrecurring charge in the second quarter of 1998 related to its Main Pass
pipeline.
Liquidity and Capital Resources
Cash Flows
Cash flows from operating activities were $4.5 million for the six months
ended June 30, 1998. In the 1997 six-month period, cash flows from operating
activities were $8.4 million. The change between the two periods results
primarily from the difference in net income and variations in the timing of
payment of crude purchase obligations.
For the six months ended June 30, 1998, cash flows utilized in investing
activities were $8.8 million as a result of additions in property and equipment,
primarily related to the acquisition of the gathering and marketing assets of
Falco and to pipeline operations. In the 1997 first six months, investing
activities utilized cash flows of $1.0 million as a result of property and
equipment additions related to pipeline operations.
Cash flows used in financing activities by the Partnership during the first
six months of 1998 totaled $3.8 million. Distributions paid to the common
unitholders and the general partner totaling $8.8 million utilized cash flows.
Borrowings under the Credit Facilities of $5.0 million for capital expenditures
provided financing cash flows. In the 1997 six month period cash flows utilized
in financing activities were $5.8 million, representing distributions to the
common unitholders and the general partner.
<PAGE> 13
Working Capital and Credit Resources
As discussed in Note 4 of the Notes to Condensed Consolidated Financial
Statements, Salomon provided a Working Capital Facility to the Partnership until
August 1998. At this time, that Working Capital Facility was replaced with a
revolving credit/loan agreement ("Loan Agreement") with Bank One, Texas, N.A.
("Bank One"). The Loan Agreement provides for loans or letters of credit in the
aggregate not to exceed the greater of $35 million or the Borrowing Base (as
defined in the Loan Agreement). Loans will bear interest at a rate chosen by
GCOLP which would be one or more of the following: (a) a Floating Base Rate (as
defined in the Loan Agreement) that is generally the prevailing prime rate less
one percent; (b) a rate based on the Federal Funds Rate plus one and one-half
percent or (c) a rate based on LIBOR plus one and one-quarter percent. The Loan
Agreement provides for a revolving period until August 14, 2000, with interest
to be paid monthly. All loans outstanding on August 14, 2000, are due at that
time.
The Loan Agreement is collateralized by the accounts receivable and
inventory of GCOLP, subject to the terms of an Intercreditor Agreement between
Bank One and Salomon. There is no compensating balance requirement under the
Loan Agreement. A commitment fee of 0.35% on the available portion of the
commitment is provided for in the agreement. Material covenants and
restrictions include requirements to maintain a ratio of current assets to
current liabilities of at least 1:1 and to maintain tangible net worth, as
defined in the Loan Agreement, of $65 million.
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
<PAGE> 14
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 14, 1998 By: /s/ Allyn R. Skelton, II
------------------------------
Allyn R. Skelton, II
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 JUNE 30, 1998 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,737
<SECURITIES> 0
<RECEIVABLES> 194,214
<ALLOWANCES> 0
<INVENTORY> 6,160
<CURRENT-ASSETS> 209,015
<PP&E> 107,118
<DEPRECIATION> 17,361
<TOTAL-ASSETS> 312,823
<CURRENT-LIABILITIES> 206,875
<BONDS> 5,000
0
0
<COMMON> 0<F1>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 312,823<F2>
<SALES> 1,203,695
<TOTAL-REVENUES> 1,212,070
<CGS> 1,188,788
<TOTAL-COSTS> 1,203,325<F3>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,173
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,539<F4>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,539<F4>
<EPS-PRIMARY> 0<F5>
<EPS-DILUTED> 0<F6>
<FN>
<F1>GENESIS ENERGY, L.P. IS A MASTER LIMITED PARTNERSHIP AND THEREFORE 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
$28,859 AND PARTNERS' CAPITAL CONSISTING OF THE CAPITAL OF THE COMMON
UNITHOLDERS OF $70,646 AND THE CAPITAL OF THE GENERAL PARTNER OF $1,443.
<F3>TOTAL COSTS INCLUDES DEPRECIATION AND AMORTIZATION OF $3,638.
<F4>THE MINORITY INTERESTS IN NET INCOME OF GENESIS ENERGY, L.P. IS $634.
<F5>BASIC NET INCOME PER COMMON UNIT IS $0.29.
<F6>DILUTED NET INCOME PER COMMON UNIT IS $0.29.
</FN>
</TABLE>
