Genesis Energy, L.P. (NYSE:GEL) today announced its fourth
quarter results.
Certain highlights of our results for the quarter ended
December 31, 2016 included the following items:
- We reported the following results for
the fourth quarter of 2016 compared to the same quarter in 2015:
- Net Income Attributable to Genesis
Energy, L.P. of $22.1 million, or $0.19 per unit, for the fourth
quarter of 2016 compared to $27.4 million, or $0.25 per unit, for
the same period in 2015, representing a decrease of $5.3 million,
or 19%.
- Cash Flows from Operating Activities of
$69.9 million for the fourth quarter of 2016 compared to $97.4
million for the same period in 2015, representing a decrease of
$27.5 million, or 28%.
- Available Cash before Reserves of $95.4
million in the fourth quarter of 2016, a decrease of $6.9 million
over the prior year quarter, or 7%, providing 1.14 coverage for our
quarterly distribution to unitholders attributable to that quarter,
which is discussed below.
- Adjusted EBITDA for the fourth quarter
of 2016 was $133.1 million, a decrease of $4.5 million, or 3%,
compared to the prior year quarter. Our Adjusted Debt to Pro Forma
EBITDA ratio is 5.22 as of December 31, 2016. These amounts are
calculated and further discussed later in this press release.
- On February 14, 2017, we paid a
total quarterly distribution of $83.8 million based on our
quarterly declared distribution of $0.71 per unit attributable to
our financial and operational results for the fourth quarter of
2016. This represents an increase in our distribution for the
forty-sixth consecutive quarter.
Grant Sims, CEO of Genesis Energy, said, “Given the continuing
challenging operating environment in the energy midstream space, we
continue to be pleased with the financial performance of our
diversified, yet increasingly integrated, businesses.
Our significant infrastructure projects in the Baton Rouge area
were substantially completed in the fourth quarter, and we
anticipate completing our repurposing project in Texas in the
second quarter of 2017. We would expect to see contributions from
these projects to continue to ramp throughout this year and into
2018. At Raceland, we would expect to see volumes start to ramp in
mid-2017 as we will be fully capable of receiving and terminaling
heavy crudes via rail and medium sour crudes via pipeline.
While we are a bit behind schedule and might arguably have a
slightly slower ramp from these major investments, we are very
excited and have many reasons to believe that we will ultimately
exceed our average base case economics across the projects. The
momentum for the rest of this year and into 2018 positions us to do
reasonably well even if things don’t improve in late 2017 or 2018.
Given our recent and continuing actions to increase liquidity and
strengthen our balance sheet, we believe we are well positioned to
continue to deliver long term value to all of our stakeholders
without ever losing our absolute commitment to safe, reliable and
responsible operations.”
Financial Results
Segment Margin
Beginning in the fourth quarter of 2016, we started reporting
our results on a comparative basis in four business segments. Due
to the increasingly integrated nature of our onshore operations,
the results of our Onshore Pipeline Transportation Segment,
formerly reported under its own segment, is now reported in our
Supply and Logistics Segment.
Variances between the fourth quarter of 2016 (the “2016
Quarter”) and the fourth quarter of 2015 (the “2015 Quarter”) in
these components are explained below.
Segment results for the 2016 Quarter and 2015 Quarter were as
follows:
Three Months EndedDecember 31, 2016 2015 (in
thousands) Offshore pipeline transportation $ 87,163 $ 76,482
Refinery services 17,922 20,173 Marine transportation 16,384 23,721
Supply and logistics 19,395 22,811 Total Segment Margin $
140,864 $ 143,187
Offshore Pipeline Transportation Segment Margin for the 2016
Quarter increased $10.7 million, or 14%, from the 2015 Quarter.
Overall, our offshore pipeline operations benefited from the
general increase in the Gulf of Mexico production. The increase was
the result of 2016 drilling activity which predominantly occurred
near existing infrastructure due to the attractive economics in
current pricing conditions. Our extensive pipeline network
benefited ratably from this activity. In addition, the 2016 Quarter
benefited from the temporary diversion of certain natural gas
volumes from third party gas pipelines onto certain of our gas
pipeline assets due to disruptions at onshore processing facilities
where such volumes typically flow.
Refinery Services Segment Margin for the 2016 Quarter decreased
$2.3 million, or 11%. This is primarily due to a 6% decrease in
NaHS sales volume relative to the 2015 Quarter, which is
principally related to lower sales volumes to our South American
mining customers during the 2016 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. We expect those
other factors to continue.
Marine Transportation Segment Margin for the 2016 Quarter
decreased $7.3 million, or 31%, 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 year, 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 $3.4 million,
or 15%, between the two quarters. This was primarily the result of
an indefinite reduction in pipeline volumes to
the Texas City refining market on our Texas pipeline system.
Our historical customers in Texas City have made
alternative arrangements to receive crude oil as a result of
our endeavors to expand, extend and repurpose our facilities into
longer lived, higher value service. We expect to complete this
repurposing in the second quarter of 2017. This decrease in Segment
Margin is 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. This decrease
was also partially offset by an increase in volumes on our
Louisiana system, as our new Baton Rouge terminal and related crude
oil and refined products pipelines commenced operations during
the fourth quarter of 2016. Our results also reflect a ramp up
in rail volumes in the 2016 Quarter driven by increased
demand by a major refinery customer supported by our Baton
Rouge facilities.
Other Components of Net Income
In the 2016 Quarter, we recorded Net Income Attributable to
Genesis Energy, L.P. of $22.1 million compared to $27.4 million in
the 2015 Quarter.
The decrease in net income is due to a non-cash valuation
allowance of $6.0 million recorded in the 2016 Quarter related to
the collectibility of certain disputed receivables and claims.
Additionally other non-cash expenses, including depreciation,
amortization and accretion, increased $6.3 million in the 2016
Quarter. The increase in such non-cash expenses was principally the
result of the effect of acquiring assets and placing constructed
assets in service during calendar 2016.
Interest costs increased $1.4 million in the 2016 Quarter from
the 2015 Quarter. This increase was primarily due to an increase in
our average outstanding indebtedness from acquired and constructed
assets. Interest costs, on an ongoing basis, are net of capitalized
interest costs attributable to our growth capital expenditures.
Somewhat offsetting the above decreases in net income, as well
as the previously discussed decrease in Segment Margin, were the
increased contributions of equity earnings in our unconsolidated
joint ventures. The 2015 Quarter included negative non-cash basis
adjustments, relating to certain of our historical and acquired
equity investments, as a result of our acquisition of the offshore
pipelines and services business of Enterprise.
Distributions
We have increased our quarterly distribution rate for the
forty-sixth consecutive quarter. Distributions attributable to each
quarter of 2016 and 2015, are as follows:
Distribution For Date Paid Per Unit
Amount
2016 4th Quarter February 14, 2017 $ 0.7100 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,
February 16, 2017, 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 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 EndedDecember 31, Year EndedDecember 31, 2016
2015 2016 2015
REVENUES $ 428,053 $ 491,011 $
1,712,493 $ 2,246,529
COSTS AND EXPENSES: Costs of
sales and operating expenses 308,336 369,358 1,238,245 1,874,527
General and administrative expenses 10,909 10,143 45,625 64,995
Depreciation and amortization 65,396 53,640 222,196
150,140
OPERATING INCOME 43,412 57,870 206,427
156,867 Equity in earnings of equity investees 12,582 6,010 47,944
54,450 Interest expense (35,290 ) (33,859 ) (139,947 ) (100,596 )
Gain on basis step up on historical interest — (2,880 ) — 332,380
Other income/(expense), net — — — (17,529 )
INCOME BEFORE INCOME TAXES 20,704 27,141 114,424 425,572
Income tax expense (383 ) (845 ) (3,342 ) (3,987 )
NET
INCOME 20,321 26,296 111,082 421,585 Net income (loss)
attributable to noncontrolling interests 1,797 1,138
2,167 943
NET INCOME ATTRIBUTABLE TO GENESIS
ENERGY, L.P. $ 22,118 $ 27,434 $ 113,249 $
422,528
NET INCOME PER COMMON UNIT:
Basic and Diluted $ 0.19 $ 0.25 $ 1.00
$ 4.10
WEIGHTED AVERAGE OUTSTANDING COMMON
UNITS: Basic and Diluted 117,979 109,979 113,433 103,004
GENESIS ENERGY, L.P.
OPERATING DATA - UNAUDITED
Three Months EndedDecember 31, Year EndedDecember 31, 2016
2015 2016 2015
Offshore Pipeline Transportation
Segment Crude oil pipelines (barrels/day unless otherwise
noted): CHOPS (1) 215,794 175,238 204,533 172,647 Poseidon (1)
272,905 269,334 262,829 259,568 Odyssey (1) 107,859 100,918 106,933
72,958 GOPL 12,321 10,099 7,468 13,038
Offshore crude oil pipelines total 608,879 555,589
581,763 518,211 SEKCO (1) 81,646 76,021 75,342
61,766 Natural gas transportation volumes (MMbtus/d) (1)
749,262 689,529 679,862 708,556
Refinery Services
Segment NaHS (dry short tons sold) 29,650 31,409 125,766
127,063 NaOH (caustic soda dry short tons sold) 20,219 19,691
80,021 86,914
Marine Transportation Segment Inland
Fleet Utilization Percentage (2) 91.4 % 93.6 % 91.4 % 96.7 %
Offshore Fleet Utilization Percentage (2) 88.3 % 95.1 % 90.5 % 98.7
%
Supply and Logistics Segment Crude oil pipelines
(barrels/day): Texas 10,306 75,142 33,814 71,906 Jay 15,769 16,194
14,815 16,828 Mississippi 9,176 13,177 10,247 15,472 Louisiana (3)
73,568 42,808 44,295 32,481 Wyoming 13,808 7,195
10,959 7,397 Onshore crude oil pipelines total
122,627 154,516 114,130 144,084 CO2
pipeline (Mcf/day) Free State 88,417 142,428 97,955
161,409 Crude oil and petroleum products sales
(barrels/day) 49,854 80,698 62,484 91,074 Rail load/unload volumes
(barrels/day) (4) 38,592 35,949 19,691 27,044 (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) Total daily volume for the
three months ended December 31, 2016, includes 35,794 barrels per
day of refined products associated with our new Port of Baton Rouge
Terminal pipelines which became operational in the fourth quarter
of 2016. (4) 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)
December 31,2016 December 31,2015
ASSETS Cash and
cash equivalents $ 7,029 $ 10,895 Accounts receivable - trade, net
224,682 219,532 Inventories 98,587 43,775 Other current assets
29,271 32,114
Total current assets 359,569
306,316 Fixed assets, net 4,214,864 3,931,979 Investment in direct
financing leases, net 132,859 139,728 Equity investees 408,756
474,392 Intangible assets, net 204,887 223,446 Goodwill 325,046
325,046 Other assets, net 56,611 58,692
Total
assets $ 5,702,592 $ 5,459,599
LIABILITIES AND
PARTNERS’ CAPITAL Accounts payable - trade $ 119,841 $ 140,726
Accrued liabilities 140,962 161,410
Total current
liabilities 260,803 302,136 Senior secured credit facility
1,278,200 1,115,000 Senior unsecured notes 1,813,169 1,807,054
Deferred tax liabilities 25,889 22,586 Other long-term liabilities
204,481 192,072 Partners' capital: Common unitholders 2,130,331
2,029,101 Noncontrolling interests (10,281 ) (8,350 )
Total
partners' capital 2,120,050 2,020,751
Total
liabilities and partners' capital $ 5,702,592 $
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 EndedDecember 31, 2016 2015 Total
Segment Margin (1) $ 140,864 $ 143,187 Corporate general and
administrative expenses (8,636 ) (9,178 ) Non-cash items included
in general and administrative costs 543 206 Cash expenditures not
included in Adjusted EBITDA 579 3,726 Cash expenditures not
included in net income (219 ) (358 ) Adjusted EBITDA 133,131
137,583 Depreciation, amortization and accretion (62,072 ) (55,800
) Interest expense, net (35,290 ) (33,859 ) Cash expenditures not
included in Adjusted EBITDA or net income (360 ) (3,368 )
Adjustment to exclude distributable cash generated by equity
investees not included in income and include equity in investees
net income (8,458 ) (17,635 ) Gain on step up of historical basis
in CHOPS and SEKCO — (2,880 ) Differences in timing of cash
receipts for certain contractual arrangements 3,624 3,628 Non-cash
valuation allowance related to collectibility (6,044 ) — Other
non-cash items (2,030 ) 610 Income tax expense (383 ) (845 ) Net
income attributable to Genesis Energy, L.P. $ 22,118 $
27,434 (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 EndedDecember 31, 2016 2015 (in
thousands) Net income attributable to Genesis Energy, L.P. $ 22,118
$ 27,434 Depreciation, amortization and accretion 62,072 55,800
Cash received from direct financing leases not included in income
1,632 1,470 Cash effects of sales of certain assets 306 240 Effects
of distributable cash generated by equity method investees not
included in income 8,458 17,635 Expenses related to acquiring or
constructing growth capital assets 579 3,726 Unrealized (gain) loss
on derivative transactions excluding fair value hedges, net of
changes in inventory value 545 (486 ) Maintenance capital utilized
(1) (2,446 ) (1,350 ) Non-cash tax expense 83 545 Gain on step up
of historical basis — 2,880 Differences in timing of cash receipts
for certain contractual arrangements (3,624 ) (3,628 ) Non-cash
valuation allowance related to collectibility 6,044 — Other items,
net (367 ) (1,977 ) Available Cash before Reserves $ 95,400
$ 102,289 (1) Maintenance capital expenditures in the 2016
Quarter and 2015 Quarter were $6.8 million and $6.2 million,
respectively. Three Months EndedDecember 31, 2016
2015 (in thousands) Cash Flows from Operating Activities $ 69,941 $
97,408 Maintenance capital utilized (1) (2,446 ) (1,350 ) Proceeds
from asset sales 306 240 Amortization and writeoff of debt issuance
costs, including premiums and discounts (2,575 ) (2,414 ) Effects
of available cash from joint ventures not included in operating
cash flows 4,701 6,285 Net effect of changes in operating accounts
not included in calculation of Available Cash before Reserves
28,699 2,009 Non-cash effect of equity based compensation expense
(990 ) 555 Expenses related to acquiring or constructing growth
capital assets 579 3,726 Differences in timing of cash receipts for
certain contractual arrangements (3,624 ) (3,628 ) Other items
affecting available cash 809 (542 ) Available Cash before
Reserves $ 95,400 $ 102,289 (1) Maintenance capital
expenditures in the 2016 Quarter and 2015 Quarter were $6.8 million
and $6.2 million, respectively.
GENESIS ENERGY, L.P.
RECONCILIATION OF NET CASH FLOWS FROM
OPERATING ACTIVITIES TO ADJUSTED EBITDA - UNAUDITED
(in thousands)
Three Months EndedDecember 31, 2016 2015 Cash
Flows from Operating Activities $ 69,941 $ 97,408 Interest Expense
35,290 33,859 Amortization and writeoff of debt issuance costs,
including premiums and discounts (2,575 ) (2,414 ) Effects of
available cash from equity method investees not included in
operating cash flows 4,701 6,285 Net effect of changes in
components of operating assets and liabilities not included in
calculation of Adjusted EBITDA 28,699 2,009 Non-cash effect of
equity based compensation expense (990 ) 555 Expenses related to
acquiring or constructing growth capital assets 579 3,726
Differences in timing of cash receipts for certain contractual
arrangements $ (3,624 ) $ (3,628 ) Other items, net 1,110
(217 ) Adjusted EBITDA $ 133,131 $ 137,583
GENESIS ENERGY, L.P.
ADJUSTED DEBT-TO-PRO FORMA EBITDA RATIO
- UNAUDITED
(in thousands)
December 31, 2016 Senior secured credit facility $ 1,278,200
Senior unsecured notes 1,813,169 Less: Outstanding inventory
financing sublimit borrowings (74,500 ) Less: Cash and cash
equivalents (7,029 ) Adjusted Debt (1) $ 3,009,840
Pro Forma LTM December 31, 2016 LTM Adjusted EBITDA (as reported)
(2) $ 532,231 Acquisitions and material projects EBITDA adjustment
(3) 44,008 Pro Forma EBITDA $ 576,239 Adjusted
Debt-to-Pro Forma EBITDA 5.22 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 $35.3 million for
the first quarter of 2016, $23.7 million for the second quarter of
2016 , $32.1 million for the third quarter of 2016, and $29.6
million for the fourth 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.
Disclosure Format Relating to Maintenance
Capital
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/20170216005304/en/
Genesis Energy, L.P.Bob Deere, 713-860-2516Chief Financial
Officer
Genesis Energy (NYSE:GEL)
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