Quarterly Report (10-q)

Date : 05/03/2019 @ 5:22PM
Source : Edgar (US Regulatory)
Stock : Genesis Energy, L.P. Common Units (GEL)
Quote : 22.8275  0.0475 (0.21%) @ 4:22PM

Quarterly Report (10-q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
 
 
 
 
 
Form 10-Q  
 
 
 
 
 

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
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
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
919 Milam, Suite 2100,
Houston, TX
77002
(Address of principal executive offices)
(Zip code)
Registrant’s telephone number, including area code: (713) 860-2500

 
 
 
 
 
 
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   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   ý     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   x
 
Accelerated filer   ¨
Non-accelerated filer   ¨
 
Smaller reporting company   ¨
 
 
Emerging growth company   ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2) of the Exchange Act).    Yes   ¨     No   ý
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common units
GEL
NYSE
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. There were 122,539,221 Class A Common Units and 39,997 Class B Common Units outstanding as of May 3, 2019 .




GENESIS ENERGY, L.P.
TABLE OF CONTENTS
 

 
 
Page
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GENESIS ENERGY, L.P.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except units)
 
 
March 31, 2019
 
December 31, 2018
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
11,204

 
$
10,300

Accounts receivable - trade, net
307,390

 
323,462

Inventories
80,147

 
73,531

Other
41,329

 
35,986

Total current assets
440,070

 
443,279

FIXED ASSETS, at cost
5,471,477

 
5,440,858

Less: Accumulated depreciation
(1,093,199
)
 
(1,023,825
)
Net fixed assets
4,378,278

 
4,417,033

MINERAL LEASEHOLDS, net of accumulated depletion
559,161

 
560,481

NET INVESTMENT IN DIRECT FINANCING LEASES, net of unearned income
114,704

 
116,925

EQUITY INVESTEES
350,258

 
355,085

INTANGIBLE ASSETS, net of amortization
150,494

 
162,602

GOODWILL
301,959

 
301,959

RIGHT OF USE ASSETS, net
200,788

 

OTHER ASSETS, net of amortization
119,099

 
121,707

TOTAL ASSETS
$
6,614,811

 
$
6,479,071

LIABILITIES AND CAPITAL
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable - trade
$
144,629

 
$
127,327

Accrued liabilities
258,337

 
205,507

Total current liabilities
402,966

 
332,834

SENIOR SECURED CREDIT FACILITY
942,000

 
970,100

SENIOR UNSECURED NOTES, net of debt issuance costs
2,464,247

 
2,462,363

DEFERRED TAX LIABILITIES
12,828

 
12,576

OTHER LONG-TERM LIABILITIES
402,610

 
259,198

Total liabilities
4,224,651

 
4,037,071

 
 
 
 
MEZZANINE CAPITAL:
 
 
 
Class A Convertible Preferred Units, 24,972,598 and 24,438,022 issued and outstanding at March 31, 2019 and December 31, 2018, respectively
778,508

 
761,466

 
 
 
 
PARTNERS’ CAPITAL:
 
 
 
Common unitholders, 122,579,218 units issued and outstanding at March 31, 2019 and December 31, 2018
1,621,314

 
1,690,799

Accumulated other comprehensive income
939

 
939

Noncontrolling interests
(10,601
)
 
(11,204
)
Total partners' capital
1,611,652

 
1,680,534

TOTAL LIABILITIES, MEZZANINE CAPITAL AND PARTNERS’ CAPITAL
$
6,614,811

 
$
6,479,071

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

3



GENESIS ENERGY, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit amounts)
 
 
Three Months Ended
March 31,
 
2019
 
2018
REVENUES:
 
 
 
Offshore pipeline transportation services
$
78,317

 
73,260

Sodium minerals and sulfur services
275,486

 
285,910

Marine transportation
56,650

 
48,929

Onshore facilities and transportation
209,556

 
317,709

Total revenues
620,009

 
725,808

COSTS AND EXPENSES:
 
 
 
Onshore facilities and transportation product costs
168,105

 
277,818

Onshore facilities and transportation operating costs
19,652

 
22,295

Marine transportation operating costs
43,733

 
37,847

Sodium minerals and sulfur services operating costs
218,708

 
223,498

Offshore pipeline transportation operating costs
18,458

 
18,340

General and administrative
11,686

 
11,674

Depreciation, depletion and amortization
77,638

 
75,255

Total costs and expenses
557,980

 
666,727

OPERATING INCOME
62,029

 
59,081

Equity in earnings of equity investees
12,997

 
10,572

Interest expense
(55,701
)
 
(56,136
)
Other expense
(2,976
)
 
(5,244
)
Income before income taxes
16,349

 
8,273

Income tax expense
(402
)
 
(375
)
NET INCOME
15,947

 
7,898

Net loss attributable to noncontrolling interests
7

 
136

NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P.
$
15,954

 
$
8,034

Less: Accumulated distributions attributable to Class A Convertible Preferred Units
(18,415
)
 
(16,888
)
NET LOSS AVAILABLE TO COMMON UNITHOLDERS
$
(2,461
)
 
$
(8,854
)
NET LOSS PER COMMON UNIT (Note 11):
 
 
 
Basic and Diluted
$
(0.02
)
 
$
(0.07
)
WEIGHTED AVERAGE OUTSTANDING COMMON UNITS:
 
 
 
Basic and Diluted
122,579

 
122,579

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.


4


GENESIS ENERGY, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

 
Three Months Ended
March 31,
 
2019
 
2018
Net income
$
15,947

 
$
7,898

Other comprehensive income:
 
 
 
Change in benefit plan liability

 

Total Comprehensive income
15,947

 
7,898

Comprehensive loss attributable to noncontrolling interests
7

 
136

Comprehensive income attributable to Genesis Energy, L.P.
$
15,954

 
$
8,034

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.


5



GENESIS ENERGY, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(In thousands)
 
 
Number of
Common Units
 
Partners’ Capital
 
Noncontrolling Interest
 
Accumulated Other Comprehensive Income
 
Total
Partners’ capital, January 1, 2019
122,579

 
$
1,690,799

 
$
(11,204
)
 
$
939

 
$
1,680,534

Net income

 
15,954

 
(7
)
 

 
15,947

Cash distributions to partners

 
(67,419
)
 

 

 
(67,419
)
Cash contributions from noncontrolling interests

 

 
610

 

 
610

Distributions to Class A Convertible Preferred unitholders

 
(18,020
)
 

 

 
(18,020
)
Partners' capital, March 31, 2019
$
122,579

 
$
1,621,314

 
$
(10,601
)
 
$
939

 
$
1,611,652

 
Number of
Common Units
 
Partners’ Capital
 
Noncontrolling Interest
 
Accumulated Other Comprehensive Loss
 
Total
Partners’ capital, January 1, 2018
122,579

 
$
2,022,597

 
$
(8,079
)
 
$
(604
)
 
$
2,013,914

Net income

 
8,034

 
(136
)
 

 
7,898

Cash distributions to partners

 
(62,515
)
 

 

 
(62,515
)
Cash contributions from noncontrolling interests

 

 
400

 

 
400

Distributions to Class A Convertible Preferred unitholders

 
(16,526
)
 
$

 
$

 
(16,526
)
Partners' capital, March 31, 2018
122,579

 
$
1,951,590

 
$
(7,815
)
 
$
(604
)
 
$
1,943,171

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.


6


GENESIS ENERGY, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
 
Three Months Ended
March 31,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
15,947

 
$
7,898

Adjustments to reconcile net income to net cash provided by operating activities -
 
 
 
Depreciation, depletion and amortization
77,638

 
75,255

Amortization and write-off of debt issuance costs and discount
2,682

 
4,161

Amortization of unearned income and initial direct costs on direct financing leases
(3,139
)
 
(3,330
)
Payments received under direct financing leases
5,167

 
5,167

Equity in earnings of investments in equity investees
(12,997
)
 
(10,572
)
Cash distributions of earnings of equity investees
12,400

 
10,352

Non-cash effect of long-term incentive compensation plans
1,565

 
(136
)
Deferred and other tax liabilities
252

 
225

Unrealized loss on derivative transactions
5,666

 
2,642

Other, net
5,640

 
(1,552
)
Net changes in components of operating assets and liabilities ( Note 14 )
3,200

 
(3,782
)
Net cash provided by operating activities
114,021

 
86,328

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Payments to acquire fixed and intangible assets
(29,612
)
 
(66,051
)
Cash distributions received from equity investees - return of investment
5,425

 
9,277

Proceeds from asset sales
358

 
6

Net cash used in investing activities
(23,829
)
 
(56,768
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Borrowings on senior secured credit facility
187,500

 
333,800

Repayments on senior secured credit facility
(215,600
)
 
(154,000
)
Repayment of senior unsecured notes

 
(145,170
)
Debt issuance costs

 
(159
)
Contributions from noncontrolling interests
610

 
400

Distributions to common unitholders
(67,419
)
 
(62,515
)
Other, net
5,621

 
5,135

Net cash used in financing activities
(89,288
)
 
(22,509
)
Net increase in cash and cash equivalents
904

 
7,051

Cash and cash equivalents at beginning of period
10,300

 
9,041

Cash and cash equivalents at end of period
$
11,204

 
$
16,092

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

7

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1. Organization and Basis of Presentation and Consolidation
Organization
We are a growth-oriented master limited partnership formed in Delaware in 1996 and focused on the midstream segment of the crude oil and natural gas industry in the Gulf Coast region of the United States and the Gulf of Mexico. We provide an integrated suite of services to refiners, crude oil and natural gas producers, and industrial and commercial enterprises and have a diverse portfolio of assets, including pipelines, offshore hub and junction platforms, our soda ash business (our "Alkali Business"), refinery-related plants, storage tanks and terminals, railcars, rail unloading facilities, barges and other vessels, and trucks. We are owned 100% by our limited partners. Genesis Energy, LLC, our general partner, is a wholly-owned subsidiary. Our general partner has sole responsibility for conducting our business and managing our operations. We conduct our operations and own our operating assets through our subsidiaries and joint ventures.
We currently manage our businesses through the following four divisions that constitute our reportable segments:
Offshore pipeline transportation and processing of crude oil and natural gas in the Gulf of Mexico;
Sodium minerals and sulfur services involving trona and trona-based exploring, mining, processing, producing, marketing and selling activities, as well as processing of high sulfur (or "sour") gas streams for refineries to remove the sulfur, and selling the related by-product, sodium hydrosulfide (or "NaHS", commonly pronounced "nash");
Onshore facilities and transportation, which include terminalling, blending, storing, marketing, and transporting crude oil, petroleum products, and CO 2 ; and
Marine transportation to provide waterborne transportation of petroleum products and crude oil throughout North America.
Basis of Presentation and Consolidation
The accompanying Unaudited Condensed Consolidated Financial Statements include Genesis Energy, L.P. and its subsidiaries, including our general partner, Genesis Energy, LLC.
Our results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year. The Condensed Consolidated Financial Statements included herein have been prepared by us 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) that 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 annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures are adequate to make the information presented not misleading when read in conjunction with the information contained in the periodic reports we file with the SEC pursuant to the Securities Exchange Act of 1934, including the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 .
Except per unit amounts, or as noted within the context of each footnote disclosure, the dollar amounts presented in the tabular data within these footnote disclosures are stated in thousands of dollars.
2. Recent Accounting Developments
Recently Adopted
We have adopted guidance under ASC Topic 606, Revenue from Contracts with Customers, and all related ASUs (collectively "ASC 606") as of January 1, 2018 utilizing the modified retrospective method of adoption. Our material equity method investment, Poseidon Oil Pipeline Company, LLC (“Poseidon”), adopted ASC 606 on January 1, 2019. The adoption did not have an impact to our investment balance or equity in earnings at the transition date or at March 31, 2019. Refer to Note 3 for further details.
We have adopted guidance under ASC Topic 842, Lease Accounting ("ASC 842"), as of January 1, 2019 utilizing the modified retrospective method of adoption. Additionally, we elected to implement the practical expedients that pertain to easements, separation of lease components, and the package of practical expedients which among other things, allows us to carry over previous lease conclusions reached under ASC 840. As a result of adopting the new lease standard, we recorded an operating lease right of use asset of approximately $209 million with a corresponding lease liability as of the transition date. Refer to Note 4 for further details.

8

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

    
In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715). ASU 2017-07 requires employers to separate the service cost component from the other components of net benefit cost in the period. The new standard requires the other components of net benefit costs (excluding service costs), be reclassified to "Other expense" from "General and administrative." We adopted this standard as of January 1, 2018. This standard is applied retrospectively. The effect was not material to our financial statements for the three months ended March 31, 2019 and 2018.
Recently Issued
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” ("ASU 2016-13"). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The guidance also requires increased disclosures. ASU 2016-13 is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. The standard requires varying transition methods for the different categories of amendments. We do not expect ASU 2016-13 to have a material impact on our financial statements.
    
3. Revenue Recognition
Revenue from Contracts with Customers
The following tables reflect the disaggregation of our revenues by major category for the three months ended March 31, 2019 and March 31, 2018, respectively:
 
Three Months Ended
March 31, 2019
 
Onshore Facilities & Transportation
 
Sodium Minerals & Sulfur Services
 
Offshore Pipeline Transportation
 
Marine Transportation
 
Consolidated
Fee-based revenues
$
38,012

 
$

 
$
78,317

 
$
56,650

 
$
172,979

Product Sales
171,544

 
257,843

 

 

 
429,387

Refinery Services

 
17,643

 

 

 
17,643

 
$
209,556

 
$
275,486

 
$
78,317

 
$
56,650

 
$
620,009

 
Three Months Ended
March 31, 2018
 
Onshore Facilities & Transportation
 
Sodium Minerals & Sulfur Services
 
Offshore Pipeline Transportation
 
Marine Transportation
 
Consolidated
Fee-based revenues
$
30,338

 
$

 
$
73,260

 
$
48,929

 
$
152,527

Product Sales
287,371

 
263,965

 

 

 
551,336

Refinery Services

 
21,945

 

 

 
21,945

 
$
317,709

 
$
285,910

 
$
73,260

 
$
48,929

 
$
725,808


The Company recognizes revenue upon the satisfaction of its performance obligations under its contracts. The timing of revenue recognition varies for our different revenue streams. In general, the timing includes recognition of revenue over time as services are being performed as well as recognition of revenue at a point in time, for delivery of products.








9

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Contract Assets and Liabilities
The table below depicts our contract asset and liability balances at December 31, 2018 and March 31, 2019:

 
Contract Assets
 
Contract Liabilities
 
Current
 
Non-Current
 
Non-Current
Balance at December 31, 2018
$

 
$
72,241

 
$
26,271

Balance at March 31, 2019
3,456

 
73,584

 
27,684


During the three months ended March 31, 2019, there were no balances that were previously classified as contract liabilities at the beginning of the period that were recognized as revenues. Accounts receivable-trade, net does not include consideration received in kind from our refinery services process. We did not have any material contract modifications during the period that would affect our contract asset and liability balances.

Transaction Price Allocations to Remaining Performance Obligations
We are required to disclose the amount of our transaction prices that are allocated to unsatisfied performance obligations as of March 31, 2019. However, ASC 606 does provide the following practical expedients and exemptions that we utilized:

1)
Performance obligations that are part of a contract with an expected duration of one year or less;

2)
Revenue recognized from the satisfaction of performance obligations where we have a right to consideration in an amount that corresponds directly with the value provided to customers; and

3)
Contracts that contain variable consideration, such as index-based pricing or variable volumes, that is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that is part of a series.

We apply these practical expedients and exemptions to our revenue streams recognized over time. The majority of our contracts qualify for one of these expedients or exemptions. After considering these practical expedients and identifying the remaining contract types that involve revenue recognition over a long-term period and include long-term fixed consideration (adjusted for indexing as required), we determined our allocations of transaction price that relate to unsatisfied performance obligations. As it relates to our tiered pricing offshore transportation contracts, we provide firm capacity for both fixed and variable consideration over a long term period. Therefore, we have allocated the remaining contract value (as estimated and discussed above) to future periods.
    
The following chart depicts how we expect to recognize revenues for future periods related to these contracts:
 
Offshore Pipeline Transportation
Onshore Facilities and Transportation
Remainder of 2019
$
67,074

$
48,393

2020
54,414

57,090

2021
37,806

20,139

2022
26,170

4,283

2023
15,518


Thereafter
123,665


Total
$
324,647

$
129,905





10

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


4. Lease Accounting
Lessee Arrangements

We lease a variety of transportation equipment (including trucks, trailers, and railcars), terminals, land and facilities, and office space and equipment. Lease terms vary and can range from short term (under 12 months) to long term (greater than 12 months). A majority of our leases contain options to extend the life of the lease at our sole discretion. We considered these options when determining the lease terms used to derive our right of use asset and associated lease liability. Leases with a term of less than 12 months are not recorded on our consolidated balance sheet and we recognize lease expense for these leases on a straight line basis over the lease term.

Certain lease agreements include lease and non-lease components. We have elected to combine lease and non-lease components for all of our underlying assets for the purpose of deriving our right of use asset and lease liability. Additionally, certain lease payments are driven by variable factors, such as plant production or indexing rates. Variable costs are expensed as incurred and are not included in our determination for our lease liability and right of use asset.
As a lessee, we do not have any finance leases and none of our leases contain material residual value guarantees or material restrictive covenants. In addition, most of our leases do not provide an implicit rate, and as such, we determined our incremental borrowing rate based on the information available at January 1, 2019 in determining the present value of lease payments.

Our lease portfolio consists of operating leases within three major categories:

Leases
Classification
Financial Statement Caption
March 31,
2019
 
January 1,
2019
Assets
 
 


 
 
 
Transportation Equipment
Right of Use Assets, net
113,384

 
117,727

 
Office Space & Equipment
Right of Use Assets, net
13,316

 
14,194

 
Facilities and Equipment
Right of Use Assets, net
74,088

 
77,008

Total Right of Use Assets, net
 
 
200,788


208,929

Liabilities
 
 
 
 
 
 Current
 
Accrued liabilities
31,560

 
33,016

 Non-Current
 
Other long-term liabilities
163,649

 
171,348

Total Lease Liability
 
 
$
195,209


$
204,364



Our Right of Use Assets, net balance above includes our unamortized initial direct costs associated with certain of our transportation equipment leases. Additionally, it includes our unamortized prepaid rents and our previously classified intangible asset associated with a favorable lease ( Note 8 ). Our lease liability includes our remaining provision for each period presented for our cease-use provision for railcars no longer in use.
    
We recorded total operating lease costs of $13.2 million during the three months ended March 31, 2019. The total operating cost includes the amounts associated with our existing lease liabilities, along with both short term and variable lease costs incurred during the period which are not significant to the operating lease cost individually, or in the aggregate.

    





11

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

    
The maturities of our operating lease liabilities as of March 31, 2019 on an undiscounted cash flow basis reconciled to the present value recorded on our Unaudited Condensed Consolidated Balance Sheet:

Maturity of Lease Liabilities
Transportation Equipment
Office Space and Equipment
Facilities and Equipment
Operating Leases
Remainder of 2019
$
20,898

$
3,088

$
8,408

$
32,394

2020
24,621

4,049

9,383

38,053

2021
19,483

3,067

6,720

29,270

2022
17,880

2,362

5,410

25,652

2023
17,077

598

5,349

23,024

Thereafter
43,619

2,307

129,085

175,011

Total Lease Payments
143,578

15,471

164,355

323,404

Less: Interest
(26,689
)
(2,117
)
(99,389
)
(128,195
)
Present value of operating lease liabilities
$
116,889

$
13,354

$
64,966

$
195,209


The following table presents the weighted average remaining term and discount rate related to our right of use assets:
Lease Term and Discount Rate
March 31,
2019
Weighted-average remaining lease term
12.1 years
Weighted-average discount rate
7.53%

The following table provides information regarding the cash paid and right of use assets obtained related to our operating leases:
Cash Flows Information
March 31,
2019
Cash paid for amounts included in the measurement of lease liabilities
$
12,640

Leased assets obtained in exchange for new operating lease liabilities
197,812



Lessor Arrangements
We have the following contracts in which we act as a lessor. We also, from time to time, sublease certain of our transportation and facilities equipment to third parties.
Operating Leases
We act as a lessor in our revenue contract associated with the M/T American Phoenix, within the marine transportation segment. The M/T American Phoenix ocean tanker is currently under charter along the Gulf Coast until 2020 with a large refining customer. We recorded lease revenue of $6.7 million and $6.3 million for the three months ended March 31, 2019 and 2018, respectively, which is recorded in marine transportation revenues on the Unaudited Condensed Consolidated Statements of Operations.
Additionally, we act as a lessor on our Free State pipeline system, which is included in the onshore and facilities transportation segment. The Free State pipeline is an 86 mile pipeline in Eastern Mississippi used to transport CO 2 that is recovered in the area downstream to several delivery points in and around the Mississippi region. Our Free State pipeline is currently under lease through 2028 to an affiliate of an independent crude oil company. We receive fixed installments through the life of the lease as well as variable consideration that is determined by average daily volumes of throughput. We recorded total revenue of $1.6 million and $1.5 million for the three months ended March 31, 2019 and 2018, respectively, which is recorded in onshore facilities and transportation revenues on the Unaudited Condensed Consolidated Statements of Operations.


12

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Direct Finance Lease
Our direct finance lease includes a lease of the Northeast Jackson Dome ("NEJD") Pipeline. Under the terms of the agreement, we are paid a quarterly payment, which commenced in August 2008. These payments are fixed at approximately $5.2 million per quarter during the lease term at an interest rate of 10.25% . At the end of the lease term in 2028, we will convey all of our interest in the NEJD Pipeline to the lessee for a nominal payment.
The following table details the fixed lease payments we will receive for our lessor arrangements as of March 31, 2019:    
 
Operating Leases
Direct Financing Lease
Maturity of Lessor Receipts
Marine Transportation
Onshore Facilities and Transportation
Onshore Facilities and Transportation
Remainder of 2019
$
20,350

$
900

$
15,501

2020
20,128

1,200

20,668

2021

1,200

20,668

2022

1,200

20,668

2023

1,200

20,668

Thereafter

5,300

93,005

Total Lease Receipts
40,478

11,000

191,178

Less: Interest


(67,843
)
Total Net Lease Receipts
$
40,478

$
11,000

$
123,335

The present value of our lease receivables for our direct finance lease includes a current portion of $8.6 million which is recorded in other current assets on the Unaudited Condensed Consolidated Balance Sheet as of March 31, 2019.

5. Inventories
The major components of inventories were as follows:
 
March 31,
2019
 
December 31,
2018
Petroleum products
$
4,585

 
$
12,203

Crude oil
24,238

 
8,379

Caustic soda
8,040

 
10,372

NaHS
8,632

 
12,400

Raw materials - Alkali operations
6,401

 
5,952

Work-in-process - Alkali operations
6,343

 
2,322

Finished goods, net - Alkali operations
10,941

 
11,402

Materials and supplies, net - Alkali operations
10,967

 
10,490

Other

 
11

Total
$
80,147

 
$
73,531


Inventories are valued at the lower of cost or net realizable value. The net realizable value of inventories were no t recorded below cost as of March 31, 2019 and were recorded below cost by $1.0 million as of December 31, 2018 .

13

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. Fixed Assets, Mineral Leaseholds, and Asset Retirement Obligations
Fixed Assets
Fixed assets, net consisted of the following:
 
 
March 31,
2019
 
December 31,
2018
Crude oil pipelines and natural gas pipelines and related assets
$
2,918,841

 
$
2,918,285

Alkali facilities, machinery, and equipment
536,987

 
533,924

Onshore facilities, machinery, and equipment
639,623

 
639,023

Transportation equipment
19,415

 
20,102

Marine vessels
957,846

 
951,597

Land, buildings and improvements
222,249

 
222,242

Office equipment, furniture and fixtures
20,505

 
20,505

Construction in progress
114,856

 
94,025

Other
41,155

 
41,155

Fixed assets, at cost
5,471,477

 
5,440,858

Less: Accumulated depreciation
(1,093,199
)
 
(1,023,825
)
Net fixed assets
$
4,378,278

 
$
4,417,033


Mineral Leaseholds
Our Mineral Leaseholds, relating to our Alkali Business, consist of the following:
 
March 31,
2019
 
December 31,
2018
Mineral leaseholds
$
566,019

 
$
566,019

Less: Accumulated depletion
(6,858
)
 
(5,538
)
Mineral leaseholds, net
$
559,161

 
$
560,481


Our depreciation and depletion expense for the periods presented was as follows:
 
Three Months Ended
March 31,
 
2019
 
2018
Depreciation expense
$
71,672

 
$
68,428

Depletion expense
1,319

 
1,137


Asset Retirement Obligations
We record asset retirement obligations ("AROs") in connection with legal requirements to perform specified retirement activities under contractual arrangements and/or governmental regulations.
The following table presents information regarding our AROs since December 31, 2018
ARO liability balance, December 31, 2018
$
239,865

Accretion expense
2,220

Settlements
(6,068
)
ARO liability balance, March 31, 2019
$
236,017


14

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Of the ARO balances disclosed above, $86.5 million and $67.5 million is included as current in "Accrued liabilities" on our Unaudited Condensed Consolidated Balance Sheet as of March 31, 2019 and December 31, 2018 , respectively. The remainder of the ARO liability as of March 31, 2019 and December 31, 2018 is included in "Other long-term liabilities" on our Unaudited Condensed Consolidated Balance Sheet.
With respect to our AROs, the following table presents our forecast of accretion expense for the periods indicated:
Remainder of
2019
$
7,660

 
2020
$
10,997

 
2021
$
9,313

 
2022
$
9,892

 
2023
$
10,586

Certain of our unconsolidated affiliates have AROs recorded at March 31, 2019 relating to contractual agreements and regulatory requirements. These amounts are immaterial to our Consolidated Financial Statements.
7. Equity Investees
We account for our ownership in our joint ventures under the equity method of accounting. The price we pay to acquire an ownership interest in a company may exceed or be less than the underlying book value of the capital accounts we acquire. Such excess cost amounts are included within the carrying values of our equity investees. At March 31, 2019 and December 31, 2018 , the unamortized excess cost amounts totaled $362.5 million and $366.4 million , respectively. We amortize the excess cost as a reduction in equity earnings.
The following table presents information included in our Unaudited Condensed Consolidated Financial Statements related to our equity investees.
 
Three Months Ended
March 31,
 
2019
 
2018
Genesis’ share of operating earnings
$
16,870

 
$
14,514

Amortization of excess purchase price
(3,873
)
 
(3,942
)
Net equity in earnings
$
12,997

 
$
10,572

Distributions received
$
17,825

 
$
19,629

The following tables present the unaudited balance sheet and income statement information (on a 100% basis) for Poseidon (which is our most significant equity investment):
 
March 31,
2019
 
December 31,
2018
BALANCE SHEET DATA:
 
 
 
Assets
 
 
 
Current assets
$
15,495

 
$
18,911

Fixed assets, net
198,289

 
202,116

Other assets
2,184

 
886

Total assets
$
215,968

 
$
221,913

Liabilities and equity
 
 
 
Current liabilities
$
17,217

 
$
15,909

Other liabilities
237,778

 
242,881

Equity
(39,027
)
 
(36,877
)
Total liabilities and equity
$
215,968

 
$
221,913



15

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
Three Months Ended
March 31,
 
2019
 
2018
INCOME STATEMENT DATA:
 
 
 
Revenues
$
31,052

 
$
28,944

Operating income
$
22,305

 
$
20,347

Net income
$
19,850

 
$
18,578


Poseidon's Revolving Credit Facility
Borrowings under Poseidon’s revolving credit facility, which was amended and restated in March 2019, are primarily used to fund spending on capital projects. The March 2019 credit facility is non-recourse to Poseidon’s owners and secured by substantially all of Poseidon's assets and has a new maturity date of March 2024. The March 2019 credit facility contains customary covenants such as restrictions on debt levels, liens, guarantees, mergers, sale of assets and distributions to owners. A breach of any of these covenants could result in acceleration of the maturity date of Poseidon’s debt. Poseidon was in compliance with the terms of its credit agreement for all periods presented in these Unaudited Condensed Consolidated Financial Statements.
8. Intangible Assets
The following table summarizes the components of our intangible assets at the dates indicated:
 
 
March 31, 2019
 
December 31, 2018
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Carrying
Value
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Carrying
Value
Intangibles associated with lease (1)
$

 
$

 
$

 
$
13,260

 
$
5,407

 
$
7,853

Marine contract intangibles
27,800

 
18,953

 
8,847

 
27,800

 
17,593

 
10,207

Offshore pipeline contract intangibles
158,101

 
30,511

 
127,590

 
158,101

 
28,431

 
129,670

Other
31,707

 
17,650

 
14,057

 
31,747

 
16,875

 
14,872

Total
$
217,608

 
$
67,114

 
$
150,494

 
$
230,908

 
$
68,306

 
$
162,602

(1) Intangible assets associated with a lease in our onshore facilities & transportation segment are now classified as part of our Right or Use Assets, net as part of our adoption of ASC 842 as of January 1, 2019 ( Note 4 ).
Our amortization of intangible assets for the periods presented was as follows:
 
Three Months Ended
March 31,
 
2019
 
2018
Amortization of intangible assets
$
4,289

 
$
5,433

We estimate that our amortization expense for the next five years will be as follows:
Remainder of
2019
$
12,882

 
2020
$
16,167

 
2021
$
10,364

 
2022
$
10,205

 
2023
$
9,919


16

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


9. Debt
Our obligations under debt arrangements consisted of the following:
 
March 31, 2019
 
December 31, 2018
 
Principal
 
Unamortized Discount and Debt Issuance Costs (1)
 
Net Value
 
Principal
 
Unamortized Discount and Debt Issuance Costs (1)
 
Net Value
Senior secured credit facility
$
942,000

 
$

 
$
942,000

 
$
970,100

 
$

 
$
970,100

6.750% senior unsecured notes
750,000

 
11,919

 
738,081

 
750,000

 
12,763

 
737,237

6.000% senior unsecured notes
400,000

 
4,357

 
395,643

 
400,000

 
4,624

 
395,376

5.625% senior unsecured notes
350,000

 
4,596

 
345,404

 
350,000

 
4,820

 
345,180

6.500% senior unsecured notes
550,000

 
7,936

 
542,064

 
550,000

 
8,241

 
541,759

6.250% senior unsecured notes
450,000

 
6,945

 
443,055

 
450,000

 
7,189

 
442,811

Total long-term debt
$
3,442,000

 
$
35,753

 
$
3,406,247

 
$
3,470,100

 
$
37,637

 
$
3,432,463

(1)
Unamortized debt issuance costs associated with our senior secured credit facility (included in Other Long Term Assets on the Unaudited Condensed Consolidated Balance Sheet) were $10.0 million and $10.8 million as of March 31, 2019 and December 31, 2018 , respectively.
As of March 31, 2019 , we were in compliance with the financial covenants contained in our credit agreement and senior unsecured notes indentures.
Senior Secured Credit Facility
The key terms for rates under our $1.7 billion senior secured credit facility, which are dependent on our leverage ratio (as defined in the credit agreement), are as follows:
The interest rate on borrowings may be based on an alternate base rate or a Eurodollar rate, at our option. The alternate base rate is equal to the sum of (a) the greatest of (i) the prime rate as established by the administrative agent for the credit facility, (ii) the federal funds effective rate plus 0.5% of 1% and (iii) the LIBOR rate for a one-month maturity plus 1% and (b) the applicable margin. The Eurodollar rate is equal to the sum of (a) the LIBOR rate for the applicable interest period multiplied by the statutory reserve rate and (b) the applicable margin. The applicable margin varies from 1.50% to 3.00% on Eurodollar borrowings and from 0.50% to 2.00% on alternate base rate borrowings, depending on our leverage ratio. Our leverage ratio is recalculated quarterly and in connection with each material acquisition. At March 31, 2019, the applicable margins on our borrowings were 1.75% for alternate base rate borrowings and 2.75% for Eurodollar rate borrowings.
Letter of credit fee rates range from 1.50% to 3.00% based on our leverage ratio as computed under the credit facility. The rate can fluctuate quarterly. At March 31, 2019, our letter of credit rate was 2.75% .
We pay a commitment fee on the unused portion of the $1.7 billion maximum facility amount. The commitment fee rates on the unused committed amount will range from 0.25% to 0.50% per annum depending on our leverage ratio. At March 31, 2019, our commitment fee rate on the unused committed amount was 0 .50% .
The accordion feature is $300.0 million , giving us the ability to expand the size of the facility to up to $2.0 billion for acquisitions or growth projects, subject to lender consent.

At March 31, 2019 , we had $942.0 million borrowed under our $1.7 billion credit facility, with $23.6 million of the borrowed amount designated as a loan under the inventory sublimit. Our credit agreement allows up to $100.0 million of the capacity to be used for letters of credit, of which $1.1 million was outstanding at March 31, 2019 . Due to the revolving nature of loans under our credit facility, additional borrowings and periodic repayments and re-borrowings may be made until the maturity date. The total amount available for borrowings under our credit facility at March 31, 2019 was $756.9 million .
Senior Unsecured Note Issuances, Redemption, and Extinguishment
On December 11, 2017, we issued  $450 million  in aggregate principal amount of  6.25%  senior unsecured notes due May 15, 2026 (the "2026 Notes"). Interest payments are due May 15 and November 15 of each year with the initial interest

17

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


payment due May 15, 2018. Our 2026 Notes mature on May 15, 2026. That issuance generated proceeds of  $441.8 million , net of issuance costs incurred. We used $204.8 million  of the net proceeds to redeem the portion of the senior unsecured notes due February 15, 2021 (the "2021 Notes") that were validly tendered and the remaining net proceeds to repay a portion of the borrowings outstanding under our revolving credit facility. On February 15, 2018, we redeemed our remaining 2021 Notes in full at a redemption price of 101.438% of the principal amount, plus accrued and unpaid interest up to, but not including, the redemption date. We incurred a total loss of approximately  $3.3 million  relating to the extinguishment of those notes (including the write-off of the related unamortized debt issuance costs), which is recorded as "Other income (expense)" in our Consolidated Statements of Operations for the three months ended March 31, 2018.

10. Partners’ Capital, Mezzanine Capital and Distributions
At March 31, 2019 , our outstanding common units consisted of 122,539,221 Class A units and 39,997 Class B units.
Distributions
We paid or will pay the following distributions to our common unitholders in 2018 and 2019 :
Distribution For
 
Date Paid
 
Per Unit
Amount
 
Total
Amount
 
2018
 
 
 
 
 
 
 
1 st  Quarter
 
May 15, 2018
 
$
0.5200

 
$
63,741

 
2 nd  Quarter
 
August 14, 2018
 
$
0.5300

 
$
64,967

 
3 rd  Quarter
 
November 14, 2018
 
$
0.5400

 
$
66,193

 
4 th  Quarter
 
February 14, 2019
 
$
0.5500

 
$
67,419

 
2019
 
 
 
 
 
 
 
1 st  Quarter
 
May 15, 2019
(1)  
$
0.5500

 
$
67,419

 
(1) This distribution was declared on April 10, 2019 and will be paid to unitholders of record as of May 1, 2019 .
Class A Convertible Preferred Units
On September 1, 2017, we sold $750 million of our Class A Convertible Preferred units (our "preferred units") in a private placement, comprised of 22,249,494 units for a cash purchase price per unit of $33.71 (subject to certain adjustments, the “Issue Price”) to two initial purchasers. Our general partner executed an amendment to our partnership agreement in connection therewith, which, among other things, authorized and established the rights and preferences of our preferred units. Our preferred units are a new class of security that ranks senior to all of our currently outstanding classes or series of limited partner interests with respect to distribution and/or liquidation rights. Holders of our preferred units vote on an as-converted basis with holders of our common units and have certain class voting rights, including with respect to any amendment to the partnership agreement that would adversely affect the rights, preferences or privileges, or otherwise modify the terms, of those preferred units.    
Accounting for the Class A Convertible Preferred Units
Our preferred units are considered redeemable securities under GAAP due to the existence of redemption provisions upon a deemed liquidation event that is outside our control. Therefore, we present them as temporary equity in the mezzanine section of the Consolidated Balance Sheet. Because our preferred units are not currently redeemable and we do not have plans or expect any events that constitute a change of control in our partnership agreement, we present our preferred units at their initial carrying amount. However, we would be required to adjust that carrying amount if it becomes probable that we would be required to redeem our preferred units.
Initial and Subsequent Measurement
We initially recognized our preferred units at their issuance date fair value, net of issuance costs. We will not be required to adjust the carrying amount of our preferred units until it becomes probable that they would become redeemable. Once redemption becomes probable, we would adjust the carrying amount of our preferred units to the redemption value over a period of time comprising the date the feature first becomes probable and the date the units can first be redeemed.



18

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Preferred unit distributions are recognized on the date in which they are declared. Paid-in-kind ("PIK") distributions were declared and issued as follows:
Distribution For
Date Issued
 
Number of Units
 
Total Amount
2018
 
 
 
 
 
1 st  Quarter
May 15, 2018
 
500,976

 
$
16,888

2 nd  Quarter
August 14, 2018
 
511,934

 
$
17,527

3 rd  Quarter
November 14, 2018
 
523,132

 
$
17,635

4 th  Quarter
February 14, 2019
 
534,576

 
$
18,021

2019
 
 
 
 
 
1 st  Quarter
May 15, 2019
 
364,180

 
$
12,277


Net Income Attributable to Genesis Energy, L.P. is reduced by preferred unit distributions that accumulated during the period. During 2019, net loss attributable to common unitholders was reduced by $18.4 million as a result of distributions that accumulated during the period. During this period, we declared a PIK of the portion of the quarterly distribution attributable to the first two months of the 2019 Quarter (as defined below), resulting in the issuance of 364,180 preferred units. For the portion of the quarterly distribution attributable to the final month of the 2019 Quarter, we will pay a cash distribution of $ 0.2458 for each preferred unit. This total quarterly distribution to the preferred unitholders equates to a quarterly distribution of $ 0.7374 per preferred unit (or $2.9496 on an annualized basis). These distributions will be payable on May 15, 2019 to preferred unitholders of record at the close of business on May 1, 2019 .

The following table shows the change in our mezzanine and preferred units balances from December 31, 2018 to March 31, 2019:
 
Class A Convertible Preferred Units
 
Units
$
Balance as of December 31, 2018
24,438,022

$
761,466

Distributions paid-in-kind
534,576

18,021

Allocation of Distributions paid in-kind to Preferred Distribution Rate Reset Election ( Note 16 )

(979
)
Balance as of March 31, 2019
$
24,972,598

$
778,508



11. Net Income (Loss) Per Common Unit
Basic net income per common unit is computed by dividing net income, after considering income attributable to our preferred unitholders, by the weighted average number of common units outstanding.
The dilutive effect of our preferred units is calculated using the if-converted method. Under the if-converted method, our preferred units are assumed to be converted at the beginning of the period (beginning with their respective issuance date), and the resulting common units are included in the denominator of the diluted net income per common unit calculation for the period being presented. Distributions declared in the period and undeclared distributions that accumulated during the period are added back to the numerator for purposes of the if-converted calculation. For the three months ended March 31, 2019 , the effect of the assumed conversion of the 24,972,598 preferred units was anti-dilutive and was not included in the computation of diluted earnings per unit.

19

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table reconciles net income and weighted average units used in computing basic and diluted net income (loss) per common unit (in thousands, except per unit amounts):
 
Three Months Ended
March 31,
 
2019
 
2018
Net Income Attributable to Genesis Energy L.P.
$
15,954

 
$
8,034

Less: Accumulated distributions attributable to Class A Convertible Preferred Units
(18,415
)
 
$
(16,888
)
Net Loss Available to Common Unitholders
$
(2,461
)
 
$
(8,854
)
 
 
 
 
Weighted Average Outstanding Units
122,579

 
122,579

 
 
 
 
Basic and Diluted Net Loss per Common Unit
$
(0.02
)
 
$
(0.07
)
 
 
 
 


12. Business Segment Information
We currently manage our businesses through four divisions that constitute our reportable segments:
Offshore pipeline transportation – offshore transportation of crude oil and natural gas in the Gulf of Mexico;
Sodium minerals and sulfur services – trona and trona-based exploring, mining, processing, producing, marketing and selling activities, as well as processing high sulfur (or “sour”) gas streams for refineries to remove the sulfur, and selling the related by-product, NaHS;
Onshore facilities and transportation – terminalling, blending, storing, marketing and transporting crude oil, petroleum products (primarily fuel oil, asphalt, and other heavy refined products) and CO 2 ;and
Marine transportation – marine transportation to provide waterborne transportation of petroleum products and crude oil throughout North America.
Substantially all of our revenues are derived from, and substantially all of our assets are located in, the United States.
We define Segment Margin as revenues less product costs, operating expenses (excluding non-cash gains and charges, such as depreciation, depletion 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 long-term incentive compensation plan and includes the non-income portion of payments received under direct financing leases.
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.  

20

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Segment information for the periods presented below was as follows:
 
Offshore Pipeline Transportation
 
Sodium Minerals & Sulfur Services
 
Onshore Facilities & Transportation
 
Marine Transportation
 
Total
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
Segment Margin (a)
$
76,390

 
$
58,639

 
$
25,603

 
$
12,932

 
$
173,564

Capital expenditures (b)
$
458

 
$
22,706

 
$
775

 
$
9,228

 
$
33,167

Revenues:
 
 
 
 
 
 
 
 
 
External customers
$
78,317

 
$
277,349

 
$
211,025

 
$
53,318

 
620,009

Intersegment (c)

 
(1,863
)
 
(1,469
)
 
3,332

 

Total revenues of reportable segments
$
78,317

 
$
275,486

 
$
209,556

 
$
56,650

 
$
620,009

Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
 
Segment Margin (a)
$
73,173

 
$
64,391

 
$
21,689

 
$
10,987

 
$
170,240

Capital expenditures (b)
$
654

 
$
9,699

 
$
23,289

 
$
10,865

 
$
44,507

Revenues:
 
 
 
 
 
 
 
 
 
External customers
$
73,260

 
$
287,403

 
$
320,215

 
$
44,930

 
725,808

Intersegment (c)

 
(1,493
)
 
(2,506
)
 
3,999

 

Total revenues of reportable segments
$
73,260

 
$
285,910

 
$
317,709

 
$
48,929

 
$
725,808

Total assets by reportable segment were as follows:
 
March 31,
2019
 
December 31,
2018
Offshore pipeline transportation
$
2,355,360

 
$
2,359,013

Sodium minerals and sulfur services
1,951,478

 
1,844,845

Onshore facilities and transportation
1,469,582

 
1,431,910

Marine transportation
788,170

 
800,243

Other assets
50,221

 
43,060

Total consolidated assets
$
6,614,811

 
$
6,479,071

 
(a)
A reconciliation of total Segment Margin to net income attributable to Genesis Energy, L.P. for the periods is presented below.
(b)
Capital expenditures include maintenance and growth capital expenditures, such as fixed asset additions (including enhancements to existing facilities and construction of growth projects) as well as acquisitions of businesses and contributions to equity investees related to same.
(c)
Intersegment sales were conducted under terms that we believe were no more or less favorable than then-existing market conditions.

21

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reconciliation of total Segment Margin to net income attributable to Genesis Energy, L.P:
 
Three Months Ended
March 31,
 
2019
 
2018
Total Segment Margin
$
173,564

 
$
170,240

Corporate general and administrative expenses
(11,100
)
 
(10,460
)
Depreciation, depletion, amortization and accretion
(79,937
)
 
(78,008
)
Interest expense
(55,701
)
 
(56,136
)
Adjustment to exclude distributable cash generated by equity investees not included in income and include equity in investees net income (1)
(4,828
)
 
(9,057
)
Other non-cash items
(6,091
)
 
(6,137
)
Cash payments from direct financing leases in excess of earnings
(2,028
)
 
(1,839
)
Loss on extinguishment of debt

 
(3,339
)
Differences in timing of cash receipts for certain contractual arrangements (2)
2,287

 
3,331

Non-cash provision for leased items no longer in use
190

 
(186
)
Income tax expense
(402
)
 
(375
)
Net income attributable to Genesis Energy, L.P.
$
15,954

 
$
8,034

(1)
Includes distributions attributable to the quarter and received during or promptly following such quarter.
(2)
Includes the difference in timing of cash receipts from customers during the period and the revenue we recognize in accordance with GAAP on our related contracts.
13. Transactions with Related Parties
The transactions with related parties were as follows:
 
Three Months Ended
March 31,
 
2019
 
2018
Revenues:
 
 
 
Sales of CO 2  to Sandhill Group, LLC (1)
$

 
$
543

Revenues from services and fees to Poseidon (2)
3,165

 
3,200

Revenues from product sales to ANSAC
90,679

 
90,796

Costs and expenses:
 
 
 
Amounts paid to our CEO in connection with the use of his aircraft
$
165

 
$
165

Charges for services from Poseidon (2)
247

 
249

Charges for services from ANSAC
1,057

 
1,778

 
(1)
We owned a 50% interest in Sandhill Group, LLC which was sold during the third quarter of 2018.
(2)
We own 64% interest in Poseidon

Our CEO, Mr. Sims, owns an aircraft which is used by us for business purposes in the course of operations. We pay Mr. Sims a fixed monthly fee and reimburse the aircraft management company for costs related to our usage of the aircraft, including fuel and the actual out-of-pocket costs. Based on current market rates for chartering of private aircraft under long-term, priority arrangements with industry recognized chartering companies, we believe that the terms of this arrangement are no worse than what we could have expected to obtain in an arms-length transaction.

22

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Poseidon
At March 31, 2019 and December 31, 2018 Poseidon owed us $3.2 million and $2.4 million , respectively, for services rendered.
We are the operator of Poseidon and provide management, administrative and pipeline operator services to Poseidon under an Operation and Management Agreement. Currently, that agreement renews automatically annually unless terminated by either party (as defined in the agreement). Our revenues for the three months ended March 31, 2019 and 2018 each reflect $2.2 million of fees we earned through the provision of services under that agreement.
ANSAC
We (through a subsidiary of our Alkali Business) are a member of the American Natural Soda Ash Corp. ("ANSAC"), an organization whose purpose is promoting and increasing the use and sale of natural soda ash and other refined or processed sodium products produced in the U.S. and consumed in specified countries outside of the U.S. Members sell products to ANSAC to satisfy ANSAC’s sales commitments to its customers. ANSAC passes its costs through to its members using a pro rata calculation based on sales. Those costs include sales and marketing, employees, office supplies, professional fees, travel, rent, and certain other costs. Those transactions do not necessarily represent arm's length transactions and may not represent all costs we would otherwise incur if we operated our Alkali Business on a stand-alone basis. We also benefit from favorable shipping rates for our direct exports when using ANSAC to arrange for ocean transport. Net sales to ANSAC were $90.7 million and $90.8 million , during the three months ended March 31, 2019 and 2018 , respectively. The costs charged to us by ANSAC, included in operating costs, were $1.1 million and $1.8 million , respectively during the three months ended March 31, 2019 and 2018 .
Receivables from and payables to ANSAC as of March 31, 2019 and December 31, 2018 are as follows:
 
March 31,
 
December 31,
 
2019
 
2018
Receivables:
 
 
 
ANSAC
$
66,194

 
$
60,594

Payables:
 
 
 
ANSAC
$
1,067

 
$
815

 
 
 
 

ANSAC is considered a variable interest entity (VIE) because we experience certain risks and rewards from our relationship with it. Because we do not exercise control over ANSAC and are not considered its primary beneficiary, we do not consolidate ANSAC.         

23

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

14. Supplemental Cash Flow Information
The following table provides information regarding the net changes in components of operating assets and liabilities.
 
 
Three Months Ended
March 31,
 
2019
 
2018
(Increase) decrease in:
 
 
 
Accounts receivable
$
18,170

 
$
27,368

Inventories
(6,616
)
 
(4,469
)
Deferred charges
(4,092
)
 
(4,161
)
Other current assets
(5,067
)
 
(7,694
)
(Decrease) increase in:
 
 
 
Accounts payable
5,226

 
94

Accrued liabilities
(4,421
)
 
(14,920
)
Net changes in components of operating assets and liabilities
$
3,200

 
$
(3,782
)
Payments of interest and commitment fees were $39.5 million and $43.0 million for the three months ended March 31, 2019 and March 31, 2018 , respectively. We capitalized interest of $0.7 million and $1.4 million during the three months ended March 31, 2019 and March 31, 2018 , respectively.
At March 31, 2019 and March 31, 2018 , we had incurred liabilities for fixed and intangible asset additions totaling $13.1 million and $20.6 million , respectively, that had not been paid at the end of the quarter, and, therefore, were not included in the caption “Payments to acquire fixed and intangible assets” under Cash Flows from Investing Activities in the Unaudited Condensed Consolidated Statements of Cash Flows.

15. Derivatives
Commodity Derivatives
We have exposure to commodity price changes related to our inventory and purchase commitments. We utilize derivative instruments (primarily futures and options contracts traded on the NYMEX) to hedge our exposure to commodity prices, primarily of crude oil, fuel oil and petroleum products. Our decision as to whether to designate derivative instruments as fair value hedges for accounting purposes relates to our expectations of the length of time we expect to have the commodity price exposure and our expectations as to whether the derivative contract will qualify as highly effective under accounting guidance in limiting our exposure to commodity price risk. Most of the petroleum products, including fuel oil that we supply, cannot be hedged with a high degree of effectiveness with derivative contracts available on the NYMEX; therefore, we do not designate derivative contracts utilized to limit our price risk related to these products as hedges for accounting purposes. Typically we utilize crude oil and other petroleum products futures and option contracts to limit our exposure to the effect of fluctuations in petroleum products prices on the future sale of our inventory or commitments to purchase petroleum products, and we recognize any changes in fair value of the derivative contracts as increases or decreases in our cost of sales. The recognition of changes in fair value of the derivative contracts not designated as hedges for accounting purposes can occur in reporting periods that do not coincide with the recognition of gain or loss on the actual transaction being hedged. Therefore we will, on occasion, report gains or losses in one period that will be partially offset by gains or losses in a future period when the hedged transaction is completed.
We have designated certain crude oil futures contracts as hedges of crude oil inventory due to our expectation that these contracts will be highly effective in hedging our exposure to fluctuations in crude oil prices during the period that we expect to hold that inventory. We account for these derivative instruments as fair value hedges under the accounting guidance. Changes in the fair value of these derivative instruments designated as fair value hedges are used to offset related changes in the fair value of the hedged crude oil inventory. Any hedge ineffectiveness in these fair value hedges and any amounts excluded from effectiveness testing are recorded as a gain or loss in the Unaudited Consolidated Statements of Operations.
In accordance with NYMEX requirements, we fund the margin associated with our loss positions on commodity derivative contracts traded on the NYMEX. The amount of the margin is adjusted daily based on the fair value of the commodity contracts. The margin requirements are intended to mitigate a party's exposure to market volatility and the associated contracting party risk. We offset fair value amounts recorded for our NYMEX derivative contracts against margin funding as required by the NYMEX in Current Assets - Other in our Unaudited Consolidated Balance Sheets.

24

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Additionally, we enter into swap arrangements. Our Alkali Business relies on natural gas to generate heat and electricity for operations. We use a combination of commodity price swap contracts and future purchase contracts to manage our exposure to fluctuations in natural gas prices. The swap contracts fix the basis differential between NYMEX Henry Hub and NW Rocky Mountain posted prices. We do not designate these contracts as hedges for accounting purposes. We recognize any changes in fair value of the derivative contracts as increases or decreases in our cost of sales.
At March 31, 2019 , we entered into the following outstanding derivative commodity contracts to economically hedge inventory or fixed price purchase commitments.
 
 
Sell (Short)
Contracts
 
Buy (Long)
Contracts
Designated as hedges under accounting rules:
 
 
 
 
Crude oil futures:
 
 
 
 
Contract volumes (1,000 bbls)
 
56

 

Weighted average contract price per bbl
 
$
57.25

 
$

 
 
 
 
 
Not qualifying or not designated as hedges under accounting rules:
 
 
 
 
Crude oil futures:
 
 
 
 
Contract volumes (1,000 bbls)
 
336

 
133

Weighted average contract price per bbl
 
$
57.90

 
$
59.24

Natural gas futures:
 
 
 
 
Contract volumes (10,000 MMBTU)
 
136

 
606

Weighted average contract price per MMBTU
 
$
2.74

 
$
2.80

NYM RBOB Gas futures:
 
 
 
 
Contract volumes (42,000 gallons)
 
4

 
4

Weighted average contract price per gallon
 
$
1.80

 
$
1.81

Fuel oil futures:
 
 
 
 
Contract volumes (1,000 bbls)
 
184

 
100

Weighted average contract price per bbl
 
$
63.14

 
$
62.97

Crude oil options:
 
 
 
 
Contract volumes (1,000 bbls)
 
35

 
10

Weighted average premium received/paid
 
$
1.21

 
$
0.25

Financial Statement Impacts
Unrealized gains are subtracted from net income and unrealized losses are added to net income in determining cash flows from operating activities. To the extent that we have fair value hedges outstanding, the offsetting change recorded in the fair value of inventory is also eliminated from net income in determining cash flows from operating activities. Changes in margin deposits necessary to fund unrealized losses also affect cash flows from operating activities.

25

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables reflect the estimated fair value gain (loss) position of our derivatives at March 31, 2019 and December 31, 2018 :
Fair Value of Derivative Assets and Liabilities
 
 
Unaudited Condensed Consolidated Balance Sheets Location
 
Fair Value
 
March 31,
2019
 
December 31,
2018
Asset Derivatives:
 
 
 
 
 
Commodity derivatives - futures and call options (undesignated hedges):
 
 
 
 
 
Gross amount of recognized assets
Current Assets - Other
 
$
667

 
$
3,431

Gross amount offset in the Unaudited Condensed Consolidated Balance Sheets
Current Assets - Other
 
(667
)
 
(1,361
)
Net amount of assets presented in the Unaudited Condensed Consolidated Balance Sheets related to commodity derivatives
 
 
$

 
$
2,070

Natural Gas Swap (undesignated hedge)
Current Assets - Other
 
1,163

 
1,274

Commodity derivatives - futures and call options (designated hedges):
 
 
 
 
 
Gross amount of recognized assets
Current Assets - Other
 
$
2

 
$
469

Gross amount offset in the Unaudited Condensed Consolidated Balance Sheets
Current Assets - Other
 
(2
)
 
(44
)
Net amount of assets presented in the Unaudited Condensed Consolidated Balance Sheets related to commodity derivatives
 
 
$

 
$
425

Liability Derivatives:
 
 
 
 
 
Preferred Distribution Rate Reset Election (2)
Other long-term liabilities
 
(44,795
)
 
(40,840
)
Natural Gas Swap (undesignated hedge)
Current Liabilities - Accrued Liabilities
 
(77
)
 
(125
)
Commodity derivatives - futures and call options (undesignated hedges):
 
 
 
 
 
Gross amount of recognized liabilities
Current Assets - Other (1)
 
$
(1,243
)
 
$
(1,361
)
Gross amount offset in the Unaudited Condensed Consolidated Balance Sheets
Current Assets - Other (1)
 
667

 
1,361

Net amount of liabilities presented in the Unaudited Condensed Consolidated Balance Sheets related to commodity derivatives
 
 
$
(576
)
 
$

Commodity derivatives - futures and call options (designated hedges):
 
 
 
 
 
Gross amount of recognized liabilities
Current Assets - Other (1)
 
$
(164
)
 
$
(44
)
Gross amount offset in the Unaudited Condensed Consolidated Balance Sheets
Current Assets - Other (1)
 
2

 
44

Net amount of liabilities presented in the Unaudited Condensed Consolidated Balance Sheets related to commodity derivatives
 
 
$
(162
)
 
$

 (1)
These derivative liabilities have been funded with margin deposits recorded in our Unaudited Condensed Consolidated Balance Sheets under Current Assets - Other.
(2) Refer to Note 10 and Note 16 for additional discussion surrounding the Preferred Distribution Rate Reset Election derivative.
 
Our accounting policy is to offset derivative assets and liabilities executed with the same counterparty when a master netting arrangement exists.  Accordingly, we also offset derivative assets and liabilities with amounts associated with cash margin.  Our exchange-traded derivatives are transacted through brokerage accounts and are subject to margin requirements as

26

GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

established by the respective exchange.  On a daily basis, our account equity (consisting of the sum of our cash balance and the fair value of our open derivatives) is compared to our initial margin requirement resulting in the payment or return of variation margin.  As of March 31, 2019 , we had a net broker receivable of approximately $1.6 million (consisting of initial margin of $1.8 million decreased by $0.2 million of variation margin).  As of December 31, 2018 , we had a net broker receivable of approximately $2.2 million (consisting of initial margin of $3.1 million decreased by $0.9 million of variation margin).  At March 31, 2019 and December 31, 2018 , none of our outstanding derivatives contained credit-risk related contingent features that would result in a material adverse impact to us upon any change in our credit ratings. 
Preferred Distribution Rate Reset Election     
A derivative feature embedded in a contract that does not meet the definition of a derivative in its entirety must be bifurcated and accounted for separately if the economic characteristics and risks of the embedded derivative are not clearly and closely related to those of the host contract. For a period of 30 days following (i) September 1, 2022 and (ii) each subsequent anniversary thereof, the holders of our preferred units may make a one-time election to reset the quarterly distribution amount (a "Rate Reset Election") to a cash amount per preferred unit equal to the amount that would be payable per quarter if a preferred unit accrued interest on the Issue Price at an annualized rate equal to three-month LIBOR plus 750 basis points; provided, however, that such reset rate shall be equal to 10.75% if (i) such alternative rate is higher than the LIBOR-based rate and (ii) the then market price for our common units is then less than 110% of the Issue Price. The Rate Reset Election of our preferred units represents an embedded derivative that must be bifurcated from the related host contract and recorded at fair value on our Unaudited Condensed Consolidated Balance Sheet. Corresponding changes in fair value are recognized in Other Expense in our Unaudited Condensed Consolidated Statement of Operations. At March 31, 2019 , the fair value of this embedded derivative was a liability of $44.8 million . See Note 10 for additional information regarding our preferred units and the Rate Reset Election.
Effect on Operating Results  
 
 
 
Amount of Gain (Loss) Recognized in Income
 
Unaudited Condensed Consolidated Statements of Operations Location
 
Three Months Ended
March 31,
 
 
2019
 
2018
Commodity derivatives - futures and call options: