Market Overview

Genesis Energy, L.P. Reports Fourth Quarter 2017 Results

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Genesis Energy, L.P. (NYSE:GEL) today announced its fourth quarter
results.

Certain highlights of our results for the quarter ended December 31,
2017 included the following items:

-We continue to integrate our recently acquired soda ash operations and
performance continues to exceed our expectations.

-We obtained long-term commitments from a leading operator for the
production from approximately 300,000 acres for downstream
transportation on our existing infrastructure in the emerging Powder
River Basin.

-We effectively extended the term for $350 million of our outstanding
notes to 2026 (from 2021) through a new notes offering and a tender
offer for existing notes in December and a planned redemption for the
balance of all untendered notes in February.

-We increased our quarterly distribution rate per common unit by $.01,
consistent with our strategy to increase that distribution rate by at
least $.01 per quarter, and we declared a payment-in-kind distribution
on our preferred units, which will result in the issuance of
approximately 490,252 additional preferred units.

We generated the following financial results for the fourth quarter of
20171:

  • Net Income Attributable to Genesis Energy, L.P. of $15.5 million,
    resulting in a loss of $0.01 of net income per common unit for the
    fourth quarter of 2017 (after giving effect to distributions on our
    preferred units) compared to $22.1 million, or income of $0.19 per
    common unit, for the same period in 2016.
  • Cash Flows from Operating Activities of $121.1 million for the fourth
    quarter of 2017 compared to $69.9 million for the same period in 2016,
    an increase of $51.2 million, or 73%, principally due to an increase
    in cash flows from operations reflecting a full quarter of our Alkali
    Business and a decrease in working capital needs.
  • Available Cash before Reserves of $106.7 million for the fourth
    quarter of 2017, compared to $95.4 million for the same period in
    2016, an increase of $11.3 million, or 12%. Available Cash before
    Reserves provided 1.71 coverage for the quarterly distribution of
    $0.51 per common unit attributable to the fourth quarter. We will pay
    distributions on our convertible preferred units in the form of
    490,252 additional convertible preferred units.
  • Adjusted EBITDA of $164.8 million for the fourth quarter of 2017,
    compared to $133.1 million for the same period in 2016, an increase of
    $31.7 million, or 23.8%. Our bank leverage ratio, calculated
    consistent with our credit agreement, is 5.34 as of December 31, 2017.
    These amounts are calculated and further discussed later in this press
    release.

Grant Sims, CEO of Genesis Energy, said, "We are pleased to announce
that we remain on track with our previously announced guidance for
visible, achievable long term distribution growth and a clear path
forward to deleveraging.

Our quarterly results reflect the first full quarter of our recently
acquired soda ash operations, which have continued to exceed our
expectations and remain on track to meet previously announced guidance.
Our legacy businesses continue to perform as expected and we are seeing
increased volumes and contributions from our organic projects in the
Baton Rouge corridor, in and around the Texas City area and in Wyoming.
Our quarterly results were negatively impacted by a number of events
including Hurricane Nate, which had an even bigger temporary impact than
Hurricane Harvey on our offshore operations, limited railroad capacity
out of Canada to the Gulf Coast and operating issues on downstream
facilities in Texas. Despite these challenges, which we believe are
short term in nature, our reported distribution coverage ratio of 1.71
exceeded our targeted range and our bank calculated leverage ratio
slightly increased on a sequential basis as we organically funded the
continued build out of our Baton Rouge deepwater terminal to facilitate
crude exports and our recently announced expansion of our Powder River
infrastructure.

Given our recent and continuing actions to increase liquidity and
strengthen our balance sheet, the integration and financial contribution
of the soda ash business and the continued ramp up of our recent organic
capital program along with contributions from our legacy businesses, we
believe we are well positioned for the rest of this year and beyond to
continue to deliver long term value to all stakeholders without ever
losing our absolute commitment to safe, reliable and responsible
operations."

1 We have recast our prior period non-GAAP measures to
conform to our revised approach to defining and presenting such
measures, which we adopted in the fourth quarter of 2017. For additional
information, please refer to the section entitled "Non-GAAP Measures,"
below.

Financial Results

Segment Margin

On September 1, 2017, we acquired our trona and trona-based exploring,
mining, processing, producing, marketing and selling business
(the "Alkali Business") for approximately $1.325 billion. At the
closing, we entered into a transition service agreement to facilitate a
smooth transition of operations and uninterrupted services for both
employees and customers. We report the results of our Alkali Business in
our renamed sodium and sulfur services segment, which includes our
Alkali Business as well as our sulfur removal refinery services
operations, which remove sulfur from gas streams for refineries.

Variances between the fourth quarter of 2017 (the "2017 Quarter") and
the fourth quarter of 2016 (the "2016 Quarter") in these components are
explained below.

Segment margin results for the 2017 Quarter and 2016 Quarter were as
follows:

 
Three Months Ended
December 31,
2017   2016
(in thousands)
Offshore pipeline transportation $ 74,012 $ 87,163
Sodium minerals and sulfur services 66,469 17,922
Onshore facilities and transportation 24,377 19,395
Marine transportation 10,526   16,384
Total Segment Margin $ 175,384   $ 140,864
 

Offshore pipeline transportation Segment Margin for the 2017 Quarter
decreased $13.2 million, or 15.1%, from the 2016 Quarter. The 2017
Quarter was negatively impacted by both anticipated and unanticipated
downtime at several major fields, including weather related downtime,
affecting certain of our deepwater Gulf of Mexico customers and thus
certain of our key crude oil and natural gas assets, including our
Poseidon pipeline and certain associated laterals that we own. The 2017
period also reflects the effects of a contractual adjustment to a lower
rate during 2017 on a lateral we own, which lower rate we anticipate
will be in place going forward. In addition, the 2016 Quarter benefited
from the temporary diversion of certain natural gas volumes from third
party gas pipelines to one of our gas pipelines and related facilities
due to one-time disruptions at onshore processing facilities where such
volumes typically flow.

Sodium minerals and sulfur services Segment Margin for the 2017 Quarter
increased $48.5 million, or 270.9%. This increase is principally due to
the inclusion of contributions from the Alkali Business (which we
acquired on September 1, 2017). In addition, in the 2017 Quarter we
experienced stronger demand for and sales of NaHS, particularly from our
mining customers, relative to the 2016 Quarter.

Onshore facilities and transportation Segment Margin increased by $5.0
million, or 25.7%, between the two quarters. The 2017 Quarter includes
the effects of the ramp up in volumes on our pipeline, rail and terminal
infrastructure on our recently completed infrastructure in the Baton
Rouge corridor, as well as the ramp up in volumes on our Wyoming and
repurposed Texas pipeline systems. The increases from these activities
were partially offset by lower demand for our services in our historical
back-to-back, or buy/sell, crude oil marketing business associated with
aggregating and trucking crude oil from producers' leases to local or
regional re-sale points.

Marine transportation Segment Margin for the 2017 Quarter decreased $5.9
million, or 35.8%, from the 2016 Quarter. The decrease in Segment Margin
is primarily due to lower day rates on our inland and offshore fleets
(which offset higher utilization as adjusted for planned dry docking
time in our offshore fleet). In our inland fleet, weaker demand
continued to apply pressure on our rates, which we expect to continue
into 2018. In our offshore barge fleet, as a number of our units have
come off longer term contracts, we have continued to choose to primarily
place them in spot service or short-term (less than a year) service, as
we continue to believe the day rates currently being offered by the
market are at, or approaching, cyclical lows.

Other Components of Net Income

In the 2017 Quarter, we recorded Net Income Attributable to Genesis
Energy, L.P. of $15.5 million compared to $22.1 million in the 2016
Quarter. In addition to the overall increase in Segment Margin as
discussed above, net income for the 2017 Quarter was positively impacted
by gains on the sale of certain non-core assets of $13.6 million, as
well as a tax benefit of $4.8 million as a result of newly passed
federal tax laws in the 2017 Quarter. These items were more than offset
by certain items resulting in a decrease in net income in the 2017
Quarter relative to the 2016 Quarter, including an increase in interest
expense of $19.4 million (principally related to the financing of the
acquisition of our Alkali Business), an increase in depreciation and
amortization expense of $10.6 million (principally related to assets we
acquired in the acquisition of our Alkali Business), a $6.2 million loss
on debt extinguishment in the 2017 Quarter relating to activities
associated with refinancing $350 million of our notes due in 2021, an
$8.2 million charge relating to the quarterly re-measurement of the
derivative features included in our convertible preferred units and an
increase in general and administrative expenses of $16.8 million (which
includes approximately $14.6 million of accruals made in the 2017
Quarter for a variety of items, including approximately $7.5 million
relating to our annual bonus program).

Earnings Conference Call

We will broadcast our Earnings Conference Call on Thursday, February 15,
2018, at 9:30 a.m. Central time (10:30 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, sodium minerals and sulfur services,
marine transportation and onshore facilities and transportation.
Genesis' operations are primarily located in Texas, Louisiana, Arkansas,
Mississippi, Alabama, Florida, Wyoming and the Gulf of Mexico.

 

GENESIS ENERGY, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(in thousands, except per unit amounts)

 
  Three Months Ended
December 31,
  Year Ended
December 31,
2017   2016 2017   2016
REVENUES $ 720,049 $ 428,053 $ 2,028,377 $ 1,712,493
 
COSTS AND EXPENSES:
Costs of sales and operating expenses 566,544 308,336 1,529,236 1,238,245
General and administrative expenses 27,698 10,909 66,421 45,625
Depreciation and amortization 76,027 65,396 252,480 222,196
Gain on sale of assets (13,627 )   (40,311 )  
OPERATING INCOME 63,407 43,412 220,551 206,427
Equity in earnings of equity investees 16,241 12,582 51,046 47,944
Interest expense (54,645 ) (35,290 ) (176,762 ) (139,947 )
Other expense (14,439 )   (16,715 )  
INCOME BEFORE INCOME TAXES 10,564 20,704 78,120 114,424
Income tax benefit (expense) 4,837   (383 ) 3,959   (3,342 )
NET INCOME 15,401 20,321 82,079 111,082
Net loss attributable to noncontrolling interests 111   1,797   568   2,167  
NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P. $ 15,512   $ 22,118   $ 82,647   $ 113,249  
Less: Accumulated distributions attributable to Class A Convertible
Preferred Units
(16,526 )   (21,995 )  
NET INCOME AVAILABLE TO COMMON UNITHOLDERS $ (1,014 ) $ 22,118   $ 60,652   $ 113,249  
NET INCOME PER COMMON UNIT:        
Basic and Diluted $ (0.01 ) $ 0.19   $ 0.50   $ 1.00  
WEIGHTED AVERAGE OUTSTANDING COMMON UNITS:
Basic and Diluted 122,579 117,979 121,546 113,433
 
 

GENESIS ENERGY, L.P.

OPERATING DATA - UNAUDITED

 
 
  Three Months Ended
December 31,
  Year Ended
December 31,
2017   2016 2017   2016
Offshore Pipeline Transportation Segment
Crude oil pipelines (barrels/day unless otherwise noted):
CHOPS 193,210 215,794 213,527 204,533
Poseidon (1) 240,241 272,905 253,547 262,829
Odyssey (1) 98,529 107,859 116,408 106,933
GOPL 8,243   12,321   8,185   7,468  
Offshore crude oil pipelines total 540,223   608,879   591,667   581,763  
 
Natural gas transportation volumes (MMbtus/d) (1) 434,591 749,262 496,302 679,862
 
Sodium Minerals and Sulfur Services Segment
NaHS (dry short tons sold) 37,829 29,650 133,404 125,766
Soda Ash volumes (short tons sold) (2) 1,062,000

1,398,000

 

NaOH (caustic soda) volumes (dry short tons sold) (3) 28,854 20,219 84,816 80,021
 
Onshore Facilities and Transportation Segment
Crude oil pipelines (barrels/day):
Texas 45,343 10,306 32,684 33,814
Jay 13,189 15,769 14,155 14,815
Mississippi 7,732 9,176 8,290 10,247
Louisiana (4) 152,954 73,568 135,310 44,295
Wyoming 29,789   13,808   22,329   10,959  
Onshore crude oil pipelines total 249,007   122,627   212,768   114,130  
 
Free State- CO2 Pipeline (Mcf/day) 92,397 88,417 77,921 97,955
 
Crude oil and petroleum products sales (barrels/day) 59,237 49,854 51,771 62,484
 
Rail load/unload volumes (barrels/day) (5) 46,544 38,592 52,877 19,691
 
Marine Transportation Segment
Inland Fleet Utilization Percentage (6) 90.0 % 91.4 % 90.4 % 91.4 %
Offshore Fleet Utilization Percentage (6) 97.5 % 88.3 % 98.2 % 90.5 %
 

(1) Volumes for our equity method investees are presented on a
100% basis. We own 64% of Poseidon and 29% of Odyssey, as well as
equity interests in various other entities.

(2) Includes sales volumes from September 1, 2017, the date on
which we acquired the Alkali Business.

(3) Caustic soda sales volumes also include volumes sold for the
month of September from our new Alkali Business.

(4) Total daily volume for the three months and twelve months
ended December 31, 2017 includes 35,459 and 14,117 barrels per
day, respectively of crude oil transported by our new Raceland
Pipeline which became fully operational in the second quarter of
2017.

(5) Indicates total barrels for which fees were charged for either
loading or unloading at all rail facilities.

(6) Utilization rates are based on a 365 day year, as adjusted for
planned downtime and dry-docking.

 
 

GENESIS ENERGY, L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(in thousands, except number of units)

 
  December 31,
2017
  December 31,
2016
ASSETS
Cash and cash equivalents $ 9,041 $ 7,029
Accounts receivable - trade, net 495,449 224,682
Inventories 88,653 98,587
Other current assets 42,890   29,271  
Total current assets 636,033 359,569
Fixed assets and mineral leaseholds, net 5,430,535 4,214,864
Investment in direct financing leases, net 125,283 132,859
Equity investees 381,550 408,756
Intangible assets, net 182,406 204,887
Goodwill 325,046 325,046
Other assets, net 64,849   56,611  
Total assets $ 7,145,702   $ 5,702,592  
LIABILITIES AND CAPITAL
Accounts payable - trade $ 270,855 $ 119,841
Accrued liabilities 185,409   140,962  
Total current liabilities 456,264 260,803
Senior secured credit facility 1,099,200 1,278,200
Senior unsecured notes, net of debt issuance costs 2,598,918 1,813,169
Deferred tax liabilities 20,134 25,889
Other long-term liabilities 256,571   204,481  
Total liabilities 4,431,087   3,582,542  
Mezzanine capital:
Class A convertible preferred units 697,151    
Partners' capital:
Common unitholders 2,025,543 2,130,331
Noncontrolling interests (8,079 ) (10,281 )
Total partners' capital 2,017,464   2,120,050  
Total liabilities, mezzanine capital and partners' capital $ 7,145,702   $ 5,702,592  
 
Common Units Data:
Total common units outstanding 122,579,218   117,979,218  
 
 

GENESIS ENERGY, L.P.

RECONCILIATION OF NET INCOME TO SEGMENT MARGIN - UNAUDITED

(in thousands)

 
  Three Months Ended
December 31,
  Year Ended
December 31,
2017   2016   2017   2016
Net Income Attributable to Genesis Energy, L.P. $ 15,512 $ 22,118   $ 82,647   $ 113,249
Corporate general and administrative expenses 26,335 8,636 60,029 40,905
Depreciation, depletion, amortization and accretion 77,808 62,072 262,021 230,563
Interest expense, net 54,645 35,290 176,762 139,947
Tax expense (4,837 ) 383 (3,959 ) 3,342
Gain on sale of assets (13,627 ) (40,311 )
Equity compensation adjustments (283 ) (251 ) (940 ) (317 )
Provision for leased items no longer in use 12,589
Other 2,987 2,962
Plus (minus) Select Items, net 16,844   12,616     42,743     41,882  
Segment Margin (1) $ 175,384   $ 140,864     $ 594,543     $ 569,571  

(1) See definition of Segment Margin later in this press release.

 
 

GENESIS ENERGY, L.P.

RECONCILIATIONS OF NET INCOME TO ADJUSTED EBITDA AND AVAILABLE
CASH BEFORE RESERVES- UNAUDITED

(in thousands)

 
  Three Months Ended
December 31,
  Year Ended

December 31,

2017   2016   2017   2016
(in thousands)   (in thousands)
Net income attributable to Genesis Energy, L.P. $ 15,512 $ 22,118 $ 82,647 $ 113,249
Interest expense, net 54,645 35,290 176,762 139,947
Income Tax expense (4,837 ) 383 (3,959 ) 3,342
Depreciation, depletion, amortization, and accretion 77,808     62,072     262,021     230,563  
EBITDA 143,128 119,863 517,471 487,101
Plus (minus) Select Items, net 21,652     13,268     59,295     45,128  
Adjusted EBITDA, net 164,780 133,131 576,766 532,229
Maintenance capital utilized(1) (3,750 ) (2,446 ) (13,020 ) (7,696 )
Interest expense, net (54,645 ) (35,290 ) (176,762 ) (139,947 )
Cash tax expense 270 (300 ) (100 ) (1,200 )
Other 53   305   2,148   855  
Available Cash before Reserves $ 106,708   $ 95,400   $ 389,032   $ 384,241  

(1) Maintenance capital expenditures in the 2017 Quarter and 2016
Quarter were $35.7 million and $6.8 million, respectively. This
increase principally is a result of expenditures associated with
our Alkali Business.

 
 

GENESIS ENERGY, L.P.

RECONCILIATION OF NET CASH FLOWS FROM OPERATING ACTIVITIES TO
ADJUSTED EBITDA - UNAUDITED

(in thousands)

 
  Three Months Ended
December 31,
  Year Ended
December 31,
2017   2016   2017   2016
Cash Flows from Operating Activities $ 121,068 $ 69,941 $ 338,858 $ 298,338
Interest Expense, net 54,645 35,290 176,762 139,947
Amortization of debt issuance costs and discount (4,949 ) (2,575 ) (13,103 ) (10,138 )
Effects of available cash from equity method investees not included
in operating cash flows
5,763 4,701 20,280 21,353
Net effect of changes in components of operating assets and
liabilities
(36,418 ) 27,243 (10,156 ) 90,650
Non-cash effect of equity based compensation expense (121 ) (990 ) 4,549 (7,316 )
Expenses related to acquiring or constructing growth capital assets 5,324 579 16,833 1,945
Differences in timing of cash receipts for certain contractual
arrangements (1)
(5,846 ) (3,624 ) (17,540 ) (13,253 )
Other items, net 11,687 2,566 19,972 10,703
Gain on sale of assets 13,627       40,311      
Adjusted EBITDA $ 164,780   $ 133,131     $ 576,766     $ 532,229  

(1) Represents adjustments attributable to certain cash payments
received from customers under certain of our minimum payment
obligation contracts that are not recognized as revenue under GAAP
in the period in which such payments are received.  For purposes
of our Non-GAAP measures, we add those amounts in the period of
payment and deduct them in the period in which GAAP recognizes
them.

 
 

GENESIS ENERGY, L.P.

RECONCILIATION OF NET CASH FLOWS FROM OPERATING ACTIVITIES TO
ADJUSTED EBITDA - UNAUDITED

(in thousands)

 
  December 31, 2017
Senior secured credit facility $ 1,099,200
Senior unsecured notes 2,598,918
Less: Outstanding inventory financing sublimit borrowings (29,000 )
Less: Cash and cash equivalents (9,041 )
Adjusted Debt (1) $ 3,660,077  
 
Pro Forma LTM
December 31, 2017
Consolidated EBITDA (per our senior secured credit facility) (2) $ 561,961
Acquisitions, material projects and other Consolidated EBITDA
adjustments (3)
123,815  
Adjusted Consolidated EBITDA (per our senior secured credit
facility) (4)
$ 685,776  
 
Adjusted Debt-to-Adjusted Consolidated EBITDA 5.34 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)  Consolidated EBITDA for the four-quarter period ending with
the most recent quarter, as calculated under our senior secured
credit facility.

 

(3) This amount reflects the adjustment we are permitted to make
under our senior secured credit facility 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.

 

(4) Adjusted Consolidated EBITDA for the four-quarter period
ending with the most recent quarter, as calculated under our
senior secured credit facility.

 

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, 2016 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.

In the fourth quarter of 2017, we revised portions of the format and
definitions relating to our presentation of non-GAAP financial measures.
Amounts attributable to prior periods have been recast. We believe our
revised presentation:

  • better aligns our non-GAAP financial measures with a broader array of
    criteria management uses to evaluate our performance, liquidity and
    other activities and conditions in light of the increasing size,
    diversity and complexity of our operations;
  • enhances transparency;
  • improves readability; and
  • provides a general format that is more consistent with many of our
    peers.

The primary substantive changes in our presentation are (i) to include
"gains on asset sales" (approximately $40.3 million) in Available Cash
before Reserves and Adjusted EBITDA and (ii) to include the effects of a
provision for certain leased assets no longer in use (approximately
$12.6 million). Some of our peers exclude "gains on asset sales" from
some or all of their non-GAAP financial measures and others include
"proceeds from asset sales." For purposes of Available Cash before
Reserves and Adjusted EBITDA, we view that portion of the cash proceeds
from an asset sale that are in excess of the carrying value of our
investment as cash generated by our operating activities, which can be
used for discretionary purposes, similar to operating income generated
by an asset.

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 ("Available Cash before
Reserves") as Adjusted EBITDA as adjusted for certain items, the most
significant of which in the relevant reporting periods have been the sum
of maintenance capital utilized, net cash interest expense and cash tax
expense.

Disclosure Format Relating to Maintenance Capital

We use a modified format relating to maintenance capital requirements
because our maintenance capital expenditures vary 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
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.

Initially, substantially all of our maintenance capital expenditures
were (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.

As we exist today, 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
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 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 did not initially use 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.

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 earnings before
interest, taxes, depreciation and amortization (including impairment,
write-offs, accretion and similar items, often referred to as EBITDA)
after eliminating other non-cash revenues, expenses, gains, losses and
charges (including any loss on asset dispositions), plus or minus
certain other select items that we view as not indicative of our core
operating results (collectively, "Select Items"). Although, we do not
necessarily consider all of our Select Items to be non-recurring,
infrequent or unusual, we believe that an understanding of these Select
Items is important to the evaluation of our core operating results. The
most significant Select Items in the relevant reporting periods are set
forth below.

The table below includes the Select Items discussed above as applicable
to the reconciliation of Adjusted EBITDA and Available Cash before
Reserves to net income:

   
Three Months Ended
December 31,
Year Ended
December 31,
2017   2016 2017   2016
I. Applicable to all Non-GAAP Measures
Differences in timing of cash receipts for certain contractual
arrangements1
$ (5,846 ) $ (3,624 ) $ (17,540 ) $ (13,253 )
Adjustment regarding direct financing leases2 1,794 1,632 6,921 6,277
Revaluation of certain liabilities and assets3 6,044 6,044
Certain non-cash items:
Unrealized (gain) loss on derivative transactions excluding fair
value hedges, net of changes in inventory value
8,253 545 9,942 1,790
Loss on debt extinguishment 6,242 6,242
Adjustment regarding equity investees5 6,286 8,458 31,852 39,276
Other 115   (439 ) 5,326   1,748  
Sub-total Select Items, net4 (Segment Margin) 16,844 12,616 42,743 41,882
II. Applicable only to Adjusted EBITDA and Available Cash before Reserves
Certain transaction costs6 5,324 579 16,833 1,945
Equity compensation adjustments (373 ) (540 ) (1,227 ) (763 )
Other (143 ) 613   946   2,064  
Total Select Items, net7 $ 21,652   $ 13,268   $ 59,295   $ 45,128  

(1) Represents adjustments attributable to certain cash payments
received from customers under certain of our minimum payment
obligation contracts that are not recognized as revenue under GAAP
in the period in which such payments are received.  For purposes
of our Non-GAAP measures, we add those amounts in the period of
payment and deduct them in the period in which GAAP recognizes
them.

(2) Represents the net effect of adding cash receipts from direct
financing leases and deducting expenses relating to direct
financing leases.

(3) Represents a valuation allowance related to the collectibility
of certain disputed receivables and claims.

(4) Represents all Select Items applicable to Segment Margin.

(5) Represents the net effect of adding distributions from equity
investees and deducting earnings of equity investees net to us.

(6) Represents transaction costs relating to certain merger and
acquisition and financing transactions and certain interest
payments on acquisition indebtedness incurred in advance of
acquisition.

(7) Represents Select Items applicable to Adjusted EBITDA and
Available Cash before Reserves.

 

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, and segment general and administrative expenses, after
eliminating gain or loss on sale of assets, plus or minus applicable
Select Items. Although, we do not necessarily consider all of our Select
Items to be non-recurring, infrequent or unusual, we believe that an
understanding of these Select Items is important to the evaluation of
our core operating results.

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