Genesis Energy, L.P. Reports Record Fourth Quarter and Full Year 2012 Results

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Genesis Energy, L.P. Reports Record Fourth Quarter and Full Year 2012 Results

HOUSTON--(BUSINESS WIRE)-- Genesis Energy, L.P. (NYS: GEL) today announced its results for the fourth quarter and year ended December 31, 2012. Results for the quarterly and annual periods included the following items:

  • We generated a record total Available Cash before Reserves of $50.5 million in the fourth quarter of 2012, an increase of $13.1 million, or 35%, over the fourth quarter of 2011. Adjusted EBITDA increased $16.5 million to $61.8 million, or 36%, over the prior year quarter.
  • Available Cash before Reserves for the full year of 2012 was a record $179.2 million compared to $138.2 million for 2011. Adjusted EBITDA increased $51.1 million to $223.8 million, or 30%, over the prior year. Available Cash before Reserves and Adjusted EBITDA are non-GAAP measures that are defined and reconciled later in this press release to the most directly comparable GAAP financial measure, net income.
  • We reported net income of $26.9 million, or $0.34 per unit for the fourth quarter of 2012 and net income of $96.3 million, or $1.23 per unit, for the full year of 2012. Net income for the fourth quarter of 2011 was $7.8 million, or $0.10 per unit, and net income for the full year of 2011 was $51.2 million, or $0.75 per unit.
  • On February 14, 2013, we paid a total quarterly distribution of $39.4 million attributable to our financial and operational results for the fourth quarter of 2012, based on our quarterly declared distribution of $0.485 per unit. Our Available Cash before Reserves provided 1.28 times coverage for this quarterly distribution.

Grant Sims, CEO of Genesis Energy, said, "We are pleased to announce another quarter and full year of record Available Cash before Reserves. Our measured, stable growth has allowed us to increase distributions to our unitholders for the thirtieth consecutive quarter, twenty-five of which have been 10% or greater over the prior year quarter, and none were less than 8.7%.


We are very excited as we enter 2013. Our existing businesses are performing consistent with our expectations. We expect to realize an increasing contribution in 2013 and into 2014 from a number of our organic projects, such as Walnut Hill, Natchez, Wink, Wyoming and Texas City. Our two largest growth projects announced to date, our SEKCO joint venture with Enterprise Products and our recently announced project around ExxonMobil's Baton Rouge refinery complex, will contribute in 2014 and accelerate into 2015. We believe we are well-positioned, given the current available capacity in our offshore oil pipelines, to benefit in the latter part of this decade from the dramatically increasing level of development activity in the deepwater Gulf of Mexico.

Last week, we completed an offering of $350 million of senior unsecured notes. The proceeds were used to pay down borrowings under our revolving credit facility and for general partnership purposes. Subsequently, we have approximately $800 million of availability under our revolving credit facility. This allows us to comfortably be able to complete all of our announced projects without having to issue equity. As a result, we believe we are very well positioned to continue to achieve our goals of delivering low double-digit growth in distributions while increasing our coverage ratio and maintaining a better than investment grade leverage ratio, all without ever losing sight of our absolute commitment to safe, reliable and responsible operations."

Financial Results

Available Cash before Reserves (a non-GAAP measure) increased to $50.5 million in the fourth quarter of 2012 as compared to $37.3 million for the same period in 2011. Available Cash before Reserves for the full year 2012 increased to $179.2 million over the previous year total of $138.2 million. The primary components impacting Available Cash before Reserves are Segment Margin, corporate general and administrative expenses (excluding non-cash charges), interest expense and maintenance capital expenditures. Variances from the fourth quarter and full year of 2011 in these components are explained as follows:

Segment Margin

Segment Margin is defined below and reconciled later in this press release to income before income taxes. Segment Margin for the fourth quarter and full year of 2012 increased 39% and 30%, respectively, over the comparable 2011 periods primarily reflecting the impact of acquisitions and higher volumes in our pipeline transportation and supply and logistics segments.

Segment results for the fourth quarters and full years of 2012 and 2011 were as follows:

     
Three Months EndedYear Ended
December 31,December 31,
2012  20112012  2011
(in thousands)

Pipeline transportation

$27,112$17,269$96,539$67,908
Refinery services19,37319,73172,88374,618
Supply and logistics 26,836 15,742 92,911 59,975
Total Segment Margin (1)$73,321$52,742$262,333$202,501
 

(1) We define Segment Margin as revenues less product costs, operating expenses (excluding non-cash charges, such as depreciation and amortization), and segment general and administrative expenses, plus our equity in distributable cash generated by our equity investees. In addition, our Segment Margin definition excludes the non-cash effects of our stock appreciation rights plan and includes the non-income portion of payments received under direct financing leases. A reconciliation of Segment Margin to income before income taxes is presented for periods presented in the table at the end of this release.

 

Pipeline transportation Segment Margin for the fourth quarter and full year of 2012 increased 57% and 42%, respectively, over the comparable 2011 periods. The contribution from our interests in the Gulf of Mexico pipelines that we acquired in 2012 and higher crude oil tariff revenues were the primary factors increasing Segment Margin. Full year 2012 results were offset by the contribution by CHOPS, which declined by $6.4 million from 2011 due to ongoing improvements being made by producers at several connected fields. Improvements at those fields were substantially completed late in the third quarter of 2012, and total throughput levels on the pipeline have returned to levels last seen in the first quarter of 2011.

Refinery services Segment Margin decreased 2% for the fourth quarter and full year of 2012 over the comparable 2011 periods primarily due to the timing of NaHS sales to South American customers. In late 2011, we experienced a high volume of sales to these customers. Sales volumes to customers in South America can fluctuate due to scheduling of shipments. Also impacting the full year of 2012 results were longer than anticipated refinery turnarounds (in the first half of 2012) at some of our largest refinery service locations, which resulted in increased costs as a result of processing at less efficient locations to ensure uninterrupted supplies of NaHS to our customers.

Supply and logistics Segment Margin for the fourth quarter and full year of 2012 increased 70% and 55%, respectively, over the comparable 2011 periods. The primary factors for Segment Margin increasing were the contribution of the black oil barge transportation assets that we acquired in August 2011 and February 2012 and increased volumes handled by our expanded trucking, rail and barge fleets. Our total volumes of crude oil and refined products increased 48% and 32% for the fourth quarter and full year of 2012, respectively, primarily as a result of these expansions.

Other Components of Available Cash before Reserves

Corporate general and administrative expenses included in the calculation of Available Cash before Reserves increased by $4.1 million and $8.7 million for the fourth quarter and full year of 2012, respectively, over comparable 2011 results, primarily due to increased salaries and benefits associated with additional personnel to support our growth and increased equity compensation expense driven by a higher common unit price.

Interest costs for the fourth quarter of 2012 increased $2.5 million from the fourth quarter of 2011 and increased $8.9 million on a year-over-year comparison primarily as a result of increased borrowings for acquisitions and other growth projects. Capitalized interest costs attributable to our growth capital expenditures and investments in the SEKCO pipeline joint venture partially offset the increase in interest expense, resulting in a net increase in interest expense included in the calculation of Available Cash before Reserves of $1.1 million and $5.2 million for the fourth quarter and full year of 2012, respectively, over the comparable 2011 periods.

Proceeds from the sales of surplus assets decreased $1.9 million and $5.7 million for the fourth quarter and full year of 2012, respectively over the comparable 2011 periods.

Several adjustments to net income are required to calculate Available Cash before Reserves.

The calculations of Available Cash before Reserves for the fourth quarters and full years of 2012 and 2011 were as follows:

     
Three Months EndedYear Ended
December 31,December 31,
2012  20112012  2011
(in thousands)
Net income$26,937$7,773$96,319$51,249
Depreciation and amortization15,71919,09061,16662,190
Cash received from direct financing leases not included in income1,2681,1945,0164,615
Cash effects of sales of certain assets1061,9797736,424
Effects of distributable cash generated by equity method investees not included in income5,3664,75624,46416,681
Cash effects of equity-based compensation plans(760)(194)(3,280)(2,394)
Non-cash equity-based compensation expense9889984,978311
Expenses related to acquiring or constructing assets that provide new sources of cash flow6638471,6794,376
Unrealized loss on derivative transactions excluding fair value hedges1,3375,37386724
Maintenance capital expenditures(1,710)(604)(4,430)(4,237)
Non-cash tax benefit(66)(2,048)(9,222)(2,075)
Other items, net 620  (1,816) 1,609  335 
Available Cash before Reserves$50,468 $37,348 $179,158 $138,199 
 

Other Components of Net Income

In the fourth quarter of 2012, we recorded net income of $26.9 million compared to $7.8 million for the fourth quarter of 2011. Net income for the full year of 2012 was $96.3 million compared to $51.2 million for the full year of 2011. Other items affecting net income between the fourth quarters and full years of 2012 and 2011, other than those factors impacting Available Cash before Reserves, include depreciation and amortization, unrealized loss on derivative transactions (excluding fair value hedges), income tax benefit and non-cash expense related to certain equity-based compensation plans.

Depreciation and amortization decreased $3.4 million between the quarterly periods due to a decrease in amortization expense as we amortize our intangible assets over the period in which we expect them to contribute to our future cash flows. Generally, the amortization we record on those assets is greater in the initial years following their acquisition because our intangible assets are generally more valuable in the first years after an acquisition. Depreciation and amortization expense decreased $1.0 million between the annual periods.

Our derivative positions resulted in a $1.3 million non-cash unrealized loss in the fourth quarter of 2012 compared to a $5.4 million non-cash unrealized loss in the fourth quarter of 2011. Non-cash unrealized loss amounts were comparable between the 2012 and 2011 annual periods.

Income tax benefit decreased $1.2 million between the quarterly periods. Income tax benefit increased $8 million between the annual periods primarily due to the reversal of uncertain tax positions as a result of tax audit settlements and the expiration of statutes of limitations.

We recorded a non-cash expense related to certain equity-based compensation plans of $5 million for the full year of 2012 compared to $0.3 million in the full year of 2011. The differences were due to fluctuations in the market price of our common units and an increase in the number of awards outstanding due to growth in the number of our employees. Non-cash equity-based compensation expense was comparable between the fourth quarters of 2012 and 2011.

Distributions

We have increased our quarterly distribution rate for thirty consecutive quarters. During that period, twenty-five of those quarterly increases have been 10% or greater year-over-year. Over the last four quarters, we have increased the distribution rate on our common units by a total of $0.045 per unit, or 10.2%. Distributions paid over the last four quarters, and the distribution paid on February 14, 2013 for the fourth quarter of 2012, are as follows:

      
Per Unit
Distribution ForDate PaidAmount
2012
4th QuarterFebruary 14, 2013$0.4850
3rd QuarterNovember 14, 2012$0.4725
2nd QuarterAugust 14, 2012$0.4600
1st QuarterMay 15, 2012$0.4500
2011
4th QuarterFebruary 14, 2012$0.4400
 

Earnings Conference Call

We will broadcast our Earnings Conference Call on Thursday, February 14, 2013, at 8:00 a.m. Central 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 pipeline transportation, refinery services and supply and logistics. The Pipeline Transportation Division is engaged in the pipeline transportation of crude oil and carbon dioxide. The Refinery Services Division primarily processes sour gas streams to remove sulfur at refining operations. The Supply and Logistics Division is engaged in the transportation, storage and supply and marketing of energy products, including crude oil, refined products, and certain industrial gases. Genesis' operations are primarily located in Texas, Louisiana, Arkansas, Mississippi, Alabama, Florida and the Gulf of Mexico.

 
GENESIS ENERGY, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(in thousands, except per unit amounts)

 
   Three Months Ended  Year Ended
December 31,December 31,
2012  20112012  2011
REVENUES$1,054,072$806,881$4,070,057$3,089,669
 
COSTS AND EXPENSES:
Costs of sales995,695763,6003,852,7822,910,554
General and administrative expenses12,4859,13442,41934,473
Depreciation and amortization 15,719  19,090  61,166  62,190 
OPERATING INCOME30,17315,057113,69082,452
Equity in earnings (losses) of equity investees6,374(30)14,3453,347
Interest expense (10,224) (9,097) (40,921) (35,767)
INCOME BEFORE INCOME TAXES26,3235,93087,11450,032
Income tax benefit 614  1,843  9,205  1,217 
NET INCOME$26,937 $7,773 $96,319 $51,249 
NET INCOME PER COMMON UNIT:
Basic and Diluted$0.34$0.10$1.23$0.75
WEIGHTED AVERAGE OUTSTANDING COMMON UNITS:
Basic and Diluted81,20371,96578,36367,938
 

Immaterial Restatement -

Annual amounts for revenues and cost of sales for 2012 include corrections to previously reported quarterly amounts for each of the first three quarters of 2012. These corrections were made to present certain sales transactions on a gross basis that previously had been recorded on a net basis. Amounts as reported and as adjusted are reflected in the table below. The corrections had no effect on previously reported operating income, net income, Segment Margin, Adjusted EBITDA or Available Cash before Reserves. There was no impact on prior years results.

   
Three Months Ended
March 31,  June 30,  September 30,
201220122012
AS REPORTED:
REVENUES$932,943$922,668$942,334
COST OF SALES$881,842$869,202$888,003
OPERATING INCOME$26,730$27,669$29,118
 
AS ADJUSTED:
REVENUES$960,717$1,013,431$1,041,837
COST OF SALES$909,616$959,965$987,506
OPERATING INCOME$26,730$27,669$29,118
 
 
GENESIS ENERGY, L.P.
OPERATING DATA - UNAUDITED
     
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