ROHSTOFF INTERNATIONAL

11:00 | 03.11.2017
Genesis Energy, L.P. Reports Third Quarter 2017 Results

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

Certain highlights of our results for the quarter ended September 30,
2017 included the following items:

We completed the $1.325 billion accretive acquisition of the world’s
largest producer of natural soda ash. We funded that acquisition and the
related transaction costs with proceeds from a $750 million private
placement of convertible preferred units, a $550 million public offering
of notes, our revolving credit facility, and cash on hand.

We announced a strategic reallocation of capital, allocating more
capital to debt repayments and growth opportunities (and less to current
distributions). As part of this, we declared a quarterly distribution of
$0.50 per common unit for the quarter ended September 30, 2017, to be
paid on November 14, 2017 to unitholders of record at the close of
business on October 31, 2017. From this re-setting of our current
quarterly distribution to common unitholders, we have enhanced our
balance sheet and financial flexibility, facilitating our plan to:

Increase our quarterly distribution by at least $0.01 per quarter for
each of the next twenty quarters

Increase our distribution coverage ratio

Reduce our leverage ratio

Opportunistically pursue accretive organic projects and acquisitions

We confirmed prior guidance and provided additional guidance metrics,
including:

Projecting record net income, cash flow from operations, Adjusted
EBITDA and Available Cash before Reserves in future periods

Targeting distribution coverage of the new distribution profile of
1.40 to 1.60 times on a cash basis, as historically calculated and
presented

Targeting leverage ratios approaching 4.75, 4.25 and 3.75 times for
year ends 2018, 2019 and 2020, respectively, as historically
calculated and presented

We generated the following financial results for the third quarter of
2017:

Net Income Attributable to Genesis Energy, L.P. of $6.3 million
generating $0.01 of net income per common unit. Net income was
negatively affected by approximately $25.2 million, or $0.21 per unit,
due to transaction and financing expenses, as well as an increase in
interest expense, primarily driven by our acquisition of the Alkali
Business during the quarter.

Cash Flows from Operating Activities of $33.8 million. This result was
negatively affected by certain non-recurring costs described above as
well as an increase in net working capital that is not necessarily
meaningful to the underlying performance of the partnership’s
businesses.

Available Cash before Reserves of $91.8 million. Available Cash before
Reserves provided 1.50 coverage for the quarterly distribution of
$0.50 per common unit attributable to the third quarter. We will pay
distributions on our convertible preferred units in the form of
162,234 additional convertible preferred units.

Adjusted EBITDA of $140.1 million. Our Adjusted Debt to Pro Forma
EBITDA ratio is 5.28 as of September 30, 2017. These amounts are
calculated and further discussed later in this press release.

Grant Sims, CEO of Genesis Energy, said, “We recently made the strategic
decision to re-set our quarterly distribution and provided guidance for
visible, achievable long term distribution growth and a clear path
forward to deleveraging. These steps, along with the future stable and
repeatable cash flows from our recently completed acquisition as well as
the anticipated ramp from our recent strategic investments, we believe
further enhance our financial flexibility to opportunistically pursue
accretive organic projects and acquisitions should they present
themselves. In this context, however, we would reiterate, we currently
have no plans to access the equity capital markets in the immediate
future, including under our ‘at the market’ equity program, which in
fact has never been used. Overall, we believe these actions to
strengthen our balance sheet and enhance our financial flexibility are
the best actions we can take to allow us to generate strong total
returns for our unitholders in the years ahead.

Our quarterly results were negatively impacted by a number of events
such as Hurricane Harvey (a 1,000-year hurricane), the planned
regulatory dry-docking of our M/T American Phoenix as required every
five years, some extended turnarounds at several offshore hubs, and
turnarounds at several facilities in Alberta. Notwithstanding these
negatives, our legacy businesses are performing as expected, and we are
seeing increased contributions from our recently completed organic
projects in the Baton Rouge corridor, in and around Texas City and in
Wyoming. Additionally, the quarter reflects only one month of
contribution from our recently acquired soda ash operations, which
performance is exceeding our expectations. Even under these
circumstances and closing on a $1.325 billion acquisition, our leverage
ratio declined on a sequential quarterly basis, and our reported
distribution coverage of 1.50 times was exactly in the middle of our
recently announced targeted range.

The financial results for the quarter ended September 30, 2017, in our
opinion, should not be the focus. As we recently discussed, we expect to
report record net income, cash flows from operations, Adjusted EBITDA
and Available Cash before Reserves in future periods. Even with some of
the headwinds in certain of our legacy businesses about which we have
been very forthright and explicit, we have built a company currently
capable of generating EBITDA approaching $700 million annually, with
visible growth in front of it and positively leveraged to cyclical
recovery in certain of its businesses.

Earlier this year, we announced and discussed our intent to market
certain non-strategic assets with targeted proceeds of $50-$75 million.
While not yet fully recognized in our reported results, we have to date
consummated sales for total cash proceeds of approximately $76 million,
representing in the aggregate a GAAP gain of approximately $40 million
and at an implied multiple to us of in excess of 30 times, none of which
directly flows through our non-GAAP measures of EBITDA or Available
Cash. We continue to evaluate other non-strategic assets in our
portfolio, although there can be no assurances of additional
transactions.

Finally, I want to recognize our professional and dedicated employees
and warmly welcome the some 900 plus that have recently joined Genesis
as a result of our recent acquisition. We will continue to work together
to drive value for all of our stakeholders while never losing sight of
our commitment to safe, reliable and responsible operations.”
Preferred Unit Distributions
With respect to our Class A Convertible Preferred Units, we have
declared a payment-in-kind (“PIK”) of the quarterly distribution, which
will result in the issuance of an additional 162,234 Class A Convertible
Preferred Units. This PIK amount, as pro-rated based on the period these
units were outstanding, equates to a distribution of $0.2458 per Class A
Convertible Preferred Unit for the 2017 Quarter, or $2.9496 annualized.
These distributions will be payable on November 14, 2017 to unitholders
holders of record at the close of business on November 3, 2017.
Financial ResultsSegment Margin
On September 1, 2017, we acquired Tronox Limited’s (“Tronox’s”) trona
and trona-based exploring, mining, processing, producing, marketing and
selling business (the “Alkali Business”) for approximately $1.325
billion. We funded that acquisition and the related transaction costs
with proceeds from a $750 million private placement of convertible
preferred units, a $550 million public offering of notes, our revolving
credit facility, and cash on hand. 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.

Beginning in the fourth quarter of 2016, we started reporting our
results on a comparative basis in four business segments. Due to the
increasingly integrated nature of our onshore operations, the results of
our onshore pipeline transportation segment, formerly reported under its
own segment, is now reported in our onshore facilities and
transportation segment. The onshore facilities and transportation
segment also now includes what was formerly reported in our supply and
logistics segment. This segment was renamed in the second quarter of
2017 to more accurately describe the nature of its operations. We will
report the results of the Alkali Business in our renamed sodium and
sulfur services segment, which will include the Alkali Business as well
as our historical refinery services operations.

Variances between the third quarter of 2017 (the “2017 Quarter”) and the
third quarter of 2016 (the “2016 Quarter”) in these components are
explained below.

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

 

 

 

Three Months Ended

September 30,

2017

 

2016

(in thousands)

Offshore pipeline transportation

$

78,228

$

86,557

Sodium minerals and sulfur services

30,031

20,526

Onshore facilities and transportation

25,606

17,560

Marine transportation

12,649

 

16,697

 

Total Segment Margin

$

146,514

 

$

141,340

 

 

Offshore pipeline transportation Segment Margin for the 2017 Quarter
decreased $8.3 million, or 9.6%, 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 which we own. While such
downtime was temporary, we expect additional downtime relating to
weather and maintenance involving certain customers’ fields during the
fourth quarter of 2017. The quarter also reflects the effects of a
contractual step down to a lower transportation rate for a certain
lateral which we own that 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 disruptions at onshore
processing facilities where such volumes typically flow.

Sodium minerals and sulfur services Segment Margin for the 2017 Quarter
increased $9.5 million, or 46.3%. This increase is principally due to
the inclusion of one month’s contribution from the Alkali Business. This
was partially offset by the results of our refinery services business
and related NaHS and caustic soda activities. The 2017 Quarter results
for these activities were in line with our expectations and include the
effects of previously disclosed commercial discussions with certain of
our host refineries and several NaHS customers, which resulted in
extending the term and tenor of a large number of contractual
relationships.

Onshore facilities and transportation Segment Margin increased by $8.0
million, or 45.8%, between the two quarters. In the 2017 Quarter, this
increase is primarily attributable to the ramp up in volumes on our
pipeline, terminal and rail infrastructure on our infrastructure in the
Baton Rouge corridor. In addition, relative to the 2016 Quarter, we
experienced an increase in volumes on our Texas pipeline system as the
repurposing of our Houston area crude oil pipeline and expansion of our
terminal infrastructure became operational in the second quarter of 2017.

Marine transportation Segment Margin for the 2017 Quarter decreased $4.0
million, or 24.2%, 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). The M/T American Phoenix was also undergoing regulatory dry
docking inspections for approximately one month during the 2017 Quarter,
which negatively impacted Segment Margin. In our inland fleet, weaker
demand continued to apply pressure on our rates, which we expect to
continue into the fourth quarter. 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 $6.3 million compared to $32.1 million in the 2016
Quarter. Impacting net income are increases in transaction related third
party financing, accounting and legal costs primarily attributable to
our acquisition of the Alkali Business, as well as an increase in
interest expense. These items had a combined effect of $25.2 million.
For the 2017 Quarter, our operating results include one month of
activity related to the Alkali Business for the month of September.
Earnings Conference Call
We will broadcast our Earnings Conference Call on Friday, November 3,
2017, at 8:00 a.m. Central time (9:00 a.m. Eastern time). This call can
be accessed at www.genesisenergy.com.
Choose the Investor Relations button. For those unable to attend the
live broadcast, a replay will be available beginning approximately one
hour after the event and remain available on our website for 30 days.
There is no charge to access the event.

Genesis Energy, L.P. is a diversified midstream energy master limited
partnership headquartered in Houston, Texas. Genesis’ operations include
offshore pipeline transportation, 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

 

Nine Months Ended

September 30,

September 30,

2017

 

2016

2017

 

2016
REVENUES

$

486,114

$

460,050

$

1,308,328

$

1,284,440

 
COSTS AND EXPENSES:

Costs of sales and operating expenses

359,873

339,394

962,692

929,909

General and administrative expenses

19,409

11,212

38,723

34,716

Depreciation and amortization

63,732

54,265

176,453

156,800

Gain on sale of assets

 

 

(26,684

)

 
OPERATING INCOME

43,100

55,179

157,144

163,015

Equity in earnings of equity investees

13,044

12,488

34,805

35,362

Interest expense

(47,388

)

(34,735

)

(122,117

)

(104,657

)

Other expense

(2,276

)

 

(2,276

)

 
INCOME BEFORE INCOME TAXES

6,480

32,932

67,556

93,720

Income tax expense

(320

)

(949

)

(878

)

(2,959

)
NET INCOME

6,160

31,983

66,678

90,761

Net loss attributable to noncontrolling interests

152

 

118

 

457

 

370

 
NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P.

$

6,312

 

$

32,101

 

$

67,135

 

$

91,131

 

Less: Accumulated distributions attributable to Series A Convertible
Preferred Units

(5,469

)

 

(5,469

)

 
NET INCOME AVAILABLE TO COMMON UNITHOLDERS

$

843

 

$

32,101

 

$

61,666

 

$

91,131

 
NET INCOME PER COMMON UNIT:

 

 

 

 

Basic and Diluted

$

0.01

 

$

0.28

 

$

0.51

 

$

0.81

 
WEIGHTED AVERAGE OUTSTANDING COMMON UNITS:

Basic and Diluted

122,579

115,718

121,198

111,906

 

 
GENESIS ENERGY, L.P.OPERATING DATA – UNAUDITED
 

 

Three Months Ended

 

Nine Months Ended

September 30,

September 30,

2017

 

2016

2017

 

2016
Offshore Pipeline Transportation Segment

Crude oil pipelines (barrels/day unless otherwise noted):

CHOPS

203,697

190,613

220,374

200,753

Poseidon (1)

257,093

263,519

258,031

259,446

Odyssey (1)

135,787

107,252

122,433

106,622

GOPL

8,317

 

6,287

 

8,166

 

5,839

 

Offshore crude oil pipelines total

604,894

 

567,671

 

609,004

 

572,660

 

 

Natural gas transportation volumes (MMbtus/d) (1)

467,095

775,546

516,974

656,452

 
Sodium Minerals and Sulfur Services Segment

NaHS (dry short tons sold)

30,381

34,299

95,575

96,116

Soda Ash volumes (short tons sold) (2)

336,000

336,000

NaOH (caustic soda) volumes (dry short tons sold) (3)

21,746

19,653

55,962

59,802

 
Onshore Facilities and Transportation Segment

Crude oil pipelines (barrels/day):

Texas

45,329

11,529

28,418

41,708

Jay

13,716

15,119

14,480

14,494

Mississippi

8,104

9,503

8,478

10,607

Louisiana (4)

130,862

30,814

115,436

26,865

Wyoming

22,204

 

9,772

 

19,816

 

10,003

 

Onshore crude oil pipelines total

220,215

 

76,737

 

186,628

 

103,677

 

 

Free State- CO2 Pipeline (Mcf/day)

68,363

88,026

73,042

101,157

 

Crude oil and petroleum products sales (barrels/day)

52,082

64,292

49,255

66,725

 

Rail load/unload volumes (barrels/day) (5)

42,221

13,091

55,010

13,344

 
Marine Transportation Segment

Inland Fleet Utilization Percentage (6)

90.8

%

87.6

%

90.5

%

91.4

%

Offshore Fleet Utilization Percentage (6)

99.3

%

96.2

%

98.4

%

91.2

%

 
(1) Volumes for our equity method investees are
presented on a 100% basis.
(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 nine
months ended September 30, 2017 includes 66,048 and 54,974 barrels
per day respectively of intermediate refined products associated
with our Port of Baton Rouge Terminal pipelines which became
operational in the fourth quarter of 2016. Additionally, this
includes 19,574 and 6,925 barrels per day for the three months and
nine months ended September 30, 2017 respectively of crude oil
associated with 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)
 

 

 

 

September 30,

December 31,

2017

2016
ASSETS

Cash and cash equivalents

$

9,694

$

7,029

Accounts receivable – trade, net

437,039

224,682

Inventories

98,558

98,587

Other current assets

45,533

 

29,271

 
Total current assets

590,824

359,569

Fixed assets, net

4,840,392

4,214,864

Mineral leaseholds, net

622,756

Investment in direct financing leases, net

127,248

132,859

Equity investees

383,191

408,756

Intangible assets, net

187,441

204,887

Goodwill

325,046

325,046

Other assets, net

60,736

 

56,611

 
Total assets

$

7,137,634

 

$

5,702,592

 
LIABILITIES AND CAPITAL

Accounts payable – trade

$

203,717

$

119,841

Accrued liabilities

160,294

 

140,962

 
Total current liabilities

364,011

260,803

Senior secured credit facility

1,372,500

1,278,200

Senior unsecured notes, net of debt issuance costs

2,358,049

1,813,169

Deferred tax liabilities

26,399

25,889

Other long-term liabilities

256,462

 

204,481

 
Total liabilities

4,377,421

 

3,582,542

 

Mezzanine capital:

Series A convertible preferred units

691,708

 

 

Partners’ capital:

Common unitholders

2,077,393

2,130,331

Noncontrolling interests

(8,888

)

(10,281

)
Total partners’ capital

2,068,505

 

2,120,050

 
Total liabilities, mezzanine capital and partners’ capital

$

7,137,634

 

$

5,702,592

 

 
Common Units Data:

Total common units outstanding

122,579,218

 

117,979,218

 

 

 
GENESIS ENERGY, L.P.RECONCILIATION OF SEGMENT MARGIN AND ADJUSTED EBITDA TO NET
INCOME – UNAUDITED(in thousands)
 

 

Three Months Ended

September 30,

2017

 

2016

Total Segment Margin (1)

$

146,514

$

141,340

Corporate general and administrative expenses

(18,230

)

(10,420

)

Non-cash items included in general and administrative costs

1,212

614

Cash expenditures not included in Adjusted EBITDA

10,595

363

Cash expenditures not included in net income

(6

)

(86

)

Adjusted EBITDA

140,085

131,811

Depreciation, depletion, amortization and accretion

(66,436

)

(57,103

)

Interest expense, net

(47,388

)

(34,735

)

Cash expenditures not included in Adjusted EBITDA

(10,589

)

(277

)

Adjustment to exclude distributable cash generated by equity
investees not included in income and include equity in investees net
income

(7,136

)

(9,063

)

Differences in timing of cash receipts for certain contractual
arrangements (2)

5,847

3,624

Other non-cash items

(7,751

)

(1,207

)

Income tax expense

(320

)

(949

)

Net income attributable to Genesis Energy, L.P.

$

6,312

 

$

32,101

 

 
(1) See definition of Segment Margin later in this
press release.
(2) Certain cash payments received from customers under
certain of our minimum payment obligation contracts are not
recognized as revenue under GAAP in the period in which such
payments are received.

 

 
GENESIS ENERGY, L.P.RECONCILIATIONS OF NET INCOME AND NET CASH FLOWS FROM OPERATING
ACTIVITIES TOAVAILABLE CASH BEFORE RESERVES- UNAUDITED(in thousands)
 

 

Three Months Ended

September 30,

2017

 

2016

(in thousands)
Net income attributable to Genesis Energy, L.P.

$

6,312

$

32,101

Depreciation, depletion, amortization and accretion

66,436

57,103

Cash received from direct financing leases not included in income

1,751

1,586

Cash effects of sales of certain assets

967

120

Effects of distributable cash generated by equity method investees
not included in income

7,136

9,063

Expenses related to acquiring or constructing growth capital assets

10,595

363

Unrealized (gain) loss on derivative transactions excluding fair
value hedges, net of changes in inventory value

2,168

(571

)

Maintenance capital utilized (1)

(3,375

)

(1,885

)

Non-cash tax expense

150

649

Differences in timing of cash receipts for certain contractual
arrangements (2)

(5,847

)

(3,624

)

Other items, net

5,514

 

107

 

Available Cash before Reserves

$

91,807

 

$

95,012

 
(1) Maintenance capital expenditures in the 2017
Quarter and 2016 Quarter were $10.8 million and $7.9 million,
respectively.
(2) Certain cash payments received from customers under
certain of our minimum payment obligation contracts are not
recognized as revenue under GAAP in the period in which such
payments are received.

 

Three Months Ended

September 30,

2017

2016

(in thousands)
Cash Flows from Operating Activities

$

33,836

$

124,725

Maintenance capital utilized (1)

(3,375

)

(1,885

)

Proceeds from asset sales

967

120

Amortization of debt issuance costs and discount

(2,894

)

(2,571

)

Effects of available cash from joint ventures not included in
operating cash flows

4,194

4,801

Net effect of changes in components of operating assets and
liabilities not included in calculation of Available Cash before
Reserves

34,575

(26,834

)

Non-cash effect of equity based compensation expense

3,566

(2,047

)

Expenses related to acquiring or constructing growth capital assets

10,595

363

Differences in timing of cash receipts for certain contractual
arrangements (2)

(5,847

)

(3,624

)

Other items affecting available cash

16,190

 

1,964

 

Available Cash before Reserves

$

91,807

 

$

95,012

 
(1) Maintenance capital expenditures in the 2017
Quarter and 2016 Quarter were $10.8 million and $7.9 million,
respectively.
(2) Certain cash payments received from customers under
certain of our minimum payment obligation contracts are not
recognized as revenue under GAAP in the period in which such
payments are received.

 

 
GENESIS ENERGY, L.P.RECONCILIATION OF NET CASH FLOWS FROM OPERATING ACTIVITIES TO
ADJUSTED EBITDA – UNAUDITED(in thousands)
 

 

Three Months Ended

September 30,

2017

 

2016

Cash Flows from Operating Activities

$

33,836

$

124,725

Interest Expense

47,388

34,735

Amortization of debt issuance costs and discount

(2,894

)

(2,571

)

Effects of available cash from equity method investees not included
in operating cash flows

4,194

4,801

Net effect of changes in components of operating assets and
liabilities not included in calculation of Adjusted EBITDA

34,575

(26,834

)

Non-cash effect of equity based compensation expense

3,566

(2,047

)

Expenses related to acquiring or constructing growth capital assets

10,595

363

Differences in timing of cash receipts for certain contractual
arrangements (1)

(5,847

)

(3,624

)

Other items, net

14,672

 

2,263

 

Adjusted EBITDA

$

140,085

 

$

131,811

 
(1) Certain cash payments received from customers under
certain of our minimum payment obligation contracts are not
recognized as revenue under GAAP in the period in which such
payments are received.

 

 
GENESIS ENERGY, L.P.ADJUSTED DEBT-TO-PRO FORMA EBITDA RATIO – UNAUDITED(in thousands)
 

 

September 30, 2017

Senior secured credit facility

$

1,372,500

Senior unsecured notes

2,358,049

Less: Outstanding inventory financing sublimit borrowings

(38,700

)

Less: Cash and cash equivalents

(9,694

)

Adjusted Debt (1)

$

3,682,155

 

 

Pro Forma LTM

September 30, 2017

LTM Adjusted EBITDA (as reported) (2)

$

530,997

Acquisitions and material projects EBITDA adjustment (3)

166,902

 

Pro Forma EBITDA

$

697,899

 

 

Adjusted Debt-to-Pro Forma EBITDA

5.28

x

 
(1) We define Adjusted Debt as the amounts outstanding
under our senior secured credit facility and senior unsecured
notes (including any unamortized premiums or discounts) less the
amount outstanding under our inventory financing sublimit, less
cash and cash equivalents on hand at the end of the period.
(2) Last twelve months (“LTM”) Adjusted EBITDA. The
most comparable GAAP measure to Adjusted EBITDA, Net Income
Attributable to Genesis Energy L.P., was $29.6 million for the
fourth quarter of 2016, $27.1 million for the first quarter of
2017 , $33.7 million for the second quarter of 2017, and $6.3
million for the third quarter of 2017. Reconciliations of Adjusted
EBITDA to net income for all periods presented are available on
our website at www.genesisenergy.com.
(3) This amount reflects the adjustment we are
permitted to make under our 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.

 

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.
AVAILABLE CASH BEFORE RESERVESPurposes, Uses and Definition
Available Cash before Reserves, also referred to as distributable cash
flow, is a quantitative standard used throughout the investment
community with respect to publicly traded partnerships and is commonly
used as a supplemental financial measure by management and by external
users of financial statements such as investors, commercial banks,
research analysts and rating agencies, to aid in assessing, among other
things:

(1) the financial performance of our assets;

(2) our operating performance;

(3) the viability of potential projects, including our cash and overall
return on alternative capital investments as compared to those of other
companies in the midstream energy industry;

(4) the ability of our assets to generate cash sufficient to satisfy
certain non-discretionary cash requirements, including interest payments
and certain maintenance capital requirements; and

(5) our ability to make certain discretionary payments, such as
distributions on our units, growth capital expenditures, certain
maintenance capital expenditures and early payments of indebtedness.

We define Available Cash before Reserves as net income as adjusted for
certain items, some of the most significant of which tend to be (a) the
elimination of certain non-cash revenues, expenses, gains, losses or
charges (such as depreciation and amortization, unrealized gain or loss
on derivative transactions not designated as hedges for accounting
purposes, gain or loss on sale of non-surplus assets and equity
compensation expense that is not settled in cash), (b) the substitution
of distributable cash generated by our equity investees in lieu of our
equity income attributable to our equity investees (includes
distributions attributable to the quarter and received during or
promptly following such quarter), (c) the elimination of expenses
related to acquiring or constructing assets that provide new sources of
cash flows, (d) certain litigation expenses that are not deducted in
determining our Pro Forma Adjusted EBITDA under our senior secured
credit facility, and (e) the subtraction of maintenance capital
utilized, which is described in detail below.
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 RequirementsMaintenance 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 EBITDAPurposes, Uses and Definition
Adjusted EBITDA is commonly used as a supplemental financial measure by
management and by external users of financial statements such as
investors, commercial banks, research analysts and rating agencies, to
aid in assessing, among other things:

(1) the financial performance of our assets without regard to financing
methods, capital structures or historical cost basis;

(2) our operating performance as compared to those of other companies in
the midstream energy industry, without regard to financing and capital
structure;

(3) the viability of potential projects, including our cash and overall
return on alternative capital investments as compared to those of other
companies in the midstream energy industry;

(4) the ability of our assets to generate cash sufficient to satisfy
certain non-discretionary cash requirements, including interest payments
and certain maintenance capital requirements; and

(5) our ability to make certain discretionary payments, such as
distributions on our units, growth capital expenditures, certain
maintenance capital expenditures and early payments of indebtedness.

We define Adjusted EBITDA (“Adjusted EBITDA”) as net income or loss plus
net interest expense and income taxes, and eliminating non-cash
revenues, expenses, gains, losses and charges (such as depreciation and
amortization, unrealized gain or loss on derivative transactions not
designated as hedges for accounting purposes, gain or loss on sale of
non-surplus assets and equity based compensation expense that is not
settled in cash), plus or minus certain other items, the most
significant of which tend to be (a) the substitution of distributable
cash generated by our equity investees in lieu of our equity income
attributable to our equity investees (includes distributions
attributable to the quarter and received during or promptly following
such quarter), (b) the elimination of expenses related to acquiring or
constructing assets that provide new sources of cash flows, and (c) the
elimination of certain litigation expenses that are not deducted to
determine our Pro Forma Adjusted EBITDA under our senior secured credit
facility.
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, plus our
equity in distributable cash generated by our equity investees and
certain litigation expenses that are not deducted to determine our Pro
Forma Adjusted EBITDA under our senior secured credit facility. Our
Segment Margin definition also includes the non-income portion of
payments received under direct financing leases and eliminates non-cash
revenues, expenses, gains, losses and charges (such as depreciation and
amortization, unrealized gain or loss on derivative transactions not
designated as hedges for accounting purposes, gain or loss on sale of
non-surplus assets and equity based compensation expense that is not
settled in cash).

View source version on businesswire.com: http://www.businesswire.com/news/home/20171103005215/en/


NEWSLETTER

Abonnieren Sie jetzt unseren
aktuellen Newsletter

WIRTSCHAFTSNACHRICHTEN

08:19 Uhr | 20.11.2017
AKTIEN IM FOKUS: RWE steigt auf ...


07:36 Uhr | 20.11.2017
ANALYSE-FLASH: JPMorgan hebt Air ...


07:36 Uhr | 20.11.2017
ANALYSE-FLASH: Goldman senkt Ziel ...


07:35 Uhr | 20.11.2017
dpa-AFX Börsentag auf einen ...


07:34 Uhr | 20.11.2017
ANALYSE-FLASH: Goldman hebt RWE ...