Genesis Energy, L.P. — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. Genesis is a Gulf Coast-focused midstream MLP operating pipeline transportation, refinery services, and supply and logistics businesses. The filing is an annual report; it also provides fourth-quarter results.
Financial performance and liquidity
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Revenue | $4.135 billion | $3.367 billion | +23% |
| Operating income | $110.8 million | $114.7 million | -3% |
| Income from continuing operations | $84.0 million | $97.3 million | -14% |
| Net income | $86.1 million | $96.3 million | -11% |
| Continuing-operations net income per unit | $1.00 | $1.24 | -19% |
| Segment Margin (non-GAAP) | $280.4 million | $262.3 million | +7% |
| Cash from operating activities | $138.4 million | $189.3 million | -27% |
| Available Cash before Reserves (non-GAAP) | $186.1 million | $179.2 million | +4% |
- Segment Margin: Pipeline Transportation $108.9 million (+13%); Refinery Services $75.4 million (+3%); Supply and Logistics $96.1 million (+3%).
- Operating cash flow fell mainly because of higher working-capital requirements, including a $96.3 million increase in trade receivables; higher cash earnings partly offset the decline.
- Capital expenditures, acquisitions and equity-investee contributions totaled $706.6 million, including $381.5 million for fixed and intangible assets, $230.9 million for the marine acquisition, and $94.3 million invested in the SEKCO joint venture.
- At year-end, total debt was $1.284 billion: $582.8 million under the secured facility and $700.8 million of unsecured notes. Cash was $8.9 million; current assets were $535.2 million and current liabilities $446.6 million.
- The $1 billion revolving credit facility had $405.3 million of borrowing capacity available, including $11.9 million of letters of credit outstanding. The partnership reported compliance with its debt covenants.
- Cash distributions paid during 2013 totaled $168.4 million. The distribution for fourth-quarter 2013, paid in February 2014, was $0.535 per unit, up 10.3% from the comparable 2012 payment. Available Cash before Reserves is a non-GAAP measure and is not equivalent to operating cash flow.
Material changes versus 2012
- Revenue grew $767.5 million, principally from higher supply and logistics volumes, acquisitions, growth projects, and a modest increase in crude oil and petroleum product prices. Supply and logistics product costs and operating expenses also increased substantially.
- Net income declined despite higher Segment Margin. Contributing factors included the absence of the 2012 $8.2 million uncertain-tax-position reversal, $7.7 million higher net interest expense, and higher general and administrative and depreciation expenses.
- Net interest expense rose to $48.6 million from $40.9 million. Genesis issued $350 million of 5.75% notes due 2021 in February 2013; the notes were used primarily to repay revolving-credit borrowings and for general partnership purposes.
- Genesis issued 5.75 million common units in September 2013, raising approximately $263.6 million net, and acquired nine barges and nine tugboats from Hornbeck for approximately $230.9 million.
- Supply and logistics volumes from continuing operations increased 26%, but management said weaker refined-product market conditions, lower activity and margins, hedge ineffectiveness, and railcar costs had weighed on segment results in the second half.
- The vehicle fuel procurement and delivery logistics management business was sold on December 31, 2013 for $1 million; it was reported as discontinued operations. The sale generated a gain of approximately $0.9 million.
Outlook, risks and unusual items
- Management expected the negative effect of changing refined-product market conditions on Supply and Logistics to continue at least through the first quarter of 2014, unless market conditions normalized or the business adapted its scale and cost structure.
- Growth plans included approximately $500 million of projects under construction, with about $260 million expected to be spent in 2014. Major initiatives included the ExxonMobil Baton Rouge connection and terminal, rail facilities, and the SEKCO deepwater pipeline, expected to enter service in mid-2014. Project timing, costs, utilization and returns remain execution risks.
- The partnership highlighted its dependence on access to debt and equity capital to finance growth, substantial debt and variable-rate exposure, commodity and hedge risk, and the possibility that operating cash may not support the current distribution after reserves and other requirements.
- Customer and volume concentration warrant attention: Shell accounted for 17% of consolidated revenue in 2013, while Phillips 66’s Westlake refinery represented approximately 70% of refinery-services NaHS by-product volume. The filing notes a minimum-volume provision in the Phillips 66 contract, subject to force majeure.
- Other material risks include refinery downtime and changes in crude slates or sulfur-removal needs; pipeline and vessel accidents, severe weather and environmental liabilities; regulatory changes; competition; underused leased assets; and partnership tax-status and governance risks. The partnership cautioned that future distribution increases were not assured.
- Management and Deloitte concluded that disclosure controls and internal control over financial reporting were effective as of year-end. The filing states that pending routine legal matters were not expected to have a material effect; no material contingencies were identified.
Important facts for investors to verify
- Whether operating cash flow and distribution coverage support distributions after working-capital needs, maintenance capital, debt service and growth spending.
- Actual 2014 spending, completion dates, customer commitments and ramp-up economics for the Baton Rouge, rail and SEKCO projects.
- Refined-product margins and utilization, including whether the Supply and Logistics segment recovered from the conditions management described.
- Customer concentration and the durability of key contracts, particularly Shell-related revenue and Phillips 66 sour-gas volumes.
- Debt covenant headroom, variable-rate exposure, refinancing needs and the availability of capital on acceptable terms.
- Reconcile reported measures when comparing periods: revenue and cash-flow growth reflect acquisitions, the fuel-business divestiture, and working-capital movements; Segment Margin and Available Cash before Reserves are non-GAAP measures.