Attached files
| file | filename |
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| 8-K - FORM 8-K DATED FEBRURAY 26, 2010 - GENESIS ENERGY LP | f8k022610.htm |
| EX-23.1 - CONSENT OF INDEPENDENT AUDITORS - GENESIS ENERGY LP | ex23.htm |
EXHIBIT
99.1
GENESIS
ENERGY, LLC
BALANCE
SHEET AS OF DECEMBER 31, 2009 AND INDEPENDENT AUDITORS’ REPORT
INDEPENDENT
AUDITORS’ REPORT
To
Genesis Energy, LLC
Houston,
Texas
We have
audited the accompanying balance sheet of Genesis Energy, LLC (the "Company") as
of December 31, 2009. This financial statement is the responsibility of
the Company's management. Our responsibility is to express an opinion on
this financial statement based on our audit.
We
conducted our audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the balance sheet
is free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the balance sheet, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall balance sheet presentation. We believe that our
audit of the balance sheet provides a reasonable basis for our
opinion.
In our
opinion, such balance sheet presents fairly, in all material respects, the
financial position of the Company as of December 31, 2009, in conformity with
accounting principles generally accepted in the United States of
America.
/s/
DELOITTE & TOUCHE LLP
Houston,
Texas
February
24, 2010
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GENESIS
ENERGY, LLC
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BALANCE
SHEET
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December
31,
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2009
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(in
thousands)
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||||
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ASSETS
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||||
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CURRENT
ASSETS
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||||
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Cash
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$ | 105 | ||
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Accounts
receivable - affiliate
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2,143 | |||
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Other
receivable
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86 | |||
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Total
current assets
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2,334 | |||
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INVESTMENTS
IN UNCONSOLIDATED AFFILIATES
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51,628 | |||
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OTHER
ASSETS
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68 | |||
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TOTAL
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$ | 54,030 | ||
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LIABILITIES
AND MEMBERS' EQUITY
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||||
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ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
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$ | 19,517 | ||
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COMMITMENTS
AND CONTINGENCIES (Note 5)
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||||
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MEMBERS'
EQUITY
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34,513 | |||
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TOTAL
LIABILITIES AND MEMBERS' EQUITY
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$ | 54,030 | ||
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The
accompanying notes are an integral part of this financial
statement.
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GENESIS
ENERGY, LLC
NOTES
TO BALANCE SHEET
AS
OF DECEMBER 31, 2009
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1.
|
Organization
and Summary of Significant Accounting
Policies
|
Organization
Genesis
Energy, LLC (the “Company”) is a Delaware limited liability company that is the
general partner of Genesis Energy, L.P. (“GELP”) and Genesis Crude Oil, L.P.
(“GCOLP”), and the subsidiary partnerships of Genesis Crude Oil,
L.P. GELP is a publicly traded Delaware limited partnership listed on
the NYSE Amex under symbol GEL. GELP is the limited partner in GCOLP
with a 99.99% ownership interest and the Company is the general partner in GCOLP
with a 0.01% ownership interest. Through its subsidiaries, GELP is
engaged in four business activities - pipeline transportation of crude oil,
carbon dioxide and natural gas; services to refiners to treat the refiner’s sour
gas streams; transportation, storage and supply of energy products
(primarily petroleum products and crude oil); and industrial gas
activities. GCOLP also owns a 50% interest in T&P Syngas Supply
Company, a general partnership that provides syngas processing services, and a
50% interest in Sandhill Group, LLC, an entity that processes carbon
dioxide. The personnel who manage and operate the assets of GELP and
GCOLP are employed by the Company.
Denbury
Gathering and Marketing, Inc. a wholly-owned subsidiary of Denbury Resources,
Inc. (“Denbury”) indirectly owned a majority interest of the equity in, and
controlled the Company as of December 31, 2009. On February 5, 2010,
Denbury sold its general partner interest in the Company to an investor group
controlled by affiliates of Quintana Capital Group,
L.P.. Additionally, the limited partner interest in GELP owned by the
Company at December 31, 2009 was transferred to Denbury in the first quarter of
2010. See Note 6.
Investments
in Unconsolidated Affiliates
Investments
in Unconsolidated Affiliates represents the Company’s 2% general partner
interest and 7.17% limited partner interest in GELP and the Company’s 0.01%
general partner interest in GCOLP. The Company serves as the general
partner of Genesis Pipeline Texas, L.P., Genesis Pipeline USA, L.P., Genesis CO2
Pipeline, L.P., Genesis Natural Gas Pipeline, L.P. and Genesis Syngas
Investments, Inc., but has no direct economic interest in these entities, all of
which are subsidiaries of GCOLP.
The
equity method of accounting is used to account for the Company’s investments in
GELP and GCOLP. See additional discussion in Note 2.
The
Company’s investment in GCOLP and GELP exceeded its percentage of net equity of
those investments at the time of acquisition by $2.2 million, which represents
goodwill and is not subject to amortization.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the use of estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any at the date of the
balance sheet. Actual results could differ from these
estimates.
Cash
and Cash Equivalents
Cash and
cash equivalents consist of demand deposits. The Company has no
requirement for compensating balances or restrictions on cash.
Other
Assets
Other
assets consist of amounts invested in mutual funds with an insurance company to
secure payment of amounts owed related to employee insurance
programs.
Federal
Income Taxes
The
Company is organized as a pass-through entity for federal income tax purposes.
As such, the Company does not directly pay federal income tax. The Company’s
taxable income or loss is includable in the federal income tax returns of each
member.
Cash
Dividends
Cash
dividends are typically paid to the members quarterly at the same time that the
Company receives cash distributions from GELP and GCOLP.
Accounts
Payable and Accrued Expenses
Accounts
payable and accrued expenses consist of amounts related to the compensation of
the personnel who manage and operate the assets of GCOLP and
GELP. The Company is reimbursed by GCOLP for all costs it incurs
related to those personnel, excluding costs related to the Class B Membership
Interests as discussed in Note 4.
Fair
Value of Financial Instruments
The
carrying values current assets and liabilities in the Balance Sheet approximated
fair value due to the short maturity of these instruments.
Equity-Based
Compensation
On
December 31, 2008, the Company awarded Class B Membership Interests to its
senior executives. Accounting guidance for equity-based compensation
requires compensation costs related to these interests be re-measured at each
reporting date based on the fair value of the interests, and changes in that
fair value be recognized over the vesting period. Recorded expense will be
subsequently adjusted to fair value until final settlement. See Notes
4 and 6.
Subsequent
Events
We have
considered subsequent events through February 26, 2010, the date of issuance, in
preparing the Balance Sheet and notes thereto. See Notes 4 and
6.
Recent
and Proposed Accounting Pronouncements
Implemented
in 2009
Recognized
and Non-Recognized Subsequent Events
In May
2009, the Financial Accounting Standards Board (FASB) issued new guidance for
accounting for subsequent events. The new guidance establishes the
accounting for and disclosures of events that occur after the balance sheet date
but before financial statements are issued or are available to be
issued. It requires the disclosure of the date through which an
entity has evaluated subsequent events and the basis for that date, that is,
whether that date represents the date the financial statements were issued or
were available to be issued. See “Subsequent Events” above for the
related disclosure. The new guidance was applied prospectively beginning in the
second quarter of 2009 and did not have a material impact on our financial
statements
Implemented
January 1, 2010
Consolidation
of Variable Interest Entities (“VIEs”)
In June
2009, the FASB issued authoritative guidance to amend the manner in which
entities evaluate whether consolidation is required for VIEs. The
model for determining which enterprise has a controlling financial interest and
is the primary beneficiary of a VIE has changed significantly under the new
guidance. Previously, variable interest holders had to determine
whether they had a controlling interest in a VIE based on a quantitative
analysis of the expected gains and/or losses of the entity. In
contrast, the new guidance requires an enterprise with a variable interest in a
VIE to qualitatively assess whether it has a controlling interest in the entity,
and if so, whether it is the primary beneficiary. Furthermore, this
guidance requires that companies continually evaluate VIEs for consolidation,
rather than assessing based upon the occurrence of triggering
events. This revised guidance also requires enhanced disclosures
about how a company’s involvement with a VIE affects its financial statements
and exposure to risks. This guidance was effective for us beginning
January 1, 2010. We are currently assessing the impact this guidance
may have on our consolidated financial statements
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2.
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Investments
in Unconsolidated Affiliates
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At
December 31, 2009, the Company’s significant unconsolidated affiliates accounted
for by the equity method included its 9.0% economic interest in GELP and its
0.01% economic interest in GCOLP. The Company has significant
influence over GELP and GCOLP; however, its control is limited under the limited
partnership agreement and therefore, GELP and GCOLP are not
consolidated. Since GELP owns substantially all of GCOLP’s
consolidated assets and conducts substantially all of GCOLP’s business and
operations, the information set forth herein constitutes consolidated
information for GELP and GCOLP.
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December
31,
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2009
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(in
thousands)
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ASSETS
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Current
assets
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$ | 189,244 | ||
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Fixed
assets, net
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284,887 | |||
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Intangible
assets, net
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136,330 | |||
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Goodwill
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325,046 | |||
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Other
long-term assets, net
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212,620 | |||
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TOTAL
ASSETS
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$ | 1,148,127 | ||
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LIABILITIES
AND PARTNERS' CAPITAL
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Current
liabilities
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$ | 141,428 | ||
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Long-term
debt and other long-term liabilities
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387,766 | |||
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Partners'
capital
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618,933 | |||
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TOTAL
LIABILITIES AND PARTNERS' CAPITAL
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$ | 1,148,127 | ||
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3.
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Transactions
with Related Parties
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At
December 31, 2009, the Company had a net receivable of $2.1 million from GCOLP
for payment of operating expenses.
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4.
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Member
Interests
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The
Company has two classes of members – Class A Members and Class B
Members. Denbury Gathering & Marketing, Inc. holds the Class A
Membership Interest. The Class A Member owns all of the Company’s
rights to GELP’s and GCOLP’s general partner interests, GELP limited partner
interests and incentive distribution rights (IDRs) in GELP, except to the extent
that distributions or allocations are specifically designated to be allocated to
or distributed to the Class B Members. The Company awarded Class B
Membership Interests to three of its senior executives as long-term incentive
compensation. These Class B Membership Interests compensate the holders thereof
by providing rewards based on increased shares of the cash distributions
attributable to the IDRs of GELP to the extent GELP increases its cash available
for distribution to its equity owners. During his employment with the Company,
each senior executive is entitled to receive quarterly distributions in respect
of his Class B Membership Interest from the Company in amounts equal to a
percentage of the distributions GELP pays in respect of its IDRs. In
addition, upon a change in control of the Company, the senior executive’s Class
B Membership Interest will be redeemed. Additionally the Company’s
chief executive officer and chief operating officer participate in a deferred
compensation plan, whereby they may be entitled to receive a cash payment upon
termination of employment or a change in control of the Company.
The
Company will not seek reimbursement (on behalf of the Company or its affiliates)
under GELP’s or GCOLP’s partnership agreements for the costs of these senior
executive compensation arrangements to the extent relating to their ownership of
Class B Membership Interests (including current cash distributions made by the
Company out of the IDRs and payment of redemption amounts for those IDRs) and
the deferred compensation amounts.
The Class
B Membership Interests awarded to the senior executives are accounted for as
liability awards under the accounting guidance for equity-based
compensation. As such, the fair value of the compensation cost we
record for these awards is recomputed at each measurement date through final
settlement and the expense to be recorded is adjusted based on that fair
value. Compensation expense is recorded on an accelerated basis to
align with the requisite service period of the award.
At
December 31, 2009, management estimated that the fair value of the Class B
Membership Awards and the related deferred compensation awards granted to our
Senior Executives was approximately $30.5 million. For
the year ended December 31, 2009, we recorded expense of $14.1 million for these
awards. At December 31, 2009, the liability for these awards included
in the Balance Sheet totaled $17.1 million.
The fair
value of the Class B Membership Awards and the related deferred compensation was
calculated utilizing assumptions regarding the following factors:
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·
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Estimates
of the level of IDR distributions that would be paid to our general
partner assuming our current quarterly increase in the distribution
through the final vesting date of December 31,
2012.
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·
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Estimates
of the level of available cash we estimate we will generate for each
quarter through the vesting date and available cash attributable to
certain assets that are excluded in the
computations.
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·
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Estimates
of an appropriate discount factor to utilize for computation of the fair
value of the awards.
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Additionally
the determination of fair value is affected by the distribution yield of a group
of publicly-traded entities that are the general partners in publicly-traded
master limited partnerships, a factor over which we have no
control.
The Class
B Membership Awards and related deferred compensation agreements contained
provisions providing for vesting upon a change in control of our general
partner. As a result of the sale of the Company in February 2010, the
Class B Membership Interests were redeemed and the deferred compensation was
paid to the Senior Executives. The total paid to our Senior
Executives by our general partner at that date was $14.9 million, which, when
combined with amounts paid to the Senior Executives during 2009 related to the
Class B Membership Interests, resulted in a total non-cash compensation expense
of $15.4 million. The difference between the fair value at December
31, 2009 and the amounts total amounts paid by our general partner upon
settlement of the awards will be recognized as a reduction of compensation
expense in the first quarter of 2010. See Note 6.
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5.
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Commitments
and Contingencies
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The
Company is jointly and severally liable for all of GELP’s and GCOLP’s
obligations unless and except to the extent those obligations provide that they
are non-recourse to the Company. GCOLP’s credit facility is
non-recourse to the Company, except to the extent of the Company’s pledge of its
0.01% general partner interest in GCOLP. There are no guarantees by
Denbury or any of its other subsidiaries of the debt of the Company, GELP or
GCOLP. The Company has no reason to believe that it will be obligated
to perform under any liability of GELP or GCOLP.
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6.
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Subsequent
Event
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On
February 5, 2010, affiliates of Quintana Capital Group II, L.P., along with
members of the Davison family and members of the senior executive management
team of GELP, EIV Capital Fund LP, a Delaware limited partnership, and other
investors (collectively, the “New Owner Group”) purchased all of the Class A
membership interests in the Company from Denbury. In connection
with the amendment and restatement of the Company’s limited liability agreement,
two forms of member interests in the Company replaced the Class A Member and
Class B Member Interests. These new member interests are identified
as Series A and Series B units.
All of
the Class B membership interests in the Company held by the three existing
senior executives of were either (i) converted into Series A units in the
Company or (ii) or redeemed by the Company. The amounts owed under
the deferred compensation plan with the senior executives was similarly
converted or redeemed. In total, the value of the Series A units
issued and cash payments made to settle the Company’s obligations under the
Class B membership interests and deferred compensation totaled $14.9
million.
Pursuant
to restricted unit agreements entered into with the Company, certain members of
the senior executive management team of the Company, received an aggregate of
767 Series B-1 units in our general partner that vest as follows: (i)
25% vest on the first anniversary of the issuance, (ii) 33 1/3% of the remaining
unvested units vest on the second anniversary of the issuance, (iii) 50% of the
remaining unvested units vest on the third anniversary of the issuance and (iv)
100% of the remaining unvested units vest on the fourth anniversary of the
issuance. Under the terms of the restricted unit agreements, in the
event of certain public offerings, a change of control or similar transaction by
the Company, the executive’s unvested units will become fully vested. In the
event of death or disability, the executive’s employment date will be deemed
extended through to the next anniversary date for vesting
purposes. If the executive is terminated for “cause” or he or she
leaves without “good reason” (as such terms are defined in the restricted unit
agreements), he or she will forfeit all of his or her units, whether vested or
unvested. If the executive is terminated without “cause,” by death or
disability, or by the executive for “good reason,” then he or she will forfeit
all unvested units and our general partner will have the right to repurchase or
redeem any vested units. Subject to the rights of the holders of
Series A units to receive distributions up to certain threshold amounts, holders
of Series B-1 units, upon vesting, have the right to receive quarterly
distributions and certain tax distributions in accordance with the Amended and
Restated Limited Liability Company Agreement of the
Company.