Edgar Filing: GENESIS ENERGY LP

Three Months Ended September 30, 2018

Nine Months Ended September 30, 2018

Net Income Attributable to Genesis Energy, L.P.

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-12295

GENESIS ENERGY, L.P.

(Exact name of registrant as specified in its charter)



Delaware	76-0513049
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

919 Milam, Suite 2100, Houston, TX	77002
(Address of principal executive offices)	(Zip code)
Registrant’s telephone number, including area code: (713) 860-2500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company ¨
		Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2) of the Exchange Act). Yes ¨ No ý

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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. There were 122,539,221 Class A Common Units and 39,997 Class B Common Units outstanding as of November 1, 2018.

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GENESIS ENERGY, L.P.

TABLE OF CONTENTS



		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Unaudited Condensed Consolidated Balance Sheets	3
	Unaudited Condensed Consolidated Statements of Operations	4
	Unaudited Condensed Consolidated Statements of Comprehensive Income	5
	Unaudited Condensed Consolidated Statements of Partners’ Capital	6
	Unaudited Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
	1. Organization and Basis of Presentation and Consolidation	8
	2. Recent Accounting Developments	8
	3. Revenue Recognition	9
	4. Acquisition	15
	5. Inventories	16
	6. Fixed Assets and Mineral Leaseholds	17
	7. Equity Investees	18
	8. Intangible Assets	19
	9. Debt	20
	10. Partners' Capital, Mezzanine Capital and Distributions	21
	11. Net Income (Loss) Per Common Unit	22
	12. Business Segment Information	23
	13. Transactions with Related Parties	25
	14. Supplemental Cash Flow Information	27
	15. Derivatives	27
	16. Fair-Value Measurements	30
	17. Commitments and Contingencies	32
	18. Subsequent Events	32
	19. Condensed Consolidating Financial Information	32
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	59
Item 4.	Controls and Procedures	59
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	60
SIGNATURES		62

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GENESIS ENERGY, L.P.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except units)



	September 30, 2018			December 31, 2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	11,878		$	9,041
Accounts receivable - trade, net	365,646			495,449
Inventories	85,722			88,653
Assets held for sale	255,519			—
Other	42,659			42,890
Total current assets	761,424			636,033
FIXED ASSETS, at cost	5,405,984			5,601,015
Less: Accumulated depreciation	(882,833		)	(734,986		)
Net fixed assets	4,523,151			4,866,029
MINERAL LEASEHOLDS, net of accumulated depletion	561,593			564,506
NET INVESTMENT IN DIRECT FINANCING LEASES, net of unearned income	119,093			125,283
EQUITY INVESTEES	356,468			381,550
INTANGIBLE ASSETS, net of amortization	168,291			182,406
GOODWILL	325,046			325,046
OTHER ASSETS, net of amortization	120,102			56,628
TOTAL ASSETS	$	6,935,168		$	7,137,481
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
Accounts payable - trade	$	194,489		$	270,855
Accrued liabilities	235,517			185,409
Total current liabilities	430,006			456,264
SENIOR SECURED CREDIT FACILITY	1,220,700			1,099,200
SENIOR UNSECURED NOTES, net of debt issuance costs	2,460,486			2,598,918
DEFERRED TAX LIABILITIES	12,293			11,913
OTHER LONG-TERM LIABILITIES	275,823			256,571
Total liabilities	4,399,308			4,422,866

MEZZANINE CAPITAL:
Class A Convertible Preferred Units, 23,914,890 and 22,411,728 issued and outstanding at September 30, 2018 and December 31, 2017, respectively	744,727			697,151

PARTNERS’ CAPITAL:
Common unitholders, 122,579,218 units issued and outstanding at September 30, 2018 and December 31, 2017	1,799,409			2,026,147
Accumulated other comprehensive loss	(604		)	(604		)
Noncontrolling interests	(7,672		)	(8,079		)
Total partners' capital	1,791,133			2,017,464
TOTAL LIABILITIES, MEZZANINE CAPITAL AND PARTNERS’ CAPITAL	$	6,935,168		$	7,137,481

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

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GENESIS ENERGY, L.P.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit amounts)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
REVENUES:
Offshore pipeline transportation services	70,115			80,671			213,344			243,437
Sodium minerals and sulfur services	291,722			109,765			876,513			197,879
Marine transportation	56,296			48,534			161,410			152,038
Onshore facilities and transportation	327,145			247,144			972,207			714,974
Total revenues	745,278			486,114			2,223,474			1,308,328
COSTS AND EXPENSES:
Onshore facilities and transportation product costs	273,251			202,047			834,128			582,535
Onshore facilities and transportation operating costs	22,005			23,982			67,346			80,160
Marine transportation operating costs	44,195			35,789			126,259			111,980
Sodium minerals and sulfur services operating costs	229,204			79,365			685,219			133,335
Offshore pipeline transportation operating costs	17,753			18,690			53,533			54,682
General and administrative	24,209			19,409			49,412			38,723
Depreciation, depletion and amortization	91,876			63,732			244,811			176,453
Gain on sale of assets	(3,363		)	—			(3,363		)	(26,684		)
Total costs and expenses	699,130			443,014			2,057,345			1,151,184
OPERATING INCOME	46,148			43,100			166,129			157,144
Equity in earnings of equity investees	9,492			13,044			28,388			34,805
Interest expense	(58,819		)	(47,388		)	(172,864		)	(122,117		)
Other income (expense)	1,828			(2,276		)	(3,604		)	(2,276		)
Income (loss) before income taxes	(1,351		)	6,480			18,049			67,556
Income tax expense	(283		)	(320		)	(914		)	(878		)
NET INCOME (LOSS)	(1,634		)	6,160			17,135			66,678
Net loss attributable to noncontrolling interests	1,311			152			1,573			457
NET INCOME (LOSS) ATTRIBUTABLE TO GENESIS ENERGY, L.P.	$	(323	)	$	6,312		$	18,708		$	67,135
Less: Accumulated distributions attributable to Class A Convertible Preferred Units	(17,635		)	(5,469		)	(51,780		)	(5,469		)
NET INCOME(LOSS) AVAILABLE TO COMMON UNITHOLDERS	$	(17,958	)	$	843		$	(33,072	)	$	61,666
NET INCOME(LOSS) PER COMMON UNIT (Note 11):
Basic and Diluted	$	(0.15	)	$	0.01		$	(0.27	)	$	0.51
WEIGHTED AVERAGE OUTSTANDING COMMON UNITS:
Basic and Diluted	122,579			122,579			122,579			121,198

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

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GENESIS ENERGY, L.P.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)



	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018		2017
Net income (loss)	$	(1,634	)	$	6,160	$	17,135	$	66,678
Other comprehensive loss:
Change in benefit plan liability	—			—		—		—
Total Comprehensive income (loss)	(1,634		)	6,160		17,135		66,678
Comprehensive loss attributable to non-controlling interests	1,311			152		1,573		457
Comprehensive income (loss) attributable to Genesis Energy, L.P.	$	(323	)	$	6,312	$	18,708	$	67,135

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

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GENESIS ENERGY, L.P.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(In thousands)



	Number of Common Units	Partners’ Capital			Noncontrolling Interest			Accumulated Other Comprehensive Loss			Total
Partners’ capital, December 31, 2017	122,579	$	2,026,147		$	(8,079	)	$	(604	)	$	2,017,464
Impact of adoption of ASC 606	—	(3,550		)	—			—			(3,550		)
Partners’ capital, January 1, 2018	122,579	2,022,597			(8,079		)	(604		)	2,013,914
Net income (loss)	—	18,708			(1,573		)	—			17,135
Cash distributions to partners	—	(191,224		)	—			—			(191,224		)
Cash contributions from noncontrolling interests	—	—			1,980			—			1,980
Distributions to Class A Convertible Preferred unitholders	—	(50,672		)	—			—			(50,672		)
Partners' capital, September 30, 2018	122,579	$	1,799,409		$	(7,672	)	$	(604	)	$	1,791,133
	Number of Common Units	Partners’ Capital			Noncontrolling Interest			Accumulated Other Comprehensive Loss			Total
Partners’ capital, January 1, 2017	117,979	$	2,130,331		$	(10,281	)	$	—		$	2,120,050
Net income (loss)	—	67,135			(457		)	—			66,678
Cash distributions to partners	—	(260,586		)	—			—			(260,586		)
Cash contributions from noncontrolling interests	—	—			1,850			—			1,850
Issuance of common units for cash, net	4,600	140,513			—			—			140,513
Partners' capital, September 30, 2017	122,579	$	2,077,393		$	(8,888	)	$	—		$	2,068,505

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

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GENESIS ENERGY, L.P.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



	Nine Months Ended September 30,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	17,135		$	66,678
Adjustments to reconcile net income to net cash provided by operating activities -
Depreciation, depletion and amortization	244,811			176,453
Provision for leased items no longer in use	—			12,589
Gain on sale of assets	(3,363		)	(26,684		)
Amortization and write-off of debt issuance costs and discount	9,489			8,154
Amortization of unearned income and initial direct costs on direct financing leases	(9,847		)	(10,374		)
Payments received under direct financing leases	15,501			15,501
Equity in earnings of investments in equity investees	(28,388		)	(34,805		)
Cash distributions of earnings of equity investees	28,992			34,454
Non-cash effect of long-term incentive compensation plans	3,240			(5,524		)
Deferred and other tax liabilities	380			508
Unrealized loss on derivative transactions	1,285			3,040
Other, net	999			(7,338		)
Net changes in components of operating assets and liabilities (Note 14)	27,330			(26,262		)
Net cash provided by operating activities	307,564			206,390
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments to acquire fixed and intangible assets	(152,868		)	(182,653		)
Cash distributions received from equity investees - return of investment	26,042			25,917
Investments in equity investees	(2,960		)	—
Acquisitions	—			(1,325,759		)
Contributions in aid of construction costs	—			124
Proceeds from asset sales	36,859			39,204
Net cash used in investing activities	(92,927		)	(1,443,167		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on senior secured credit facility	759,800			1,247,700
Repayments on senior secured credit facility	(638,300		)	(1,153,400		)
Proceeds from issuance of senior unsecured notes	—			550,000
Proceeds from issuance of Class A convertible preferred units, net	—			729,958
Repayment of senior unsecured notes	(145,170		)	—
Debt issuance costs	(242		)	(17,808		)
Issuance of common units for cash, net	—			140,513
Contributions from noncontrolling interests	1,980			1,850
Distributions to common unitholders	(191,224		)	(260,586		)
Other, net	1,356			1,215
Net cash provided by (used in) financing activities	(211,800		)	1,239,442
Net increase in cash and cash equivalents	2,837			2,665
Cash and cash equivalents at beginning of period	9,041			7,029
Cash and cash equivalents at end of period	$	11,878		$	9,694

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation and Consolidation

Organization

We are a growth-oriented master limited partnership formed in Delaware in 1996 and focused on the midstream segment of the crude oil and natural gas industry in the Gulf Coast region of the United States and the Gulf of Mexico. We have a diverse portfolio of assets, including pipelines, offshore hub and junction platforms, soda ash businesses, refinery-related plants, storage tanks and terminals, railcars, rail loading and unloading facilities, barges and other vessels, and trucks. We are owned 100% by our limited partners. Genesis Energy, LLC, our general partner, is a wholly-owned subsidiary. Our general partner has sole responsibility for conducting our business and managing our operations. We conduct our operations and own our operating assets through our subsidiaries and joint ventures.

On September 1, 2017, we acquired our trona and trona-based exploring, mining, processing, producing, marketing and selling business (our "Alkali Business") for approximately $1.325 billion in cash. We funded that acquisition and the related transaction costs with proceeds from a $750 million private placement of Class A Convertible Preferred units (our "preferred units"), a $550 million public offering of notes, our revolving credit facility, and cash on hand. We report the results of our Alkali Business in our sodium minerals and sulfur services segment, which includes our Alkali Business as well as our legacy refinery services operations.

We currently manage our businesses through the following four divisions that constitute our reportable segments:


•	Offshore pipeline transportation and processing of crude oil and natural gas in the Gulf of Mexico;


•	Sodium minerals and sulfur services involving trona and trona-based exploring, mining, processing, producing, marketing and selling activities, as well as processing of high sulfur (or "sour") gas streams for refineries to remove the sulfur, and selling the related by-product, sodium hydrosulfide (or "NaHS", commonly pronounced "nash");


•	Onshore facilities and transportation, which include terminalling, blending, storing, marketing, and transporting crude oil, petroleum products, and CO₂; and


•	Marine transportation to provide waterborne transportation of petroleum products and crude oil throughout North America.

Basis of Presentation and Consolidation

The accompanying Unaudited Condensed Consolidated Financial Statements include Genesis Energy, L.P. and its subsidiaries, including our general partner, Genesis Energy, LLC.

Our results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year. The Condensed Consolidated Financial Statements included herein have been prepared by us without audit pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they reflect all adjustments (which consist solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial results for interim periods. Certain information and notes normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures are adequate to make the information presented not misleading when read in conjunction with the information contained in the periodic reports we file with the SEC pursuant to the Securities Exchange Act of 1934, including the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017.

Except per unit amounts, or as noted within the context of each footnote disclosure, the dollar amounts presented in the tabular data within these footnote disclosures are stated in thousands of dollars.

2. Recent Accounting Developments

Recently Issued

We have adopted guidance under ASC Topic 606, Revenue from Contracts with Customers, and all related ASUs (collectively "ASC 606") as of January 1, 2018 utilizing the modified retrospective method of adoption. The adoption date for our material equity method investment in the Poseidon Oil Pipeline Company, LLC will follow the non-public business entity adoption date of January 1, 2019 for its stand-alone financial statements. Refer to Note 3 for further details.

In February 2016, the FASB issued guidance to improve the transparency and comparability among companies by requiring lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. The guidance also

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requires additional disclosure about leasing arrangements. The guidance is effective for interim and annual periods beginning after December 15, 2018 and requires a modified retrospective approach to adoption.

Our team has reviewed the practical expedients we expect to apply as part of the implementation of the new standard. In July 2018, the FASB issued ASU 2018-11 as a targeted improvement on the new leasing standard, which provides an additional (and optional) method to adopt the new leasing standard. Under this new transition method, an entity will only apply the new lease standard at the date of adoption while comparative periods will be presented under the previous lease guidance (Topic 840). We plan to adopt this method for our transition.

Additionally, we currently plan to elect to take the "package" of practical expedients set out in the standard, which must be elected together. The items within the package stipulate that an entity need not reassess: (1) if expired or existing contracts contain leases, (2) lease classification for previously assessed leases under ASC 840, and (3) initial direct costs for existing leases. The standard allows for a practical expedient relating to the separation of lease and non-lease components when applying ASC 842. This expedient is made as a policy election based on asset class and is applied to all items within the class. We have elected to adopt this expedient as part of our transition and implementation. Our team is still evaluating which asset classes will have such a policy election. As it relates to easements and right of ways, a practical expedient is permitted where companies can elect to continue to apply its current accounting policy for all land easements that exist or expire prior to the adoption date. We plan to take this expedient and will continue to apply our current accounting treatment to existing easements. An additional expedient offered by the new standard is the hindsight expedient, which allows an entity to use hindsight when determining a lease term, including options to renew or terminate as well as impairment for right-of-use assets. We do not plan to utilize this practical expedient.

Lastly, our implementation team is in the process of identifying our complete lease population and evaluating the application of this guidance.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash flow, and other Topics. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. We have adopted this guidance as of January 1, 2018 using the retrospective transition method to each period presented on the Consolidated Statements of Cash Flows. We reclassified $11.4 million from operating cash flows to investing cash flows for the nine months ended September 30, 2017.

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715). ASU 2017-07 requires employers to separate the service cost component from the other components of net benefit cost in the period. The new standard requires the other components of net benefit costs (excluding service costs), be reclassified to "Other expense" from "General and administrative." We adopted this standard as of January 1, 2018. This standard is applied retrospectively. The effect was not material to our financial statements for the three and nine months ended September 30, 2018.

3. Revenue Recognition

Adoption of ASC 606 and its related Transition Effects

The modified retrospective method of adoption required us to apply ASC 606 to all new revenue contracts entered into after January 1, 2018 and revenue contracts that were not completed as of January 1, 2018. Our consolidated revenues for periods prior to January 1, 2018 were not revised and the cumulative effect of our adoption of ASC 606 was recorded as an adjustment to partners' capital at January 1, 2018. Based on this application, the following adjustments were made to our consolidated balance sheet as of January 1, 2018:



	December 31, 2017		Adjustments			January 1, 2018
ASSETS
Accounts receivable - trade, net	$	495,449	$	(48,028	)	$	447,421
Inventories	88,653		5,138			93,791
Other assets, net of amortization	56,628		59,204			115,832

LIABILITIES AND CAPITAL
Other long-term liabilities	256,571		19,864			276,435

Partners' capital	2,026,147		(3,550		)	2,022,597

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Current Impact of New Revenue Recognition Guidance

The tables below summarize the impact of adoption on our unaudited condensed consolidated balance sheet and statement of operations as of and for the three and nine months ended September 30, 2018:



	As of September 30, 2018
Unaudited Condensed Consolidated Balance Sheet	As Reported		Without adoption of ASC 606		Effect of Change Increase/(Decrease)
ASSETS
Accounts receivable-trade, net	$	365,646	$	413,674	$	(48,028	)
Inventories	85,722		83,329		2,393
Other Assets, net of amortization	120,102		50,742		69,360

LIABILITIES AND CAPITAL
Other Long-Term Liabilities	275,823		251,075		24,748
Partners' Capital	1,799,409		1,800,432		(1,023		)



	Three months ended September 30, 2018							Nine months ended September 30, 2018
Unaudited Condensed Consolidated Statement of Operations	As Reported		Without adoption of ASC 606		Effect of Change Increase/(Decrease)			As Reported		Without adoption of ASC 606		Effect of Change Increase/(Decrease)

Offshore pipeline transportation services	$	70,115	$	69,323	$	792		$	213,344	$	208,073	$	5,271
Sodium minerals and sulfur services	291,722		268,207		23,515			876,513		801,323		75,190
Marine transportation	56,296		56,296		—			161,410		161,410		—
Onshore facilities and transportation	327,145		327,145		—			972,207		972,207		—
Total revenues	745,278		720,971		24,307			2,223,474		2,143,013		80,461

Onshore facilities and transportation product costs	273,251		273,251		—			834,128		834,128		—
Onshore facilities and transportation operating costs	22,005		22,005		—			67,346		67,346		—
Marine transportation operating costs	44,195		44,195		—			126,259		126,259		—
Sodium minerals and sulfur services operating costs	229,204		204,013		25,191			685,219		607,285		77,934
Offshore pipeline transportation operating costs	17,753		17,753		—			53,533		53,533		—

OPERATING INCOME	46,148		47,032		(884		)	166,129		163,602		2,527

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The effects of changes pursuant to ASC 606 in the tables above are attributable to our offshore pipeline transportation services operating segment and our sodium minerals and sulfur services operating segment.

In our offshore pipeline transportation services segment, we have certain contracts with customers that contain tiered pricing structures that are dependent upon reaching certain cumulative milestones of throughput volumes on our pipelines. In addition, we have a contract that contains fixed and variable consideration for us to stand ready and provide reservation capacity for a fixed minimum quantity on our pipeline. Pursuant to the new guidance, we have allocated our estimated total transaction price over the life of the contract to the related performance obligation and recognized the effects in our Consolidated Financial Statements. In our sodium minerals and sulfur services operating segment, specifically our legacy refinery services business, we have two distinct performance obligations, including the completion of our refinery sulfur removal process, for which we receive in-kind consideration, and our sale of NaHS to our customers. Due to this, we have recorded revenue and the related cost of sales in the Consolidated Financial Statements for the three and nine months ended September 30, 2018 for services performed for the in-kind consideration for our services. Further discussion of our performance obligations by type and segment are below.

Revenue from Contracts with Customers

The following table reflects the disaggregation of our revenues by major category for the three and nine months ended September 30, 2018:



	Three Months Ended September 30,
	Onshore Facilities & Transportation		Sodium Minerals & Sulfur Services		Offshore Pipeline Transportation		Marine Transportation		Consolidated
Fee-based revenues	$	42,188	$	—	$	70,115	$	56,296	$	168,599
Product Sales	284,957		268,207		—		—		553,164
Refinery Services	—		23,515		—		—		23,515
	$	327,145	$	291,722	$	70,115	$	56,296	$	745,278



	Nine Months Ended September 30,
	Onshore Facilities & Transportation		Sodium Minerals & Sulfur Services		Offshore Pipeline Transportation		Marine Transportation		Consolidated
Fee-based revenues	$	107,536	$	—	$	213,344	$	161,410	$	482,290
Product Sales	864,671		801,323		—		—		1,665,994
Refinery Services	—		75,190		—		—		75,190
	$	972,207	$	876,513	$	213,344	$	161,410	$	2,223,474

The Company recognizes revenue upon the satisfaction of its performance obligations under its contracts. The timing of revenue recognition varies for the revenue streams described in more detail below. In general, the timing includes recognition of revenue over time as services are being performed as well as recognition of revenue at a point in time, for delivery of products.

Fee-based Revenues

We provide a variety of fee-based transportation and logistics services to our customers across several of our reportable segments as outlined below.

Service contracts generally contain a series of distinct services that are substantially the same and have the same pattern of transfer to the customer over the contract period, and therefore qualify as a single performance obligation that is satisfied over time. The customer receives and consumes the benefit of our services simultaneous with the provision of those services.

Offshore Pipeline Transportation

Revenue from our offshore pipelines is generally based upon a fixed fee per unit of volume (typically per Mcf of natural gas or per barrel of crude oil) gathered, transported, or processed for each volume delivered. Fees are based either on contractual arrangements or tariffs regulated by the FERC. These contracts include a single performance obligation to stand ready, on a

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monthly basis, to provide capacity on our assets. Revenue associated with these fee-based services is recognized as volumes are delivered over the performance obligation period.

In addition to the offshore pipeline transportation revenue discussed above, we also have certain contracts with customers in which we earn either demand-type fees or firm capacity reservation fees. These fees are charged to a customer regardless of the volume the customer actually delivers to the platform or through the pipeline.

In addition to these offshore pipeline transportation services revenue streams, we also have certain customer contracts in which the transportation fee has a tiered pricing structure based on cumulative milestones of throughput on the related pipeline asset and contract, or on a specified date. The performance obligation for these contracts is to transport, gather or process commodity volumes for the customer based on firm (stand ready) service or from monthly nominations made by our customers, which can also be on an interruptible basis. While our transportation rate changes when milestones are achieved for certain cumulative throughput, the performance obligation satisfied by us does not change throughout the life of the contract. Therefore revenue is recognized on an average rate basis throughout the life of the contract. We have estimated the total consideration to be received under the contract beginning at the contract inception date based on the estimated volumes (including certain minimum volumes we are required to stand ready for), price indexing, estimated production or contracted volumes, and the contract period. We have constrained the estimates of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur throughout the life of the contract. These estimates will be reassessed at each reporting period as required. Billings to our customers are reflected at the contract rate. The difference between the consideration received from our customers from invoicing compared to the revenue recognized creates a contract asset or liability. In circumstances where the estimated average contract rate is less than the billed current price tier in the contract, we will recognize a contract liability. In circumstances where the estimated average contract rate is higher than the billed current price tier in the contract, we will recognize a contract asset.

Onshore Facilities and Transportation

Within our onshore facilities and transportation segment, we provide our customers with pipeline transportation, terminalling services, and rail loading/unloading services, among others, primarily on a per barrel fee basis.

Revenues from contracts for the transportation of crude oil by our pipelines are based on actual volumes at a published tariff and some contain minimum throughput provisions which reset within one year. We recognize revenues for transportation and other services over the performance obligation period, which is the contract term. Revenues for both firm and interruptible transportation and other services are recognized over time as the product is delivered to the agreed upon delivery point or at the point of receipt because they specifically relate to our efforts to transfer the distinct services.

Pricing for our services is determined through a variety of mechanisms, including specified contract pricing or regulated tariff pricing. Consideration to be received by us under these contracts is variable, as the total volume of the commodity to be transported is unknown at contract inception. At the end of a day or month (as specified in the contract), both the price and volume are known (or “fixed”) in order to allow us to accurately calculate the amount of consideration we are entitled to invoice. The measurement of these services and invoicing occurs on a monthly basis.

Pipeline Loss Allowances

In order to compensate us for bearing the risk of volumetric losses of crude oil in transit in our pipelines (for our onshore and offshore pipelines) due to temperature, crude quality, and the inherent difficulties of measurement of liquids in a pipeline, our tariffs and agreements include the right for us to make volumetric deductions from the customer for quality and volumetric fluctuations. We refer to these deductions as pipeline loss allowances ("PLA"). We compare these allowances to the actual volumetric gains and losses of the pipeline and the net gain or loss is recorded as revenue or a reduction of revenue. As the allowance is related to our pipeline transportation services, the performance obligation is the obligation to transport and deliver the barrels and is considered a single obligation.

When net gains occur, we have crude oil inventory. When net losses occur, we reduce any recorded inventory on hand and record a liability for the purchase of crude oil required to replace the lost volumes. Under ASC 606, we record excess oil as non-cash consideration at the lower of the recorded value or the market value and include this amount in the transaction price. The crude oil in inventory can then be sold at current prevailing market prices, resulting in additional revenue if the sales price exceeds the inventory value when control transfers to the customer.

Marine Transportation

Our marine transportation business consists of revenues from the inland and offshore marine transportation of heavy refined petroleum products, asphalt and crude oil, using our barges or vessels. This revenue is recognized over the passage of

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time of individual trips as determined on an individual contract basis. Revenue from these contracts is typically based on a set day-rate or a set fee per cargo movement. The costs of fuel and certain other operational costs may be directly reimbursed by the customer, if stipulated in the contract.

A performance obligation is driven by providing transportation services using our vessels for a single day either under a term or spot based contract. The transaction price is usually fixed per the contract either as a day rate or as a lump sum to be allocated over days required to complete the service. Revenue is recognizable as the transportation service utilizing our vessels occurs, as the customer simultaneously receives and consumes these services as they are provided. If provided in the contract, certain items such as fuel or operational costs can be rebilled to the customer in the same period in which the costs are incurred. In the event the timing of a trip to provide our services crosses a reporting period under a lump sum fee contract, the revenue earned is accrued based on the progress completed in the current period on the related performance obligation as we are entitled to payment for each day. Customer invoicing occurs at the completion of a trip, or earlier at the customer’s request.

Product Sales

Sodium Minerals and Sulfur Services

Product sales in our sodium minerals and sulfur services segment primarily involve the sales of caustic soda, NaHS, soda ash and other alkali products. As it relates to revenue recognition, these sales transactions contain a single performance obligation, which is the delivery of the product to the customer at the agreed upon point of sale. For some transactions, control of product transfers to the customer at the shipping point, but we are obligated to arrange for shipment of the product as directed by the customer. Rather than treat these shipping activities as separate performance obligations, our policy is to account for them as fulfillment costs in accordance with ASC 606.

The transaction price for these product sales are determined by specific contracts, typically at a fixed rate or based on a market or indexed rate. This pricing is known, or is “fixed,” at the time of revenue recognition. Invoicing and related payment terms are in accordance with industry standard or contract specification based on final pricing. The entirety of the transaction price is allocated to the performance obligation which is delivery of the product at the agreed upon point of sale. As this type of revenue is earned at a point in time, there is no allocation of transaction price to future performance obligations.

Onshore Facilities and Transportation

Product sales in our onshore facilities and transportation segment primarily involve the sales of crude oil and petroleum products. These contracts contain a single performance obligation, which is the delivery of the product to the customer at a specified location. These contracts are settled on a monthly basis for term contracts, or on a spot basis. Invoicing and related payment terms are in accordance with industry standard or contract specification based on final pricing.

Pricing is designated within the contracts and is either fixed, index-based or formulaic, utilizing an average price for the month or for a specified range of days, regardless of when delivery occurs. In either case, pricing is known at the time of invoicing. The entirety of the consideration is allocated to a single performance obligation which is delivery of the product to a specified location. As this type of revenue is earned at a point in time, there is no allocation of transaction price to future performance obligations.

Refinery Services

Our refinery services business primarily provides sulfur extraction services to refiners’ high sulfur (or “sour”) gas streams that the refineries have generated from crude oil processing operations. Our process applies our proprietary technology, which uses caustic soda to act as a scrubbing agent under prescribed temperature and pressure to remove sulfur. The technology returns a clean (sulfur-free) hydrocarbon stream to the refinery for further processing into refined products, and simultaneously produces NaHS. Units of NaHS are produced ratably as a gas stream is processed. We obtain control and ownership of the NaHS immediately upon production which constitutes the sole consideration received for our sulfur removal services. We later market this product to third parties as part of our product sales, as described above. As part of some of our arrangements, we pay a refinery access fee (“RSA fee”) for any benefits received by virtue of our plant’s proximity to the customer’s refinery. Our RSA fee is recorded as a reduction of revenue.

Providing sulfur removal services is the singular performance obligation in our refinery service agreements. As our customers simultaneously receive and consume the refinery service benefits, control is transferred and revenue is recognized over time based on the extent of progress towards completion of the performance obligations. We use units of NaHS produced during a period to measure progress as the amount we receive corresponds directly with the efforts to provide our services completed to date. The transaction price for each performance obligation is determined using the fair value of a unit of NaHS on the contract inception date for each refinery services agreement. Accordingly, we record the value of NaHS received as non-cash consideration in inventory until it is subsequently sold to our customers (see Product Sales, above).

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Contract Assets and Liabilities

The table below depicts our contract asset and liability balances at January 1, 2018 and September 30, 2018:



	Contract Assets		Contract Liabilities
	Non-Current		Non-Current
Balance at January 1, 2018	$	59,204	$	19,864
Balance at September 30, 2018	69,360		24,748

During the nine months ended September 30, 2018, there were no balances that were previously classified as contract liabilities at the beginning of the period that were recognized as revenues. Accounts receivable-trade, net does not include consideration received in kind from our refinery services process. We did not have any contract modifications during the period that would affect our contract asset and liability balances.

Transaction Price Allocations to Remaining Performance Obligations

We are required to disclose the amount of our transaction prices that are allocated to unsatisfied performance obligations as of September 30, 2018. However, ASC 606 does provide the following practical expedients and exemptions that we utilized:


1)	Performance obligations that are part of a contract with an expected duration of one year or less;


2)	Revenue recognized from the satisfaction of performance obligations where we have a right to consideration in an amount that corresponds directly with the value provided to customers; and


3)	Contracts that contain variable consideration, such as index-based pricing or variable volumes, that is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that is part of a series.

We apply these practical expedients and exemptions to our revenue streams recognized over time. The majority of our contracts qualify for one of these expedients or exemptions. After considering these practical expedients and identifying the remaining contract types that involve revenue recognition over a long-term period and include long-term fixed consideration (adjusted for indexing as required), we determined our allocations of transaction price that relate to unsatisfied performance obligations. As it relates to our tiered pricing offshore transportation contracts, we provide firm capacity for both fixed and variable consideration over a long term period. Therefore, we have allocated the remaining contract value (as estimated and discussed above) to future periods.

Similarly, in our marine transportation segment, our contract related to our M/T American Phoenix contains minimum fixed consideration over the life of the contract, which ends in September 2020. In our onshore facilities and transportation segment, we have certain contractual arrangements in which we receive fixed minimum payments for our obligation to provide minimum capacity on our pipelines and related assets.

The following chart depicts how we expect to recognize revenues for future periods related to these contracts:



	Offshore Pipeline Transportation		Marine Transportation		Onshore Facilities and Transportation

Remainder of 2018	$	21,154	$	6,808	$	14,297
2019	73,918		27,010		57,090
2020	50,883		20,128		57,090
2021	34,261		—		20,139
2022	22,558		—		4,283
Thereafter	134,623		—		—
Total	$	337,397	$	53,946	$	152,899

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4. Acquisition

Acquisition

Alkali Business

On September 1, 2017, we acquired our Alkali Business for approximately $1.325 billion (inclusive of approximately $105 million in working capital). Our Alkali Business produces natural soda ash, also known as sodium carbonate (Na2CO3), a basic building block for a number of ubiquitous products, including flat glass, container glass, dry detergent and a variety of chemicals and other industrial products. To finance that transaction and the related costs, we used proceeds from (i) a $550.0 million public offering of 6.50% senior unsecured notes due 2025 in August 2017, generating net proceeds of $540.1 million after issuance discount and underwriting fees, (ii) a $750 million private placement of our preferred units in September 2017, generating net proceeds of $726.2 million, (iii) borrowings under our revolving credit facility and (iv) cash on hand.

We have reflected the financial results of our Alkali Business in our sodium minerals and sulfur services segment from the date of acquisition. The purchase price has been allocated to the assets acquired and liabilities assumed. Those fair values were developed by management with the assistance of a third-party valuation firm. Our finalized purchase price allocation remains unchanged from what was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.

Our Consolidated Financial Statements include the results of our Alkali Business since September 1, 2017, the closing date of the acquisition. The following table presents selected financial information included in our Consolidated Financial Statements for the periods presented:

The table below presents selected unaudited pro forma financial information incorporating the historical results of our Alkali Business. The pro forma financial information below has been prepared as if the acquisition had been completed on January 1, 2017 and is based upon assumptions deemed appropriate by us and may not be indicative of actual results. This pro forma information was prepared using historical financial data of the Tronox trona and trona-based exploring, mining, processing, producing, marketing and selling business and reflects certain estimates and assumptions made by our management. Our unaudited pro forma financial information is not necessarily indicative of what our consolidated financial results would have been had our Alkali Business acquisition been completed on January 1, 2017. Pro forma net income includes the effects of distributions on our preferred units and interest expense on incremental borrowings. The dilutive effect of our preferred units is calculated using the if-converted method.



	Three Months Ended September 30,			Nine Months Ended September 30,
	2017			2017
Pro forma consolidated financial operating results:
Revenues	$	615,289		$	1,829,389
Net Income Attributable to Genesis Energy, L.P.	10,955			92,880
Net Income (Loss) Available to Common Unitholders	(6,178		)	42,575
Basic and diluted earnings per common unit:
As reported net income per common unit	$	0.01		$	0.51
Pro forma net income (loss) per common unit	$	(0.05	)	$	0.35

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. Inventories

The major components of inventories were as follows:



	September 30, 2018		December 31, 2017
Petroleum products	$	21,082	$	8,731
Crude oil	16,493		29,873
Caustic soda	8,030		5,755
NaHS	9,682		8,277
Raw materials - Alkali operations	5,592		4,550
Work-in-process - Alkali operations	2,820		7,355
Finished goods, net - Alkali operations	11,526		14,075
Materials and supplies, net - Alkali operations	10,496		10,030
Other	1		7
Total	$	85,722	$	88,653

Inventories are valued at the lower of cost or net realizable value. The net realizable value of inventories were below recorded costs by approximately $0.1 million as of September 30, 2018 without similar adjustments required as of December 31, 2017.

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. Fixed Assets and Mineral Leaseholds

Fixed Assets

Fixed assets consisted of the following:



	September 30, 2018			December 31, 2017
Crude oil pipelines and natural gas pipelines and related assets	$	2,900,469		$	3,028,657
Alkali facilities, machinery, and equipment	515,226			497,601
Onshore facilities, machinery, and equipment	638,726			692,364
Transportation equipment	20,352			21,483
Marine vessels	946,377			918,953
Land, buildings and improvements	220,823			223,186
Office equipment, furniture and fixtures	18,898			18,112
Construction in progress	97,313			151,768
Other	47,800			48,891
Fixed assets, at cost	5,405,984			5,601,015
Less: Accumulated depreciation	(882,833		)	(734,986		)
Net fixed assets	$	4,523,151		$	4,866,029

Mineral Leaseholds

Our Mineral Leaseholds, relating to our acquired Alkali Business, consist of the following:



	September 30, 2018			December 31, 2017
Mineral leaseholds	$	566,019		$	566,019
Less: Accumulated depletion	(4,426		)	(1,513		)
Mineral leaseholds, net	$	561,593		$	564,506

Our depreciation and depletion expense for the periods presented was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Depreciation expense	$	85,282	$	57,117	$	224,546	$	157,438
Depletion expense	722		381		2,913		381

Assets Held for Sale

On August 7, 2018, we granted a third party a time-limited option to acquire certain of our non-core assets in the Powder River Basin in exchange for an option payment of $30 million. As of this date, we reclassified the property, plant, and equipment related to these assets, in the amount of $255.5 million, as current assets held for sale on our Unaudited Consolidated Balance Sheet as of September 30, 2018 (Note 18).

Asset Retirement Obligations

We record AROs in connection with legal requirements to perform specified retirement activities under contractual arrangements and/or governmental regulations.

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents information regarding our AROs since December 31, 2017



ARO liability balance, December 31, 2017	$	198,187
Accretion expense	7,437
Changes in estimate	18,913
Settlements	(9,481		)
ARO liability balance, September 30, 2018	$	215,056

Of the ARO balances disclosed above, $36.0 million and $20.9 million is included as current in "Accrued liabilities" on our Unaudited Condensed Consolidated Balance Sheet as of September 30, 2018 and December 31, 2017, respectively. The remainder of the ARO liability as of September 30, 2018 and December 31, 2017 is included in "Other long-term liabilities" on our Unaudited Condensed Consolidated Balance Sheet.

With respect to our AROs, the following table presents our forecast of accretion expense for the periods indicated:



Remainder of	2018	$	2,459
	2019	$	9,057
	2020	$	8,710
	2021	$	9,302
	2022	$	9,935

Certain of our unconsolidated affiliates have AROs recorded at September 30, 2018 relating to contractual agreements and regulatory requirements. These amounts are immaterial to our Consolidated Financial Statements.

7. Equity Investees

We account for our ownership in our joint ventures under the equity method of accounting. The price we pay to acquire an ownership interest in a company may exceed or be less than the underlying book value of the capital accounts we acquire. Such excess cost amounts are included within the carrying values of our equity investees. At September 30, 2018 and December 31, 2017, the unamortized excess cost amounts totaled $370.2 million and $382.4 million, respectively. We amortize the excess cost as a reduction in equity earnings in a manner similar to depreciation.

The following table presents information included in our Unaudited Condensed Consolidated Financial Statements related to our equity investees.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Genesis’ share of operating earnings	$	13,364		$	16,986		$	40,144		$	46,631
Amortization of excess purchase price	$	(3,872	)	(3,942		)	(11,756		)	(11,826		)
Net equity in earnings	$	9,492		$	13,044		$	28,388		$	34,805
Distributions received	$	17,044		$	20,180		$	55,034		$	60,371

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the unaudited balance sheet and income statement information (on a 100% basis) for Poseidon Oil Pipeline Company (which is our most significant equity investment):



	September 30, 2018			December 31, 2017
BALANCE SHEET DATA:
Assets
Current assets	$	15,895		$	18,711
Fixed assets, net	205,785			217,343
Other assets	966			1,203
Total assets	$	222,646		$	237,257
Liabilities and equity
Current liabilities	$	17,644		$	17,560
Other liabilities	243,608			237,434
Equity	(38,606		)	(17,737		)
Total liabilities and equity	$	222,646		$	237,257



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
INCOME STATEMENT DATA:
Revenues	$	27,768	$	30,597	$	83,962	$	88,003
Operating income	$	17,772	$	22,334	$	57,444	$	63,159
Net income	$	15,721	$	20,739	$	51,731	$	58,754

Poseidon's Revolving Credit Facility

Borrowings under Poseidon’s revolving credit facility, which was amended and restated in February 2015, are primarily used to fund spending on capital projects. The February 2015 credit facility is non-recourse to Poseidon’s owners and secured by substantially all of Poseidon's assets. The February 2015 credit facility contains customary covenants such as restrictions on debt levels, liens, guarantees, mergers, sale of assets and distributions to owners. A breach of any of these covenants could result in acceleration of the maturity date of Poseidon’s debt. Poseidon was in compliance with the terms of its credit agreement for all periods presented in these Unaudited Condensed Consolidated Financial Statements.

8. Intangible Assets

The following table summarizes the components of our intangible assets at the dates indicated:



	September 30, 2018						December 31, 2017
	Gross Carrying Amount		Accumulated Amortization		Carrying Value		Gross Carrying Amount		Accumulated Amortization		Carrying Value
Sodium minerals and sulfur services:
Customer relationships	$	94,654	$	94,114	$	540	$	94,654	$	92,493	$	2,161
Licensing agreements	38,678		38,141		537		38,678		36,528		2,150
Non-compete agreement	800		289		511		800		89		711
Segment total	134,132		132,544		1,588		134,132		129,110		5,022
Onshore Facilities & Transportation:
Customer relationships	35,430		35,113		317		35,430		35,082		348
Intangibles associated with lease	13,260		5,288		7,972		13,260		4,933		8,327
Segment total	48,690		40,401		8,289		48,690		40,015		8,675
Marine contract intangibles	27,000		15,750		11,250		27,000		11,700		15,300
Offshore pipeline contract intangibles	158,101		26,350		131,751		158,101		20,109		137,992
Other	31,149		15,736		15,413		28,900		13,483		15,417
Total	$	399,072	$	230,781	$	168,291	$	396,823	$	214,417	$	182,406

Our amortization of intangible assets for the periods presented was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Amortization of intangible assets	$	5,475	$	5,879	$	16,369	$	17,623

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We estimate that our amortization expense for the next five years will be as follows:



Remainder of	2018	$	5,503
	2019	$	17,679
	2020	$	16,665
	2021	$	10,867
	2022	$	10,708

9. Debt

Our obligations under debt arrangements consisted of the following:



	September 30, 2018						December 31, 2017
	Principal		Unamortized Discount and Debt Issuance Costs ⁽¹⁾		Net Value		Principal		Unamortized Discount and Debt Issuance Costs ⁽¹⁾		Net Value
Senior secured credit facility	$	1,220,700	$	—	$	1,220,700	$	1,099,200	$	—	$	1,099,200
5.750% senior unsecured notes due February 2021	—		—		—		145,170		1,303		143,867
6.750% senior unsecured notes due August 2022	750,000		13,601		736,399		750,000		16,077		733,923
6.000% senior unsecured notes due May 2023	400,000		4,891		395,109		400,000		5,691		394,309
5.625% senior unsecured notes due June 2024	350,000		5,044		344,956		350,000		5,717		344,283
6.500% senior unsecured notes due October 2025	550,000		8,546		541,454		550,000		9,462		540,538
6.250% senior unsecured notes due May 2026	450,000		7,432		442,568		450,000		8,002		441,998
Total long-term debt	$	3,720,700	$	39,514	$	3,681,186	$	3,744,370	$	46,252	$	3,698,118


(1)	Unamortized debt issuance costs associated with our senior secured credit facility (included in Other Long Term Assets on the Unaudited Condensed Consolidated Balance Sheet) were $11.6 million and $14.1 million as of September 30, 2018 and December 31, 2017, respectively.

As of September 30, 2018, we were in compliance with the financial covenants contained in our credit agreement and senior unsecured notes indentures.

Senior Secured Credit Facility

The key terms for rates under our $1.7 billion senior secured credit facility, which are dependent on our leverage ratio (as defined in the credit agreement), are as follows:

•The applicable margin varies from 1.50% to 3.00% on Eurodollar borrowings and from 0.50% to 2.00% on alternate base rate borrowings.

•Letter of credit fees range from 1.50% to 3.00%

•The commitment fee on the unused committed amount will range from 0.25% to 0.50%.

•The accordion feature is $300.0 million, giving us the ability to expand the size of the facility to up to $2.0 billion for acquisitions or growth projects, subject to lender consent.

At September 30, 2018, we had $1.2 billion borrowed under our $1.7 billion credit facility, with $30.1 million of the borrowed amount designated as a loan under the inventory sublimit. Our credit agreement allows up to $100.0 million of the capacity to be used for letters of credit, of which $1.2 million was outstanding at September 30, 2018. Due to the revolving nature of loans under our credit facility, additional borrowings and periodic repayments and re-borrowings may be made until the maturity date. The total amount available for borrowings under our credit facility at September 30, 2018 was $478.1 million.

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GENESIS ENERGY, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Senior Unsecured Note Issuances, Redemption, and Extinguishment

On December 11, 2017, we issued $450 million in aggregate principal amount of 6.25% senior unsecured notes due May 15, 2026 (the "2026 Notes"). Interest payments are due May 15 and November 15 of each year with the initial interest payment due May 15, 2018. Our 2026 Notes mature on May 15, 2026. That issuance generated proceeds of $441.8 million, net of issuance costs incurred. We used $204.8 million of the net proceeds to redeem the portion of the 5.75% senior unsecured notes due February 15, 2021 (the "2021 Notes") that were validly tendered and the remaining net proceeds to repay a portion of the borrowings outstanding under our revolving credit facility. On February 15, 2018, we redeemed our remaining 2021 Notes in full at a redemption price of 101.438% of the principal amount, plus accrued and unpaid interest up to, but not including, the redemption date. We incurred a total loss of approximately $3.3 million relating to the extinguishment of those notes (including the write-off of the related unamortized debt issuance costs), which is recorded as "Other income (expense)" in our Consolidated Statements of Operations for the nine months ended September 30, 2018.

10. Partners’ Capital, Mezzanine Capital and Distributions

At September 30, 2018, our outstanding common units consisted of 122,539,221 Class A units and 39,997 Class B units.

Distributions

We paid or will pay the following distributions to our common unitholders in 2017 and 2018:



Distribution For	Date Paid		Per Unit Amount		Total Amount
2017
1^st Quarter	May 15, 2017		$	0.7200	$	88,257
2^nd Quarter	August 14, 2017		$	0.7225	$	88,563
3^rd Quarter	November 14, 2017		$	0.5000	$	61,290
4^th Quarter	February 14, 2018		$	0.5100	$	62,515
2018
1^st Quarter	May 15, 2018		$	0.5200	$	63,741
2^nd Quarter	August 14, 2018		$	0.5300	$	64,967
3^rd Quarter	November 14, 2018	⁽¹⁾	$	0.5400	$	66,193

(1) This distribution was declared on October 9, 2018 and will be paid to unitholders of record as of October 31, 2018.

Class A Convertible Preferred Units

On September 1, 2017, we sold $750 million of our preferred units in a private placement, comprised of 22,249,494 units for a cash purchase price per unit of $33.71 (subject to certain adjustments, the “Issue Price”) to two initial purchasers. Our general partner executed an amendment to our partnership agreement in connection therewith, which, among other things, authorized and established the rights and preferences of our preferred units. Our preferred units are a new class of security that ranks senior to all of our currently outstanding classes or series of limited partner interests with respect to distribution and/or liquidation rights. Holders of our preferred units vote on an as-converted basis with holders of our common units and have certain class voting rights, including with respect to any amendment to the partnership agreement that would adversely affect the rights, preferences or privileges, or otherwise modify the terms, of those preferred units.

Accounting for the Class A Convertible Preferred Units

Our preferred units are considered redeemable securities under GAAP due to the existence of redemption provisions upon a deemed liquidation event that is outside our control. Therefore, we present them as temporary equity in the mezzanine section of the Consolidated Balance Sheet. Because our preferred units are not currently redeemable and we do not have plans or expect any events that constitute a change of control in our partnership agreement, we present our preferred units at their initial carrying amount. However, we would be required to adjust that carrying amount if it becomes probable that we would be required to redeem our preferred units.

Initial and Subsequent Measurement

We initially recognized our preferred units at their issuance date fair value, net of issuance costs. We will not be required to adjust the carrying amount of our preferred units until it becomes probable that they would become redeemable.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Once redemption becomes probable, we would adjust the carrying amount of our preferred units to the redemption value over a period of time comprising the date the feature first becomes probable and the date the units can first be redeemed.

Preferred unit distributions are recognized on the date in which they are declared. In January 2018, we declared a $16.5 million distribution on our preferred units owned as of January 31, 2018. This distribution was paid in kind ("PIK") through the issuance of 490,252 additional preferred units. In April 2018, we declared a $16.9 million distribution on our preferred units owned of record as of May 1, 2018. This distribution was PIK through the issuance of 500,976 additional preferred units. In July 2018, we declared a $17.3 million distribution on our preferred units owned of record as of July 31, 2018. This distribution was PIK through the issuance of 511,934 additional preferred units.The following tables show the change in our mezzanine and preferred units balances from December 31, 2017 to September 30, 2018:



	As of September 30,
Mezzanine Capital Balance	2018
Balance as of December 31, 2017	$	697,151
Distributions paid-in-kind	50,671
Allocation of Distributions paid in-kind to Preferred Distribution Rate Reset Election (Note 16)	(3,095		)
Balance as of September 30, 2018	$	744,727



		Nine months ended September 30,
Number of Class A Convertible Preferred Units		2018
Balance as of December 31, 2017		22,411,728
Distributions paid-in-kind		1,503,162
Balance as of September 30, 2018		23,914,890

Net income (loss) attributable to common unitholders is reduced by preferred unit distributions that accumulated during the period. During 2018, net income (loss) attributable to common unitholders was reduced by $51.8 million as a result of distributions that accumulated during the period. With respect to our preferred units to be issued relating to the third quarter of 2018, we elected to make a PIK payment for the quarterly distribution, which will result in the issuance of an additional 523,132 preferred units. This PIK amount equates to a distribution of $0.7374 per preferred unit for the quarter, or $2.9496 annualized. These distributions will be paid on November 14, 2018 to unitholders holders of record at the close of business October 31, 2018.

11. Net Income (Loss) Per Common Unit

Basic net income per common unit is computed by dividing net income, after considering income attributable to our preferred unitholders, by the weighted average number of common units outstanding.

The dilutive effect of our preferred units is calculated using the if-converted method. Under the if-converted method, our preferred units are assumed to be converted at the beginning of the period (beginning with their respective issuance date), and the resulting common units are included in the denominator of the diluted net income per common unit calculation for the period being presented. Distributions declared in the period and undeclared distributions that accumulated during the period are added back to the numerator for purposes of the if-converted calculation. For the three and nine months ended September 30, 2018, the effect of the assumed conversion of the 23,914,890 preferred units was anti-dilutive and was not included in the computation of diluted earnings per unit.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table reconciles net income and weighted average units used in computing basic and diluted net income per common unit (in thousands, except per unit amounts):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net Income (Loss) Attributable to Genesis Energy L.P.	$	(323	)	6,312			$	18,708		$	67,135
Less: Accumulated distributions attributable to Class A Convertible Preferred Units	(17,635		)	(5,469		)	(51,780		)	(5,469		)
Net Income (Loss) Available to Common Unitholders	$	(17,958	)	$	843		$	(33,072	)	$	61,666

Weighted Average Outstanding Units	122,579			122,579			122,579			121,198

Basic and Diluted Net Income (Loss) per Common Unit	$	(0.15	)	$	0.01		$	(0.27	)	$	0.51

12. Business Segment Information

We currently manage our businesses through four divisions that constitute our reportable segments:


•	Offshore pipeline transportation – offshore transportation of crude oil and natural gas in the Gulf of Mexico;


•	Sodium minerals and sulfur services – trona and trona-based exploring, mining, processing, producing, marketing and selling activities, as well as processing high sulfur (or “sour”) gas streams for refineries to remove the sulfur, and selling the related by-product, NaHS;


•	Onshore facilities and transportation – terminalling, blending, storing, marketing and transporting crude oil, petroleum products (primarily fuel oil, asphalt, and other heavy refined products) and CO₂;and


•	Marine transportation – marine transportation to provide waterborne transportation of petroleum products and crude oil throughout North America.

Substantially all of our revenues are derived from, and substantially all of our assets are located in, the United States.

We define Segment Margin as revenues less product costs, operating expenses (excluding non-cash gains and charges, such as depreciation, depletion 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 long-term incentive compensation plan and includes the non-income portion of payments received under direct financing leases.

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.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Segment information for the periods presented below was as follows:



	Offshore Pipeline Transportation			Sodium Minerals & Sulfur Services			Onshore Facilities & Transportation			Marine Transportation		Total
Three Months Ended September 30, 2018
Segment margin (a)	$	70,963		$	63,942		$	36,189		$	12,113	$	183,207
Capital expenditures (b)	$	564		$	20,819		$	16,700		$	4,936	$	43,019
Revenues:
External customers	$	70,115		$	293,491		$	327,844		$	53,828	$	745,278
Intersegment (c)	—			(1,769		)	(699		)	2,468		—
Total revenues of reportable segments	$	70,115		$	291,722		$	327,145		$	56,296	$	745,278
Three Months Ended September 30, 2017
Segment margin (a)	$	78,228		$	30,031		$	25,606		$	12,649	$	146,514
Capital expenditures (b)	$	2,356		$	1,330,947		$	26,578		$	23,831	$	1,383,712
Revenues:
External customers	$	80,671		$	111,756		$	247,603		$	46,084	$	486,114
Intersegment (c)	—			(1,991		)	(459		)	2,450		—
Total revenues of reportable segments	$	80,671		$	109,765		$	247,144		$	48,534	$	486,114
Nine Months Ended September 30, 2018
Segment Margin (a)	$	215,738		$	192,875		$	83,622		$	35,066	$	527,301
Capital expenditures (b)	$	2,665		$	49,078		$	52,559		$	25,615	$	129,917
Revenues:
External customers	$	213,344		$	881,822		$	976,193		$	152,115	2,223,474
Intersegment (c)	—			(5,309		)	(3,986		)	9,295		—
Total revenues of reportable segments	$	213,344		$	876,513		$	972,207		$	161,410	$	2,223,474
Nine Months Ended September 30, 2017
Segment Margin (a)	$	243,528		$	63,864		$	71,999		$	39,768	$	419,159
Capital expenditures (b)	$	8,498		$	1,331,892		$	115,663		$	44,496	$	1,500,549
Revenues:
External customers	$	244,653		$	204,237		$	715,839		$	143,599	1,308,328
Intersegment (c)	(1,216		)	(6,358		)	(865		)	8,439		—
Total revenues of reportable segments	$	243,437		$	197,879		$	714,974		$	152,038	$	1,308,328

Total assets by reportable segment were as follows:



	September 30, 2018		December 31, 2017
Offshore pipeline transportation	$	2,417,602	$	2,486,803
Sodium minerals and sulfur services	1,839,107		1,848,188
Onshore facilities and transportation	1,824,199		1,927,976
Marine transportation	813,293		824,777
Other assets	40,967		49,737
Total consolidated assets	$	6,935,168	$	7,137,481


(a)	A reconciliation of total Segment Margin to net income attributable to Genesis Energy, L.P. for the periods is presented below.


(b)	Capital expenditures include maintenance and growth capital expenditures, such as fixed asset additions (including enhancements to existing facilities and construction of growth projects) as well as acquisitions of businesses and contributions to equity investees related to same.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(c)	Intersegment sales were conducted under terms that we believe were no more or less favorable than then-existing market conditions.

Reconciliation of total Segment Margin to net income:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Total Segment Margin	$	183,207		$	146,514		$	527,301		$	419,159
Corporate general and administrative expenses	(23,760		)	(18,230		)	(47,686		)