form10q.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

Form 10-Q

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

For the quarterly period ended September 30, 2008

OR

£  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 jurisdictions 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

Securities registered pursuant to Section 12(g) of the Act:
 
NONE

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 þ  No £
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer £
Accelerated filer þ
Non-accelerated filer £
Smaller reporting company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2) of the Exchange Act).

Yes £   No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  Common Units outstanding as of November 6, 2008:  39,452,305
 

GENESIS ENERGY, L.P.

Form 10-Q

INDEX


PART I.  FINANCIAL INFORMATION

Item 1.
Financial Statements
Page
     
 
3
     
 
4
     
 
5
     
 
6
     
 
7
     
     
Item 2.
32
     
Item 3.
49
     
Item 4.
51
     
 
 
 
 
PART II.  OTHER INFORMATION
  
Item 1.
51
     
Item 1A.
51
     
Item 2.
52
     
Item 3.
53
     
Item 4.
53
     
Item 5.
53
     
Item 6.
53
     
     
54

 
GENESIS ENERGY, L.P.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)

   
September 30,
2008
    
December 31,
2007
  
             
ASSETS
            
CURRENT ASSETS:
            
Cash and cash equivalents
   $ 22,371     $ 11,851  
Accounts receivable - trade
     194,637       178,658  
Accounts receivable - related party
     7,494       1,441  
Inventories
     23,144       15,988  
Net investment in direct financing leases, net of unearned income - current portion - related party
     3,699       609  
Other
     9,841       5,693  
Total current assets
     261,186       214,240  
                 
FIXED ASSETS, at cost
     339,837       150,413  
Less:  Accumulated depreciation
     (60,194 )     (48,413 )
Net fixed assets
     279,643       102,000  
                 
NET INVESTMENT IN DIRECT FINANCING LEASES, net of unearned income - related party
     178,169       4,764  
CO2 ASSETS, net of amortization
     25,479       28,916  
EQUITY INVESTEES AND OTHER INVESTMENTS
     19,376       18,448  
INTANGIBLE ASSETS, net of amortization
     178,510       211,050  
GOODWILL
     325,046       320,708  
OTHER ASSETS, net of amortization
     14,055       8,397  
                 
TOTAL ASSETS
   $ 1,281,464     $ 908,523  
                 
LIABILITIES AND PARTNERS' CAPITAL
                
CURRENT LIABILITIES:
                
Current Maturities of long - term debt
   $ 48,200          
Accounts payable - trade
     169,073     $ 154,614  
Accounts payable - related party
     3,200       2,647  
Accrued liabilities
     34,558       17,537  
Total current liabilities
     255,031       174,798  
                 
LONG-TERM DEBT
     343,200       80,000  
DEFERRED TAX LIABILITIES
     15,767       20,087  
OTHER LONG-TERM LIABILITIES
     1,527       1,264  
MINORITY INTERESTS
     25,817       570  
COMMITMENTS AND CONTINGENCIES (Note 16)
                
                 
PARTNERS' CAPITAL:
                
Common unitholders, 39,452 and 38,253 units, respectively, issued and outstanding
     623,432       615,265  
General partner
     16,796       16,539  
Accumulated other comprehensive loss
     (106 )     -  
Total partners' capital
     640,122       631,804  
                 
TOTAL LIABILITIES AND PARTNERS' CAPITAL
   $ 1,281,464     $ 908,523  

The accompanying notes are an integral part of these consolidated financial statements.

 
GENESIS ENERGY, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit amounts)

   
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2008
    
2007
    
2008
    
2007
  
REVENUES:
                        
Supply and logistics:
                        
Unrelated parties
   $ 554,838     $ 317,244     $ 1,552,559     $ 680,380  
Related parties
     1,558       409       3,432       1,287  
Refinery services
     61,306       25,349       160,945       25,349  
Pipeline transportation, including natural gas sales:
                                
Transportation services - unrelated parties
     5,062       4,596       16,139       12,519  
Transportation services - related parties
     8,205       1,499       13,372       4,225  
Natural gas sales revenues
     1,158       800       4,085       3,274  
CO2 marketing revenues:
                                
Unrelated parties
     4,039       3,610       10,895       9,772  
Related parties
     753       763       2,217       2,044  
Total revenues
     636,919       354,270       1,763,644       738,850  
COSTS AND EXPENSES:
                                
Supply and logistics costs:
                                
Product costs - unrelated parties
     521,779       304,089       1,471,254       656,317  
Product costs - related parties
     -       40       -       69  
Operating costs
     20,927       8,564       55,294       17,295  
Refinery services operating costs
     48,265       16,804       116,700       16,804  
Pipeline transportation costs:
                                
Pipeline transportation operating costs
     2,647       2,315       7,493       7,996  
Natural gas purchases
     1,136       817       3,990       3,164  
CO2 marketing costs:
                                
Transportation costs - related party
     1,488       1,462       4,121       3,796  
Other costs
     15       40       45       131  
General and administrative
     9,239       4,724       26,929       13,652  
Depreciation and amortization
     18,100       8,372       51,610       12,346  
Net (gain) loss on disposal of surplus assets
     (58 )     -       36       (24 )
Total costs and expenses
     623,538       347,227       1,737,472       731,546  
OPERATING INCOME
     13,381       7,043       26,172       7,304  
Equity in earnings of joint ventures
     216       361       378       915  
Interest income
     118       141       352       219  
Interest expense
     (4,601 )     (4,842 )     (8,543 )     (5,467 )
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST
     9,114       2,703       18,359       2,971  
Income tax benefit (expense)
     1,504       (1,004 )     1,233       (1,059 )
Income before minority interest
     10,618       1,699       19,592       1,912  
Minority interest
     145       -       144       -  
NET INCOME
   $ 10,763     $ 1,699     $ 19,736     $ 1,912  

\
GENESIS ENERGY, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
(In thousands, except per unit amounts)

   
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2008
    
2007
    
2008
    
2007
  
NET INCOME PER COMMON UNIT:
                        
BASIC
   $ 0.25     $ 0.07     $ 0.47     $ 0.11  
DILUTED
   $ 0.25     $ 0.07     $ 0.46     $ 0.11  
                                 
WEIGHTED AVERAGE COMMON UNITS OUTSTANDING:
                                
BASIC
     39,452       24,527       38,796       17,405  
DILUTED
     39,524       24,527       38,853       17,405  

The accompanying notes are an integral part of these consolidated financial statements.
 

GENESIS ENERGY, L.P.
UNAUDITED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(In thousands)

   
Partners' Capital
  
   
Number of Common Units
    
Common Unitholders
    
General Partner
    
Accumulated Other
Comprehensive Loss
    
Total
  
                               
Partners' capital, January 1, 2008
     38,253     $ 615,265     $ 16,539     $ -     $ 631,804  
Net income
     -       17,972       1,764       -       19,736  
Cash contributions
     -       -       510       -       510  
Cash distributions
     -       (34,805 )     (2,017 )     -       (36,822 )
Issuance of units
     2,037       41,667       -       -       41,667  
Redemption of units
     (838 )     (16,667 )     -       -       (16,667 )
Interest rate swap hedges
     -       -       -       (106 )     (106 )
Partners' capital, September 30, 2008
     39,452     $ 623,432     $ 16,796     $ (106 )   $ 640,122  

The accompanying notes are an integral part of these consolidated financial statements.

 
GENESIS ENERGY, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

   
Nine Months Ended September 30,
  
   
2008
    
2007
  
CASH FLOWS FROM OPERATING ACTIVITIES:
            
Net income
   $ 19,736     $ 1,912  
Adjustments to reconcile net income to net cash provided by operating activities -
                
Depreciation and amortization
     51,610       12,346  
Amortization of credit facility issuance costs
     962       509  
Amortization of unearned income and initial direct costs on direct financing leases
     (6,342 )     (468 )
Payments received under direct financing leases
     6,056       890  
Equity in earnings of investments in joint ventures
     (378 )     (915 )
Distributions from joint ventures - return on investment
     971       1,276  
Non-cash effects of unit-based compensation plans
     (1,342 )     1,696  
Deferred and other tax liabilities
     (3,388 )     -  
Other non-cash items
     (1,175 )     643  
Changes in components of operating assets and liabilities -
                
Accounts receivable
     (23,670 )     (9,749 )
Inventories
     (6,481 )     3,810  
Other current assets
     (3,214 )     (515 )
Accounts payable
     17,076       10,819  
Accrued liabilities
     5,809       3,399  
Net cash provided by operating activities
     56,230       25,653  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Payments to acquire fixed assets
     (29,890 )     (3,292 )
CO2 pipeline transactions and related costs
     (228,891 )     -  
Distributions from joint ventures - return of investment
     886       389  
Investment in joint ventures and other investments
     (2,210 )     (552 )
Proceeds from disposal of assets
     573       195  
Acquisition of Grifco assets
     (65,693 )     -  
Acquisition of Davison assets, net of cash acquired
     (993 )     (301,360 )
Acquisition of Port Hudson assets
     -       (8,103 )
Other, net
     207       (1,300 )
Net cash used in investing activities
     (326,011 )     (314,023 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Bank borrowings
     490,900       355,800  
Bank repayments
     (179,500 )     (78,800 )
Credit facility issuance fees
     (2,255 )     (2,297 )
Issuance of common units for cash
     -       22,361  
Redemption of common units for cash
     (16,667 )     -  
General partner contributions
     510       6,171  
Minority interest contributions, net of distributions
     25,501       30  
Distributions to common unitholders
     (34,805 )     (9,097 )
Distributions to general partner interest
     (2,017 )     (186 )
Other, net
     (1,366 )     (163 )
Net cash provided by financing activities
     280,301       293,819  
                 
Net increase in cash and cash equivalents
     10,520       5,449  
Cash and cash equivalents at beginning of period
     11,851       2,318  
                 
Cash and cash equivalents at end of period
   $ 22,371     $ 7,767  
 
The accompanying notes are an integral part of these consolidated financial statements.


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
1.  Organization and Basis of Presentation and Consolidation
 
Organization
 
We are a growth-oriented limited partnership focused on the midstream segment of the oil and gas industry in the Gulf Coast area of the United States.  We conduct our operations through our operating subsidiaries and joint ventures.  We manage our businesses through four divisions:
 
 
·
Pipeline transportation of crude oil, carbon dioxide (or CO2) and, to a lesser degree, natural gas;
 
 
·
Refinery services involving processing of high sulfur (or “sour”) gas streams for refineries to remove the sulfur, and sale of the related by-product, sodium hydrosulfide (or NaHS, commonly pronounced nash);
 
 
·
Industrial gas activities, including wholesale marketing of CO2 and processing of syngas through a joint venture; and
 
 
·
Supply and logistics services, which includes terminaling, blending, storing, marketing, and transporting by trucks and barge of crude oil and petroleum products as well as dry goods.
 
Our 2% general partner interest is held by Genesis Energy, Inc., a Delaware corporation and an indirect, wholly-owned subsidiary of Denbury Resources Inc.  Denbury and its subsidiaries are hereafter referred to as Denbury.  Our general partner and its affiliates also own 10.2% of our outstanding common units.
 
Our general partner manages our operations and activities and employs our officers and personnel, who devote 100% of their efforts to our management.
 
Basis of Presentation and Consolidation
 
Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end and the 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 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 financial statements prepared in accordance with generally accepted accounting principles 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, 2007.
 
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.
 
The accompanying unaudited consolidated financial statements and related notes present our consolidated financial position as of September 30, 2008 and December 31, 2007 and our results of operations for the three and nine months ended September 30, 2008 and 2007, our cash flows for the nine months ended September 30, 2008 and 2007 and changes in partners’ capital for the nine months ended September 30, 2008.  Intercompany transactions have been eliminated.  The accompanying unaudited consolidated financial statements include Genesis Energy, L.P. and its operating subsidiaries, Genesis Crude Oil, L.P. and Genesis NEJD Holdings, LLC, and their subsidiaries.
 
Joint Ventures
 
We participate in three joint ventures:  DG Marine, T&P Syngas Supply Company (T&P Syngas) and Sandhill Group, LLC (Sandhill).  As of July 2008, DG Marine is consolidated in our financial statements.  We account for our 50% investments in T&P Syngas and Sandhill by the equity method of accounting. See Note 8.
 
DG Marine Transportation, LLC


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
In July 2008, we acquired the inland marine transportation business of Grifco Transportation, Ltd and two of its affiliates through a joint venture (DG Marine) with TD Marine, LLC, an entity owned by the Davison family.  We own a 49% economic interest and TD Marine, LLC owns a 51% economic interest in DG Marine.  TD Marine, LLC controls the DG Marine joint venture and the day-to-day operations are conducted by and managed by DG Marine employees.  The provisions of Financial Interpretation No. 46(R) “Consolidation of Variable Interest Entities” (FIN 46R), require us to consolidate DG Marine in our consolidated financial statements.  See Note 3.
 
T&P Syngas Supply Company
 
 We own a 50% interest in T&P Syngas Supply Company (“T&P Syngas”), a Delaware general partnership.  Praxair Hydrogen Supply Inc. (“Praxair”) owns the remaining 50% partnership interest in T&P Syngas.  T&P Syngas is a partnership that owns a syngas manufacturing facility located in Texas City, Texas.  That facility processes natural gas to produce syngas (a combination of carbon monoxide and hydrogen) and high pressure steam.  Praxair provides the raw materials to be processed and receives the syngas and steam produced by the facility under a long-term processing agreement.  T&P Syngas receives a processing fee for its services.  Praxair operates the facility.
 
Sandhill Group, LLC
 
We own a 50% interest in Sandhill Group, LLC (“Sandhill”).  At September 30, 2008, Reliant Processing Ltd. held the other 50% interest in Sandhill.  Sandhill owns a CO2 processing facility located in Brandon, Mississippi. Sandhill is engaged in the production and distribution of liquid carbon dioxide for use in the food, beverage, chemical and oil industries. The facility acquires CO2 from us under a long-term supply contract that we acquired in 2005 from Denbury.
 
Our general partner owns a 0.01% general partner interest in Genesis Crude Oil, L.P. and TD Marine, LLC, a related party, owns the remaining 51% economic interest in DG Marine.  The net interest of those parties in our results of operations and financial position are reflected in our financial statements as minority interests.
 
In July 2007, we acquired the energy-related businesses of the Davison family.  The results of the operations of these businesses have been included in our consolidated financial statements since August 1, 2007.
 
2.  Recent Accounting Developments
 
Implemented
 
SFAS 157
 
We adopted Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS 157), with respect to financial assets and financial liabilities that are regularly adjusted to fair value, as of January 1, 2008.  SFAS 157 provides a common fair value hierarchy to follow in determining fair value measurements in the preparation of financial statements and expands disclosure requirements relating to how such measurements were developed. SFAS 157 does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements.  On February 12, 2008 the Financial Accounting Standards Board (FASB) issued Staff Position No. 157-2, “Effective Date of FASB Statement No. 157” (FSP 157-2) which amends SFAS 157 to delay the effective date for all non-financial assets and non-financial liabilities, except for those that are recognized at fair value in the financial statements on a recurring basis.  The partial adoption of SFAS 157 as described above had no material impact on us.  We have not yet determined the impact, if any, that the second phase of the adoption of SFAS 157 in 2009 will have relating to its fair value measurements of non-financial assets and non-financial liabilities.  See Note 18 for further information regarding fair-value measurements.
 
SFAS 159
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159).  This statement became effective for us as of January 1, 2008. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. We did not elect to utilize voluntary fair value measurements as permitted by the standard.


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
Pending
 
SFAS 141(R)
 
In December 2007, the FASB issued SFAS No. 141(R) “Business Combinations” (SFAS 141(R)).  SFAS 141(R) replaces FASB Statement No. 141, “Business Combinations.”  This statement retains the purchase method of accounting used in business combinations but replaces SFAS 141 by establishing principles and requirements for the recognition and measurement of assets, liabilities and goodwill, including the requirement that most transaction costs and restructuring costs be charged to expense as incurred.  In addition, the statement requires disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  SFAS 141(R) is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  SFAS 141(R) will apply to acquisitions we make after December 31, 2008.  The impact to us will be dependent on the nature of the business combination.
 
SFAS 160
 
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51” (SFAS 160). This statement establishes accounting and reporting standards for noncontrolling interests, which have been referred to as minority interests in prior literature.  A noncontrolling interest is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent company.  This new standard requires, among other things, that (i) ownership interests of noncontrolling interests be presented as a component of equity on the balance sheet (i.e. elimination of the mezzanine “minority interest” category); (ii) elimination of minority interest expense as a line item on the statement of operations and, as a result, that net income be allocated between the parent and the noncontrolling interests on the face of the statement of operations; and (iii) enhanced disclosures regarding noncontrolling interests.  SFAS 160 is effective for fiscal years beginning after December 15, 2008.  We will adopt SFAS 160 on January 1, 2009.  We are assessing the impact of this statement on our financial statements and expect it to impact the presentation of the minority interests in Genesis Crude Oil, L.P. held by our general partner and DG Marine held by our joint venture partner.
 
SFAS 161
 
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No.133” (SFAS 161). This Statement requires enhanced disclosures about our derivative and hedging activities. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We will adopt SFAS No. 161 beginning January 1, 2009. We are currently evaluating the impact, if any, that the standard will have on the disclosures in our consolidated financial statements.
 
EITF 07-4
 
In March 2008, the FASB ratified the consensus reached by the Emerging Issues Task Force (or EITF) of the FASB in issue EITF 07-4, “Application of the Two-Class Method under FASB Statement No. 128, Earnings per Share, to Master Limited Partnerships.”  Under this consensus, the computation of earnings per unit will be affected by the incentive distribution rights (“IDRs”) we are contractually obligated to distribute at the end of the current reporting period.  In periods when earnings are in excess of cash distributions, we will reduce net income or loss for the current reporting period (for purposes of calculating earnings or loss per unit) by the amount of available cash that will be distributed to our limited partners and general partner for its general partner interest and incentive distribution rights for the reporting period, and the remainder will be allocated to the limited partner and general partner in accordance with their ownership interests.  When cash distributions exceed current-period earnings, net income or loss (for purposes of calculating earnings or loss per unit) will be reduced (or increased) by cash distributions, and the resulting excess of distributions over earnings will be allocated to the general partner and limited partner based on their respective sharing of losses.  EITF 07-4 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.  We are currently evaluating the impact of EITF 07-4; however we expect it to have an impact on our presentation of earnings per unit beginning in 2009.  For additional information on our incentive distribution rights, see Note 10.
 
FASB Staff Position No. 142-3


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
In April 2008, the FASB issued FASB Staff Position No. 142-3, “Determination of the Useful Life of Intangible Assets” (FSP 142-3).  This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of an intangible asset under Statement of Financial Accounting Standards No. 142, “Goodwill and other Intangible Assets.” The purpose of this FSP is to develop consistency between the useful life assigned to intangible assets and the cash flows from those assets.  FSP 142-3 is effective for fiscal years beginning after December 31, 2008.  We are currently evaluating the impact, if any, that the standard will have on our consolidated financial statements.
 
3.  Acquisitions
 
DG Marine Transportation Investment
 
On July 18, 2008, we completed the acquisition of the inland marine transportation business of Grifco Transportation, Ltd. (“Grifco”) and two of Grifco’s affiliates through a joint venture with TD Marine, LLC, an entity formed by members of the Davison family.  (See discussion below on the acquisition of the Davison family businesses in 2007.). TD Marine owns (indirectly) a 51% economic interest in the joint venture,  DG Marine, and we own (directly and indirectly) a 49% economic interest.  This acquisition gives us the capability to provide transportation services of petroleum products by barge and complements our other supply and logistics operations.
 
Grifco received initial purchase consideration of approximately $80 million, comprised of $63.3 million in cash and $16.7 million, or 837,690 of our common units.  A portion of the units are subject to certain lock-up restrictions. DG Marine acquired substantially all of Grifco’s assets, including twelve barges, seven push boats, certain commercial agreements, and offices ..  Additionally, DG Marine and/or  its subsidiaries acquired the rights, and assumed the obligations, to take delivery of four new barges in late third quarter of 2008 and four additional new barges early in first quarter of 2009 (at a total price of approximately $27 million). Upon delivery of the eight new barges, the acquisition of three additional push boats (at an estimated cost of approximately $6 million), and after placing the barges and push boats into commercial operations, DG Marine will be obligated to pay additional purchase consideration of up to $12 million.   The estimated discounted present value of that $12 million obligation is included in current liabilities in our consolidated balance sheets.  At September 30, 2008, DG Marine had taken delivery of four of the new barges.
 
The Grifco acquisition and related closing costs were funded with $50 million of aggregate equity contributions from us and TD Marine, in proportion to our ownership percentages, and with borrowings of $32.4 million under a revolving credit facility which is non-recourse to us and TD Marine (other than with respect to our  investments in DG Marine).  Although DG Marine’s debt is non-recourse to us, our ownership interest in DG Marine is pledged to secure its indebtedness. We funded our $24.5 million equity contribution with $7.8 million of cash and 837,690 of our common units, valued at $19.896 per unit, for a total value of $16.7 million.  At closing, we also redeemed 837,690 of our common units from the Davison family.  See Notes 9 and 10.
 
We have entered into a subordinated loan agreement with DG Marine whereby we may (at our sole discretion) lend up to $25 million to DG Marine.  The loan agreement provides for DG Marine to pay us interest on any loans at the rate at which we borrowed funds under our credit facility plus 4%.  Those loans will mature on January 31, 2012.  Under that subordinated loan agreement, DG Marine is required to make monthly payments to us of principal and interest to the extent DG Marine has any available cash that otherwise would have been distributed to the owners of DG Marine in respect of their equity interest.  DG Marine’s revolving credit facility includes restrictions on DG Marine’s ability to make specified payments under the subordinated loan agreement and distributions in respect of our equity interest.  At September 30, 2008, there were no amounts outstanding under the subordinated loan agreement.
 
The provisions of Financial Interpretation No. 46(R) “Consolidation of Variable Interest Entities” (FIN 46R), require us to consolidate DG Marine in our consolidated financial statements.  The 51% ownership interest of TD Marine in the net assets and net income of DG Marine is included in minority interests in our consolidated financial statements.


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
The acquisition cost allocated to the assets consists of $63.3 million of cash, $16.7 million of value from the issuance of our limited partnership units to Grifco, $11.7 million related to the discounted value of the additional consideration that will be owed to Grifco when the barges under construction are placed in service and $2.4 million of transaction costs.  The acquisition cost has been allocated to the assets acquired based on estimated preliminary fair values.  Such preliminary values have been developed by management. The preliminary valuation may change as a result of additional information we have requested on certain tangible and intangible assets.  We expect to finalize the allocation for this transaction during the fourth quarter of 2008.  We do not expect any material adjustments to these preliminary purchase price allocations as a result of the final valuation.
 
The preliminary allocation of the acquisition cost is summarized as follows:
 
Fuel inventory in vessels
   $ 676  
Property and equipment
     91,096  
Amortizable intangible assets:
        
Customer relationships
     800  
Trade name
     900  
Non-compete agreements
     600  
Total allocated cost
   $ 94,072  
 
See additional information on intangible assets and goodwill in Note 7.
 
2008 Denbury Drop-Down Transactions
 
On May 30, 2008, we completed two “drop-down” transactions with Denbury Onshore LLC, (Denbury Onshore), a wholly-owned subsidiary of Denbury Resources Inc., the indirect owner of our general partner.
 
NEJD Pipeline System
 
We entered into a twenty-year financing lease transaction with Denbury Onshore and acquired certain security interests in Denbury’s North East Jackson Dome (NEJD) Pipeline System for which we paid $175 million.  Under the terms of the agreement, Denbury Onshore began making quarterly rent payments beginning August 30, 2008.  These quarterly rent payments are fixed at $5,166,943 per quarter or approximately $20.7 million per year during the lease term at an interest rate of 10.25%.  At the end of the lease term, we will convey all of our interests in the NEJD Pipeline to Denbury Onshore for a nominal payment.
 
The NEJD Pipeline System is a 183-mile, 20” CO2 pipeline extending from the Jackson Dome, near Jackson, Mississippi, to near Donaldson, Louisiana, currently being used by Denbury for its tertiary operations in southwest Mississippi.  Denbury has the rights to exclusive use of the NEJD Pipeline System, will be responsible for all operations and maintenance on that system, and will bear and assume all obligations and liabilities with respect to that system.  The NEJD transaction was funded with borrowings under our credit facility.
 
See additional discussion of this direct financing lease in Note 6.
 
Free State Pipeline System
 
We purchased Denbury’s Free State Pipeline for $75 million, consisting of $50 million in cash, which we borrowed under our credit facility, and $25 million in the form of 1,199,041 of our common units.  The number of common units issued was based on the average closing price of our common units from May 28, 2008 through June 3, 2008.
 
The Free State Pipeline is an 86-mile, 20” pipeline that extends from Denbury’s CO2 source fields at Jackson Dome, near Jackson, Mississippi, to Denbury’s oil fields in east Mississippi.  We entered into a twenty-year transportation services agreement to deliver CO2 on the Free State pipeline for Denbury’s use in its tertiary recovery operations.    Under the terms of the transportation services agreement, we are responsible for owning, operating, maintaining and making improvements to that pipeline.  Denbury has rights to exclusive use of that pipeline and is required to use that pipeline to supply CO2 to its current and certain of its other tertiary operations in east Mississippi.  The transportation services agreement provides for a $100,000 per month minimum payment, which is accounted for as an operating lease, plus a tariff based on throughput. Denbury has two renewal options, each for five years on similar terms. Any sale by us of the Free State Pipeline and related assets or of an ownership interest in our subsidiary that holds such assets would be subject to a right of first refusal purchase option in favor of Denbury.


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
2007 Davison Businesses Acquisition
 
On July 25, 2007, we acquired five energy-related businesses from several entities owned and controlled by the Davison family of Ruston, Louisiana (the “Davison Acquisition”) for total consideration of $623 million (including cash and common units), net of cash acquired and direct transaction costs totaling $8.9 million.  The businesses include the operations that comprise our refinery services division, and other operations included in our supply and logistics division, which transport, store, procure, and market petroleum products and other bulk commodities.  The assets acquired in this transaction provide us with opportunities to expand our services to energy companies in the areas in which we operate.
 
In connection with the finalization of our valuation procedures with respect to certain fixed assets acquired in the Davison Acquisition, we reallocated $3.3 million of the purchase price from fixed assets to goodwill.  In addition, the purchase price was adjusted by $1.0 million during the first half of 2008 for differences in working capital and fixed assets acquired.  See additional information on intangible assets and goodwill in Note 7.
 
2007 Port Hudson Assets Acquisition
 
Effective July 1, 2007, we paid $8.1 million for BP Pipelines (North America) Inc.’s Port Hudson crude oil truck terminal, marine terminal, and marine dock on the Mississippi River, which includes 215,000 barrels of tankage, a pipeline and other related assets in East Baton Rouge Parish, Louisiana.  The purchase price was allocated to the assets acquired based on estimated fair values.  See additional information on goodwill in Note 7.
 

4.  Inventories
 
Inventories are valued at the lower of cost or market.  The costs of inventories at September 30, 2008 exceeded market values by approximately $0.1 million, and are reflected below at those market values. The costs of inventories did not exceed market values at December 31, 2007.  The major components of inventories were as follows:
 
   
September 30, 2008
    
December 31, 2007
  
             
Crude oil
   $ 2,018     $ 3,710  
Petroleum products
     13,150       6,527  
Caustic soda
     1,827       1,998  
NaHS
     6,013       3,557  
Other
     136       196  
Total inventories
   $ 23,144     $ 15,988  

\
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
5.  Fixed Assets and Asset Retirement Obligations
 
Fixed assets consisted of the following:
 
   
September 30, 2008
    
December 31, 2007
  
             
Land, buildings and improvements
   $ 13,522     $ 11,978  
Pipelines and related assets
     139,177       63,169  
Machinery and equipment
     22,568       25,097  
Transportation equipment
     32,960       32,906  
Barges and push boats
     95,751       -  
Office equipment, furniture and fixtures
     4,098       2,759  
Construction in progress
     20,124       7,102  
Other
     11,637       7,402  
Subtotal
     339,837       150,413  
Accumulated depreciation
     (60,194 )     (48,413 )
Total
   $ 279,643     $ 102,000  
 
Asset Retirement Obligations
 
In general, our future asset retirement obligations relate to future costs associated with the removal of certain segments of our oil, natural gas and CO2 pipelines, removal of equipment and facilities from leased acreage and land restoration. The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred, discounted to its present value using our credit adjusted risk-free interest rate, and a corresponding amount capitalized by increasing the carrying amount of the related long-lived asset. The capitalized cost is depreciated over the useful life of the related asset.  Accretion of the discount increases the liability and is recorded to expense.

The following table summarizes the changes in our asset retirement obligations for the nine months ended September 30, 2008.

Asset retirement obligations as of December 31, 2007
   $ 1,173  
Accretion expense
     67  
Asset retirement obligations as of September 30, 2008
   $ 1,240  

At September 30, 2008, $0.1 million of our asset retirement obligation was classified in “Accrued liabilities” under current liabilities in our Unaudited Consolidated Balance Sheets.  Certain of our unconsolidated affiliates have asset retirement obligations recorded at September 30, 2008 and December 31, 2007 relating to contractual agreements.  These amounts are immaterial to our financial statements.

6.  Direct Financing Leases
 
In the fourth quarter of 2004, we constructed two segments of crude oil pipeline and a CO2 pipeline segment to transport crude oil from and CO2 to producing fields operated by Denbury.  Denbury pays us a minimum payment each month for the right to use these pipeline segments.  Those arrangements have been accounted for as direct financing leases.  As discussed in Note 3, we entered into a lease arrangement with Denbury related to the NEJD Pipeline in May 2008 that is being accounted for as a direct financing lease.  Denbury pays us fixed payments of $5.2 million per quarter that began in August 2008.


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
The following table lists the components of our net investment in direct financing leases at September 30, 2008 and December 31, 2007:
 
   
September 30, 2008
    
December 31, 2007
  
             
Total minimum lease payments to be received
   $ 412,850     $ 7,039  
Estimated residual values of leased property (unguaranteed)
     1,286       1,287  
Unamortized initial direct costs
     2,631       -  
Less unearned income
     (234,899 )     (2,953 )
Net investment in direct financing leases
   $ 181,868     $ 5,373  
 
At September 30, 2008, minimum lease payments to be received for the remainder of 2008 are $5.5 million.  Minimum lease payments to be received for each of the five succeeding fiscal years are $21.9 million per year for 2009 through 2011, $21.8 million for 2012 and $21.3 million for 2013.
 
7.  Intangible Assets and Goodwill
 
Intangible Assets
 
In connection with the Davison and DG Marine acquisitions (See Note 3), we allocated a portion of the purchase price to intangible assets based on their fair values.  The following table reflects the components of intangible assets being amortized at the dates indicated:
 
         
September 30, 2008
    
December 31, 2007
  
   
Weighted Amortization Period in Years
    
Gross Carrying Amount
    
Accumulated Amortization
    
Carrying Value
    
Gross Carrying Amount
    
Accumulated Amortization
    
Carrying Value
  
                                           
Refinery services customer relationships
  
3
     $ 94,654     $ 21,858     $ 72,796     $ 94,654     $ 9,380     $ 85,274  
Supply and logistics customer relationships
  
5
       35,430       8,293       27,137       34,630       3,287       31,343  
Refinery services supplier relationships
  
2
       36,469       20,682       15,787       36,469       9,241       27,228  
Refinery services licensing agreements
  
6
       38,678       5,936       32,742       38,678       2,218       36,460  
Supply and logistics trade names-Davison and Grifco
  
7
       18,888       2,581       16,307       17,988       930       17,058  
Supply and logistics favorable lease
  
15
       13,260       552       12,708       13,260       197       13,063  
Other
  
5
       1,322       289       1,033       721       97       624  
Total
  
5
     $ 238,701     $ 60,191     $ 178,510     $ 236,400     $ 25,350     $ 211,050  
 
We are recording amortization of our intangible assets based on the period over which the asset is expected to contribute to our future cash flows.  Generally, the contribution to our cash flows of the customer and supplier relationships, licensing agreements and trade name intangible assets is expected to decline over time, such that greater value is attributable to the periods shortly after the acquisition was made.  The favorable lease and other intangible assets are being amortized on a straight-line basis.  Amortization expense on intangible assets was $11.6 million and $34.8 million for the three and nine months ended September 30, 2008, respectively.  Amortization expense on intangible assets was $4.0 million for the three and nine months ended September 30, 2007.


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
Estimated amortization expense for each of the five subsequent fiscal years is expected to be as follows:
 
Year Ended December 31
  
Amortization Expense to be Recorded
  
Remainder of 2008
   $ 11,674  
2009
   $ 32,600  
2010
   $ 25,931  
2011
   $ 21,253  
2012
   $ 17,612  
2013
   $ 14,208  
 
Goodwill
 
In connection with the Davison and Port Hudson acquisitions (see Note 3), the residual of the purchase price over the fair values of the net tangible and identifiable intangible assets acquired was allocated to goodwill.  The carrying amount of goodwill by business segment at September 30, 2008 was $302.0 million to refinery services and $23.0 million to supply and logistics.
 
8.  Equity Investees and Other Investments
 
T&P Syngas Supply Company
 
We are accounting for our 50% ownership in T&P Syngas under the equity method of accounting.  We received distributions from T&P Syngas of $1.7 million and $1.6 million during the nine months ended September 30, 2008 and 2007, respectively.
 
Sandhill Group, LLC
 
We are accounting for our 50% ownership in Sandhill under the equity method of accounting. We received distributions from Sandhill of $163,000 and $101,000 during the nine months ended September 30, 2008 and 2007, respectively.
 
Other Projects
 
We have also invested $4.6 million in the Faustina Project, a petroleum coke to ammonia project that is in the development stage.  All of our investment may later be redeemed, with a return, or converted to equity after the project has obtained construction financing.  The funds we have invested are being used for project development activities, which include the negotiation of off-take agreements for the products and by-products of the plant to be constructed, securing permits and securing financing for the construction phase of the plant.  We have recorded our investment in this debt security at cost and classified it as held-to-maturity, since we have the intent and ability to hold it until it is redeemed.
 
No events or changes in circumstances have occurred that indicate a significant adverse effect on the fair value of our investment at September 30, 2008, therefore our investment is included in our Unaudited Consolidated Balance Sheet at cost.
 
9.  Debt
 
At September 30, 2008 our obligations under credit facilities consisted of the following:
 
   
September 30, 2008
    
December 31, 2007
  
             
Genesis Credit Facility
   $ 343,200     $ 80,000  
DG Marine Credit Facility (non-recourse to Genesis) - current portion of long-term debt
     48,200       -  
Total Debt
   $ 391,400     $ 80,000  

 
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
Genesis Credit Facility
 
Our credit facility, with a maximum facility amount of $500 million, of which $100 million can be used for letters of credit, is with a group of banks led by Fortis Capital Corp. and Deutsche Bank Securities Inc.  The maximum facility amount represents the amount the banks have committed to fund pursuant to the terms of the credit agreement.  The borrowing base is recalculated quarterly and at the time of material acquisitions.  The borrowing base represents the amount that can be borrowed or utilized for letters of credit from a credit standpoint based on our EBITDA (earnings before interest, taxes, depreciation and amortization), computed in accordance with the provisions of our credit facility.
 
The borrowing base may be increased to the extent of pro forma additional EBITDA, (as defined in the credit agreement), attributable to acquisitions or internal growth projects with approval of the lenders.  Our borrowing base as of September 30, 2008 exceeds $500 million, however amounts committed by the lenders total $500 million.
 
At September 30, 2008, we had $343.2 million borrowed under our credit facility and we had $6.5 million in letters of credit outstanding.  Our debt increased at September 30, 2008 from the December 31, 2007 level as a result of funding our CO2 pipeline transactions with Denbury and our equity investment in DG Marine.  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 of November 15, 2011.  The total amount available for borrowings at September 30, 2008 was $150.3 million under our credit facility.
 
The key terms for rates under our credit facility are as follows:
 
 
·
The interest rate on borrowings may be based on the prime rate or the LIBOR rate, at our option.  The interest rate on prime rate loans can range from the prime rate plus 0.50% to the prime rate plus 1.875%.  The interest rate for LIBOR-based loans can range from the LIBOR rate plus 1.50% to the LIBOR rate plus 2.875%.  The rate is based on our leverage ratio as computed under the credit facility.  Our leverage ratio is recalculated quarterly and in connection with each material acquisition.   At September 30, 2008, our borrowing rates were the prime rate plus 0.50% or the LIBOR rate plus 1.50%.
 
 
·
Letter of credit fees will range from 1.50% to 2.875% based on our leverage ratio as computed under the credit facility.  The rate can fluctuate quarterly.  At September 30, 2008, our letter of credit rate was 1.50%.
 
 
·
We pay a commitment fee on the unused portion of the $500 million maximum facility amount.  The commitment fee will range from 0.30% to 0.50% based on our leverage ratio as computed under the credit facility.  The rate can fluctuate quarterly.  At September 30, 2008, the commitment fee rate was 0.30%.
 
Collateral under the credit facility consists of substantially all our assets, excluding our security interest in the NEJD pipeline, our ownership interest in the Free State pipelines, and the assets of and our equity interest in, DG Marine. All of the equity interest of DG Marine is pledged to secure its credit facility, which is described below,  While our general partner is jointly and severally liable for all of our obligations unless and except to the extent those obligations provide that they are non-recourse to our general partner, our credit facility expressly provides that it is non-recourse to our general partner (except to the extent of its pledge of its general partner interest in certain of our subsidiaries), as well as to Denbury and its other subsidiaries.
 
Our credit facility contains customary covenants (affirmative, negative and financial) that limit the manner in which we may conduct our business.  Our credit facility contains three primary financial covenants - a debt service coverage ratio, leverage ratio and funded indebtedness to capitalization ratio – that require us to achieve specific minimum financial metrics.  In general, our debt service coverage ratio calculation compares EBITDA (as defined and adjusted in accordance with the credit facility) to interest expense.  Our leverage ratio calculation compares our consolidated funded debt (as calculated in accordance with our credit facility) to EBITDA (as adjusted).  Our funded indebtedness ratio compares outstanding debt to the sum of our consolidated total funded debt plus our consolidated net worth.


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
Financial Covenant
  
Requirement
  
Required Ratio through September 30, 2008
  
Actual Ratio as of September 30, 2008
             
Debt Service Coverage Ratio
  
Minimum
  
2.75 to 1.0
  
6.71 to 1.0
Leverage Ratio
  
Maximum
  
6.0 to 1.0
  
2.97 to 1.0
Funded Indebtedness Ratio
  
Maximum
  
0.80 to 1.0
  
0.40 to 1.0
 
Our credit facility includes provisions for the temporary adjustment of the required ratios following material acquisitions and with lender approval.  The ratios in the table above are the required ratios for the period following a material acquisition.  If we meet these financial metrics and are not otherwise in default under our credit facility, we may make quarterly distributions; however, the amount of such distributions may not exceed the sum of the distributable cash (as defined in the credit facility) generated by us for the eight most recent quarters, less the sum of the distributions made with respect to those quarters.  At September 30, 2008, the excess of distributable cash over distributions under this provision of the credit facility was $42.4 million.
 
DG Marine Credit Facility
 
In connection with its acquisition of the Grifco assets on July 18, 2008, DG Marine entered into a $90 million revolving credit facility with a syndicate of banks led by SunTrust Bank and BMO Capital Markets Financing, Inc.  In addition to partially financing the Grifco acquisition, DG Marine may borrow under that facility for general corporate purposes, such as paying for its newly constructed barges and funding working capital requirements, including up to $5 million in letters of credit.  That facility, which matures on July 18, 2011, is secured by all of the equity interests issued by DG Marine and substantially all of DG Marine’s assets.  Other than the pledge of our equity interest in DG Marine, that facility is non-recourse to us and TD Marine.  At September 30, 2008, our consolidated balance sheet included $113.5 million of DG Marine’s assets in our total assets.
 
At September 30, 2008, DG Marine had $48.2 million outstanding under its credit facility.  Due to the revolving nature of loans under the DG Marine credit facility, additional borrowings and periodic repayments and re-borrowings may be made until the maturity date.  The total amount available for borrowings at September 30, 2008 was $41.8 million under this credit facility.
 
The key terms for rates under the DG Marine credit facility are as follows:
 
 
·
The interest rate on borrowings may be based on the prime rate or the LIBOR rate, at our option.  The interest rate on prime rate loans can range from the prime rate plus 1.50% to the prime rate plus 3.00%.  The interest rate for LIBOR-based loans can range from the LIBOR rate plus 2.50% to the LIBOR rate plus 4.00%.  The rate is based on DG Marine’s leverage ratio as computed under the credit facility. Under the terms of DG Marine’s credit facility, the rates will be the prime rate plus 3.00% and the LIBOR rate plus 4.00% for the period from July 18, 2008 until October 31, 2008, after which time the rates will fluctuate monthly based on the leverage ratio.
 
 
·
Letter of credit fees will range from 2.50% to 4.00% based on DG Marine’s leverage ratio as computed under the credit facility.  The rate can fluctuate monthly.  At September 30, 2008, there were no letters of credit outstanding under the DG Marine credit facility.
 
 
·
DG Marine pays a commitment fee on the unused portion of the $90 million facility amount.  The commitment fee will range from 0.25% to 0.50% based on its leverage ratio as computed under the credit facility.  Under the terms of the DG Marine credit facility, the commitment fee rate was 0.50% for the period from July 18, 2008 until October 31, 2008, after which time the rate will fluctuate monthly based on the leverage ratio.

\
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
In August 2008, DG Marine entered into a series of interest rate swap agreements to effectively fix the underlying LIBOR rate on $32.9 million of its borrowings under its credit facility through July 18, 2011. The fixed interest rates in the swap agreements range from the three-month interest rate of 3.03% in effect at September 30, 2008 to 4.68% at July 18, 2011.
 
DG Marine’s credit facility contains customary covenants (affirmative, negative and financial) that limit the manner in which it may conduct its business.  DG Marine’s credit facility contains three primary financial covenants – an interest coverage ratio, leverage ratio and asset coverage ratio – that require DG Marine to achieve specific minimum financial metrics.  In general, the interest coverage ratio calculation compares EBITDA (as defined and adjusted in accordance with the credit facility) to interest expense.  The leverage ratio calculation compares DG Marine’s funded debt (as calculated in accordance with the credit facility) to EBITDA (as adjusted).  The asset coverage ratio compares an estimated liquidation value of DG Marine’s boats and barges to DG Marine’s outstanding debt.
 
At September 30, 2008, DG Marine was not in technical compliance with the leverage ratio or interest coverage ratio in its credit facility, primarily due to timing of costs related to the start-up of operations as a new entity and the acquisition of new vessels, and the effects of hurricanes on operations. Based on the nature of the issues resulting in such non-compliance and based on discussions with each of the banks comprising its lending syndicate, the management of DG Marine currently believes DG Marine’s lenders will agree to a waiver of the non-compliance and to an amendment to its credit facility to adjust those ratios, the terms of which are still to be determined, but which will result in DG Marine being in full compliance with the terms of its credit agreement. DG Marine’s management does not believe such non-compliance will materially and adversely affect its operations or financial condition; however, until that joint venture complies with the terms of its credit agreement, we will classify its outstanding debt as a current liability on our balance sheet.
 
10.  Partners’ Capital and Distributions
 
Partners’ Capital
 
Partner’s capital at September 30, 2008 consists of 39,452,305 common units, including 4,028,096 units owned by our general partner and its affiliates, representing a 98% aggregate ownership interest in the Partnership and its subsidiaries (after giving affect to the general partner interest), and a 2% general partner interest.
 
Our general partner owns all of our general partner interest, including incentive distribution rights, all of the 0.01% general partner interest in Genesis Crude Oil, L.P. (which is reflected as a minority interest in the Unaudited Consolidated Balance Sheet at September 30, 2008) and operates our business.
 
Our partnership agreement authorizes our general partner to cause us to issue additional limited partner interests and other equity securities, the proceeds from which could be used to provide additional funds for acquisitions or other needs.
 
On July 18, 2008, we issued 837,690 of our common units to Grifco.  The units were issued at a value of $19.896 per unit, for a total value of $16.7 million, as a portion of the consideration for the acquisition of the inland marine transportation business of Grifco.  See Note 3.

Additionally, on July 18, 2008, we redeemed 837,690 of our common units owned by members of the Davison family.  Those units had been issued as a portion of the consideration for the acquisition of the energy-related business of the Davison family in July 2007.  The redemption was at a value of $19.896 per unit, for a total value of $16.7 million.  After giving effect to the issuance and redemption described above, we did not experience a change in the number of common units outstanding.
 
Distributions
 
Generally, we will distribute 100% of our available cash (as defined by our partnership agreement) within 45 days after the end of each quarter to unitholders of record and to our general partner.  Available cash consists generally of all of our cash receipts less cash disbursements adjusted for net changes to reserves.  As discussed in Note 9, our credit facility limits the amount of distributions we may pay in any quarter.
 
Pursuant to our partnership agreement, our general partner receives incremental incentive cash distributions when unitholders’ cash distributions exceed certain target thresholds, in addition to its 2% general partner interest.  The allocations of distributions between our common unitholders and our general partner, including the incentive distribution rights is as follows:


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
 
Unitholders
  
General
Partner
Quarterly Cash Distribution per Common Unit:
      
Up to and including $0.25 per Unit
98.00%
  
2.00%
First Target - $0.251 per Unit up to and including $0.28 per Unit
84.74%
  
15.26%
Second Target - $0.281 per Unit up to and including $0.33 per Unit
74.26%
  
25.74%
Over Second Target - Cash distributions greater than $0.33 per Unit
49.02%
  
50.98%
 
We paid or will pay the following distributions in 2007 and 2008:
 
Distribution For
  
Date Paid
  
Per Unit Amount
    
Limited Partner Interests Amount
    
General Partner Interest Amount
    
General Partner Incentive Distribution Amount
    
Total Amount
  
                 
Second quarter 2007
  
August 2007
   $ 0.2300     $ 3,170
(1)
   $ 65     $ -     $ 3,235
(1)
Third quarter 2007
  
November 2007
   $ 0.2700     $ 7,646     $ 156     $ 90     $ 7,892  
Fourth quarter 2007
  
February 2008
   $ 0.2850     $ 10,903     $ 222     $ 245     $ 11,370  
First quarter 2008
  
May 2008
   $ 0.3000     $ 11,476     $ 234     $ 429     $ 12,139  
Second quarter 2008
  
August 2008
   $ 0.3150     $ 12,427     $ 254     $ 633     $ 13,314  
Third quarter 2008
  
November 2008(2)
   $ 0.3225     $ 12,723     $ 260     $ 728     $ 13,711  

(1)  The distribution paid on August 14, 2007 to holders of our common units is net of the amounts payable with respect to the common units issued in connection with the Davison transaction.  The Davison unitholders and our general partner waived their rights to receive such distributions, instead receiving purchase price adjustments with us.
 
(2)  This distribution will be paid on November 14, 2008 to the general partner and unitholders of record as of November 4, 2008.
 
Net Income Per Common Unit
 
Our net income is first allocated to the general partner based on the amount of incentive distributions. The remainder is then allocated 98% to the limited partners and 2% to the general partner. Basic net income per limited partner unit is determined by dividing net income attributable to limited partners by the weighted average number of outstanding limited partner units during the period.  Diluted net income per common unit is calculated in the same manner, but also considers the impact to common units for the potential dilution from phantom units outstanding. (See Note 17 for discussion of phantom units.)

In a period of net operating losses, incremental phantom units are excluded from the calculation of diluted earnings per unit due to their anti-dilutive effect. During 2008, we have reported net income; therefore incremental phantom units have been included in the calculation of diluted earnings per unit.


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
The following table sets forth the computation of basic net income per common unit.
 
   
Three Months Ended September 30,
    
Nine Months Ended September 30,
  
   
2008
    
2007
    
2008
    
2007
  
Numerators for basic and diluted net income per common unit:
                        
Net income
   $ 10,763     $ 1,699     $ 19,736     $ 1,912  
Less:  General partner's incentive distribution paid
     (633 )     -       (1,307 )     -  
Subtotal
     10,130       1,699       18,429       1,912  
Less general partner 2% ownership
     (203 )     (34 )     (369 )     (38 )
Net income available for common unitholders
   $ 9,927     $ 1,665     $ 18,060     $ 1,874  
                                 
Denominator for basic per common unit:
                                
Common Units
     39,452       24,527       38,796       17,405  
                                 
Denominator for diluted per common unit:
                                
Common Units
     39,452       24,527       38,796       17,405  
Phantom Units
     72       -       57       -  
      39,524       24,527       38,853       17,405  
                                 
Basic net income per common unit
   $ 0.25     $ 0.07     $ 0.47     $ 0.11  
Diluted net income per common unit
   $ 0.25     $ 0.07     $ 0.46     $ 0.11  
 
11.  Business Segment Information
 
We evaluate segment performance based on segment margin.  We calculate segment margin as revenues less costs of sales and operating expenses, and we include income from investments in joint ventures. We do not deduct depreciation and amortization.  All of our revenues are derived from, and all of our assets are located in, the United States.  The pipeline transportation segment information includes the revenue, segment margin and assets of our direct financing leases.  The tables below reflect our segment information.


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
   
Pipeline
Transportation
    
Refinery
Services
    
Industrial
Gases (a)
    
Supply &
Logistics
    
Total
  
                               
Three Months Ended September 30, 2008
                              
Segment margin excluding depreciation and amortization (b)
   $ 10,642     $ 13,041     $ 3,505     $ 13,690     $ 40,878  
                                         
Capital expenditures
   $ 2,299     $ 992     $ -     $ 107,075     $ 110,366  
Maintenance capital expenditures
   $ 261     $ 351     $ -     $ 1,371     $ 1,983  
                                         
Revenues:
                                        
External customers
   $ 11,836     $ 61,306     $ 4,792     $ 556,396     $ 634,330  
Intersegment (d)
     2,589       -       -       -       2,589  
Total revenues of reportable segments
   $ 14,425     $ 61,306     $ 4,792     $ 556,396     $ 636,919  
                                         
Three Months Ended September 30, 2007
                                        
Segment margin excluding depreciation and amortization (b)
   $ 3,763     $ 8,545     $ 3,232     $ 4,960     $ 20,500  
                                         
Capital expenditures
   $ 1,812     $ 553     $ 552     $ 441     $ 3,358  
Maintenance capital expenditures
   $ 1,624     $ 269     $ -     $ 255     $ 2,148  
                                         
Revenues:
                                        
External customers
   $ 5,949     $ 25,349     $ 4,373     $ 317,653     $ 353,324  
Intersegment (d)
     946       -       -       -       946  
Total revenues of reportable segments
   $ 6,895     $ 25,349     $ 4,373     $ 317,653     $ 354,270  

 
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
   
Pipeline
Transportation
    
Refinery
Services
    
Industrial
Gases (a)
    
Supply &
Logistics
    
Total
  
                               
Nine Months Ended September 30, 2008
                              
Segment margin excluding depreciation and amortization (b)
   $ 22,113     $ 44,245     $ 9,324     $ 29,443     $ 105,125  
                                         
Capital expenditures
   $ 80,926     $ 2,700     $ 2,210     $ 111,575     $ 197,411  
Maintenance capital expenditures
   $ 463     $ 856     $ -     $ 1,648     $ 2,967  
Net fixed and other long-term assets (c)
   $ 284,926     $ 441,110     $ 44,855     $ 249,387     $ 1,020,278  
                                         
Revenues:
                                        
External customers
   $ 27,509     $ 160,945     $ 13,112     $ 1,555,991     $ 1,757,557  
Intersegment (d)
     6,087       -       -       -       6,087  
Total revenues of reportable segments
   $ 33,596     $ 160,945     $ 13,112     $ 1,555,991     $ 1,763,644  
                                         
Nine Months Ended September 30, 2007
                                        
Segment margin excluding depreciation and amortization (b)
   $ 8,858     $ 8,545     $ 8,804     $ 7,986     $ 34,193  
                                         
Capital expenditures
   $ 2,365     $ 553     $ 552     $ 582     $ 4,052  
Maintenance capital expenditures
   $ 2,177     $ 269     $ -     $ 396     $ 2,842  
Net fixed and other long-term assets (c)
   $ 31,558     $ 409,510     $ 48,188     $ 226,791     $ 716,047  
                                         
Revenues:
                                        
External customers
   $ 16,956     $ 25,349     $ 11,816     $ 681,667     $ 735,788  
Intersegment (d)
     3,062       -       -       -       3,062  
Total revenues of reportable segments
   $ 20,018       25,349     $ 11,816     $ 681,667     $ 738,850  

 
GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
 
a)
Industrial gases includes our CO2 marketing operations and our equity income from our investments in T&P Syngas and Sandhill.
 
b)
Segment margin was calculated as revenues less cost of sales and operating expenses, excluding depreciation and amortization.  It includes our share of the operating income of equity joint ventures.  A reconciliation of segment margin to income before income taxes and minority interest for the periods presented is as follows:

   
Three Months Ended September 30,
    
Nine Months Ended September 30,
  
   
2008
    
2007
    
2008
    
2007
  
                         
Segment margin excluding depreciation and amortization
   $ 40,878     $ 20,500     $ 105,125     $ 34,193  
General and administrative expenses
     (9,239 )     (4,724 )     (26,929 )     (13,652 )
Depreciation and amortization expense
     (18,100 )     (8,372 )     (51,610 )     (12,346 )
Net gain (loss) on disposal of surplus assets
     58       -       (36 )     24  
Interest expense, net
     (4,483 )     (4,701 )     (8,191 )     (5,248 )
Income before income taxes and minority interest
   $ 9,114     $ 2,703     $ 18,359     $ 2,971  

 
c)
Net fixed and other long-term assets are the measure used by management in evaluating performance on a segment basis.  Current assets are not allocated to segments as the amounts are shared by the segments or are not meaningful in evaluating the success of the segment’s operations.
 
d)
Intersegment sales were conducted on an arm’s length basis.

12.  Transactions with Related Parties
 
Sales, purchases and other transactions with affiliated companies, in the opinion of management, are conducted under terms no more or less favorable than then-existing market conditions.  The transactions with related parties were as follows:


GENESIS ENERGY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
   
Nine Months Ended September 30,
  
   
2008
    
2007
  
             
Truck transportation services provided to Denbury
   $ 2,343     $ 1,287  
Pipeline transportation services provided to Denbury
   $ 6,899     $ 3,878  
Payments received under direct financing leases from Denbury
   $ 6,056     $ 890  
Pipeline transportation income portion of direct financing lease fees with Denbury
   $ 6,450     $ 479  
Pipeline monitoring services provided to Denbury
   $ 80     $ 90  
CO2 transportation services provided by Denbury
   $ 4,120     $ 3,796  
Crude oil purchases from Denbury
   $ -     $ 69  
Directors' fees paid to Denbury
   $ 147     $ 112  
Operations, general and administrative services provided by our general partner
   $ 38,669     $ 15,966  
Distributions to our general partner on its limited partner units and general partner interest
   $ 4,563     $ 1,111  
Sales of CO2 to Sandhill
   $ 2,217     $ 2,040  
Petroleum products sales to Davison family businesses
   $ 1,089     $ -  
 
Transportation Services
 
We provide truck transportation services to Denbury to m