CorEnergy Infrastructure Trust (CORR)

FORM 10-Q | Quarterly Report
CorEnergy Infrastructure Trust, Inc. (Form: 10-Q, Received: 11/04/2016 12:17:58)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549  
___________________________________________
FORM 10-Q
 ___________________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-33292
_________________________________________________________
CORR-LOGOA04.JPGClick to enlarge
CORENERGY INFRASTRUCTURE TRUST, INC.
______________________________________________________________________
(Exact name of registrant as specified in its charter)
Maryland
 
20-3431375
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
1100 Walnut, Ste. 3350
Kansas City, MO
 
64106
(Address of Principal Executive Offices)
 
(Zip Code)

(816) 875-3705
(Registrant’s telephone number, including area code)

n/a
(Former name, former address and former fiscal year, if changed since last report)
___________________________________________
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   x     No    o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes   x     No      o
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. (Check one):
Large accelerated filer
¨
Accelerated filer
x
Non-accelerated filer
¨    (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)     Yes    ¨     No   x
As of October 31, 2016 , the registrant had 11,876,389 common shares outstanding.



CorEnergy Infrastructure Trust, Inc.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2016
TABLE OF CONTENTS
____________________________________________________________________________________________
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

This report should be read in its entirety. No one section of the report deals with all aspects of the subject matter. It should be read in conjunction with the consolidated financial statements, related notes, and with the Management's Discussion & Analysis ("MD&A") included within, as well as provided in the Annual Report on Form 10-K, for the year ended December 31, 2015 .

The consolidated unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q, and Article 10 of Regulation S-X. Accordingly, they do not

2


include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ended December 31, 2016 or for any other interim or annual period. For further information, refer to the consolidated financial statements and footnotes thereto included in the CorEnergy Infrastructure Trust, Inc. Annual Report on Form 10-K, for the year ended December 31, 2015 .
GLOSSARY OF DEFINED TERMS
Certain of the defined terms used in this report are set forth below:
Accretion Expense: the expense recognized when adjusting the present value of the GIGS ARO for the passage of time
Administrative Agreement: the Administrative Agreement dated December 1, 2011, as amended effective August 7, 2012, between the Company and Corridor
Arc Logistics: Arc Logistics Partners LP (NYSE: ARCX)
Arc Terminals: Arc Terminals Holdings LLC, an indirect wholly-owned operating subsidiary of Arc Logistics
ARO: the Asset Retirement Obligation liabilities assumed with the acquisition of GIGS
ASC: FASB Accounting Standards Codification
Bbls: standard barrel containing 42 U.S. gallons
BB Intermediate: Black Bison Intermediate Holdings, LLC, the holding company of Black Bison Water Services
Black Bison Notes: the financing notes between Corridor Bison and CorEnergy BBWS and BBWS
BBWS: Black Bison Water Services, LLC, the borrower of the Black Bison financing notes, as well as all of the other collateral securing the Black Bison Loans
CorEnergy: CorEnergy Infrastructure Trust, Inc. (NYSE: CORR)
CorEnergy BBWS: CorEnergy BBWS, Inc., a wholly-owned taxable REIT subsidiary of CorEnergy
Convertible Notes: the Company's 7.00% Convertible Senior Notes Due 2020
Corridor: Corridor InfraTrust Management, LLC, the Company's external manager pursuant to the Management Agreement
Corridor Bison: Corridor Bison, LLC a wholly-owned subsidiary of CorEnergy
Corridor MoGas: Corridor MoGas, Inc., a wholly-owned taxable REIT subsidiary of CorEnergy and the holding company of MoGas, United Property Systems and CorEnergy Pipeline Company, LLC
Corridor Private: Corridor Private Holdings, Inc., an indirect wholly-owned taxable REIT subsidiary of CorEnergy
CPI: Consumer Price Index
EIP: the Eastern Interconnect Project, which includes 216 miles of 345-kilovolt transmission lines, towers, easement rights, converters and other grid support components that move electricity across New Mexico between Albuquerque and Clovis
Exchange Act: the Securities Exchange Act of 1934, as amended
EXXI: Energy XXI Ltd (OTC Pink: EXXIQ)
EXXI Tenant: Energy XXI GIGS Services, LLC, a wholly-owned operating subsidiary of EXXI that is the tenant under Grand Isle Corridor's triple-net lease of the Grand Isle Gathering System
FASB: Financial Accounting Standards Board
FERC: Federal Energy Regulatory Commission


3


GLOSSARY OF DEFINED TERMS ( Continued from previous page )
Four Wood Corridor: Four Wood Corridor, LLC, a wholly-owned subsidiary of CorEnergy
Four Wood Energy: Four Wood Energy Partners LLC, a wholly-owned subsidiary of Four Wood Capital Partners LLC
Four Wood Notes: the financing notes between Four Wood Corridor and Corridor Private and SWD
GAAP: U.S. generally accepted accounting principles
GIGS: the Grand Isle Gathering System, owned by Grand Isle Corridor, LP and triple-net leased to a wholly-owned subsidiary of Energy XXI Ltd
Grand Isle Corridor: Grand Isle Corridor, LP, an indirect wholly-owned subsidiary of the Company
Grand Isle Gathering System: a subsea midstream pipeline gathering system located in the shallow Gulf of Mexico shelf and storage and onshore processing facilities
Grand Isle Lease Agreement: the June 2015 agreement pursuant to which the Grand Isle Gathering System assets are triple-net leased to EXXI Tenant
Leeds Path West: Corridor Leads Path West, Inc., a wholly-owned subsidiary of CorEnergy
Lightfoot: collectively, Lightfoot Capital Partners, LP and Lightfoot Capital Partners GP LLC
Management Agreement: references to the Management Agreement as in effect prior to May 1, 2015 mean the Management Agreement that became effective July 1, 2013, as amended effective January 1, 2014, while references to the Management Agreement as in effect on and after May 1, 2015 mean the new Management Agreement entered into May 8, 2015, effective as of May 1, 2015, between the Company and Corridor
MMBTu: Million British Thermal Units, a measurement of natural gas
MoGas: MoGas Pipeline LLC, an indirect wholly-owned subsidiary of CorEnergy
MoGas Pipeline System: an approximately 263-mile interstate natural gas pipeline system in and around St. Louis and extending into central Missouri, owned and operated by MoGas
MoGas Revolver: a $3 million secured revolving line of credit facility at the MoGas subsidiary level with Regions Bank
Mowood: Mowood, LLC, an indirect wholly-owned subsidiary of CorEnergy and the holding company of Omega Pipeline Company, LLC
Mowood/Omega Revolver: a $1.5 million revolving line of credit facility at the Mowood subsidiary level with Regions Bank
NAREIT: National Association of Real Estate Investment Trusts
Omega: Omega Pipeline Company, LLC, a wholly-owned subsidiary of Mowood, LLC
Omega Pipeline: Omega's natural gas distribution system in south central Missouri
Pinedale Credit Facility: a $70 million secured term credit facility, with the Company and Prudential as current lenders, used by Pinedale Corridor, LP to finance a portion of the acquisition of the Pinedale LGS. See Note 12, Credit Facilities, for a more in-depth discussion of this agreement.
Pinedale LGS: the Pinedale Liquids Gathering System, a system consisting of approximately 150 miles of pipelines and four above-ground central gathering facilities located in the Pinedale Anticline in Wyoming, owned by Pinedale LP and triple-net leased to a wholly-owned subsidiary of Ultra Petroleum
Pinedale Lease Agreement: the December 2012 agreement pursuant to which the Pinedale LGS assets are triple-net leased to a wholly owned subsidiary of Ultra Petroleum
Pinedale LP: Pinedale Corridor, LP


4


GLOSSARY OF DEFINED TERMS ( Continued from previous page )
Pinedale GP: the general partner of Pinedale LP
Portland Lease Agreement: the January 2014 agreement pursuant to which the Portland Terminal Facility is triple-net leased to Arc Terminals, a wholly owned subsidiary of Arc Logistics Partners LP
Portland Terminal Facility: a petroleum products terminal located in Portland, Oregon
PNM: Public Service Company of New Mexico, a subsidiary of PNM Resources Inc. (NYSE: PNM)
PNM Lease Agreement: a triple net lease agreement for the Eastern Interconnect Project
Prudential: The Prudential Insurance Company of America
QDI: qualified dividend income
Regions Revolver: the Company’s $105 million secured revolving line of credit facility with Regions Bank
Regions Credit Facility: the Company's $45 million secured Term Loan, together with the upsized $105 million Regions Revolver and the $3 million MoGas Revolver with Regions Bank
Regions Term Loan: the Company's $45 million secured term loan with Regions Bank that is part of the Regions Credit Facility
REIT: real estate investment trust
SEC: Securities and Exchange Commission
Series A Preferred: the Company's 7.375% Series A Cumulative Redeemable Preferred Stock, par value $0.001 per share, of which there currently are outstanding 22,500 shares represented by 2,250,000 depositary shares, each representing 1/100th of a whole share of Series A Preferred
SWD: SWD Enterprises, LLC, a wholly-owned subsidiary of Four Wood Energy Partners, LLC
TRS: taxable REIT subsidiary
Ultra Petroleum: Ultra Petroleum Corp. (OTC Pink: UPLMQ)
Ultra Wyoming: Ultra Wyoming LGS LLC, an indirect wholly-owned subsidiary of Ultra Petroleum
United Property Systems: United Property Systems, LLC, an indirect wholly-owned subsidiary of CorEnergy, acquired with the MoGas transaction in November 2014
VIE: Variable Interest Entity
VantaCore: VantaCore Partners LP
WTI: West Texas Intermediate, grade of crude oil used for benchmarking price

5


CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this Quarterly Report on Form 10-Q may be deemed “forward-looking statements” within the meaning of the federal securities laws. In many cases, these forward-looking statements may be identified by the use of words such as “will,” “may,” “should,” “could,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “projects,” “goals,” “objectives,” “targets,” “predicts,” “plans,” “seeks,” or similar expressions.
Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance or results and we can give no assurance that these expectations will be attained. Our actual results may differ materially from those indicated by these forward-looking statements due to a variety of known and unknown risks and uncertainties. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:
the ability of our tenants and borrowers to make payments under their respective leases and mortgage loans, our reliance on certain major tenants under single tenant leases and our ability to re-lease properties;
changes in economic and business conditions in the energy infrastructure sector where our investments are concentrated, including the financial condition of our tenants or borrowers and general economic conditions in the particular sectors of the energy industry served by each of our infrastructure assets;
the inherent risks associated with owning real estate, including real estate market conditions, governing laws and regulations, including potential liabilities related to environmental matters, and the relative illiquidity of real estate investments;
risks associated with the bankruptcy or default of any of our tenants or borrowers, including the exercise of the rights and remedies of bankrupt entities;
the impact of laws and governmental regulations applicable to certain of our infrastructure assets, including additional costs imposed on our business or other adverse impacts as a result of any unfavorable changes in such laws or regulations;
the loss of any member of our management team;
our continued ability to access the debt and equity markets;
our ability to successfully implement our selective acquisition strategy, including the inability to pursue our strategy due to unresolved issues impacting our current significant tenants or borrowers;
our ability to obtain suitable tenants for our properties;
our ability to refinance amounts outstanding under our credit facilities and our convertible notes at maturity on terms favorable to us;
changes in interest rates under our current credit facilities and under any additional variable rate debt arrangements that we may enter into in the future;
our ability to comply with certain debt covenants;
dependence by us and our tenants on key customers for significant revenues, and the risk of defaults by any such tenants or customers;
our or our tenants' ability to secure adequate insurance and risk of potential uninsured losses, including from natural disasters;
the continued availability of third party pipelines, railroads or other facilities interconnected with certain of our infrastructure assets;
risks associated with owning, operating or financing properties for which the tenants', mortgagors' or our operations may be impacted by extreme weather patterns and other natural phenomena;
our ability to sell properties at an attractive price;
market conditions and related price volatility affecting our debt and equity securities;
competitive and regulatory pressures on the revenues of our interstate natural gas transmission business;
changes in federal or state tax rules or regulations that could have adverse tax consequences;
declines in the market value of our investment securities;
our ability to maintain internal controls and processes to ensure all transactions are accounted for properly, all relevant disclosures and filings are timely made in accordance with all rules and regulations, and any potential fraud or embezzlement is thwarted or detected;
changes in federal income tax regulations (and applicable interpretations thereof), or in the composition or performance of our assets, that could impact our ability to continue to qualify as a real estate investment trust for federal income tax purposes;

6


risks related to potential terrorist attacks, acts of cyber-terrorism, or similar disruptions that could disrupt access to our information technology systems or result in other significant damage to our business and properties, some of which may not be covered by insurance and all of which could adversely impact distributions to our stockholders.
Forward-looking statements speak only as of the date on which they are made. While we may update these statements from time to time, we are not required to do so other than pursuant to applicable laws. For a further discussion of these and other factors that could impact our future results and performance, see Part I, Item 1A., Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2015 , filed with the Securities and Exchange Commission (SEC) on March 14, 2016 and Part II, Item 1A., Risk Factors, in this report.

7


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORENERGYLOGO01.JPGClick to enlarge
CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED BALANCE SHEETS
 
September 30, 2016
 
December 31, 2015
Assets
(Unaudited)
 
 
Leased property, net of accumulated depreciation of $47,520,455 and $33,869,263
$
495,640,396

 
$
509,226,215

Property and equipment, net of accumulated depreciation of $8,454,299 and $5,948,988
117,534,873

 
119,629,978

Financing notes and related accrued interest receivable, net of reserve of $4,100,000 and $13,784,137
1,500,000

 
7,675,626

Other equity securities, at fair value
9,465,736

 
8,393,683

Cash and cash equivalents
10,107,754

 
14,618,740

Accounts and other receivables
16,358,597

 
10,431,240

Deferred costs, net of accumulated amortization of $1,984,580 and $2,717,609
3,408,620

 
4,187,271

Prepaid expenses and other assets
614,788

 
491,024

Deferred tax asset
1,589,558

 
1,606,976

Goodwill
1,718,868

 
1,718,868

Total Assets
$
657,939,190

 
$
677,979,621

Liabilities and Equity
 
 
 
Secured credit facilities, net (including $9,574,465 and $0 with related party)
91,698,387

 
105,440,842

Unsecured convertible senior notes, net of discount and debt issuance costs of $2,951,902 and $3,576,090
111,048,098

 
111,423,910

Asset retirement obligation
13,381,604

 
12,839,042

Accounts payable and other accrued liabilities
4,610,452

 
2,317,774

Management fees payable
1,743,599

 
1,763,747

Unearned revenue
343,295

 

Total Liabilities
$
222,825,435

 
$
233,785,315

Equity
 
 
 
Series A Cumulative Redeemable Preferred Stock 7.375%, $56,250,000 liquidation preference ($2,500 per share, $0.001 par value), 10,000,000 authorized; 22,500 issued and outstanding at September 30, 2016, and December 31, 2015
$
56,250,000

 
$
56,250,000

Capital stock, non-convertible, $0.001 par value; 11,876,389 and 11,939,697 shares issued and outstanding at September 30, 2016, and December 31, 2015 (100,000,000 shares authorized)
11,876

 
11,940

Additional paid-in capital
351,754,151

 
361,581,507

Accumulated other comprehensive income (loss)
(14,235
)
 
190,797

Total CorEnergy Equity
408,001,792

 
418,034,244

Non-controlling Interest
27,111,963

 
26,160,062

Total Equity
435,113,755

 
444,194,306

Total Liabilities and Equity
$
657,939,190

 
$
677,979,621

See accompanying Notes to Consolidated Financial Statements.

8


CORENERGYLOGO01.JPGClick to enlarge
CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Revenue
 
 
 
 
 
 
 
Lease revenue
$
16,996,155


$
16,966,056

 
$
50,988,299

 
$
31,102,036

Transportation and distribution revenue
5,119,330


3,557,096

 
15,283,461

 
10,753,810

Financing revenue


182,604

 
162,344

 
1,511,900

Sales revenue


1,434,694

 

 
5,442,257

Total Revenue
22,115,485


22,140,450

 
66,434,104

 
48,810,003

Expenses
 
 
 
 
 
 
 
Transportation and distribution expenses
1,482,161


1,120,862

 
4,222,792

 
3,590,855

Cost of Sales


382,851

 

 
2,201,139

General and administrative
3,021,869


2,837,762

 
9,084,961

 
7,311,610

Depreciation, amortization and ARO accretion expense
5,744,266


5,836,665

 
16,778,109

 
13,381,483

Provision for loan loss and disposition


7,951,137

 
5,014,466


7,951,137

Total Expenses
10,248,296


18,129,277

 
35,100,328


34,436,224

Operating Income
$
11,867,189


$
4,011,173

 
$
31,333,776

 
$
14,373,779

Other Income (Expense)
 
 
 
 
 
 
 
Net distributions and dividend income
$
277,523

 
$
241,563

 
$
867,265

 
$
1,025,381

Net realized and unrealized gain (loss) on other equity securities
1,430,858

 
(1,408,751
)
 
1,001,771

 
(915,568
)
Interest expense
(3,520,856
)
 
(3,854,913
)
 
(10,987,677
)
 
(6,129,073
)
Total Other Income (Expense)
(1,812,475
)
 
(5,022,101
)
 
(9,118,641
)
 
(6,019,260
)
Income (loss) before income taxes
10,054,714

 
(1,010,928
)
 
22,215,135

 
8,354,519

Taxes
 
 
 
 
 
 
 
Current tax expense (benefit)
95,125

 
105,020

 
(378,954
)
 
645,255

Deferred tax expense (benefit)
388,027

 
(1,953,973
)
 
17,418

 
(2,222,706
)
Income tax expense (benefit), net
483,152

 
(1,848,953
)
 
(361,536
)
 
(1,577,451
)
Net Income
9,571,562

 
838,025

 
22,576,671

 
9,931,970

Less: Net Income attributable to non-controlling interest
340,377

 
410,806

 
999,838

 
1,232,985

Net Income attributable to CorEnergy Stockholders
$
9,231,185

 
$
427,219

 
$
21,576,833

 
$
8,698,985

Preferred dividend requirements
1,037,109

 
1,037,109

 
3,111,327

 
2,811,718

Net Income (loss) attributable to Common Stockholders
$
8,194,076

 
$
(609,890
)
 
$
18,465,506

 
$
5,887,267

 
 
 
 
 
 
 
 
Net Income
$
9,571,562

 
$
838,025

 
$
22,576,671

 
$
9,931,970

Other comprehensive income (loss):
 
 
 
 
 
 
 
Changes in fair value of qualifying hedges attributable to CorEnergy stockholders
3,039

 
(223,176
)
 
(205,032
)
 
(481,081
)
Changes in fair value of qualifying hedges attributable to non-controlling interest
710

 
(52,180
)
 
(47,937
)
 
(112,479
)
Net Change in Other Comprehensive Income (Loss)
$
3,749

 
$
(275,356
)
 
$
(252,969
)
 
$
(593,560
)
Total Comprehensive Income
9,575,311

 
562,669

 
22,323,702

 
9,338,410

Less: Comprehensive income attributable to non-controlling interest
341,087

 
358,626

 
951,901

 
1,120,506

Comprehensive Income attributable to CorEnergy Stockholders
$
9,234,224

 
$
204,043

 
$
21,371,801

 
$
8,217,904

Earnings (Loss) Per Common Share:
 
 
 
 
 
 
 
Basic
$
0.69

 
$
(0.05
)
 
$
1.55

 
$
0.57

Diluted
$
0.68

 
$
(0.05
)
 
$
1.55

 
$
0.57

Weighted Average Shares of Common Stock Outstanding:
 
 
 
 
 
 
 
Basic
11,872,729

 
11,924,148

 
11,909,431

 
10,266,380

Diluted
15,327,274

 
11,924,148

 
11,909,431

 
10,266,380

Dividends declared per share
$
0.750

 
$
0.675

 
$
2.250

 
$
2.000

See accompanying Notes to Consolidated Financial Statements.

9


CORENERGYLOGO01.JPGClick to enlarge
CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED STATEMENTS OF EQUITY

Capital Stock

Preferred Stock

Additional
Paid-in
Capital

Accumulated Other Comprehensive Income

Retained
Earnings

Non-Controlling
Interest

Total

Shares

Amount

Amount





Balance at December 31, 2015
11,939,697


$
11,940


$
56,250,000


$
361,581,507


$
190,797


$


$
26,160,062


$
444,194,306

Net income

 

 

 

 

 
21,576,833

 
999,838

 
22,576,671

Net change in cash flow hedges

 

 

 

 
(205,032
)
 

 
(47,937
)
 
(252,969
)
Total comprehensive income (loss)

 

 

 

 
(205,032
)
 
21,576,833

 
951,901

 
22,323,702

Repurchase of common stock
(90,613
)
 
(91
)
 

 
(2,041,760
)
 

 

 

 
(2,041,851
)
Series A preferred stock dividends

 

 

 

 

 
(3,111,327
)
 

 
(3,111,327
)
Common stock dividends

 

 

 
(8,339,820
)
 

 
(18,465,506
)
 

 
(26,805,326
)
Common stock issued under director's compensation plan
2,551

 
2

 

 
59,998

 

 

 

 
60,000

Reinvestment of dividends paid to common stockholders
24,754

 
25

 

 
494,226

 

 

 

 
494,251

Balance at September 30, 2016 (Unaudited)
11,876,389

 
$
11,876

 
$
56,250,000

 
$
351,754,151

 
$
(14,235
)
 
$

 
$
27,111,963

 
$
435,113,755

See accompanying Notes to Consolidated Financial Statements.


10


CORENERGYLOGO01.JPGClick to enlarge
CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the Nine Months Ended

September 30, 2016

September 30, 2015
Operating Activities



Net Income
$
22,576,671


$
9,931,970

Adjustments to reconcile net income to net cash provided by operating activities:



Deferred income tax, net
17,418


(2,222,706
)
Depreciation, amortization and ARO accretion
18,334,719


14,757,322

Provision for loan loss
5,014,466


7,951,137

Gain on repurchase of convertible debt
(71,702
)
 

Net distributions and dividend income, including recharacterization of income
(117,004
)

(371,323
)
Net realized and unrealized (gain) loss on other equity securities
(1,001,771
)

915,568

Unrealized gain on derivative contract
(105,567
)

(48,494
)
Common stock issued under directors compensation plan
60,000


90,000

Changes in assets and liabilities:



Increase in accounts and other receivables
(5,434,028
)

(1,326,469
)
Decrease (increase) in financing note accrued interest receivable
95,114


(488,880
)
Decrease (increase) in prepaid expenses and other assets
49,227


(70,846
)
(Decrease) increase in management fee payable
(20,148
)

628,676

Increase in accounts payable and other accrued liabilities
1,913,875


1,877,591

Increase (decrease) in unearned revenue
343,295


(711,230
)
Net cash provided by operating activities
$
41,654,565


$
30,912,316

Investing Activities



Proceeds from assets and liabilities held for sale
644,934


7,678,246

Deferred lease costs


(329,220
)
Acquisition expenditures


(251,113,605
)
Purchases of property and equipment, net
(475,581
)

(113,262
)
Proceeds from asset foreclosure and sale
223,451



Increase in financing notes receivable
(202,000
)

(39,248
)
Return of capital on distributions received
3,393


87,995

Net cash provided (used) by investing activities
$
194,197


$
(243,829,094
)
Financing Activities



Debt financing costs
(193,000
)

(1,342,288
)
Net offering proceeds on Series A preferred stock


54,210,476

Net offering proceeds on common stock


73,184,680

Net offering proceeds on convertible debt


111,262,500

Repurchases of common stock
(2,041,851
)
 

Repurchases of convertible debt
(899,960
)
 

Dividends paid on Series A preferred stock
(3,111,327
)

(2,466,015
)
Dividends paid on common stock
(26,311,075
)

(19,929,939
)
Distributions to non-controlling interest


(2,030,715
)
Advances on revolving line of credit
44,000,000


45,392,332

Payments on revolving line of credit


(77,533,609
)
Proceeds from term debt


45,000,000

Principal payments on secured credit facilities
(57,802,535
)
 
(3,546,000
)
Net cash (used) provided by financing activities
$
(46,359,748
)

$
222,201,422

Net Change in Cash and Cash Equivalents
$
(4,510,986
)

$
9,284,644

Cash and Cash Equivalents at beginning of period
14,618,740


7,578,164

Cash and Cash Equivalents at end of period
$
10,107,754


$
16,862,808

See accompanying Notes to Consolidated Financial Statements.
Supplemental information continued on next page.

11


CORR-LOGOA04.JPGClick to enlarge
CorEnergy Infrastructure Trust, Inc. ( Continued from previous page )
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended

September 30, 2016

September 30, 2015
Supplemental Disclosure of Cash Flow Information



Interest paid
$
7,829,619


$
2,657,567

Income taxes paid (net of refunds)
$
42,200


$
608,754





Non-Cash Investing Activities



Change in accounts and other receivables
$
(450,000
)

$

Change in accounts payable and accrued expenses related to acquisition expenditures
$


$
(448,780
)
Change in accounts payable and accrued expenses related to issuance of financing and other notes receivable
$


$
(39,248
)
Net change in Assets Held for Sale, Property and equipment, Prepaid expenses and other assets, Accounts payable and other accrued liabilities and Liabilities held for sale
$
(1,776,549
)

$

 
 
 
 
Non-Cash Financing Activities





Change in accounts payable and accrued expenses related to the issuance of common equity
$


$
(72,685
)
Change in accounts payable and accrued expenses related to debt financing costs
$


$
35,472

Reinvestment of distributions by common stockholders in additional common shares
$
494,251


$
471,706

See accompanying Notes to Consolidated Financial Statements.

12


CORENERGYLOGO01.JPGClick to enlarge

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2016
1. INTRODUCTION AND BASIS OF PRESENTATION
Introduction
CorEnergy Infrastructure Trust, Inc. ("CorEnergy"), was organized as a Maryland corporation and commenced operations on December 8, 2005. The Company's common shares are listed on the New York Stock Exchange under the symbol “CORR” and the depositary shares representing our Series A Preferred are listed on the New York Stock Exchange under the symbol "CORR PrA " As used in this report, the terms "we", "us", "our" and the "Company" refer to CorEnergy and its subsidiaries.
We are primarily focused on acquiring and financing midstream and downstream real estate assets within the U.S. energy infrastructure sector and concurrently entering into long-term triple-net participating leases with energy companies. We also may provide other types of capital, including loans secured by energy infrastructure assets. Targeted assets include pipelines, storage tanks, transmission lines, and gathering systems, among others. These sale-leaseback or real property mortgage transactions provide the energy company with a source of capital that is an alternative to other sources such as corporate borrowing, bond offerings, or equity offerings. Many of our leases contain participation features in the financial performance or value of the underlying infrastructure real property asset. The triple-net lease structure requires that the tenant pay all operating expenses of the business conducted by the tenant, including real estate taxes, insurance, utilities, and expenses of maintaining the asset in good working order. We consider our investments in these energy infrastructure assets to be a single business segment and report them accordingly in our financial statements.
In 2013 we qualified, and in March 2014 elected (effective as of January 1, 2013), to be treated as a REIT for federal income tax purposes. Because certain of our assets may not produce REIT-qualifying income or be treated as interests in real property, those assets are held in wholly-owned Taxable REIT Subsidiaries ("TRSs") in order to limit the potential that such assets and income could prevent us from qualifying as a REIT. Our use of TRSs enables us to continue to engage in certain businesses while complying with REIT qualification requirements and also allows us to retain income generated by these businesses for reinvestment without the requirement of distributing those earnings. In the future, we may elect to reorganize and transfer certain assets or operations from our TRSs to the Company or other subsidiaries, including qualified REIT subsidiaries.
Taxable REIT subsidiaries hold our securities portfolio, operating businesses and certain financing notes receivable as follows:
Corridor Public Holdings, Inc. and its wholly-owned subsidiary Corridor Private Holdings, Inc, hold our securities portfolio.
Mowood Corridor, Inc. and its wholly-owned subsidiary, Mowood, LLC, which is the holding company for our operating company, Omega Pipeline Company, LLC.
Corridor MoGas, Inc. holds the operating companies, MoGas Pipeline, LLC ("MoGas") and United Property Systems, LLC.
CorEnergy BBWS, Inc., Corridor Private, and Corridor Leeds Path West, Inc. may, from time to time, hold financing notes receivable.
Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements include CorEnergy accounts and the accounts of our wholly owned subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) set forth in the Accounting Standards Codification ("ASC"), as published by the Financial Accounting Standards Board ("FASB"), and with the Securities and Exchange Commission (“SEC”) instructions to Form 10-Q, and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the Company's financial position, results of operations, and cash flows for the periods presented. There were no adjustments that, in the opinion of management, were not of a normal and recurring nature. All intercompany transactions and balances have been eliminated in consolidation, and our net earnings are reduced by the portion of net earnings attributable to non-controlling interests.
Operating results for the nine months ended September 30, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 or any other interim or annual period. These consolidated financial statements and Management's Discussion and Analysis of the Financial Condition and Results of Operations should be read in conjunction with

13


our Annual Report on Form 10-K, for the year ended December 31, 2015 , filed with the SEC on March 14, 2016 (the "2015 CorEnergy 10-K").
2. SIGNIFICANT ACCOUNTING POLICIES
The Company has provided a discussion of significant accounting policies in the 2015 CorEnergy 10-K. Certain items from that discussion are updated below, as necessary, to assist in the understanding of these interim financial statements.
A. Revenue Recognition Transportation and distribution revenue – This represents revenue related to natural gas transportation, distribution, and supply. Transportation revenues are recognized by MoGas on firm contracted capacity over the contract period regardless of whether the contracted capacity is used. For interruptible or volumetric based transportation, revenue is recognized when physical deliveries of natural gas are made at the delivery point agreed upon by both parties. Distribution revenue is recognized by Omega based on agreed upon contractual terms over each annual period during the terms of the contract. Beginning February 1, 2016, due to changes that commenced under a new contract with the Department of Defense ("DOD"), gas sales and cost of (gas) sales are presented on a net basis in the Transportation and distribution revenue line.
Omega is also paid fees for the operation and maintenance of its natural gas distribution system, including any necessary expansion of the distribution system. Omega is responsible for the coordination, supervision, and quality of the expansions while actual construction is generally performed by third party contractors. Under the new DOD contract, the annual contracted amount for pipeline expansion is invoiced monthly by Omega on a straight-line basis. Revenues from expansion efforts are recognized using either a completed contract, percentage of completion, or cost-plus method based on the level and volume of estimates utilized, as well as the certainty or uncertainty of our ability to collect those revenues. Amounts invoiced in excess of earned revenue are classified as unearned revenue and included as a liability within the Consolidated Balance Sheets.
B. Transportation and distribution expense Included here are both MoGas's costs of operating and maintaining the natural gas transmission line, and Omega's costs of operating and maintaining the natural gas distribution system, including any necessary expansion of the distribution system. These costs are incurred both internally and externally. The internal costs relate to system control, pipeline operations, maintenance, insurance, and taxes. Other internal costs include payroll for employees associated with gas control, field employees, and management. The external costs consist of professional services such as audit and accounting, legal and regulatory, and engineering.
Historically, Omega's amounts paid for gas and propane delivered to customers were presented as cost of sales. Beginning February 1, 2016, under a new contract with the Department of Defense, amounts paid by Omega for gas and propane are netted against sales and are presented in the transportation and distribution revenue line. See paragraph (A) above.
C. Recent Accounting Pronouncements – In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09  " Revenue from Contracts with Customers " , which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard was originally effective for interim and annual periods beginning after December 15, 2016 and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. On July 9, 2015, the FASB approved a one-year deferral of the effective date making the standard effective for interim and annual periods beginning after December 15, 2017. The FASB will continue to permit entities to adopt the standard on the original effective date if they choose. The Company is currently evaluating which transition method to use and the potential future impact, if any, the standard will have on the Company's consolidated financial statements and related disclosures. However, we do not expect its adoption to have a significant impact on our consolidated financial statements, as a substantial portion of our revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU 2014-09.
In April 2015, the FASB issued ASU No. 2015-03 "Interest-Imputation of Interest Simplifying the Presentation of Debt Issuance Costs". The amendments in this update require debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. In June 2015, the FASB issued ASU No. 2015-15 "Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements" to clarify that ASU No. 2015-03 does not address the presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. As a result, an entity may present debt issuance costs related to line-of-credit arrangements as an asset instead of a direct deduction from the carrying amount of the debt. We adopted the accounting standards update as of January 1, 2016 with retrospective application to our December 31, 2015 Consolidated Balance Sheets. The effect of the adoption was to reclassify $510 thousand of debt issuance costs at December 31, 2015 from deferred costs, net of accumulated amortization, to long-term debt.
In January 2016, the FASB issued ASU 2016-01 "Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities," which will require entities to measure their investments at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. The practicability exception will be available for equity investments that do not have readily determinable fair values. The guidance will be effective for us beginning

14


with the first quarter of 2018. We are currently evaluating the impact that adopting the new standard will have on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02 "Leases" which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU No. 2016-02 is effective for fiscal years and interim periods beginning after December 31, 2018, with early adoption permitted. At adoption, the standard will be applied using a modified retrospective approach. Management is still in the process of evaluating the impact of the standard on our consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13 "Financial Instruments - Credit Losses" which introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. The new model, referred to as the current expected credit losses ("CECL model"), will apply to financial assets subject to credit losses and measured at amortized cost, and certain off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Early application of the guidance will be permitted for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact that adopting the new standard will have on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments”. This new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017 and will require adoption on a retrospective basis unless it is impracticable to apply, in which case we would be required to apply the amendments prospectively as of the earliest date practicable. We are currently evaluating the impact that adopting the new standard will have on our consolidated financial statements.
3. LEASED PROPERTIES AND LEASES
As of September 30, 2016 , we had three significant leased properties located in Oregon, Wyoming, Louisiana, and the Gulf of Mexico, which are leased on a triple-net basis to our major tenants, described in the table below. These major tenants are responsible for the payment of all taxes, maintenance, repairs, insurance, and other operating expenses relating to the leased properties. Our long-term, triple-net leases generally have an initial term of 11 to 15 years with options for renewals. Lease revenues are scheduled to increase at varying intervals during the initial terms of our leases. The following table summarizes our significant leased properties, major tenants and lease terms:
Summary of Leased Properties, Major Tenants and Lease Terms
Property
Grand Isle Gathering System
Pinedale LGS (1)
Portland Terminal Facility
Location
Gulf of Mexico/Louisiana
Pinedale, WY
Portland, OR
Tenant
Energy XXI GIGS Services, LLC
Ultra Wyoming LGS, LLC
Arc Terminals Holdings LLC
Asset Description
Approximately 153 miles of offshore pipeline with total capacity of 120 thousand Bbls/d, including a 16-acre onshore terminal and saltwater disposal system
Approximately 150 miles of pipelines and four central storage facilities
A 42-acre rail and marine facility property adjacent to the Willamette River with 84 tanks and total storage capacity of approximately 1.5 million barrels
Date Acquired
June 2015
December 2012
January 2014
Initial Lease Term
11 years
15 years
15 years
Renewal Option
equal to the lesser of 9-years or 75 percent of the remaining useful life
5-year terms
5-year terms
Current Monthly Rent Payments
7/1/15 - 6/30/16: $2,625,417
7/1/16 - 6/30/17: $2,826,250
$1,723,833
$513,355
Initial Estimated
Useful Life
30 years
26 years
30 years
(1) Non-Controlling Interest Partner, Prudential, funded a portion of the Pinedale LGS acquisition and, as a limited partner, holds 18.95 percent of the economic interest in Pinedale LP. The general partner, Pinedale GP, a wholly-owned subsidiary of the Company, holds the remaining 81.05 percent of the economic interest.

15


The future contracted minimum rental receipts for all leases as of September 30, 2016 , are as follows:
Future Minimum Lease Receipts
Years Ending December 31,
 
Amount
2016
 
$
15,219,940

2017
 
60,984,095

2018
 
61,139,762

2019
 
63,468,195

2020
 
70,629,654

Thereafter
 
451,794,133

Total
 
$
723,235,779

The table below displays the Company's individually significant leases as a percentage of total leased properties and total lease revenues for the periods presented:
 
 
As a Percentage of (1)
 
 
Leased Properties
 
Lease Revenues
 
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
September 30, 2016
 
December 31, 2015
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Pinedale LGS
 
39.8%
 
40.0%
 
30.4%
 
30.4%
 
30.4%
 
49.8%
Grand Isle Gathering System
 
50.2%
 
50.1%
 
59.8%
 
59.9%
 
59.8%
 
32.7%
Portland Terminal Facility
 
9.8%
 
9.6%
 
9.7%
 
9.6%
 
9.7%
 
15.3%
Public Service of New Mexico (2)
 
 
 
 
 
 
2.1%
(1) Insignificant leases are not presented; thus percentages may not sum to 100%.
(2)   The Public Service of New Mexico lease terminated on April 1, 2015.
The following table reflects the depreciation and amortization included in the accompanying Consolidated Statements of Income associated with our leases and leased properties:
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Depreciation Expense
 
 
 
 
 
 
 
GIGS
$
2,153,928

 
$
2,158,338

 
$
6,451,578

 
$
2,158,338

Pinedale
2,217,360

 
2,217,360

 
6,652,080

 
6,652,080

Portland Terminal Facility
318,914

 
429,717

 
524,170

 
1,258,953

Eastern Interconnect Project

 

 

 
569,670

United Property Systems
8,515

 
7,425

 
23,365

 
22,275

Total Depreciation Expense
$
4,698,717

 
$
4,812,840

 
$
13,651,193

 
$
10,661,316

Amortization Expense - Deferred Lease Costs
 
 
 
 
 
 
 
GIGS
$
7,641

 
$
7,482

 
$
22,923

 
$
7,482

Pinedale
15,342

 
15,342

 
46,026

 
46,026

Total Amortization Expense - Deferred Lease Costs
$
22,983

 
$
22,824

 
$
68,949

 
$
53,508

The following table reflects the deferred costs that are included in the accompanying Consolidated Balance Sheets associated with our leased properties:
 
September 30, 2016
 
December 31, 2015
Net Deferred Lease Costs
 
 
 
GIGS
$
298,088

 
$
321,011

Pinedale
688,427

 
734,454

Total Deferred Lease Costs, net
$
986,515

 
$
1,055,465

Substantially all of our tenants' financial results are driven by exploiting naturally occurring oil and natural gas hydrocarbon deposits beneath the Earth's surface. As a result, our tenants' financial results are highly dependent on the performance of the oil and natural gas industry, which is highly competitive and subject to volatility. During the terms of our leases, we monitor credit quality of our tenants by reviewing their published credit ratings, if available, reviewing publicly available financial statements,

16


or reviewing financial or other operating statements, monitoring news reports regarding our tenants and their respective businesses, and monitoring the timeliness of lease payments and the performance of other financial covenants under their leases.
Ultra Petroleum
On April 29, 2016 Ultra Petroleum, filed a voluntary petition to reorganize under Chapter 11. The filing includes Ultra Wyoming LGS, LLC, the operator of the Pinedale LGS and tenant of the Pinedale Lease Agreement. The bankruptcy filing of both the guarantor, Ultra Petroleum, and the tenant and circumstances prompting the filing constitute defaults under the terms of the Pinedale Lease Agreement. The bankruptcy filing serves as a stay of the Company's ability to exercise remedies for certain of those defaults. However, Section 365 of the Bankruptcy Code requires Ultra Wyoming to comply on a timely basis with many provisions of the Pinedale Lease Agreement, including the payment provisions. The only exception to that requirement is if Ultra Wyoming takes specific action to reject the Pinedale Lease Agreement. Ultra Wyoming has not filed a motion to reject the Pinedale Lease and all scheduled lease payments are current.
On August 30, the Company filed proofs of claim with the bankruptcy court handling the Ultra Petroleum bankruptcies with respect to rights granted under guarantee and indemnification provisions in the Pinedale Lease. On September 20, 2016, the Company filed a motion to dismiss the tenant, Ultra Wyoming LCS LLC from the Ultra Petroleum bankruptcy process based on the Company’s belief in the tenant’s solvency, to which Ultra Petroleum subsequently filed a response. The parties agreed to non-binding mediation and agreed to extend the deadline for Ultra Wyoming to accept or reject the Pinedale Lease until December 15, 2016.
Ultra Petroleum is currently subject to the reporting requirements under the Exchange Act and is required to file with the SEC annual reports containing audited financial statements and quarterly reports containing unaudited financial statements. While the SEC, under certain circumstances, may accept reporting on a modified basis from an issuer involved in a bankruptcy proceeding, the Company currently has no indication that Ultra Petroleum has requested or intends to request such relief. Its stock is currently trading on the OTC Markets (OTC Pink: UPLMQ). Other SEC filings can be found at www.sec.gov (UPLMQ) or at www.otcmarkets.com (UPLMQ). The Company makes no representation as to the accuracy or completeness of the audited and unaudited financial statements of Ultra Petroleum, but has no reason to doubt the accuracy or completeness of such information. In addition, Ultra Petroleum has no duty, contractual or otherwise, to advise the Company of any events that might have occurred subsequent to the date of such financial statements which could affect the significance or accuracy of such information. None of the information in the public reports of Ultra Petroleum that are filed with the SEC is incorporated by reference into, or in any way form, a part of this filing.
EXXI
On April 14, 2016, Energy XXI and substantially all of its directly and indirectly owned subsidiaries filed a voluntary petition to reorganize under Chapter 11, after reaching an agreement with certain creditors to provide support for a restructuring of its debt. The bankruptcy filing of Energy XXI, the guarantor of the Grand Isle Lease Agreement, and its failure to make interest payments to its creditors within the applicable cure period, would have constituted defaults under the terms of the Grand Isle Lease Agreement. However, to facilitate post-filing financing arrangements between the EXXI Debtor Group and its lenders, the Company provided a conditional waiver to certain remedies available to it as a result of these non-monetary defaults. EXXI Tenant has not filed for bankruptcy. Therefore, its obligations under the Grand Isle Lease Agreement are currently not subject to the proceedings affecting the EXXI Debtor Group. The Company has not compromised any remedies available to it for any default by EXXI Tenant under the Grand Isle Lease Agreement. All scheduled lease payments are current.
EXXI is currently subject to the reporting requirements under the Exchange Act and is required to file with the SEC annual reports containing audited financial statements and quarterly reports containing unaudited financial statements. While the SEC, under certain circumstances, may accept reporting on a modified basis from an issuer involved in a bankruptcy proceeding, the Company currently has no indication that EXXI has requested or intends to request such relief. Its stock is currently trading on the OTC Markets (OTC Pink: EXXIQ). Other SEC filings can be found at www.sec.gov (EXXI) or at www.otcmarkets.com (EXXIQ). The Company makes no representation as to the accuracy or completeness of the audited and unaudited financial statements of EXXI, but has no reason to doubt the accuracy or completeness of such information. In addition, EXXI has no duty, contractual or otherwise, to advise the Company of any events that might have occurred subsequent to the date of such financial statements which could affect the significance or accuracy of such information. None of the information in the public reports of EXXI that are filed with the SEC is incorporated by reference into, or in any way form, a part of this filing.
Arc Logistics
Arc Logistics is currently subject to the reporting requirements of the Exchange Act and is required to file with the SEC annual reports containing audited financial statements and quarterly reports containing unaudited financial statements. The audited

17


financial statements and unaudited financial statements of Arc Logistics can be found on the SEC's web site at www.sec.gov (NYSE: ARCX). The Company makes no representation as to the accuracy or completeness of the audited and unaudited financial statements of Arc Logistics but has no reason to doubt the accuracy or completeness of such information. In addition, Arc Logistics has no duty, contractual or otherwise, to advise the Company of any events that might have occurred subsequent to the date of such financial statements which could affect the significance or accuracy of such information. None of the information in the public reports of Arc Logistics that are filed with the SEC is incorporated by reference into, or in any way form, a part of this filing.
4. FINANCING NOTES RECEIVABLE
Financing notes receivable are presented at face value plus accrued interest receivable, deferred loan origination costs, and net of related direct loan origination income. Each quarter the Company reviews its financing notes receivable to determine if the balances are realizable based on factors affecting the collectability of those balances. Factors may include credit quality, timeliness of required periodic payments, past due status, and management discussions with obligors. The Company evaluates the collectability of both interest and principal of each of its loans to determine if an allowance is needed. An allowance will be recorded when based on current information and events, the Company determines it is probable that it will be unable to collect all amounts due according to the existing contractual terms. If the Company does determine an allowance is necessary, the amount deemed uncollectable is expensed in the period of determination. An insignificant delay or shortfall in the amount of payments does not necessarily result in the recording of an allowance. Generally, when interest and/or principal payments on a loan become past due, or if we otherwise do not expect the borrower to be able to service its debt and other obligations, we will place the loan on non-accrual status and will generally cease recognizing financing revenue on that loan until all principal and interest have been brought current. Interest income recognition is resumed if and when the previously reserved-for financing notes become contractually current and performance has been demonstrated. Payments received subsequent to the recording of an allowance will be recorded as a reduction to principal.
Black Bison Financing Notes
The Company did not record any financing revenue related to the Black Bison Loans for the three- or nine-month periods ended September 30, 2016 . These notes were considered by the Company to be on non-accrual status and have been reflected as such in the financial statements. For the three and nine months ended September 30, 2016, the Company recorded $0 and $832 thousand , respectively, in provision for loan losses compared to $8.0 million for both the three and nine months ended September 30, 2015. On February 29, 2016, the Company foreclosed on 100 percent of the equity of BB Intermediate, the borrower of the Black Bison financing notes, as well as all of the other collateral securing the Black Bison Loans. The foreclosure was accepted in satisfaction of $2.0 million of the total outstanding loan balance. The real property assets were sold or disposed of, as further described in Note 7, Property And Equipment .
Four Wood Financing Note Receivable
As a result of the decreased economic activity by SWD, the Company recorded a provision for loan loss with respect to the SWD Loans. For the nine months ended September 30, 2016, the income statement reflects a Provision for Loan Loss of $3.5 million , which includes $71 thousand of deferred origination income and $98 thousand of interest accrued under the original loan agreements. The balance of the note, net of the reserve for loan loss, represents the amount expected to be realized as of September 30, 2016 . Our note with SWD is secured by physical assets owned by SWD. We have assessed the enterprise value of SWD, and thus the value of the collateral supporting the Four Wood Notes, at $1.5 million as of September 30, 2016 . See Note 14, Subsequent Events , for discussion of the restructuring of the SWD Loans on October 1, 2016.
5. VARIABLE INTEREST ENTITIES
The FASB issued ASU 2015-02,  "Consolidations (Topic 810) - Amendments to the Consolidation Analysis"  (“ASU 2015-02”), which amended previous consolidation guidance, including introducing a separate consolidation analysis specific to limited partnerships and other similar entities. Under this analysis, limited partnerships and other similar entities are considered a variable interest entity (“VIE”) unless the limited partners hold substantive kick-out rights or participating rights. Management determined that Pinedale LP and Grand Isle Corridor LP are VIEs under the amended guidance because the limited partners of both partnerships lack both substantive kick-out rights and participating rights. As such, management evaluated the qualitative criteria under FASB ASC Topic 810 - Consolidation in conjunction with ASU 2015-02 to make a determination whether these partnerships should be consolidated on the Company's financial statements. ASC Topic 810-10 requires the primary beneficiary of a variable interest entity's activities to consolidate the VIE. The primary beneficiary is identified as the enterprise that has a) the power to direct the activities of the VIE that most significantly impact the entity's economic performance and b) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be

18


significant to the VIE. The standard requires an ongoing analysis to determine whether the variable interest gives rise to a controlling financial interest in the VIE. Based upon the general partners’ roles and rights as afforded by the partnership agreements and its exposure to losses and benefits of each of the partnerships through its significant limited partner interests, management determined that CorEnergy is the primary beneficiary of both Pinedale LP and Grand Isle Corridor LP. Based upon that evaluation, the consolidated financial statements presented continue to consolidate both of the partnerships.
6. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting and tax purposes. Components of the Company’s deferred tax assets and liabilities as of September 30, 2016 , and December 31, 2015 , are as follows:
Deferred Tax Assets and Liabilities
 
 
September 30, 2016
 
December 31, 2015
Deferred Tax Assets:
 
 
 
 
Net operating loss carryforwards
 
$
1,123,214

 
$
543,116

Net unrealized loss on investment securities
 

 
251,539

Loan Loss Provision
 
605,107

 
1,257,436

Other loss carryforwards
 
2,930,342

 
1,833,240

Sub-total
 
$
4,658,663

 
$
3,885,331

Deferred Tax Liabilities:
 
 
 
 
Basis reduction of investment in partnerships
 
$
(2,103,511
)
 
$
(2,159,058
)
Net unrealized gain on investment securities
 
(7,142
)
 

Cost recovery of leased and fixed assets
 
(958,452
)
 
(119,297
)
Sub-total
 
$
(3,069,105
)
 
$
(2,278,355
)
Total net deferred tax asset
 
$
1,589,558

 
$
1,606,976

As of September 30, 2016 , the total deferred tax assets and liabilities presented above relates to the Company's TRSs. The Company recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. The Company’s policy is to record interest and penalties on uncertain tax positions as part of tax expense. Tax years subsequent to the year ended December 31, 2012 , remain open to examination by federal and state tax authorities.
Total income tax expense/(benefit) differs from the amount computed by applying the federal statutory income tax rate of 35 percent for the three and nine months ended September 30, 2016 and 2015, to income or loss from operations and other income and expense for the years presented, as follows:
Income Tax Expense (Benefit)
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Application of statutory income tax rate
 
$
3,400,018

 
$
(497,607
)
 
$
7,425,355

 
$
2,492,537

State income taxes, net of federal tax (benefit)
 
28,642

 
(141,807
)
 
(29,384
)
 
(113,744
)
Federal Tax Attributable to Income of Real Estate Investment Trust
 
(2,945,508
)
 
(1,209,539
)
 
(7,757,507
)
 
(3,956,244
)
Total income tax expense (benefit)
 
$
483,152

 
$
(1,848,953
)
 
$
(361,536
)
 
$
(1,577,451
)
Total income taxes are computed by applying the federal statutory rate of 35 percent plus a blended state income tax rate. Corridor Public Holdings, Inc. and Corridor Private Holdings, Inc. had a blended state rate of approximately 2.82 percent for the three and nine months ended September 30, 2016, and 3.92 percent for the three and nine months ended September 30, 2015. CorEnergy BBWS, Inc. does not record a provision for state income taxes because it operates only in Wyoming, which does not have state income tax. Because Mowood Corridor, Inc. and Corridor MoGas, Inc. primarily only operate in the state of Missouri, a blended state income tax rate of 5 percent was used for the operations of both TRSs for the three and nine months ended September 30, 2016 and 2015. All of the income tax benefit presented above relates to the assets and activities held in the Company's TRSs for the three and nine months ended September 30, 2016 and 2015. The components of income tax expense/(benefit) include the following for the periods presented:

19


Components of Income Tax Expense (Benefit)
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Current tax expense (benefit)
 
 
 
 
 
 
 
 
Federal
 
$
88,032

 
$
94,277

 
$
(350,698
)
 
$
580,535

State (net of federal tax benefit)
 
7,093

 
10,743

 
(28,256
)
 
64,720

Total current tax expense (benefit)
 
$
95,125

 
$
105,020

 
$
(378,954
)
 
$
645,255

Deferred tax expense (benefit)
 
 
 
 
 
 
 

Federal
 
$
366,478

 
$
(1,801,423
)
 
$
18,546

 
$
(2,044,242
)
State (net of federal tax benefit)
 
21,549

 
(152,550
)
 
(1,128
)
 
(178,464
)
Total deferred tax expense (benefit)
 
$
388,027

 
$
(1,953,973
)
 
$
17,418

 
$
(2,222,706
)
Total income tax expense (benefit), net
 
$
483,152

 
$
(1,848,953
)
 
$
(361,536
)
 
$
(1,577,451
)
As of December 31, 2015 , the TRSs had an aggregate net operating loss of $1.4 million . The net operating loss may be carried forward for 20 years. If not utilized, this net operating loss will expire as follows: $90 thousand , $804 thousand and $478 thousand in the years ending December 31, 2033, 2034, and 2035 respectively. The amount of deferred tax asset for net operating losses as of September 30, 2016 , includes amounts for the nine months ended September 30, 2016. The aggregate cost of securities for federal income tax purposes and securities with unrealized appreciation and depreciation, were as follows:
Aggregate Cost of Securities for Income Tax Purposes (Unaudited)
 
 
September 30, 2016
 
December 31, 2015
Aggregate cost for federal income tax purposes
 
$
4,334,950

 
$
4,750,252

Gross unrealized appreciation
 
5,580,785

 
5,133,908

Gross unrealized depreciation
 

 
(97,500
)
Net unrealized appreciation
 
$
5,580,785

 
$
5,036,408

7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Property and Equipment
 
 
September 30, 2016
 
December 31, 2015
Land
 
$
580,000

 
$
580,000

Natural gas pipeline
 
124,574,243

 
124,386,349

Vehicles and trailers
 
570,267

 
524,921

Office equipment and computers
 
264,662

 
87,696

Gross property and equipment
 
$
125,989,172

 
$
125,578,966

Less: accumulated depreciation
 
(8,454,299
)
 
(5,948,988
)
Net property and equipment
 
$
117,534,873

 
$
119,629,978


Depreciation of property and equipment is as follows:
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Depreciation Expense
$
838,462

 
$
831,480

 
$
2,515,408

 
$
2,497,138

Assets and Liabilities Held for Sale
Effective February 29, 2016, the Company foreclosed on 100 percent of the equity of BB Intermediate, the holding company of BBWS, the borrower of the Black Bison financing notes. On June 16, 2016, the Company entered into an asset sale agreement with Expedition Water Solutions for the sale of specified disposal wells and related equipment as outlined in the sale agreement. Consideration received by the company included $748 thousand cash, net of fees, and the future right to cash payments totaling $6.5 million , which was fair valued at $450 thousand and is included in Accounts and other receivables within the Consolidated Balance Sheet at September 30, 2016 . The rights to future cash payments are tied to the future volumes of water disposed in each of the wells sold. Also as a result of the sale, the Company recognized a loss of approximately $369 thousand which has been included in the Provision for loan losses within the Consolidated Statement of Income.

20


On June 30, 2016, assets acquired by BBWS in a seller-financed transaction prior to the Company's foreclosure on BB Intermediate, were returned to the seller in full satisfaction of the remaining note balance of approximately $439 thousand .
There were no assets or liabilities held for sale at September 30, 2016 , or December 31, 2015 .
8. MANAGEMENT AGREEMENT
The Company pays Corridor as the Company's Manager pursuant to a Management Agreement as described in the 2015 CorEnergy 10-K. In light of the provisions for loan losses recognized by the Company on certain of its energy infrastructure financing investments (collectively, the "Underperforming Loans") during 2015 and the first quarter of 2016, the Manager voluntarily recommended, and the Company agreed, that effective on and after the Company's March 31, 2016 balance sheet date, solely for the purpose of computing the value of the Company’s Managed Assets in calculating the quarterly management fee under the terms of the Management Agreement, that portion of the Management Fee attributable to the Company’s investment in the Underperforming Loans shall be based on the estimated net realizable value of such loans, which shall not exceed the amount invested in the Underperforming Loans as of the end of the quarter for which the Management Fee is to be calculated. This agreement superseded a prior agreement between the Company and the Manager, which was effective as of September 30, 2015, concerning valuation of the Black Bison Loans for purposes of calculating the Management Fee.
Effective June 30, 2016, the Manager voluntarily recommended, and the Company agreed, that the Manager would waive $54,305 of the total $149,123 incentive fee that would otherwise be payable under the provisions of the Management Agreement with respect to dividends paid on the Company's common stock during the three months ended June 30, 2016.
Fees incurred under the Management Agreement for the three and nine months ended September 30, 2016, were $1.9 million and $5.4 million , respectively, compared to $1.7 million and $4.1 million , respectively, for the three and nine months ended September 30, 2015. Fees incurred under the Management Agreement are reported in the General and Administrative line item on the income statement.
The Company pays Corridor, as the Company's Administrator pursuant to an Administrative Agreement. Fees incurred under the Administrative Agreement for the three and nine months ended September 30, 2016, were $67 thousand and $199 thousand , respectively, compared to $66 thousand and $157 thousand , respectively, for the three and nine months ended September 30, 2015. Fees incurred under the Administrative Agreement are reported in the General and Administrative line item on the income statement.
9. FAIR VALUE
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following tables provide the fair value measurements of applicable Company assets and liabilities by level within the fair value hierarchy as of September 30, 2016 , and December 31, 2015 . These assets and liabilities are measured on a recurring basis.
September 30, 2016
 
 
September 30, 2016
 
Fair Value
 
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Other equity securities
 
$
9,465,736

 
$

 
$

 
$
9,465,736

Total Assets
 
$
9,465,736

 
$

 
$

 
$
9,465,736

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Interest Rate Swap Derivative
 
$
49,143

 
$

 
$
49,143

 
$

Total Liabilities
 
$
49,143

 
$

 
$
49,143

 
$

December 31, 2015
 
 
December 31, 2015
 
Fair Value
 
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Other equity securities
 
$
8,393,683

 
$

 
$

 
$
8,393,683

Interest Rate Swap Derivative
 
98,259

 

 
98,259

 

Total Assets
 
$
8,491,942

 
$

 
$
98,259

 
$
8,393,683


21


On March 30, 2016, the Company terminated one of the cash flow hedges with a notional amount of $26.3 million concurrent with the assignment of the $70 million Pinedale Credit Facility. The remaining cash flow hedge was de-designated from hedge accounting as of March 30, 2016, and continues to be valued using a consistent methodology and therefore is classified as a Level 2 investment. Subsequent to de-designation, changes in the fair value are recognized in earnings in the period in which the changes occur.
The changes for all Level 3 securities measured at fair value on a recurring basis using significant unobservable inputs for the nine months ended September 30, 2016 and 2015, are as follows:
Level 3 Rollforward
For the Nine Months Ended September 30, 2016
 
Fair Value Beginning Balance
 
Acquisitions
 
Disposals
 
Total Realized and Unrealized Gains/(Losses) Included in Net Income
 
Return of Capital Adjustments Impacting Cost Basis of Securities
 
Fair Value Ending Balance
 
Changes in Unrealized Losses, Included In Net Income, Relating to Securities Still Held (1)
Other equity securities
 
$
8,393,683

 
$

 
$

 
$
958,443

 
$
113,610

 
$
9,465,736

 
$
958,443

Total
 
$
8,393,683

 
$

 
$

 
$
958,443

 
$
113,610

 
$
9,465,736

 
$
958,443

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other equity securities
 
$
9,217,181

 
$

 
$

 
$
(842,438
)
 
$
283,325

 
$
8,658,068

 
$
(842,438
)
Warrant Investment
 
355,000

 

 

 
(355,000
)
 

 

 
(355,000
)
Total
 
$
9,572,181

 
$

 
$

 
$
(1,197,438
)
 
$
283,325

 
$
8,658,068

 
$
(1,197,438
)
(1) Located in Net realized and unrealized gain on other equity securities in the Consolidated Statements of Income
The Company utilizes the beginning of reporting period method for determining transfers between levels. There were no transfers between levels 1, 2 or 3 for the nine months ended September 30, 2016 and 2015, respectively.
In connection with the October 2014 sale of the Company's shares in VantaCore, a portion of the proceeds were placed in escrow and a receivable was recorded. Changes in the fair value of the escrow receivable were recorded as a net realized or unrealized gain or loss on other equity securities included within the Consolidated Statements of Income and Comprehensive Income. For the three and nine months ended September 30, 2016, approximately $0 and $43 thousand , was included as a gain, respectively, compared to $0 and $282 thousand for the three and nine months ended September 30, 2015, respectively.
Valuation Techniques and Unobservable Inputs
The Company’s other equity securities, which represent securities issued by private companies, are classified as Level 3 assets. Significant judgment is required in selecting the assumptions used to determine the fair values of these investments.
As of September 30, 2016 and December 31, 2015 , the Company’s investment in Lightfoot Capital Partners, LP and Lightfoot Capital Partners GP LLC, collectively, ("Lightfoot") is its only remaining significant private company investment. Lightfoot in turn owns a combination of public and private investments. Therefore, Lightfoot was valued using a combination of the following valuation techniques: (i) public share price of private companies' investments discounted for a lack of marketability, with the discount estimated at 2.8 percent to 3.5 percent and 11.8 percent to 15.2 percent as of September 30, 2016 and December 31, 2015 , and (ii) discounted cash flow analysis using an estimated discount rate of 14.5 percent to 16.5 percent and 14.0 percent to 16.0 percent as of September 30, 2016 and December 31, 2015 , respectively. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investment may fluctuate from period to period. Additionally, the fair value of the Company’s investment may differ from the values that would have been used had a ready market existed for such investment and may differ materially from the values that the Company may ultimately realize.
As of both September 30, 2016 and December 31, 2015 , the Company held a 6.6 percent and 1.5 percent equity interest in Lightfoot LP and Lightfoot GP, respectively. Lightfoot’s assets include an ownership interest in Gulf LNG, a 1.5 billion cubic feet per day (“bcf/d”) receiving, storage, and regasification terminal in Pascagoula, Mississippi, and common units and subordinated units representing an approximately 40 percent aggregate limited partner interest, and a noneconomic general partner interest, in Arc Logistics Partners LP (NYSE: ARCX). The Company holds observation rights on Lightfoot's Board of Directors.

22


For the three and nine months ended September 30, 2015, the Company’s Warrant Investment was valued using a binomial option pricing model. The key assumptions used in the binomial model were the fair value of equity of the underlying business; the Warrant's strike price; the expected volatility of equity; the time to the Warrant's expiry; the risk-free rate, and the expected dividend yields. Due to the inherent uncertainty of determining the fair value of the Warrant Investment, which did not have a readily available market, the assumptions used the binomial model to value the Company’s Warrant Investment were based on Level 2 and Level 3 inputs.
Certain condensed combined unaudited financial information of the unconsolidated affiliate, Lightfoot, is presented in the following tables (in thousands):
 
 
September 30, 2016
 
December 31, 2015
 
 
(Unaudited)
 
(Unaudited)
Assets
 
 
 
 
Current assets
 
$
20,504

 
$
24,276

Noncurrent assets
 
700,502

 
696,461

Total Assets
 
$
721,006

 
$
720,737

Liabilities
 
 
 
 
Current liabilities
 
$
14,048

 
$
19,993

Noncurrent liabilities
 
266,609

 
246,808

Total Liabilities
 
$
280,657

 
$
266,801

 
 
 
 
 
Partner's equity
 
440,349

 
453,936

Total liabilities and partner's equity
 
$
721,006

 
$
720,737

 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
(Unaudited)
 
(Unaudited)
 
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Revenues
 
$
26,673

 
$
24,084

 
$
78,983

 
$
56,751

Operating expenses
 
21,287

 
21,526

 
64,171

 
54,194

Income (Loss) from Operations
 
$
5,386

 
$
2,558

 
$
14,812

 
$
2,557

Other income
 
2,207

 
2,683

 
6,950

 
9,837

Net Income
 
$
7,593

 
$
5,241

 
$
21,762

 
$
12,394

Less: Net Income attributable to non-controlling interests
 
(7,551
)
 
(5,206
)
 
(21,630
)
 
(12,269
)
Net Income attributable to Partner's Capital
 
$
42

 
$
35

 
$
132

 
$
125

The following section describes the valuation methodologies used by the Company for estimating fair value for financial instruments not recorded at fair value, but fair value is included for disclosure purposes only, as required under disclosure guidance related to the fair value of financial instruments.
Cash and Cash Equivalents — The carrying value of cash, amounts due from banks, federal funds sold and securities purchased under resale agreements approximates fair value.
Escrow Receivable —At December 31, 2015, the fair value of the escrow receivable, which related to the sale of VantaCore, was reflected net of a discount for the potential that the full amount due to the Company would not be realized. On April 1, 2016, the Company recorded a gain when the full value of the escrow receivable was received.
Financing Notes Receivable — The financing notes receivable are valued on a non-recurring basis. The financing notes receivable are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Financing Notes with carrying values that are not expected to be recovered through future cash flows are written-down to their estimated net realizable value. Estimates of realizable value are determined based on unobservable inputs, including estimates of future cash flow generation and value of collateral underlying the notes.
Derivative Asset/Liability — The Company uses interest rate swaps to manage interest rate risk. The fair value of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the respective derivative.

23


Long-term Debt — The fair value of the Company’s long-term debt is calculated, for disclosure purposes, by discounting future cash flows by a rate equal to the expected market rate for an equivalent transaction.
Line of Credit — The carrying value of the line of credit approximates the fair value due to its short-term nature.
Carrying and Fair Value Amounts
 
 
Level within fair value hierarchy
 
September 30, 2016
 
December 31, 2015
 
 
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Financial Assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
Level 1
 
$
10,107,754

 
$
10,107,754

 
$
14,618,740

 
$
14,618,740

Escrow receivable
 
Level 2
 
$

 
$

 
$
1,392,917

 
$
1,392,917

Financing notes receivable (Note 4)
 
Level 3
 
$
1,500,000

 
$
1,500,000

 
$
7,675,626

 
$
7,675,626

Derivative asset
 
Level 2
 
$

 
$

 
$
98,259

 
$
98,259

Financial Liabilities:
 
 
 
 
 
 
 
 
Secured Credit Facilities (1)
 
Level 2
 
$
91,698,387

 
$
91,698,387

 
$
105,440,842

 
$
105,440,842

Unsecured convertible senior notes
 
Level 2
 
$
111,048,098

 
$
112,860,000

 
$
111,423,910

 
$
87,622,591

Derivative liability
 
Level 2
 
$
49,143

 
$
49,143

 
$

 
$

(1) Includes current maturities