Business Context and Reporting Period
Company: Global Partners LP
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2010
Business Overview: Global Partners LP is a publicly traded Delaware limited partnership and one of the largest wholesale distributors of refined petroleum products (gasoline, distillates, residual oil) in the Northeastern United States. The company operates through Wholesale (93% of sales) and Commercial (7% of sales) segments, utilizing a network of bulk terminals and inland storage facilities. It also owns and supplies fuel to 190 Mobil-branded retail gas stations.
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Sales | $7,801.5 million | $5,818.4 million |
| Gross Profit | $166.7 million | $149.8 million |
| Operating Income | $49.3 million | $50.8 million |
| Net Income | $27.0 million | $34.1 million |
| Net Income per Diluted Unit | $1.59 | $2.51 |
| EBITDA | $72.4 million | $66.7 million |
| Distributable Cash Flow | $46.0 million | $45.4 million |
| Total Debt | $786.7 million | $533.8 million |
| Cash and Equivalents | $2.4 million | $0.6 million |
| Operating Cash Flow | ($87.2 million) used | ($61.1 million) used |
Note: Operating cash flow was negative in both years due to significant increases in working capital requirements (inventory and accounts receivable) driven by higher product prices and acquisitions.
Material Changes vs. Prior Period
- Revenue Growth: Sales increased 34% to $7.8 billion, driven primarily by higher refined petroleum product prices and a 7% increase in volume sold (3.65 billion gallons).
- Acquisitions:
- ExxonMobil Retail Acquisition (Sept 2010): Acquired 190 Mobil-branded retail gas stations and supply rights for approximately $202.3 million plus assumed environmental liabilities.
- Warex Terminals (June 2010): Acquired three terminals in Newburgh, NY, for $46.0 million.
- Profitability: While Gross Profit increased 11% to $166.7 million, Net Income decreased 21% to $27.0 million. This decline was due to higher interest expense ($22.3 million vs. $15.2 million) and increased operating expenses related to new assets.
- Debt Levels: Total debt increased 47% to $786.7 million to fund acquisitions and working capital needs.
- Weather Impact: 2010 was 10% warmer than normal, negatively impacting distillate (heating oil) volumes, though this was offset by growth in gasoline sales.
Guidance, Outlook, and Risks
Outlook and Strategy:
- Management aims to increase distributable cash flow per unit through accretive acquisitions and organic expansion.
- The company completed an ethanol and rail expansion project in Albany, NY, increasing storage capacity to 1.2 million barrels.
- Seasonality remains a factor; results are typically stronger in Q1 and Q4 due to heating demand.
Key Risks and Contingencies:
- Commodity Price Volatility: Results are sensitive to price fluctuations in refined petroleum products. While hedging is used, basis risk and market conditions can impact margins.
- Environmental Liabilities: The company assumed significant environmental liabilities ($30.0 million estimated for ExxonMobil sites; $1.5 million for Warex) which will be expended over time.
- Debt Covenants: The credit agreement contains borrowing base limitations and financial covenants. A decrease in product prices or working capital availability could restrict borrowing capacity.
- Regulatory Changes: Changes in ethanol mandates, tax credits, or greenhouse gas regulations could impact demand and pricing.
- Related Party Transactions: Significant operations are managed by affiliates (Alliance Energy LLC), and the General Partner has limited fiduciary duties and conflicts of interest.
Investor Verification Checklist
- Debt Capacity: Verify the current borrowing base availability under the credit agreement, as it is subject to redetermination based on inventory values and receivables.
- Acquisition Integration: Monitor the performance of the newly acquired 190 Mobil-branded stations and the associated $2.6 million annual management fee paid to Alliance Energy LLC.
- Environmental Reserves: Track the actual expenditure of the $30.0 million environmental reserve assumed from ExxonMobil against the estimated timeline.
- Weather Sensitivity: Assess the impact of heating degree days on Q1 and Q4 distillate volumes, as warmer winters directly reduce sales in this segment.
- Distribution Coverage: Confirm that Distributable Cash Flow ($46.0 million) continues to cover the minimum quarterly distribution requirements ($0.4625 per unit).