GLP

Business Context and Reporting Period

Company: Global Partners LP
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: Global Partners LP is a publicly traded master 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 two segments: Wholesale (94% of sales) and Commercial (6% of sales). It owns, controls, or has access to a network of bulk terminals with approximately 9.3 million barrels of storage capacity.

Key Financial Metrics

Note: Net cash used in operating activities for 2009 was driven by a significant increase in inventory levels ($225.6 million) and accounts receivable due to strategic inventory buildup and price fluctuations, despite positive net income.

Material Changes vs. Prior Period

• Revenue Decline: Sales decreased 35% to $5.8 billion, primarily due to significantly lower refined petroleum product prices for most of 2009 compared to 2008.
• Volume Decrease: Total gallons sold decreased 4% to 3.4 billion, attributed to conservation, economic conditions, and increased competition, despite colder weather (1% colder than normal) which typically boosts heating oil demand.
• Profitability Improvement: Gross profit increased 25% to $149.8 million, and Net Income increased 62% to $34.1 million. This was driven by higher net product margins in distillates and gasoline due to advantageous purchasing opportunities and improved inventory management.
• Debt Increase: Total debt rose to $533.8 million (from $433.5 million) to finance increased inventory levels and working capital requirements.
• Interest Expense: Interest expense decreased 27% to $15.2 million due to lower average borrowing balances and lower interest rates.

Guidance, Outlook, and Risks

Management Commentary & Outlook:

• Seasonality: Results are seasonal, with higher sales and cash flow in Q1 and Q4 due to heating demand. The company may need to borrow to maintain distributions during Q2 and Q3.
• Weather Sensitivity: Warmer weather conditions could adversely affect financial results by reducing demand for home heating oil and residual oil.
• Acquisition Strategy: The company continues to pursue accretive acquisitions of terminal assets and marketing businesses to grow distributable cash flow per unit.
• Partnership Agreement Amendment: In December 2009, the partnership agreement was amended to increase the minimum quarterly distribution prospectively from $0.4125 to $0.4625 per unit and redefine distribution metrics using "distributable cash flow."

Key Risks & Contingencies:

• Commodity Price Volatility: While hedging policies minimize risk, basis risk and unforeseen market fluctuations remain. Lower prices can reduce borrowing availability under the credit agreement.
• Liquidity & Credit Markets: The company relies on a $850 million credit facility. Restrictions on borrowing or tightening credit markets could limit the ability to fund operations or distributions.
• Environmental Liabilities: The company faces potential costs related to environmental remediation at terminals (e.g., Albany, NY; Glenwood Landing, NY). As of Dec 31, 2009, recorded environmental liabilities were approximately $5.5 million.
• Regulatory & Tax: Changes in environmental laws (e.g., greenhouse gas emissions) or tax treatment of publicly traded partnerships could increase costs or reduce cash available for distribution.

Investor Verification Checklist

• Inventory Valuation: Verify the $465.9 million inventory balance and the adequacy of reserves given the significant buildup in 2009.
• Credit Facility Covenants: Confirm compliance with borrowing base limitations and financial covenants (e.g., interest coverage ratio) given the increased debt load.
• Weather Impact: Monitor heating degree days for the upcoming winter season to assess potential revenue volatility in the distillates segment.
• Environmental Reserves: Review the status of remediation projects at the Albany and Glenwood Landing terminals to ensure no material costs exceed current reserves.
• Distribution Coverage: Assess whether Distributable Cash Flow ($45.4 million) is sufficient to cover the increased minimum quarterly distribution ($0.4625/unit) and incentive distributions to the General Partner.