Business Context and Reporting Period
Company: Global Partners LP
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2010
Business Overview: Global Partners LP is a master limited partnership engaged in the wholesale and commercial distribution of refined petroleum products (gasoline, distillates, residual oil) and natural gas in the Northeastern United States. The company operates through two segments: Wholesale and Commercial. It also owns and supplies fuel to 190 Mobil-branded retail gas stations acquired from ExxonMobil in September 2010.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2009 |
|---|---|---|---|
| Sales | $1,546,839 | $5,046,285 | $4,119,435 |
| Gross Profit | $35,095 | $114,824 | $107,776 |
| Operating Income | $6,439 | $35,812 | $33,915 |
| Net Income | $551 | $21,099 | $21,900 |
| Net Income per Diluted Unit | $0.03 | $1.28 | $1.60 |
| EBITDA (Non-GAAP) | $12,526 | $50,473 | $45,932 |
| Distributable Cash Flow (Non-GAAP) | $5,433 | $33,498 | $30,262 |
Liquidity and Debt
- Cash and Cash Equivalents: $4.6 million (Sep 30, 2010) vs. $0.7 million (Dec 31, 2009).
- Total Debt Outstanding: $765.7 million under the Credit Agreement (including $300.0 million on the revolving facility).
- Available Borrowing Capacity: $337.8 million remaining availability subject to borrowing base limitations.
- Working Capital: $388.2 million (Sep 30, 2010).
Material Changes vs. Prior Period
- Sales Growth: Sales increased 20% in Q3 2010 and 22% for the nine-month period compared to 2009, driven primarily by higher refined petroleum product prices and the June 2010 acquisition of Warex Terminals.
- Volume Trends: Total volume increased 10% in Q3 2010 (driven by gasoline) but decreased 3% for the nine-month period due to significantly warmer weather reducing demand for home heating oil and residual oil.
- Profitability: Gross profit increased 20% in Q3 and 6% for the nine-month period. Net income for the nine months ended Sep 30, 2010, was slightly lower ($21.1M) than the prior year ($21.9M) due to higher interest expenses and operating costs.
- Acquisitions: Completed the acquisition of 190 retail gas stations and supply rights from ExxonMobil for approximately $202.3 million on September 30, 2010. Also acquired Warex Terminals in June 2010 for $46.0 million.
- Capital Markets: Completed a public offering of 3.91 million common units in March 2010, raising net proceeds of approximately $84.6 million, which were used to reduce indebtedness.
Guidance, Outlook, and Risks
- Seasonality: Management notes that results are generally better in the first and fourth quarters due to higher demand for heating products. The second and third quarters typically have lower cash flow.
- Weather Impact: Warmer-than-normal temperatures (65% warmer than normal in Q3) significantly reduced demand for distillates and residual oil.
- Dividends: A quarterly cash distribution of $0.4950 per unit was declared for Q3 2010, payable November 12, 2010. This exceeds the first target distribution, triggering incentive distributions to the General Partner.
- Key Risks:
- Commodity Prices: Fluctuations in refined product prices impact borrowing base availability and margins.
- Environmental Liabilities: The company assumed approximately $30.0 million in environmental liabilities related to the ExxonMobil acquisition and $1.5 million for the Warex acquisition.
- Regulatory Changes: New derivatives legislation and changes to ethanol mandates/tax credits could impact operations and costs.
- Brand Erosion: The success of the retail acquisition depends on the continued value of the Mobil brand.
Investor Verification Checklist
- Acquisition Integration: Verify the integration progress and initial performance of the 190 ExxonMobil retail stations acquired in late September.
- Environmental Reserves: Monitor the adequacy of the $30.0 million environmental reserve assumed in the ExxonMobil deal and potential for cost overruns.
- Debt Covenants: Confirm continued compliance with the Credit Agreement's financial covenants, particularly the borrowing base limitations which are sensitive to inventory prices and receivables.
- Weather Sensitivity: Assess the impact of the upcoming winter heating season on distillate volumes and margins, given the significant volume decline in the first nine months of 2010.
- Interest Rate Exposure: Review the effectiveness of the interest rate collars and forward starting swap in managing the cost of the $765.7 million debt load.