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No
fee required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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Fee
paid previously with preliminary materials.
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Check
box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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·
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Gross
profit of $108.MM reflects a 28% increase from $84.2MM for the same period
a year ago.
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Net
income of nearly $22MM is up more than 160% from $8.4 million over the
same period in 2008.
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EBITDA
increased 30% to $45.9MM from last year’s
$35.3MM.
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Distributable
cash flow of $30.3MM was 66% higher than 2008, when we generated 9-month
DCF of $18.2MM.
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It
is worth noting, that these excellent 9-month results were, in particular,
driven by our record operating results for the first quarter of the
year.
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To
give you more of an annual perspective on where Global is today, let’s
look on a rolling four-quarter basis through Sept. 30. During
that 12-month period, we earned net income of $34.6MM, record EBITDA of
nearly $69 million and record distributable cash flow of more than $46
million.
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While
the higher gross profit has fueled much of our success this year, keep in
mind that another contributing factor is that on a year-to-date basis
lower product prices resulted in a $4.5 million drop in interest expense
in 2009 versus 2008.
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In
our wholesale business, our net product margin was up 24% through
September 30, compared with the same period in 2008. Residual
oil was the only product in the wholesale category with a lower margin for
the year-to-date period. In that category, the $614M decline in
net product margin reflected the impact of the economic environment,
competitive natural gas prices and increased
conservation. Elsewhere in the wholesale segment, distillate
net product margin increased 41% while gasoline net product margin rose
7%.
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We
carefully manage expenses. For the third quarter operating
expenses were up only $237M, or 3%, from a year earlier. We are
consciously investing in the business, however, so S,G&A expenses were
up approximately $3.4MM in the third quarter, compared with Q3 of
2008. The higher S,G&A spending in the third quarter
included areas such as: diligence on expansion projects,
information systems, our natural gas initiative, marketing and product
promotion, and incentive compensation. We also increased our
bad debt reserve by $365M, which represents the third consecutive quarter
of a significant year-over-year increase in that line item. We
are comfortable with where our reserve stands
today.
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We
selectively increased our headcount to 255 employees at September 30, up
seven people from June 30.
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Turning
to the balance sheet, total assets at September 30 are down about $35MM,
or 4%, from year-end, reflecting in part lower accounts receivable as a
result of lower product prices.
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Inventory
levels, however, on an absolute dollar basis, are up from a year ago,
driven by an increase in barrels in storage, as we have been buying and
storing distillate inventory at favorable prices as a result of the
contango market.
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The
balance sheet remains very liquid, with 77% of our total assets classified
as current. The balance sheet is also real and tangible, with
only $29million, or 3% of total assets, classified as
intangible.
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In
terms of our debt, it is important to remember that we only have $71
million of total long-term debt related to our terminal operating
infrastructure, compared with a net worth of $147 million, up about $4MM
from year-end. This is comparable with the long-term debt you
see on the balance sheets of other MLPs. The rest of our
indebtedness is related to owning product inventory and is borrowed under
our working capital facility. A key point for investors to
understand is that as of September 30, $368 million, or 84%, of our total
debt of $439 million is related to inventory financing, with the remaining
$71 million, or 16%, as classic long-term debt. On the
September 30 balance sheet, our working capital borrowings of $368MM
supported inventory of $420MM and receivables of $196MM, a more than
adequate pool of short term assets available to repay the working capital
debt.
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With
that said, I think that some investors and analysts misunderstand Global’s
debt picture. Let’s look at our debt in two
ways:
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First,
let’s compare the multiple of debt to EBITDA. Bankers tend to
focus on this ratio as it has to do with debt-paying
capacity. The bigger the ratio of debt over EBITDA, the more
leveraged is the enterprise. The smaller the ratio, generally,
the better. As background, our bank group, like most commercial
bankers, looks at working capital borrowings as self-liquidating financing
– the natural turnover or liquidation of inventory & receivables is
the source of cash necessary to repay the working capital
borrowings. By contrast, term debt, or funded debt, used to
finance fixed assets, is paid back over time from cash generated from
earnings, as measured by EBITDA. Therefore, when Global’s
bankers measure our debt-to-EBITDA, they only look at the $71MM used to
finance the acquisition of terminals back in 2007. They
calculate our debt-to-EBITDA as $71MM of debt over approximately $69MM of
trailing 12 months EBITDA for a 1-to-1 ratio – very low and very
good. They disregard the working capital debt. If
working capital borrowings are included in the ratio, it jumps to 6.3,
which is much higher, and they would say is
misleading.
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Second,
investors in MLP’s look at a similar, but different, ratio. It
is a measure of relative value, but again due to Global’s working capital
levels, it should be calculated with care, or it can be
misleading. The ratio is so-called “enterprise value” compared
to EBITDA. For this purpose we are defining enterprise value,
or EV, as the company’s market cap plus long-term debt. Market
cap is, of course, calculated as our total number of outstanding units
multiplied by our unit price. The idea is to look at the value
of the company (market cap plus debt) as a multiple of
EBITDA. The higher the multiple, the higher the relative
valuation when comparing one company to another. When you
include our total debt of $439MM plus a market cap of approximately
$300MM, you get a ratio of approximately 10.7. This is how
Global is sometimes displayed in industry comparisons. But it
is misleading on the high side. When performing this
calculation using only our classic long-term debt of $71MM in the ratio,
you get EV-to-EBITDA ratio for Global of 5.4, a comparatively low
valuation, and only one-half the previous calculation of
10.7.
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So,
what’s right? Well perhaps the proper middle ground is to
include some portion of our working capital debt in the
calculation. A portion of our working capital borrowings
appears as a current liability ($113MM on September 30) and another
portion appears as a long-term liability ($254MM on September
30). The long-term portion is what we believe will be
outstanding at all times for the next 12-month period. So, a
middle ground in calculating enterprise value would be to include the
long-term portion of working capital. So the numbers would be
$300MM (market cap) plus $71MM (infrastructure long-term debt) plus $254MM
(long-term portion of working capital debt) compared to the $69MM of
EBITDA. On this basis, you get a ratio of
9.1.
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The
key point of this discussion on debt is to make sure that investors,
bankers and analysts recognize that Global’s debt picture is very
different from most MLP’s. The vast majority of our debt is
self-liquidating working capital financing, as opposed to funded term debt
to be paid back over time.
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With
respect to distribution coverage, our ratio stands at 1.8 to 1 for the
trailing four-quarter period ending September 30, providing us with an
ample cushion for our
distributions.
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