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SUSP > SEC Filings for SUSP > Form 10-Q on 8-Nov-2013All Recent SEC Filings

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Form 10-Q for SUSSER PETROLEUM PARTNERS LP


8-Nov-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Unless the context otherwise requires, references in the report to the "Predecessor," "we," "our," "us" or like terms, when used in a historical context (periods prior to September 25, 2012), refer to Susser Petroleum Company LLC and subsidiaries, our predecessor for accounting purposes. References when used in the present tense or prospectively (after September 24, 2012), refer to Susser Petroleum Partners LP and its subsidiaries, also referred to as "SUSP" or the "Partnership." Unless the context otherwise requires, references in this report to "SUSS" or "Parent" refer collectively to Susser Holdings Corporation and any of its subsidiaries, other than Susser Petroleum Partners LP, its subsidiaries and its general partner.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements included elsewhere in this report, as well as our audited financial statements for 2012 contained in our Annual Report on Form 10-K, the historical consolidated financial statements and notes thereto of Susser Petroleum Company LLC, our Predecessor, and the pro forma financial statements for Susser Petroleum Partners LP included in our prospectus dated September 19, 2012, as filed with the Securities and Exchange Commission ("SEC") on September 21, 2012.
EBITDA, Adjusted EBITDA, and distributable cash flow are non-GAAP financial measures of performance that have limitations and should not be considered as a substitute for net income. Please see footnote (2) under "Key Operating Metrics" below for a discussion of our use of EBITDA, Adjusted EBITDA, and distributable cash flow in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and a reconciliation to net income for the periods presented.
Forward-Looking Statements
This report, including without limitation, our discussion and analysis of our financial condition and results of operations, and any information incorporated by reference, contains statements that we believe are "forward-looking statements" under the Private Securities Litigation Reform Act of 1995 and are intended to enjoy protection under the safe harbor for forward-looking statements provided by that Act. These forward-looking statements generally can be identified by use of phrases such as "believe," "plan," "expect," "anticipate," "intend," "forecast" or other similar words or phrases. Descriptions of our objectives, goals, targets, plans, strategies, costs, anticipated capital expenditures, expected cost savings and benefits are also forward-looking statements. These forward-looking statements are based on our current plans and expectations and involve a number of risks and uncertainties that could cause actual results and events to vary materially from the results and events anticipated or implied by such forward-looking statements, including:

•         SUSS' business strategy and operations and SUSS' conflicts of interest
          with us;


•         Renewal or renegotiation of our long-term distribution contracts with
          our customers;

• Changes in the price of and demand for the motor fuel that we distribute;

• Our dependence on two principal suppliers;

• Competition in the wholesale motor fuel distribution industry;

• Seasonal trends;

• Our ability to make acquisitions;

• Environmental laws and regulations;

• Dangers inherent in the storage of motor fuel; and


• Our reliance on SUSS for transportation services.

All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements.

For a discussion of these and other risks and uncertainties, please refer to "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2012, and in each subsequent quarterly report on Form 10-Q, including this filing. The list of factors that could affect future performance and the accuracy of forward-looking statements is illustrative but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The forward-looking statements included in this report are based on, and include, our estimates as of the date hereof. We anticipate that subsequent events and market developments will cause our estimates to change. However, while we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if new information becomes available in the future.

Overview
We are a growth-oriented Delaware limited partnership formed by SUSS to engage in the primarily fee-based wholesale distribution of motor fuels to SUSS and third parties. We closed the initial public offering of our common units, including related restructuring transactions and entry into certain key agreements with SUSS, on September 25, 2012. As of September 30, 2013, SUSS operates 576 retail convenience stores under its proprietary Stripes® convenience store brand, primarily in growing Texas markets. Stripes is a leading independent chain of convenience stores in Texas based on store count and retail motor fuel volumes sold. Our business is integral to the success of SUSS' retail operations, and SUSS purchases substantially all of its motor fuel from us. For the three and nine month periods ended September 30, 2013, we distributed 268.6 million and 783.7 million gallons of motor fuel to Stripes® convenience stores and SUSS' consignment locations, and 131.0 million and 371.7 million gallons of motor fuel to other third party customers. We are a leading motor fuel distributor by gallons in Texas, and among the largest distributors of Valero and Chevron branded motor fuel in the United States.

In addition to distributing motor fuel, we also distribute other petroleum products such as propane and lube oil, and we receive rental income from real estate that we lease or sublease. We purchase motor fuel primarily from independent refiners and major oil companies and distribute it throughout Texas and in Louisiana, New Mexico and Oklahoma to:
• Stripes® convenience stores, pursuant to the SUSS Distribution agreement;

• approximately 90 independently operated consignment locations where SUSS sells motor fuel under consignment arrangements to retail customers, also pursuant to the SUSS Distribution agreement;

• approximately 10 independently operated consignment locations where we sell motor fuel under consignment arrangements to retail customers;

• approximately 490 convenience stores and retail fuel outlets operated by independent operators, which we refer to as "dealers," pursuant to long-term distribution agreements; and

• approximately 1,850 other commercial customers, including unbranded convenience stores, other fuel distributors, school districts and municipalities and other industrial customers.

We entered into several agreements with SUSS concurrent with our IPO. See Note 15 to our Consolidated Financial Statements for information regarding related-party transactions.
In September 2013, we completed the GFI Contribution. In connection with this exchange, we assumed certain indebtedness and other liabilities and issued 64,872 additional common units to SUSS.

Factors Affecting Comparability of our Financial Results The Partnership's post IPO results of operations may not be comparable to our Predecessor's historical results of operations for the reasons described below:
Revenues and Gross Profits. Our assets have historically been a part of the integrated operations of SUSS and our Predecessor distributed motor fuel and other petroleum products to SUSS without any profit margin. Accordingly, the revenues and gross profits in our Predecessor's historical consolidated financial statements do not include the profit margin on fuel sold to SUSS. In addition, our Predecessor's results of operations included results from consignment contracts that were retained by SUSS following the completion of the IPO.
General and Administrative Expenses. Our Predecessor's general and administrative expenses included direct charges for the management of its operations as well as certain expenses allocated from SUSS for general corporate services. These


expenses were charged, or allocated, to our Predecessor based on the nature of the expenses. The Partnership continues to incur charges for the management of the operations contributed to the Partnership as well as an allocation for general corporate services. We also incur additional incremental general and administrative expenses as a result of being a separate publicly-traded partnership.
Other Operating Expenses and Depreciation, Amortization and Accretion. Our Predecessor's other operating expenses and depreciation, amortization and accretion include direct charges related to consignment operations not contributed to the Partnership.
Income Tax Expense. Our Predecessor was part of a taxable corporation, and as such, was allocated a portion of federal income tax expense. Our income tax expense only includes applicable Texas franchise tax and any federal and state income taxes related to PropCo.

Key Operating Metrics
The following table sets forth, for the periods indicated, information
concerning key measures we rely on to gauge our operating performance.
Historical results for the three and nine months ended September 30, 2012
include our Predecessor's results of operations. The following information is
intended to provide investors with a reasonable basis for assessing our
historical operations but should not serve as the only criteria for predicting
our future performance.

                                                  Three Months Ended                         Nine Months Ended
                                        September 30,           September 30,        September 30,      September 30,
                                           2012 (1)                  2013               2012 (1)             2013
                                         Predecessor                                  Predecessor
                                            (in thousands, except for selling price and gross profit per gallon)
Revenues:
Motor fuel sales to third parties
(1)                                  $         458,817       $         383,896      $    1,364,361     $    1,094,718
Motor fuel sales to affiliates (1)             647,301                 775,769           1,894,471          2,257,800
Rental income                                    1,359                   2,820               4,078              6,725
Other income                                     2,140                   1,231               5,871              3,737
Total revenue                                1,109,617               1,163,716           3,268,781          3,362,980
Gross profit:
Motor fuel gross profit to third
parties (1)                                      9,331                   6,791              28,010             18,666
Motor fuel gross profit to
affiliates (1)                                     468                   8,112                 471             23,464
Rental income                                    1,359                   2,820               4,078              6,725
Other                                            1,670                     680               4,332              2,060
Total gross profit                              12,828                  18,403              36,891             50,915
Net income                           $           3,617       $           9,597      $        8,994     $       27,504
Adjusted EBITDA (2)                  $           7,926       $          13,753      $       20,938     $       37,819
Distributable cash flow (2)          $             644       $          12,693      $          644     $       35,032
Operating Data:
Total motor fuel gallons sold:
 Third-party                                   147,848                 130,959             442,995            371,732
 Affiliated gallons                            219,514                 268,565             644,763            783,715
Average wholesale selling price per
gallon                               $            3.01       $            2.90      $         3.00     $         2.90
Motor fuel gross profit (cents per
gallon) (1):
Third-party                                        6.3 ˘                   5.2 ˘               6.3 ˘              5.0 ˘
Affiliated                                         0.2 ˘                   3.0 ˘               0.1 ˘              3.0 ˘
Volume-weighted average for all
gallons                                            2.7 ˘                   3.7 ˘               2.6 ˘              3.6 ˘

(1) For the historical periods presented other than the six-day period from the completion of the Partnership's IPO September 25, 2012 through September 30, 2012, affiliated sales only include sales to Stripes® convenience stores, for which our Predecessor historically received no margin, and third-party motor fuel sales and gross profit includes the motor fuel sold directly to independently operated consignment locations, as well as sales to third-party dealers and other commercial


customers. Following our IPO on September 25, 2012, we sell fuel to SUSS for both Stripes® convenience stores and SUSS' independently operated consignment locations at a fixed profit margin of approximately three cents per gallon, and these sales are classified as affiliated sales.
(2) We define EBITDA as net income before net interest expense, income tax expense and depreciation and amortization expense. Adjusted EBITDA further adjusts EBITDA to reflect certain other non-recurring and non-cash items. We define distributable cash flow as Adjusted EBITDA less cash interest expense, cash state franchise tax expense, maintenance capital expenditures, and other non-cash adjustments. Adjusted EBITDA and distributable cash flow are not financial measures calculated in accordance with GAAP.

We believe EBITDA, Adjusted EBITDA and distributable cash flow are useful to investors in evaluating our operating performance because:
• Adjusted EBITDA is used as a performance measure under our revolving credit facility;

• securities analysts and other interested parties use such metrics as measures of financial performance, ability to make distributions to our unitholders and debt service capabilities;

• they are used by our management for internal planning purposes, including aspects of our consolidated operating budget, and capital expenditures; and

• distributable cash flow provides useful information to investors as it is a widely accepted financial indicator used by investors to compare partnership performance, as it provides investors an enhanced perspective of the operating performance of our assets and the cash our business is generating.

EBITDA, Adjusted EBITDA and distributable cash flow are not recognized terms under GAAP and do not purport to be alternatives to net income (loss) as measures of operating performance. EBITDA, Adjusted EBITDA and distributable cash flow have limitations as analytical tools, and one should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Some of these limitations include:
• they do not reflect our total cash expenditures, or future requirements, for capital expenditures or contractual commitments;

• they do not reflect changes in, or cash requirements for, working capital;

• they do not reflect interest expense, or the cash requirements necessary to service interest or principal payments on our revolving credit facility or term loan;

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash requirements for such replacements; and

• because not all companies use identical calculations, our presentation of EBITDA, Adjusted EBITDA and distributable cash flow may not be comparable to similarly titled measures of other companies.

The following tables present a reconciliation of net income to EBITDA, Adjusted EBITDA and distributable cash flow:


                                                                                         Three Months Ended
                                   Susser Petroleum
                                     Company LLC         Susser Petroleum        September 30,         September 30,
                                     Predecessor            Partners LP               2012                 2013
                                  Through September            From
                                       24, 2012         September 25, 2012
                                                                    (in thousands)
Net income                       $            3,043     $             574     $         3,617        $         9,597
Depreciation, amortization and
accretion                                     1,958                    58               2,016                  2,432
Interest expense, net                            89                    24                 113                    921
Income tax expense                            1,735                     4               1,739                    145
EBITDA                                        6,825                   660               7,485                 13,095
Non-cash stock based
compensation (a)                                241                     6                 247                    546
Loss on disposal of assets                      194                     -                 194                    112
Adjusted EBITDA                  $            7,260     $             666     $         7,926        $        13,753
Cash interest expense                                                  18                                        825
State franchise tax expense
(cash)                                                                  4                                         24
Maintenance capital expenditures                                        -                                        211
Distributable cash flow                                 $             644                            $        12,693



                                                                                       Nine Months Ended
                                  Susser Petroleum
                                     Company LLC        Susser Petroleum       September 30,        September 30,
                                     Predecessor           Partners LP              2012                2013
                                  Through September           From
                                      24, 2012         September 25, 2012
                                                                   (in thousands)
Net income                       $           8,420     $             574     $          8,994     $        27,504
Depreciation, amortization and
accretion                                    5,735                    58                5,793               6,090
Interest expense, net                          269                    24                  293               2,370
Income tax expense                           4,809                     4                4,813                 298
EBITDA                                      19,233                   660               19,893              36,262
Non-cash stock based
compensation (a)                               810                     6                  816               1,351
Loss on disposal of assets                     229                     -                  229                 206
Adjusted EBITDA                  $          20,272     $             666     $         20,938     $        37,819
Cash interest expense                                                 18                                    2,084
State franchise tax expense
(cash)                                                                 4                                      165
Maintenance capital expenditures                                       -                                      538
Distributable cash flow                                $             644                          $        35,032

(a) Predecessor allocation of non-cash stock based compensation through September 24, 2012 has been reclassified, and is being reflected in the above reconciliation tables.


The following tables are a summary of our results of operations for the three and nine months ended September 30, 2012, disaggregated for the periods proceeding and following our IPO:

                                                                                       Three Months
                                              Susser Petroleum                            Ended
                                                Company LLC       Susser Petroleum    September 30,
                                                Predecessor         Partners LP            2012
                                             Through September          From
                                                  24, 2012         September 25,
                                                                        2012
                                                                  (in thousands)
Revenues:
Motor fuel sales to third parties            $        434,437     $       24,380     $      458,817
Motor fuel sales to affiliates                        601,485             45,816            647,301
Rental income                                           1,304                 55              1,359
Other income                                            2,033                107              2,140
Total revenue                                       1,039,259             70,358          1,109,617
Gross profit:
Motor fuel gross profit to third parties                8,999                332              9,331
Motor fuel gross profit to affiliates                       2                466                468
Rental income                                           1,304                 55              1,359
Other                                                   1,625                 45              1,670
Total gross profit                                     11,930                898             12,828
Net income                                   $          3,043     $          574     $        3,617
Adjusted EBITDA(1)                           $          7,260     $          666     $        7,926
Distributable cash flow (1)                                       $          644



                                                                                     Nine Months
                                             Susser Petroleum                           Ended
                                               Company LLC      Susser Petroleum    September 30,
                                               Predecessor        Partners LP           2012
                                                 Through              From
                                              September 24,      September 25,
                                                   2012               2012
                                                                (in thousands)
Revenues:
Motor fuel sales to third parties            $    1,339,981     $       24,380     $   1,364,361
Motor fuel sales to affiliates                    1,848,655             45,816         1,894,471
Rental income                                         4,023                 55             4,078
Other income                                          5,764                107             5,871
Total revenue                                     3,198,423             70,358         3,268,781
Gross profit:
Motor fuel gross profit to third parties             27,678                332            28,010
Motor fuel gross profit to affiliates                     5                466               471
Rental income                                         4,023                 55             4,078
Other                                                 4,287                 45             4,332
Total gross profit                                   35,993                898            36,891
Net income                                   $        8,420     $          574     $       8,994
Adjusted EBITDA(1)                           $       20,272     $          666     $      20,938
Distributable cash flow (1)                                     $          644

(1) Defined and reconciled above


Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012
The following discussion of results for the third quarter 2013 compared to the third quarter 2012 reflects the combined results of our Predecessor through September 24, 2012 and SUSP results beginning September 25, 2012 through September 30, 2012 and SUSP results for the third quarter of 2013. The Partnership's post IPO results of operations may not be comparable to our Predecessor's historical results of operations, as further discussed in "Factors Affecting Comparability of our Financial Results" and "Pro Forma Results of Operations."
Revenue. Total revenue for the third quarter of 2013 was $1.2 billion, an increase of $54.1 million, or 4.9%, from the third quarter of 2012. Motor fuel sales to third parties decreased $74.9 million, or 16.3%. This decrease was due to $89.5 million of our Predecessor's 2012 consignment motor fuel sales now being reflected in affiliated sales. Also, the wholesale selling price per gallon of motor fuel decreased 5.5%. This decrease is offset by a 9.3% increase in comparable gallons sold. Motor fuel sales to affiliates increased $128.5 million, or 19.8%, from the third quarter of 2012. Of this increase, $87.9 million related to 2013 consignment motor fuel sales that were previously reflected in third party sales for our Predecessor. The remaining increase consisted of an 8.7% increase in gallons sold to affiliates, offset by a 2.0% decrease in the wholesale selling price of motor fuel. Rental revenue of $2.8 million during the quarter increased by $1.5 million from the prior year due to the acquisition and subsequent leaseback of 30 convenience store locations from SUSS.
Cost of Sales and Gross Profit. Gross profit for the third quarter of 2013 was $18.4 million, an increase of $5.6 million, or 43.4%, over the third quarter of 2012. Gross profit on motor fuel sales to third parties decreased $2.5 million primarily attributable to the shift of consignment sales from third party to affiliated sales, as discussed above. The sales price of motor fuel sold to third parties decreased by 17.2 cents per gallon while the cost of fuel decreased 16.1 cents per gallon resulting in a 1.1 cents per gallon decrease in gross profit. Our Predecessor sold motor fuel to affiliates at cost, resulting in no gross profit on those sales. SUSP sold fuel to affiliates at a gross profit of approximately 3.0 cents per gallon, resulting in $8.1 million gross profit for the three months ended September 30, 2013. Other gross profit of $3.5 million increased by $0.5 million from last year, which was primarily attributable to rental income, offset by the reduction of certain income streams . . .

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