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GLOBAL PARTNERS LP 10-Q 2009

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

x

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2009

 

OR

 

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the transition period from              to

 

Commission file number 001-32593

 

Global Partners LP

(Exact name of registrant as specified in its charter)

 

Delaware

 

74-3140887

(State or other jurisdiction of incorporation
or organization)

 

(I.R.S. Employer Identification No.)

 

P.O. Box 9161
800 South Street
Waltham, Massachusetts 02454-9161

(Address of principal executive offices, including zip code)

 

(781) 894-8800
(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.    Yes o No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  o

Accelerated filer  x

Non-accelerated filer  o

Smaller reporting company  o

 

 

(Do not check if a smaller reporting company)

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o No x

 

The issuer had 7,428,139 common units and 5,642,424 subordinated units outstanding as of May 5, 2009.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

PART I.          FINANCIAL INFORMATION

 

 

 

Item 1.        Financial Statements

 

 

 

Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008

 

 

 

Consolidated Statements of Income for the three months ended March 31, 2009 and 2008

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2008

 

 

 

Consolidated Statements of Partners’ Equity for the three months ended March 31, 2009

 

 

 

Notes to Consolidated Financial Statements

 

 

 

Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

Item 3.        Quantitative and Qualitative Disclosures about Market Risk

 

 

 

Item 4.        Controls and Procedures

 

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1.        Legal Proceedings

 

 

 

Item 1A.     Risk Factors

 

 

 

Item 6.        Exhibits

 

 

 

SIGNATURES

 

 

 

INDEX TO EXHIBITS

 

 



Table of Contents

 

Item 1.    Financial Statements

 

GLOBAL PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(In thousands, except unit data)

(Unaudited)

 

 

 

March 31,

 

December 31,

 

 

 

2009

 

2008

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

2,989

 

$

945

 

Accounts receivable less allowance, net

 

228,332

 

249,418

 

Accounts receivable—affiliates

 

1,096

 

2,518

 

Inventories

 

227,852

 

240,346

 

Brokerage margin deposits

 

13,178

 

8,991

 

Fair value of forward fixed price contracts

 

58,359

 

161,787

 

Prepaid expenses and other current assets

 

29,686

 

29,302

 

Total current assets

 

561,492

 

693,307

 

Property and equipment, net

 

161,527

 

161,988

 

Intangible assets, net

 

30,732

 

31,403

 

Other assets

 

3,729

 

2,564

 

Total assets

 

$

757,480

 

$

889,262

 

 

 

 

 

 

 

Liabilities and partners’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

159,602

 

$

219,783

 

Working capital revolving credit facility—current portion

 

78,186

 

208,210

 

Environmental liabilities—current portion

 

4,206

 

4,191

 

Accrued expenses and other current liabilities

 

64,059

 

54,054

 

Income taxes payable

 

591

 

520

 

Obligations on forward fixed price contracts and other derivatives

 

13,244

 

7,954

 

Total current liabilities

 

319,888

 

494,712

 

Working capital revolving credit facility—less current portion

 

183,914

 

154,090

 

Acquisition facility

 

71,200

 

71,200

 

Environmental liabilities—less current portion

 

2,344

 

2,377

 

Accrued pension benefit cost

 

9,536

 

8,853

 

Deferred compensation

 

1,708

 

1,663

 

Other long-term liabilities

 

11,653

 

12,899

 

Total liabilities

 

600,243

 

745,794

 

 

 

 

 

 

 

Partners’ equity

 

 

 

 

 

Common unitholders (7,428,139 units issued and outstanding at March 31, 2009 and December 31, 2008)

 

170,486

 

163,092

 

Subordinated unitholders (5,642,424 units issued and outstanding at March 31, 2009 and December 31, 2008)

 

1,062

 

(4,189

)

General partner interest (1.73% interest with 230,303 equivalent units outstanding at March 31, 2009 and December 31, 2008)

 

42

 

(172

)

Accumulated other comprehensive loss

 

(14,353

)

(15,263

)

Total partners’ equity

 

157,237

 

143,468

 

Total liabilities and partners’ equity

 

$

757,480

 

$

889,262

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

1



Table of Contents

 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per unit data)

(Unaudited)

 

 

 

Three Months Ended 
March 31,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Sales

 

$

1,632,955

 

$

2,720,992

 

Cost of sales

 

1,582,241

 

2,685,376

 

Gross profit

 

50,714

 

35,616

 

 

 

 

 

 

 

Costs and operating expenses:

 

 

 

 

 

Selling, general and administrative expenses

 

18,075

 

11,073

 

Operating expenses

 

8,475

 

9,025

 

Amortization expenses

 

800

 

724

 

Total costs and operating expenses

 

27,350

 

20,822

 

 

 

 

 

 

 

Operating income

 

23,364

 

14,794

 

 

 

 

 

 

 

Interest expense

 

(3,776

)

(6,030

)

 

 

 

 

 

 

Income before income tax expense

 

19,588

 

8,764

 

 

 

 

 

 

 

Income tax expense

 

(725

)

(145

)

 

 

 

 

 

 

Net income

 

18,863

 

8,619

 

 

 

 

 

 

 

Less: General partner’s interest in net income, including incentive distribution rights

 

(376

)

(199

)

 

 

 

 

 

 

Limited partners’ interest in net income

 

$

18,487

 

$

8,420

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

$

1.41

 

$

0.64

 

 

 

 

 

 

 

Diluted net income per limited partner unit

 

$

1.40

 

$

0.64

 

 

 

 

 

 

 

Basic weighted average limited partners’ units outstanding

 

13,071

 

13,071

 

 

 

 

 

 

 

Diluted weighted average limited partners’ units outstanding

 

13,203

 

13,071

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2



Table of Contents

 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

18,863

 

$

8,619

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

3,713

 

3,492

 

Amortization of deferred financing fees

 

289

 

190

 

Loss on disposition of property and equipment and other

 

 

1

 

Bad debt expense

 

640

 

30

 

Stock-based compensation expense

 

530

 

195

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

20,445

 

68,822

 

Accounts receivable — affiliate

 

1,422

 

1,274

 

Inventories

 

12,494

 

155,523

 

Broker margin deposits

 

(4,187

)

(3,606

)

Prepaid expenses, all other current assets and other assets

 

(1,966

)

(5,334

)

Accounts payable

 

(60,179

)

(78,625

)

Income taxes payable

 

71

 

109

 

Change in fair value of forward fixed price contracts

 

108,719

 

(34,463

)

Accrued expenses and all other current liabilities

 

10,376

 

(18,410

)

Net cash provided by operating activities

 

111,230

 

97,817

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Capital expenditures

 

(2,452

)

(3,195

)

Proceeds from sale of property and equipment

 

 

9

 

Net cash used in investing activities

 

(2,452

)

(3,186

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Payments on credit facilities, net

 

(100,200

)

(86,600

)

Payments on note payable, other

 

 

(83

)

Distributions to partners

 

(6,534

)

(6,534

)

Net cash used in financing activities

 

(106,734

)

(93,217

)

 

 

 

 

 

 

Increase in cash and cash equivalents

 

2,044

 

1,414

 

Cash and cash equivalents at beginning of period

 

945

 

2,110

 

Cash and cash equivalents at end of period

 

$

2,989

 

$

3,524

 

 

 

 

 

 

 

Supplemental information

 

 

 

 

 

Cash paid during the period for interest

 

$

3,903

 

$

6,237

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3



Table of Contents

 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

General

 

Other

 

Total

 

 

 

Common

 

Subordinated

 

Partner

 

Comprehensive

 

Partners’

 

 

 

Unitholders

 

Unitholders

 

Interest

 

Loss

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2008

 

$

163,092

 

$

(4,189

)

$

(172

)

$

(15,263

)

$

143,468

 

Stock-based compensation

 

530

 

 

 

 

530

 

Distributions to partners

 

(3,621

)

(2,751

)

(162

)

 

(6,534

)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

10,485

 

8,002

 

376

 

 

18,863

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of interest rate collars

 

 

 

 

1,152

 

1,152

 

Change in pension liability

 

 

 

 

(242

)

(242

)

Total comprehensive income

 

 

 

 

 

19,773

 

Balance at March 31, 2009

 

$

170,486

 

$

1,062

 

$

42

 

$

(14,353

)

$

157,237

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1.                      Organization and Basis of Presentation

 

Organization

 

Global Partners LP (the “Partnership”) is a publicly traded master limited partnership that engages in the wholesale and commercial distribution of refined petroleum products and small amounts of natural gas and provides ancillary services to companies domestically and, on a limited basis, internationally.

 

The Partnership has four operating subsidiaries:  Global Companies LLC, its subsidiary, Glen Hes Corp., Global Montello Group Corp. and Chelsea Sandwich LLC (the four operating subsidiaries, collectively, the “Companies”).  The Companies (other than Glen Hes Corp.) are wholly owned by Global Operating LLC, a wholly owned subsidiary of the Partnership.  In addition, GLP Finance Corp. (“GLP Finance”) is a wholly owned subsidiary of the Partnership.  GLP Finance has no material assets or liabilities.  Its activities will be limited to co-issuing debt securities and engaging in other activities incidental thereto.

 

The Partnership’s 1.73% general partner interest is held by Global GP LLC, the Partnership’s general partner (the “General Partner”).  The General Partner, which is owned by affiliates of the Slifka family, manages the Partnership’s operations and activities and employs its officers and substantially all of its personnel.  Affiliates of the General Partner, including its directors and executive officers, own 65,824 common units and 5,642,424 subordinated units, representing a combined 42.9% limited partner interest.

 

Basis of Presentation

 

Interim Financial Statements

 

The accompanying consolidated financial statements as of March 31, 2009 and December 31, 2008 and for the three months ended March 31, 2009 and 2008 reflect the accounts of the Partnership.  All intercompany balances and transactions have been eliminated.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial condition and operating results for the interim periods.  The interim financial information, which has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), should be read in conjunction with the consolidated financial statements for the year ended December 31, 2008 and notes thereto contained in the Partnership’s Annual Report on Form 10-K.  The results of operations for the three months ended March 31, 2009 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2009.

 

As demand for some of the Partnership’s refined petroleum products, specifically home heating oil and residual oil for space heating purposes, is generally greater during the winter months, sales are generally higher during the first and fourth quarters of the calendar year which may result in significant fluctuations in the Partnership’s quarterly operating results.

 

The Partnership’s distillate sales accounted for approximately 63% and 60% of total sales for the three months ended March 31, 2009 and 2008, respectively.  Gasoline sales accounted for approximately 31% and 36% for the three months ended March 31, 2009 and 2008, respectively, and residual oil sales accounted for approximately 6% and 4% for the three months ended March 31, 2009 and 2008, respectively.

 

The Partnership had one customer, ExxonMobil Oil Corporation (“ExxonMobil”), who accounted for approximately 15% and 19% of total sales for the three months ended March 31, 2009 and 2008, respectively.

 

5



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1.                      Organization and Basis of Presentation (continued)

 

The consolidated balance sheet at December 31, 2008 has been derived from the audited consolidated financial statements and footnotes thereto included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2008.

 

Reclassification

 

Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation.

 

Note 2.                      Net Income Per Limited Partner Unit

 

On January 1, 2009, the Partnership adopted Emerging Issues Task Force (“EITF”) Issue No. 07-04, “Application of the Two-Class Method under FASB Statement No. 128 to Master Limited Partnerships” (“EITF 07-04”) which specifies the treatment of earnings per unit calculations when incentive distributions rights (“IDRs”) exist in master limited partnerships.  EITF 07-04 provides that net income for the current period is to be reduced by the amount of available cash that will be distributed with respect to that period for purposes of calculating net income per unit.  Any residual amount representing undistributed net income (or losses) is assumed to be allocated to the ownership interests in accordance with the contractual provisions of the partnership agreement.

 

Under the Partnership’s partnership agreement, for any quarterly period, the IDRs participate in net income only to the extent of the amount of cash distributions actually declared, thereby excluding the IDRs from participating in the Partnership’s undistributed net income or losses.  Accordingly, the Partnership’s undistributed net income is assumed to be allocated to the common and subordinated unitholders, or limited partners’ interest, and to the General Partner’s interest.

 

The following table provides a reconciliation of net income and the assumed allocation of net income to the limited partners’ interest for purposes of computing net income per limited partner unit for the quarter ending March 31, 2009 (in thousands, except per unit data):

 

 

 

 

 

Limited

 

General Partner Interest

 

 

 

 

 

Partner

 

General

 

 

 

 

 

Total

 

Interest

 

Partner

 

IDRs

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income

 

$

18,863

 

$

18,487

 

$

376

 

$

 

 

 

 

 

 

 

 

 

 

 

Declared distribution

 

$

6,534

 

$

6,372

 

$

112

 

$

50

 

Assumed allocation of undistributed net income

 

12,329

 

12,115

 

214

 

 

Assumed allocation of net income

 

$

18,863

 

$

18,487

 

$

326

 

$

50

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

 

 

13,071

 

 

 

 

 

Dilutive effect of phantom units

 

 

 

132

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

 

 

13,203

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

 

 

$

1.41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per limited partner unit

 

 

 

$

1.40

 

 

 

 

 

 

The Partnership applied the provisions of EITF No. 07-04 on a retroactive basis which had an immaterial impact on the limited partners’ interest in net income and net income per limited partner unit for the quarter ended March 31, 2008.

 

6



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 2.                      Net Income Per Limited Partner Unit (continued)

 

The following table provides a reconciliation of net income and the assumed allocation of net income to the limited partners’ interest for purposes of computing net income per limited partner unit for the quarter ending March 31, 2008 (in thousands, except per unit data):

 

 

 

 

 

Limited

 

General Partner Interest

 

 

 

 

 

Partner

 

General

 

 

 

 

 

Total

 

Interest

 

Partner

 

IDRs

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income

 

$

8,619

 

$

8,420

 

$

199

 

$

 

 

 

 

 

 

 

 

 

 

 

Declared distribution

 

$

6,534

 

$

6,372

 

$

112

 

$

50

 

Assumed allocation of undistributed net income

 

2,085

 

2,048

 

37

 

 

Assumed allocation of net income

 

$

8,619

 

$

8,420

 

$

149

 

$

50

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

 

 

13,071

 

 

 

 

 

Dilutive effect of phantom units

 

 

 

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

 

 

13,071

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

 

 

$

0.64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per limited partner unit

 

 

 

$

0.64

 

 

 

 

 

 

On April 22, 2009, the board of directors of the General Partner declared a quarterly cash distribution of $0.4875 per unit for the period from January 1, 2009 through March 31, 2009.  This declared cash distribution resulted in an incentive distribution to the General Partner, as the holder of the incentive distribution rights, as indicated above, and enabled the Partnership to reach its second target distribution with respect to such incentive distribution rights.  See Note 9, “Cash Distributions” for further information.

 

Note 3.                      Comprehensive Income

 

The components of comprehensive income consisted of the following (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2009

 

2008

 

Net income

 

$

18,863

 

$

8,619

 

Change in fair value of interest rate collars

 

1,152

 

(2,396

)

Change in pension liability

 

(242

)

(564

)

Total comprehensive income

 

$

19,773

 

$

5,659

 

 

Note 4.                      Inventories

 

The Partnership hedges substantially all of its inventory purchases through futures contracts and swap agreements.  Hedges are executed when inventory is purchased and are identified with that specific inventory.  Changes in the fair value of these contracts, as well as the offsetting gain or loss on the hedged inventory item, are recognized in earnings as an increase or decrease in cost of sales.  All hedged inventory is valued using the lower of cost, as determined by specific identification, or market.  Prior to sale, hedges are removed from specific barrels of inventory, and the then unhedged inventory is sold and accounted for on a first-in, first-out basis.

 

7



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 4.                      Inventories (continued)

 

Inventories consisted of the following (in thousands):

 

 

 

March 31,
2009

 

December 31,
2008

 

Distillates: home heating oil, diesel and kerosene

 

$

147,384

 

$

160,000

 

Residual oil

 

24,086

 

24,878

 

Gasoline

 

38,610

 

40,183

 

Blend stock

 

17,772

 

15,285

 

Total

 

$

227,852

 

$

240,346

 

 

In addition to its own inventory, the Partnership has exchange agreements with unrelated third-party suppliers, whereby it may draw inventory from these other suppliers and suppliers may draw inventory from the Partnership.  Positive exchange balances are accounted for as accounts receivable and amounted to $23.8 million and $14.8 million at March 31, 2009 and December 31, 2008, respectively.  Negative exchange balances are accounted for as accounts payable and amounted to $13.2 million and $8.4 million at March 31, 2009 and December 31, 2008, respectively.  Exchange transactions are valued using current quoted market prices.

 

Note 5.                      Derivative Financial Instruments

 

Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended (“SFAS No. 133”) establishes accounting and reporting standards for derivative instruments and hedging activities and requires that an entity recognize derivatives as either assets or liabilities on the balance sheet and measure the instruments at fair value.  Changes in the fair value of the derivative are to be recognized currently in earnings, unless specific hedge accounting criteria are met.

 

Effective January 1, 2009, the Partnership adopted SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — An Amendment of FASB Statement No. 133” (“SFAS No. 161”) which changes the disclosure requirements for derivative and hedging activities.  SFAS No. 161 requires the Partnership to provide enhanced disclosures about (a) how and why the Partnership uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect the Partnership’s financial position, financial performance and cash flows.

 

The following table presents the volume of activity related to the Partnership’s derivative financial instruments at March 31, 2009:

 

 

 

Units(1)

 

Unit of Measure

 

Oil Contracts

 

 

 

 

 

Long

 

11,117

 

Thousands of barrels

 

Short

 

13,713

 

Thousands of barrels

 

 

 

 

 

 

 

Natural Gas Contracts

 

 

 

 

 

Long

 

30,320

 

Decatherms

 

Short

 

30,320

 

Decatherms

 

 

 

 

 

 

 

Interest Rate Collars

 

$

200,000

 

Thousands of dollars

 

 


(1)    Number of open positions and gross notional amounts do not quantify risk or represent assets or liabilities of the Partnership, but are used in the calculation of cash settlements under the contracts.

 

8



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 5.                      Derivative Financial Instruments (continued)

 

Fair Value Hedges

 

The fair value of the Partnership’s derivatives is determined through the use of independent markets and is based upon the prevailing market prices of such instruments at the date of valuation.  The Partnership enters into futures contracts for the receipt or delivery of refined petroleum products in future periods.  The contracts are entered into in the normal course of business to reduce risk of loss of inventory on hand, which could result through fluctuations in market prices.  Changes in the fair value of these contracts, as well as the offsetting gain or loss on the hedged inventory item, are recognized in earnings as an increase or decrease in cost of sales.  Ineffectiveness related to these hedging activities was immaterial at March 31, 2009.

 

The Partnership also uses futures contracts and swap agreements to hedge exposure under forward purchase and sale commitments.  These agreements are intended to hedge the cost component of virtually all of the Partnership’s forward purchase and sale commitments.  Changes in the fair value of these contracts, as well as offsetting gains or losses on the forward fixed price purchase and sale commitments, are recognized in earnings as an increase or decrease in cost of sales.  Gains and losses on net product margin from forward fixed price purchase and sale contracts are reflected in earnings as these contracts mature.  Ineffectiveness related to these hedging activities was immaterial at March 31, 2009.

 

The following table presents the fair value of the Partnership’s derivative instruments and their location in the Partnership’s consolidated balance sheets at March 31, 2009 and December 31, 2008 (in thousands):

 

 

 

Assets

 

Liabilities

 

 

 

 

 

March 31,

 

December 31,

 

 

 

March 31,

 

December 31,

 

Derivatives Under

 

Balance Sheet

 

2009

 

2008

 

Balance Sheet

 

2009

 

2008

 

SFAS No. 133

 

Location

 

Fair Value

 

Fair Value

 

Location

 

Fair Value

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil product contracts

 

Current assets(1)

 

$

80,926

 

$

215,237

 

Current liabilities(2)

 

$

37,953

 

$

57,506

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other long-term

 

 

 

 

 

Interest rate collars

 

 

 

 

 

liabilities

 

9,695

 

10,847

 

 

 

 

 

$

80,926

 

$

215,237

 

 

 

$

47,648

 

$

68,353

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil product contracts

 

Prepaid expenses and

 

 

 

 

 

Accrued expenses and

 

 

 

 

 

 

 

other current assets

 

2,817

 

6,739

 

other current liabilities

 

1,384

 

6,799

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total derivatives

 

 

 

$

83,743

 

$

221,976

 

 

 

$

49,032

 

$

75,152

 

 


(1)          Fair value of forward fixed price contracts and prepaid expenses and other current assets

(2)          Obligations on forward fixed price contracts and other derivatives and accrued expenses and other current liabilities

 

9



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 5.                      Derivative Financial Instruments (continued)

 

The following table presents the amount of gains and losses from derivatives involved in fair value hedging relationships recognized in the Partnership’s consolidated statements of income for the three months ended March 31, 2009 and 2008 (in thousands):

 

 

 

 

 

Amount of Gain (Loss)

 

Hedged

 

Location of

 

Amount of Gain (Loss)

 

Derivatives in

 

Location of

 

Recognized in Income

 

Items in

 

Gain (Loss)

 

Recognized in Income

 

SFAS No. 133

 

Gain (Loss)

 

on Derivatives

 

SFAS No. 133

 

Recognized in

 

on Hedged Items

 

Fair Value

 

Recognized in

 

Three Months Ended

 

Fair Value

 

Income on

 

Three Months Ended

 

Hedging

 

Income on

 

March 31,

 

March 31,

 

Hedge

 

Related

 

March 31,

 

March 31,

 

Relationship

 

Derivative

 

2009

 

2008

 

Relationships

 

Hedged Item

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil product contracts

 

Cost of sales

 

$

(100,224

)

$

2,532

 

Inventories

 

Cost of sales

 

$

100,580

 

$

(2,522

)

 

The Partnership’s derivative financial instruments do not contain credit-risk-related or other contingent features that could cause accelerated payments when these financial instruments are in net liability positions.

 

The composition and fair value of derivative instruments relating to forward fixed price purchase and sale contracts on the Partnership’s consolidated balance sheet consisted of the following (in thousands):

 

 

 

March 31,
2009

 

December 31,
2008

 

Futures contracts

 

$

40,862

 

$

138,741

 

Swaps and other, net

 

4,253

 

15,092

 

Total

 

$

45,115

 

$

153,833

 

 

The total balances of $45.1 million and $153.8 million reflect the fair value of the forward fixed price contract asset net of the corresponding liability on the accompanying consolidated balance sheets at March 31, 2009 and December 31, 2008, respectively.

 

The Partnership also markets and sells natural gas.  The Partnership generally conducts business by entering into forward purchase commitments for natural gas only when it simultaneously enters into arrangements for the sale of product for physical delivery to third-party users.  The Partnership generally takes delivery under its purchase commitments at the same location as it delivers to third-party users.  Through these transactions, which establish an immediate margin, the Partnership seeks to maintain a position that is substantially balanced between firm forward purchase and sales commitments.  Natural gas is generally purchased and sold at fixed prices and quantities.  Current price quotes from actively traded markets are used in all cases to determine the contracts’ fair value.  Changes in the fair value of these contracts are recognized in earnings as an increase or decrease in cost of sales.

 

The Partnership formally documents all relationships between hedging instruments and hedged items after its risk management objectives and strategy for undertaking the hedge are determined.  The Partnership calculates hedge effectiveness on a quarterly basis.  This process includes specific identification of the hedging instrument and the hedged transaction, the nature of the risk being hedged and how the hedging instrument’s effectiveness will be assessed.  Both at the inception of the hedge and on an ongoing basis, the Partnership assesses whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair value of hedged items.  The derivative instruments that qualify for hedge accounting are fair value hedges.

 

The Partnership has a daily margin requirement with its broker based on the prior day’s market results on open futures contracts.  The required brokerage margin balance was $13.2 million and $9.0 million at March 31, 2009 and December 31, 2008, respectively.

 

10



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 5.                      Derivative Financial Instruments (continued)

 

The Partnership is exposed to credit loss in the event of nonperformance by counterparties of forward purchase and sale commitments, futures contracts, options and swap agreements, but the Partnership has no current reason to expect any material nonperformance by any of these counterparties.  Futures contracts, the primary derivative instrument utilized by the Partnership, are traded on regulated exchanges, greatly reducing potential credit risks.  The Partnership utilizes primarily one clearing broker, a major financial institution, for all New York Mercantile Exchange (“NYMEX”) derivative transactions and the right of offset exists.  Accordingly, the fair value of all derivative instruments is presented on a net basis on the consolidated balance sheets.  Exposure on forward purchase and sale commitments, swap and certain option agreements is limited to the amount of the recorded fair value as of the balance sheet dates.

 

Cash Flow Hedges

 

The Partnership links all hedges that are designated as cash flow hedges to forecasted transactions.  To the extent such hedges are effective, the changes in the fair value of the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings.

 

The Partnership executed two zero premium interest rate collars with major financial institutions.  Each collar is designated as a cash flow hedge and accounted for under the provisions of SFAS No. 133.  The first collar, which became effective on May 14, 2007 and expires on May 14, 2011, is used to hedge the variability in interest payments due to changes in the three-month LIBOR rate with respect to $100.0 million of three-month LIBOR-based borrowings.  Under the first collar, the Partnership capped its exposure at a maximum three-month LIBOR rate of 5.75% and established a minimum floor rate of 3.75%.  As of March 31, 2009, the three-month LIBOR rate of 1.23% was lower than the floor rate.  As a result, in April 2009, the Partnership will remit to the respective financial institution the difference between the floor rate and the current rate which amounted to approximately $300,500 and was recorded in accrued expenses and other current liabilities on the accompanying consolidated balance sheet.  As of March 31, 2009, the fair value of the first collar was a liability of approximately $5.0 million and was recorded in both other long-term liabilities and accumulated other comprehensive income.  Hedge effectiveness was assessed at inception and is assessed quarterly, prospectively and retrospectively.  The changes in the fair value of the first collar are expected to be highly effective in offsetting the changes in interest rate payments attributable to fluctuations in the three-month LIBOR rate above and below the first collar’s strike rates.  Ineffectiveness related to the first collar was immaterial at March 31, 2009.

 

On September 29, 2008, the Partnership executed its second zero premium interest rate collar.  The second collar, which became effective on October 2, 2008 and expires on October 2, 2013, is used to hedge the variability in cash flows in monthly interest payments made on the Partnership’s $100.0 million one-month LIBOR-based borrowings (and subsequent refinancings thereof) due to changes in the one-month LIBOR rate.  Under the second collar, the Partnership capped its exposure at a maximum one-month LIBOR rate of 5.50% and established a minimum floor rate of 2.70%.  As of March 31, 2009, the one-month LIBOR rate of 0.50% was lower than the floor rate.  As a result, in April 2009, the Partnership will remit to the respective financial institution the difference between the floor rate and the current rate which amounted to approximately $184,000 and was recorded in accrued expenses and other current liabilities on the accompanying consolidated balance sheet.  As of March 31, 2009, the fair value of the second collar was a liability of approximately $4.7 million and was recorded in both other long-term liabilities and accumulated other comprehensive income in the accompanying consolidated balance sheet.  Hedge effectiveness was assessed at inception and is assessed quarterly, prospectively and retrospectively, using the regression analysis.  The changes in the fair value of the second collar are expected to be highly effective in offsetting the changes in interest rate payments attributable to fluctuations in the one-month LIBOR rate above and below the second collar’s strike rates.  Ineffectiveness related to the second collar was immaterial at March 31, 2009.

 

11



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 5.                      Derivative Financial Instruments (continued)

 

The following table presents the amount of gains and losses from derivatives involved in cash flow hedging relationships recognized in the Partnership’s consolidated statements of income for the three months ended March 31, 2009 and 2008 (in thousands):

 

 

 

 

 

 

 

Recognized in Income

 

 

 

 

 

 

 

on Derivatives

 

 

 

Amount of Gain (Loss)

 

(Ineffectiveness Portion

 

 

 

Recognized in Other Comprehensive Income

 

and Amount Excluded
from Effectiveness

 

Derivatives in

 

on Derivatives

 

Testing

 

SFAS No. 133

 

Three Months Ended

 

Three Months Ended

 

Cash Flow

 

March 31,

 

March 31,

 

March 31,

 

March 31,

 

Hedging Relationship

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Interest rate collars

 

$

1,152

 

$

(2,396

)

$

 

$

 

 

Ineffectiveness related to the interest rate collars was immaterial at March 31, 2009.

 

Hedges Not Involved in a SFAS No. 133 Relationship

 

While the Partnership seeks to maintain a position that is substantially balanced within its product purchase activities, it may experience net unbalanced positions for short periods of time as a result of variances in daily sales and transportation and delivery schedules as well as logistical issues associated with inclement weather conditions.  In connection with managing these positions and maintaining a constant presence in the marketplace, both necessary for its business, the Partnership engages in a controlled trading program for up to an aggregate of 250,000 barrels of refined petroleum products at any one point in time.

 

The following table presents the amount of gains and losses from derivatives not involved in a SFAS No. 133 hedging relationships recognized in the Partnership’s consolidated statements of income for the three months ended March 31, 2009 and 2008 (in thousands):

 

 

 

 

 

Amount of Gain (Loss)

 

 

 

Location of

 

Recognized in Income

 

 

 

Gain (Loss)

 

on Derivatives

 

 

 

Recognized in

 

Three Months Ended

 

Derivatives Not Designated as Hedging

 

Income on

 

March 31,

 

March 31,

 

Instruments Under SFAS No. 133

 

Derivatives

 

2009

 

2008

 

 

 

 

 

 

 

 

 

Oil product contracts

 

Cost of sales

 

$

3,985

 

$

5,555

 

 

Note 6.                      Debt

 

The Partnership has a senior secured credit agreement (the “Credit Agreement”) with total available commitments of $750.0 million.  There are three facilities under the Credit Agreement:

 

·                  a working capital revolving credit facility to be used for working capital purposes and letters of credit in the principal amount equal to the lesser of the Partnership’s borrowing base and $650.0 million; the $650.0 million includes two $50.0 million seasonal overline facilities that are available each year only during the period between September 1 and June 30;

 

·                  an $85.0 million acquisition facility to be used for funding acquisitions similar to the Partnership’s business line that have a purchase price of $25.0 million or less or $35.0 million or less in the aggregate in any 12-month period; and

 

·                  a $15.0 million revolving credit facility to be used for general purposes, including payment of distributions to the Partnership’s unitholders.

 

12



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 6.                      Debt (continued)

 

In addition, the Credit Agreement has an accordion feature whereby the Partnership may request on the same terms and conditions of its then existing Credit Agreement, provided no Event of Default (as defined in the Credit Agreement) then exists, an increase to:  (1) the acquisition facility by up to another $50.0 million, for a total acquisition facility of up to $135.0 million; and (2) the working capital revolving credit facility by up to another $200.0 million, for a total working capital revolving credit facility of up to $850.0 million.  Any such request for an increase by the Partnership must be in a minimum amount of $5.0 million, and no more than three such requests may be made for each facility.  The Partnership, however, cannot provide assurance that its lending group will agree to fund any request by the Partnership for additional amounts in excess of the total available commitments of $750.0 million.

 

Availability under the Partnership’s working capital revolving credit facility is subject to a borrowing base which is redetermined from time to time and based on specific advance rates on eligible current assets.  Under the Credit Agreement, the Partnership can borrow only up to the level of its then current borrowing base.  Availability under the Partnership’s borrowing base may be affected by events beyond the Partnership’s control, such as changes in refined petroleum product prices, collection cycles, counterparty performance, advance rates and limits and deteriorating economic conditions.  These and other events could require the Partnership to seek waivers or amendments of covenants or alternative sources of financing or to reduce expenditures.  The Partnership can provide no assurance that such waivers, amendments or alternative financing could be obtained or, if obtained, would be on terms acceptable to the Partnership.

 

During the period from January 1, 2008 through July 20, 2008, borrowings under the Partnership’s working capital revolving credit, acquisition and revolving credit facilities bore interest at the Partnership’s option at (1) the Eurodollar rate, plus 1%, 1½% and 1½%, respectively, (2) the cost of funds rate, plus 1%, 1¾% and 1½%, respectively, or (3) the bank’s base rate.

 

Commencing July 21, 2008, borrowings under the working capital revolving credit facility bear interest at (1) the Eurodollar rate plus 1.75% to 2.25%, (2) the cost of funds rate plus 1.75% to 2.25%, or (3) the base rate plus 0.75% to 1.25%, each depending on the pricing level provided in the Credit Agreement, as amended, which in turn depends upon the Combined Interest Coverage Ratio (as such term is defined in the Credit Agreement).  Commencing July 21, 2008, borrowings under the acquisition and revolving credit facilities bear interest at (1) the Eurodollar rate plus 2.25% to 2.75%, (2) the cost of funds rate plus 1.75% to 2.25%, or (3) the base rate plus 0.75% to 1.25%, each depending on the pricing level provided in the Credit Agreement, as amended, which in turn depends upon the Combined Interest Coverage Ratio.  The average interest rates for the three months ended March 31, 2009 and 2008 were approximately 3.9% and 4.6%, respectively.

 

In addition, the Partnership executed two zero premium interest rate collars with major financial institutions.  The first collar, which became effective on May 14, 2007, is used to hedge the variability in interest payments due to changes in the three-month LIBOR rate with respect to $100.0 million of three-month LIBOR-based borrowings.  The second collar, which became effective on October 2, 2008, is used to hedge the variability in cash flows in monthly interest payments made on the Partnership’s $100.0 million one-month LIBOR-based borrowings (and subsequent refinancings thereof) due to changes in the one-month LIBOR rate (see Note 5 for further discussion on the interest rate collars).

 

The Partnership incurs a letter of credit fee of 2% per annum for each letter of credit issued.  In addition, the Partnership incurs a commitment fee on the unused portion of the three facilities under the Credit Agreement (including the unused portion of either of the seasonal overline facilities exercised by the Partnership) equal to 0.3% to 0.375% per annum, depending on the pricing level and the Combined Interest Coverage Ratio provided in the Credit Agreement.  The Partnership also incurs a facility fee of 0.1% per annum on any unexercised seasonal overline facility during the period between September 1 and June 30 and a seasonal overline fee of $30,000 each time the Partnership elects to exercise either of the seasonal overline facilities.

 

13



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 6.       Debt (continued)

 

The Credit Agreement will mature on April 22, 2011.  The Partnership classifies a portion of its working capital revolving credit facility as a long-term liability because the Partnership has a multi-year, long-term commitment from its bank group.  The long-term portion of the working capital revolving credit facility was $183.9 million and $154.1 million at March 31, 2009 and December 31, 2008, respectively, representing the amounts expected to be outstanding during the year.  In addition, the Partnership classifies a portion of its working capital revolving credit facility as a current liability because it repays amounts outstanding and reborrows funds based on its working capital requirements.  The current portion of the working capital revolving credit facility was approximately $78.2 million and $208.2 million at March 31, 2009 and December 31, 2008, respectively, representing the amounts the Partnership expects to pay down during the course of the year.

 

As of March 31, 2009, the Partnership had total borrowings outstanding under the Credit Agreement of $333.3 million, including $71.2 million outstanding on the acquisition facility.  In addition, the Partnership had outstanding letters of credit of $61.0 million.  The total remaining availability for borrowings and letters of credit at March 31, 2009 and December 31, 2008 was $355.7 million and $211.3 million, respectively.

 

The Credit Agreement is secured by substantially all of the assets of the Partnership and each of the Companies and is guaranteed by the General Partner.  The Credit Agreement imposes certain requirements including, for example, a prohibition against distributions if any potential default or Event of Default (as defined in the Credit Agreement) would occur, and limitations on the Partnership’s ability to grant liens, make certain loans or investments, incur additional indebtedness or guarantee other indebtedness, make any material change to the nature of the Partnership’s business or undergo a fundamental change, make any material dispositions, acquire another company, enter into a merger, consolidation, sale leaseback transaction or purchase of assets, or make capital expenditures in excess of specified levels.

 

The Credit Agreement imposes financial covenants that require the Partnership to maintain certain minimum working capital amounts, capital expenditure limits, a minimum EBITDA ratio, a minimum combined interest coverage ratio and a maximum leverage ratio.  The Partnership was in compliance with the foregoing covenants at March 31, 2009.  The Credit Agreement also contains a representation whereby there can be no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect (as defined in the Credit Agreement).

 

The Credit Agreement also requires that in each calendar year, the outstanding amount under the working capital revolving credit facility must be equal to or less than $263.0 million for a period of ten consecutive calendar days.  The Partnership has complied with this provision for the year ending December 31, 2009.

 

The Credit Agreement limits distributions by the Partnership to its unitholders to the amount of the Partnership’s available cash and permits borrowings to fund such distributions only under the $15.0 million revolving credit facility.  The revolving credit facility is subject to an annual “clean-down” period, requiring the Partnership to reduce the amount outstanding under the revolving credit facility to $0 for 30 consecutive calendar days in each calendar year.  The Partnership has complied with this provision for the year ending December 31, 2009.

 

The lending group under the Credit Agreement includes the following institutions:  Bank of America, N.A.; Standard Chartered Bank; JPMorgan Chase Bank, N.A.; Societe Generale; RBS Citizens, National Association; Sovereign Bank; Fortis Capital Corp.; Webster Bank National Association; KeyBank National Association; TD Bank, N.A. (f/k/a TD BankNorth, N.A.); Wells Fargo Bank, N.A.; Wachovia Bank, National Association; and Calyon New York Branch.

 

14



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 7.                      Employee Benefit Plan with Related Party

 

The General Partner employs substantially all of the Partnership’s employees and charges the Partnership for their services.  The Partnership also reimburses the General Partner for its contributions under the General Partner’s 401(k) Savings and Profit Sharing Plan and the General Partner’s qualified and non-qualified pension plans.  The Partnership’s net periodic benefit cost for the defined benefit pension plan consisted of the following components (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2009

 

2008

 

Service cost

 

$

325

 

$

265

 

Interest cost

 

229

 

200

 

Expected return on plan assets

 

(161

)

(165

)

Recognized net actuarial loss

 

48

 

 

Net periodic benefit cost

 

$

441

 

$

300

 

 

Note 8.                      Related Party Transactions

 

The Partnership is a party to a Second Amended and Restated Terminal Storage Rental and Throughput Agreement with Global Petroleum Corp. (“GPC”), an affiliate of the Partnership, which extends through December 2013 with annual renewal options thereafter.  The agreement is accounted for as an operating lease.  The expenses under this agreement totaled approximately $2.1 million for each of the three months ended March 31, 2009 and 2008.

 

Pursuant to an Amended and Restated Services Agreement with GPC, GPC provides certain terminal operating management services to the Partnership and uses certain administrative, accounting and information processing services of the Partnership.  The expenses from these services totaled approximately $21,500 for each of the three months ended March 31, 2009 and 2008.  These charges were recorded in selling, general and administrative expenses in the accompanying consolidated statements of income.  The agreement is for an indefinite term, and either party may terminate its receipt of some or all of the services thereunder upon 180 days’ notice at any time after January 1, 2009.

 

Pursuant to the Partnership’s Amended and Restated Services Agreement with Alliance Energy LLC (formerly known as Alliance Energy Corp.) (“Alliance”), the Partnership also provides certain administrative, accounting and information processing services, and the use of certain facilities, to Alliance, an affiliate of the Partnership that is wholly owned by AE Holdings Corp., which is approximately 95% owned by members of the Slifka family.  The income from these services was approximately $212,000 and $216,500 for the three months ended March 31, 2009 and 2008, respectively.  These fees were recorded as an offset to selling, general and administrative expenses in the accompanying consolidated statements of income.  The agreement extends through January 1, 2010.

 

The Partnership sells refined petroleum products to Alliance at prevailing market prices at the time of delivery.  Sales to Alliance were approximately $2.7 million and $5.8 million for the three months ended March 31, 2009 and 2008, respectively.

 

The General Partner employs substantially all of the Partnership’s employees and charges the Partnership for their services.  The expenses for the three months ended March 31, 2009 and 2008, including payroll, payroll taxes and bonus accruals, were $12.3 million and $7.7 million, respectively.  The Partnership also reimburses the General Partner for its contributions under the General Partner’s 401(k) Savings and Profit Sharing Plan and the General Partner’s qualified and non-qualified pension plans.

 

15



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 8.                     Related Party Transactions (continued)

 

The table below presents trade receivables with Alliance, receivables incurred in connection with the services agreements between Alliance and the Partnership and GPC and the Partnership, as the case may be, and receivables from the General Partner (in thousands):

 

 

 

March 31,
2009

 

December 31,
2008

 

Receivables from Alliance

 

$

472

 

$

383

 

Receivables from GPC

 

255

 

325

 

Receivables from the General Partner (1)

 

369

 

1,810

 

Total

 

$

1,096

 

$

2,518

 

 


(1)          Receivables from the General Partner reflect the Partnership’s prepayment of payroll taxes and payroll accruals to the General Partner.

 

Note 9.                     Cash Distributions

 

The Partnership intends to consider regular cash distributions to unitholders on a quarterly basis, although there is no assurance as to the future cash distributions since they are dependent upon future cash flows, capital requirements, financial condition and other factors.  The Credit Agreement prohibits the Partnership from making cash distributions if any potential default or event of default, as defined in the Credit Agreement, occurs or would result from the cash distribution.

 

Within 45 days after the end of each quarter, the Partnership will distribute all of its available cash (as defined in its partnership agreement) to unitholders of record on the applicable record date.  The amount of available cash is all cash on hand at the end of the quarter; plus all cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made after the end of the quarter; less the amount of cash reserves established by the General Partner to provide for the proper conduct of the Partnership’s business, to comply with applicable law, any of the Partnership’s debt instruments, or other agreements or to provide funds for distributions to unitholders and to the General Partner for any one or more of the next four quarters.  Working capital borrowings are generally borrowings that are made under the Credit Agreement and in all cases are used solely for working capital purposes or to pay distributions to partners.

 

The Partnership will make distributions of available cash from operating surplus for any quarter during the subordination period as defined in its partnership agreement in the following manner: firstly, 98.27% to the common unitholders, pro rata, and 1.73% to the General Partner, until the Partnership distributes for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter; secondly, 98.27% to the common unitholders, pro rata, and 1.73% to the General Partner, until the Partnership distributes for each outstanding common unit an amount equal to any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period; thirdly, 98.27% to the subordinated unitholders, pro rata, and 1.73% to the General Partner, until the Partnership distributes for each subordinated unit an amount equal to the minimum quarterly distribution for that quarter; and thereafter, cash in excess of the minimum quarterly distributions is distributed to the unitholders and the General Partner, as the holder of the incentive distribution rights, based on the percentages as provided below.

 

16



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 9.                      Cash Distributions (continued)

 

As the holder of the incentive distribution rights, the General Partner is entitled to incentive distributions if the amount that the Partnership distributes with respect to any quarter exceeds specified target levels shown below:

 

 

 

Total Quarterly Distribution

 

Marginal Percentage Interest in
Distributions

 

 

 

Target Amount

 

Unitholders

 

General Partner

 

Minimum Quarterly Distribution

 

$0.4125

 

98.27

%

1.73

%

First Target Distribution

 

Up to $0.4625

 

98.27

%

1.73

%

Second Target Distribution

 

above $0.4625 up to $0.5375

 

85.27

%

14.73

%

Third Target Distribution

 

above $0.5375 up to $0.6625

 

75.27

%

24.73

%

Thereafter

 

above $0.6625

 

50.27

%

49.73

%

 

The Partnership paid the following cash distribution during 2009 (in thousands, except per unit data):

 

Cash
Distribution
Payment Date

 

Per Unit
Cash
Distribution

 

Common
Units

 

Subordinated
Units

 

General
Partner

 

Incentive Distribution

 

Total Cash
Distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

02/13/09(1)

 

$

0.4875

 

$

3,621

 

$

2,751

 

$

112

 

$

50

 

$

6,534

 

 


(1)          This distribution of $0.4875 per unit resulted in the Partnership reaching its second target distribution for the fourth quarter of 2008.  As a result, the General Partner received this additional incentive distribution

 

On April 22, 2009, the board of directors of the General Partner declared a quarterly cash distribution of $0.4875 per unit for the period from January 1, 2009 through March 31, 2009 ($1.95 per unit on an annualized basis).  On May 15, 2009, the Partnership will pay this cash distribution to its common and subordinated unitholders of record as of the close of business May 7, 2009.  This distribution will result in the Partnership reaching its second target distribution for the quarter ended March 31, 2009.

 

Note 10.               Segment Reporting

 

The Partnership is a wholesale and commercial distributor of gasoline, distillates and residual oil whose business is organized within two operating segments, Wholesale and Commercial, based on the way the chief operating decision maker (CEO) manages the business and on the similarity of customers and expected long-term financial performance of each segment.  The accounting policies of the segments are the same as those described in Note 2, “Summary of Significant Accounting Policies,” in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2008.

 

In the Wholesale segment, the Partnership sells gasoline, home heating oil, diesel, kerosene and residual oil to unbranded retail gasoline stations and other resellers of transportation fuels, home heating oil retailers and wholesale distributors.  Generally, customers use their own vehicles or contract carriers to take delivery of the product at bulk terminals and inland storage facilities that the Partnership owns or controls or with which it has throughput arrangements.

 

The Commercial segment includes (1) sales and deliveries of unbranded gasoline, home heating oil, diesel, kerosene, residual oil and small amounts of natural gas to customers in the public sector and to large commercial and industrial customers, either through a competitive bidding process or through contracts of various terms, and (2) sales of custom blended distillates and residual oil delivered by barges or from a terminal dock.  Commercial segment customers include federal and state agencies, municipalities, large industrial companies, many autonomous authorities such as transportation authorities and water resource authorities, colleges and universities and a limited group of small utilities.  Unlike the Wholesale segment, in the Commercial segment, the Partnership generally arranges the delivery of the product to the customer’s designated location, typically hiring third-party common carriers to deliver the product.

 

17



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 10.              Segment Reporting (continued)

 

The Partnership evaluates segment performance based on net product margins before allocations of corporate and indirect operating costs, depreciation, amortization (including non-cash charges) and interest.  Based on the way the CEO manages the business, it is not reasonably possible for the Partnership to allocate the components of operating costs and expenses between the reportable segments.  Additionally, due to the commingled nature and uses of the Partnership’s assets, it is not reasonably possible for the Partnership to allocate assets between the two segments.  There were no intersegment sales for any of the periods presented below.

 

Summarized financial information for the Partnership’s reportable segments is presented in the table below (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2009

 

2008

 

Wholesale Segment:

 

 

 

 

 

Sales

 

 

 

 

 

Distillates

 

$

1,006,616

 

$

1,603,410

 

Gasoline

 

501,659

 

975,068

 

Residual oil

 

11,490

 

18,357

 

Total

 

$

1,519,765

 

$

2,596,835

 

Net product margin (1)

 

 

 

 

 

Distillates

 

$

33,853

 

$

23,092

 

Gasoline

 

11,786

 

8,544

 

Residual oil

 

2,820

 

3,896

 

Total

 

$

48,459

 

$

35,532

 

Commercial Segment:

 

 

 

 

 

Sales

 

$

113,190

 

$

124,157

 

Net product margin (1)

 

$

4,928

 

$

2,606

 

Combined sales and net product margin:

 

 

 

 

 

Sales

 

$

1,632,955

 

$

2,720,992

 

Net product margin (1)

 

$

53,387

 

$

38,138

 

Depreciation allocated to cost of sales

 

2,673

 

2,522

 

Combined gross profit

 

$

50,714

 

$

35,616

 

 


(1)            Net product margin is a non-GAAP financial measure used by management and external users of the Partnership’s consolidated financial statements to assess the Partnership’s business.  The table above reconciles net product margin on a combined basis to gross profit, a directly comparable GAAP measure.

 

18



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 10.              Segment Reporting (continued)

 

A reconciliation of the totals reported for the reportable segments to the applicable line items in the consolidated financial statements is as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2009

 

2008

 

Combined gross profit

 

$

50,714

 

$

35,616

 

Operating costs and expenses not allocated to reportable segments:

 

 

 

 

 

Selling, general and administrative expenses

 

18,075

 

11,073

 

Operating expenses

 

8,475

 

9,025

 

Amortization expenses

 

800

 

724

 

Total operating costs and expenses

 

27,350

 

20,822

 

Operating income

 

23,364

 

14,794

 

Interest expense

 

(3,776

)

(6,030

)

Income tax expense

 

(725

)

(145

)

Net income

 

$

18,863

 

$

8,619

 

 

There were no foreign sales for the three months ended March 31, 2009 and 2008.  The Partnership has no foreign assets.

 

Note 11.              Environmental Liabilities

 

The Partnership currently owns or leases properties where refined petroleum products are being or have been handled.  These properties and the refined petroleum products handled thereon may be subject to federal and state environmental laws and regulations.  Under such laws and regulations, the Partnership could be required to remove or remediate containerized hazardous liquids or associated generated wastes (including wastes disposed of or abandoned by prior owners or operators), to clean up contaminated property arising from the release of liquids or wastes to the environment, including contaminated groundwater, or to implement best management practices to prevent future contamination.

 

The Partnership maintains insurance of various types with varying levels of coverage that it considers adequate under the circumstances to cover its operations and properties.  The insurance policies are subject to deductibles that the Partnership considers reasonable and not excessive.  In addition, the Partnership has entered into indemnification agreements with various sellers in conjunction with several of its acquisitions.  Allocation of environmental liability is an issue negotiated in connection with each of the Partnership’s acquisition transactions.  In each case, the Partnership makes an assessment of potential environmental liability exposure based on available information.  Based on that assessment and relevant economic and risk factors, the Partnership determines whether to, and the extent to which it will, assume liability for existing environmental conditions.

 

In connection with the November 2007 acquisition of ExxonMobil’s Glenwood Landing and Inwood, New York terminals, the Partnership assumed certain environmental liabilities, including the remediation obligations under remedial action plans submitted by ExxonMobil to and approved by the New York Department of Environmental Conservation (“NYDEC”) with respect to both terminals.  As a result, the Partnership recorded, on an undiscounted basis, total environmental liabilities of approximately $1.2 million, of which approximately $0.6 million was paid by the Partnership for the year ended December 31, 2008.  The remaining liability of $0.6 million was recorded as a current liability of $0.4 million and a long-term liability of $0.2 million on the accompanying consolidated balance sheet at March 31, 2009.  The remedial action plans submitted by ExxonMobil have been implemented by Global Companies LLC.  The Partnership does not believe that compliance with the terms thereof will result in material costs in excess of the environmental reserve or have a material impact on its operations.

 

19



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 11.               Environmental Liabilities

 

In connection with the May 2007 acquisition of ExxonMobil’s Albany and Newburgh, New York and Burlington, Vermont terminals, the Partnership assumed certain environmental liabilities, including the remediation obligations under a proposed remedial action plan submitted by ExxonMobil to NYDEC with respect to the Albany, New York terminal. As a result, the Partnership recorded, on an undiscounted basis, total environmental liabilities of approximately $8.0 million, of which approximately $0.1 million was paid for the year ended December 31, 2008 for a balance of $7.9 million.  In June 2008, the Partnership submitted a remedial action work plan to NYDEC, implementing NYDEC’s conditional approval of the remedial action plan submitted by ExxonMobil.  Although NYDEC has not yet officially approved the remedial action work plan submitted by the Partnership, the Partnership has responded to NYDEC’s requests for additional information and conducted pilot tests for the remediation outlined in the work plan.  Based on the results of such pilot tests, the Partnership changed its estimate and reduced the environmental liability by $2.8 million.  In connection with the foregoing, the Partnership paid approximately $15,000 for the three months ended March 31, 2009.  The remaining liability of $5.0 million was recorded as a current liability of $2.9 million and a long-term liability of $2.1 million on the accompanying consolidated balance sheet at March 31, 2009.  Subject to NYDEC’s approval of the proposed remedial action work plan, the Partnership does not believe that compliance with the terms thereof will result in material costs in excess of the environmental reserve or have a material impact on its operations.

 

Global Companies LLC, in addition to several affiliates, has been named as one of over 50 defendants in two lawsuits alleging methyl tertiary-butyl ether (“MTBE”) contamination of groundwater in Massachusetts.  MTBE is an oxygenate that has been used extensively to reduce motor vehicle tailpipe emissions.  In the cases of Town of Duxbury, et al. v. Amerada Hess Corp., et al., filed December 31, 2003, and City of Lowell v. Amerada Hess Corp., et al., filed December 30, 2004, plaintiffs allege that manufacturers, refiners and others involved in the distribution of gasoline containing MTBE are liable for the costs of investigating possible MTBE groundwater contamination, treating such contaminated groundwater where found, and related relief including treble damages and injunctive relief.  The plaintiffs in these cases generally claim to be public water providers or municipal or other government authorities.  These cases have been consolidated in multi-district litigation with over 60 other MTBE cases in federal court in the Southern District of New York.  The Partnership entered into an agreement, in principle, to settle these cases and, as a result, the Partnership recorded $0.9 million as a current environmental liability on the accompanying consolidated balance sheet at March 31, 2009.  The Partnership does not believe that settlement of these cases will have a material impact on its operations.

 

The Partnership’s estimates used in these reserves are based on all known facts at the time and its assessment of the ultimate remedial action outcomes.  Among the many uncertainties that impact the Partnership’s estimates are the necessary regulatory approvals for, and potential modification of, its remediation plans, the amount of data available upon initial assessment of the impact of soil or water contamination, changes in costs associated with environmental remediation services and equipment and the possibility of existing legal claims giving rise to additional claims.  Therefore, although the Partnership believes that the reserve is adequate, no assurances can be made that any costs incurred in excess of this reserve or outside of indemnifications or not otherwise covered by insurance would not have a material adverse effect on the Partnership’s financial condition, results of operations or cash flows.

 

Note 12.               Long-Term Incentive Plan

 

In October 2005, the General Partner adopted a Long-Term Incentive Plan (“LTIP”) whereby 564,242 common units were authorized for issuance.  Any units delivered pursuant to an award under the LTIP may be acquired in the open market or from any affiliate, be newly issued units or any combination of the foregoing.  The LTIP provides for awards to employees, consultants and directors of the General Partner and employees and consultants of affiliates of the Partnership who perform services for the Partnership.  The LTIP allows for the award of unit options, unit appreciation rights, restricted units, phantom units and distribution equivalent rights (“DERs”).

 

20



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 12.               Long-Term Incentive Plan (continued)

 

Long-Term Incentive Plan

 

On August 14, 2007, the Compensation Committee of the board of directors of the General Partner granted awards of phantom units and associated DERs under the LTIP to certain employees and non-employee directors of the General Partner.  The phantom units granted will cliff vest on December 31, 2009 and become payable on a one-for-one basis in common units of the Partnership (or cash equivalent) upon the achievement of certain performance goals over the vesting period.  The DERs that were granted in tandem with the phantom units will vest and become payable in cash simultaneously with the vesting of the phantom units.  Any phantom units and associated DERs that have not vested as of the end of the cliff vesting period will be forfeited.  The Partnership currently intends and reasonably expects to issue and deliver the common units upon vesting.

 

SFAS No. 123(R), “Share-Based Payment,” requires that a non-vested equity share unit awarded to an employee is to be measured at its fair value as if it were vested and issued on the grant date.  The fair value of the Partnership’s award at the August 14, 2007 grant date approximated the fair value of the Partnership’s common unit at that date.

 

SFAS No. 123(R) requires compensation cost for an award of share-based employee compensation classified as equity, as is the case of the Partnership’s award, to be recognized over the requisite service period.  The requisite service period for this award is from August 14, 2007, the grant date, through December 31, 2009, the vesting date.  The Partnership will recognize as compensation expense the value of the portion of the award that is ultimately expected to vest over the Requisite Service Period on a straight-line basis.  In accordance with SFAS No. 123(R), the Partnership estimated forfeitures at the time of grant.  Such estimates, which were based on the Partnership’s service and performance history, are revised, if necessary, in subsequent periods if actual forfeitures differ from estimates.

 

With respect to these awards, the Partnership recorded compensation expenses of approximately $0.2 million for each of the three months ended March 31, 2009 and 2008, which are included in selling, general and administrative expenses in the accompanying consolidated statements of income.  The total compensation cost related to the non-vested awards not yet recognized at March 31, 2009 is approximately $0.6 million and is expected to be recognized ratably over the remaining Requisite Service Period.

 

Three-Year Phantom Units

 

On December 31, 2008, the Compensation Committee of the board of directors of the General Partner granted 99,700 phantom units to a named executive officer, including a contingent right to receive an amount in cash equal to the number of phantom units multiplied by the cash distribution per common unit made by the Partnership from time to time during the period the phantom units are outstanding.  The phantom units, which are subject to graded vesting, will vest in six equal installments on June 30 and December 31 of each year commencing June 30, 2009.  Compensation expense related to these phantom units is recognized using the accelerated attribution method.  The Partnership recorded compensation expense related to this phantom unit award of approximately $0.2 million for the three months ended March 31, 2009, which is included in selling, general and administrative expenses in the accompanying consolidated statement of income.  The total compensation cost related to the non-vested awards not yet recognized at March 31, 2009 is approximately $0.9 million and is expected to be recognized over the remaining three-year requisite service period.

 

Five-Year Phantom Units

 

On February 5, 2009, the Compensation Committee of the board of directors of the General Partner granted awards of 277,777 phantom units under the LTIP to certain employees of the General Partner.  The phantom units will vest and become payable on a one-for-one basis in common units of the Partnership (and/or cash in lieu thereof) on December 31, 2013 (or potentially sooner as described below), subject in each case to continued employment of the respective employee and subject to a performance goal for the phantom units granted to one of the recipients.  Any phantom units that have not vested as of the end of the five year cliff vesting period will be forfeited.

 

21



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 12.               Long-Term Incentive Plan (continued)

 

All or a portion of the phantom units granted to the employees may vest earlier than December 31, 2013 if the Average Unit Price (as defined below) equals or exceeds specified target prices during specified periods.  Specifically, if the Average Unit Price equals or exceeds: (i) $21.00 at any time prior to December 31, 2013, then 25% of the phantom units will automatically vest; (ii) $27.00 at any time during the period from February 5, 2011 through December 31, 2013, then an additional 25% of the phantom units will automatically vest; and (iii) $34.00 at any time during the period from June 5, 2012 through December 31, 2013, then all of the remaining phantom units will automatically vest. “Average Unit Price” means the average closing price of the Partnership’s common unit for any 10-consecutive trading day period.

 

The fair value of the Partnership’s award at the February 5, 2009 grant date approximated the fair value of the Partnership’s common unit at that date, reduced by the present value of the distributions stream on the equivalent number of common units over the derived service period.  Compensation cost is recognized ratably over the derived service period which was determined for each tranche using the Monte Carlo simulation model.  The Partnership recorded compensation expense related to this phantom units award of approximately $0.1 million for the three months ended March 31, 2009, which is included in selling, general and administrative expenses in the accompanying consolidated statement of income.  The total compensation cost related to the non-vested awards not yet recognized at March 31, 2009 is approximately $0.9 million and is expected to be recognized ratably over the remaining derived service periods.

 

Status of Non-Vested Units

 

The following table presents a summary of the status of the non-vested units as of March 31, 2009:

 

 

 

Number of
Non-vested
Units

 

Weighted
Average
Grant Date
Fair Value

 

Outstanding non-vested units at January 1, 2009

 

162,320

 

$

18.13

 

Granted

 

277,777

 

3.73

 

Vested

 

 

 

Forfeited

 

 

 

Outstanding non-vested units at March 31, 2009

 

440,097

 

$

9.04

 

 

Note 13.               Fair Value Measurements

 

SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.

 

SFAS No. 157 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into the following three levels:

 

Level 1

 

 

Observable inputs such as quoted prices in active markets for identical assets or liabilities.

 

 

 

 

 

Level 2

 

 

Inputs other than the quoted prices in active markets that are observable for assets or liabilities, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in inactive markets.

 

 

 

 

 

Level 3

 

 

Unobservable inputs based on the entity’s own assumptions.

 

22



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 13.               Fair Value Measurements (continued)

 

The following table presents those financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2009 (in thousands):

 

 

 

Fair Value

 

 

 

 

 

 

 

 

 

March 31,

 

Fair Value Measurements Using

 

 

 

2009

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

Hedged inventories

 

$

219,483

 

$

 

$

219,483

 

$

 

Fair value of forward fixed price contracts

 

58,359

 

 

58,359

 

 

Swap agreements and options

 

2,110

 

1,120

 

990

 

 

Total assets

 

$

279,952

 

$

1,120

 

$

278,832

 

$

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Obligations on forward fixed price contracts

 

$

(13,244

)

$

 

$

(13,244

)

$

 

Swap agreements and option contracts

 

(2,803

)

(91

)

(2,712

)

 

Interest rate collars

 

(9,695

)

 

(9,695

)

 

Total liabilities

 

$

(25,742

)

$

(91

)

$

(25,651

)

$

 

 

For assets and liabilities measured on a non-recurring basis during the period, SFAS No. 157 requires quantitative disclosures about the fair value measurements separately for each major category.  During the quarter ended March 31, 2009, the Partnership did not remeasure assets or liabilities at fair value on a non-recurring basis.

 

Note 14.              Income Taxes

 

The following table presents a reconciliation of the difference between the statutory federal income tax rate and the effective income tax rate for the periods presented:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2009

 

2008

 

Federal statutory income tax rate

 

34

%

34

%

State income tax rate, net of federal tax benefit

 

6.4

%

6.4

%

Partnership income not subject to tax

 

(36.7

)%

(38.7

)%

Effective income tax rate

 

3.7

%

1.7

%

 

Note 15.              Legal Proceedings

 

General

 

Although the Partnership may, from time to time, be involved in litigation and claims arising out of its operations in the normal course of business, the Partnership does not believe that it is a party to any litigation that will have a material adverse impact on its financial condition or results of operations.  Except as described in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2008 and in Note 11 included herein, the Partnership is not aware of any significant legal or governmental proceedings against it, or contemplated to be brought against it.  The Partnership maintains insurance policies with insurers in amounts and with coverage and deductibles as its general partner believes are reasonable and prudent.  However, the Partnership can provide no assurance that this insurance will be adequate to protect it from all material expenses related to potential future claims or that these levels of insurance will be available in the future at economically acceptable prices.

 

23



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 16.               Recent Accounting Pronouncements

 

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157.  This statement defines fair value, establishes guidelines for measuring fair value and requires additional disclosures regarding fair value measurements.  SFAS No. 157 applies only to fair value measurements currently required or permitted by other accounting standards and is expected to increase the consistency of those measurements.  The Partnership adopted SFAS No. 157 on January 1, 2008 for its financial assets and liabilities measured at fair value on a recurring basis and on January 1, 2009 for its non-financial assets and non-financial liabilities measured at fair value on a non-recurring basis which did not have a material impact on its consolidated financial statements.  See Note 13.

 

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS No. 141(R)”) which retains the fundamental requirements of the original pronouncement requiring that the purchase method be used for all business combinations.  SFAS No. 141(R) defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires the acquirer to recognize the assets acquired, liabilities assumed and any noncontrolling interest at their fair values as of the acquisition date.  SFAS No. 141(R) also requires that acquisition-related costs be recognized separately from the acquisition.  SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date occurs in fiscal years beginning after December 15, 2008.  The Partnership adopted SFAS No. 141(R) on January 1, 2009 which did not have a material impact on its consolidated financial statements.

 

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — An Amendment of FASB Statement No. 133” (“SFAS No. 161”) which enhances the requirements under SFAS No. 133, “Accounting for Derivatives and Hedging Activities.”  SFAS No. 161 requires enhanced disclosures about an entity’s derivatives and hedging activities and how they affect an entity’s financial position, financial performance and cash flows.  The Partnership adopted SFAS No. 161 on January 1, 2009.  See Note 5.

 

In March 2008, the EITF approved consensus on EITF Issue No. 07-04, which specifies the treatment of earnings per unit calculations when incentive distributions rights exist in master limited partnerships.  Under EITF 07-04, when earnings exceed cash distributions, undistributed earnings are to be allocated to the general partner, limited partners and holders of the incentive distribution rights based on the distribution formula for available cash set forth in the partnership agreement.  Conversely, when cash distributions exceed earnings, net income (or loss) would be reduced (or increased) by distributions to the general partner, limited partners and holders of incentive distribution rights.  The excess of distributions over earnings would be allocated to the general partner and limited partners based on their respective sharing of losses set forth in the partnership agreement.  EITF 07-04 is effective for fiscal years and interim periods beginning after December 15, 2008 and is applied retrospectively.  The Partnership adopted EITF 07-04 on January 1, 2009.  See Note 2.

 

In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”).  FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”).  The objective of FSP FAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other GAAP.  FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those years.  The Partnership adopted FSP FAS 142-3 on January 1, 2009 which did not have a material impact on its consolidated financial statements.

 

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Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 16.               Recent Accounting Pronouncements (continued)

 

In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”).  FSP EITF 03-6-1 states that unvested share-based payment awards that contain nonforfeitable rights to d