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GLOBAL PARTNERS LP 10-Q 2010

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

 

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, 2010

 

 

 

 

 

 

 

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 Data 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 11,338,139 common units and 5,642,424 subordinated units outstanding as of May 3, 2010.

 

 

 



 

TABLE OF CONTENTS

 

PART I.        FINANCIAL INFORMATION

 

 

 

Item 1.      Financial Statements

 

 

 

Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009

 

 

 

Consolidated Statements of Income for the three months ended March 31, 2010 and 2009

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009

 

 

 

Consolidated Statements of Partners’ Equity for the three months ended March 31, 2010

 

 

 

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

 

 



 

Item 1.    Financial Statements

 

GLOBAL PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(In thousands, except unit data)

(Unaudited)

 

 

 

March 31,

 

December 31,

 

 

 

2010

 

2009

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

 750

 

$

 662

 

Accounts receivable, net

 

268,347

 

335,912

 

Accounts receivable—affiliates

 

4,222

 

1,565

 

Inventories

 

443,259

 

465,923

 

Brokerage margin deposits

 

10,301

 

18,059

 

Fair value of forward fixed price contracts

 

12,730

 

3,089

 

Prepaid expenses and other current assets

 

35,193

 

37,648

 

Total current assets

 

774,802

 

862,858

 

 

 

 

 

 

 

Property and equipment, net

 

158,236

 

159,292

 

Intangible assets, net

 

27,866

 

28,557

 

Other assets

 

1,431

 

1,996

 

Total assets

 

$

 962,335

 

$

 1,052,703

 

 

 

 

 

 

 

Liabilities and partners’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

 187,648

 

$

 243,449

 

Working capital revolving credit facility—current portion

 

109,788

 

221,711

 

Environmental liabilities—current portion

 

3,296

 

3,296

 

Accrued expenses and other current liabilities

 

73,802

 

77,604

 

Income taxes payable

 

128

 

461

 

Obligations on forward fixed price contracts and other derivatives

 

19,380

 

21,114

 

Total current liabilities

 

394,042

 

567,635

 

 

 

 

 

 

 

Working capital revolving credit facility—less current portion

 

231,412

 

240,889

 

Acquisition facility

 

71,200

 

71,200

 

Environmental liabilities—less current portion

 

2,200

 

2,254

 

Accrued pension benefit cost

 

2,395

 

2,751

 

Deferred compensation

 

1,946

 

1,840

 

Other long-term liabilities

 

10,767

 

8,714

 

Total liabilities

 

713,962

 

895,283

 

 

 

 

 

 

 

Partners’ equity

 

 

 

 

 

Common unitholders (11,338,139 units issued and 11,274,695 outstanding at March 31, 2010 and 7,428,139 units issued and 7,380,996 outstanding at December 31, 2009)

 

254,692 

 

165,129

 

Subordinated unitholders (5,642,424 units issued and outstanding at March 31, 2010 and December 31, 2009)

 

2,651 

 

(713

)

General partner interest (230,303 equivalent units outstanding at March 31, 2010 and December 31, 2009)

 

108

 

(29

)

Accumulated other comprehensive loss

 

(9,078

)

(6,967

)

Total partners’ equity

 

248,373

 

157,420

 

Total liabilities and partners’ equity

 

$

 962,335

 

$

 1,052,703

 

 

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

 

 

1



 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per unit data)

(Unaudited)

 

 

 

 

Three Months Ended
March 31,

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Sales

 

$

1,962,384

 

$

1,632,955

 

Cost of sales

 

1,916,977

 

1,582,241

 

Gross profit

 

45,407

 

50,714

 

 

 

 

 

 

 

Costs and operating expenses:

 

 

 

 

 

Selling, general and administrative expenses

 

16,578

 

18,075

 

Operating expenses

 

8,659

 

8,475

 

Amortization expenses

 

691

 

800

 

Total costs and operating expenses

 

25,928

 

27,350

 

 

 

 

 

 

 

Operating income

 

19,479

 

23,364

 

 

 

 

 

 

 

Interest expense

 

(4,064

)

(3,776

)

 

 

 

 

 

 

Income before income tax expense

 

15,415

 

19,588

 

 

 

 

 

 

 

Income tax expense

 

(387

)

(725

)

 

 

 

 

 

 

Net income

 

15,028

 

18,863

 

 

 

 

 

 

 

Less:

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

 

(299

)

(376

)

 

 

 

 

 

 

Limited partners’ interest in net income

 

$

14,729

 

$

18,487

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

$

1.08

 

$

1.41

 

 

 

 

 

 

 

Diluted net income per limited partner unit

 

$

1.06

 

$

1.40

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

13,585

 

13,071

 

 

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

13,838

 

13,203

 

 

 

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

 

 

2



 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2010

 

2009

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

15,028

 

$

18,863

 

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

 

 

 

 

 

Depreciation and amortization

 

3,662

 

3,713

 

Amortization of deferred financing fees

 

387

 

289

 

Gain on disposition of property and equipment and other

 

(1

)

 

Bad debt expense

 

190

 

640

 

Stock-based compensation expense

 

128

 

530

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

67,375

 

20,445

 

Accounts receivable – affiliate

 

(2,657

)

1,422

 

Inventories

 

22,664

 

12,494

 

Broker margin deposits

 

7,758

 

(4,187

)

Prepaid expenses, all other current assets and other assets

 

2,554

 

(1,966

)

Accounts payable

 

(55,801

)

(60,179

)

Income taxes payable

 

(334

)

71

 

Change in fair value of forward fixed price contracts

 

(11,375

)

108,719

 

Accrued expenses, all other current liabilities and other long-term liabilities

 

(4,084

)

10,376

 

Net cash provided by operating activities

 

45,494

 

111,230

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Capital expenditures

 

(1,930

)

(2,452

)

Proceeds from sale of property and equipment

 

16

 

 

Net cash used in investing activities

 

(1,914

)

(2,452

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from public offering, net

 

84,792

 

 

Payments on credit facilities, net

 

(121,400

)

(100,200

)

Repurchased units withheld for tax obligations

 

(404

)

 

Distributions to partners

 

(6,480

)

(6,534

)

Net cash used in financing activities

 

(43,492

)

(106,734

)

 

 

 

 

 

 

Increase in cash and cash equivalents

 

88

 

2,044

 

Cash and cash equivalents at beginning of period

 

662

 

945

 

Cash and cash equivalents at end of period

 

$

750

 

$

2,989

 

 

 

 

 

 

 

Supplemental information

 

 

 

 

 

Cash paid during the period for interest

 

$

4,071

 

$

3,903

 

 

 

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

 

 

3



 

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, 2009

 

$

165,129

 

$

(713

)

$

(29

)

$

(6,967

)

$

157,420

 

Proceeds from public offering, net

 

84,792

 

 

 

 

84,792

 

Stock-based compensation

 

128

 

 

 

 

128

 

Distributions to partners

 

(3,621

)

(2,751

)

(162

)

 

(6,534

)

Phantom unit dividends

 

54

 

 

 

 

54

 

Repurchased units withheld for tax obligations

 

(404

)

 

 

 

(404

)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

8,614

 

6,115

 

299

 

 

15,028

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of interest rate collars and forward starting swap

 

 

 

 

(2,232

)

(2,232

)

Change in pension liability

 

 

 

 

121

 

 

121

 

Total comprehensive income

 

 

 

 

 

12,917

 

Balance at March 31, 2010

 

$

254,692

 

$

2,651

 

$

108

 

$

(9,078

)

$

248,373

 

 

 

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

 

 

4



 

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.

 

The Partnership has five operating subsidiaries:  Global Companies LLC, its subsidiary, Glen Hes Corp., Global Montello Group Corp., Chelsea Sandwich LLC and Global Energy Marketing LLC (“Global Energy”) (the five 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.  Global Energy was formed to conduct the Partnership’s natural gas operations.  It commenced operations in January 2010 after obtaining the necessary licensure.  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.

 

On March 19, 2010, the Partnership completed a public offering of 3,910,000 common units at a price of $22.75 per common unit, which included a 510,000 common unit purchase option exercised by the underwriters.  Net proceeds were approximately $84.8 million, after deducting approximately $4.2 million in underwriting fees and offering expenses.  The Partnership used the net proceeds to reduce indebtedness under its senior secured credit agreement.  See Note 14 for additional information related to the public offering.

 

The Partnership’s 1.34% general partner interest (reduced from 1.73% following the Partnership’s public offering discussed above and in Note 14) 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 241,141 common units and 5,642,424 subordinated units, representing a combined 34.2% limited partner interest.

 

Basis of Presentation

 

Interim Financial Statements

 

The accompanying consolidated financial statements as of March 31, 2010 and December 31, 2009 and for the three months ended March 31, 2010 and 2009 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 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, 2009 and notes thereto contained in the Partnership’s Annual Report on Form 10-K.  The significant accounting policies described in Note 2 “Summary of Significant Accounting Policies” of such Annual Report on Form 10-K are the same used in the preparing the accompanying consolidated financial statements.

 

The results of operations for the three months ended March 31, 2010 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2010.

 

 

5



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1.                      Organization and Basis of Presentation (continued)

 

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 following table presents the Partnership’s products as a percentage of total sales for the periods presented:

 

 

 

Three Months Ended
March 31,

 

 

 

2010

 

2009

 

Distillate sales: home heating oil, diesel and kerosene

 

50%

 

63%

 

Gasoline sales

 

45%

 

31%

 

Residual oil sales

 

5%

 

6%

 

 

 

100%

 

100%

 

 

The Partnership had one customer, ExxonMobil Oil Corporation (“ExxonMobil”), who accounted for approximately 17% and 15% of total sales for the three months ended March 31, 2010 and 2009, respectively.

 

The consolidated balance sheet at December 31, 2009 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, 2009.

 

Note 2.                      Net Income Per Limited Partner Unit

 

Under the Partnership’s partnership agreement, for any quarterly period, the incentive distribution rights (“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.

 

On January 20, 2010, the board of directors of the General Partner declared a quarterly cash distribution of $0.4875 per unit for the period from October 1, 2009 through December 31, 2009.  This declared cash distribution resulted in an incentive distribution to the General Partner, as the holder of the IDRs and enabled the Partnership to reach its second target distribution with respect to such IDRs.  See Note 9, “Cash Distributions” for further information.

 

 

6



 

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 three months ended March 31, 2010 and 2009 (in thousands, except per unit data):

 

 

 

Three months ended March 31, 2010

 

 

 

 

 

Limited

 

General

 

 

 

 

 

 

 

Partner

 

Partner

 

 

 

Numerator:

 

Total

 

Interest

 

Interest

 

IDRs

 

Net income(1)

 

$

15,028

 

$

14,729

 

$

299

 

$

 

 

 

 

 

 

 

 

 

 

 

Declared distribution

 

$

8,455

 

$

8,278

 

$

112

 

$

65

 

Assumed allocation of undistributed net income

 

6,573

 

6,451

 

122

 

 

Assumed allocation of net income

 

$

15,028

 

$

14,729

 

$

234

 

$

65

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding(2)

 

 

 

13,585

 

 

 

 

 

Dilutive effect of phantom units

 

 

 

253

 

 

 

 

 

Diluted weighted average limited partner units outstanding(2)

 

 

 

13,838

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

 

 

$

1.08

 

 

 

 

 

Diluted net income per limited partner unit

 

 

 

$

1.06

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2009

 

 

 

 

 

Limited

 

General

 

 

 

 

 

 

 

Partner

 

Partner

 

 

 

Numerator:

 

Total

 

Interest

 

Interest

 

IDRs

 

Net income(1)

 

$

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

 

 

 

 

 

 


(1)    On March 19, 2010, the general partner interest was reduced to 1.34% as a result of the public offering (see Note 14).  This calculation includes the effect of the public offering and is based on a weighted average of 1.66% for the three months ended March 31, 2010.  For the three months ended March 31, 2009, the general partner interest was 1.73%.

(2)    At March 31, 2010, limited partner units outstanding excluded common units held on behalf of the Partnership pursuant to its Repurchase Program and for future satisfaction of the General Partner’s Obligations (as defined in Note 12).  These units are not deemed outstanding for purposes of calculating net income per limited partner unit (basic and diluted).

 

 

7



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 3.                      Comprehensive Income

 

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

 

 

 

Three Months Ended
March 31,

 

 

 

2010

 

2009

 

Net income

 

$

15,028

 

$

18,863

 

Change in fair value of interest rate collars and forward starting swap

 

(2,232

)

1,152

 

Change in pension liability

 

121

 

(242

)

Total comprehensive income

 

$

12,917

 

$

19,773

 

 

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.

 

Inventories consisted of the following (in thousands):

 

 

 

March 31,
2010

 

 

December 31,
2009

 

Distillates: home heating oil, diesel and kerosene

 

$

292,379

 

 

$

339,737

 

Residual oil

 

43,756

 

 

39,787

 

Gasoline

 

65,323

 

 

64,645

 

Blend stock

 

41,801

 

 

21,754

 

Total

 

$

443,259

 

 

$

465,923

 

 

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 $25.1 million and $22.9 million at March 31, 2010 and December 31, 2009, respectively.  Negative exchange balances are accounted for as accounts payable and amounted to $20.4 million and $10.2 million at March 31, 2010 and December 31, 2009, respectively.  Exchange transactions are valued using current quoted market prices.

 

Note 5.                      Derivative Financial Instruments

 

Accounting and reporting guidance for derivative instruments and hedging activities 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.

 

 

8



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 5.                      Derivative Financial Instruments (continued)

 

The following table presents the volume of activity related to the Partnership’s derivative financial instruments at March 31, 2010:

 

 

 

Units(1)

 

Unit of Measure

 

Oil Contracts

 

 

 

 

 

Long

 

7,495

 

Thousands of barrels

 

Short

 

(11,934

)

Thousands of barrels

 

 

 

 

 

 

 

Natural Gas Contracts

 

 

 

 

 

Long

 

14,585

 

Thousands of decatherms

 

Short

 

(14,585

)

Thousands of decatherms

 

 

 

 

 

 

 

Interest Rate Collars

 

$

200

 

Millions of dollars

 

 

 

 

 

 

 

Forward Starting Swap

 

$

100

 

Millions 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.

 

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 for the three months ended March 31, 2010 and 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 an increase or decrease in cost of sales as these contracts mature.  Ineffectiveness related to these hedging activities was immaterial for the three months ended March 31, 2010 and 2009.

 

 

9



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 5.                      Derivative Financial Instruments (continued)

 

The following table presents the gross fair values of the Partnership’s derivative instruments and firm commitments and their location in the Partnership’s consolidated balance sheets at March 31, 2010 and December 31, 2009 (in thousands):

 

 

 

 

 

March 31,

 

December 31,

 

 

 

Balance Sheet

 

2010

 

2009

 

Asset Derivatives

 

Location (Net)

 

Fair Value

 

Fair Value

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments and firm commitments

 

 

 

 

 

 

 

Oil product contracts(1)

 

(2)

 

$

3,360

 

$

4,085

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

Oil product and natural gas contracts

 

(2)

 

15,006

 

11,067

 

 

 

 

 

 

 

 

 

Total asset derivatives

 

 

 

$

18,366

 

$

15,152

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments and firm commitments

 

 

 

 

 

 

 

Oil product contracts(1)

 

(3)

 

$

9,959

 

$

23,030

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

Oil product and natural gas contracts

 

(4)

 

14,277

 

10,805

 

 

 

 

 

 

 

 

 

Total liability derivatives

 

 

 

$

24,236

 

$

33,835

 

 

(1)  Includes forward fixed price purchase and sale contracts as recognized in the Partnership’s consolidated balance sheets at March 31, 2010 and December 31, 2009.

(2)  Fair value of forward fixed price contracts, prepaid expenses and other current assets and accrued and other current liabilities

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

(4)  Accrued expenses and other current liabilities

 

 

10



 

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, 2010 and 2009 (in thousands):

 

 

 

 

 

Amount of Gain (Loss)

 

 

 

 

 

Recognized in Income on

 

 

 

 

 

Derivatives

 

 

 

Location of Gain (Loss)

 

Three Months Ended

 

Derivatives in Fair Value

 

Recognized in

 

March 31,

 

Hedging Relationship

 

Income on Derivative

 

2010

 

2009

 

 

 

 

 

 

 

 

 

Oil product contracts

 

Cost of sales

 

$

(27

)

$

(100,224

)

 

 

 

 

 

Amount of Gain (Loss)

 

 

 

 

 

Recognized in Income on

 

 

 

 

 

Hedged Items

 

 

 

Location of Gain (Loss)

 

Three Months Ended

 

Hedged Items in Fair Value

 

Recognized in Income

 

March 31,

 

Hedge Relationships

 

on Related Hedged Item

 

2010

 

2009

 

 

 

 

 

 

 

 

 

Oil product contracts

 

Cost of sales

 

$

27

 

$

100,580

 

 

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 table below presents the composition and fair value of forward fixed price purchase and sale contracts on the Partnership’s consolidated balance sheet being hedged by the following derivative instruments (in thousands):

 

 

 

March 31,
2010

 

December 31,
2009

 

Futures contracts

 

$

(5,381

)

$

(14,605

)

Swaps and other, net

 

(1,269

)

(3,420

)

Total

 

$

(6,650

)

$

(18,025

)

 

The total balances of $(6.6) million and $(18.0) million reflect the fair value of the forward fixed price contract liability net of the corresponding asset on the accompanying consolidated balance sheets at March 31, 2010 and December 31, 2009, 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.

 

 

11



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 5.                      Derivative Financial Instruments (continued)

 

The Partnership has a daily margin requirement with its broker based on the prior day’s market results on open futures contracts.  The brokerage margin balance was $10.3 million and $18.1 million at March 31, 2010 and December 31, 2009, respectively.

 

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.

 

The Partnership generally enters into master netting arrangements to mitigate counterparty credit risk with respect to its derivatives.  Master netting arrangements are standardized contracts that govern all specified transactions with the same counterparty and allow the Partnership to terminate all contracts upon occurrence of certain events, such as a counterparty’s default or bankruptcy.  Because these arrangements provide the right of offset, and the Partnership’s intent and practice is to offset amounts in the case of contract terminations, the Partnership records fair value of derivative positions on a net basis.

 

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 interest expense 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 and accounted for as a cash flow hedge.  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, 2010, the three-month LIBOR rate of 0.25% was lower than the floor rate.  As a result, in April 2010, the Partnership remitted to the respective financial institution the difference between the floor rate and the current rate which amounted to approximately $428,000 and, at March 31, 2010, such amount was recorded in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.  The fair values of the first collar, excluding accrued interest, were liabilities of approximately $3.5 million and $3.9 million as of March 31, 2010 and December 31, 2009, respectively, and were 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.

 

 

12



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 5.                      Derivative Financial Instruments (continued)

 

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, 2010, the one-month LIBOR rate of 0.23% was lower than the floor rate.  As a result, in April 2010, the Partnership remitted to the respective financial institution the difference between the floor rate and the current rate which amounted to approximately $206,000 and, at March 31, 2010, such amount was recorded in accrued expenses and other current liabilities in the accompanying consolidated balance sheet.  The fair values of the second collar, excluding accrued interest, were liabilities of approximately $3.9 million and $3.2 million as of March 31, 2010 and December 31, 2009, respectively, and were recorded in both other long-term liabilities and accumulated other comprehensive income in the accompanying consolidated balance sheets.  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.

 

In addition, in October 2009, the Partnership executed a forward starting swap with a major financial institution.  The swap, which will become effective on May 16, 2011 and expire on May 16, 2016, will be used to hedge the variability in interest payments due to changes in the one-month LIBOR swap curve with respect to $100.0 million of one-month LIBOR-based borrowings at a fixed rate of 3.93%.  The fair value of the swap was a liability of approximately $1.8 million as of March 31, 2010 and was recorded in other long-term liabilities in the accompanying consolidated balance sheets.  The fair value of the swap was an asset of approximately $80,000 as of December 31, 2009 and was recorded in other long-term assets in the accompanying consolidated balance sheets.  Hedge effectiveness was assessed at inception and will be assessed quarterly, prospectively and retrospectively, using regression analysis.  The changes in the fair value of the swap are expected to be highly effective in offsetting the changes in interest rate payments attributable to fluctuations in the one-month LIBOR swap curve.

 

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, 2010 and December 31, 2009 (in thousands):

 

 

 

 

 

 

March 31,

 

 

December 31,

 

Derivatives Designated as

 

Balance Sheet

 

 

2010

 

 

2009

 

Hedging Instruments

 

Location

 

 

Fair Value

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

Asset derivatives

 

 

 

 

 

 

 

 

 

Forward starting swap

 

Other assets

 

$

 

$

80

 

 

 

 

 

 

 

 

 

 

 

Liability derivatives

 

 

 

 

 

 

 

 

 

Interest rate collars

 

Other long-term liabilities

 

$

7,416

 

$

7,047

 

Forward starting swap

 

Other long-term liabilities

 

 

1,783

 

 

 

Total liability derivatives

 

 

 

$

9,199

 

$

7,047

 

 

 

13



 

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, 2010 and 2009 (in thousands):

 

 

 

 

 

 

 

Recognized in Income

 

 

 

Amount of Gain (Loss)

 

on Derivatives

 

 

 

Recognized in Other

 

(Ineffectiveness Portion

 

 

 

Comprehensive Income

 

and Amount Excluded

 

 

 

on Derivatives

 

from Effectiveness Testing)

 

 

 

Three Months Ended

 

Three Months Ended

 

Derivatives in Cash Flow

 

March 31,

 

March 31,

 

March 31,

 

March 31,

 

Hedging Relationship

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Interest rate collars

 

$

(368

)

$

1,152

 

$

 

$

 

Forward starting swap

 

 

(1,864

)

 

 

 

 

 

 

Total

 

$

(2,232

)

$

1,152

 

$

 

$

 

 

Ineffectiveness related to the interest rate collars and forward starting swap is recognized as interest expense and was immaterial for the three months ended March 31, 2010 and 2009.  The effective portion related to the interest rate collars that was originally reported in other comprehensive income and reclassified to earnings was $1.5 million and $1.1 million for the three months ended March 31, 2010 and 2009, respectively.

 

Derivatives Not Involved in a Hedging 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 inherent in the business, such as 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 hedging relationship recognized in the Partnership’s consolidated statements of income for the three months ended March 31, 2010 and 2009 (in thousands):

 

 

 

 

 

Amount of Gain (Loss)

 

 

 

 

 

Recognized in Income

 

 

 

 

 

on Derivatives

 

 

 

Location of Gain (Loss)

 

Three Months Ended

 

Derivatives Not Designated as

 

Recognized in

 

March 31,

 

March 31,

 

Hedging Instruments

 

Income on Derivatives

 

2010

 

2009

 

 

 

 

 

 

 

 

 

Oil product contracts

 

Cost of sales

 

$

(522

)

$

3,985

 

 

Note 6.                      Debt

 

The Partnership has a senior secured credit agreement (the “Credit Agreement”).  Pursuant to the Credit Agreement, the Partnership exercised its accordion feature (discussed below) and requested an increase in the Total WC Revolver Commitment (as defined in the Credit Agreement) in an amount equal to $100.0 million.  On December 4, 2009, certain lenders under the Credit Agreement agreed to fund the $100.0 million increase, bringing the total available commitments under the Credit Agreement from $750.0 million to $850.0 million.

 

 

14



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 6.       Debt (continued)

 

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 $750.0 million; the $750.0 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.

 

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 $100.0 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 $850.0 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 general 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.

 

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).  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 Credit Agreement were 3.3% and 3.9% for the three months ended March 31, 2010 and 2009, 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.

 

 

15



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 6.       Debt (continued)

 

Further, in October 2009, the Partnership executed a forward starting swap with a major financial institution.  The swap, which will become effective on May 16, 2011 and expire on May 16, 2016, will be used to hedge the variability in interest payments due to changes in the one-month LIBOR swap curve with respect to $100.0 million of one-month LIBOR-based borrowings at a fixed rate of 3.93%.  See Note 5 for additional information on the interest rate collars and the forward starting swap.

 

The Partnership incurs a letter of credit fee of 1.75% 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.

 

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 $231.4 million and $240.9 million at March 31, 2010 and December 31, 2009, 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 $109.8 million and $221.7 million at March 31, 2010 and December 31, 2009, respectively, representing the amounts the Partnership expects to pay down during the course of the year.

 

As of March 31, 2010, the Partnership had total borrowings outstanding under the Credit Agreement of $412.4 million, including $71.2 million outstanding on the acquisition facility.  In addition, the Partnership had outstanding letters of credit of $32.8 million.  The total remaining availability for borrowings and letters of credit at March 31, 2010 and December 31, 2009 was $404.8 million and $211.2 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.  On January 26, 2010, the lenders under the Credit Agreement consented to increase the Partnership’s capital expenditures limit for the fiscal year ending December 31, 2010 from $10.0 million to $20.0 million.  The Partnership was in compliance with the foregoing covenants at March 31, 2010.  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.

 

 

16



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 6.       Debt (continued)

 

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 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; Calyon New York Branch; and The Bank of Tokyo-Mitsubishi UFJ, Ltd.

 

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,

 

 

 

2010

 

2009

 

Service cost

 

$

53

 

$

325

 

Interest cost

 

163

 

229

 

Expected return on plan assets

 

(169

)

(161

)

Recognized net actuarial loss

 

 

48

 

Net periodic benefit cost

 

$

47

 

$

441

 

 

Effective December 31, 2009, the General Partner’s qualified pension plan (the “Plan”) was amended to freeze participation in and benefit accruals under the Plan.  Primarily for this reason, the net periodic benefit cost decreased by approximately $0.4 million for the three months ended March 31, 2010 compared to the same period in 2009.

 

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 $2.2 million and $2.1 million for the three months ended March 31, 2010 and 2009, respectively.

 

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 $21,870 and $21,500 for the three months ended March 31, 2010 and 2009, respectively.  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.  As of March 31, 2010, no such notice of termination was given by either party.

 

 

17



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 8.                      Related Party Transactions (continued)

 

Pursuant to the Partnership’s Amended and Restated Services Agreement with Alliance Energy LLC (“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 $49,000 and $212,000 for the three months ended March 31, 2010 and 2009, 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, 2011.

 

The Partnership sells refined petroleum products to Alliance at prevailing market prices at the time of delivery.  Sales to Alliance were approximately $7.3 million and $2.7 million for the three months ended March 31, 2010 and 2009, 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, 2010 and 2009, including payroll, payroll taxes and bonus accruals, were $10.4 million and $12.3 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.

 

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,

 

December 31,

 

 

 

2010

 

2009

 

Receivables from Alliance

 

$

938

 

$

838

 

Receivables from GPC

 

246

 

251

 

Receivables from the General Partner (1)

 

3,038

 

476

 

Total

 

$

4,222

 

$

1,565

 

 

(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 earnings, 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 on the date of determination of available cash for 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.

 

The Partnership will make distributions of available cash from distributable cash flow for any quarter during the subordination period as defined in its partnership agreement in the following manner: firstly, 98.66% to the common unitholders, pro rata, and 1.34% 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, 98.66% to the common

 

 

18



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 9.                      Cash Distributions (continued)

 

unitholders, pro rata, and 1.34% 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, 98.66% to the subordinated unitholders, pro rata, and 1.34% 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 IDRs, based on the percentages as provided below.

 

As the holder of the IDRs, 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

 

$0.4625

 

98.66%

 

1.34

%

 

First Target Distribution

 

$0.4625

 

98.66%

 

1.34

%

 

Second Target Distribution

 

above $0.4625 up to $0.5375

 

85.66%

 

14.34

%

 

Third Target Distribution

 

above $0.5375 up to $0.6625

 

75.66%

 

24.34

%

 

Thereafter

 

above $0.6625

 

50.66%

 

49.34

%

 

 

The Partnership paid the following cash distribution during 2010 (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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

02/12/10 (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 2009.  As a result, the General Partner, as the holder of the IDRs, received this additional incentive distribution.

 

In addition, on April 21, 2010, the board of directors of the General Partner declared a quarterly cash distribution of $0.4875 per unit for the period from January 1, 2010 through March 31, 2010 ($1.95 per unit on an annualized basis).  On May 14, 2010, the Partnership will pay this cash distribution to its common and subordinated unitholders of record as of the close of business May 5, 2010.  This distribution will result in the Partnership reaching its second target distribution for the quarter ended March 31, 2010.

 

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, 2009.

 

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.

 

 

19



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 10.               Segment Reporting (continued)

 

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 through bunkering activity.  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.

 

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,

 

 

2010

 

2009

Wholesale Segment:

 

 

 

 

Sales

 

 

 

 

Distillates

 

$

959,257

 

$

1,006,616

Gasoline

 

872,326

 

501,659

Residual oil

 

12,129

 

11,490

Total

 

$

1,843,712

 

$

1,519,765

Net product margin (1)

 

 

 

 

Distillates

 

$

34,020

 

$

33,853

Gasoline

 

6,350

 

11,786

Residual oil

 

2,856

 

2,820

Total

 

$

43,226

 

$

48,459

Commercial Segment:

 

 

 

 

Sales

 

$

118,672

 

$

113,190

Net product margin (1)

 

$

4,918

 

$

4,928

Combined sales and net product margin:

 

 

 

 

Sales

 

$

1,962,384

 

$

1,632,955

Net product margin (1)

 

$

48,144

 

$

53,387

Depreciation allocated to cost of sales

 

2,737

 

2,673

Combined gross profit

 

$

45,407

 

$

50,714

 


(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.

 

 

20



 

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,

 

 

 

2010

 

2009

 

Combined gross profit

 

$

45,407

 

$

50,714

 

Operating costs and expenses not allocated to reportable segments:

 

 

 

 

 

Selling, general and administrative expenses

 

16,578

 

18,075

 

Operating expenses

 

8,659

 

8,475

 

Amortization expenses

 

691

 

800

 

Total operating costs and expenses

 

25,928

 

27,350

 

Operating income

 

19,479

 

23,364

 

Interest expense

 

(4,064

)

(3,776

)

Income tax expense

 

(387

)

(725

)

Net income

 

$

15,028

 

$

18,863

 

 

There were no foreign sales for the three months ended March 31, 2010 and 2009.  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 $0.7 million was paid by the Partnership as of March 31, 2010.  The remaining liability of $0.5 million was recorded as a current liability of $0.4 million and a long-term liability of $0.1 million in the accompanying consolidated balance sheet at March 31, 2010.  The Partnership has implemented the remedial action plans and 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.

 

 

21



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 11.               Environmental Liabilities (continued)

 

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.  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.  The Partnership 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 during the fourth quarter ended December 31, 2008.  At March 31, 2010, this liability had a balance of $5.0 million which was recorded as a current liability of $2.9 million and a long-term liability of $2.1 million in the accompanying consolidated balance sheet.  In July 2009, NYDEC approved the remedial action work plan, and the Partnership signed a Stipulation Agreement with NYDEC to govern implementation of the approved plan.  The Partnership does not believe that compliance with the terms of the approved remedial action work plan will result in material costs in excess of the environmental reserve or have a material impact on its operations.

 

In connection with the 2006 acquisition of its Macungie, Pennsylvania terminal (the “Global Macungie Terminal”), the Partnership assumed certain existing environmental liabilities at the terminal.  The Partnership did not accrue for these contingencies as it believes that the aggregate amount of these liabilities cannot be reasonably estimated at this time.  The Partnership also executed an Administrative Order on Consent (“AOC”) with the U.S. Environmental Protection Agency, Region III (“EPA, Region III”) requiring certain investigatory activities at the Global Macungie Terminal.  The Partnership believes that the investigatory activities required by the AOC have been completed, and a final report concerning these investigatory activities has been submitted.  In accordance with the AOC, the Partnership intends to request that EPA, Region III issue a Notice of Completion with respect to the AOC.  Although the Partnership cannot predict whether EPA, Region III will grant this request, based upon current information, the Partnership does not anticipate that the outcome will have a material adverse effect on it.  Furthermore, the Partnership does not believe that in the event EPA, Region III requests additional activities before issuing a Notice of Completion, those activities will result in material costs or have a material impact on the Partnership’s 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 these reserves are adequate, no assurances can be made that any costs incurred in excess of these reserves 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”).

 

 

22



 

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 vested on December 31, 2009 and became payable on a one-for-one basis in common units of the Partnership (or cash equivalent) in connection with the achievement of certain performance goals over the vesting period.  The DERs that were granted in tandem with the phantom units vested and became payable in cash simultaneously with the vesting of the phantom units.

 

The Partnership recorded compensation expense with respect to these awards 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 statements of income.  The total compensation cost related to these awards was fully recognized as of December 31, 2009.  In March 2010, the Partnership distributed 62,620 common units in settlement of this award, and in April 2010, the Partnership paid approximately $305,000 in associated DERs.

 

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, 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 $89,000 and $230,000 for the three months ended March 31, 2010 and 2009, respectively, which is 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, 2010 is approximately $0.3 million and is expected to be recognized over the remaining requisite service period.  On June 30, 2009, 16,617 common units vested under this award and were distributed to the named executive officer, and in July 2009, the Partnership paid a cash distribution related to these units of approximately $8,000.  On December 31, 2009, 16,617 common units vested under this award and were distributed, and in January 2010, the Partnership paid a cash distribution related to these units of approximately $32,000.

 

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.

 

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 closing market price of the Partnership’s common units for any 10-consecutive trading day period.  On August 21, 2009, the Average Unit Price of $21.00 per unit for the first tranche was achieved and, as a result, 25% of the phantom units vested at a price of $22.50 per unit.

 

 

23



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 12.               Long-Term Incentive Plan (continued)

 

The fair value of the award at the February 5, 2009 grant date approximated the fair value of the Partnership’s common units 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 derived service period of the award was assessed using expected volatility which was estimated based on historical volatility of the Partnership’s common units.  The Partnership recorded compensation expense related to this phantom unit award of approximately $39,000 and $111,000 for the three months ended March 31, 2010 and 2009, respectively, which is 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, 2010 is approximately $0.6 million and is expected to be recognized ratably over the remaining derived service periods.

 

Repurchase Program

 

In May 2009, the board of directors of the General Partner authorized the repurchase of the Partnership’s common units (the “Repurchase Program”) for the purpose of assisting it in meeting the General Partner’s anticipated obligations to deliver common units under the LTIP and meeting the General Partner’s obligations under existing employment agreements and other employment related obligations of the General Partner (collectively, the “General Partner’s Obligations”).  The Partnership is authorized to spend up to $6.6 million to acquire up to 445,000 of its common units in the aggregate, over an extended period of time, consistent with the General Partner’s Obligations.  Common units of the Partnership may be repurchased from time to time in open market transactions, including block purchases, or in privately negotiated transactions.  Such authorized unit repurchases may be modified, suspended or terminated at any time, and are subject to price, economic and market conditions, applicable legal requirements and available liquidity.  As of March 31, 2010, the General Partner repurchased 195,291 common units pursuant to the Repurchase Program for approximately $4.0 million, of which 62,620 phantom units vested under the “Long-Term Incentive Plan,” 33,234 phantom units vested under the Three-Year Phantom Units” award and 69,444 phantom units vested under the “Five-Year Phantom Units” award.

 

At March 31, 2010 and December 31, 2009, common units outstanding excluded 63,444 and 47,143 common units, respectively, held on behalf of the Partnership pursuant to its Repurchase Program and for future satisfaction of the General Partner’s Obligations.

 

Status of Non-Vested Units

 

The following table presents a summary of the status of the non-vested units as of March 31, 2010:

 

 

 

Number of
Non-vested
Units

 

Weighted
Average
Grant Date
Fair Value

 

Outstanding non-vested units at January 1, 2010

 

 

337,419

 

$

6.05

 

Granted

 

 

 

 

Vested

 

 

 

 

Forfeited

 

 

 

 

Outstanding non-vested units at March 31, 2010

 

 

337,419

 

$

6.05

 

 

 

24



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 13.               Fair Value Measurements

 

Certain of the Partnership’s assets and liabilities are measured at fair value.  Fair value is defined 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.  The Financial Accounting Standards Board (“FASB”) established 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.

 

The following table presents those financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2010 (in thousands):

 

 

 

 

Fair Value

 

 

 

 

 

 

March 31,

 

 

Fair Value Measurements Using

 

 

 

 

2010

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Hedged inventories

 

 

$

460,631

 

 

$

 

 

 

$

460,631

 

 

$

 

Fair value of forward fixed price contracts

 

 

12,730

 

 

 

 

 

12,730

 

 

 

Swap agreements and option contracts

 

 

1,382

 

 

858

 

 

 

524

 

 

 

Total

 

 

$

474,743

 

 

$

858

 

 

 

$

473,885

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations on forward fixed price contracts

 

 

$

(19,380

)

 

$

 

 

 

$

(19,380

)

 

$

 

Swap agreements and option contracts

 

 

(599

)

 

(13

)

 

 

(586

)

 

 

Interest rate collars

 

 

(7,416

)

 

 

 

 

(7,416

)

 

 

Forward starting swap

 

 

(1,783

)

 

 

 

 

(1,783

)

 

 

Total liabilities

 

 

$

(29,178

)

 

$

(13

)

 

 

$

(29,165

)

 

$

 

 

The majority of the Partnership’s derivatives outstanding are reported at fair value based market quotes that are deemed to be observable inputs in an active market for similar assets and liabilities and are considered Level 2 inputs for purposes of fair value disclosures.  Specifically, the fair values of the Partnership’s financial assets and financial liabilities provided above were derived from NYMEX and New York Harbor quotes for the Partnership’s hedged inventories, forward fixed price contracts, swap agreements and option contracts and from the LIBOR rates for the Partnership’s interest rate collars and forward starting swap.  The Partnership has not changed its valuation techniques or inputs during the quarter ended March 31, 2010.

 

For assets and liabilities measured on a non-recurring basis during the period, accounting guidance requires quantitative disclosures about the fair value measurements separately for each major category.  During the quarter ended March 31, 2010, the Partnership did not remeasure assets or liabilities at fair value on a non-recurring basis.

 

Financial Instruments

 

The fair value of the Partnership’s financial instruments approximated the carrying value as of March 31, 2010 and December 31, 2009, in each case due to the short-term and the variable interest rate nature of the financial instruments.

 

 

25



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 14.               Unitholders’ Equity

 

On March 16, 2010, the Partnership entered into an Underwriting Agreement (the “Underwriting Agreement”) relating to the public offering of 3,400,000 common units representing limited partner interests in the Partnership (the “Common Units”), at a public offering price of $22.75, less underwriting discounts and commissions of $1.00 per Common Unit.  Pursuant to the Underwriting Agreement, the Partnership also granted the underwriters an option to purchase an additional 510,000 Common Units from the Partnership at the same price, which option has been exercised.  On March 19, 2010, the Partnership completed the public offering of the 3,910,000 Common Units for approximately $89.0 million.  The net proceeds from the offering of $84.8 million, after deducting approximately $4.2 million in underwriting fees and offering expenses, were used to reduce indebtedness under the Partnership’s Credit Agreement.