Annual Reports

 
Quarterly Reports

  • 10-Q (Aug 9, 2017)
  • 10-Q (May 9, 2017)
  • 10-Q (Nov 7, 2016)
  • 10-Q (Aug 8, 2016)
  • 10-Q (May 9, 2016)
  • 10-Q (Nov 6, 2015)

 
8-K

 
Other

GLOBAL PARTNERS LP 10-Q 2010

Documents found in this filing:

  1. 10-Q
  2. Ex-10.6
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32.1
  6. Ex-32.2
  7. Ex-32.2

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

Q

 

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

 

 

 

 

 

 

 

For the quarterly period ended September 30, 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 ý 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 ý

 

 

 

The issuer had 11,338,139 common units and 5,642,424 subordinated units outstanding as of November 1, 2010.

 

 

 



 

TABLE OF CONTENTS

 

PART I.         FINANCIAL INFORMATION

 

 

 

Item 1.       Financial Statements

1

 

 

Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009

1

 

 

Consolidated Statements of Income for the three and nine months ended September 30, 2010 and 2009

2

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009

3

 

 

Consolidated Statements of Partners’ Equity for the nine months ended September 30, 2010

4

 

 

Notes to Consolidated Financial Statements

5

 

 

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

33

 

 

Item 3.       Quantitative and Qualitative Disclosures about Market Risk

54

 

 

Item 4.       Controls and Procedures

56

 

 

PART II. OTHER INFORMATION

57

 

 

Item 1.       Legal Proceedings

57

 

 

Item 1A.    Risk Factors

57

 

 

Item 6.       Exhibits

60

 

 

SIGNATURES

61

 

 

INDEX TO EXHIBITS

62

 



 

Item 1.    Financial Statements

 

GLOBAL PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(In thousands, except unit data)

(Unaudited)

 

 

 

 

September 30,

 

December 31,

 

 

 

2010

 

2009

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

4,592

 

$

662

 

Accounts receivable, net

 

304,007

 

335,912

 

Accounts receivable—affiliates

 

1,313

 

1,565

 

Inventories

 

531,782

 

465,923

 

Brokerage margin deposits

 

10,493

 

18,059

 

Fair value of forward fixed price contracts

 

13,268

 

3,089

 

Prepaid expenses and other current assets

 

56,640

 

37,648

 

Total current assets

 

922,095

 

862,858

 

 

 

 

 

 

 

Property and equipment, net

 

417,019

 

159,292

 

Intangible assets, net

 

45,461

 

28,557

 

Other assets

 

12,630

 

1,996

 

Total assets

 

$

1,397,205

 

$

1,052,703

 

 

 

 

 

 

 

Liabilities and partners’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

243,415

 

$

243,449

 

Working capital revolving credit facility—current portion

 

185,273

 

221,711

 

Environmental liabilities—current portion

 

5,684

 

3,296

 

Accrued expenses and other current liabilities

 

78,088

 

77,604

 

Income taxes payable

 

 

461

 

Obligations on forward fixed price contracts and other derivatives

 

21,414

 

21,114

 

Total current liabilities

 

533,874

 

567,635

 

 

 

 

 

 

 

Working capital revolving credit facility—less current portion

 

280,427

 

240,889

 

Revolving credit facility

 

300,000

 

71,200

 

Environmental liabilities—less current portion

 

31,199

 

2,254

 

Accrued pension benefit cost

 

1,657

 

2,751

 

Deferred compensation

 

2,156

 

1,840

 

Other long-term liabilities

 

19,298

 

8,714

 

Total liabilities

 

1,168,611

 

895,283

 

 

 

 

 

 

 

Partners’ equity

 

 

 

 

 

Common unitholders (11,338,139 units issued and 11,291,312 outstanding at September 30, 2010 and 7,428,139 units issued and 7,380,996 outstanding at December 31, 2009)

 

247,060

 

165,129

 

Subordinated unitholders (5,642,424 units issued and outstanding at September 30, 2010 and December 31, 2009)

 

(675

)

(713

)

General partner interest (230,303 equivalent units outstanding at September 30, 2010 and December 31, 2009)

 

(27

)

(29

)

Accumulated other comprehensive loss

 

(17,764

)

(6,967

)

Total partners’ equity

 

228,594

 

157,420

 

Total liabilities and partners’ equity

 

$

1,397,205

 

$

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
September 30,

 

Nine Months Ended
September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

1,546,839

 

$

1,285,331

 

$

5,046,285

 

$

4,119,435

 

Cost of sales

 

1,511,744

 

1,256,058

 

4,931,461

 

4,011,659

 

Gross profit

 

35,095

 

29,273

 

114,824

 

107,776

 

 

 

 

 

 

 

 

 

 

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

17,246

 

13,859

 

47,715

 

45,233

 

Operating expenses

 

10,405

 

8,666

 

28,867

 

26,278

 

Amortization expenses

 

1,005

 

747

 

2,430

 

2,350

 

Total costs and operating expenses

 

28,656

 

23,272

 

79,012

 

73,861

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

6,439

 

6,001

 

35,812

 

33,915

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(5,888

)

(3,742

)

(14,326

)

(10,940

)

 

 

 

 

 

 

 

 

 

 

Income before income tax expense

 

551

 

2,259

 

21,486

 

22,975

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(200

)

(387

)

(1,075

)

 

 

 

 

 

 

 

 

 

 

Net income

 

551

 

2,059

 

21,099

 

21,900

 

 

 

 

 

 

 

 

 

 

 

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

 

(72

)

(86

)

(518

)

(529

)

 

 

 

 

 

 

 

 

 

 

Limited partners’ interest in net income

 

$

479

 

$

1,973

 

$

20,581

 

$

21,371

 

 

 

 

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

$

0.03

 

$

0.15

 

$

1.30

 

$

1.64

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per limited partner unit

 

$

0.03

 

$

0.15

 

$

1.28

 

$

1.60

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

16,934

 

12,979

 

15,824

 

13,037

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

17,180

 

13,304

 

16,075

 

13,334

 

 

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

 

2



 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

Nine Months Ended
September 30,

 

 

 

2010

 

2009

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

21,099

 

$

21,900

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

12,733

 

11,149

 

Amortization of deferred financing fees

 

1,928

 

868

 

Disposition of property and equipment and other

 

(8

)

1

 

Bad debt expense

 

370

 

1,520

 

Stock-based compensation expense

 

76

 

1,580

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

31,535

 

52,354

 

Accounts receivable — affiliate

 

252

 

(2,203

)

Inventories

 

(65,859

)

(179,955

)

Broker margin deposits

 

7,566

 

8,986

 

Prepaid expenses, all other current assets and other assets

 

(30,738

)

(7,673

)

Accounts payable

 

(34

)

(54,037

)

Income taxes payable

 

(1,356

)

(471

)

Change in fair value of forward fixed price contracts

 

(9,880

)

162,024

 

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

 

(642

)

9,735

 

Net cash (used in) provided by operating activities

 

(32,958

)

25,778

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Acquisitions

 

(248,359

)

 

Capital expenditures

 

(7,544

)

(8,024

)

Proceeds from sale of property and equipment

 

47

 

2

 

Net cash used in investing activities

 

(255,856

)

(8,022

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from public offering, net

 

84,584

 

 

Borrowings from credit facilities, net

 

231,900

 

5,400

 

Repurchase of common units

 

 

(3,464

)

Repurchased units withheld for tax obligations

 

(404

)

(386

)

Distributions to partners

 

(23,336

)

(19,567

)

Net cash provided by (used in) financing activities

 

292,744

 

(18,017

)

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

3,930

 

(261

)

Cash and cash equivalents at beginning of period

 

662

 

945

 

Cash and cash equivalents at end of period

 

$

4,592

 

$

684

 

 

 

 

 

 

 

Supplemental information

 

 

 

 

 

Cash paid during the period for interest

 

$

14,017

 

$

10,997

 

 

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

 

84,584

 

 

 

 

84,584

 

Stock-based compensation

 

76

 

 

 

 

76

 

Distributions to partners

 

(14,567

)

(8,253

)

(516

)

 

(23,336

)

Phantom unit dividends

 

(48

)

 

 

 

(48

)

Repurchased units withheld for tax obligations

 

(404

)

 

 

 

(404

)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

12,290

 

8,291

 

518

 

 

21,099

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

(10,885

)

(10,885

)

Change in pension liability

 

 

 

 

88

 

88

 

Total comprehensive income

 

 

 

 

 

10,302

 

Balance at September 30, 2010

 

$

247,060

 

$

(675

)

$

(27

)

$

(17,764

)

$

228,594

 

 

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 and Recent Events

 

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 also receives revenue from retail sales of gasoline, convenience store sales and rental income from gasoline stations.

 

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 September 30, 2010, the Partnership completed its acquisition of retail gas stations and supply rights for cash consideration of approximately $202.3 million, plus the assumption of certain environmental liabilities.  See Note 11 and Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Acquisition” for additional information related to the acquisition.

 

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.  Net proceeds were approximately $84.6 million, after deducting approximately $4.4 million in underwriting fees and offering expenses.  The Partnership used the net proceeds to reduce indebtedness under its senior secured credit agreement.  See Note 15 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 15) 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.  As of September 30, 2010, 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 September 30, 2010 and December 31, 2009 and for the three and nine months ended September 30, 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 preparing the accompanying consolidated financial statements.

 

5



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1.                      Organization and Basis of Presentation (continued)

 

The results of operations for the three and nine months ended September 30, 2010 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2010.  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.

 

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
September 30,

 

Nine Months Ended
September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Gasoline sales

 

69

%

 

68

%

 

58

%

 

51

%

 

Distillate sales: home heating oil, diesel and kerosene

 

26

%

 

27

%

 

37

%

 

44

%

 

Residual oil sales

 

5

%

 

5

%

 

5

%

 

5

%

 

 

 

100

%

 

100

%

 

100

%

 

100

%

 

 

The Partnership had one customer, ExxonMobil Oil Corporation (“ExxonMobil”), who accounted for approximately 22% and 27% of total sales for the three months ended September 30, 2010, and 2009, respectively and approximately 20% and 22% of total sales for the nine months ended September 30, 2010 and 2009, respectively.

 

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 general partner interest.

 

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.  On July 21, 2010, the board declared a quarterly cash distribution of $0.4875 per unit for the period from April 1, 2010 through June 30, 2010.  On October 20, 2010, the board declared a quarterly cash distribution of $0.4950 per unit for the period from July 1, 2010 through September 30, 2010.  These declared cash distributions resulted in incentive distributions to the General Partner, as the holder of the IDRs, and enabled the Partnership to exceed its first 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 and nine months ended September 30, 2010 and 2009 (in thousands, except per unit data):

 

 

 

Three Months Ended September 30, 2010

 

 

 

 

 

Limited

 

General

 

 

 

 

 

 

 

Partner

 

Partner

 

 

 

Numerator:

 

Total

 

Interest

 

Interest

 

IDRs

 

Net income (1)

 

$

551

 

$

479

 

$

72

 

$

 

 

 

 

 

 

 

 

 

 

 

Declared distribution

 

$

8,603

 

$

8,405

 

$

114

 

$

84

 

Assumed allocation of undistributed net income

 

(8,052

)

(7,926

)

(126

)

 

Assumed allocation of net income

 

$

551

 

$

479

 

$

(12

)

$

84

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding(2)

 

 

 

16,934

 

 

 

 

 

Dilutive effect of phantom units

 

 

 

246

 

 

 

 

 

Diluted weighted average limited partner units outstanding(2)

 

 

 

17,180

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

 

 

$

0.03

 

 

 

 

 

Diluted net income per limited partner unit

 

 

 

$

0.03

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2009

 

 

 

 

 

Limited

 

General

 

 

 

 

 

 

 

Partner

 

Partner

 

 

 

Numerator:

 

Total

 

Interest

 

Interest

 

IDRs

 

Net income(1)

 

$

2,059

 

$

1,973

 

$

86

 

$

 

 

 

 

 

 

 

 

 

 

 

Declared distribution

 

$

6,483

 

$

6,321

 

$

112

 

$

50

 

Assumed allocation of undistributed net income

 

(4,424

)

(4,348

)

(76

)

 

Assumed allocation of net income

 

$

2,059

 

$

1,973

 

$

36

 

$

50

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

 

 

12,979

 

 

 

 

 

Dilutive effect of phantom units

 

 

 

325

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

 

 

13,304

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

 

 

$

0.15

 

 

 

 

 

Diluted net income per limited partner unit

 

 

 

$

0.15

 

 

 

 

 

 

7



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

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

 

 

 

Nine Months Ended September 30, 2010

 

 

 

 

 

Limited

 

General

 

 

 

 

 

 

 

Partner

 

Partner

 

 

 

Numerator:

 

Total

 

Interest

 

Interest

 

IDRs

 

Net income(1)

 

$

21,099

 

$

20,581

 

$

518

 

$

 

 

 

 

 

 

 

 

 

 

 

Declared distribution

 

$

25,513

 

$

24,961

 

$

338

 

$

214

 

Assumed allocation of undistributed net income

 

(4,414

)

(4,380

)

(34

)

 

Assumed allocation of net income

 

$

21,099

 

$

20,581

 

$

304

 

$

214

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding(2)

 

 

 

15,824

 

 

 

 

 

Dilutive effect of phantom units

 

 

 

251

 

 

 

 

 

Diluted weighted average limited partner units outstanding(2)

 

 

 

16,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

 

 

$

1.30

 

 

 

 

 

Diluted net income per limited partner unit

 

 

 

$

1.28

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2009

 

 

 

 

 

Limited

 

General

 

 

 

 

 

 

 

Partner

 

Partner

 

 

 

Numerator:

 

Total

 

Interest

 

Interest

 

IDRs

 

Net income(1)

 

$

21,900

 

$

21,371

 

$

529

 

$

 

 

 

 

 

 

 

 

 

 

 

Declared distribution

 

$

19,522

 

$

19,036

 

$

336

 

$

150

 

Assumed allocation of undistributed net income

 

2,378

 

2,335

 

43

 

 

Assumed allocation of net income

 

$

21,900

 

$

21,371

 

$

379

 

$

150

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

 

 

13,037

 

 

 

 

 

Dilutive effect of phantom units

 

 

 

297

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

 

 

13,334

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

 

 

$

1.64

 

 

 

 

 

Diluted net income per limited partner unit

 

 

 

$

1.60

 

 

 

 

 

 


(1)             Calculation includes the effect of the public offering on March 19, 2010 (see Note 15) and, as a result, the general partner interest was reduced to 1.34% for the three months ended September 30, 2010 and, based on a weighted average, 1.60% for the nine months ended September 30, 2010.  For the three and nine months ended September 30, 2009, the general partner interest was 1.73%.

(2)             At September 30, 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 13).  These units are not deemed outstanding for purposes of calculating net income per limited partner unit (basic and diluted).

 

8



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 3.                      Comprehensive (Loss) Income

 

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

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Net income

 

$

551

 

$

2,059

 

$

21,099

 

$

21,900

 

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

 

(3,774

)

(674

)

(10,885

)

2,741

 

Change in pension liability

 

646

 

696

 

88

 

1,047

 

Total comprehensive (loss) income

 

$

(2,577

)

$

2,081

 

$

10,302

 

$

25,688

 

 

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):

 

 

 

September 30,
2010

 

December 31,
2009

 

Distillates: home heating oil, diesel and kerosene

 

$

366,383

 

$

339,737

 

Residual oil

 

51,055

 

39,787

 

Gasoline

 

81,484

 

64,645

 

Blend stock

 

32,860

 

21,754

 

Total

 

$

531,782

 

$

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 $44.3 million and $22.9 million at September 30, 2010 and December 31, 2009, respectively.  Negative exchange balances are accounted for as accounts payable and amounted to $41.3 million and $10.2 million at September 30, 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.

 

9



 

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 September 30, 2010:

 

 

 

Units(1)

 

Unit of Measure

 

Oil Contracts

 

 

 

 

 

Long

 

15,516

 

Thousands of barrels

 

Short

 

(20,537

)

Thousands of barrels

 

 

 

 

 

 

 

Natural Gas Contracts

 

 

 

 

 

Long

 

21,914

 

Thousands of decatherms

 

Short

 

(21,914

)

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 and nine months ended September 30, 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 and nine months ended September 30, 2010 and 2009.

 

10



 

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 September 30, 2010 and December 31, 2009 (in thousands):

 

 

 

 

 

September 30,

 

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)

 

$

5,215

 

$

4,085

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

Oil product and natural gas contracts

 

(2)

 

14,510

 

11,067

 

 

 

 

 

 

 

 

 

Total asset derivatives

 

 

 

$

19,725

 

$

15,152

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments and firm commitments

 

 

 

 

 

 

 

Oil product contracts(1)

 

(3)

 

$

15,089

 

$

23,030

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

Oil product and natural gas contracts

 

(3)

 

14,382

 

10,805

 

 

 

 

 

 

 

 

 

Total liability derivatives

 

 

 

$

29,471

 

$

33,835

 

 

(1)      Includes forward fixed price purchase and sale contracts as recognized in the Partnership’s consolidated balance sheets at September 30, 2010 and December 31, 2009.

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

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

 

11



 

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 and nine months ended September 30, 2010 and 2009 (in thousands):

 

 

 

 

 

Amount of Gain (Loss) Recognized in

 

 

 

 

 

Income on Derivatives

 

 

 

Location of Gain (Loss)

 

Three Months Ended

 

Nine Months Ended

 

Derivatives in Fair Value

 

Recognized in

 

September 30,

 

September 30,

 

Hedging Relationships

 

Income on Derivative

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil product contracts

 

Cost of sales

 

$

(34,725

)

$

(876

)

$

7,478

 

$

(200,478

)

 

 

 

 

 

Amount of Gain (Loss) Recognized in

 

 

 

 

 

Income on Hedged Items

 

 

 

Location of Gain (Loss)

 

Three Months Ended

 

Nine Months Ended

 

Hedged Items in Fair Value

 

Recognized in

 

September 30,

 

September 30,

 

Hedged Relationships

 

Income on Hedged Items

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventories and forward fixed price contracts

 

Cost of sales

 

$

34,811

 

$

879

 

$

(7,494

)

$

201,126

 

 

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):

 

 

 

September 30,
2010

 

December 31,
2009

 

Futures contracts

 

$

(7,443

)

$

(14,605

)

Swaps and other, net

 

(703

)

(3,420

)

Total

 

$

(8,146

)

$

(18,025

)

 

The total balances of $8.1 million and $18.0 million reflect the fair value of the forward fixed price contract liability net of the corresponding asset in the accompanying consolidated balance sheets at September 30, 2010 and December 31, 2009, respectively.

 

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 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.

 

12



 

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 $10.5 million and $18.1 million at September 30, 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 in 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 are 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 September 30, 2010, the three-month LIBOR rate of 0.38% was lower than the floor rate.  As a result, in October 2010, the Partnership remitted to the respective financial institution the difference between the floor rate and the current rate which amounted to approximately $431,000 and, at September 30, 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 $2.1 million and $3.9 million as of September 30, 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.

 

13



 

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 September 30, 2010, the one-month LIBOR rate of 0.26% was lower than the floor rate.  As a result, in October 2010, the Partnership remitted to the respective financial institution the difference between the floor rate and the current rate which amounted to approximately $197,000 and, at September 30, 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 $5.8 million and $3.2 million as of September 30, 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 $9.9 million as of September 30, 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 September 30, 2010 and December 31, 2009 (in thousands):

 

 

 

 

 

September 30,

 

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

 

$

7,920

 

$

7,047

 

Forward starting swap

 

Other long-term liabilities

 

9,931

 

 

Total liability derivatives

 

 

 

$

17,851

 

$

7,047

 

 

14



 

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 and partners’ equity for the three and nine months ended September 30, 2010 and 2009 (in thousands):

 

 

 

 

 

 

 

Recognized in Income

 

 

 

 

 

Recognized in Income

 

 

 

 

 

 

 

on Derivatives

 

 

 

 

 

on Derivatives

 

 

 

Amount of Gain (Loss)

 

(Ineffectiveness Portion

 

Amount of Gain (Loss)

 

(Ineffectiveness Portion

 

 

 

Recognized in Other

 

and Amount Excluded

 

Recognized in Other

 

and Amount Excluded

 

 

 

Comprehensive Income

 

from Effectiveness

 

Comprehensive Income

 

from Effectiveness

 

 

 

on Derivatives

 

Testing)

 

on Derivatives

 

Testing)

 

Derivatives in

 

Three Months Ended

 

Three Months Ended

 

Nine Months Ended

 

Nine Months Ended

 

Cash Flow

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

Hedging Relationship

 

2010

 

2009

 

2010

 

2009

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate collars

 

$

(343

)

$

(674

)

$

 

$

 

$

(872

)

$

2,741

 

$

 

$

 —

 

Forward starting swap

 

(3,431

)

 

 

 

(10,013

)

 

 

 

Total

 

$

(3,774

)

$

(674

)

$

 

$

 

$

(10,885

)

$

2,741

 

$

 

$

 —

 

 

Ineffectiveness related to the interest rate collars and forward starting swap is recognized as interest expense and was immaterial for the three and nine months ended September 30, 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 $1.4 million for the three months ended September 30, 2010 and 2009, respectively, and $4.5 million and $3.7 million for the nine months ended September 30, 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 and nine months ended September 30, 2010 and 2009 (in thousands):

 

 

 

 

 

Amount of Gain (Loss)

 

Amount of Gain (Loss)

 

 

 

Location of

 

Recognized in Income

 

Recognized in Income

 

 

 

Gain (Loss)

 

on Derivatives

 

on Derivatives

 

 

 

Recognized in

 

Three Months Ended

 

Nine Months Ended

 

Derivatives Not Designated as

 

Income on

 

September 30,

 

September 30,

 

Hedging Instruments

 

Derivatives

 

2010

 

2009

 

 

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil product contracts

 

Cost of sales

 

$

1,828

 

$

2,402

 

$

2,959

 

$

8,154

 

 

15



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 6.                      Debt

 

On August 18, 2010, the Partnership entered into a First Amendment to Amended and Restated Credit Agreement which amended the Amended and Restated Credit Agreement dated May 14, 2010 (as amended the “Credit Agreement”).  In accordance with the Credit Agreement and in connection with the acquisition of retail gas stations and supply rights from ExxonMobil (see Note 11), the Partnership requested, and certain lenders under the Credit Agreement agreed to, an increase in the revolving credit facility in an amount equal to $200.0 million for a total credit facility of up to $1.15 billion.  The Credit Agreement will mature on May 14, 2014.

 

There are two 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 $800.0 million; and

 

·              a $350.0 million revolving credit facility to be used for acquisitions and general corporate 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 the revolving credit facility, the working capital revolving credit facility, or both, by up to another $200.0 million, for a total credit facility of up to $1.35 billion.  Any such request for an increase by the Partnership must be in a minimum amount of $5.0 million, and the revolving credit facility may not be increased by more than $50.0 million.  The Partnership cannot provide assurance, however, that its lending group will agree to fund any request by the Partnership for additional amounts in excess of the total available commitments of $1.15 billion.

 

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’s borrowings under the working capital revolving credit facility cannot exceed the 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.

 

During the period from January 1, 2009 through May 13, 2010, borrowings under the working capital revolving credit facility bore 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 previous credit agreement, which in turn depended upon the Combined Interest Coverage Ratio (as defined in the previous credit agreement).  Borrowings under the revolving credit facility bore 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 previous credit agreement, which in turn depended upon the Combined Interest Coverage Ratio under the previous credit agreement.

 

16



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 6.                      Debt (continued)

 

Commencing May 14, 2010, borrowings under the working capital revolving credit facility bear interest at (1) the Eurodollar rate plus 2.50% to 3.00%, (2) the cost of funds rate plus 2.50% to 3.00%, or (3) the base rate plus 1.50% to 2.00%, each depending on the pricing level provided in the Credit Agreement, which in turn depends upon the Utilization Amount (as defined in the Credit Agreement).

 

During the period from May 14, 2010 through September 7, 2010, borrowings under the revolving credit facility bore interest at (1) the Eurodollar rate plus 3.00% to 3.25%, (2) the cost of funds rate plus 3.00% to 3.25%, or (3) the base rate plus 2.00% to 2.25%, each depending on the pricing level provided in the Credit Agreement, which in turn depended upon the Combined Senior Secured Leverage Ratio (as defined in the Credit Agreement).  Commencing September 8, 2010, borrowings under the revolving credit facility bear interest at (1) the Eurodollar rate plus 3.00% to 3.875%, (2) the cost of funds rate plus 3.00% to 3.875%, or (3) the base rate plus 2.00% to 2.875%, each depending on the pricing level provided in the Credit Agreement, which in turn depends upon the Combined Total Leverage Ratio (as defined in the Credit Agreement).

 

The average interest rates for the Credit Agreement were 4.1% and 3.5% for the three months ended September 30, 2010 and 2009, respectively, and 3.8% and 3.7% for the nine months ended September 30, 2010 and 2009, respectively.

 

The Partnership executed two zero premium interest rate collars and a forward starting swap which are used to hedge the variability in interest payments under the Credit Agreement due to changes in LIBOR rates.  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 2.50% — 3.00% per annum for each letter of credit issued.  In addition, the Partnership incurs a commitment fee on the unused portion of each facility under the Credit Agreement equal to 0.50% per annum.

 

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 $280.4 million and $240.9 million at September 30, 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 $185.3 million and $221.7 million at September 30, 2010 and December 31, 2009, respectively, representing the amounts the Partnership expects to pay down during the course of the year.

 

As of September 30, 2010, the Partnership had total borrowings outstanding under the Credit Agreement of $765.7 million, including $300.0 million outstanding on the revolving credit facility.  In addition, the Partnership had outstanding letters of credit of $46.5 million.  Subject to borrowing base limitations, the total remaining availability for borrowings and letters of credit at September 30, 2010 and December 31, 2009 was $337.8 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 as a result thereof, 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.

 

17



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 6.       Debt (continued)

 

The Credit Agreement imposes financial covenants that require the Partnership to maintain certain minimum working capital amounts, capital expenditure limits, a minimum EBITDA, a minimum combined interest coverage ratio, a maximum senior secured leverage ratio and a maximum total leverage ratio.  The Partnership was in compliance with the foregoing covenants at September 30, 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).  Under the Credit Agreement, the clean down requirement of the previous credit agreement was eliminated.

 

The Credit Agreement limits distributions by the Partnership to its unitholders to the amount of the Partnership’s available cash (as defined in its partnership agreement).

 

The lending group under the Credit Agreement is comprised of the following institutions: Bank of America, N.A.; JPMorgan Chase Bank, N.A.; Wells Fargo Bank, N.A.; Societe Generale; Standard Chartered Bank; RBS Citizens, National Association; BNP Paribas; Cooperative Centrale Raiffeisen-Boerenleenbank B.A., “Radobank Nederland” New York Branch; Sovereign Bank (Santander Group); Credit Agricole Corporate and Investment Bank; Keybank National Association; Toronto Dominion (New York); RB International Finance (USA) LLC (formerly known as RZB Finance LLC); Royal Bank of Canada; Raymond James Bank, FSB; Barclays Bank plc; Webster Bank, National Association; Natixis, New York Branch; DZ Bank AG Deutsche Zentral-Genossenschaftsbank Frankfurt Am Main; Branch Banking & Trust Company; and Sumitomo Mitsui Banking Corporation.

 

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

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Service cost

 

$

53

 

$

325

 

$

160

 

$

975

 

Interest cost

 

163

 

230

 

490

 

687

 

Expected return on plan assets

 

(169

)

(161

)

(509

)

(482

)

Recognized net actuarial loss

 

 

48

 

 

144

 

Net periodic benefit cost

 

$

47

 

$

442

 

$

141

 

$

1,324

 

 

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 and $1.2 million for the three and nine months ended September 30, 2010, respectively, compared to the same periods 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 July 2014 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 September 30, 2010 and 2009, respectively, and approximately $6.5 million and $6.3 million for the nine months ended September 30, 2010 and 2009, respectively.

 

18



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 8.                      Related Party Transactions (continued)

 

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 $21,900 and $18,500 for the three months ended September 30, 2010 and 2009, respectively, and approximately $65,600 and $55,000 for the nine months ended September 30, 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 September 30, 2010, no such notice of termination was given by either party.

 

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 $95,500 for the three months ended September 30, 2010 and 2009, respectively, and $147,000 and $286,500 for the nine months ended September 30, 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.

 

On May 12, 2010, the Partnership and Alliance entered into a letter agreement with respect to shared services for the year ending December 31, 2010, pursuant to which the Partnership will provide information technology infrastructure to Alliance for $106,000 for the year in addition to production and project support and routine information technology maintenance at a rate of $100.00 an hour.  Also for the year ending December 31, 2010, the Partnership will provide limited legal services to Alliance for $75,000 and limited accounting, treasury, tax and human resources support for $15,000.  The income from these services was approximately $50,000 and $85,000 for the three and nine months ended September 30, 2010, respectively.

 

The Partnership sells refined petroleum products to Alliance at prevailing market prices at the time of delivery.  Sales to Alliance were approximately $4.1 million and $5.7 million for the three months ended September 30, 2010 and 2009, respectively, and $17.6 million and $12.3 million for the nine months ended September 30, 2010 and 2009, respectively.

 

In addition, the Global Companies LLC and Global Montello Group Corp., wholly owned subsidiaries of the Partnership, entered into management agreements with Alliance in connection with the Partnership’s September 2010 acquisition of retail gas stations from ExxonMobil.  The expenses for the management fee and overhead reimbursement were approximately $125,000 and $132,000, respectively, through September 30, 2010.  See Note 11 and Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Acquisition.”

 

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 September 30, 2010 and 2009, including payroll, payroll taxes and bonus accruals, were $8.8 million and $9.2 million, respectively, and $28.6 million and $29.1 million for the nine months ended September 30, 2010 and 2009, 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.

 

19



 

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):

 

 

 

September 30,

 

December 31,

 

 

 

2010

 

2009

 

Receivables from Alliance

 

$

464

 

$

838

 

Receivables from GPC

 

126

 

251

 

Receivables from the General Partner (1)

 

723

 

476