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GLOBAL PARTNERS LP 10-Q 2011

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)

 

Q

 

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

 

 

 

 

 

 

 

For the quarterly period ended June 30, 2011

 

 

 

 

 

 

 

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 Q 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 Q 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 Q

 

The issuer had 21,580,563 common units outstanding as of August 1, 2011.

 

 

 



 

TABLE OF CONTENTS

 

 

PART I.         FINANCIAL INFORMATION

 

 

 

Item 1.       Financial Statements

 

 

 

Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010

 

 

 

Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010

 

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010

 

 

 

Consolidated Statements of Partners’ Equity for the six months ended June 30, 2011

 

 

 

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 2.       Unregistered Sales of Equity Securities and Use of Proceeds

 

 

 

Item 6.       Exhibits

 

 

 

SIGNATURES

 

 

 

INDEX TO EXHIBITS

 

 



 

Item 1.    Financial Statements

 

GLOBAL PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(In thousands, except unit data)

(Unaudited)

 

 

 

June 30,

 

December 31,

 

 

 

2011

 

2010

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

7,523

 

$

2,361

 

Accounts receivable, net

 

415,790

 

553,066

 

Accounts receivable—affiliates

 

1,307

 

1,230

 

Inventories

 

635,709

 

586,831

 

Brokerage margin deposits

 

36,057

 

15,501

 

Fair value of forward fixed price contracts

 

1,361

 

1,942

 

Prepaid expenses and other current assets

 

65,348

 

36,714

 

Total current assets

 

1,163,095

 

1,197,645

 

 

 

 

 

 

 

Property and equipment, net

 

413,405

 

422,684

 

Intangible assets, net

 

39,143

 

40,065

 

Other assets

 

13,533

 

11,922

 

Total assets

 

$

1,629,176

 

$

1,672,316

 

Liabilities and partners’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

321,894

 

$

443,469

 

Working capital revolving credit facility—current portion

 

102,683

 

193,198

 

Environmental liabilities—current portion

 

2,973

 

5,535

 

Trustee taxes payable

 

69,578

 

69,828

 

Accrued expenses and other current liabilities

 

45,392

 

30,494

 

Obligations on forward fixed price contracts and other derivatives

 

1,196

 

9,157

 

Total current liabilities

 

543,716

 

751,681

 

 

 

 

 

 

 

Working capital revolving credit facility—less current portion

 

498,817

 

293,502

 

Revolving credit facility

 

205,000

 

300,000

 

Environmental liabilities—less current portion

 

28,132

 

28,970

 

Other long-term liabilities

 

20,828

 

21,347

 

Total liabilities

 

1,296,493

 

1,395,500

 

 

 

 

 

 

 

Partners’ equity

 

 

 

 

 

Common unitholders (21,580,563 units issued and 21,575,823 units outstanding at June 30, 2011 and 13,293,139 units issued and 13,232,629 outstanding at December 31, 2010)

 

346,676

 

292,267

 

Subordinated unitholders (0 units issued and outstanding and 5,642,424 units issued and outstanding at June 30, 2011 and December 31, 2010, respectively)

 

 

(1,623

)

General partner interest (1.06% and 1.20% interest with 230,303 equivalent units outstanding at June 30, 2011 and December 31, 2010, respectively)

 

(336

)

(66

)

Accumulated other comprehensive loss

 

(13,657

)

(13,762

)

Total partners’ equity

 

332,683

 

276,816

 

Total liabilities and partners’ equity

 

$

1,629,176

 

$

1,672,316

 

 

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

 

1



 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit data)

(Unaudited)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

3,412,148

 

$

1,534,701

 

$

6,963,220

 

$

3,499,446

 

Cost of sales

 

3,367,577

 

1,502,740

 

6,862,399

 

3,419,717

 

Gross profit

 

44,571

 

31,961

 

100,821

 

79,729

 

 

 

 

 

 

 

 

 

 

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

18,809

 

13,891

 

39,919

 

30,469

 

Operating expenses

 

17,755

 

9,803

 

35,559

 

18,462

 

Amortization expenses

 

1,204

 

734

 

2,367

 

1,425

 

Total costs and operating expenses

 

37,768

 

24,428

 

77,845

 

50,356

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

6,803

 

7,533

 

22,976

 

29,373

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(7,651

)

(4,374

)

(15,531

)

(8,438

)

 

 

 

 

 

 

 

 

 

 

(Loss) income before income tax expense

 

(848

)

3,159

 

7,445

 

20,935

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

 

 

(387

)

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

(848

)

3,159

 

7,445

 

20,548

 

 

 

 

 

 

 

 

 

 

 

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

 

(113

)

(107

)

(313

)

(446

)

 

 

 

 

 

 

 

 

 

 

Limited partners’ interest in net (loss) income

 

$

(961

)

$

3,052

 

$

7,132

 

$

20,102

 

 

 

 

 

 

 

 

 

 

 

Basic net (loss) income per limited partner unit

 

$

(0.04

)

$

0.18

 

$

0.34

 

$

1.32

 

 

 

 

 

 

 

 

 

 

 

Diluted net (loss) income per limited partner unit

 

$

(0.04

)

$

0.18

 

$

0.34

 

$

1.30

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

21,562

 

16,917

 

20,996

 

15,260

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

21,785

 

17,155

 

21,205

 

15,496

 

 

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

 

2



 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

7,445

 

$

20,548

 

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

 

 

 

 

 

Depreciation and amortization

 

15,106

 

7,566

 

Amortization of deferred financing fees

 

2,204

 

1,008

 

Bad debt expense

 

1,680

 

280

 

Stock-based compensation expense

 

277

 

(49

)

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

135,596

 

83,112

 

Accounts receivable – affiliate

 

(77

)

(1,674

)

Inventories

 

(48,878

)

22,627

 

Broker margin deposits

 

(20,556

)

(1,767

)

Prepaid expenses, all other current assets and other assets

 

(33,894

)

(25,653

)

Accounts payable

 

(121,575

)

(40,846

)

Income taxes payable

 

 

(1,179

)

Trustee taxes payable

 

(250

)

18,011

 

Change in fair value of forward fixed price contracts

 

(7,380

)

(16,658

)

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

 

11,018

 

(14,762

)

Net cash (used in) provided by operating activities

 

(59,284

)

50,564

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Terminal acquisition

 

 

(46,046

)

Capital expenditures

 

(4,430

)

(4,828

)

Proceeds from sale of property and equipment

 

955

 

43

 

Net cash used in investing activities

 

(3,475

)

(50,831

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from public offering, net

 

69,626

 

84,584

 

Borrowings from (payments on) credit facilities, net

 

19,800

 

(65,400

)

Repurchase of common units

 

(150

)

 

Repurchased units withheld for tax obligations

 

(675

)

(404

)

Distributions to partners

 

(20,680

)

(14,904

)

Net cash provided by financing activities

 

67,921

 

3,876

 

 

 

 

 

 

 

Increase in cash and cash equivalents

 

5,162

 

3,609

 

Cash and cash equivalents at beginning of period

 

2,361

 

662

 

Cash and cash equivalents at end of period

 

$

7,523

 

$

4,271

 

 

 

 

 

 

 

Supplemental information

 

 

 

 

 

Cash paid during the period for interest

 

$

15,930

 

$

8,200

 

Non-cash conversion of subordinated unitholders

 

$

1,623

 

$

 

 

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, 2010

 

$

292,267

 

$

(1,623

)

$

(66

)

$

(13,762

)

$

276,816

 

Conversion of subordinated units to common units

 

(1,623

)

1,623

 

 

 

 

Proceeds from public offering, net

 

69,626

 

 

 

 

69,626

 

Stock-based compensation

 

277

 

 

 

 

277

 

Distributions to partners

 

(20,097

)

 

(583

)

 

(20,680

)

Phantom unit dividends

 

(81

)

 

 

 

(81

)

Repurchase of common units

 

(150

)

 

 

 

(150

)

Repurchased units withheld for tax obligations

 

(675

)

 

 

 

(675

)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

7,132

 

 

313

 

 

7,445

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of cash flow hedges

 

 

 

 

180

 

180

 

Change in pension liability

 

 

 

 

(75

)

(75

)

Total comprehensive income

 

 

 

 

 

7,550

 

Balance at June 30, 2011

 

$

346,676

 

$

 

$

(336

)

$

(13,657

)

$

332,683

 

 

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, renewable fuels and small amounts of natural gas and also provides ancillary services to companies.  The Partnership also receives revenue from retail sales of gasoline, convenience store sales and gas station rental income.

 

The Partnership has five operating subsidiaries:  Global Companies LLC, its subsidiary, Glen Hes Corp., Global Montello Group Corp. (“GMG”), 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.  GMG conducts the Partnership’s end user business, including certain aspects of its retail gasoline business.  Global Energy was formed to conduct the Partnership’s natural gas operations.  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.

 

Recent Developments

 

Conversion of Subordinated Units On February 18, 2011 and based upon meeting certain distribution and performance tests provided in the Partnership’s partnership agreement, all 5,642,424 subordinated units converted to common units.

 

Public Offering of Common UnitsOn February 8, 2011, the Partnership completed a public offering of 2,645,000 common units at a price of $27.60 per common unit.  Net proceeds were approximately $69.7 million after deducting underwriting fees and offering expenses.  The Partnership used the net proceeds to reduce indebtedness under its credit agreement.  See Note 14 for additional information related to the public offering.

 

The Partnership’s 1.06% general partner interest (discussed in Note 8) 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 5,416,490 common units, representing a 25% limited partner interest.

 

Basis of Presentation

 

The accompanying consolidated financial statements as of June 30, 2011 and December 31, 2010 and for the three and six months ended June 30, 2011 and 2010 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, 2010 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 six months ended June 30, 2011 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2011.  The consolidated balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

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.

 

Concentration of Risk

 

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

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Gasoline sales: gasoline and blend stocks such as ethanol and naphtha

 

72

%

 

65

%

 

63

%

 

54

%

 

Distillate sales: home heating oil, diesel and kerosene

 

25

%

 

30

%

 

33

%

 

41

%

 

Residual oil sales

 

3

%

 

5

%

 

4

%

 

5

%

 

 

 

100

%

 

100

%

 

100

%

 

100

%

 

 

The Partnership had one significant customer, ExxonMobil Oil Corporation (“ExxonMobil”), who accounted for approximately 22% and 23% of total sales for the three months ended June 30, 2011 and 2010, respectively and approximately 21% and 20% of total sales for the six months ended June 30, 2011 and 2010, respectively.

 

Note 2.                      Net (Loss) 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 February 18, 2011, all subordinated units converted to common units.

 

On April 20, 2011, the board of directors of the General Partner declared a quarterly cash distribution of $0.50 per unit for the period from January 1, 2011 through March 31, 2011.  On July 21, 2011, the board of directors of the General Partner declared a quarterly cash distribution of $0.50 per unit for the period from April 1, 2011 through June 30, 2011.  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 level distribution with respect to such IDRs.  See Note 8, “Cash Distributions” for further information.

 

6



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

The following table provides a reconciliation of net (loss) income and the assumed allocation of net income to the limited partners’ interest for purposes of computing net (loss) income per limited partner unit for the three and six months ended June 30, 2011 and 2010 (in thousands, except per unit data):

 

 

 

Three Months Ended June 30, 2011

 

 

 

 

 

Limited

 

General

 

 

 

 

 

 

 

Partner

 

Partner

 

 

 

Numerator:

 

Total

 

Interest

 

Interest

 

IDRs

 

Net (loss) income (1)

 

$

(848

)

$

(961

)

$

113

 

$

 

 

 

 

 

 

 

 

 

 

 

Declared distribution

 

$

11,028

 

$

10,790

 

$

116

 

$

122

 

Assumed allocation of undistributed net income

 

(11,876

)

(11,751

)

(125

)

 

Assumed allocation of net income

 

$

(848

)

$

(961

)

$

(9

)

$

122

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

 

 

21,562

 

 

 

 

 

Dilutive effect of phantom units

 

 

 

223

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

 

 

21,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net loss per limited partner unit

 

 

 

$

(0.04

)

 

 

 

 

Diluted net loss per limited partner unit

 

 

 

$

(0.04

)

 

 

 

 

 

 

 

Three Months Ended June 30, 2010

 

 

 

 

 

Limited

 

General

 

 

 

 

 

 

 

Partner

 

Partner

 

 

 

Numerator:

 

Total

 

Interest

 

Interest

 

IDRs

 

Net income (2)

 

$

3,159

 

$

3,052

 

$

107

 

$

 

 

 

 

 

 

 

 

 

 

 

Declared distribution

 

$

8,455

 

$

8,278

 

$

112

 

$

65

 

Assumed allocation of undistributed net income

 

(5,296

)

(5,226

)

(70

)

 

Assumed allocation of net income

 

$

3,159

 

$

3,052

 

$

42

 

$

65

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

 

 

16,917

 

 

 

 

 

Dilutive effect of phantom units

 

 

 

238

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

 

 

17,155

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

 

 

$

0.18

 

 

 

 

 

Diluted net income per limited partner unit

 

 

 

$

0.18

 

 

 

 

 

 

7



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

 

Six months ended June 30, 2011

 

 

 

 

 

Limited

 

General

 

 

 

 

 

 

 

Partner

 

Partner

 

 

 

Numerator:

 

Total

 

Interest

 

Interest

 

IDRs

 

Net income (1)

 

$

7,445

 

$

7,132

 

$

313

 

$

 

 

 

 

 

 

 

 

 

 

 

Declared distribution

 

$

22,056

 

$

21,580

 

$

232

 

$

244

 

Assumed allocation of undistributed net income

 

(14,611

)

(14,448

)

(163

)

 

Assumed allocation of net income

 

$

7,445

 

$

7,132

 

$

69

 

$

244

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

 

 

20,996

 

 

 

 

 

Dilutive effect of phantom units

 

 

 

209

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

 

 

21,205

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

 

 

$

0.34

 

 

 

 

 

Diluted net income per limited partner unit

 

 

 

$

0.34

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2010

 

 

 

 

 

Limited

 

General

 

 

 

 

 

 

 

Partner

 

Partner

 

 

 

Numerator:

 

Total

 

Interest

 

Interest

 

IDRs

 

Net income (2)

 

$

20,548

 

$

20,102

 

$

446

 

$

 

 

 

 

 

 

 

 

 

 

 

Declared distribution

 

$

16,910

 

$

16,556

 

$

224

 

$

130

 

Assumed allocation of undistributed net income

 

3,638

 

3,546

 

92

 

 

Assumed allocation of net income

 

$

20,548

 

$

20,102

 

$

316

 

$

130

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

 

 

15,260

 

 

 

 

 

Dilutive effect of phantom units

 

 

 

236

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

 

 

15,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

 

 

$

1.32

 

 

 

 

 

Diluted net income per limited partner unit

 

 

 

$

1.30

 

 

 

 

 

 


(1)   Calculation includes the effect of the public offerings in November 2010 and February 2011 (see Note 14) and, as a result, the general partner interest was reduced to 1.06% for the three months ended June 30, 2011 and, based on a weighted average, 1.12% for the six months ended June 30, 2011.

(2)   Calculation includes the effect of the public offering in March 2010 (see Note 14) and, as a result, the general partner interest was reduced to 1.34% for the three months ended June 30, 2010 and, based on a weighted average, 1.61% for the six months ended June 30, 2010.

 

Limited partner units outstanding exclude 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).

 

8



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 3.                      Comprehensive (Loss) Income

 

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

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Net (loss) income

 

$

(848

)

$

3,159

 

$

7,445

 

$

20,548

 

Change in fair value of cash flow hedges

 

(1,538

)

(4,879

)

180

 

(7,111

)

Change in pension liability

 

(215

)

(679

)

(75

)

(558

)

Total comprehensive (loss) income

 

$

(2,601

)

$

(2,399

)

$

7,550

 

$

12,879

 

 

Note 4.                      Inventories

 

Except for its convenience store inventory, 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.  In addition, the Partnership has convenience store inventory which is carried at the lower of historical cost or market.

 

Inventories consisted of the following (in thousands):

 

 

 

June 30,
 2011

 

December 31,
 2010

 

Distillates: home heating oil, diesel and kerosene

 

$

354,018

 

$

377,123

 

Gasoline

 

139,570

 

115,542

 

Residual oil

 

32,010

 

35,749

 

Blend stock

 

107,461

 

55,919

 

Total

 

633,059

 

584,333

 

Convenience store inventory

 

2,650

 

2,498

 

Total

 

$

635,709

 

$

586,831

 

 

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 $57.6 million and $126.8 million at June 30, 2011 and December 31, 2010, respectively.  Negative exchange balances are accounted for as accounts payable and amounted to $73.5 million and $115.2 million at June 30, 2011 and December 31, 2010, 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 June 30, 2011:

 

 

 

Units (1)

 

Unit of Measure

 

Product Contracts

 

 

 

 

 

Long

 

9,185

 

Thousands of barrels

 

Short

 

(15,439

)

Thousands of barrels

 

 

 

 

 

 

 

Natural Gas Contracts

 

 

 

 

 

Long

 

15,895

 

Thousands of decatherms

 

Short

 

(15,895

)

Thousands of decatherms

 

 

 

 

 

 

 

Interest Rate Collar

 

$

100

 

Millions of dollars

 

 

 

 

 

 

 

Forward Starting Swap

 

$

100

 

Millions of dollars

 

 

 

 

 

 

 

Interest Rate Cap

 

$

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 and renewable fuels 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 six months ended June 30, 2011 and 2010.

 

The Partnership also uses futures contracts and swap agreements to hedge exposure under forward fixed price 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 and agreements, 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 commitments 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 six months ended June 30, 2011 and 2010.

 

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 June 30, 2011 and December 31, 2010 (in thousands):

 

 

 

 

 

June 30,

 

December 31,

 

 

 

Balance Sheet

 

2011

 

2010

 

Asset Derivatives

 

Location (Net)

 

Fair Value

 

Fair Value

 

Derivatives designated as hedging instruments and firm commitments

 

 

 

 

 

 

 

Product contracts (1)

 

(2)

 

$

1,491

 

$

3,896

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

Product and natural gas contracts

 

(2)

 

1,589

 

3,049

 

 

 

 

 

 

 

 

 

Total asset derivatives

 

 

 

$

3,080

 

$

6,945

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

 

 

 

 

 

 

Derivatives designated as hedging instruments and firm commitments

 

 

 

 

 

 

 

Product contracts (1)

 

(3)

 

$

1,540

 

$

13,538

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

Product and natural gas contracts

 

(3)

 

1,413

 

2,896

 

 

 

 

 

 

 

 

 

Total liability derivatives

 

 

 

$

2,953

 

$

16,434

 

 

(1)      Includes forward fixed price purchase and sale contracts as recognized in the Partnership’s consolidated balance sheets at June 30, 2011 and December 31, 2010.

(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 operations for the three and six months ended June 30, 2011 and 2010 (in thousands):

 

 

 

 

 

Amount of Gain (Loss) Recognized in

 

 

 

 

 

Income on Derivatives

 

 

 

Location of Gain (Loss)

 

Three Months Ended

 

Six Months Ended

 

Derivatives in Fair Value

 

Recognized in

 

June 30,

 

June 30,

 

Hedging Relationships

 

Income on Derivative

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

Product contracts

 

Cost of sales

 

$

21,367

 

$

42,230

 

$

(93,442

)

$

42,203

 

 

 

 

 

 

Amount of Gain (Loss) Recognized in

 

 

 

 

 

Income on Hedged Items

 

 

 

Location of Gain (Loss)

 

Three Months Ended

 

Six Months Ended

 

Hedged Items in Fair Value

 

Recognized in

 

June 30,

 

June 30,

 

Hedged Relationships

 

Income on Hedged Items

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventories and forward fixed price contracts

 

Cost of sales

 

$

(21,351

)

$

(42,332

)

$

93,710

 

$

(42,305

)

 

The Partnership’s derivative financial instruments do not contain credit risk related to 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):

 

 

 

June 30,
2011

 

December 31,
2010

 

Futures contracts

 

$

430

 

$

(6,480

)

Swaps and other, net

 

(265

)

(735

)

Total

 

$

165

 

$

(7,215

)

 

The total balances of $165,000 and ($7.2) million reflect the fair value of the forward fixed price contract asset/(liability) net of the corresponding asset/(liability) in the accompanying consolidated balance sheets at June 30, 2011 and December 31, 2010, 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 $36.1 million and $15.5 million at June 30, 2011 and December 31, 2010, 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 and 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 expired on May 14, 2011, was 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 on the revolving credit facility.  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%.  For the period from February 14, 2011 through May 14, 2011, the three-month LIBOR rate of 0.31% was lower than the floor rate.  As a result, the Partnership remitted to the respective financial institution the difference between the floor rate and the current rate which amounted to approximately $850,000.

 

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 on the working capital revolving credit facility (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 June 30, 2011, the one-month LIBOR rate of 0.19% was lower than the floor rate.  As a result, the Partnership will remit to the respective financial institution the difference between the floor rate and the current rate which amounted to approximately $202,000 and, at June 30, 2011, 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 $4.5 million and $4.8 million as of June 30, 2011 and December 31, 2010, 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 collar’s strike rates.

 

In October 2009, the Partnership executed a forward starting swap with a major financial institution.  The swap, which became effective on May 16, 2011 and expire on May 16, 2016, is 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 on the revolving credit facility at a fixed rate of 3.93%.  The fair values of the swap were liabilities of approximately $9.6 million and $7.3 million as of June 30, 2011 and December 31, 2010, respectively, and were recorded in other long-term liabilities 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.

 

On April 8, 2011, the Partnership executed an interest rate cap with a major financial institution.  The rate cap, which became effective on April 13, 2011 and expires on April 13, 2016, is used to hedge the variability in interest payments due to changes in the one-month LIBOR rate above 5.5% with respect to $100.0 million of one-month LIBOR-based borrowings on the working capital revolving credit facility.  The fair value of the rate cap was an asset of approximately $940,000 as of June 30, 2011 and was recorded in both other assets and accumulated other comprehensive income in the accompanying balance sheet.  Hedge effectiveness was assessed at inception and will be assessed quarterly, prospectively and retrospectively, by (i) comparing the critical terms of the rate cap and the hedged forecasted transactions, (ii) evaluating the counterparty’s ability to honor its obligations under the rate cap agreement; and (iii) ensuring the interest payment cash flows remain probable of occurring.  The changes in the fair value of the rate cap are expected to be highly effective in offsetting the changes in interest rate payments attributable to fluctuations in the one-month LIBOR rate above the rate cap’s strike rate.

 

14



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 5.                      Derivative Financial Instruments (continued)

 

The following table presents the fair value of the Partnership’s derivative instruments and their location in the Partnership’s consolidated balance sheets at June 30, 2011 and December 31, 2010 (in thousands):

 

 

 

 

 

June 30,

 

December 31,

 

Derivatives Designated as

 

Balance Sheet

 

2011

 

2010

 

Hedging Instruments

 

Location

 

Fair Value

 

Fair Value

 

 

 

 

 

 

 

 

 

Asset derivatives

 

 

 

 

 

 

 

Interest rate cap

 

Other assets

 

$

940

 

$

 

 

 

 

 

 

 

 

 

Liability derivatives

 

 

 

 

 

 

 

Interest rate collars

 

Other long-term liabilities

 

$

4,535

 

$

6,042

 

Forward starting swap

 

Other long-term liabilities

 

9,562

 

7,296

 

Total liability derivatives

 

 

 

$

14,097

 

$

13,338

 

 

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 operations and partners’ equity for the three and six months ended June 30, 2011 and 2010 (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

 

Six Months Ended

 

Six Months Ended

 

Cash Flow

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

Hedging Relationship

 

2011

 

2010

 

2011

 

2010

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate collar

 

$

43

 

$

(161

)

$

 

$

 

$

1,507

 

$

(529

)

$

 

$

 

Forward starting swap

 

(2,521

)

(4,718

)

 

 

(2,267

)

(6,582

)

 

 

Interest rate cap

 

940

 

 

 

 

940

 

 

 

 

Total

 

$

(1,538

)

$

(4,879

)

$

 

$

 

$

180

 

$

(7,111

)

$

 

$

 

 

Ineffectiveness related to the interest rate collars and forward starting swap is recognized as interest expense and was immaterial for the three and six months ended June 30, 2011 and 2010.  The effective portion related to the interest rate collars that was originally reported in other comprehensive income and reclassified to earnings was $1.0 million and $1.5 million for the three months ended June 30, 2011 and 2010, respectively, and $2.5 million and $3.0 million for the six months ended June 30, 2011 and 2010, respectively.  The effective portion related to the interest rate cap that was originally reported in other comprehensive income reclassified into earnings was zero for the three and six months ended June 30, 2011.

 

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 and renewable fuels products at any one point in time.

 

15



 

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 not involved in a hedging relationship recognized in the Partnership’s consolidated statements of operations for the three and six months ended June 30, 2011 and 2010 (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

 

Six Months Ended

 

Derivatives Not Designated as

 

Income on

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

Hedging Instruments 

 

Derivatives

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

Product contracts

 

Cost of sales

 

$

872

 

$

1,652

 

$

2,328

 

$

1,131

 

 

Note 6.                      Debt

 

On January 26, 2011, the Partnership requested an increase in the working capital revolving credit facility in an amount equal to $100.0 million, and on February 11, 2011, certain lenders under the Partnership’s Amended and Restated Credit Agreement dated May 14, 2010, as amended (the “Credit Agreement”) committed to the $100.0 million increase which increased the total available commitments under the Credit Agreement to $1.25 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 $900.0 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 $100.0 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 $1.25 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, 2010 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

 

16



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 6.                      Debt (continued)

 

level provided in the previous credit agreement, which in turn depended upon the Combined Interest Coverage Ratio under the previous credit agreement.

 

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 4.0% and 4.1% for the three months ended June 30, 2011 and 2010, respectively, and 4.1% and 3.6% for the six months ended June 30, 2011 and 2010, respectively.

 

The Partnership currently has a zero premium interest rate collar, a forward starting swap and an interest rate cap, all of 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 these cash flow hedges.

 

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 $498.8 million and $293.5 million at June 30, 2011 and December 31, 2010, 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 $102.7 million and $193.2 million at June 30, 2011 and December 31, 2010, respectively, representing the amounts the Partnership expects to pay down during the course of the year.

 

As of June 30, 2011, the Partnership had total borrowings outstanding under the Credit Agreement of $806.5 million, including $205.0 million outstanding on the revolving credit facility.  In addition, the Partnership had outstanding letters of credit of $183.2 million.  Subject to borrowing base limitations, the total remaining availability for borrowings and letters of credit at June 30, 2011 and December 31, 2010 was $260.3 million and $252.6 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 June 30, 2011.  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).  In addition, 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).

 

On July 19, 2011, the Partnership entered into a Second Amendment to the Credit Agreement which amended the Credit Agreement and modified the following financial covenants as described below:

 

(i)                  The minimum Combined EBITDA (as defined in the Credit Amendment) as at the end of each fiscal quarter, other than the fiscal quarters ending September 30, 2011 and December 31, 2011 is required to not be less than $75 million for the four consecutive fiscal quarters most recently ended and not less than $70 million for the four consecutive fiscal quarters ending September 30, 2011 and December 31, 2011.

 

(ii)               The Combined Interest Coverage Ratio (as defined in the Credit Agreement) as at the end of any fiscal quarter is required to not be less than the ratio set forth below:

 

Fiscal Quarter Ending

 

Combined Interest
Coverage Ratio

 

June 30, 2011

 

2.00:1.00

 

September 30, 2011 and December 31, 2011

 

1.65:1.00

 

March 31, 2012

 

1.75:1.00

 

June 30, 2012 and each fiscal quarter ending thereafter

 

2.00:1.00

 

 

(iii)            The Combined Senior Secured Leverage Ratio (as defined in the Credit Agreement) as at the end of any fiscal quarter is required to not be greater than the ratio set forth below:

 

Fiscal Quarter Ending

 

Combined Senior
Secured
Leverage Ratio

 

June 30, 2011

 

2.50:1.00

 

September 30, 2011 and December 31, 2011

 

3.00:1.00

 

March 31, 2012 and each fiscal quarter ending thereafter

 

2.75:1.00

 

 

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., “Rabobank Nederland” New York Branch; Sovereign Bank; 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.

 

18



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 7.                      Related Party Transactions

 

The Partnership is a party to a Second Amended and Restated Terminal Storage Rental and Throughput Agreement, as amended, with Global Petroleum Corp. (“GPC”), an affiliate of the Partnership, which extends through July 31, 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 June 30, 2011 and 2010, respectively, and approximately $4.4 million and $4.3 million for the six months ended June 30, 2011 and 2010, 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 $24,000 and $21,900 for the three months ended June 30, 2011 and 2010, respectively, and approximately $48,000 and $43,700 and for the six months ended June 30, 2011 and 2010, respectively.  These charges were recorded in selling, general and administrative expenses in the accompanying consolidated statements of operations.  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.  As of June 30, 2011, 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 $47,000 and $49,000 for the three months ended June 30, 2011 and 2010, respectively, and $94,000 and $98,000 for the six months ended June 30, 2011 and 2010, respectively.  These fees were recorded as an offset to selling, general and administrative expenses in the accompanying consolidated statements of operations.  The agreement is for an indefinite term, and Alliance may terminate its receipt of some or all of the services thereunder upon 180 days’ notice at any time.  As of June 30, 2011, no such notice of termination was given by Alliance.

 

The Partnership sells refined petroleum products and renewable fuels to Alliance at prevailing market prices at the time of delivery.  Sales to Alliance were approximately $44.5 million and $6.2 million for the three months ended June 30, 2011 and 2010, respectively, and $59.9 million and $13.5 million for the six months ended June 30, 2011 and 2010, respectively. Sales for the three and six months ended June 30, 2011 included sales of Mobil-branded fuel to Alliance pursuant to the Mobil franchise agreement entered into by Global Companies LLC and Alliance, effective March 1, 2011.

 

In addition, Global Companies LLC and GMG, 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 (see Note 10).  The management fee and overhead reimbursement were approximately $0.7 million and $0.4 million, respectively, for the three months ended June 30, 2011 and $1.3 million and $0.9 million, respectively, for the six months ended June 30, 2011.

 

19



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 7.                      Related Party Transactions (continued)

 

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 June 30, 2011 and 2010, including payroll, payroll taxes and bonus accruals, were $9.1 million and $9.4 million, respectively, and $23.8 million and $19.8 million for the six months ended June 30, 2011 and 2010, 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):

 

 

 

June 30,

 

December 31,

 

 

 

2011

 

2010

 

Receivables from Alliance

 

$

255

 

$

296

 

Receivables from GPC

 

304

 

224

 

Receivables from the General Partner (1)

 

748

 

710

 

Total

 

$

1,307

 

$

1,230

 

 

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

 

Note 8.                      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 the General Partner for any one or more of the next four quarters.

 

20



 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 8.                      Cash Distributions (continued)

 

The Partnership will make distributions of Available Cash from distributable cash flow for any quarter in the following manner: 98.94% to the common unitholders, pro rata, and 1.06% to the General Partner, until the Partnership distributes for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter; and thereafter, cash in excess of the minimum quarterly distribution is distributed to the unitholders and the General Partner based on the percentages as provided below.

 

As 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