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GLOBAL PARTNERS LP 10-Q 2012

Documents found in this filing:

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

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

ý

 

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

 

 

 

 

 

 

 

For the quarterly period ended March 31, 2012

 

 

 

 

 

 

 

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

 

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

or organization)

 

 

 

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 ý 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 27,430,563 common units outstanding as of May 3, 2012.

 

 



Table of Contents

 

TABLE OF CONTENTS

 

PART I.          FINANCIAL INFORMATION

 

 

 

Item 1.        Financial Statements

 

 

 

Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011

 

 

 

Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011

 

 

 

Consolidated Statements of Comprehensive (Loss) Income for the three months ended March 31, 2012 and 2011

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011

 

 

 

Consolidated Statement of Partners’ Equity for the three months ended March 31, 2012

 

 

 

Notes to Consolidated Financial Statements

 

 

 

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

 

 

 

Item 3.        Quantitative and Qualitative Disclosures about Market Risk

 

 

 

Item 4.        Controls and Procedures

 

 

 

PART II.  OTHER INFORMATION

 

 

 

Item 1.        Legal Proceedings

 

 

 

Item 1A.     Risk Factors

 

 

 

Item 6.        Exhibits

 

 

 

SIGNATURES

 

 

 

INDEX TO EXHIBITS

 

 



Table of Contents

 

Item 1.    Financial Statements

 

GLOBAL PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(In thousands, except unit data)

(Unaudited)

 

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

7,462

 

$

4,328

 

Accounts receivable, net

 

542,518

 

621,670

 

Accounts receivable—affiliates

 

807

 

1,776

 

Inventories

 

671,860

 

664,144

 

Brokerage margin deposits

 

36,975

 

43,935

 

Fair value of forward fixed price contracts

 

26,892

 

15,450

 

Prepaid expenses and other current assets

 

67,676

 

61,561

 

Total current assets

 

1,354,190

 

1,412,864

 

 

 

 

 

 

 

Property and equipment, net

 

728,785

 

408,850

 

Intangible assets, net

 

65,136

 

36,710

 

Other assets

 

13,632

 

10,427

 

Total assets

 

$

2,161,743

 

$

1,868,851

 

Liabilities and partners’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

463,638

 

$

575,776

 

Working capital revolving credit facility—current portion

 

112,825

 

62,805

 

Environmental liabilities—current portion

 

4,431

 

2,936

 

Trustee taxes payable

 

93,607

 

76,523

 

Accrued expenses and other current liabilities

 

36,789

 

41,307

 

Obligations on forward fixed price contracts and other derivatives

 

13,184

 

11,707

 

Total current liabilities

 

724,474

 

771,054

 

Working capital revolving credit facility—less current portion

 

529,775

 

526,095

 

Revolving credit facility

 

397,000

 

205,000

 

Environmental liabilities—less current portion

 

47,557

 

27,303

 

Other long-term liabilities

 

28,692

 

24,110

 

Total liabilities

 

1,727,498

 

1,553,562

 

Partners’ equity

 

 

 

 

 

Common unitholders (27,430,563 units issued and 27,411,931 outstanding at March 31, 2012 and 21,580,563 units issued and 21,561,931 outstanding at December 31, 2011)

 

454,160

 

336,103

 

General partner interest (0.83% and 1.06% interest with 230,303 equivalent units outstanding at March 31, 2012 and December 31, 2011, respectively)

 

(449

)

(319

)

Accumulated other comprehensive loss

 

(19,466

)

(20,495

)

Total partners’ equity

 

434,245

 

315,289

 

Total liabilities and partners’ equity

 

$

2,161,743

 

$

1,868,851

 

 

 

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

 

1



Table of Contents

 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit data)

(Unaudited)

 

 

 

 

Three Months Ended
March 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Sales

 

$

3,975,481

 

$

3,551,072

 

Cost of sales

 

3,920,162

 

3,494,822

 

Gross profit

 

55,319

 

56,250

 

 

 

 

 

 

 

Costs and operating expenses:

 

 

 

 

 

Selling, general and administrative expenses

 

22,467

 

21,110

 

Operating expenses

 

23,358

 

17,804

 

Amortization expenses

 

1,574

 

1,163

 

Total costs and operating expenses

 

47,399

 

40,077

 

 

 

 

 

 

 

Operating income

 

7,920

 

16,173

 

 

 

 

 

 

 

Interest expense

 

(9,320

)

(7,880

)

 

 

 

 

 

 

(Loss) income before income tax expense

 

(1,400

)

8,293

 

 

 

 

 

 

 

Income tax expense

 

 

 

 

 

 

 

 

 

Net (loss) income

 

(1,400

)

8,293

 

 

 

 

 

 

 

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

 

(108

)

(200

)

 

 

 

 

 

 

Limited partners’ interest in net (loss) income

 

$

(1,508

)

$

8,093

 

 

 

 

 

 

 

Basic net (loss) income per limited partner unit

 

$

(0.06

)

$

0.40

 

 

 

 

 

 

 

Diluted net (loss) income per limited partner unit

 

$

(0.06

)

$

0.39

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

23,555

 

20,424

 

 

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

23,727

 

20,643

 

 

 

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

 

2



Table of Contents

 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(Unaudited)

 

 

 

 

Three Months Ended
March 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Net (loss) income

 

$

(1,400

)

$

8,293

 

Other comprehensive income:

 

 

 

 

 

Change in fair value of cash flow hedges

 

731

 

1,718

 

Change in pension liability

 

298

 

140

 

Total other comprehensive income

 

1,029

 

1,858

 

Total comprehensive (loss) income

 

$

(371

)

$

10,151

 

 

 

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

 

3



Table of Contents

 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

Three Months Ended
March 31,

 

 

 

2012

 

2011

 

Cash flows from operating activities

 

 

 

 

 

Net (loss) income

 

$

(1,400

)

$

8,293

 

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

 

 

 

 

 

Depreciation and amortization

 

9,216

 

7,505

 

Amortization of deferred financing fees

 

1,314

 

1,097

 

Bad debt expense

 

90

 

1,590

 

Stock-based compensation expense

 

(72

)

73

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

97,863

 

71,883

 

Accounts receivable – affiliate

 

969

 

134

 

Inventories

 

3,705

 

(31,490

)

Broker margin deposits

 

6,960

 

934

 

Prepaid expenses, all other current assets and other assets

 

(1,447

)

(6,599

)

Accounts payable

 

(149,113

)

(106,265

)

Trustee taxes payable

 

7,115

 

2,930

 

Change in fair value of forward fixed price contracts

 

(9,965

)

(5,019

)

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

 

(6,998

)

(5,032

)

Net cash used in operating activities

 

(41,763

)

(59,966

)

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Acquisition of Alliance (cash component of the purchase price)

 

(184,505

)

 

Capital expenditures

 

(5,184

)

(2,179

)

Net cash used in investing activities

 

(189,689

)

(2,179

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from public offering, net

 

 

69,666

 

Borrowings from credit facilities, net

 

245,700

 

6,300

 

Repurchased units withheld for tax obligations

 

(96

)

(675

)

Distributions to partners

 

(11,018

)

(9,660

)

Net cash provided by financing activities

 

234,586

 

65,631

 

 

 

 

 

 

 

Increase in cash and cash equivalents

 

3,134

 

3,486

 

Cash and cash equivalents at beginning of period

 

4,328

 

2,361

 

Cash and cash equivalents at end of period

 

$

7,462

 

$

5,847

 

 

 

 

 

 

 

Supplemental information

 

 

 

 

 

Cash paid during the period for interest

 

$

9,242

 

$

7,749

 

Non-cash conversion of subordinated unitholders

 

$

 

$

1,623

 

Non-cash investing activities

 

 

 

 

 

Effect of acquisition of Alliance:

 

 

 

 

 

Fair value of tangible assets acquired

 

$

(359,195

)

 

 

Fair value of liabilities assumed

 

76,784

 

 

 

Fair value of common units issued

 

130,513

 

 

 

Fair value of intangible assets

 

(30,000

)

 

 

Receivable from AE Holdings representing contractual consideration

 

(2,607

)

 

 

Net cash paid in connection with the acquisition of Alliance

 

$

(184,505

)

 

 

 

 

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

 

4



Table of Contents

 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

General

 

 

Other

 

 

Total

 

 

 

Common

 

 

Partner

 

 

Comprehensive

 

 

Partners’

 

 

 

Unitholders

 

 

Interest

 

 

Loss

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2011

 

$

336,103

 

 

$

(319

)

 

$

(20,495

)

 

$

315,289

 

Issuance of common units in connection with the acquisition of Alliance

 

130,513

 

 

 

 

 

 

130,513

 

Net (loss) income

 

(1,508

)

 

108

 

 

 

 

(1,400

)

Other comprehensive income

 

 

 

 

 

1,029

 

 

1,029

 

Stock-based compensation

 

(72

)

 

 

 

 

 

(72

)

Distributions to partners

 

(10,790

)

 

(238

)

 

 

 

(11,028

)

Phantom unit dividends

 

10

 

 

 

 

 

 

10

 

Repurchased units withheld for tax obligations

 

(96

)

 

 

 

 

 

(96

)

Balance at March 31, 2012

 

$

454,160

 

 

$

(449

)

 

$

(19,466

)

 

$

434,245

 

 

 

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

 

5



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1.                      Organization and Basis of Presentation

 

Organization

 

Global Partners LP (the “Partnership”) is a publicly traded master limited partnership that engages in the distribution of refined petroleum products, renewable fuels, crude oil and 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.

 

On March 1, 2012, the Partnership acquired from AE Holdings Corp. (“AE Holdings”) 100% of the outstanding membership interests in Alliance Energy LLC (“Alliance”) (see Note 2).  Prior to the closing of the acquisition, Alliance was wholly owned by AE Holdings, which is approximately 95% owned by members of the Slifka family.

 

As of March 31, 2012, the Partnership had six operating subsidiaries:  Global Companies LLC (“Global Companies”), its subsidiary, Glen Hes Corp., Global Montello Group Corp. (“GMG”), Chelsea Sandwich LLC, Global Energy Marketing LLC (“Global Energy”) and Alliance (the six 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 conducts portions of 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.  Portside LLC and Bursaw Oil LLC are wholly-owned subsidiaries of Alliance which hold certain properties.  In January 2012, Alliance Retail LLC, a wholly owned subsidiary of GMG, was formed to hold certain property, plant and equipment acquired from Alliance.

 

The Partnership’s 0.83% general partner interest is held by Global GP LLC, the Partnership’s general partner (the “General Partner”).  The General Partner, which is owned by affiliates of the Slifka family, manages the Partnership’s operations and activities and employs its officers and all of its personnel, except for its gasoline stations and convenience store employees and certain personnel, who are employed by GMG.  Affiliates of the General Partner, including its directors and executive officers, own 11,387,521 common units, representing a 41.5% limited partner interest.

 

Basis of Presentation

 

The financial results of Alliance for one month ended March 31, 2012 are included in the accompanying statements of operations for the three months ended March 31, 2012.  The accompanying consolidated financial statements as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011 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, 2011 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.

 

The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2012.  The consolidated balance sheet at December 31, 2011 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, 2011.

 

6



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1.                      Organization and Basis of Presentation (continued)

 

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

 

Concentration of Risk

 

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

 

 

 

Three Months Ended
March 31,

 

 

 

2012

 

2011

 

Gasoline sales: gasoline and gasoline blendstocks such as ethanol and naphtha

 

59%

 

56%

 

Distillates (home heating oil, diesel and kerosene), residual oil, crude oil and natural gas sales

 

41%

 

44%

 

Total

 

100% 

 

100% 

 

 

The Partnership had one significant customer, ExxonMobil Oil Corporation (“ExxonMobil”), which accounted for approximately 16% and 20% of total sales for the three months ended March 31, 2012 and 2011, respectively.

 

Note 2.                      Business Combination

 

On March 1, 2012, the Partnership acquired from AE Holdings 100% of the outstanding membership interests in Alliance, a gasoline distributor and operator of gasoline stations and convenience stores.  The aggregate purchase price of the acquisition was approximately $312.4 million, consisting of both cash and non-cash components.  Alliance was an affiliate of the Partnership as Alliance was owned by AE Holdings which is approximately 95% owned by members of the Slifka family.  Both the Partnership and Alliance shared certain common directors.

 

The acquisition was accounted for using the purchase method of accounting in accordance with the Financial Accounting Standards Board’s (“FASB”) guidance regarding business combinations.  The Partnership’s financial statements include the results of operations of Alliance subsequent to the acquisition date.

 

The purchase price includes a cash payment of $184.5 million which was funded by the Partnership through additional borrowings under its revolving credit facility.  The consideration also includes the issuance of 5,850,000 common units representing limited partner interests in the Partnership which had a fair value of $22.31 on March 1, 2012, resulting in equity consideration of $130.5 million.  Pursuant to the Contribution Agreement, there was a $1.9 million adjustment as a result of the timing of the transaction (March 1), the seller’s 31 days of actual unit ownership in the 91 days of the quarter and the net receipt by seller ($1.0 million) of a pro-rated portion of the quarterly cash distribution of $0.50 per unit paid on the newly issued 5,850,000 common units.  There were also $0.7 million in miscellaneous adjustments based on certain cash and non-cash changes in the Alliance operations from October 1, 2011 (when the acquisition was initially agreed to by the parties) to February 29, 2012 (collectively with the $1.9 million adjustment, the “Cash Adjustment”).  The Cash Adjustment was recorded in prepaid expenses and other current assets in the accompanying balance sheet at March 31, 2012.

 

7



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 2.                      Business Combination (continued)

 

The following is a summary of the purchase price as of the date of acquisition (in thousands, except units):

 

Number of Partnership common units issued

 

5,850,000

 

 

 

Price per common unit on March 1, 2012, date of acquisition

 

$

22.31

 

 

 

Total fair value of common units issued

 

 

 

$

130,513

 

Cash consideration paid

 

 

 

184,505

 

“Cash Adjustment” receivable

 

 

 

(2,607

)

Total purchase price

 

 

 

$

312,411

 

 

The purchase price allocation is considered preliminary, and additional adjustments may be recorded during the allocation period in accordance with the FASB’s guidance regarding business combinations.  The purchase price allocation will be finalized as the Partnership receives additional information relevant to the acquisition, including a final valuation of the assets purchased and liabilities assumed.

 

The following table presents the preliminary allocation of the purchase price (in thousands):

 

Assets purchased:

 

 

 

Accounts receivable

 

$

18,801

 

Inventory

 

11,421

 

Prepaid expenses

 

3,235

 

Property and equipment

 

322,393

 

Intangibles

 

30,000

 

Other non-current assets

 

3,345

 

Total assets purchased

 

389,195

 

Liabilities assumed:

 

 

 

Accounts payable

 

(36,975

)

Assumption of environmental liabilities (see Note 12)

 

(22,000

)

Trustee taxes payable

 

(9,969

)

Accrued expenses

 

(2,211

)

Other non-current liabilities

 

(5,629

)

Total liabilities assumed

 

(76,784

)

Total purchase price

 

$

312,411

 

 

Management is currently in the process of evaluating the purchase price accounting.  The liability for environmental matters has been estimated by the Partnership with the assistance from a third party specialist.  Based on a preliminary analysis received to date, the estimated provision for environmental matters related to Alliance is $22.0 million.  This provision represents the estimated contingency related to such environmental matters (see Note 12 for additional information).

 

The Partnership has engaged another third-party valuation firm to assist in the valuation of Alliance’s property and equipment.  This valuation is in the early stages, and the fair value estimated in the table above of $322.4 million was developed by management based on their history of similar acquisitions.  The fair value of $30.0 million assigned to the intangibles was estimated by management based on their history of similar acquisitions and will be supported by a third-party valuation firm.

 

The fair values of the remaining Alliance assets and liabilities noted above approximate their carrying values at March 1, 2012.  It is possible that once the Partnership receives the completed valuations on the environmental matters, property and equipment and intangible assets, the final purchase price accounting may be different than what is presented above.

 

8



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 2.                      Business Combination (continued)

 

As part of the purchase price allocation, identifiable intangible assets include supply contracts that are being amortized over seven years.  For the three months ended March 31, 2012, amortization expense amounted to $357,000.  The Partnership does not expect any goodwill resulting from this acquisition.

 

The Partnership utilized accounting guidance related to intangible assets which lists the pertinent factors to be considered when estimating the useful life of an intangible asset.  These factors include, in part, a review of the expected use by the Partnership of the assets acquired, the expected useful life of another asset (or group of assets) related to the acquired assets and legal, regulatory or other contractual provisions that may limit the useful life of an acquired asset.  The Partnership amortizes these intangible assets on a straight-line basis over their estimated useful lives which is consistent with the estimated future cash flows of these assets.

 

The estimated remaining amortization expense for intangible assets acquired in connection with the acquisition for each of the five succeeding years and thereafter is as follows (in thousands):

 

2012 (3/1/12 – 12/31/12)

 

$

3,571

 

2013

 

4,286

 

2014

 

4,286

 

2015

 

4,286

 

2016

 

4,286

 

Thereafter

 

9,285

 

Total

 

$

30,000

 

 

In connection with the acquisition, the Partnership incurred acquisition related costs of $5.1 million.  Of this amount, $1.1 million and $4.0 million are included in selling, general and administrative expenses in the statement of operations for the year ended December 31, 2011 and three months ended March 31, 2012, respectively.  At March 31, 2012, $1.3 million of these costs remain accrued and unpaid, and the Partnership expects these remaining costs to be paid by June 30, 2012.

 

Alliance operates a network of company owned and operated gasoline stations and convenience stores and is a distributor of gasoline to leased and independently-owned stations.  Alliance owns and operates stations and offers its services in Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, New Jersey and Pennsylvania.  The acquisition of Alliance will enable the Partnership to expand its gasoline distribution business and continue to increase its presence across the Northeast United States.  The Alliance business is integrated into the Partnership’s Gasoline Distribution and Station Operations reporting segment (see Note 10).

 

Supplemental Pro-Forma Information — Sales for Alliance included in the Partnership’s consolidated statement of operations for the three months ended March 31, 2012 were approximately $150.9 million, which the Partnership believes were not material to its consolidated sales for this period.  The following unaudited pro-forma information presents the consolidated results of operations of the Partnership and Alliance as if the Alliance acquisition occurred at the beginning of each period presented, with pro-forma adjustments to give effect to intercompany sales and certain other adjustments (in thousands):

 

 

 

Three Months Ended
March 31,

 

 

 

2012

 

2011

 

Sales

 

$

4,209,736

 

$

3,911,182

 

Net (loss) income

 

$

(9,205

)

$

7,981

 

Net (loss) income per limited partner unit, basic and diluted

 

$

(0.34

)

$

0.30

 

 

9



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 3.                      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 unitholders, or limited partners’ interest, and to the General Partner’s general partner interest.

 

The following table provides a reconciliation of net (loss) income and the assumed allocation of net (loss) income to the limited partners’ interest for purposes of computing net income per limited partner unit for the three months ended March 31, 2012 and 2011 (in thousands, except per unit data):

 

 

 

Three Months Ended March 31, 2012

 

 

 

 

 

Limited

 

General

 

 

 

 

 

 

 

Partner

 

Partner

 

 

 

 

 

Total

 

Interest

 

Interest

 

IDRs

 

Numerator:

 

 

 

 

 

 

 

 

 

Net (loss) income (1)

 

$

(1,400

)

$

(1,508

)

$

108

 

$

 

 

 

 

 

 

 

 

 

 

 

Declared distribution

 

$

13,986

 

$

13,716

 

$

115

 

$

155

 

Adjustment to distribution in connection with the Alliance acquisition (2)

 

(1,929

)

(1,929

)

 

 

Adjusted declared distribution

 

12,057

 

11,787

 

115

 

155

 

Assumed allocation of undistributed net income

 

(13,457

)

(13,295

)

(162

)

 

Assumed allocation of net income

 

$

(1,400

)

$

(1,508

)

$

(47

)

$

155

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

 

 

23,555

 

 

 

 

 

Dilutive effect of phantom units

 

 

 

172

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

 

 

23,727

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net loss per limited partner unit

 

 

 

$

(0.06

)

 

 

 

 

Diluted net loss per limited partner unit

 

 

 

$

(0.06

)

 

 

 

 

 


 

(1)             On March 1, 2012, the general partner interest was reduced to 0.83% as a result of the March 1, 2012 issuance of 5,850,000 common units in connection with the acquisition of Alliance (see Note 2).  This calculation includes the effect of this common unit issuance and is based on a weighted average of 0.97% for the three months ended March 31, 2012.

(2)             In connection with the acquisition of Alliance on March 1, 2012 and the issuance to the seller of 5,850,000 common units, the Contribution Agreement provided that any declared per unit distribution for the first quarter of 2012 reflect the seller’s actual period of ownership during that quarter.  The payment by the seller of $1.9 million reflects the timing of the transaction (March 1), the seller’s 31 days of actual unit ownership in the 91 days of the quarter and the net receipt by seller ($1.0 million) of a pro-rated portion of the quarterly cash distribution of $0.50 per unit paid on the newly issued 5,850,000 common units.

 

10



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 3.                      Net (Loss) Income Per Limited Partner Unit (continued)

 

 

 

Three Months Ended March 31, 2011

 

 

 

 

 

Limited

 

General

 

 

 

 

 

 

 

Partner

 

Partner

 

 

 

 

 

Total

 

Interest

 

Interest

 

IDRs

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income (1)

 

$

8,293

 

$

8,093

 

$

200

 

$

 

 

 

 

 

 

 

 

 

 

 

Declared distribution

 

$

11,028

 

$

10,790

 

$

116

 

$

122

 

Assumed allocation of undistributed net income

 

(2,735

)

(2,697

)

(38

)

 

Assumed allocation of net income

 

$

8,293

 

$

8,093

 

$

78

 

$

122

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

 

 

20,424

 

 

 

 

 

Dilutive effect of phantom units

 

 

 

219

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

 

 

20,643

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

 

 

$

0.40

 

 

 

 

 

Diluted net income per limited partner unit

 

 

 

$

0.39

 

 

 

 

 

 


(1)                On February 8, 2011, the general partner interest was reduced to 1.06% as a result of the November 2010 and February 2011 public offerings.  This calculation includes the effect of these public offerings and is based on a weighted average of 1.11% for the three months ended March 31, 2011.

 

On April 20, 2012, the board of directors of the General Partner declared a quarterly cash distribution of $0.50 per unit for the period from January 1, 2012 through March 31, 2012.  This declared cash distribution resulted in an incentive distribution 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 9, “Cash Distributions” for further information.

 

At March 31, 2012 and at December 31, 2011, common units outstanding as reported in the accompanying consolidated financial statements excluded 18,632 common units held on behalf of the Partnership pursuant to its repurchase program.  These units are not deemed outstanding for purposes of calculating net income per limited partner unit (basic and diluted).

 

Note 4.       Accumulated Other Comprehensive Loss

 

Accumulated other comprehensive loss consisted of the following:

 

 

 

Pension
Plan

 

Derivatives

 

Total

 

Balance at December 31, 2011

 

$

(3,118

)

$

(17,377

)

$

(20,495

)

Change in fair value of cash flow hedges

 

 

731

 

731

 

Change in pension liability

 

298

 

 

298

 

Balance at March 31, 2012

 

$

(2,820

)

$

(16,646

)

$

(19,466

)

 

11



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 5.                      Inventories

 

Except for its convenience store inventory, the Partnership hedges substantially all of its inventory 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):

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

Distillates: home heating oil, diesel and kerosene

 

$

275,848

 

$

393,137

 

Gasoline

 

211,348

 

154,303

 

Gasoline Blendstocks

 

124,811

 

57,970

 

Residual oil and crude oil

 

53,146

 

56,121

 

Total

 

665,153

 

661,531

 

Convenience store inventory

 

6,707

 

2,613

 

Total

 

$

671,860

 

$

664,144

 

 

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 $51.5 million and $65.3 million at March 31, 2012 and December 31, 2011, respectively.  Negative exchange balances are accounted for as accounts payable and amounted to $59.5 million and $58.2 million at March 31, 2012 and December 31, 2011, respectively. Exchange transactions are valued using current quoted market prices.

 

Note 6.                      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.

 

12



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 6.                      Derivative Financial Instruments (continued)

 

The following table presents the volume of activity related to the Partnership’s derivative financial instruments at March 31, 2012:

 

 

 

Units (1)

 

Unit of Measure

 

Product Contracts

 

 

 

 

 

Long

 

8,719

 

Thousands of barrels

 

Short

 

(14,166

)

Thousands of barrels

 

 

 

 

 

 

 

Natural Gas Contracts

 

 

 

 

 

Long

 

16,099

 

Thousands of decatherms

 

Short

 

(16,099

)

Thousands of decatherms

 

 

 

 

 

 

 

Interest Rate Collar

 

$

100

 

Millions of dollars

 

 

 

 

 

 

 

Interest Rate 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 daily 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 related to the receipt or delivery of refined petroleum products, renewable fuels and crude oil in future periods.  The contracts are entered into in the normal course of business to reduce risk of loss of inventory on hand, which could result through fluctuations in market prices.  Changes in the fair value of these contracts, as well as the offsetting gain or loss on the hedged inventory item, are recognized in earnings as an increase or decrease in cost of sales.  Ineffectiveness related to these hedging activities was immaterial for the three months ended March 31, 2012 and 2011.

 

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 impact of commodity price changes on the Partnership’s inventories and forward fixed price commitments as well as to hedge the cost component of virtually all of the Partnership’s forward fixed price 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 months ended March 31, 2012 and 2011.

 

13



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 6.                      Derivative Financial Instruments (continued)

 

The following table presents the gross fair values of the Partnership’s derivative instruments and firm commitments and their location in the Partnership’s consolidated balance sheets at March 31, 2012 and December 31, 2011 (in thousands):

 

 

 

 

 

March 31,

 

December 31

 

 

 

Balance Sheet

 

2012

 

2011

 

Asset Derivatives

 

Location (Net)

 

Fair Value

 

Fair Value

 

Derivatives designated as hedging instruments and firm commitments

 

 

 

 

 

 

 

Product contracts (1)

 

(2)

 

$

13,910

 

$

3,607

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

Product and natural gas contracts

 

(3)

 

14,089

 

12,163

 

 

 

 

 

 

 

 

 

Total asset derivatives

 

 

 

$

27,999

 

$

15,770

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

 

 

 

 

 

 

Derivatives designated as hedging instruments and firm commitments

 

 

 

 

 

 

 

Product contracts (1)

 

(4)

 

$

1,590

 

$

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

Product and natural gas contracts

 

(4)

 

14,012

 

11,936

 

 

 

 

 

 

 

 

 

Total liability derivatives

 

 

 

$

15,602

 

$

11,936

 

 

(1)          Includes forward fixed price purchase and sale contracts as recognized in the Partnership’s consolidated balance sheets at March 31, 2012 and December 31, 2011

(2)          Fair value of forward fixed price contracts and prepaid expenses and other current assets at March 31, 2012 and fair value of forward fixed price contracts at December 31, 2011

(3)          Fair value of forward fixed price contracts and prepaid expenses and other current assets at March 31, 2012 and December 31, 2011

(4)          Obligations on forward fixed price contracts and other derivatives and accrued expenses and other current liabilities at March 31, 2012 and December 31, 2011

 

14



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 6.                      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 months ended March 31, 2012 and 2011 (in thousands):

 

 

 

 

 

Amount of Gain (Loss)

 

 

 

 

 

Recognized in Income on

 

 

 

 

 

Derivatives

 

 

 

Location of Gain (Loss)

 

Three Months Ended

 

Derivatives in Fair Value

 

Recognized in

 

March 31,

 

Hedging Relationships

 

Income on Derivatives

 

2012

 

2011

 

 

 

 

 

 

 

 

 

Product contracts

 

Cost of sales

 

$

(89,878

)

$

(114,809

)

 

 

 

 

 

Amount of Gain (Loss)

 

 

 

 

 

Recognized in Income on

 

 

 

 

 

Hedged Items

 

 

 

Location of Gain (Loss)

 

Three Months Ended

 

Hedged Items in Fair Value

 

Recognized in Income

 

March 31,

 

Hedge Relationships

 

on Hedged Item

 

2012

 

2011

 

 

 

 

 

 

 

 

 

Inventories and forward fixed price contracts

 

Cost of sales

 

$

89,957

 

$

115,061

 

 

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 sheets being hedged by the following derivative instruments (in thousands):

 

 

 

March 31,
2012

 

December 31,
2011

 

Futures contracts

 

$

13,554

 

$

3,607

 

Swaps and other, net

 

154

 

136

 

Total

 

$

13,708

 

$

3,743

 

 

The total balances of $13.7 million and $3.7 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 March 31, 2012 and December 31, 2011, 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 forward sale of product for physical delivery 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.

 

15



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 6.                      Derivative Financial Instruments (continued)

 

The Partnership has a daily margin requirement with its brokers based on the prior day’s market results on open futures contracts.  The brokerage margin balance was $37.0 million and $43.9 million at March 31, 2012 and December 31, 2011, 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 two clearing brokers, both major financial institutions, for all New York Mercantile Exchange (“NYMEX”) and Chicago Mercantile Exchange (“CME”) derivative transactions and the right of offset exists.  Accordingly, the fair value of 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 or interest income in the same period during which the hedged transaction affects earnings.

 

On September 29, 2008, the Partnership executed a zero premium interest rate collar with a major financial institution.  The collar is designated and accounted for as a cash flow hedge. The 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 collar, the Partnership capped its exposure at a maximum one-month LIBOR rate of 5.50% and established a minimum floor rate of 2.70%.  As of March 31, 2012, the one-month LIBOR rate of 0.24% 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 $205,000 and, at March 31, 2012, such amount was recorded in accrued expenses and other current liabilities in the accompanying consolidated balance sheet.  The fair values of the collar, excluding accrued interest, were liabilities of approximately $3.5 million and $3.8 million as of March 31, 2012 and December 31, 2011, 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 regression analysis.  The changes in the fair value of the 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.

 

16



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 6.                      Derivative Financial Instruments (continued)

 

In October 2009, the Partnership executed a forward starting interest rate swap with a major financial institution.  The swap, which became effective on May 16, 2011 and expires 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 $12.0 million and $12.4 million as of March 31, 2012 and December 31, 2011, respectively, and were recorded in 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 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 values of the rate cap were assets of approximately $282,600 and $306,000 as of March 31, 2012 and December 31, 2011, respectively, and were recorded in both other assets and accumulated other comprehensive income in the accompanying balance sheets.  Hedge effectiveness was assessed at inception and is 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.

 

The following table presents the fair value of the Partnership’s derivative instruments involved in cash flow hedging relationships and their location in the Partnership’s consolidated balance sheets at March 31, 2012 and December 31, 2011 (in thousands):

 

 

 

 

 

March 31,

 

December 31,

 

Derivatives Designated as

 

Balance Sheet

 

2012

 

2011

 

Hedging Instruments

 

Location

 

Fair Value

 

Fair Value

 

 

 

 

 

 

 

 

 

Asset derivatives

 

 

 

 

 

 

 

Interest rate cap

 

Other assets

 

$

283

 

$

306

 

 

 

 

 

 

 

 

 

Liability derivatives

 

 

 

 

 

 

 

Interest rate collar

 

Other long-term liabilities

 

$

3,502

 

$

3,817

 

Interest rate swap

 

Other long-term liabilities

 

12,007

 

12,446

 

Total liability derivatives

 

 

 

$

15,509

 

$

16,263

 

 

17



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 6.                      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 operations and partners’ equity for the three months ended March 31, 2012 and 2011 (in thousands):

 

 

 

 

 

Recognized in Income

 

 

 

Amount of Gain (Loss)

 

on Derivatives

 

 

 

Recognized in Other

 

(Ineffectiveness Portion

 

 

 

Comprehensive Income

 

and Amount Excluded

 

 

 

on Derivatives

 

from Effectiveness Testing)

 

 

 

Three Months Ended

 

Three Months Ended

 

Derivatives in Cash Flow

 

March 31,

 

March 31,

 

March 31,

 

March 31,

 

Hedging Relationship

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Interest rate collars

 

$

315

 

$

1,464

 

$

 

$

 

Interest rate swap

 

439

 

254

 

 

 

Interest rate cap

 

(23

)

 

 

 

Total

 

$

731

 

$

1,718

 

$

 

$

 

 

Ineffectiveness related to the interest rate collar and the interest rate swap is recognized as interest expense and was immaterial for the three months ended March 31, 2012 and 2011.  The effective portion related to the interest rate collars that was originally reported in other comprehensive income and reclassified to earnings was $0.6 million and $1.5 million for the three months ended March 31, 2012 and 2011, respectively.  None of the effective portion related to the interest rate cap that was originally reported in other comprehensive income was reclassified into earnings for the three months ended March 31, 2012 and 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 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 operations for the three months ended March 31, 2012 and 2011 (in thousands):

 

 

 

 

 

Amount of Gain (Loss)

 

 

 

 

 

Recognized in Income

 

 

 

 

 

on Derivatives

 

 

 

Location of Gain (Loss)

 

Three Months Ended

 

Derivatives Not Designated as

 

Recognized in

 

March 31,

 

March 31,

 

Hedging Instruments

 

Income on Derivatives

 

2012

 

2011

 

 

 

 

 

 

 

 

 

Product contracts

 

Cost of sales

 

$

1,732

 

$

1,456

 

 

18



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 7.                      Debt

 

On January 31, 2012, and in connection with the acquisition of Alliance, the Partnership entered into a Fourth Amendment to Amended and Restated Credit Agreement dated May 14, 2010, as amended (the “Credit Agreement”) which increased the total available commitments under the Credit Agreement to $1.4 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 $500.0 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 working capital revolving credit facility by up to another $100.0 million, for a total credit facility of up to $1.5 billion.  Any such request for an increase by the Partnership must be in a minimum amount of $5.0 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 $1.4 billion.

 

In addition, a swing line has been added to the Credit Agreement pursuant to which Bank of America, N.A., as the swing line lender, may make swing line loans in an aggregate amount equal to the lesser of (a) $35.0 million and (b) the Aggregate WC Commitments (as defined in the Credit Agreement).  Swing line loans will bear interest at the Base Rate (as defined in the Credit Agreement).  The swing line is a sub-portion of the working capital revolving credit facility and is not an addition to the total available commitments of $1.4 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.

 

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).

 

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 March 31, 2012 and 2011, respectively.

 

19



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 7.                      Debt (continued)

 

The Partnership currently has a zero premium interest rate collar, an interest rate 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 6 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 $529.8 million and $526.1 million at March 31, 2012 and December 31, 2011, 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 $112.8 million and $62.8 million at March 31, 2012 and December 31, 2011, respectively, representing the amounts the Partnership expects to pay down during the course of the year.

 

As of March 31, 2012, the Partnership had total borrowings outstanding under the Credit Agreement of $1.0 billion, including $397.0 million outstanding on the revolving credit facility.  In addition, the Partnership had outstanding letters of credit of $178.3 million.  Subject to borrowing base limitations, the total remaining availability for borrowings and letters of credit at March 31, 2012 and December 31, 2011 was $182.1 million and $215.9 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.

 

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 March 31, 2012.  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).

 

20



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 8.                      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 that is 100% owned by members of the Slifka family.  The agreement, which extends through July 31, 2014 with annual renewal options thereafter, is accounted for as an operating lease.  The expenses under this agreement totaled approximately $2.2 million for each of the three months ended March 31, 2012 and 2011, 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 for each of the three months ended March 31, 2012 and 2011, respectively.  These charges were recorded in selling, general and administrative expenses in the accompanying consolidated statements of operations.  On March 9, 2012, in connection with the Partnership’s acquisition of Alliance (see Note 2), the agreement was amended to include the services provided by GPC to Alliance.  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 March 31, 2012, no such notice of termination was given by either party.

 

Prior to the acquisition of Alliance on March 1, 2012, the Partnership was a party to an Amended and Restated Services Agreement with Alliance.  Pursuant to the agreement, the Partnership provided certain administrative, accounting and information processing services, and the use of certain facilities, to Alliance.  The income from these services was approximately $31,000 and $47,000 for the three months ended March 31, 2012 and 2011, respectively.  These fees were recorded as an offset to selling, general and administrative expenses in the accompanying consolidated statements of operations.  On March 9, 2012, in connection with the acquisition of Alliance, the agreement was terminated without penalty.  There were no settlement gains or losses recognized as a result of the termination of this agreement.

 

In addition, on March 9, 2012, following the closing of the acquisition of Alliance, Global Companies and AE Holdings entered into a shared services agreement pursuant to which Global Companies will provide AE Holdings with certain tax, accounting, treasury and legal support services for which AE Holdings will pay Global Companies $15,000 per year.  The shared services agreement is for an indefinite term and AE Holdings may terminate its receipt of some or all of the services upon 180 days’ notice.

 

Prior to the acquisition of Alliance, the Partnership sold refined petroleum products and renewable fuels to Alliance at prevailing market prices at the time of delivery.  Sales to Alliance were approximately $40.6 million and $15.4 million for the three months ended March 31, 2012 and 2011, respectively.  Sales for the three months ended March 30, 2012 and 2011 include 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.  The management fee and overhead reimbursement were approximately $433,000 and $250,000, respectively, for the three months ended March 31, 2012 and $650,000 and $479,000, respectively, for the three months ended March 31, 2011.  On March 9, 2012, in connection with the acquisition of Alliance, the management agreements were terminated without penalty.

 

21



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 8.                      Related Party Transactions (continued)

 

The General Partner employs all of the Partnership’s employees, except for its gasoline stations and convenience store employees and certain union personnel, who are employed by GMG.  The Partnership reimburses the General Partner for expenses incurred in connection with these employees.  The expenses for the three months ended March 31, 2012 and 2011, including payroll, payroll taxes and bonus accruals, were $9.7 million and $14.7 million, respectively.  The Partnership also reimburses the General Partner for its contributions under the General Partner’s 401(k) Savings and Profit Sharing Plan and the General Partner’s qualified and non-qualified pension plans.

 

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

 

 

 

March 31

 

December 31,

 

 

 

2012

 

2011

 

Receivables from Alliance (BFA) (1)

 

$

 

$

738

 

Receivables from Alliance

 

 

 

 

205

 

Receivables from GPC

 

 

199

 

 

302

 

Receivables from the General Partner (2)

 

 

608

 

 

531

 

Total

 

$

807

 

$

1,776

 

 


(1)          As of December 31, 2011, receivables from Alliance reflected the Partnership’s billings for branded fuel to Alliance, as a sub-jobber, pursuant to the Partnership’s brand fee agreement.  On March 1, 2012, the Partnership acquired Alliance (see Note 2).

 

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

 

Note 9.                      Cash Distributions

 

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

 

Within 45 days after the end of each quarter, the Partnership will distribute all of its Available Cash (as defined in its partnership agreement) to unitholders of record on the applicable record date.  The amount of Available Cash is all cash on hand on the date of determination of Available Cash for the quarter; less the amount of cash reserves established by the General Partner to provide for the proper conduct of the Partnership’s business, to comply with applicable law, any of the Partnership’s debt instruments, or other agreements or to provide funds for distributions to unitholders and the General Partner for any one or more of the next four quarters.

 

The Partnership will make distributions of Available Cash from distributable cash flow for any quarter in the following manner: 99.17% to the common unitholders, pro rata, and 0.83% 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.

 

22



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 9.                      Cash Distributions (continued)

 

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

 

Marginal Percentage Interest in
Distributions

 

 

 

Target Amount

 

Unitholders

 

General Partner

 

Minimum Quarterly Distribution

 

$0.4625

 

99.17%

 

 

0.83

%

 

 

First Target Distribution

 

$0.4625

 

99.17%

 

 

0.83

%

 

 

Second Target Distribution

 

above $0.4625 up to $0.5375

 

86.17%

 

 

13.83

%

 

 

Third Target Distribution

 

above $0.5375 up to $0.6625

 

76.17%

 

 

23.83

%

 

 

Thereafter

 

above $0.6625

 

51.17%

 

 

48.83

%

 

 

 

The Partnership paid the following cash distribution during 2012 (in thousands, except per unit data):

 

Cash
Distribution
Payment Date

 

 

 

Per Unit
Cash
Distribution

 

Common
Units

 

General
Partner

 

Incentive
Distribution

 

Total Cash
Distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

02/14/11 (1)(2)

 

 

$   0.50

 

 

 

$ 10,790

 

 

 

$ 116

 

 

 

$  122

 

 

 

$  11,028

 

 

 

(1)            Prior to the Partnership’s issuance of 5,850,000 common units in connection with its acquisition of Alliance (see Note 2), the limited partner interest was 98.94% and the general partner interest was 1.06%.

(2)            This distribution of $0.50 per unit resulted in the Partnership exceeding its first target level distribution for the fourth quarter of 2011.  As a result, the General Partner, as the holder of the IDRs, received an incentive distribution.

 

In addition, on April 20, 2012, the board of directors of the General Partner declared a quarterly cash distribution of $0.50 per unit ($2.00 per unit on an annualized basis) for the period from January 1, 2012 through March 31, 2012.  On May 15, 2012, the Partnership will pay this cash distribution to its common unitholders of record as of the close of business May 4, 2012.  This distribution will result in the Partnership exceeding its first target level distribution for the quarter ended March 31, 2012.

 

Note 10.               Segment Reporting

 

For several reasons, including the size of the Alliance acquisition (see Note 2), the Partnership’s strategic focus on gasoline distribution and station operations which increased in significance with the Alliance acquisition, changes to the Partnership’s organizational structure of this operating segment under one divisional president, and how the chief operating decision maker (“CODM”) reviews results and makes decisions, the Partnership determined it has three operating segments.  Commencing with the quarter ended March 31, 2012, the Partnership’s three operating segments, which are also the Partnership’s reporting segments, are: (i) Wholesale, (ii) Gasoline Distribution and Station Operations and (iii) Commercial.  Each of these operating segments generates revenues and incurs expenses and is evaluated for operating performance on a regular basis.  For the three months ended March 31, 2012, the Commercial operating segment did not meet the quantitative metrics for disclosure as a reportable segment on a stand-alone basis as defined in accounting guidance related to segment reporting.  However, the Partnership has elected to present segment disclosures for the Commercial operating segment as management believes such disclosures are meaningful to the user of the Partnership’s financial information.

 

The Partnership engages in the distribution of refined petroleum products, renewable fuels, crude oil and natural gas.  In addition, with the completion of the Alliance acquisition, the Partnership has a portfolio of approximately 800 owned, leased or supplied gas stations.  The Partnership’s primary businesses are organized within three reporting segments, (i) Wholesale, (ii) Gasoline Distribution and Station Operations and (iii) Commercial, based on the way the CODM manages the business and on the similarity of customers and expected long-term financial performance of each segment.

 

23



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 10.               Segment Reporting (continued)

 

The accounting policies of the segments are the same as those described in Note 2, “Summary of Significant Accounting Policies,” in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2011.

 

In the Wholesale reporting segment, the Partnership sells unbranded gasoline (including gasoline blendstocks such as ethanol and naphtha) and diesel to unbranded gasoline customers and other resellers of transportation fuels and home heating oil, diesel, kerosene and residual oil to home heating oil retailers and wholesale distributors.  The Partnership also sells crude oil to refiners in the Wholesale segment.  Generally, customers use their own vehicles or contract carriers to take delivery of the product at bulk terminals and inland storage facilities that the Partnership owns or controls or with which it has throughput or exchange arrangements.

 

In the Gasoline Distribution and Station Operations reporting segment, the Partnership sells branded and unbranded gasoline to gasoline stations and other sub-jobbers.  This segment also includes gasoline, convenience store, car wash and other ancillary sales at the Partnership’s directly operated stores, as well as rental income from dealer leased gas stations.

 

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

 

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

 

24



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 10.               Segment Reporting (continued)

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011 (1)

 

Wholesale Segment:

 

 

 

 

 

 

 

Sales

 

 

 

 

 

 

 

Gasoline and gasoline blendstocks

 

$

1,851,985

 

$

1,688,449

 

Other oils and related products (2)

 

 

1,428,323

 

 

1,386,286

 

Total

 

$

3,280,308

 

$

3,074,735

 

Net product margin

 

 

 

 

 

 

 

Gasoline and gasoline blendstocks

 

$

18,739

 

$

14,608

 

Other oils and related products (2)

 

 

14,453

 

 

23,871

 

Total

 

$

33,192

 

$

38,479

 

Gasoline Distribution and Station Operations Segment:

 

 

 

 

 

 

 

Sales

 

 

 

 

 

 

 

Gasoline

 

$

466,477

 

$

274,948

 

Station operations (3)

 

 

19,641

 

 

13,719

 

Total

 

$

486,118

 

$

288,667

 

Net product margin

 

 

 

 

 

 

 

Gasoline

 

$

12,203

 

$

9,539

 

Station operations (3)

 

 

10,960

 

 

7,552

 

Total

 

$

23,163

 

$

17,091

 

Commercial Segment:

 

 

 

 

 

 

 

Sales

 

$

209,055

 

$

187,670

 

Net product margin

 

$

6,200

 

$

6,750

 

Combined sales and net product margin:

 

 

 

 

 

 

 

Sales

 

$

3,975,481

 

$

3,551,072

 

Net product margin (4)

 

$

62,555

 

$

62,320

 

Depreciation allocated to cost of sales

 

 

7,236

 

 

6,070

 

Combined gross profit

 

$

55,319

 

$

56,250

 

 


(1)          Segment reporting results for the prior period have been reclassified to conform to the Partnership’s current presentation.

(2)          Other oils and related products primarily consist of distillates, residual oil and crude oil.

(3)          Station operations primarily consist of convenience store revenues and rental income.

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

 

25



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 10.               Segment Reporting (continued)

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Combined gross profit