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GLOBAL PARTNERS LP 10-Q 2015

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, 2015

 

 

 

 

 

 

 

OR

 

 

 

 

 

o

 

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

 

 

 

 

 

 

 

For the transition period from              to              

 

 

Commission file number 001-32593

 

Global Partners LP

(Exact name of registrant as specified in its charter)

 

Delaware

 

74-3140887

(State or other jurisdiction of incorporation
or organization)

 

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

 

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

(Address of principal executive offices, including zip code)

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.

Yes 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 30,995,563 common units outstanding as of May 5, 2015.

 

 



Table of Contents

 

 

TABLE OF CONTENTS

 

PART I.         FINANCIAL INFORMATION

 

 

 

Item 1.       Financial Statements (unaudited)

3

 

 

Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014

3

 

 

Consolidated Statements of Income for the three months ended March 31, 2015 and 2014

4

 

 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2015 and 2014

5

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014

6

 

 

Consolidated Statement of Partners’ Equity for the three months ended March 31, 2015

7

 

 

Notes to Consolidated Financial Statements

8

 

 

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

51

 

 

Item 3.       Quantitative and Qualitative Disclosures about Market Risk

70

 

 

Item 4.       Controls and Procedures

72

 

 

PART II.  OTHER INFORMATION

73

 

 

Item 1.       Legal Proceedings

73

 

 

Item 1A.    Risk Factors

74

 

 

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

74

 

 

Item 6.       Exhibits

75

 

 

SIGNATURES

77

 

 

INDEX TO EXHIBITS

78

 



Table of Contents

 

Item 1.   Financial Statements

 

GLOBAL PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(In thousands, except unit data)

(Unaudited)

 

 

 

March 31,

 

December 31,

 

 

 

2015

 

2014

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

6,345

 

$

5,238

 

Accounts receivable, net

 

410,881

 

457,730

 

Accounts receivable—affiliates

 

3,845

 

3,903

 

Inventories

 

371,627

 

336,813

 

Brokerage margin deposits

 

33,737

 

17,198

 

Derivative assets

 

57,470

 

83,826

 

Prepaid expenses and other current assets

 

74,123

 

56,515

 

Total current assets

 

958,028

 

961,223

 

Property and equipment, net

 

1,174,083

 

825,051

 

Intangible assets, net

 

80,049

 

48,902

 

Goodwill

 

301,987

 

154,078

 

Other assets

 

54,637

 

50,723

 

Total assets

 

$

2,568,784

 

$

2,039,977

 

Liabilities and partners’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

307,520

 

$

456,619

 

Working capital revolving credit facility—current portion

 

125,400

 

 

Line of credit

 

 

700

 

Environmental liabilities—current portion

 

3,085

 

3,101

 

Trustee taxes payable

 

90,183

 

105,744

 

Accrued expenses and other current liabilities

 

60,918

 

82,820

 

Derivative liabilities

 

48,272

 

58,507

 

Total current liabilities

 

635,378

 

707,491

 

Working capital revolving credit facility—less current portion

 

150,000

 

100,000

 

Revolving credit facility

 

517,400

 

133,800

 

Senior notes

 

368,316

 

368,136

 

Environmental liabilities—less current portion

 

72,186

 

34,462

 

Deferred tax liability

 

120,708

 

14,078

 

Other long-term liabilities

 

61,811

 

45,854

 

Total liabilities

 

1,925,799

 

1,403,821

 

Partners’ equity

 

 

 

 

 

Global Partners LP equity:

 

 

 

 

 

Common unitholders (30,995,563 units issued and 30,542,344 outstanding at March 31, 2015 and 30,995,563 units issued and 30,604,961 outstanding at December 31, 2014)

 

605,533

 

599,406

 

General partner interest (0.74% interest with 230,303 equivalent units outstanding at March 31, 2015 and December 31, 2014)

 

1,222

 

788

 

Accumulated other comprehensive loss

 

(12,978

)

(13,252

)

Total Global Partners LP equity

 

593,777

 

586,942

 

Noncontrolling interest

 

49,208

 

49,214

 

Total partners’ equity

 

642,985

 

636,156

 

Total liabilities and partners’ equity

 

$

2,568,784

 

$

2,039,977

 

 

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

 

3



Table of Contents

 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per unit data)

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Sales

 

$

2,979,116

 

$

5,116,928

 

Cost of sales

 

2,810,558

 

4,957,904

 

Gross profit

 

168,558

 

159,024

 

 

 

 

 

 

 

Costs and operating expenses:

 

 

 

 

 

Selling, general and administrative expenses

 

48,786

 

37,298

 

Operating expenses

 

68,656

 

47,952

 

Amortization expense

 

5,341

 

4,528

 

Loss on asset sales

 

437

 

663

 

Total costs and operating expenses

 

123,220

 

90,441

 

 

 

 

 

 

 

Operating income

 

45,338

 

68,583

 

 

 

 

 

 

 

Interest expense

 

(13,963

)

(11,107

)

 

 

 

 

 

 

Income before income tax expense

 

31,375

 

57,476

 

 

 

 

 

 

 

Income tax expense

 

(966

)

(322

)

 

 

 

 

 

 

Net income

 

30,409

 

57,154

 

 

 

 

 

 

 

Net loss (income) attributable to noncontrolling interest

 

6

 

(144

)

 

 

 

 

 

 

Net income attributable to Global Partners LP

 

30,415

 

57,010

 

 

 

 

 

 

 

Less:

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

 

2,179

 

1,508

 

 

 

 

 

 

 

Limited partners’ interest in net income

 

$

28,236

 

$

55,502

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

$

0.92

 

$

2.04

 

 

 

 

 

 

 

Diluted net income per limited partner unit

 

$

0.92

 

$

2.03

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

30,599

 

27,261

 

 

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

30,712

 

27,296

 

 

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

 

4



Table of Contents

 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Net income

 

$

30,409

 

$

57,154

 

Other comprehensive income:

 

 

 

 

 

Change in fair value of cash flow hedges

 

183

 

659

 

Change in pension liability

 

91

 

(609

)

Total other comprehensive income

 

274

 

50

 

Comprehensive income

 

30,683

 

57,204

 

Comprehensive loss (income) attributable to noncontrolling interest

 

6

 

(144

)

Comprehensive income attributable to Global Partners LP

 

$

30,689

 

$

57,060

 

 

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

 

5



Table of Contents

 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2015

 

2014

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

30,409

 

$

57,154

 

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

 

 

 

 

 

Depreciation and amortization

 

28,472

 

19,706

 

Amortization of deferred financing fees

 

1,459

 

1,283

 

Amortization of senior notes discount

 

179

 

105

 

Bad debt expense

 

35

 

250

 

Unit-based compensation expense

 

945

 

851

 

Loss on asset sales

 

437

 

663

 

Changes in operating assets and liabilities, excluding assets acquired:

 

 

 

 

 

Accounts receivable

 

52,186

 

41,898

 

Accounts receivable – affiliate

 

58

 

(234

)

Inventories

 

(15,614

)

112,328

 

Broker margin deposits

 

(16,539

)

6,599

 

Prepaid expenses, all other current assets and other assets

 

10,157

 

(11,416

)

Accounts payable

 

(170,646

)

(182,076

)

Trustee taxes payable

 

(21,099

)

701

 

Change in derivatives

 

16,121

 

17,252

 

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

 

(30,475

)

(11,918

)

Net cash (used in) provided by operating activities

 

(113,915

)

53,146

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Acquisitions, net of cash acquired =

 

(405,478

)

 

Capital expenditures

 

(14,045

)

(13,075

)

Proceeds from sale of property and equipment

 

1,044

 

1,746

 

Net cash used in investing activities

 

(418,479

)

(11,329

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Borrowings from (payments on) working capital revolving credit facility

 

175,400

 

(20,200

)

Borrowings from revolving credit facility

 

383,600

 

 

Payments on line of credit

 

(700

)

 

Repurchase of common units

 

(2,442

)

 

Noncontrolling interest capital contribution

 

1,880

 

2,400

 

Distribution to noncontrolling interest

 

(1,880

)

(2,400

)

Distributions to partners

 

(22,357

)

(17,770

)

Net cash provided by (used in) financing activities

 

533,501

 

(37,970

)

 

 

 

 

 

 

Increase in cash and cash equivalents

 

1,107

 

3,847

 

Cash and cash equivalents at beginning of period

 

5,238

 

9,217

 

Cash and cash equivalents at end of period

 

$

6,345

 

$

13,064

 

 

 

 

 

 

 

Supplemental information

 

 

 

 

 

Cash paid during the period for interest

 

$

18,860

 

$

9,587

 

 

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

 

6



Table of Contents

 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

General

 

Other

 

 

 

Total

 

 

 

Common

 

Partner

 

Comprehensive

 

Noncontrolling

 

Partners’

 

 

 

Unitholders

 

Interest

 

Loss

 

Interest

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

 

$

599,406

 

$

788

 

$

(13,252

)

$

49,214

 

$

636,156

 

Net income (loss)

 

28,236

 

2,179

 

 

(6

)

30,409

 

Noncontrolling interest capital contribution

 

 

 

 

1,880

 

1,880

 

Distribution to noncontrolling interest

 

 

 

 

(1,880

)

(1,880

)

Other comprehensive income

 

 

 

274

 

 

274

 

Unit-based compensation

 

945

 

 

 

 

945

 

Distributions to partners

 

(20,612

)

(1,745

)

 

 

(22,357

)

Repurchase of common units

 

(2,442

)

 

 

 

(2,442

)

Balance at March 31, 2015

 

$

605,533

 

$

1,222

 

$

(12,978

)

$

49,208

 

$

642,985

 

 

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

 

7



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 midstream logistics and marketing master limited partnership formed in March 2005 engaged in the purchasing, selling and logistics of transporting petroleum and related products, including domestic and Canadian crude oil, gasoline and gasoline blendstocks (such as ethanol and naphtha), distillates (such as home heating oil, diesel and kerosene), residual oil, renewable fuels, natural gas and propane.  The Partnership also receives revenue from convenience store sales and gasoline station rental income.  The Partnership owns, controls or has access to one of the largest terminal networks of refined petroleum products and renewable fuels in Massachusetts, Maine, Connecticut, Vermont, New Hampshire, Rhode Island, New York, New Jersey and Pennsylvania (collectively, the “Northeast”).  The Partnership owns transload and storage terminals in North Dakota and Oregon that extend its origin-to-destination capabilities from the mid-continent region of the United States and Canada to the East and West Coasts.  The Partnership is one of the largest distributors of gasoline, distillates, residual oil and renewable fuels to wholesalers, retailers and commercial customers in the New England states and New York.  As of March 31, 2015, the Partnership had a portfolio of 1,447 owned, leased and/or supplied gasoline stations, including 287 convenience stores, primarily in the Northeast, Maryland and Virginia.

 

On January 7, 2015, the Partnership acquired, through one of its wholly owned subsidiaries, Global Montello Group Corp. (“GMG”), 100% of the equity interests in Warren Equities, Inc. (“Warren”) from The Warren Alpert Foundation.  On January 14, 2015, through the Partnership’s wholly owned subsidiary, Global Companies LLC (“Global Companies”), the Partnership acquired the Revere terminal (the “Revere Terminal”) located in Boston Harbor in Revere, Massachusetts from Global Petroleum Corp. (“GPC”). See Note 2.

 

Global GP LLC, the Partnership’s general partner (the “General Partner”), manages the Partnership’s operations and activities and employs its officers and substantially all of its personnel, except for most of its gasoline station and convenience store employees and certain union personnel who are employed by GMG or Drake Petroleum Company,  Inc. (“Drake Petroleum”).

 

The General Partner, which holds a 0.74% general partner interest in the Partnership, is owned by affiliates of the Slifka family.  As of March 31, 2015, affiliates of the General Partner, including its directors and executive officers and their affiliates, owned 7,293,722 common units, representing a 23.5% limited partner interest.

 

Ownership by affiliates of the General Partner decreased by approximately 4,446,575 common units (from 37.9% to 23.5%) primarily as a result of the liquidation and dissolution of AE Holdings Corp. (“AE Holdings”).  Immediately prior to such liquidation and dissolution, the directors and executive officers of the General Partner were deemed to beneficially own the entire 5,850,000 common units that were then owned by AE Holdings.  Upon the liquidation and dissolution of AE Holdings, the 5,850,000 common units were distributed to the stockholders of AE Holdings.  An aggregate 1,956,234 common units were sold by the stockholders of AE Holdings to cover their respective tax liabilities resulting from their receipt of the common units.  Approximately 2,306,960 common units of the original 5,850,000 common units are held by the directors and executive officers of the General Partner, and the remaining 1,586,806 common units are held by unaffiliated members of the Slifka family.

 

Basis of Presentation

 

The financial results of Warren and the Revere Terminal for the three months ended March 31, 2015 are included in the accompanying statements of income for the three months ended March 31, 2015.  The accompanying consolidated financial statements as of March 31, 2015 and December 31, 2014 and for the three months ended March 31, 2015 and 2014 reflect the accounts of the Partnership.  Upon consolidation, all intercompany balances and transactions have been eliminated.

 

8



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1.      Organization and Basis of Presentation (continued)

 

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, 2014 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, 2015 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2015.  The consolidated balance sheet at December 31, 2014 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, 2014.

 

Due to the nature of the Partnership’s business and its reliance, in part, on consumer travel and spending patterns, the Partnership may experience more demand for gasoline and gasoline blendstocks during the late spring and summer months than during the fall and winter. Travel and recreational activities are typically higher in these months in the geographic areas in which the Partnership operates, increasing the demand for gasoline and gasoline blendstocks that the Partnership distributes. Therefore, the Partnership’s volumes in gasoline and gasoline blendstocks are typically higher in the second and third quarters of the calendar year. 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, heating oil and residual oil sales are generally higher during the first and fourth quarters of the calendar year. These factors may result in fluctuations in the Partnership’s quarterly operating results.

 

Reclassification

 

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

 

Noncontrolling Interest

 

These financial statements reflect the application of ASC 810, “Consolidations” (“ASC 810”) which establishes accounting and reporting standards that require: (i) the ownership interest in subsidiaries held by parties other than the parent to be clearly identified and presented in the consolidated balance sheet within shareholder’s equity, but separate from the parent’s equity; (ii) the amount of consolidated net income attributable to the parent and the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations and (iii) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary to be accounted for consistently.

 

The Partnership acquired a 60% interest in Basin Transload, LLC (“Basin Transload”) on February 1, 2013.  After evaluating ASC 810, the Partnership concluded it is appropriate to consolidate the balance sheet and statement of operations of Basin Transload based on an evaluation of the outstanding voting interests.  Amounts pertaining to the noncontrolling ownership interest held by third parties in the financial position and operating results of the Partnership are reported as a noncontrolling interest in the accompanying consolidated balance sheets and statements of income.

 

9



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1.      Organization and Basis of Presentation (continued)

 

Concentration of Risk

 

The following table presents the Partnership’s sales, logistics revenue and rental income as a percentage of the consolidated sales for the periods presented:

 

 

 

Three Months Ended
March 31,

 

 

 

2015

 

2014

 

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

 

50%

 

54%

 

Crude oil sales and logistics revenue

 

9%

 

12%

 

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

 

38%

 

33%

 

Convenience store sales, rental income and sundry sales

 

3%

 

1%

 

Total

 

100%

 

100%

 

 

None of the Partnership’s customers were significant for the three months ended March 31, 2015.  The Partnership had one significant customer, ExxonMobil Corporation (“ExxonMobil”) that accounted for approximately 14% of total sales for the three months ended March 31, 2014.

 

Note 2.      Business Combinations

 

Acquisition of Warren Equities, Inc.

 

On January 7, 2015, the Partnership acquired, through GMG, 100% of the equity interests in Warren, one of the largest independent marketers of petroleum products in the Northeast, from The Warren Alpert Foundation.  The acquisition included 147 company-owned Xtra Mart convenience stores and related fuel operations, 53 commission agent locations and fuel supply rights for approximately 320 dealers.  The acquired properties are located in the Northeast, Maryland and Virginia.  The purchase price, inclusive of post-closing adjustments, was approximately $381.8 million, including working capital.  The acquisition was funded with borrowings under the Partnership’s credit facility and with proceeds from its December 2014 public offering of 3,565,000 common units.

 

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 Warren subsequent to the acquisition date.

 

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, including tangible and intangible assets, and liabilities assumed.

 

10



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 2.      Business Combinations (continued)

 

The following table presents the preliminary allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

 

Assets purchased:

 

 

 

Accounts receivable

 

$

5,372

 

Inventory

 

19,199

 

Prepaid expenses

 

12,552

 

Property and equipment

 

331,291

 

Intangibles

 

36,490

 

Other non-current assets

 

20,586

 

Total identifiable assets purchased

 

425,490

 

Liabilities assumed:

 

 

 

Accounts payable

 

(21,511

)

Assumption of environmental liabilities

 

(36,080

)

Taxes payable

 

(5,538

)

Accrued expenses

 

(11,595

)

Long-term deferred taxes

 

(105,855

)

Other non-current liabilities

 

(10,992

)

Total liabilities assumed

 

(191,571

)

Net identifiable assets acquired

 

233,919

 

Goodwill

 

147,909

 

Net assets acquired

 

$

381,828

 

 

Management is currently in the process of evaluating the purchase price accounting.  The Partnership has engaged a third-party valuation firm to assist in the valuation of Warren’s property and equipment, intangibles and leasehold interests.  This valuation continues to be in progress and, during the quarter ended March 31, 2015, the Partnership received preliminary fair values of these assets.  The estimated fair values of property and equipment of $331.3 million and intangibles assets, primarily supply contracts, of $36.5 million were developed by management based on their estimates, assumptions and acquisition history including preliminary reports from a third-party valuation firm.  The estimated fair values of the property and equipment, intangibles and leasehold interests will be supported by valuations performed by a third party.

 

The fair value of $36.1 million assigned to the assumption of environmental liabilities was estimated by management based on their estimates, assumptions and acquisition history, including preliminary reports from third-party environmental engineers (see Note 11).  The fair value of this liability will be supported by a third-party environmental specialist.

 

The long-term deferred taxes of $105.9 million are primarily related to temporary differences associated with the fair value allocations of property and equipment and intangible assets, which are not deductible for tax purposes, net of acquired environmental liabilities and other deductible accrued liabilities.

 

The fair values of the remaining Warren assets and liabilities noted above approximate their carrying values at January 7, 2015.  It is possible that once the Partnership receives the completed valuations on the property and equipment and intangible assets, the final purchase price accounting may be different than what is presented above.

 

The preliminary purchase price for the acquisition was allocated to assets acquired and liabilities assumed based on their estimated fair values.  The Partnership then allocated the purchase price in excess of net tangible assets acquired to identifiable intangible assets, based upon on their estimates and assumptions.  Any excess purchase price over the fair value of the net tangible and intangible assets acquired was allocated to goodwill.

 

11



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 2.      Business Combinations (continued)

 

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 over their estimated useful lives which is consistent with the estimated undiscounted future cash flows of these assets.

 

As part of the purchase price allocation, identifiable intangible assets include supply contracts that are being amortized over ten years.  The supply contracts are subject to renewals, and assumptions related to the renewals have been included in the determination of the value of the supply contracts at the date of acquisition.  The supply contracts had a weighted average term of approximately 5 years prior to their next renewal.  As the purchase price accounting is preliminary, the final assumptions related to the likelihood of renewals remains in process.  For the three months ended March 31, 2015, amortization expense amounted to $0.8 million.  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):

 

2015 (1/7/15 – 12/31/15)

 

$

2,685

 

2016

 

3,580

 

2017

 

3,580

 

2018

 

3,580

 

2019

 

3,580

 

Thereafter

 

17,960

 

Total

 

$

34,965

 

 

The $147.9 million of goodwill was assigned to the Gasoline Distribution and Station Operations (“GDSO”) reporting unit.  The goodwill recognized is attributable primarily to expected synergies and growth opportunities for the Partnership.  The goodwill is not deductible for income tax purposes.  The Partnership is responsible for federal tax obligations for the interim period, June 1, 2014 to January 6, 2015 (Warren’s fiscal year end was May 31).  Any tax obligations will be funded by the selling shareholders.  Any tax refund will be remitted to the selling shareholders.

 

In connection with the acquisition of Warren, the Partnership incurred acquisition costs totaling approximately $6.1 million, of which $4.4 million was recorded for the three months ended March 31, 2015 and included in selling, general and administrative expenses in the accompanying consolidated statement of income.  The remaining acquisition costs were incurred in 2014.  Additionally, subsequent to the acquisition date, the Partnership recorded a restructuring charge of approximately $2.3 million, which is included in selling, general and administrative expenses in the accompanying consolidated statement of income for the three months ended March 31, 2015.  This charge, which is principally for redundant and/or eliminated positions as a result of the acquisition, was not part of the purchase price allocation.  Approximately $0.5 million of the restructuring charge was paid during the three months ended March 31, 2015, and the remaining balance of $1.8 million is expected to be paid in full by December 31, 2015.

 

The acquisition of Warren complements the Partnership’s existing retail presence in the Northeast and expands its footprint into the adjacent Mid-Atlantic region.  The acquisition added approximately 500 million gallons of fuel sold annually through the Partnership’s network and increased the number of its total gasoline stations that it owns, leases or supplies to more than 1,500 as of the acquisition closing date.  The Warren operations have been integrated into the Partnership’s GDSO reporting segment.

 

12



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 2.      Business Combinations (continued)

 

Acquisition of Revere Terminal

 

On January 14, 2015, through the Partnership’s wholly owned subsidiary, Global Companies, the Partnership acquired the Revere Terminal located in Boston Harbor in Revere, Massachusetts from GPC, a privately held affiliate of the Partnership, for a purchase price of $23.65 million.  The acquisition includes contingent consideration which would be payable under specific circumstances involving a subsequent sale of the property, and the purchase price may be adjusted in connection with any value assigned to the contingent consideration as the purchase price accounting is finalized.  The Partnership financed the transaction with available capacity under its revolving credit facility.  In connection with the Revere Terminal transaction, the pre-existing terminal storage rental and throughput agreement between the Partnership and GPC has terminated.

 

The acquisition was accounted for using the purchase method of accounting in accordance with the FASB’s guidance regarding business combinations.  As the acquisition transitioned the Revere Terminal from a formerly leased facility to an owned facility, the transaction did not have a material impact on the Partnership’s consolidated financial statements.

 

At March 31, 2015, the Partnership’s preliminary purchase accounting includes estimated fair values of $28.3 million associated with the property and equipment acquired and $4.6 million of assumed liabilities.  The purchase price allocation will be finalized as the Partnership receives additional information relevant to the acquisition.

 

Goodwill

 

The following table presents the changes in goodwill (in thousands):

 

 

 

Goodwill Allocated to

 

 

 

 

 

Wholesale

 

GDSO

 

 

 

 

 

Reporting

 

Reporting

 

 

 

 

 

Unit

 

Unit

 

Total

 

Balance at December 31, 2014

 

$

121,752

 

$

32,326

 

$

154,078

 

Acquisition of Warren

 

 

147,909

 

147,909

 

Balance at March 31, 2015

 

$

121,752

 

$

180,235

 

$

301,987

 

 

Supplemental Pro Forma Information

 

Revenues and net income included in the Partnership’s consolidated operating results for Warren from January 1, 2015 through January 7, 2015, the acquisition date, were immaterial.  Accordingly, the supplemental pro forma information for the three months ended March 31, 2015 is consistent with the amounts reported in the accompanying statement of income for the three months ended March 31, 2015.

 

The following unaudited pro forma information for 2014 presents the consolidated results of operations of the Partnership as if the acquisition of Warren occurred at the beginning of the period presented, with pro forma adjustments to give effect to intercompany sales and certain other adjustments (in thousands, except per unit data):

 

 

 

Three Months

 

 

 

Ended

 

 

 

March 31, 2014

 

Sales

 

$

5,496,851

 

Net income attributable to Global Partners LP

 

$

51,637

 

Net income per limited partner unit, basic and diluted

 

$

1.84

 

 

13



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 2.      Business Combinations (continued)

 

Warren’s revenues and net loss included in the Partnership’s consolidated operating results from January 7, 2015, the acquisition date, through the period ended March 31, 2015 were $247.7 million and $(1.0 million), respectively.

 

Note 3.      Net Income Per Limited Partner Unit

 

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

 

Common units outstanding as reported in the accompanying consolidated financial statements at March 31, 2015 and December 31, 2014 excluded 453,219 and 390,602 common units, respectively, held on behalf of the Partnership pursuant to its repurchase program (see Note 12).  These units are not deemed outstanding for purposes of calculating net income per limited partner unit (basic and diluted).

 

The following table provides a reconciliation of net income and the assumed allocation of net income to the limited partners’ interest for purposes of computing net income per limited partner unit for the three months ended March 31, 2015 and 2014 (in thousands, except per unit data):

 

 

 

Three Months March 31, 2015

 

 

Three Months Ended March 31, 2014

 

Numerator:

 

Total

 

Limited
Partner
Interest

 

General
Partner
Interest

 

IDRs

 

 

Total

 

Limited
Partner
Interest

 

General
Partner
Interest

 

IDRs

 

Net income attributable to Global Partners LP (1)

 

$

30,415

 

$

28,236

 

$

2,179

 

$

 

 

$

57,010

 

$

55,502

 

$

1,508

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Declared distribution

 

$

23,260

 

$

21,076

 

$

157

 

$

2,027

 

 

$

18,323

 

$

17,145

 

$

143

 

$

1,035

 

Assumed allocation of undistributed net income

 

7,155

 

7,160

 

(5

)

 

 

38,687

 

38,357

 

330

 

 

Assumed allocation of net income

 

$

30,415

 

$

28,236

 

$

152

 

$

2,027

 

 

$

57,010

 

$

55,502

 

$

473

 

$

1,035

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

 

 

30,599

 

 

 

 

 

 

 

 

27,261

 

 

 

 

 

Dilutive effect of phantom units

 

 

 

113

 

 

 

 

 

 

 

 

35

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

 

 

30,712

 

 

 

 

 

 

 

 

27,296

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

 

 

$

0.92

 

 

 

 

 

 

 

 

$

2.04

 

 

 

 

 

Diluted net income per limited partner unit

 

 

 

$

0.92

 

 

 

 

 

 

 

 

$

2.03

 

 

 

 

 

 

(1)   As a result of the December 10, 2014 issuance of 3,565,000 common units in connection with the Partnership’s public offering, the general partner interest was reduced to 0.74% for the three months ended March 31, 2015 from 0.83% for the three months ended March 31, 2014.

 

14



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

During 2015, the board of directors of the General Partner declared the following quarterly cash distribution:

 

Cash Distribution

 

Per Unit Cash

 

Distribution Declared for the

 

Declaration Date

 

Distribution Declared

 

Quarterly Period Ended

 

April 22, 2015

 

$0.68 (1)

 

March 31, 2015

 

 


(1)   This declared cash distribution resulted in an incentive distribution to the General Partner, as the holder of the IDRs, and enable the Partnership to exceed its third target level distribution with respect to such IDRs.

 

See Note 8, “Cash Distributions” for further information.

 

Note 4.      Inventories

 

The Partnership hedges substantially all of its petroleum and ethanol inventory using a variety of instruments, primarily exchange-traded futures contracts.  These futures contracts are entered into when inventory is purchased and are either designated as fair value hedges against the inventory on a specific barrel basis for inventories qualifying for fair value hedge accounting or not designated and maintained as economic hedges against certain inventory of the Partnership on a specific barrel basis.  Changes in fair value of these futures contracts, as well as the offsetting change in fair value on the hedged inventory, is recognized in earnings as an increase or decrease in cost of sales.  All hedged inventory designated in a fair value hedge relationship is valued using the lower of cost, as determined by specific identification, or market, as determined at the product level.  All petroleum and ethanol inventory not designated in a fair value hedging relationship is carried at the lower of historical cost, on a first-in, first-out basis, or market.

 

Convenience store inventory and Renewable Identification Numbers (“RINs”) inventory are carried at the lower of historical cost, on a first-in, first-out basis, or market.

 

Inventories consisted of the following (in thousands):

 

 

 

March 31,

 

December 31,

 

 

 

2015

 

2014

 

Distillates: home heating oil, diesel and kerosene

 

$

103,057

 

$

163,679

 

Gasoline

 

96,846

 

82,080

 

Gasoline blendstocks

 

47,651

 

33,760

 

Crude oil

 

86,385

 

20,769

 

Residual oil

 

13,172

 

20,602

 

Propane and other

 

2,037

 

5,123

 

Renewable identification numbers (RINs)

 

1,213

 

2,057

 

Convenience store inventory

 

21,266

 

8,743

 

Total

 

$

371,627

 

$

336,813

 

 

In addition to its own inventory, the Partnership has exchange agreements for petroleum products 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 $9.6 million and $3.9 million at March 31, 2015 and December 31, 2014, respectively.  Negative exchange balances are accounted for as accounts payable and amounted to $12.1 million and $16.5 million at March 31, 2015 and December 31, 2014, respectively.  Exchange transactions are valued using current carrying costs and have no income statement impact.

 

15



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 5.      Derivative Financial Instruments

 

The Partnership principally uses derivative instruments, which include regulated exchange-traded futures and options contracts (collectively, “exchange-traded derivatives”) and physical and financial forwards and over-the counter (“OTC”) swaps (collectively, “OTC derivatives”), to reduce its exposure to unfavorable changes in commodity market prices and interest rates.  The Partnership uses these exchange-traded and OTC derivatives to hedge commodity price risk associated with its inventory and undelivered forward commodity purchases and sales (“physical forward contracts”) and uses interest rate swap instruments to reduce its exposure to fluctuations in interest rates associated with the Partnership’s credit facilities.  The Partnership accounts for derivative transactions in accordance with ASC 815, “Derivatives and Hedging,” and recognizes derivatives instruments as either assets or liabilities in the consolidated balance sheet and measures those instruments at fair value.  The changes in fair value of the derivative transactions are presented currently in earnings, unless specific hedge accounting criteria are met.

 

The fair value of exchange-traded derivative transactions reflects amounts that would be received from or paid to the Partnership’s brokers upon liquidation of these contracts.  The fair value of these exchange-traded derivative transactions are presented on a net basis, offset by the cash balances on deposit with the Partnership’s brokers, presented as brokerage margin deposits in the consolidated balance sheets.  The fair value of OTC derivative transactions reflects amounts that would be received from or paid to a third party upon liquidation of these contracts under current market conditions.  The fair value of these OTC derivative transactions is presented on a gross basis as derivative assets or derivative liabilities in the consolidated balance sheets, unless a legal right of offset exists.  The presentation of the change in fair value of the Partnership’s exchange-traded derivatives and OTC derivative transactions depends on the intended use of the derivative and the resulting designation.

 

The following table summarizes the notional values related to the Partnership’s derivative instruments outstanding at March 31, 2015:

 

 

 

Units (1)

 

 

Unit of Measure

 

 

 

 

 

 

 

 

 

 

Exchange-Traded Derivatives

 

 

 

 

 

 

 

Long

 

46,736

 

 

Thousands of barrels

 

 

Short

 

(50,292

)

 

Thousands of barrels

 

 

 

 

 

 

 

 

 

 

OTC Derivatives (Petroleum/Ethanol)

 

 

 

 

 

 

 

Long

 

13,318

 

 

Thousands of barrels

 

 

Short

 

(10,167

)

 

Thousands of barrels

 

 

 

 

 

 

 

 

 

 

OTC Derivatives (Natural Gas)

 

 

 

 

 

 

 

Long

 

10,607

 

 

Thousands of decatherms

 

 

Short

 

(10,661

)

 

Thousands of decatherms

 

 

 

 

 

 

 

 

 

 

Interest Rate Swaps

$

200.0

 

 

Millions of U.S. dollars

 

 

Interest Rate Cap

$

100.0

 

 

Millions of U.S. dollars

 

 

 

 

 

 

 

 

 

 

Foreign Currency Derivatives

 

 

 

 

 

 

 

Open Forward Exchange Contracts (2)

$

6.0

 

 

Millions of Canadian dollars

 

 

 

$

4.7

 

 

Millions of U.S. dollars

 

 

 

(1)          Number of open positions and gross notional values do not measure the Partnership’s risk of loss, quantify risk or represent assets or liabilities of the Partnership, but rather indicate the relative size of the derivative instruments and are used in the calculation of the amounts to be exchanged between counterparties upon settlements.

 

(2)          All-in forward rate Canadian dollars (“CAD”) $1.2662 to USD $1.00.

 

16



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 5.      Derivative Financial Instruments (continued)

 

Derivatives Accounted for as Hedges

 

The Partnership utilizes fair value hedges and cash flow hedges to hedge commodity price risk and interest rate risk.

 

Fair Value Hedges

 

Derivatives designated as fair value hedges are used to hedge price risk in commodity inventories and principally include exchange-traded futures contracts that are entered into in the ordinary course of business.  For a derivative instrument designated as a fair value hedge, the gain or loss is recognized in earnings in the period of change together with the offsetting change in fair value on the hedged item of the risk being hedged.  Gains and losses related to fair value hedges are recognized in the consolidated statement of income through cost of sales.  These futures contracts are settled on a daily basis by the Partnership through brokerage margin accounts.

 

The Partnership’s fair value hedges include exchange-traded futures contracts that are hedges against inventory with specific futures contracts matched to specific barrels.  The change in fair value of these futures contracts and the change in fair value of the underlying inventory generally provide an offset to each other in the consolidated statement of income.

 

The following table presents the gains and losses from the Partnership’s derivative instruments involved in fair value hedging relationships recognized in the consolidated statements of income for the three months ended March 31, 2015 and 2014 (in thousands):

 

 

 

Statement of Gain (Loss)

 

Three Months Ended

 

 

 

Recognized in Income on

 

March 31,

 

 

 

Derivatives

 

2015

 

2014

 

Derivatives in fair value hedging relationship

 

 

 

 

 

 

 

Exchange-traded futures contracts for petroleum commodity products

 

Cost of sales

 

$

26,176

 

$

16,373

 

 

 

 

 

 

 

 

 

Hedged items in fair value hedge relationship

 

 

 

 

 

 

 

Physical inventory

 

Cost of sales

 

$

(23,621

)

$

(16,209

)

 

Cash Flow Hedges

 

Derivatives designated as cash flow hedges are used to hedge interest rate risk from fluctuations in interest rates and may include various interest rate derivative instruments entered into with major financial institutions.  For a derivative instrument being designated as a cash flow hedges, the effective portion of the derivative gain or loss is initially reported as a component of other comprehensive income (loss) and subsequently reclassified into the consolidated statement of income through interest expense in the same period that the hedged exposure affects earnings.  The ineffective portion is recognized in the consolidated statement of income immediately.

 

17



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 5.      Derivative Financial Instruments (continued)

 

The Partnership’s cash flow hedges currently include interest rate swaps and an interest rate cap that are hedges of variability in forecasted interest payments due to changes in the interest rate on LIBOR-based borrowings, a summary of which includes the following designations:

 

·                        In October 2009, the Partnership executed an 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 credit facility at a fixed rate of 3.93%.

 

·                        In April 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 credit facility.

 

·                        In September 2013, the Partnership executed an interest rate swap with a major financial institution.  The swap, which became effective on October 2, 2013 and expires on October 2, 2018, is used to hedge the variability in cash flows in monthly 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 credit facility at a fixed rate of 1.819%.

 

In the aggregate, these hedging instruments have historically been effective in hedging the variability in interest payments due to changes in the one-month LIBOR swap curve or rate with respect to $300.0 million of one-month LIBOR-based borrowings on the credit facility.

 

In June 2014 and as a result of the issuance of the Partnership’s $375.0 million aggregate principal amount of its 6.25% senior notes due 2022 (see Note 6), the Partnership determined that maintaining an excess of $300.0 million in principal of outstanding floating-rate debt was no longer probable.  Therefore, the Partnership elected to de-designate its interest rate cap and discontinued the related hedge accounting for this instrument.  Accordingly, at March 31, 2015, the Partnership had in place two interest rate swap agreements which are hedging $200.0 million of variable rate debt, both of which continue to be accounted for as cash flow hedges.  The interest rate cap is not currently in a hedging relationship.  Accordingly, all changes in fair value of this instrument subsequent to the date of de-designation are recorded in the consolidated statement of income through interest expense.

 

The following table presents the amount of gains and losses from the Partnership’s derivative instruments designated in cash flow hedging relationships recognized in the consolidated statements of income and partners’ equity for the three months ended March 31, 2015 and 2014 (in thousands):

 

 

 

Amount of Gain (Loss)

 

Location of Gain (Loss)

 

 

 

 

 

Recognized in Other

 

Reclassified from

 

Amount of Gain (Loss)

 

 

 

Comprehensive Income on

 

Accumulated Other

 

Reclassified from Other

 

 

 

Derivatives

 

Comprehensive Income into

 

Comprehensive Income into

 

 

 

(Effective Portion)

 

Income (Effective Portion)

 

Income (Effective Portion)

 

Derivatives Designated

 

Three Months Ended

 

 

 

Three Months Ended

 

in Cash Flow Hedging

 

March 31,

 

 

 

March 31,

 

Relationship

 

2015

 

2014

 

 

 

2015

 

2014

 

Interest rate swaps

 

$

47

 

$

677

 

Interest expense

 

$

 

$

 

Interest rate cap (1)

 

 

(18

)

Interest expense

 

 

 

Total

 

$

47

 

$

659

 

 

 

$

 

$

 

 

(1)          The interest rate cap was de-designated as a cash flow hedge in June 2014.  Prepaid interest rate caplet amounts recognized in accumulated other comprehensive income up until the date of de-designation have been frozen in partner’s equity as of the de-designation date and are being amortized to income through the tenor of the interest rate cap instrument.  The change in the fair value of the interest rate cap following de-designation is reflected in earnings and was immaterial for the three months ended March 31, 2015.  As of March 31, 2015, the remaining unamortized prepaid interest rate caplets were $0.9 million and will be amortized over the remaining life for the interest rate cap which expires in April 2016.

 

18



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 5.      Derivative Financial Instruments (continued)

 

The amount of gain (loss) recognized in income as ineffectiveness for derivatives designated in cash flow hedging relationships was $0 for the three months ended March 31, 2015 and 2014.

 

Derivatives NOT Accounted for as Hedges

 

The Partnership utilizes petroleum and ethanol commodity contracts, natural gas commodity contracts and foreign currency derivatives to hedge price and currency risk in certain commodity inventories and physical forward contracts.

 

Petroleum and Ethanol Commodity Contracts

 

The Partnership uses exchange-traded derivative contracts to hedge price risk in certain commodity inventories which do not qualify for fair value hedge accounting or are not designated by the Partnership as fair value hedges.  Additionally, the Partnership uses exchange-traded derivative contracts, and occasionally financial forward and OTC swap agreements, to hedge commodity exposure associated with its physical forward contracts which are not designated by the Partnership as cash flow hedges.  These physical forward contracts, to the extent they meet the definition of a derivative, are considered OTC physical forwards and are reflected as derivative assets or derivative liabilities in the consolidated balance sheet.  The related exchange-traded derivative contracts (and financial forward and OTC swaps, if applicable) are also reflected as brokerage margin deposits (and derivative assets or derivative liabilities, if applicable) in the consolidated balance sheet, thereby creating an economic hedge.  Changes in fair value of these derivative instruments are recognized in the consolidated statement of income through cost of sales.  These futures contracts are settled on a daily basis by the Partnership through brokerage margin accounts.

 

While the Partnership seeks to maintain a position that is substantially balanced within its commodity product purchase and sale activities, it may experience net unbalanced positions for short periods of time as a result of variances in daily purchases and sales and transportation and delivery schedules as well as other logistical issues inherent in the business, such as weather conditions.  In connection with managing these positions, the Partnership is aided by maintaining a constant presence in the marketplace.  The Partnership also engages in a controlled trading program for up to an aggregate of 250,000 barrels of commodity products at any one point in time.  Changes in fair value of these derivative instruments are recognized in the consolidated statement of income through cost of sales.

 

Natural Gas Commodity Contracts

 

The Partnership uses physical forward purchase contracts to hedge price risk associated with the marketing and selling of natural gas to third-party users.  These physical forward purchase commitments for natural gas are typically executed when the Partnership enters into physical forward sale commitments of product for physical delivery.  These physical forward contracts, to the extent they meet the definition of a derivative, are reflected as derivative assets and derivative liabilities in the consolidated balance sheet.  Changes in fair value of the forward fixed price purchase and sale commitments are recognized in the consolidated statement of income through cost of sales.

 

Foreign Currency Contracts

 

The Partnership uses forward foreign currency contracts to hedge certain foreign denominated (Canadian) commodity product purchases.  These forward foreign currency contracts are not designated by the Partnership as hedges and are reflected as prepaid expenses and other current assets or accrued expenses and other current liabilities in the consolidated balance sheets.  Changes in fair values of these forward foreign currency contracts are reflected in cost of sales.

 

19



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 5.      Derivative Financial Instruments (continued)

 

The following table presents the gains and losses from the Partnership’s derivative instruments not involved in hedging relationships recognized in the consolidated statements of income for the three months ended March 31, 2015 and 2014 (in thousands):

 

 

 

Statement of Gain (Loss)

 

Three Months Ended

 

 

 

Recognized in Income on

 

March 31,

 

 

 

Derivatives

 

2015

 

2014

 

Derivatives NOT designated as hedging instruments

 

 

 

 

 

 

 

Commodity contracts

 

Cost of sales

 

$

3,651

 

$

15,543

 

Forward foreign currency contracts

 

Cost of sales

 

18

 

(57

)

Total

 

 

 

$

3,669

 

$

15,486

 

 

Margin Deposits

 

All of Partnership’s exchange-traded derivative contracts (designated and not designated) are transacted through clearing brokers.  The Partnership deposits initial margin with the clearing brokers, along with variation margin, which is paid or received on a daily basis, based upon the changes in fair value of open futures contracts and settlement of closed futures contracts.  Cash balances on deposit with clearing brokers and open equity are presented on a net basis within brokerage margin deposits in the consolidated balance sheets.

 

Commodity Contracts and Other Derivative Activity

 

The Partnership’s commodity contract derivatives and other derivative activity include: (i) exchange-traded derivative contracts that are hedges against inventory and either do not quality for hedge accounting or are not designated in a hedge accounting relationship, (ii) exchange-traded derivative contracts used to economically hedge physical forward contracts, (iii) financial forward and swap agreements used to economically hedge physical forward contracts, and (iv) the derivative instruments under the Partnership’s controlled trading program.  The Partnership does not take the normal purchase and sale exemption available under ASC 815.

 

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Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 5.                   Derivative Financial Instruments (continued)

 

The following table presents the fair value of each classification of the Partnership’s derivative instruments and its location in the consolidated balance sheets at March 31, 2015 and December 31, 2014 (in thousands):

 

 

 

 

 

March 31, 2015

 

 

 

 

 

Derivatives

 

Derivatives Not

 

 

 

 

 

 

 

Designated as

 

Designated as

 

 

 

 

 

 

 

Hedging

 

Hedging

 

 

 

 

 

Balance Sheet Location

 

Instruments

 

Instruments

 

Total

 

Asset Derivatives

 

 

 

 

 

 

 

 

 

Exchange-traded derivative contracts

 

Broker margin deposits

 

$

17,895

 

$

60,354

 

$

78,249

 

Forward derivative contracts (1)

 

Derivative assets

 

 

57,470

 

57,470

 

Forward foreign currency contracts

 

Other Assets

 

 

27

 

27

 

Interest rate cap contract

 

Other assets

 

 

17

 

17

 

Total asset derivatives

 

 

 

$

17,895

 

$

117,868

 

$

135,763

 

 

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

 

 

 

 

 

 

 

 

Forward derivative contracts (1)

 

Derivative liabilities

 

$

 

$

48,272

 

$

48,272

 

Interest rate swap contracts

 

Other long-term liabilities

 

 

6,649

 

6,649

 

Total liability derivatives

 

 

 

$

 

$

54,921

 

$

54,921

 

 

 

 

 

 

December 31, 2014

 

 

 

 

 

Derivatives

 

Derivatives Not

 

 

 

 

 

 

 

Designated as

 

Designated as

 

 

 

 

 

 

 

Hedging

 

Hedging

 

 

 

 

 

Balance Sheet Location

 

Instruments

 

Instruments

 

Total

 

Asset Derivatives

 

 

 

 

 

 

 

 

 

Exchange-traded derivative contracts

 

Broker margin deposits

 

$

30,600

 

$

90,890

 

$

121,490

 

Forward derivative contracts (1)

 

Derivative assets

 

 

83,826

 

83,826

 

Forward foreign currency contracts

 

Other Assets

 

 

9

 

9

 

Interest rate cap contract

 

Other assets

 

 

17

 

17

 

Total asset derivatives

 

 

 

$

30,600

 

$

174,742

 

$

205,342

 

 

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

 

 

 

 

 

 

 

 

Forward derivative contracts (1)

 

Derivative liabilities

 

$

 

$

58,507

 

$

58,507

 

Interest rate swap contracts

 

Other long-term liabilities

 

 

6,696

 

6,696

 

Total liability derivatives

 

 

 

$

 

$

65,203

 

$

65,203

 

 

(1)          Forward derivative contracts include the Partnership’s petroleum and ethanol physical and financial forwards and OTC swaps.

 

Credit Risk

 

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.

 

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Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 5.                   Derivative Financial Instruments (continued)

 

The Partnership is exposed to credit loss in the event of nonperformance by counterparties to the Partnership’s exchange-traded and OTC derivative contracts, but the Partnership has no current reason to expect any material nonperformance by any of these counterparties.  Exchange-traded derivative contracts, the primary derivative instrument utilized by the Partnership, are traded on regulated exchanges, greatly reducing potential credit risks.  The Partnership utilizes primarily three clearing brokers, all major financial institutions, for all New York Mercantile Exchange (“NYMEX”), Chicago Mercantile Exchange (“CME”) and IntercontinentalExchange (“ICE”) derivative transactions and the right of offset exists with these financial institutions under master netting agreements.  Accordingly, the fair value of the Partnership’s exchange-traded derivative instruments is presented on a net basis in the consolidated balance sheets.  Exposure on OTC derivatives is limited to the amount of the recorded fair value as of the balance sheet dates.

 

Note 6.                   Debt

 

Credit Agreement

 

As of March 31, 2015, certain subsidiaries of the Partnership, as borrowers, and the Partnership and certain of its subsidiaries, as guarantors, had a $1.775 billion senior secured credit facility (the “Credit Agreement”).  The Credit Agreement will mature on April 30, 2018.

 

As of March 31, 2015, there were 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 $1.0 billion; and

 

·            a $775.0 million revolving credit facility to be used for acquisitions, joint ventures, capital expenditures, letters of credit 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, the revolving credit facility, or both, by up to another $300.0 million, in the aggregate, for a total credit facility of up to $2.075 billion.  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 $1.775 billion.

 

In addition, the Credit Agreement includes a swing line pursuant to which Bank of America, N.A., as the swing line lender, may make swing line loans in U.S. Dollars in an aggregate amount equal to the lesser of (a) $50.0 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 $1.775 billion.

 

Pursuant to the Credit Agreement, and in connection with any agreement by and between a Loan Party and a Lender (as such terms are defined in the Credit Agreement) or affiliate thereof (an “AR Buyer”), a Loan Party may sell certain of its accounts receivables to an AR Buyer.  The Loan Parties are permitted to sell or transfer any account receivable to an AR Buyer only pursuant to the provisions provided in the Credit Agreement.  To date, the level of receivables sold has not been significant, and the Partnership has accounted for such transfers as sales pursuant to ASC 860, “Transfers and Servicing.”  Due to the short-term nature of the receivables sold to date, no servicing obligation has been recorded because it would have been de minimis.

 

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Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 6.                   Debt (continued)

 

Availability under the working capital revolving credit facility is subject to a borrowing base which is redetermined from time to time based on specific advance rates on eligible current assets.  Under the Credit Agreement, borrowings under the working capital revolving credit facility cannot exceed the then current borrowing base.  Availability under the borrowing base may be affected by events beyond the Partnership’s control, such as changes in 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 Eurocurrency rate plus 2.00% to 2.50%, (2) the cost of funds rate plus 2.00% to 2.50%, or (3) the base rate plus 1.00% to 1.50%, each depending on the Utilization Amount (as defined in the Credit Agreement).  Borrowings under the revolving credit facility bear interest at (1) the Eurocurrency rate plus 2.25% to 3.25%, (2) the cost of funds rate plus 2.25% to 3.25%, or (3) the base rate plus 1.25% to 2.25%, each depending on the Combined Total Leverage Ratio (as defined in the Credit Agreement).

 

The average interest rates for the Credit Agreement were 3.4% and 3.6% for the three months ended March 31, 2015 and 2014, respectively.

 

As of March 31, 2015, the Partnership had two interest rate swaps, both of which were 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.  Additionally, the Partnership has an interest rate cap that is hedging variable interest.  The cap is not designated for accounting purposes.

 

The Credit Agreement provides for a letter of credit fee equal to the then applicable working capital rate or then applicable revolver rate (each such rate as defined in the Credit Agreement) 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, ranging from 0.375% to 0.50% per annum.

 

The Partnership classifies a portion of its working capital revolving credit facility as a long-term liability representing the amounts expected to be outstanding during the entire year, and 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 $150.0 million and $100.0 million at March 31, 2015 and December 31, 2014, respectively.  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 Partnership’s current portion of the working capital revolving credit facility represents the amount the Partnership expects to pay down during the course of the year.  At March 31, 2015 and December 31, 2014, the current portion of the working capital revolving credit facility was $125.4 million and $0, respectively.  The increase in total borrowings under the working capital revolving credit facility from December 31, 2014 reflects, in part, higher levels of stored inventory, and the Partnership expects to pay down a portion of its borrowings during the course of the year and has classified the amount as current at March 31, 2015.

 

As of March 31, 2015, the Partnership had total borrowings outstanding under the Credit Agreement of $792.8 million, including $517.4 million outstanding on the revolving credit facility.  In addition, the Partnership had outstanding letters of credit of $59.8 million.  Subject to borrowing base limitations, the total remaining availability for borrowings and letters of credit was $0.9 billion and $1.4 billion at March 31, 2015 and December 31, 2014, respectively.

 

The Credit Agreement is secured by substantially all of the assets of the Partnership and the Partnership’s wholly owned subsidiaries and is guaranteed by the Partnership and its subsidiaries with the exception of Basin Transload.

 

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Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 6.                   Debt (continued)

 

The Credit Agreement imposes certain requirements on the borrowers 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 certain 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, 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, 2015.  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 Available Cash (as defined in the Partnership’s partnership agreement).

 

6.25% Senior Notes

 

On June 19, 2014, the Partnership and GLP Finance (the “Issuers”) entered into a Purchase Agreement (the “Purchase Agreement”) with the Initial Purchasers (as defined therein) (the “Initial Purchasers”) pursuant to which the Issuers agreed to sell $375.0 million aggregate principal amount of the Issuers’ 6.25% senior notes due 2022 (the “6.25% Notes”) to the Initial Purchasers in a private placement exempt from the registration requirements under the Securities Act of 1933, as amended (the “Securities Act”).  The 6.25% Notes were resold by the Initial Purchasers to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to persons outside the United States pursuant to Regulation S under the Securities Act.

 

The Purchase Agreement contained customary representations and warranties of the parties and indemnification and contribution provisions under which the Issuers and the subsidiary guarantors, on one hand, and the Initial Purchasers, on the other, agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.  In addition, the Purchase Agreement required the execution of a registration rights agreement, described below, relating to the 6.25% Notes.  Closing of the offering occurred on June 24, 2014.

 

Indenture

 

In connection with the private placement of the 6.25% Notes on June 24, 2014, the Issuers and the subsidiary guarantors and Deutsche Bank Trust Company Americas, as trustee, entered into an indenture (the “Indenture”).

 

The 6.25% Notes mature on July 15, 2022 with interest accruing at a rate of 6.25% per annum and payable semi-annually in arrears on January 15 and July 15 of each year, commencing January 15, 2015.  The 6.25% Notes are guaranteed on a joint and several senior unsecured basis by each of the Issuers and the subsidiary guarantors to the extent set forth in the Indenture.  Upon a continuing event of default, the trustee or the holders of at least 25% in principal amount of the 6.25% Notes may declare the 6.25% Notes immediately due and payable, except that an event of default resulting from entry into a bankruptcy, insolvency or reorganization with respect to the Partnership, any restricted subsidiary of the Partnership that is a significant subsidiary or any group of its restricted subsidiaries that, taken together, would constitute a significant subsidiary of the Partnership, will automatically cause the 6.25% Notes to become due and payable.

 

24



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 6.                   Debt (continued)

 

The Issuers have the option to redeem up to 35% of the 6.25% Notes prior to July 15, 2017 at a redemption price (expressed as a percentage of principal amount) of 106.25% plus accrued and unpaid interest, if any.  The Issuers have the option to redeem the 6.25% Notes, in whole or in part, at any time on or after July 15, 2017, at the redemption prices of 104.688% for the twelve-month period beginning on July 15, 2017, 103.125% for the twelve-month period beginning July 15, 2018, 101.563% for the twelve-month period beginning July 15, 2019, and 100.0% beginning on July 15, 2020 and at any time thereafter, together with any accrued and unpaid interest to the date of redemption.  In addition, before July 15, 2017, the Issuers may redeem all or any part of the 6.25% Notes at a redemption price equal to the sum of the principal amount thereof, plus a make whole premium at the redemption date, plus accrued and unpaid interest, if any, to the redemption date.  The holders of the notes may require the Issuers to repurchase the 6.25% Notes following certain asset sales or a Change of Control (as defined in the Indenture) at the prices and on the terms specified in the Indenture.

 

The Indenture contains covenants that will limit the Partnership’s ability to, among other things, incur additional indebtedness and issue preferred securities, make certain dividends and distributions, make certain investments and other restricted payments, restrict distributions by its subsidiaries, create liens, enter into sale-leaseback transactions, sell assets or merge with other entities.  Events of default under the Indenture include (i) a default in payment of principal of, or interest or premium, if any, on, the 6.25% Notes, (ii) breach of the Partnership’s covenants under the Indenture, (iii) certain events of bankruptcy and insolvency, (iv) any payment default or acceleration of indebtedness of the Partnership or certain subsidiaries if the total amount of such indebtedness unpaid or accelerated exceeds $15.0 million and (v) failure to pay within 60 days uninsured final judgments exceeding $15.0 million.

 

Registration Rights Agreement

 

On June 24, 2014, the Issuers and the subsidiary guarantors entered into a registration rights agreement (the “Registration Rights Agreement”) with the Initial Purchasers in connection with the Issuers’ private placement of the 6.25% Notes.  Under the Registration Rights Agreement, the Issuers and the subsidiary guarantors agreed to file and use commercially reasonable efforts to cause to become effective a registration statement relating to an offer to exchange the 6.25% Notes for an issue of SEC-registered notes with terms identical to the 6.25% Notes (except that the exchange notes are not subject to restrictions on transfer or to any increase in annual interest rate for failure to comply with the Registration Rights Agreement) that are registered under the Securities Act so as to permit the exchange offer to be consummated by the 360th day after June 24, 2014.  The exchange offer was completed on April 21, 2015, and 100% of the 6.25% Notes have been exchanged for SEC registered notes.

 

Line of Credit

 

On December 9, 2013, Basin Transload entered into a line of credit facility which allows for borrowings by Basin Transload of up to $10.0 million on a revolving basis.  The facility matures on December 9, 2015 and had an outstanding balance of $0 and $0.7 million at March 31, 2015 and December 31, 2014, respectively.  The facility is secured by substantially all of the assets of Basin Transload and is not guaranteed by the Partnership or any of its wholly owned subsidiaries.

 

Deferred Financing Fees

 

The Partnership incurs bank fees related to its Credit Agreement and other financing arrangements.  These deferred financing fees are amortized over the life of the Credit Agreement or other financing arrangements.  The Partnership did not capitalize additional financing fees for the three months ended March 31, 2015 and 2014.  Amortization expense of approximately $1.5 million and $1.3 million for the three months ended March 31, 2015 and 2014, respectively, are included in interest expense in the accompanying consolidated statements of income.  Unamortized fees are included in other current assets and other long-term assets.

 

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Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 7.                   Related Party Transactions

 

The Partnership was a party to an exclusive Second Amended and Restated Terminal Storage Rental and Throughput Agreement, as amended (the “Terminal Storage Rental and Throughput Agreement”), with GPC, an affiliate of the Partnership that is 100% owned by members of the Slifka family, with respect to the Revere Terminal in Revere, Massachusetts.  On January 14, 2015, the Partnership acquired the Revere Terminal from GPC, and the Terminal Storage Rental and Throughput Agreement has terminated (see Note 2).  Prior to the acquisition, the agreement was accounted for as an operating lease.  The expenses under this agreement totaled $0.8 million and $2.3 million for the three months ended March 31, 2015 and 2014, respectively.

 

The Partnership was a party to an Amended and Restated Services Agreement with GPC, whereby GPC provided certain terminal operating management services to the Partnership and used certain administrative, accounting and information processing services of the Partnership.  The expenses from these services totaled approximately $8,000 and $24,000 for the three months ended March 31, 2015 and 2014, respectively.  These charges were recorded in selling, general and administrative expenses in the accompanying consolidated statements of income.

 

On March 11, 2015, the Partnership entered into the following amendments and restatements to its shared services agreements: (i) Global Companies entered into an Amended and Restated Services Agreement with AE Holdings Corp. (the “AE Holdings Amended and Restated Services Agreement”), and (ii) certain of the Partnership’s subsidiaries entered into a Second Amended and Restated Services Agreement with GPC (the “GPC Second Amended and Restated Services Agreement,” and together with the AE Holdings Amended and Restated Services Agreement,” the “Amended and Restated Services Agreements”).

 

Under the AE Holdings Amended and Restated Services Agreement, the Partnership continues to provide AE Holdings with certain tax, accounting, treasury and legal support services for which AE Holdings pays the Partnership an aggregate of $15,000 per year in equal monthly installments.  Under the GPC Second Amended and Restated Services Agreement, GPC no longer provides the Partnership with terminal, environmental and operational support services, but the Partnership continues to provide GPC with certain tax, accounting, treasury, legal, information technology, human resources and financial operations support services for which GPC pays the Partnership a monthly services fee at an agreed amount subject to the approval by the Conflicts Committee of the board of directors of the General Partner.  The Amended and Restated Services Agreements are each for an indefinite term and any party may terminate some or all of the services upon ninety (90) days’ advanced written notice.  As of March 31, 2015, no such notice of termination was given by any party.

 

The General Partner employs substantially all of the Partnership’s employees, except for most of its gasoline station and convenience store employees and certain union personnel, who are employed by GMG or Drake Petroleum.  The Partnership reimburses the General Partner for expenses incurred in connection with these employees.  These expenses, including payroll, payroll taxes and bonus accruals, were $29.4 million and $19.0 million for the three months ended March 31, 2015 and 2014, 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 GPC and the Partnership and receivables from the General Partner (in thousands):

 

 

 

March 31,

 

December 31,

 

 

 

2015

 

2014

 

Receivables from GPC

 

$

 —

 

$

 108

 

Receivables from the General Partner (1)

 

3,845

 

3,795

 

Total

 

$

 3,845

 

$

 3,903

 

 


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

 

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Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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.

 

The Partnership will make distributions of Available Cash from distributable cash flow for any quarter in the following manner: 99.26% to the common unitholders, pro rata, and 0.74% 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

 

Marginal Percentage Interest in
Distributions

 

 

 

Target Amount

 

Unitholders

 

General Partner

 

First Target Distribution

 

up to $0.4625

 

99.26%

 

0.74%

 

Second Target Distribution

 

above $0.4625 up to $0.5375

 

86.26%

 

13.74%

 

Third Target Distribution

 

above $0.5375 up to $0.6625

 

76.26%

 

23.74%

 

Thereafter

 

above $0.6625

 

51.26%

 

48.74%

 

 

The Partnership paid the following cash distribution during 2015 (in thousands, except per unit data):

 

Cash
Distribution
Payment Date

 

 

Per Unit
Cash
Distribution

 

Common
Units

 

General
Partner

 

Incentive
Distribution

 

Total Cash
Distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

02/13/15 (1)

 

$

0.6650

 

$

20,612

 

$

154

 

$

1,591

 

$

22,357

 

 

(1)          This distribution of $0.6650 per unit resulted in the Partnership exceeding its third target level distribution for the fourth quarter of 2014.  As a result, the General Partner, as the holder of the IDRs, received an incentive distribution.

 

In addition, on April 22, 2015, the board of directors of the General Partner declared a quarterly cash distribution of $0.68 per unit ($2.72 per unit on an annualized basis) on all of its outstanding common units for the period from January 1, 2015 through March 31, 2015 to the Partnership’s unitholders of record as of the close of business on May 6, 2015.  This distribution will result in the Partnership exceeding its third target level distribution for the quarter ended March 31, 2015.

 

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Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 9.                   Segment Reporting

 

The Partnership engages in the purchasing, selling and logistics of transporting petroleum and related products, including domestic and Canadian crude oil, gasoline and gasoline blendstocks (such as ethanol and naphtha), distillates (such as home heating oil, diesel and kerosene), residual oil, renewable fuels, natural gas and propane.  The Partnership also receives revenue from convenience store sales and gasoline station rental income.  The Partnership’s operating segments are based upon the revenue sources for which discrete financial information is reviewed by the chief operating decision maker (the “CODM”) and include Wholesale, GDSO and Commercial.  Each of these operating segments generates revenues and incurs expenses and is evaluated for operating performance on a regular basis.

 

These operating segments are also the Partnership’s reporting segments based on the way the CODM manages the business and on the similarity of customers and expected long-term financial performance of each segment.  For the three months ended March 31, 2015 and 2014, 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 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, 2014.

 

In the Wholesale reporting segment, the Partnership sells branded and unbranded gasoline and gasoline blendstocks and diesel to branded and unbranded gasoline customers and other resellers of transportation fuels.  The Partnership aggregates crude oil by truck or pipeline in the mid-continent region of the United States and Canada, transports it by train and ships it by barge to refiners on the East and West Coasts.  The Partnership sells home heating oil, diesel, kerosene, residual oil and propane to home heating oil and propane retailers and wholesale distributors.  Generally, customers use their own vehicles or contract carriers to take delivery of the gasoline and distillate products at bulk terminals and inland storage facilities that the Partnership owns or controls or with which it has throughput or exchange arrangements.  Additionally, ethanol is shipped primarily by rail and by barge.

 

In the GDSO reporting segment, gasoline distribution includes sales of branded and unbranded gasoline to gasoline station operators and sub-jobbers.  Station operations include convenience stores, rental income from gasoline stations leased to dealers or commissioned agents and sundry (car wash sales, lottery and ATM commissions).  The results of Warren, acquired in January 2015 (see Note 2), are included in the GDSO segment.

 

In the Commercial segment, the Partnership includes sales and deliveries to end user customers in the public sector and to large commercial and industrial end users of unbranded gasoline, home heating oil, diesel, kerosene, residual oil, bunker fuel and natural gas.  In the case of public sector commercial and industrial end user customers, the Partnership sells products primarily either through a competitive bidding process or through contracts of various terms.  The Partnership generally arranges for the delivery of the product to the customer’s designated location, and the Partnership responds to publicly-issued requests for product proposals and quotes.  The Commercial segment also includes sales of custom blended fuels delivered by barges or from a terminal dock to ships through bunkering activity.

 

The Partnership evaluates segment performance based on 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.

 

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Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 9.                   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,

 

 

 

2015

 

2014

 

Wholesale Segment:

 

 

 

 

 

Sales

 

 

 

 

 

Gasoline and gasoline blendstocks

 

$

776,143

 

$

1,994,556

 

Crude oil (1)

 

252,110

 

591,229

 

Other oils and related products (2)

 

943,693

 

1,412,771

 

Total

 

$

1,971,946

 

$

3,998,556

 

Product margin

 

 

 

 

 

Gasoline and gasoline blendstocks

 

$

29,829

 

$

49,663

 

Crude oil (1)

 

15,257

 

23,490

 

Other oils and related products (2)

 

35,007

 

34,616

 

Total

 

$

80,093

 

$

107,769

 

Gasoline Distribution and Station Operations Segment (3):

 

 

 

 

 

Sales

 

 

 

 

 

Gasoline

 

$

697,334

 

$

768,904

 

Station operations (4)

 

83,075

 

33,972

 

Total

 

$

780,409

 

$

802,876

 

Product margin

 

 

 

 

 

Gasoline

 

$

61,699

 

$

33,280

 

Station operations (4)(5)

 

36,723

 

19,797

 

Total

 

$

98,422

 

$

53,077

 

Commercial Segment:

 

 

 

 

 

Sales

 

$

226,761

 

$

315,496

 

Product margin

 

$

11,558

 

$

12,329

 

Combined sales and product margin:

 

 

 

 

 

Sales

 

$

2,979,116

 

$

5,116,928

 

Product margin (6)

 

$

190,073

 

$

173,175

 

Depreciation allocated to cost of sales

 

(21,515

)

(14,151

)

Combined gross profit

 

$

168,558

 

$

159,024