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GLOBAL PARTNERS LP 10-Q 2016

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
glp_Current folio_10Q_Taxonomy2015

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

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

 

 

For the quarterly period ended June 30, 2016

 

 

OR

 

 

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 No

 

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 No

 

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  

Accelerated filer  

Non-accelerated filer  

Smaller reporting company  

 

 

(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 No

 

The issuer had 33,995,563 common units outstanding as of August 4, 2016.

 

 

 

 

 


 

TABLE OF CONTENTS

 

PART I.     FINANCIAL INFORMATION

 

 

 

 

 

Item 1.     Financial Statements (unaudited) 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015 

 

 

 

 

Consolidated Statements of Operations for the three and six months ended June 30, 2016 and 2015 

 

 

 

 

Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended June 30, 2016 and 2015 

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015 

 

 

 

 

Consolidated Statement of Partners’ Equity for the six months ended June 30, 2016 

 

 

 

 

Notes to Consolidated Financial Statements 

 

 

 

 

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

 

61 

 

 

 

Item 3.     Quantitative and Qualitative Disclosures About Market Risk 

 

88 

 

 

 

Item 4.     Controls and Procedures 

 

90 

 

 

 

PART II.     OTHER INFORMATION 

 

92 

 

 

 

Item 1.     Legal Proceedings 

 

92 

 

 

 

Item 1A.   Risk Factors 

 

94 

 

 

 

Item 6.     Exhibits 

 

94 

 

 

 

SIGNATURES 

 

95 

 

 

 

INDEX TO EXHIBITS 

 

96 

 

 

 

 

 


 

Item 1.Financial Statements

 

GLOBAL PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(In thousands, except unit data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

    

2016

    

2015

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,594

 

$

1,116

 

Accounts receivable, net

 

 

358,142

 

 

311,354

 

Accounts receivable—affiliates

 

 

3,862

 

 

2,578

 

Inventories

 

 

443,994

 

 

388,952

 

Brokerage margin deposits

 

 

39,363

 

 

31,327

 

Derivative assets

 

 

29,590

 

 

66,099

 

Prepaid expenses and other current assets

 

 

67,678

 

 

65,609

 

Total current assets

 

 

951,223

 

 

867,035

 

Property and equipment, net

 

 

1,207,239

 

 

1,242,683

 

Intangible assets, net

 

 

70,200

 

 

75,694

 

Goodwill

 

 

435,369

 

 

435,369

 

Other assets

 

 

38,938

 

 

42,894

 

Total assets

 

$

2,702,969

 

$

2,663,675

 

Liabilities and partners’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

286,807

 

$

303,781

 

Working capital revolving credit facility—current portion

 

 

218,800

 

 

98,100

 

Environmental liabilities—current portion

 

 

5,337

 

 

5,350

 

Trustee taxes payable

 

 

96,364

 

 

95,264

 

Accrued expenses and other current liabilities

 

 

48,471

 

 

60,328

 

Derivative liabilities

 

 

24,088

 

 

31,911

 

Total current liabilities

 

 

679,867

 

 

594,734

 

Working capital revolving credit facility—less current portion

 

 

150,000

 

 

150,000

 

Revolving credit facility

 

 

213,400

 

 

269,000

 

Senior notes

 

 

657,866

 

 

656,564

 

Environmental liabilities—less current portion

 

 

65,144

 

 

67,883

 

Financing obligations

 

 

152,371

 

 

89,790

 

Deferred tax liabilities

 

 

79,738

 

 

84,836

 

Other long-term liabilities

 

 

56,551

 

 

56,884

 

Total liabilities

 

 

2,054,937

 

 

1,969,691

 

Partners’ equity

 

 

 

 

 

 

 

Global Partners LP equity:

 

 

 

 

 

 

 

Common unitholders 33,995,563 units issued and 33,519,030 outstanding at June 30, 2016 and 33,995,563 units issued and 33,506,844 outstanding at December 31, 2015)

 

 

614,042

 

 

657,071

 

General partner interest (0.67% interest with 230,303 equivalent units outstanding at June 30, 2016 and December 31, 2015)

 

 

(1,496)

 

 

(1,188)

 

Accumulated other comprehensive loss

 

 

(6,867)

 

 

(8,094)

 

Total Global Partners LP equity

 

 

605,679

 

 

647,789

 

Noncontrolling interest

 

 

42,353

 

 

46,195

 

Total partners’ equity

 

 

648,032

 

 

693,984

 

Total liabilities and partners’ equity

 

$

2,702,969

 

$

2,663,675

 

 

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

3


 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

    

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

    

2016

      

2015

    

2016

   

2015

 

Sales

 

$

2,146,199

 

$

2,680,088

 

$

3,897,011

 

$

5,659,204

 

Cost of sales

 

 

2,016,857

 

 

2,535,900

 

 

3,637,610

 

 

5,346,458

 

Gross profit

 

 

129,342

 

 

144,188

 

 

259,401

 

 

312,746

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

36,640

 

 

45,391

 

 

71,624

 

 

94,177

 

Operating expenses

 

 

75,891

 

 

72,168

 

 

148,127

 

 

140,824

 

Amortization expense

 

 

2,359

 

 

3,070

 

 

4,868

 

 

8,411

 

Net loss on sale and disposition of assets and impairment charges

 

 

2,530

 

 

213

 

 

8,635

 

 

650

 

Total costs and operating expenses

 

 

117,420

 

 

120,842

 

 

233,254

 

 

244,062

 

Operating income

 

 

11,922

 

 

23,346

 

 

26,147

 

 

68,684

 

Interest expense

 

 

(21,015)

 

 

(16,451)

 

 

(43,995)

 

 

(30,414)

 

(Loss) income before income tax benefit (expense)

 

 

(9,093)

 

 

6,895

 

 

(17,848)

 

 

38,270

 

Income tax benefit (expense)

 

 

550

 

 

719

 

 

1,470

 

 

(247)

 

Net (loss) income

 

 

(8,543)

 

 

7,614

 

 

(16,378)

 

 

38,023

 

Net loss (income) attributable to noncontrolling interest

 

 

1,233

 

 

(396)

 

 

2,044

 

 

(390)

 

Net (loss) income attributable to Global Partners LP

 

 

(7,310)

 

 

7,218

 

 

(14,334)

 

 

37,633

 

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

 

 

(49)

 

 

2,671

 

 

(96)

 

 

4,850

 

Limited partners’ interest in net (loss) income

 

$

(7,261)

 

$

4,547

 

$

(14,238)

 

$

32,783

 

Basic net (loss) income per limited partner unit

 

$

(0.22)

 

$

0.15

 

$

(0.42)

 

$

1.06

 

Diluted net (loss) income per limited partner unit

 

$

(0.22)

 

$

0.15

 

$

(0.42)

 

$

1.06

 

Basic weighted average limited partner units outstanding

 

 

33,518

 

 

31,037

 

 

33,518

 

 

30,819

 

Diluted weighted average limited partner units outstanding

 

 

33,518

 

 

31,214

 

 

33,518

 

 

30,978

 

 

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

4


 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2016

    

2015

    

2016

 

2015

 

Net (loss) income

 

$

(8,543)

 

$

7,614

 

$

(16,378)

 

$

38,023

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of cash flow hedges

 

 

592

 

 

1,295

 

 

853

 

 

1,478

 

Change in pension liability

 

 

306

 

 

(269)

 

 

374

 

 

(178)

 

Total other comprehensive income

 

 

898

 

 

1,026

 

 

1,227

 

 

1,300

 

Comprehensive (loss) income

 

 

(7,645)

 

 

8,640

 

 

(15,151)

 

 

39,323

 

Comprehensive loss (income) attributable to noncontrolling interest

 

 

1,233

 

 

(396)

 

 

2,044

 

 

(390)

 

Comprehensive (loss) income attributable to Global Partners LP

 

$

(6,412)

 

$

8,244

 

$

(13,107)

 

$

38,933

 

 

 

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

 

5


 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

6

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

    

2016

    

2015

    

Cash flows from operating activities

 

 

 

 

 

 

 

Net (loss) income

 

$

(16,378)

 

$

38,023

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

57,949

 

 

55,240

 

Amortization of deferred financing fees

 

 

2,948

 

 

2,927

 

Amortization of leasehold interests

 

 

626

 

 

172

 

Amortization of senior notes discount

 

 

690

 

 

411

 

Bad debt expense

 

 

50

 

 

288

 

Unit-based compensation expense

 

 

2,150

 

 

2,072

 

Write-off of financing fees

 

 

1,828

 

 

 —

 

Net loss on sale and disposition of assets and impairment charges

 

 

8,635

 

 

650

 

Changes in operating assets and liabilities, excluding net assets acquired:

 

 

 

 

 

 

 

Accounts receivable

 

 

(46,838)

 

 

90,971

 

Accounts receivable-affiliate

 

 

(1,284)

 

 

(1,372)

 

Inventories

 

 

(55,042)

 

 

(72,788)

 

Broker margin deposits

 

 

(8,036)

 

 

(1,792)

 

Prepaid expenses, all other current assets and other assets

 

 

(2,277)

 

 

3,749

 

Accounts payable

 

 

(16,974)

 

 

(145,863)

 

Trustee taxes payable

 

 

1,100

 

 

(17,225)

 

Change in derivatives

 

 

28,686

 

 

24,232

 

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

 

 

(17,816)

 

 

(36,927)

 

Net cash used in operating activities

 

 

(59,983)

 

 

(57,232)

 

Cash flows from investing activities

 

 

 

 

 

 

 

Acquisitions

 

 

 —

 

 

(561,757)

 

Capital expenditures

 

 

(38,846)

 

 

(33,163)

 

Proceeds from sale of property and equipment

 

 

11,682

 

 

1,251

 

Net cash used in investing activities

 

 

(27,164)

 

 

(593,669)

 

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from issuance of common units, net

 

 

 —

 

 

109,305

 

Net borrowings from working capital revolving credit facility

 

 

120,700

 

 

168,200

 

Net (payments on) borrowings from revolving credit facility

 

 

(55,600)

 

 

134,200

 

Proceeds from sale-leaseback, net

 

 

62,476

 

 

 —

 

Proceeds from senior notes, net of discount

 

 

 —

 

 

295,125

 

Payments on line of credit

 

 

 —

 

 

(700)

 

Repurchase of common units

 

 

 —

 

 

(2,442)

 

Noncontrolling interest capital contribution

 

 

 —

 

 

1,880

 

Distribution to noncontrolling interest

 

 

(1,798)

 

 

(3,600)

 

Distributions to partners

 

 

(31,153)

 

 

(45,118)

 

Net cash provided by financing activities

 

 

94,625

 

 

656,850

 

Cash and cash equivalents

 

 

 

 

 

 

 

Increase in cash and cash equivalents

 

 

7,478

 

 

5,949

 

Cash and cash equivalents at beginning of period

 

 

1,116

 

 

5,238

 

Cash and cash equivalents at end of period

 

$

8,594

 

$

11,187

 

Supplemental information

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

23,016

 

$

25,117

 

 

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

6


 

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, 2015

 

$

657,071

 

$

(1,188)

 

$

(8,094)

 

$

46,195

 

$

693,984

 

Net (loss) income

 

 

(14,238)

 

 

(96)

 

 

 —

 

 

(2,044)

 

 

(16,378)

 

Distribution to noncontrolling interest

 

 

 —

 

 

 —

 

 

 —

 

 

(1,798)

 

 

(1,798)

 

Other comprehensive income

 

 

 —

 

 

 —

 

 

1,227

 

 

 —

 

 

1,227

 

Unit-based compensation

 

 

2,150

 

 

 —

 

 

 —

 

 

 —

 

 

2,150

 

Distributions to partners

 

 

(31,446)

 

 

(212)

 

 

 —

 

 

 —

 

 

(31,658)

 

Dividends on repurchased units

 

 

505

 

 

 —

 

 

 —

 

 

 —

 

 

505

 

Balance at June 30, 2016

 

$

614,042

 

$

(1,496)

 

$

(6,867)

 

$

42,353

 

$

648,032

 

 

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, storing and logistics of transporting petroleum and related products, including domestic and Canadian crude oil, gasoline and gasoline blendstocks (such as ethanol), 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 June 30, 2016, the Partnership had a portfolio of 1,511 owned, leased and/or supplied gasoline stations, including 290 directly operated convenience stores, in the Northeast, Maryland and Virginia.

 

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 who are employed by GMG.

 

The General Partner, which holds a 0.67% general partner interest in the Partnership, is owned by affiliates of the Slifka family.  As of June 30, 2016, affiliates of the General Partner, including its directors and executive officers and their affiliates, owned 7,434,775 common units, representing a 21.9% limited partner interest.

 

Recent Transactions

 

Sale Leaseback TransactionOn June 29, 2016, the Partnership and its wholly owned subsidiaries Global Companies LLC (“Global Companies”), Global Montello Group Corp. (“GMG”) and Alliance Energy LLC (“Alliance”), and Alliance’s wholly owned subsidiary, Bursaw Oil LLC (“Bursaw”) sold to a premier institutional real estate investor (the “Buyer”) real property assets, including the buildings, improvements and appurtenances thereto, at 30 gasoline stations and convenience stores located in Connecticut, Maine, Massachusetts, New Hampshire and Rhode Island for a purchase price of approximately $63.5 million.  In connection with the sale, the Partnership, entered into a Master Unitary Lease Agreement with the Buyer to lease back the real property assets sold with respect to these sites.  See Note 6.

 

Expanded Retail Network—In April 2016, the Partnership expanded its gasoline station and convenience-store network in Western Massachusetts with the addition of 22 leased retail sites.  Located in the Pittsfield and Springfield areas, the stores were added through long-term leases.

 

Basis of Presentation

 

On January 7, 2015, the Partnership acquired, through one of its wholly owned subsidiaries, GMG,  100% of the equity interests in Warren Equities, Inc. (“Warren”) from The Warren Alpert Foundation.  On January 14, 2015, the Partnership acquired the Revere terminal (the “Revere Terminal”) located in Boston Harbor in Revere, Massachusetts from Global Petroleum Corp. (“GPC”) and related entities.  On June 1, 2015, the Partnership acquired, through one of its wholly owned subsidiaries, Alliance, retail gasoline stations and dealer supply contracts from Capitol Petroleum Group (“Capitol”).  See Note 2.

8


 

Table of Contents 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The financial results of Capitol for the one month ended June 30, 2015 are included in the accompanying statements of operations for the three and six months ended June 30, 2015.  The financial results of Warren and the Revere Terminal for the three and six months ended June 30, 2015 are included in the accompanying statements of operations for the three and six months ended June 30, 2015.  The accompanying consolidated financial statements as of June 30, 2016 and December 31, 2015 and for the three and six months ended June 30, 2016 and 2015 reflect the accounts of the Partnership.  Upon consolidation, all intercompany balances and transactions have been eliminated.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial condition and operating results for the interim periods.  The interim financial information, which has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), should be read in conjunction with the consolidated financial statements for the year ended December 31, 2015 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 and six months ended June 30, 2016 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2016.  The consolidated balance sheet at December 31, 2015 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, 2015.

 

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 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.  Therefore, the Partnership’s volumes in gasoline 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 volumes 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.

 

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 statements 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 statements 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 operations.

 

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Concentration of Risk

 

The following table presents the Partnership’s product sales and other revenues as a percentage of the consolidated sales for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

June 30,

 

June 30,

 

 

 

    

2016

    

2015

    

2016

 

2015

 

 

Gasoline sales: gasoline and gasoline blendstocks (such as ethanol)

 

68

%  

62

%  

63

%  

56

%  

 

Crude oil sales and crude oil logistics revenue

 

7

%  

13

%  

8

%  

11

%  

 

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

 

20

%  

21

%  

25

%  

30

%  

 

Convenience store sales, rental income and sundry sales

 

5

%  

4

%  

4

%  

3

%  

 

Total

 

100

%  

100

%  

100

%  

100

%  

 

 

The following table presents the Partnership’s product margin by segment as a percentage of the consolidated product margin for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

June 30,

 

June 30,

 

 

 

    

2016

    

2015

    

2016

 

2015

 

 

Wholesale segment

 

21

%  

37

%

23

%  

40

%  

 

GDSO segment

 

75

%  

59

%

73

%  

55

%  

 

Commercial segment

 

4

%  

4

%

4

%  

5

%  

 

Total

 

100

%  

100

%

100

%  

100

%  

 

 

See Note 10, “Segment Reporting,” for additional information on the Partnership’s operating segments.

 

None of the Partnership’s customers accounted for greater than 10% of total sales for the three and six months ended June 30, 2016 and 2015. 

 

Goodwill

Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized.  The Partnership has concluded that its operating segments are also its reporting units.  At June 30, 2016 and December 31, 2015, goodwill recorded in the accompanying consolidated balance sheets aggregated $435.4 million, of which $121.7 million relates to the Wholesale reporting unit and $313.7 million relates to the Gasoline Distribution and Station Operations (“GDSO”) reporting unit.  Goodwill associated with the Partnership’s disposition activities of GDSO sites will be included in the carrying value of assets sold in determining the gain or loss on disposal. No goodwill has been derecognized as of June 30, 2016.

 

Goodwill is tested for impairment annually as of October 1 or when events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable.  The process of testing goodwill for impairment involves numerous judgments, assumptions and estimates made by management which inherently reflect a high degree of uncertainty.  The impairment test first includes a qualitative assessment in order to conclude if it is more likely than not that the reporting unit’s fair value exceeds its carrying value.  Factors considered in the qualitative analysis include changes in the business and industry, as well as macro-economic conditions, that would influence the fair value of the reporting unit as well as changes in the carrying values of the reporting unit.  If necessary, the Partnership will then complete a two-step quantitative assessment.  In the quantitative assessment, the fair value of each reporting unit is determined and compared to the book value of the reporting unit.  If the fair value of the reporting unit is less than the

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book value, including goodwill, then the recorded goodwill is impaired to its implied fair value with a charge to operations.  The Partnership calculates the fair value of each reporting unit using a combination of discounted cash flows and market comparables.

 

Key assumptions included in the development of the discounted cash flow value for each reporting unit include:

 

Future commodity volumes and margins.  The discounted cash flows are based on a five-year forecast with an estimate of terminal valuesIn general, the reporting units’ fair values are most sensitive to volume and gross margin assumptions.  In particular, the Wholesale segment’s cash flows are impacted by the crude oil market, given the Partnership’s 2013 investment in transloading terminals in North Dakota and Oregon.  The significant decline in the price of crude oil and tight crude oil differentials negatively impacted the Partnership’s fiscal 2015 results.  The Partnership expects low crude oil prices and tight differentials to continue for a period of time, which has negatively impacted and will continue to negatively impact the Partnership’s 2016 performance, with forecasted recovery expected sometime in 2017.  However, with the continuation of low crude oil prices and tight differentials, the Partnership’s assumptions as to the timing of a market recovery, particularly in crude oil, might be more extended than currently estimated within the Partnership’s five-year forecast and estimate of terminal values.  If market conditions do not improve or timing of recovery is extended and does not become more certain, the Partnership may change such assumptions in future periodsAs a result of these market conditions, there is increased uncertainty and sensitivity relating to the Partnership’s future cash flow projections within its crude oil business on which the Wholesale reporting unit’s goodwill impairment analysis relies.  If market conditions, and therefore the Partnership’s performance, are worse than its projections, the Partnership may record impairment charges in the future.  Actual results may not be consistent with these judgments, assumptions and estimates, and goodwill impairment charges may be required in future periods.  This could have an adverse impact on the Partnership’s financial position and results of operations.

 

Discount rate commensurate with the risks involved.  The Partnership applies a discount rate to its expected cash flows based on a variety of factors, including market and economic conditions, operational risk, regulatory risk and political risk. A higher discount rate decreases the net present value of cash flows.

 

Future capital requirements.  The Partnership’s estimates of future capital requirements are based upon a combination of authorized spending and internal forecasts.

 

On October 1, 2015, the Partnership completed its quantitative assessments for both the Wholesale and GDSO reporting units, and no impairment indicator was identified for either reporting unit.  The declining crude oil prices, changes in certain market conditions and decline in the Partnership’s common unit price, collectively caused the Partnership to reassess its goodwill for impairment as of December 31, 2015 for the Wholesale reporting unit.  Based on the results of this assessment, the Partnership concluded that step two of the quantitative assessment was not necessary and no impairment was required. 

 

As of June 30, 2016, the Partnership considered whether there was any change of circumstances or events during the second quarter which would more likely than not reduce the fair value of the Wholesale segment’s reporting unit below its carrying amount.  The Partnership concluded that such events and circumstances have not occurred. However, with the continuation of low crude oil prices and tight differentials, the Partnership’s assumptions as to the timing of a market recovery, particularly in crude oil, might be more extended than currently estimated within the Partnership’s five-year forecast and estimate of terminal values.  If market conditions do not improve or timing of recovery is extended and does not become more certain, the Partnership may change such assumptions in future periods, which could result in a different conclusion. The Partnership continues to monitor the extent and timing of future demand, which may impact the timing of forecasted recovery.

 

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The fair values of the Partnership’s reporting units are based on underlying assumptions that represent the Partnership’s best estimates.  Many of the factors used in assessing fair value are outside of the control of management.  A further sustained decline in commodity prices may cause the Partnership to reassess its long-lived assets and goodwill for impairment and could result in future non-cash impairment charges as a result of such impairment assessments.  If the Partnership is required to perform step two in the future for the Wholesale reporting unit, up to $121.7 million of goodwill assigned to this reporting unit could be written off in the period of such impairment assessment.

   

Note 2.    Business Combinations

 

2015 Acquisitions

 

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 330 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.

 

In connection with the acquisition of Warren, the Partnership recorded acquisition costs of approximately $1.0 million and $5.4 million for the three and six months ended June 30, 2015, respectively, which are included in selling, general and administrative expenses in the accompanying consolidated statements of operations.  Additionally, in January 2015 and 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 operations for the six months ended June 30, 2015.  Approximately $0 and $0.5 million of the restructuring charge was paid during the three and six months ended June 30, 2015, respectively, and the remaining balance of $1.8 million was paid during the year ended December 31, 2015.

 

Revere TerminalOn 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, and related entities for a purchase price of $23.7 million.  The acquisition includes contingent consideration which would be payable under specific circumstances involving a subsequent sale of the property during the eight years following the acquisition.  The contingent consideration was estimated to be $0 as of the acquisition date as the Partnership concluded that the sale of the terminal for non-petroleum use within the eight years following the acquisition is not probable.  There have been no changes to this assessment since the acquisition date.  The Partnership financed the transaction with borrowings 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 was 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.

 

Capitol Petroleum Group—On June 1, 2015, the Partnership acquired 97 primarily Mobil and Exxon branded owned or leased retail gasoline stations and seven dealer supply contracts in New York City and Prince George’s

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(Unaudited)

County, Maryland, along with certain related supply and franchise agreements and third-party leases and other assets associated with the operations from Liberty Petroleum Realty, LLC, East River Petroleum Realty, LLC, Big Apple Petroleum Realty, LLC, White Oak Petroleum, LLC, Anacostia Realty, LLC, Mount Vernon Petroleum Realty, LLC and DAG Realty, LLC (collectively, “Capitol Petroleum Group”).  The purchase price was approximately $155.7 million.  The acquisition was financed with borrowings under the Partnership’s revolving credit facility.

 

The acquisition was accounted for using the purchase method of accounting in accordance with the FASB’s guidance regarding business combinations.  The Partnership’s financial statements include the results of operations of Capitol subsequent to the acquisition date.

 

In connection with the acquisition of Capitol, the Partnership incurred acquisition costs of approximately $3.1 million which was recorded for each of the three and six months ended June 30, 2015 and included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

 

Supplemental Pro Forma InformationRevenues and net income not 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 six months ended June 30, 2015 is consistent with the amounts reported in the accompanying consolidated statement of operations for the six months ended June 30, 2015 as it relates to Warren

 

The following unaudited pro forma information presents the consolidated results of operations of the Partnership for the three and six months ended June 30, 2015 as if the acquisition of Capitol occurred on January 1, 2015 (in thousands, except per unit data):

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 2015

 

June 30, 2015

 

Sales

$

2,797,134

 

$

5,911,504

 

Net income attributable to Global Partners LP

$

6,611

 

$

39,422

 

Net income per limited partner unit, basic and diluted

$

0.13

 

$

1.12

 

 

 

 

 

 

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

 

Under the Partnership’s partnership agreement, for any quarterly period, the incentive distribution rights (“IDRs”) participate in net income only to the extent of the amount of cash distributions actually declared, thereby excluding the IDRs from participating in the Partnership’s undistributed net income or losses.  Accordingly, the Partnership’s undistributed net income or losses 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 June 30, 2016 and December 31, 2015 excluded 476,553 and 488,719 common units, respectively, held on behalf of the Partnership pursuant to its repurchase program (see Note 13).  These units are not deemed outstanding for purposes of calculating net (loss) income per limited partner unit (basic and diluted).

 

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(Unaudited)

The following table provides a reconciliation of net (loss) income and the assumed allocation of net (loss) income to the limited partners’ interest for purposes of computing net (loss) income per limited partner unit for the three and six months ended June 30, 2016 and 2015 (in thousands, except per unit data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2016

 

 

Three Months Ended June 30, 2015

 

 

 

 

 

  

Limited

  

General

  

 

 

 

 

 

 

  

Limited

  

General

  

 

 

 

 

 

 

 

 

Partner

 

Partner

 

 

 

 

 

 

 

 

Partner

 

Partner

 

 

 

 

Numerator:

 

Total

 

Interest

 

Interest

 

IDRs

 

 

Total

 

Interest

 

Interest

 

IDRs

 

Net (loss) income attributable to Global Partners LP (1)

 

$

(7,310)

 

$

(7,261)

 

$

(49)

 

$

 —

 

 

$

7,218

 

$

4,547

 

$

2,671

 

$

 —

 

Declared distribution

 

$

15,829

 

$

15,723

 

$

106

 

$

 —

 

 

$

26,320

 

$

23,543

 

$

159

 

$

2,618

 

Assumed allocation of undistributed net (loss) income

 

 

(23,139)

 

 

(22,984)

 

 

(155)

 

 

 —

 

 

 

(19,102)

 

 

(18,996)

 

 

(106)

 

 

 —

 

Assumed allocation of net (loss) income

 

$

(7,310)

 

$

(7,261)

 

$

(49)

 

$

 —

 

 

$

7,218

 

$

4,547

 

$

53

 

$

2,618

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

 

 

 

 

33,518

 

 

 

 

 

 

 

 

 

 

 

 

31,037

 

 

 

 

 

 

 

Dilutive effect of phantom units

 

 

 

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

177

 

 

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

 

 

 

 

33,518

 

 

 

 

 

 

 

 

 

 

 

 

31,214

 

 

 

 

 

 

 

Basic net (loss) income per limited partner unit

 

 

 

 

$

(0.22)

 

 

 

 

 

 

 

 

 

 

 

$

0.15

 

 

 

 

 

 

 

Diluted net (loss) income per limited partner unit (2)

 

 

 

 

$

(0.22)

 

 

 

 

 

 

 

 

 

 

 

$

0.15

 

 

 

 

 

 

 

 


(1)

As a result of the June 2015 issuance of 3,000,000 common units, the general partner interest was reduced to 0.67% for the three months ended June 30, 2016 and, based on a weighted average, 0.73% for the three months ended June 30, 2015.

(2)

Basic units were used to calculate diluted net income per limited partner unit for the three months ended June 30, 2016, as using the effects of phantom units would have an anti-dilutive effect on net income per limited partner unit.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2016

 

 

Six Months Ended June 30, 2015

 

 

 

 

 

  

Limited

  

General

  

 

 

 

 

 

 

  

Limited

  

General

  

 

 

 

 

 

 

 

 

Partner

 

Partner

 

 

 

 

 

 

 

 

Partner

 

Partner

 

 

 

 

Numerator:

 

Total

 

Interest

 

Interest

 

IDRs

 

 

Total

 

Interest

 

Interest

 

IDRs

 

Net (loss) income attributable to Global Partners LP (1)

 

$

(14,334)

 

$

(14,238)

 

$

(96)