UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2009 |
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OR |
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to
Commission file number 001-32593
Global Partners LP
(Exact name of registrant as specified in its charter)
Delaware |
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74-3140887 |
(State
or other jurisdiction of incorporation |
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(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
(Registrants 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 Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
Accelerated filer x |
Non-accelerated
filer o |
Smaller reporting company o |
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 7,428,139 common units and 5,642,424 subordinated units outstanding as of November 3, 2009.
GLOBAL PARTNERS LP
(In thousands, except unit data)
(Unaudited)
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September 30, |
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December 31, |
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2009 |
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2008 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
684 |
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$ |
945 |
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Accounts receivable, net |
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195,544 |
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249,418 |
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Accounts receivableaffiliates |
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4,721 |
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2,518 |
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Inventories |
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420,301 |
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240,346 |
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Brokerage margin deposits |
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5 |
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8,991 |
|
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Fair value of forward fixed price contracts |
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4,063 |
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161,787 |
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Prepaid expenses and other current assets |
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35,733 |
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29,302 |
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Total current assets |
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661,051 |
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693,307 |
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Property and equipment, net |
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161,208 |
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161,988 |
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Intangible assets, net |
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29,193 |
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31,403 |
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Other assets |
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2,800 |
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2,564 |
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Total assets |
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$ |
854,252 |
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$ |
889,262 |
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Liabilities and partners equity |
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Current liabilities: |
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Accounts payable |
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$ |
165,745 |
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$ |
219,783 |
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Working capital revolving credit facilitycurrent portion |
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113,497 |
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208,210 |
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Environmental liabilitiescurrent portion |
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3,296 |
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4,191 |
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Accrued expenses and other current liabilities |
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65,303 |
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54,054 |
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Income taxes payable |
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48 |
|
520 |
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Obligations on forward fixed price contracts |
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12,254 |
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7,954 |
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Total current liabilities |
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360,143 |
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494,712 |
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Working capital revolving credit facilityless current portion |
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254,203 |
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154,090 |
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Acquisition facility |
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71,200 |
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71,200 |
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Environmental liabilitiesless current portion |
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2,280 |
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2,377 |
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Accrued pension benefit cost |
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7,440 |
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8,853 |
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Deferred compensation |
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1,796 |
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1,663 |
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Other long-term liabilities |
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9,871 |
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12,899 |
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Total liabilities |
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706,933 |
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745,794 |
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Partners equity |
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Common unitholders (7,428,139 units issued and 7,322,659 outstanding at September 30, 2009 and 7,428,139 units issued and outstanding at December 31, 2008) |
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162,075 |
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163,092 |
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Subordinated unitholders (5,642,424 units issued and outstanding at September 30, 2009 and December 31, 2008) |
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(3,152 |
) |
(4,189 |
) |
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General partner interest (1.73% interest with 230,303 equivalent units outstanding at September 30, 2009 and December 31, 2008) |
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(129 |
) |
(172 |
) |
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Accumulated other comprehensive loss |
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(11,475 |
) |
(15,263 |
) |
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Total partners equity |
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147,319 |
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143,468 |
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Total liabilities and partners equity |
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$ |
854,252 |
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$ |
889,262 |
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The accompanying notes are an integral part of these consolidated financial statements.
1
GLOBAL PARTNERS LP
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per unit data)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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2009 |
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2008 |
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2009 |
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2008 |
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Sales |
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$ |
1,285,331 |
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$ |
2,272,079 |
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$ |
4,119,435 |
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$ |
7,290,780 |
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Cost of sales |
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1,256,058 |
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2,246,151 |
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4,011,659 |
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7,206,563 |
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Gross profit |
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29,273 |
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25,928 |
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107,776 |
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84,217 |
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Costs and operating expenses: |
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Selling, general and administrative expenses |
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13,859 |
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10,457 |
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45,233 |
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31,712 |
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Operating expenses |
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8,666 |
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8,429 |
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26,278 |
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26,225 |
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Amortization expenses |
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747 |
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738 |
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2,350 |
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2,199 |
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Total costs and operating expenses |
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23,272 |
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19,624 |
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73,861 |
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60,136 |
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Operating income |
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6,001 |
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6,304 |
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33,915 |
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24,081 |
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Interest expense |
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(3,742 |
) |
(5,297 |
) |
(10,940 |
) |
(15,414 |
) |
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Income before income tax expense |
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2,259 |
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1,007 |
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22,975 |
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8,667 |
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Income tax expense |
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(200 |
) |
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(1,075 |
) |
(295 |
) |
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Net income |
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2,059 |
|
1,007 |
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21,900 |
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8,372 |
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Less: General partners interest
in net income, |
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(86 |
) |
(67 |
) |
(529 |
) |
(294 |
) |
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Limited partners interest in net income |
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$ |
1,973 |
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$ |
940 |
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$ |
21,371 |
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$ |
8,078 |
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Basic net income per limited partner unit |
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$ |
0.15 |
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$ |
0.07 |
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$ |
1.64 |
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$ |
0.62 |
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Diluted net income per limited partner unit |
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$ |
0.15 |
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$ |
0.07 |
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$ |
1.60 |
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$ |
0.62 |
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Basic weighted average limited partner units outstanding |
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12,979 |
|
13,071 |
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13,037 |
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13,071 |
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Diluted weighted average limited partner units outstanding |
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13,304 |
|
13,071 |
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13,334 |
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13,071 |
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The accompanying notes are an integral part of these consolidated financial statements.
2
GLOBAL PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Nine Months Ended |
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2009 |
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2008 |
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Cash flows from operating activities |
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Net income |
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$ |
21,900 |
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$ |
8,372 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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11,149 |
|
10,584 |
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Amortization of deferred financing fees |
|
868 |
|
657 |
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Loss on disposition of property and equipment and other |
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1 |
|
6 |
|
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Bad debt expense |
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1,520 |
|
90 |
|
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Stock-based compensation expense |
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1,580 |
|
555 |
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Changes in operating assets and liabilities: |
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|
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|
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Accounts receivable |
|
52,354 |
|
89,643 |
|
||
Accounts receivable affiliate |
|
(2,203 |
) |
1,540 |
|
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Inventories |
|
(179,955 |
) |
125,008 |
|
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Broker margin deposits |
|
8,986 |
|
7,148 |
|
||
Prepaid expenses, all other current assets and other assets |
|
(7,673 |
) |
(6,095 |
) |
||
Accounts payable |
|
(54,037 |
) |
(78,470 |
) |
||
Income taxes payable |
|
(471 |
) |
109 |
|
||
Change in fair value of forward fixed price contracts |
|
162,024 |
|
(86,568 |
) |
||
Accrued expenses and all other current liabilities |
|
9,735 |
|
(18,455 |
) |
||
Net cash provided by operating activities |
|
25,778 |
|
54,124 |
|
||
|
|
|
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Cash flows from investing activities |
|
|
|
|
|
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Capital expenditures |
|
(8,024 |
) |
(8,301 |
) |
||
Proceeds from sale of property and equipment |
|
2 |
|
13 |
|
||
Net cash used in investing activities |
|
(8,022 |
) |
(8,288 |
) |
||
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|
|
|
|
|
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Cash flows from financing activities |
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|
|
|
|
||
Proceeds from (payments on) credit facilities, net |
|
5,400 |
|
(26,500 |
) |
||
Payments on note payable, other |
|
|
|
(1,239 |
) |
||
Repurchase of common units |
|
(3,464 |
) |
|
|
||
Repurchased units withheld for tax obligations |
|
(386 |
) |
|
|
||
Distributions to partners |
|
(19,567 |
) |
(19,602 |
) |
||
Net cash used in financing activities |
|
(18,017 |
) |
(47,341 |
) |
||
|
|
|
|
|
|
||
Decrease in cash and cash equivalents |
|
(261 |
) |
(1,505 |
) |
||
Cash and cash equivalents at beginning of period |
|
945 |
|
2,110 |
|
||
Cash and cash equivalents at end of period |
|
$ |
684 |
|
$ |
605 |
|
|
|
|
|
|
|
||
Supplemental information |
|
|
|
|
|
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Cash paid during the period for interest |
|
$ |
10,997 |
|
$ |
15,414 |
|
The accompanying notes are an integral part of these consolidated financial statements.
3
GLOBAL PARTNERS LP
CONSOLIDATED STATEMENTS OF PARTNERS EQUITY
(In thousands)
(Unaudited)
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Accumulated |
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|
||||||
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General |
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Other |
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Total |
|
||||||
|
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Common |
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Subordinated |
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Partner |
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Comprehensive |
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Partners |
|
||||||
|
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Unitholders |
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Unitholders |
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Interest |
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Loss |
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Equity |
|
||||||
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|
|
|
|
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|
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|
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Balance at December 31, 2008 |
|
$ |
163,092 |
|
$ |
(4,189 |
) |
$ |
(172 |
) |
$ |
(15,263 |
) |
$ |
143,468 |
|
|
Stock-based compensation |
|
1,580 |
|
|
|
|
|
|
|
1,580 |
|
||||||
Repurchase of common units |
|
(3,464 |
) |
|
|
|
|
|
|
(3,464 |
) |
||||||
Repurchased units withheld for tax obligations |
|
(386 |
) |
|
|
|
|
|
|
(386 |
) |
||||||
Distributions to partners |
|
(10,828 |
) |
(8,253 |
) |
(486 |
) |
|
|
(19,567 |
) |
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Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
|
12,081 |
|
9,290 |
|
529 |
|
|
|
21,900 |
|
||||||
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
||||||
Change in fair value of interest rate collars |
|
|
|
|
|
|
|
2,741 |
|
2,741 |
|
||||||
Change in pension liability |
|
|
|
|
|
|
|
1,047 |
|
|
1,047 |
|
|||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
25,688 |
|
||||||
Balance at September 30, 2009 |
|
$ |
162,075 |
|
$ |
(3,152 |
) |
$ |
(129 |
) |
$ |
(11,475 |
) |
$ |
147,319 |
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization and Basis of Presentation
Organization
Global Partners LP (the Partnership) is a publicly traded master limited partnership that engages in the wholesale and commercial distribution of refined petroleum products and small amounts of natural gas and provides ancillary services to companies.
The Partnership has five operating subsidiaries: Global Companies LLC, its subsidiary, Glen Hes Corp., Global Montello Group Corp., Chelsea Sandwich LLC and Global Energy Marketing LLC (Global Energy) (the five operating subsidiaries, collectively, the Companies). The Companies (other than Glen Hes Corp.) are wholly owned by Global Operating LLC, a wholly owned subsidiary of the Partnership. Global Energy was recently formed to expand the Partnerships natural gas operations. It is in the process of obtaining licensure and is not yet operational. In addition, GLP Finance Corp. (GLP Finance) is a wholly owned subsidiary of the Partnership. GLP Finance has no material assets or liabilities. Its activities will be limited to co-issuing debt securities and engaging in other activities incidental thereto.
The Partnerships 1.73% general partner interest is held by Global GP LLC, the Partnerships general partner (the General Partner). The General Partner, which is owned by affiliates of the Slifka family, manages the Partnerships operations and activities and employs its officers and substantially all of its personnel. The General Partner and affiliates of the General Partner, including its directors and executive officers, own 229,683 common units and 5,642,424 subordinated units, representing a combined 44.1% limited partner interest.
Basis of Presentation
Interim Financial Statements
The accompanying consolidated financial statements as of September 30, 2009 and December 31, 2008 and for the three and nine months ended September 30, 2009 and 2008 reflect the accounts of the Partnership. All intercompany balances and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial condition and operating results for the interim periods. The interim financial information, which has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), should be read in conjunction with the consolidated financial statements for the year ended December 31, 2008 and notes thereto contained in the Partnerships Annual Report on Form 10-K. The results of operations for the three and nine months ended September 30, 2009 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2009.
As demand for some of the Partnerships refined petroleum products, specifically home heating oil and residual oil for space heating purposes, is generally greater during the winter months, sales are generally higher during the first and fourth quarters of the calendar year which may result in significant fluctuations in the Partnerships quarterly operating results.
5
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization and Basis of Presentation (continued)
The following table presents the Partnerships products as a percentage of total sales for the periods presented:
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
|
2008 |
|
|
||
Distillate sales |
|
27 |
% |
|
31 |
% |
|
44% |
|
|
44% |
|
|
Gasoline sales |
|
68 |
% |
|
65 |
% |
|
51% |
|
|
52% |
|
|
Residual oil sales |
|
5 |
% |
|
4 |
% |
|
5% |
|
|
4% |
|
|
|
|
100 |
% |
|
100 |
% |
|
100% |
|
|
100% |
|
|
The Partnership had one customer, ExxonMobil Oil Corporation (ExxonMobil), who accounted for approximately 27% and 24% of total sales for the three months ended September 30, 2009 and 2008, respectively and approximately 22% and 21% of total sales for the nine months ended September 30, 2009 and 2008, respectively.
The consolidated balance sheet at December 31, 2008 has been derived from the audited consolidated financial statements and footnotes thereto included in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2008.
Reclassifications
Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation.
Note 2. Net Income Per Limited Partner Unit
On January 1, 2009, the Partnership adopted guidance issued by the Financial Accounting Standards Board (FASB) to the calculation of earnings per share (in the Partnerships case, net income per limited partner unit). This guidance specifies the treatment of earnings per unit calculations when incentive distributions rights (IDRs) exist in master limited partnerships. This guidance further provides that net income for the current period is to be reduced by the amount of available cash that will be distributed with respect to that period for purposes of calculating net income per unit. Any residual amount representing undistributed net income (or losses) is assumed to be allocated to the ownership interests in accordance with the contractual provisions of the partnership agreement.
Under the Partnerships partnership agreement, for any quarterly period, the 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 Partnerships undistributed net income or losses. Accordingly, the Partnerships undistributed net income is assumed to be allocated to the common and subordinated unitholders, or limited partners interest, and to the General Partners interest.
On April 22, 2009, the board of directors of the General Partner declared a quarterly cash distribution of $0.4875 per unit for the period from January 1, 2009 through March 31, 2009. On July 23, 2009, the board declared a quarterly cash distribution of $0.4875 per unit for the period from April 1, 2009 through June 30, 2009. On October 21, 2009, the board declared a quarterly cash distribution of $0.4875 per unit for the period from July 1, 2009 through September 30, 2009. These declared cash distributions resulted in incentive distributions to the General Partner, as the holder of the incentive distribution rights, as indicated above, and enabled the Partnership to reach its second target distribution with respect to such incentive distribution rights. See Note 9, Cash Distributions for further information.
6
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Net Income Per Limited Partner Unit (continued)
The following table provides a reconciliation of net income and the assumed allocation of net income to the limited partners interest for purposes of computing net income per limited partner unit for the three and nine months ended September 30, 2009 (in thousands, except per unit data):
|
|
Three months ended September 30, 2009 |
|
||||||||||
|
|
|
|
Limited |
|
General Partner Interest |
|
||||||
|
|
|
|
Partner |
|
General |
|
|
|
||||
Numerator: |
|
Total |
|
Interest |
|
Partner |
|
IDRs |
|
||||
Net income |
|
$ |
2,059 |
|
$ |
1,973 |
|
$ |
86 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Declared distribution |
|
$ |
6,483 |
|
$ |
6,321 |
|
$ |
112 |
|
$ |
50 |
|
Assumed allocation of undistributed net income |
|
(4,424 |
) |
(4,348 |
) |
(76 |
) |
|
|
||||
Assumed allocation of net income |
|
$ |
2,059 |
|
$ |
1,973 |
|
$ |
36 |
|
$ |
50 |
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
||||
Basic weighted average limited partner units outstanding |
|
|
|
12,979 |
|
|
|
|
|
||||
Dilutive effect of phantom units |
|
|
|
325 |
|
|
|
|
|
||||
Diluted weighted average limited partner units outstanding |
|
|
|
13,304 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Basic net income per limited partner unit |
|
|
|
$ |
0.15 |
|
|
|
|
|
|||
Diluted net income per limited partner unit |
|
|
|
$ |
0.15 |
|
|
|
|
|
|
|
Nine months ended September 30, 2009 |
|
||||||||||
|
|
|
|
Limited |
|
General Partner Interest |
|
||||||
|
|
|
|
Partner |
|
General |
|
|
|
||||
Numerator: |
|
Total |
|
Interest |
|
Partner |
|
IDRs |
|
||||
Net income |
|
$ |
21,900 |
|
$ |
21,371 |
|
$ |
529 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Declared distribution |
|
$ |
19,522 |
|
$ |
19,036 |
|
$ |
336 |
|
$ |
150 |
|
Assumed allocation of undistributed net income |
|
2,378 |
|
2,335 |
|
43 |
|
|
|
||||
Assumed allocation of net income |
|
$ |
21,900 |
|
$ |
21,371 |
|
$ |
379 |
|
$ |
150 |
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
||||
Basic weighted average limited partner units outstanding |
|
|
|
13,037 |
|
|
|
|
|
||||
Dilutive effect of phantom units |
|
|
|
297 |
|
|
|
|
|
||||
Diluted weighted average limited partner units outstanding |
|
|
|
13,334 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Basic net income per limited partner unit |
|
|
|
$ |
1.64 |
|
|
|
|
|
|||
Diluted net income per limited partner unit |
|
|
|
$ |
1.60 |
|
|
|
|
|
At September 30, 2009, limited partner units outstanding excluded common units held on behalf of the Partnership pursuant to its Repurchase Program and for future satisfaction of the General Partners Obligations (as defined in Note 12). These units are not deemed outstanding for purposes of calculating net income per limited partner unit (basic and diluted).
The Partnership applied the guidance issued by the FASB on a retroactive basis which had an immaterial impact on the limited partners interest in net income and net income per limited partner unit for the three and nine months ended September 30, 2008.
7
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Net Income Per Limited Partner Unit (continued)
The following table provides a reconciliation of net income and the assumed allocation of net income to the limited partners interest for purposes of computing net income per limited partner unit for the three and nine months ended September 30, 2008 (in thousands, except per unit data):
|
|
Three months ended September 30, 2008 |
|
||||||||||
|
|
|
|
Limited |
|
General Partner Interest |
|
||||||
|
|
|
|
Partner |
|
General |
|
|
|
||||
Numerator: |
|
Total |
|
Interest |
|
Partner |
|
IDRs |
|
||||
Net income |
|
$ |
1,007 |
|
$ |
940 |
|
$ |
67 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Declared distribution |
|
$ |
6,534 |
|
$ |
6,372 |
|
$ |
112 |
|
$ |
50 |
|
Assumed allocation of undistributed net income |
|
(5,527 |
) |
(5,432 |
) |
(95 |
) |
|
|
||||
Assumed allocation of net income |
|
$ |
1,007 |
|
$ |
940 |
|
$ |
17 |
|
$ |
50 |
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
||||
Basic weighted average limited partner units outstanding |
|
|
|
13,071 |
|
|
|
|
|
||||
Diluted weighted average limited partner units outstanding |
|
|
|
13,071 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Basic net income per limited partner unit |
|
|
|
$ |
0.07 |
|
|
|
|
|
|||
Diluted net income per limited partner unit |
|
|
|
$ |
0.07 |
|
|
|
|
|
|
|
Nine months ended September 30, 2008 |
|
||||||||||
|
|
|
|
Limited |
|
General Partner Interest |
|
||||||
|
|
|
|
Partner |
|
General |
|
|
|
||||
Numerator: |
|
Total |
|
Interest |
|
Partner |
|
IDRs |
|
||||
Net income |
|
$ |
8,372 |
|
$ |
8,078 |
|
$ |
294 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Declared distribution |
|
$ |
19,602 |
|
$ |
19,116 |
|
$ |
336 |
|
$ |
150 |
|
Assumed allocation of undistributed net income |
|
(11,230 |
) |
(11,038 |
) |
(192 |
) |
|
|
||||
Assumed allocation of net income |
|
$ |
8,372 |
|
$ |
8,078 |
|
$ |
144 |
|
$ |
150 |
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
||||
Basic weighted average limited partner units outstanding |
|
|
|
13,071 |
|
|
|
|
|
||||
Diluted weighted average limited partner units outstanding |
|
|
|
13,071 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Basic net income per limited partner unit |
|
|
|
$ |
0.62 |
|
|
|
|
|
|||
Diluted net income per limited partner unit |
|
|
|
$ |
0.62 |
|
|
|
|
|
8
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Comprehensive Income
The components of comprehensive income consisted of the following (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Net income |
|
$ |
2,059 |
|
$ |
1,007 |
|
$ |
21,900 |
|
$ |
8,372 |
|
Change in fair value of interest rate collars |
|
(674 |
) |
(251 |
) |
2,741 |
|
(367 |
) |
||||
Change in pension liability |
|
696 |
|
(756 |
) |
1,047 |
|
(1,537 |
) |
||||
Total comprehensive income |
|
$ |
2,081 |
|
$ |
|
|
$ |
25,688 |
|
$ |
6,468 |
|
Note 4. Inventories
The Partnership hedges substantially all of its inventory purchases through futures contracts and swap agreements. Hedges are executed when inventory is purchased and are identified with that specific inventory. Changes in the fair value of these contracts, as well as the offsetting gain or loss on the hedged inventory item, are recognized in earnings as an increase or decrease in cost of sales. All hedged inventory is valued using the lower of cost, as determined by specific identification, or market. Prior to sale, hedges are removed from specific barrels of inventory, and the then unhedged inventory is sold and accounted for on a first-in, first-out basis.
Inventories consisted of the following (in thousands):
|
|
September 30, |
|
December 31, |
|
||
Distillates: home heating oil, diesel and kerosene |
|
$ |
327,982 |
|
$ |
160,000 |
|
Residual oil |
|
19,652 |
|
24,878 |
|
||
Gasoline |
|
56,055 |
|
40,183 |
|
||
Blend stock |
|
16,612 |
|
15,285 |
|
||
Total |
|
$ |
420,301 |
|
$ |
240,346 |
|
In addition to its own inventory, the Partnership has exchange agreements with unrelated third-party suppliers, whereby it may draw inventory from these other suppliers and suppliers may draw inventory from the Partnership. Positive exchange balances are accounted for as accounts receivable and amounted to $14.4 million and $14.8 million at September 30, 2009 and December 31, 2008, respectively. Negative exchange balances are accounted for as accounts payable and amounted to $12.9 million and $8.4 million at September 30, 2009 and December 31, 2008, respectively. Exchange transactions are valued using current quoted market prices.
Note 5. Derivative Financial Instruments
Accounting and reporting guidance for derivative instruments and hedging activities requires that an entity recognize derivatives as either assets or liabilities on the balance sheet and measure the instruments at fair value. Changes in the fair value of the derivative are to be recognized currently in earnings, unless specific hedge accounting criteria are met.
On January 1, 2009, the Partnership adopted additional guidance issued by the FASB which requires the Partnership to provide enhanced disclosures about (a) how and why the Partnership uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for, and (c) how derivative instruments and related hedged items affect the Partnerships financial position, financial performance and cash flows.
9
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
The following table presents the volume of activity related to the Partnerships derivative financial instruments at September 30, 2009:
|
|
Units(1) |
|
Unit of Measure |
|
|
Oil Contracts |
|
|
|
|
|
|
Long |
|
12,570 |
|
Thousands of barrels |
|
|
Short |
|
(16,751 |
) |
Thousands of barrels |
|
|
|
|
|
|
|
|
|
Natural Gas Contracts |
|
|
|
|
|
|
Long |
|
16,753 |
|
Thousands of decatherms |
|
|
Short |
|
(16,753 |
) |
Thousands of decatherms |
|
|
|
|
|
|
|
|
|
Interest Rate Collars |
|
$ |
200 |
|
Thousands of dollars |
|
(1) Number of open positions and gross notional amounts do not quantify risk or represent assets or liabilities of the Partnership, but are used in the calculation of cash settlements under the contracts.
Fair Value Hedges
The fair value of the Partnerships derivatives is determined through the use of independent markets and is based upon the prevailing market prices of such instruments at the date of valuation. The Partnership enters into futures contracts for the receipt or delivery of refined petroleum products in future periods. The contracts are entered into in the normal course of business to reduce risk of loss of inventory on hand, which could result through fluctuations in market prices. Changes in the fair value of these contracts, as well as the offsetting gain or loss on the hedged inventory item, are recognized in earnings as an increase or decrease in cost of sales. Ineffectiveness related to these hedging activities was immaterial at September 30, 2009.
The Partnership also uses futures contracts and swap agreements to hedge exposure under forward purchase and sale commitments. These agreements are intended to hedge the cost component of virtually all of the Partnerships forward purchase and sale commitments. Changes in the fair value of these contracts, as well as offsetting gains or losses on the forward fixed price purchase and sale commitments, are recognized in earnings as an increase or decrease in cost of sales. Gains and losses on net product margin from forward fixed price purchase and sale contracts are reflected in earnings as an increase or decrease in cost of sales as these contracts mature. Ineffectiveness related to these hedging activities was immaterial at September 30, 2009.
10
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
The following table presents the gross fair values of the Partnerships derivative instruments and firm commitments and their location in the Partnerships consolidated balance sheets at September 30, 2009 and December 31, 2008 (in thousands):
|
|
Assets |
|
Liabilities |
|
||||||||||||
|
|
|
|
September 30, |
|
December 31, |
|
|
|
September 30, |
|
December 31, |
|
||||
|
|
Balance Sheet |
|
2009 |
|
2008 |
|
Balance Sheet |
|
2009 |
|
2008 |
|
||||
Derivatives |
|
Location (Net) |
|
Fair Value |
|
Fair Value |
|
Location (Net) |
|
Fair Value |
|
Fair Value |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives designated as hedging instruments and firm commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Oil product contracts(1) |
|
(2) |
|
$ |
34,455 |
|
$ |
207,370 |
|
(3) |
|
$ |
43,737 |
|
$ |
49,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Oil product and natural gas contracts |
|
(2) |
|
8,262 |
|
14,606 |
|
Accrued expenses and other current liabilities |
|
7,450 |
|
14,666 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total derivatives |
|
|
|
$ |
42,717 |
|
$ |
221,976 |
|
|
|
$ |
51,187 |
|
$ |
64,306 |
|
(1) |
|
Includes forward fixed price purchase and sale contracts as recognized in the Partnerships consolidated balance sheets at September 30, 2009 and December 31, 2008. |
(2) |
|
Fair value of forward fixed price contracts, prepaid expenses and other current assets and accrued and other current liabilities |
(3) |
|
Obligations on forward fixed price contracts and accrued expenses and other current liabilities |
The following table presents the amount of gains and losses from derivatives involved in fair value hedging relationships recognized in the Partnerships consolidated statements of income for the three and nine months ended September 30, 2009 and 2008 (in thousands):
|
|
|
|
Amount of Gain (Loss) |
|
|
|
Location of |
|
Amount of Gain (Loss) |
|
||||||||
|
|
Location of |
|
Recognized in Income |
|
Hedged |
|
Gain (Loss) |
|
Recognized in Income |
|
||||||||
Derivatives in |
|
Gain (Loss) |
|
on Derivatives |
|
Items in |
|
Recognized in |
|
on Hedged Items |
|
||||||||
Fair Value |
|
Recognized in |
|
Three Months Ended |
|
Fair Value |
|
Income on |
|
Three Months Ended |
|
||||||||
Hedging |
|
Income on |
|
September 30, |
|
September 30, |
|
Hedge |
|
Related |
|
September 30, |
|
September30, |
|
||||
Relationship |
|
Derivative |
|
2009 |
|
2008 |
|
Relationships |
|
Hedged Item |
|
2009 |
|
2008 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Oil product contracts |
|
Cost of sales |
|
$ |
(876 |
) |
$ |
96,559 |
|
Inventories and forward fixed price contracts |
|
Cost of sales |
|
$ |
879 |
|
$ |
(96,945 |
) |
11
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
|
|
|
|
Amount of Gain (Loss) |
|
|
|
Location of |
|
Amount of Gain (Loss) |
|
||||||||
|
|
Location of |
|
Recognized in Income |
|
Hedged |
|
Gain (Loss) |
|
Recognized in Income |
|
||||||||
Derivatives in |
|
Gain (Loss) |
|
on Derivatives |
|
Items in |
|
Recognized in |
|
on Hedged Items |
|
||||||||
Fair Value |
|
Recognized in |
|
Nine Months Ended |
|
Fair Value |
|
Income on |
|
Nine Months Ended |
|
||||||||
Hedging |
|
Income on |
|
September 30, |
|
September 30, |
|
Hedge |
|
Related |
|
September 30, |
|
September30, |
|
||||
Relationship |
|
Derivative |
|
2009 |
|
2008 |
|
Relationships |
|
Hedged Item |
|
2009 |
|
2008 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Oil product contracts |
|
Cost of sales |
|
$ |
(200,478 |
) |
$ |
13,673 |
|
Inventories and forward fixed price contracts |
|
Cost of sales |
|
$ |
201,126 |
|
$ |
(13,745 |
) |
The Partnerships derivative financial instruments do not contain credit-risk-related or other contingent features that could cause accelerated payments when these financial instruments are in net liability positions.
The table below presents the composition and fair value of forward fixed price purchase and sale contracts on the Partnerships consolidated balance sheet being hedged by the following derivative instruments (in thousands):
|
|
September 30, |
|
December 31, |
|
||
Futures contracts, net |
|
$ |
(5,760 |
) |
$ |
138,741 |
|
Swaps and other, net |
|
(2,431 |
) |
15,092 |
|
||
Total |
|
$ |
(8,191 |
) |
$ |
153,833 |
|
The total balances of $(8.2 million) and $153.8 million reflect the fair value of the forward fixed price contract (liability)/asset net of the corresponding asset/(liability) on the accompanying consolidated balance sheets at September 30, 2009 and December 31, 2008, respectively.
The Partnership also markets and sells natural gas. The Partnership generally conducts business by entering into forward purchase commitments for natural gas only when it simultaneously enters into arrangements for the sale of product for physical delivery to third-party users. The Partnership generally takes delivery under its purchase commitments at the same location as it delivers to third-party users. Through these transactions, which establish an immediate margin, the Partnership seeks to maintain a position that is substantially balanced between firm forward purchase and sales commitments. Natural gas is generally purchased and sold at fixed prices and quantities. Current price quotes from actively traded markets are used in all cases to determine the contracts fair value. Changes in the fair value of these contracts are recognized in earnings as an increase or decrease in cost of sales.
The Partnership formally documents all relationships between hedging instruments and hedged items after its risk management objectives and strategy for undertaking the hedge are determined. The Partnership calculates hedge effectiveness on a quarterly basis. This process includes specific identification of the hedging instrument and the hedged transaction, the nature of the risk being hedged and how the hedging instruments effectiveness will be assessed. Both at the inception of the hedge and on an ongoing basis, the Partnership assesses whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair value of hedged items. The derivative instruments that qualify for hedge accounting are fair value hedges.
The Partnership has a daily margin requirement with its broker based on the prior days market results on open futures contracts. The required brokerage margin balance was $5 thousand and $9.0 million at September 30, 2009 and December 31, 2008, respectively.
12
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 of forward purchase and sale commitments, futures contracts, options and swap agreements, but the Partnership has no current reason to expect any material nonperformance by any of these counterparties. Futures contracts, the primary derivative instrument utilized by the Partnership, are traded on regulated exchanges, greatly reducing potential credit risks. The Partnership utilizes primarily one clearing broker, a major financial institution, for all New York Mercantile Exchange (NYMEX) derivative transactions and the right of offset exists. Accordingly, the fair value of all derivative instruments is presented on a net basis on the consolidated balance sheets. Exposure on forward purchase and sale commitments, swap and certain option agreements is limited to the amount of the recorded fair value as of the balance sheet dates.
The Partnership generally enters into master netting arrangements to mitigate counterparty credit risk with respect to its derivatives. Master netting arrangements are standardized contracts that govern all specified transactions with the same counterparty and allow the Partnership to terminate all contracts upon occurrence of certain events, such as a counterpartys default or bankruptcy. Because these arrangements provide the right of offset, and the Partnerships intent and practice is to offset amounts in the case of contract terminations, the Partnership records fair value of derivative positions on a net basis in accordance with guidance issued by the FASB.
Cash Flow Hedges
The Partnership links all hedges that are designated as cash flow hedges to forecasted transactions. To the extent such hedges are effective, the changes in the fair value of the derivative instrument is reported as a component of other comprehensive income and reclassified into interest expense in the same period during which the hedged transaction affects earnings.
The Partnership executed two zero premium interest rate collars with major financial institutions. Each collar is designated as a cash flow hedge and accounted for in accordance with guidance issued by the FASB. The first collar, which became effective on May 14, 2007 and expires on May 14, 2011, is used to hedge the variability in interest payments due to changes in the three-month LIBOR rate with respect to $100.0 million of three-month LIBOR-based borrowings. Under the first collar, the Partnership capped its exposure at a maximum three-month LIBOR rate of 5.75% and established a minimum floor rate of 3.75%. As of September 30, 2009, the three-month LIBOR rate of 0.45% was lower than the floor rate. As a result, in November 2009, the Partnership will remit to the respective financial institution the difference between the floor rate and the current rate which amounted to approximately $440,000 and, at September 30, 2009, was recorded in accrued expenses and other current liabilities on the accompanying consolidated balance sheet. As of September 30, 2009, the fair value of the first collar was a liability of approximately $4.4 million and was recorded in both other long-term liabilities and accumulated other comprehensive income. Hedge effectiveness was assessed at inception and is assessed quarterly, prospectively and retrospectively. The changes in the fair value of the first collar are expected to be highly effective in offsetting the changes in interest rate payments attributable to fluctuations in the three-month LIBOR rate above and below the first collars strike rates. Ineffectiveness related to the first collar was immaterial at September 30, 2009.
On September 29, 2008, the Partnership executed its second zero premium interest rate collar. The second collar, which became effective on October 2, 2008 and expires on October 2, 2013, is used to hedge the variability in cash flows in monthly interest payments made on the Partnerships $100.0 million one-month LIBOR-based borrowings (and subsequent refinancings thereof) due to changes in the one-month LIBOR rate. Under the second collar, the Partnership capped its exposure at a maximum one-month LIBOR rate of 5.50% and established a minimum floor rate of 2.70%. As of September 30, 2009, the one-month LIBOR rate of 0.26% was lower than the floor rate. As a result, in October 2009, the Partnership remitted to the respective financial institution the difference between the floor rate and the current rate which amounted to approximately $196,700 and, at September 30, 2009, was recorded in accrued expenses and other current liabilities on the accompanying consolidated balance sheet. As of September 30, 2009, the fair value of the second collar was a liability of approximately $3.7 million and was recorded in both other long-term liabilities and
13
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
accumulated other comprehensive income in the accompanying consolidated balance sheet. Hedge effectiveness was assessed at inception and is assessed quarterly, prospectively and retrospectively, using the regression analysis. The changes in the fair value of the second collar are expected to be highly effective in offsetting the changes in interest rate payments attributable to fluctuations in the one-month LIBOR rate above and below the second collars strike rates. Ineffectiveness related to the second collar was immaterial at September 30, 2009.
The following table presents the fair value of the Partnerships derivative instruments and their location in the Partnerships consolidated balance sheets at September 30, 2009 and December 31, 2008 (in thousands):
|
|
Assets |
|
Liabilities |
|
||||||||||||
|
|
|
|
September 30, |
|
December 31, |
|
|
|
September 30, |
|
December 31, |
|
||||
|
|
Balance Sheet |
|
2009 |
|
2008 |
|
Balance Sheet |
|
2009 |
|
2008 |
|
||||
Derivatives |
|
Location |
|
Fair Value |
|
Fair Value |
|
Location |
|
Fair Value |
|
Fair Value |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate collars |
|
|
|
$ |
|
|
$ |
|
|
Other long-term liabilities |
|
$ |
8,105 |
|
$ |
10,846 |
|
The following table presents the amount of gains and losses from derivatives involved in cash flow hedging relationships recognized in the Partnerships consolidated statements of income for the three and nine months ended September 30, 2009 and 2008 (in thousands):
|
|
|
|
|
|
Recognized in Income |
|
||||||
|
|
|
|
|
|
on Derivatives |
|
||||||
|
|
Amount of Gain (Loss) |
|
(Ineffectiveness Portion |
|
||||||||
|
|
Recognized in Other |
|
and Amount Excluded |
|
||||||||
|
|
Comprehensive Income |
|
from Effectiveness |
|
||||||||
|
|
on Derivatives |
|
Testing) |
|
||||||||
Derivatives in |
|
Three Months Ended |
|
Three Months Ended |
|
||||||||
Cash Flow |
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
|
||||
Hedging Relationship |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest rate collars |
|
$ |
(674 |
) |
$ |
(251 |
) |
$ |
|
|
$ |
|
|
|
|
|
|
|
|
Recognized in Income |
|
||||||
|
|
|
|
|
|
on Derivatives |
|
||||||
|
|
Amount of Gain (Loss) |
|
(Ineffectiveness Portion |
|
||||||||
|
|
Recognized in Other |
|
and Amount Excluded |
|
||||||||
|
|
Comprehensive Income |
|
from Effectiveness |
|
||||||||
|
|
on Derivatives |
|
Testing) |
|
||||||||
Derivatives in |
|
Nine Months Ended |
|
Nine Months Ended |
|
||||||||
Cash Flow |
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
|
||||
Hedging Relationship |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest rate collars |
|
$ |
2,741 |
|
$ |
(367 |
) |
$ |
|
|
$ |
|
|
Ineffectiveness related to the interest rate collars is recognized as interest expense and was immaterial at September 30, 2009. The effective portion related to the interest rate collars that was originally reported in other comprehensive income and reclassified to earnings was $1.4 million and $3.7 million for the three and nine months ended September 30, 2009, respectively.
14
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
Derivatives Not Involved in a Hedging Relationship
While the Partnership seeks to maintain a position that is substantially balanced within its product purchase activities, it may experience net unbalanced positions for short periods of time as a result of variances in daily sales and transportation and delivery schedules as well as logistical issues associated with inclement weather conditions. In connection with managing these positions and maintaining a constant presence in the marketplace, both necessary for its business, the Partnership engages in a controlled trading program for up to an aggregate of 250,000 barrels of refined petroleum products at any one point in time.
The following table presents the amount of gains and losses from derivatives not involved in a hedging relationship recognized in the Partnerships consolidated statements of income for the three and nine months ended September 30, 2009 and 2008 (in thousands):
|
|
|
|
Amount of Gain (Loss) |
|
Amount of Gain (Loss) |
|
||||||||
|
|
Location of |
|
Recognized in Income |
|
Recognized in Income |
|
||||||||
|
|
Gain (Loss) |
|
on Derivatives |
|
on Derivatives |
|
||||||||
|
|
Recognized in |
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
Derivatives Not Designated as |
|
Income on |
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
|
||||
Hedging Instruments |
|
Derivatives |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Oil product contracts |
|
Cost of sales |
|
$ |
2,402 |
|
$ |
3,030 |
|
$ |
8,154 |
|
$ |
7,533 |
|
Note 6. Debt
The Partnership has a senior secured credit agreement (the Credit Agreement) with total available commitments of $750.0 million. There are three 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 Partnerships borrowing base and $650.0 million; the $650.0 million includes two $50.0 million seasonal overline facilities that are available each year only during the period between September 1 and June 30;
· an $85.0 million acquisition facility to be used for funding acquisitions similar to the Partnerships business line that have a purchase price of $25.0 million or less or $35.0 million or less in the aggregate in any 12-month period; and
· a $15.0 million revolving credit facility to be used for general purposes, including payment of distributions to the Partnerships unitholders.
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: (1) the acquisition facility by up to another $50.0 million, for a total acquisition facility of up to $135.0 million; and (2) the working capital revolving credit facility by up to another $200.0 million, for a total working capital revolving credit facility of up to $850.0 million. Any such request for an increase by the Partnership must be in a minimum amount of $5.0 million, and no more than three such requests may be made for each facility. The Partnership, however, cannot provide assurance that its lending group will agree to fund any request by the Partnership for additional amounts in excess of the total available commitments of $750.0 million.
15
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Debt (continued)
Availability under the Partnerships working capital revolving credit facility is subject to a borrowing base which is redetermined from time to time and based on specific advance rates on eligible current assets. Under the Credit Agreement, the Partnership can borrow only up to the level of its then current borrowing base. Availability under the Partnerships borrowing base may be affected by events beyond the Partnerships control, such as changes in refined petroleum product prices, collection cycles, counterparty performance, advance rates and limits and deteriorating economic conditions. These and other events could require the Partnership to seek waivers or amendments of covenants or alternative sources of financing or to reduce expenditures. The Partnership can provide no assurance that such waivers, amendments or alternative financing could be obtained or, if obtained, would be on terms acceptable to the Partnership.
During the period from January 1, 2008 through July 20, 2008, borrowings under the Partnerships working capital revolving credit, acquisition and revolving credit facilities bore interest at the Partnerships option at (1) the Eurodollar rate, plus 1%, 1½% and 1½%, respectively, (2) the cost of funds rate, plus 1%, 1¾% and 1½%, respectively, or (3) the banks base rate.
Commencing July 21, 2008, borrowings under the working capital revolving credit facility bear interest at (1) the Eurodollar rate plus 1.75% to 2.25%, (2) the cost of funds rate plus 1.75% to 2.25%, or (3) the base rate plus 0.75% to 1.25%, each depending on the pricing level provided in the Credit Agreement, as amended, which in turn depends upon the Combined Interest Coverage Ratio (as such term is defined in the Credit Agreement). Commencing July 21, 2008, borrowings under the acquisition and revolving credit facilities bear interest at (1) the Eurodollar rate plus 2.25% to 2.75%, (2) the cost of funds rate plus 1.75% to 2.25%, or (3) the base rate plus 0.75% to 1.25%, each depending on the pricing level provided in the Credit Agreement, as amended, which in turn depends upon the Combined Interest Coverage Ratio. The average interest rates were approximately 3.5% and 4.5% for the three months ended September 30, 2009 and 2008, respectively, and 3.7% and 4.3% for the nine months ended September 30, 2009 and 2008, respectively.
In addition, the Partnership executed two zero premium interest rate collars with major financial institutions. The first collar, which became effective on May 14, 2007, is used to hedge the variability in interest payments due to changes in the three-month LIBOR rate with respect to $100.0 million of three-month LIBOR-based borrowings. The second collar, which became effective on October 2, 2008, is used to hedge the variability in cash flows in monthly interest payments made on the Partnerships $100.0 million one-month LIBOR-based borrowings (and subsequent refinancings thereof) due to changes in the one-month LIBOR rate (see Note 5 for further discussion on the interest rate collars).
The Partnership incurs a letter of credit fee of 1.75% per annum for each letter of credit issued. In addition, the Partnership incurs a commitment fee on the unused portion of the three facilities under the Credit Agreement (including the unused portion of either of the seasonal overline facilities exercised by the Partnership) equal to 0.3% to 0.375% per annum, depending on the pricing level and the Combined Interest Coverage Ratio provided in the Credit Agreement. The Partnership also incurs a facility fee of 0.1% per annum on any unexercised seasonal overline facility during the period between September 1 and June 30 and a seasonal overline fee of $30,000 each time the Partnership elects to exercise either of the seasonal overline facilities.
The Credit Agreement will mature on April 22, 2011. The Partnership classifies a portion of its working capital revolving credit facility as a long-term liability because the Partnership has a multi-year, long-term commitment from its bank group. The long-term portion of the working capital revolving credit facility was $254.2 million and $154.1 million at September 30, 2009 and December 31, 2008, respectively, representing the amounts expected to be outstanding during the year. In addition, the Partnership classifies a portion of its working capital revolving credit facility as a current liability because it repays amounts outstanding and reborrows funds based on its working capital requirements. The current portion of the working capital revolving credit facility was approximately $113.5 million and $208.2 million at September 30, 2009 and December 31, 2008, respectively, representing the amounts the Partnership expects to pay down during the course of the year.
16
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Debt (continued)
As of September 30, 2009, the Partnership had total borrowings outstanding under the Credit Agreement of $438.9 million, including $71.2 million outstanding on the acquisition facility. In addition, the Partnership had outstanding letters of credit of $64.5 million. The total remaining availability for borrowings and letters of credit at September 30, 2009 and December 31, 2008 was $246.6 million and $211.3 million, respectively.
The Credit Agreement is secured by substantially all of the assets of the Partnership and each of the Companies and is guaranteed by the General Partner. The Credit Agreement imposes certain requirements including, for example, a prohibition against distributions if any potential default or Event of Default (as defined in the Credit Agreement) would occur, and limitations on the Partnerships 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 Partnerships business or undergo a fundamental change, make any material dispositions, acquire another company, enter into a merger, consolidation, sale leaseback transaction or purchase of assets, or make capital expenditures in excess of specified levels.
The Credit Agreement imposes financial covenants that require the Partnership to maintain certain minimum working capital amounts, capital expenditure limits, a minimum EBITDA ratio, a minimum combined interest coverage ratio and a maximum leverage ratio. The Partnership was in compliance with the foregoing covenants at September 30, 2009. 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).
The Credit Agreement also requires that in each calendar year, the outstanding amount under the working capital revolving credit facility must be equal to or less than $263.0 million for a period of ten consecutive calendar days. The Partnership has complied with this provision for the year ending December 31, 2009.
The Credit Agreement limits distributions by the Partnership to its unitholders to the amount of the Partnerships available cash and permits borrowings to fund such distributions only under the $15.0 million revolving credit facility. The revolving credit facility is subject to an annual clean-down period, requiring the Partnership to reduce the amount outstanding under the revolving credit facility to $0 for 30 consecutive calendar days in each calendar year. The Partnership has complied with this provision for the year ending December 31, 2009.
The lending group under the Credit Agreement includes the following institutions: Bank of America, N.A.; Standard Chartered Bank; JPMorgan Chase Bank, N.A.; Societe Generale; RBS Citizens, National Association; Sovereign Bank; Fortis Capital Corp.; Webster Bank National Association; KeyBank National Association; TD Bank, N.A. (f/k/a TD BankNorth, N.A.); Wells Fargo Bank, N.A.; Wachovia Bank, National Association; and Calyon New York Branch.
17
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7. Employee Benefit Plan with Related Party
The General Partner employs substantially all of the Partnerships employees and charges the Partnership for their services. The Partnership also reimburses the General Partner for its contributions under the General Partners 401(k) Savings and Profit Sharing Plan and the General Partners qualified and non-qualified pension plans. The Partnerships net periodic benefit cost for the defined benefit pension plan consisted of the following components (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Service cost |
|
$ |
325 |
|
$ |
265 |
|
$ |
975 |
|
$ |
796 |
|
Interest cost |
|
230 |
|
200 |
|
687 |
|
600 |
|
||||
Expected return on plan assets |
|
(161 |
) |
(166 |
) |
(482 |
) |
(496 |
) |
||||
Recognized net actuarial loss |
|
48 |
|
1 |
|
144 |
|
1 |
|
||||
Net periodic benefit cost |
|
$ |
442 |
|
$ |
300 |
|
$ |
1,324 |
|
$ |
901 |
|
Note 8. Related Party Transactions
The Partnership is a party to a Second Amended and Restated Terminal Storage Rental and Throughput Agreement with Global Petroleum Corp. (GPC), an affiliate of the Partnership, which extends through December 2013 with annual renewal options thereafter. The agreement is accounted for as an operating lease. The expenses under this agreement totaled approximately $2.1 million and $2.2 million for the three months ended September 30, 2009 and 2008, respectively, and approximately $6.3 million and $6.4 million for the nine months ended September 30, 2009 and 2008, respectively.
Pursuant to an Amended and Restated Services Agreement with GPC, GPC provides certain terminal operating management services to the Partnership and uses certain administrative, accounting and information processing services of the Partnership. The expenses from these services totaled approximately $18,500 and $21,500 for the three months ended September 30, 2009 and 2008, respectively, and approximately $55,000 and $64,500 for the nine months ended September 30, 2009 and 2008, respectively. These charges were recorded in selling, general and administrative expenses in the accompanying consolidated statements of income. The agreement is for an indefinite term, and either party may terminate its receipt of some or all of the services thereunder upon 180 days notice at any time after January 1, 2009. As of September 30, 2009, no such notice of termination was given by either party.
Pursuant to the Partnerships Amended and Restated Services Agreement with Alliance Energy LLC (formerly known as Alliance Energy Corp.) (Alliance), the Partnership also provides certain administrative, accounting and information processing services, and the use of certain facilities, to Alliance, an affiliate of the Partnership that is wholly owned by AE Holdings Corp., which is approximately 95% owned by members of the Slifka family. The income from these services was approximately $95,500 and $216,500 for the three months ended September 30, 2009 and 2008, respectively, and $286,500 and $649,500 for the nine months ended September 30, 2009 and 2008, respectively. These fees were recorded as an offset to selling, general and administrative expenses in the accompanying consolidated statements of income. The agreement extends through January 1, 2010.
The Partnership sells refined petroleum products to Alliance at prevailing market prices at the time of delivery. Sales to Alliance were approximately $5.7 million for each of the three months ended September 30, 2009 and 2008, and $12.3 million and $25.1 million for the nine months ended September 30, 2009 and 2008, respectively.
18
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8. Related Party Transactions (continued)
The General Partner employs substantially all of the Partnerships employees and charges the Partnership for their services. The expenses for the three months ended September 30, 2009 and 2008, including payroll, payroll taxes and bonus accruals, were $9.2 million and $6.5 million, respectively, and $29.1 million and $20.9 million for the nine months ended September 30, 2009 and 2008, respectively. The Partnership also reimburses the General Partner for its contributions under the General Partners 401(k) Savings and Profit Sharing Plan and the General Partners qualified and non-qualified pension plans.
The table below presents trade receivables with Alliance, receivables incurred in connection with the services agreements between Alliance and the Partnership and GPC and the Partnership, as the case may be, and receivables from the General Partner (in thousands):
|
|
September 30, |
|
December 31, |
|
||
Receivables from Alliance |
|
$ |
1,251 |
|
$ |
383 |
|
Receivables from GPC |
|
207 |
|
325 |
|
||
Receivables from the General Partner (1) |
|
3,263 |
|
1,810 |
|
||
Total |
|
$ |
4,721 |
|
$ |
2,518 |
|
(1) Receivables from the General Partner reflect the Partnerships prepayment of payroll taxes and payroll accruals to the General Partner.
Note 9. Cash Distributions
The Partnership intends to consider regular cash distributions to unitholders on a quarterly basis, although there is no assurance as to the future cash distributions since they are dependent upon future cash flows, 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 at the end of the quarter; plus all cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made after the end of the quarter; less the amount of cash reserves established by the General Partner to provide for the proper conduct of the Partnerships business, to comply with applicable law, any of the Partnerships debt instruments, or other agreements or to provide funds for distributions to unitholders and to the General Partner for any one or more of the next four quarters. Working capital borrowings are generally borrowings that are made under the Credit Agreement and in all cases are used solely for working capital purposes or to pay distributions to partners.
The Partnership will make distributions of available cash from operating surplus for any quarter during the subordination period as defined in its partnership agreement in the following manner: firstly, 98.27% to the common unitholders, pro rata, and 1.73% to the General Partner, until the Partnership distributes for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter; secondly, 98.27% to the common unitholders, pro rata, and 1.73% to the General Partner, until the Partnership distributes for each outstanding common unit an amount equal to any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period; thirdly, 98.27% to the subordinated unitholders, pro rata, and 1.73% to the General Partner, until the Partnership distributes for each subordinated unit an amount equal to the minimum quarterly distribution for that quarter; and thereafter, cash in excess of the minimum quarterly distributions is distributed to the unitholders and the General Partner, as the holder of the incentive distribution rights, based on the percentages as provided below.
19
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Cash Distributions (continued)
As the holder of the incentive distribution rights, 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 |
|
|||
|
|
Target Amount |
|
Unitholders |
|
General Partner |
|
|
Minimum Quarterly Distribution |
|
$0.4125 |
|
98.27% |
|
1.73 |
% |
|
First Target Distribution |
|
Up to $0.4625 |
|
98.27% |
|
1.73 |
% |
|
Second Target Distribution |
|
above $0.4625 up to $0.5375 |
|
85.27% |
|
14.73 |
% |
|
Third Target Distribution |
|
above $0.5375 up to $0.6625 |
|
75.27% |
|
24.73 |
% |
|
Thereafter |
|
above $0.6625 |
|
50.27% |
|
49.73 |
% |
|
The Partnership paid the following cash distribution during 2009 (in thousands, except per unit data):
Cash |
|
Per Unit |
|
Common |
|
Subordinated |
|
General |
|
Incentive Distribution |
|
Total Cash |
|
02/13/09(1) |
|
$0.4875 |
|
$3,621 |
|
$2,751 |
|
$112 |
|
$ 50 |
|
$ 6,534 |
|
05/15/09(2) |
|
$0.4875 |
|
$3,621 |
|
$2,751 |
|
$112 |
|
$ 50 |
|
$ 6,534 |
|
08/14/09(3) |
|
$0.4875 |
|
$3,621 |
|
$2,751 |
|
$112 |
|
$ 50 |
|
$ 6,534 |
|
(1) This distribution of $0.4875 per unit resulted in the Partnership reaching its second target distribution for the fourth quarter of 2008. As a result, the General Partner, as the holder of the IDRs, received this additional incentive distribution.
(2) This distribution of $0.4875 per unit resulted in the Partnership reaching its second target distribution for the first quarter of 2009. As a result, the General Partner, as the holder of the IDRs, received this additional incentive distribution.
(3) This distribution of $0.4875 per unit resulted in the Partnership reaching its second target distribution for the second quarter of 2009. As a result, the General Partner, as the holder of the IDRs, received this additional incentive distribution.
In addition, on October 21, 2009, the board of directors of the General Partner declared a quarterly cash distribution of $0.4875 per unit for the period from July 1, 2009 through September 30, 2009 ($1.95 per unit on an annualized basis). On November 13, 2009, the Partnership will pay this cash distribution to its common and subordinated unitholders of record as of the close of business November 4, 2009. This distribution will result in the Partnership reaching its second target distribution for the quarter ended September 30, 2009.
Note 10. Segment Reporting
The Partnership is a wholesale and commercial distributor of gasoline, distillates and residual oil whose business is organized within two operating segments, Wholesale and Commercial, based on the way the chief operating decision maker (CEO) manages the business and on the similarity of customers and expected long-term financial performance of each segment. The accounting policies of the segments are the same as those described in Note 2, Summary of Significant Accounting Policies, in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2008.
In the Wholesale segment, the Partnership sells gasoline, home heating oil, diesel, kerosene and residual oil to unbranded retail gasoline stations and other resellers of transportation fuels, home heating oil retailers and wholesale distributors. Generally, customers use their own vehicles or contract carriers to take delivery of the product at bulk terminals and inland storage facilities that the Partnership owns or controls or with which it has throughput arrangements.
20
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10. Segment Reporting (continued)
The Commercial segment includes (1) sales and deliveries of unbranded gasoline, home heating oil, diesel, kerosene, residual oil and small amounts of natural gas to customers in the public sector and to large commercial and industrial customers, either through a competitive bidding process or through contracts of various terms, and (2) sales of custom blended distillates and residual oil delivered by barges or from a terminal dock through bunkering activity. Commercial segment customers include federal and state agencies, municipalities, large industrial companies, many autonomous authorities such as transportation authorities and water resource authorities, colleges and universities and a limited group of small utilities. Unlike the Wholesale segment, in the Commercial segment, the Partnership generally arranges the delivery of the product to the customers designated location, typically hiring third-party common carriers to deliver the product.
The Partnership evaluates segment performance based on net product margins before allocations of corporate and indirect operating costs, depreciation, amortization (including non-cash charges) and interest. Based on the way the CEO manages the business, it is not reasonably possible for the Partnership to allocate the components of operating costs and expenses between the reportable segments. Additionally, due to the commingled nature and uses of the Partnerships assets, it is not reasonably possible for the Partnership to allocate assets between the two segments. There were no intersegment sales for any of the periods presented below.
Summarized financial information for the Partnerships reportable segments is presented in the table below (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Wholesale Segment: |
|
|
|
|
|
|
|
|
|
||||
Sales |
|
|
|
|
|
|
|
|
|
||||
Distillates |
|
$ |
329,362 |
|
$ |
677,381 |
|
$ |
1,741,038 |
|
$ |
3,164,368 |
|
Gasoline |
|
871,770 |
|
1,468,790 |
|
2,093,759 |
|
3,727,534 |
|
||||
Residual oil |
|
6,594 |
|
23,765 |
|
23,937 |
|
67,342 |
|
||||
Total |
|
$ |
1,207,726 |
|
$ |
2,169,936 |
|
$ |
3,858,734 |
|
$ |
6,959,244 |
|
Net product margin (1) |
|
|
|
|
|
|
|
|
|
||||
Distillates |
|
$ |
15,456 |
|
$ |
12,001 |
|
$ |
62,786 |
|
$ |
44,422 |
|
Gasoline |
|
10,999 |
|
13,554 |
|
34,912 |
|
32,522 |
|
||||
Residual oil |
|
1,814 |
|
412 |
|
6,928 |
|
7,542 |
|
||||
Total |
|
$ |
28,269 |
|
$ |
25,967 |
|
$ |
104,626 |
|
$ |
84,486 |
|
Commercial Segment: |
|
|
|
|
|
|
|
|
|
||||
Sales |
|
$ |
77,605 |
|
$ |
102,143 |
|
$ |
260,701 |
|
$ |
331,536 |
|
Net product margin (1) |
|
$ |
3,717 |
|
$ |
2,460 |
|
$ |
11,241 |
|
$ |
7,389 |
|
Combined sales and net product margin: |
|
|
|
|
|
|
|
|
|
||||
Sales |
|
$ |
1,285,331 |
|
$ |
2,272,079 |
|
$ |
4,119,435 |
|
$ |
7,290,780 |
|
Net product margin (1) |
|
$ |
31,986 |
|
$ |
28,427 |
|
$ |
115,867 |
|
$ |
91,875 |
|
Depreciation allocated to cost of sales |
|
2,713 |
|
2,499 |
|
8,091 |
|
7,658 |
|
||||
Combined gross profit |
|
$ |
29,273 |
|
$ |
25,928 |
|
$ |
107,776 |
|
$ |
84,217 |
|
(1) Net product margin is a non-GAAP financial measure used by management and external users of the Partnerships consolidated financial statements to assess the Partnerships business. The table above reconciles net product margin on a combined basis to gross profit, a directly comparable GAAP measure.
21
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10. Segment Reporting (continued)
A reconciliation of the totals reported for the reportable segments to the applicable line items in the consolidated financial statements is as follows (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Combined gross profit |
|
$ |
29,273 |
|
$ |
25,928 |
|
$ |
107,776 |
|
$ |
84,217 |
|
Operating costs and expenses not allocated to reportable segments: |
|
|
|
|
|
|
|
|
|
||||
Selling, general and administrative expenses |
|
13,859 |
|
10,457 |
|
45,233 |
|
31,712 |
|
||||
Operating expenses |
|
8,666 |
|
8,429 |
|
26,278 |
|
26,225 |
|
||||
Amortization expenses |
|
747 |
|
738 |
|
2,350 |
|
2,199 |
|
||||
Total operating costs and expenses |
|
23,272 |
|
19,624 |
|
73,861 |
|
60,136 |
|
||||
Operating income |
|
6,001 |
|
6,304 |
|
33,915 |
|
24,081 |
|
||||
Interest expense |
|
(3,742 |
) |
(5,297 |
) |
(10,940 |
) |
(15,414 |
) |
||||
Income tax expense |
|
(200 |
) |
|
|
(1,075 |
) |
(295 |
) |
||||
Net income |
|
$ |
2,059 |
|
$ |
1,007 |