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 June 30, 2011 |
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OR |
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o |
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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 |
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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 or organization) |
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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 Q No o |
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or | |
for such shorter period that the registrant was required to submit and post such files. |
Yes Q No o |
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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 |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
Yes o No Q |
The issuer had 21,580,563 common units outstanding as of August 1, 2011.
TABLE OF CONTENTS
GLOBAL PARTNERS LP
(In thousands, except unit data)
(Unaudited)
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June 30, |
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December 31, |
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2011 |
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2010 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
7,523 |
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$ |
2,361 |
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Accounts receivable, net |
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415,790 |
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553,066 |
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Accounts receivableaffiliates |
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1,307 |
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1,230 |
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Inventories |
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635,709 |
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586,831 |
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Brokerage margin deposits |
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36,057 |
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15,501 |
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Fair value of forward fixed price contracts |
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1,361 |
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1,942 |
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Prepaid expenses and other current assets |
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65,348 |
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36,714 |
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Total current assets |
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1,163,095 |
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1,197,645 |
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Property and equipment, net |
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413,405 |
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422,684 |
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Intangible assets, net |
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39,143 |
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40,065 |
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Other assets |
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13,533 |
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11,922 |
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Total assets |
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$ |
1,629,176 |
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$ |
1,672,316 |
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Liabilities and partners equity |
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Current liabilities: |
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Accounts payable |
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$ |
321,894 |
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$ |
443,469 |
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Working capital revolving credit facilitycurrent portion |
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102,683 |
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193,198 |
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Environmental liabilitiescurrent portion |
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2,973 |
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5,535 |
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Trustee taxes payable |
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69,578 |
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69,828 |
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Accrued expenses and other current liabilities |
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45,392 |
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30,494 |
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Obligations on forward fixed price contracts and other derivatives |
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1,196 |
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9,157 |
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Total current liabilities |
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543,716 |
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751,681 |
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Working capital revolving credit facilityless current portion |
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498,817 |
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293,502 |
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Revolving credit facility |
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205,000 |
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300,000 |
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Environmental liabilitiesless current portion |
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28,132 |
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28,970 |
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Other long-term liabilities |
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20,828 |
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21,347 |
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Total liabilities |
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1,296,493 |
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1,395,500 |
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Partners equity |
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Common unitholders (21,580,563 units issued and 21,575,823 units outstanding at June 30, 2011 and 13,293,139 units issued and 13,232,629 outstanding at December 31, 2010) |
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346,676 |
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292,267 |
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Subordinated unitholders (0 units issued and outstanding and 5,642,424 units issued and outstanding at June 30, 2011 and December 31, 2010, respectively) |
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(1,623 |
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General partner interest (1.06% and 1.20% interest with 230,303 equivalent units outstanding at June 30, 2011 and December 31, 2010, respectively) |
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(336 |
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(66 |
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Accumulated other comprehensive loss |
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(13,657 |
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(13,762 |
) | ||
Total partners equity |
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332,683 |
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276,816 |
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Total liabilities and partners equity |
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$ |
1,629,176 |
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$ |
1,672,316 |
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The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL PARTNERS LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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2011 |
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2010 |
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2011 |
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2010 |
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Sales |
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$ |
3,412,148 |
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$ |
1,534,701 |
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$ |
6,963,220 |
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$ |
3,499,446 |
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Cost of sales |
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3,367,577 |
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1,502,740 |
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6,862,399 |
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3,419,717 |
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Gross profit |
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44,571 |
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31,961 |
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100,821 |
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79,729 |
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Costs and operating expenses: |
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Selling, general and administrative expenses |
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18,809 |
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13,891 |
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39,919 |
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30,469 |
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Operating expenses |
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17,755 |
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9,803 |
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35,559 |
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18,462 |
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Amortization expenses |
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1,204 |
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734 |
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2,367 |
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1,425 |
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Total costs and operating expenses |
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37,768 |
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24,428 |
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77,845 |
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50,356 |
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Operating income |
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6,803 |
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7,533 |
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22,976 |
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29,373 |
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Interest expense |
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(7,651 |
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(4,374 |
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(15,531 |
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(8,438 |
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(Loss) income before income tax expense |
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(848 |
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3,159 |
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7,445 |
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20,935 |
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Income tax expense |
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(387 |
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Net (loss) income |
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(848 |
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3,159 |
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7,445 |
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20,548 |
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Less: General partners interest in net (loss) income, including incentive distribution rights |
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(113 |
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(107 |
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(313 |
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(446 |
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Limited partners interest in net (loss) income |
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$ |
(961 |
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$ |
3,052 |
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$ |
7,132 |
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$ |
20,102 |
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Basic net (loss) income per limited partner unit |
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$ |
(0.04 |
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$ |
0.18 |
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$ |
0.34 |
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$ |
1.32 |
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Diluted net (loss) income per limited partner unit |
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$ |
(0.04 |
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$ |
0.18 |
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$ |
0.34 |
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$ |
1.30 |
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Basic weighted average limited partner units outstanding |
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21,562 |
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16,917 |
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20,996 |
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15,260 |
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Diluted weighted average limited partner units outstanding |
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21,785 |
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17,155 |
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21,205 |
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15,496 |
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The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Six Months Ended |
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2011 |
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2010 |
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Cash flows from operating activities |
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Net income |
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$ |
7,445 |
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$ |
20,548 |
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Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
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Depreciation and amortization |
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15,106 |
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7,566 |
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Amortization of deferred financing fees |
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2,204 |
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1,008 |
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Bad debt expense |
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1,680 |
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280 |
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Stock-based compensation expense |
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277 |
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(49 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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135,596 |
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83,112 |
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Accounts receivable affiliate |
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(77 |
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(1,674 |
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Inventories |
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(48,878 |
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22,627 |
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Broker margin deposits |
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(20,556 |
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(1,767 |
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Prepaid expenses, all other current assets and other assets |
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(33,894 |
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(25,653 |
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Accounts payable |
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(121,575 |
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(40,846 |
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Income taxes payable |
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(1,179 |
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Trustee taxes payable |
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(250 |
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18,011 |
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Change in fair value of forward fixed price contracts |
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(7,380 |
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(16,658 |
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Accrued expenses, all other current liabilities and other long-term liabilities |
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11,018 |
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(14,762 |
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Net cash (used in) provided by operating activities |
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(59,284 |
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50,564 |
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Cash flows from investing activities |
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Terminal acquisition |
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(46,046 |
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Capital expenditures |
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(4,430 |
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(4,828 |
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Proceeds from sale of property and equipment |
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955 |
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43 |
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Net cash used in investing activities |
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(3,475 |
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(50,831 |
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Cash flows from financing activities |
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Proceeds from public offering, net |
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69,626 |
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84,584 |
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Borrowings from (payments on) credit facilities, net |
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19,800 |
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(65,400 |
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Repurchase of common units |
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(150 |
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Repurchased units withheld for tax obligations |
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(675 |
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(404 |
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Distributions to partners |
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(20,680 |
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(14,904 |
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Net cash provided by financing activities |
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67,921 |
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3,876 |
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Increase in cash and cash equivalents |
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5,162 |
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3,609 |
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Cash and cash equivalents at beginning of period |
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2,361 |
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662 |
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Cash and cash equivalents at end of period |
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$ |
7,523 |
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$ |
4,271 |
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Supplemental information |
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Cash paid during the period for interest |
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$ |
15,930 |
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$ |
8,200 |
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Non-cash conversion of subordinated unitholders |
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$ |
1,623 |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL PARTNERS LP
CONSOLIDATED STATEMENTS OF PARTNERS EQUITY
(In thousands)
(Unaudited)
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Accumulated |
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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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Balance at December 31, 2010 |
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$ |
292,267 |
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$ |
(1,623 |
) |
$ |
(66 |
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$ |
(13,762 |
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$ |
276,816 |
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Conversion of subordinated units to common units |
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(1,623 |
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1,623 |
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Proceeds from public offering, net |
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69,626 |
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69,626 |
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Stock-based compensation |
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277 |
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277 |
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Distributions to partners |
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(20,097 |
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(583 |
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(20,680 |
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Phantom unit dividends |
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(81 |
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(81 |
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Repurchase of common units |
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(150 |
) |
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(150 |
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Repurchased units withheld for tax obligations |
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(675 |
) |
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(675 |
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Comprehensive income: |
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Net income |
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7,132 |
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313 |
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7,445 |
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Other comprehensive income: |
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Change in fair value of cash flow hedges |
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180 |
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180 |
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Change in pension liability |
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(75 |
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(75 |
) | |||||
Total comprehensive income |
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7,550 |
| |||||
Balance at June 30, 2011 |
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$ |
346,676 |
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$ |
|
|
$ |
(336 |
) |
$ |
(13,657 |
) |
$ |
332,683 |
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The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization and Basis of Presentation
Organization
Global Partners LP (the Partnership) is a publicly traded master limited partnership that engages in the wholesale and commercial distribution of refined petroleum products, renewable fuels and small amounts of natural gas and also provides ancillary services to companies. The Partnership also receives revenue from retail sales of gasoline, convenience store sales and gas station rental income.
The Partnership has five operating subsidiaries: Global Companies LLC, its subsidiary, Glen Hes Corp., Global Montello Group Corp. (GMG), Chelsea Sandwich LLC and Global Energy Marketing LLC (Global Energy) (the five operating subsidiaries, collectively, the Companies). The Companies (other than Glen Hes Corp.) are wholly owned by Global Operating LLC, a wholly owned subsidiary of the Partnership. GMG conducts the Partnerships end user business, including certain aspects of its retail gasoline business. Global Energy was formed to conduct the Partnerships natural gas operations. In addition, GLP Finance Corp. (GLP Finance) is a wholly owned subsidiary of the Partnership. GLP Finance has no material assets or liabilities. Its activities will be limited to co-issuing debt securities and engaging in other activities incidental thereto.
Recent Developments
Conversion of Subordinated Units On February 18, 2011 and based upon meeting certain distribution and performance tests provided in the Partnerships partnership agreement, all 5,642,424 subordinated units converted to common units.
Public Offering of Common Units On February 8, 2011, the Partnership completed a public offering of 2,645,000 common units at a price of $27.60 per common unit. Net proceeds were approximately $69.7 million after deducting underwriting fees and offering expenses. The Partnership used the net proceeds to reduce indebtedness under its credit agreement. See Note 14 for additional information related to the public offering.
The Partnerships 1.06% general partner interest (discussed in Note 8) 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. Affiliates of the General Partner, including its directors and executive officers, own 5,416,490 common units, representing a 25% limited partner interest.
Basis of Presentation
The accompanying consolidated financial statements as of June 30, 2011 and December 31, 2010 and for the three and six months ended June 30, 2011 and 2010 reflect the accounts of the Partnership. All intercompany balances and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial condition and operating results for the interim periods. The interim financial information, which has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), should be read in conjunction with the consolidated financial statements for the year ended December 31, 2010 and notes thereto contained in the Partnerships 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.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization and Basis of Presentation (continued)
The results of operations for the three and six months ended June 30, 2011 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2011. The consolidated balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements included in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2010.
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.
Concentration of Risk
The following table presents the Partnerships products as a percentage of total sales for the periods presented:
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Three Months Ended |
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Six Months Ended |
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2011 |
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2010 |
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2011 |
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2010 |
| ||||
Gasoline sales: gasoline and blend stocks such as ethanol and naphtha |
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72 |
% |
|
65 |
% |
|
63 |
% |
|
54 |
% |
|
Distillate sales: home heating oil, diesel and kerosene |
|
25 |
% |
|
30 |
% |
|
33 |
% |
|
41 |
% |
|
Residual oil sales |
|
3 |
% |
|
5 |
% |
|
4 |
% |
|
5 |
% |
|
|
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
The Partnership had one significant customer, ExxonMobil Oil Corporation (ExxonMobil), who accounted for approximately 22% and 23% of total sales for the three months ended June 30, 2011 and 2010, respectively and approximately 21% and 20% of total sales for the six months ended June 30, 2011 and 2010, respectively.
Note 2. Net (Loss) Income Per Limited Partner Unit
Under the Partnerships 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 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 general partner interest. On February 18, 2011, all subordinated units converted to common units.
On April 20, 2011, the board of directors of the General Partner declared a quarterly cash distribution of $0.50 per unit for the period from January 1, 2011 through March 31, 2011. On July 21, 2011, the board of directors of the General Partner declared a quarterly cash distribution of $0.50 per unit for the period from April 1, 2011 through June 30, 2011. These declared cash distributions resulted in incentive distributions to the General Partner, as the holder of the IDRs, and enabled the Partnership to exceed its first target level distribution with respect to such IDRs. See Note 8, Cash Distributions for further information.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Net (Loss) Income Per Limited Partner Unit (continued)
The following table provides a reconciliation of net (loss) income and the assumed allocation of net income to the limited partners interest for purposes of computing net (loss) income per limited partner unit for the three and six months ended June 30, 2011 and 2010 (in thousands, except per unit data):
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Three Months Ended June 30, 2011 |
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Limited |
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General |
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| ||||
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Partner |
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Partner |
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| ||||
Numerator: |
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Total |
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Interest |
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Interest |
|
IDRs |
| ||||
Net (loss) income (1) |
|
$ |
(848 |
) |
$ |
(961 |
) |
$ |
113 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Declared distribution |
|
$ |
11,028 |
|
$ |
10,790 |
|
$ |
116 |
|
$ |
122 |
|
Assumed allocation of undistributed net income |
|
(11,876 |
) |
(11,751 |
) |
(125 |
) |
|
| ||||
Assumed allocation of net income |
|
$ |
(848 |
) |
$ |
(961 |
) |
$ |
(9 |
) |
$ |
122 |
|
|
|
|
|
|
|
|
|
|
| ||||
Denominator: |
|
|
|
|
|
|
|
|
| ||||
Basic weighted average limited partner units outstanding |
|
|
|
21,562 |
|
|
|
|
| ||||
Dilutive effect of phantom units |
|
|
|
223 |
|
|
|
|
| ||||
Diluted weighted average limited partner units outstanding |
|
|
|
21,785 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Basic net loss per limited partner unit |
|
|
|
$ |
(0.04 |
) |
|
|
|
| |||
Diluted net loss per limited partner unit |
|
|
|
$ |
(0.04 |
) |
|
|
|
|
|
|
Three Months Ended June 30, 2010 |
| ||||||||||
|
|
|
|
Limited |
|
General |
|
|
| ||||
|
|
|
|
Partner |
|
Partner |
|
|
| ||||
Numerator: |
|
Total |
|
Interest |
|
Interest |
|
IDRs |
| ||||
Net income (2) |
|
$ |
3,159 |
|
$ |
3,052 |
|
$ |
107 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Declared distribution |
|
$ |
8,455 |
|
$ |
8,278 |
|
$ |
112 |
|
$ |
65 |
|
Assumed allocation of undistributed net income |
|
(5,296 |
) |
(5,226 |
) |
(70 |
) |
|
| ||||
Assumed allocation of net income |
|
$ |
3,159 |
|
$ |
3,052 |
|
$ |
42 |
|
$ |
65 |
|
|
|
|
|
|
|
|
|
|
| ||||
Denominator: |
|
|
|
|
|
|
|
|
| ||||
Basic weighted average limited partner units outstanding |
|
|
|
16,917 |
|
|
|
|
| ||||
Dilutive effect of phantom units |
|
|
|
238 |
|
|
|
|
| ||||
Diluted weighted average limited partner units outstanding |
|
|
|
17,155 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Basic net income per limited partner unit |
|
|
|
$ |
0.18 |
|
|
|
|
| |||
Diluted net income per limited partner unit |
|
|
|
$ |
0.18 |
|
|
|
|
|
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Net (Loss) Income Per Limited Partner Unit (continued)
|
|
Six months ended June 30, 2011 |
| ||||||||||
|
|
|
|
Limited |
|
General |
|
|
| ||||
|
|
|
|
Partner |
|
Partner |
|
|
| ||||
Numerator: |
|
Total |
|
Interest |
|
Interest |
|
IDRs |
| ||||
Net income (1) |
|
$ |
7,445 |
|
$ |
7,132 |
|
$ |
313 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Declared distribution |
|
$ |
22,056 |
|
$ |
21,580 |
|
$ |
232 |
|
$ |
244 |
|
Assumed allocation of undistributed net income |
|
(14,611 |
) |
(14,448 |
) |
(163 |
) |
|
| ||||
Assumed allocation of net income |
|
$ |
7,445 |
|
$ |
7,132 |
|
$ |
69 |
|
$ |
244 |
|
|
|
|
|
|
|
|
|
|
| ||||
Denominator: |
|
|
|
|
|
|
|
|
| ||||
Basic weighted average limited partner units outstanding |
|
|
|
20,996 |
|
|
|
|
| ||||
Dilutive effect of phantom units |
|
|
|
209 |
|
|
|
|
| ||||
Diluted weighted average limited partner units outstanding |
|
|
|
21,205 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Basic net income per limited partner unit |
|
|
|
$ |
0.34 |
|
|
|
|
| |||
Diluted net income per limited partner unit |
|
|
|
$ |
0.34 |
|
|
|
|
|
|
|
Six Months Ended June 30, 2010 |
| ||||||||||
|
|
|
|
Limited |
|
General |
|
|
| ||||
|
|
|
|
Partner |
|
Partner |
|
|
| ||||
Numerator: |
|
Total |
|
Interest |
|
Interest |
|
IDRs |
| ||||
Net income (2) |
|
$ |
20,548 |
|
$ |
20,102 |
|
$ |
446 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Declared distribution |
|
$ |
16,910 |
|
$ |
16,556 |
|
$ |
224 |
|
$ |
130 |
|
Assumed allocation of undistributed net income |
|
3,638 |
|
3,546 |
|
92 |
|
|
| ||||
Assumed allocation of net income |
|
$ |
20,548 |
|
$ |
20,102 |
|
$ |
316 |
|
$ |
130 |
|
|
|
|
|
|
|
|
|
|
| ||||
Denominator: |
|
|
|
|
|
|
|
|
| ||||
Basic weighted average limited partner units outstanding |
|
|
|
15,260 |
|
|
|
|
| ||||
Dilutive effect of phantom units |
|
|
|
236 |
|
|
|
|
| ||||
Diluted weighted average limited partner units outstanding |
|
|
|
15,496 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Basic net income per limited partner unit |
|
|
|
$ |
1.32 |
|
|
|
|
| |||
Diluted net income per limited partner unit |
|
|
|
$ |
1.30 |
|
|
|
|
|
(1) Calculation includes the effect of the public offerings in November 2010 and February 2011 (see Note 14) and, as a result, the general partner interest was reduced to 1.06% for the three months ended June 30, 2011 and, based on a weighted average, 1.12% for the six months ended June 30, 2011.
(2) Calculation includes the effect of the public offering in March 2010 (see Note 14) and, as a result, the general partner interest was reduced to 1.34% for the three months ended June 30, 2010 and, based on a weighted average, 1.61% for the six months ended June 30, 2010.
Limited partner units outstanding exclude common units held on behalf of the Partnership pursuant to its Repurchase Program and for future satisfaction of the General 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).
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Comprehensive (Loss) Income
The components of comprehensive (loss) income consisted of the following (in thousands):
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
June 30, |
|
June 30, |
| ||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
Net (loss) income |
|
$ |
(848 |
) |
$ |
3,159 |
|
$ |
7,445 |
|
$ |
20,548 |
|
Change in fair value of cash flow hedges |
|
(1,538 |
) |
(4,879 |
) |
180 |
|
(7,111 |
) | ||||
Change in pension liability |
|
(215 |
) |
(679 |
) |
(75 |
) |
(558 |
) | ||||
Total comprehensive (loss) income |
|
$ |
(2,601 |
) |
$ |
(2,399 |
) |
$ |
7,550 |
|
$ |
12,879 |
|
Note 4. Inventories
Except for its convenience store inventory, the Partnership hedges substantially all of its inventory purchases through futures contracts and swap agreements. Hedges are executed when inventory is purchased and are identified with that specific inventory. Changes in the fair value of these contracts, as well as the offsetting gain or loss on the hedged inventory item, are recognized in earnings as an increase or decrease in cost of sales. All hedged inventory is valued using the lower of cost, as determined by specific identification, or market. Prior to sale, hedges are removed from specific barrels of inventory, and the then unhedged inventory is sold and accounted for on a first-in, first-out basis. In addition, the Partnership has convenience store inventory which is carried at the lower of historical cost or market.
Inventories consisted of the following (in thousands):
|
|
June 30, |
|
December 31, |
| ||
Distillates: home heating oil, diesel and kerosene |
|
$ |
354,018 |
|
$ |
377,123 |
|
Gasoline |
|
139,570 |
|
115,542 |
| ||
Residual oil |
|
32,010 |
|
35,749 |
| ||
Blend stock |
|
107,461 |
|
55,919 |
| ||
Total |
|
633,059 |
|
584,333 |
| ||
Convenience store inventory |
|
2,650 |
|
2,498 |
| ||
Total |
|
$ |
635,709 |
|
$ |
586,831 |
|
In addition to its own inventory, the Partnership has exchange agreements with unrelated third-party suppliers, whereby it may draw inventory from these other suppliers and suppliers may draw inventory from the Partnership. Positive exchange balances are accounted for as accounts receivable and amounted to $57.6 million and $126.8 million at June 30, 2011 and December 31, 2010, respectively. Negative exchange balances are accounted for as accounts payable and amounted to $73.5 million and $115.2 million at June 30, 2011 and December 31, 2010, respectively. Exchange transactions are valued using current quoted market prices.
Note 5. Derivative Financial Instruments
Accounting and reporting guidance for derivative instruments and hedging activities requires that an entity recognize derivatives as either assets or liabilities on the balance sheet and measure the instruments at fair value. Changes in the fair value of the derivative are to be recognized currently in earnings, unless specific hedge accounting criteria are met.
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 June 30, 2011:
|
|
Units (1) |
|
Unit of Measure |
| |
Product Contracts |
|
|
|
|
| |
Long |
|
9,185 |
|
Thousands of barrels |
| |
Short |
|
(15,439 |
) |
Thousands of barrels |
| |
|
|
|
|
|
| |
Natural Gas Contracts |
|
|
|
|
| |
Long |
|
15,895 |
|
Thousands of decatherms |
| |
Short |
|
(15,895 |
) |
Thousands of decatherms |
| |
|
|
|
|
|
| |
Interest Rate Collar |
|
$ |
100 |
|
Millions of dollars |
|
|
|
|
|
|
| |
Forward Starting Swap |
|
$ |
100 |
|
Millions of dollars |
|
|
|
|
|
|
| |
Interest Rate Cap |
|
$ |
100 |
|
Millions of dollars |
|
(1) Number of open positions and gross notional amounts do not quantify risk or represent assets or liabilities of the Partnership, but are used in the calculation of cash settlements under the contracts.
Fair Value Hedges
The fair value of the 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 and renewable fuels in future periods. The contracts are entered into in the normal course of business to reduce risk of loss of inventory on hand, which could result through fluctuations in market prices. Changes in the fair value of these contracts, as well as the offsetting gain or loss on the hedged inventory item, are recognized in earnings as an increase or decrease in cost of sales. Ineffectiveness related to these hedging activities was immaterial for the three and six months ended June 30, 2011 and 2010.
The Partnership also uses futures contracts and swap agreements to hedge exposure under forward fixed price purchase and sale commitments. These agreements are intended to hedge the cost component of virtually all of the Partnerships forward purchase and sale commitments. Changes in the fair value of these contracts and agreements, as well as offsetting gains or losses on the forward fixed price purchase and sale commitments, are recognized in earnings as an increase or decrease in cost of sales. Gains and losses on net product margin from forward fixed price purchase and sale commitments are reflected in earnings as an increase or decrease in cost of sales as these contracts mature. Ineffectiveness related to these hedging activities was immaterial for the three and six months ended June 30, 2011 and 2010.
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 June 30, 2011 and December 31, 2010 (in thousands):
|
|
|
|
June 30, |
|
December 31, |
| ||
|
|
Balance Sheet |
|
2011 |
|
2010 |
| ||
Asset Derivatives |
|
Location (Net) |
|
Fair Value |
|
Fair Value |
| ||
Derivatives designated as hedging instruments and firm commitments |
|
|
|
|
|
|
| ||
Product contracts (1) |
|
(2) |
|
$ |
1,491 |
|
$ |
3,896 |
|
|
|
|
|
|
|
|
| ||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
| ||
Product and natural gas contracts |
|
(2) |
|
1,589 |
|
3,049 |
| ||
|
|
|
|
|
|
|
| ||
Total asset derivatives |
|
|
|
$ |
3,080 |
|
$ |
6,945 |
|
|
|
|
|
|
|
|
| ||
Liability Derivatives |
|
|
|
|
|
|
| ||
Derivatives designated as hedging instruments and firm commitments |
|
|
|
|
|
|
| ||
Product contracts (1) |
|
(3) |
|
$ |
1,540 |
|
$ |
13,538 |
|
|
|
|
|
|
|
|
| ||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
| ||
Product and natural gas contracts |
|
(3) |
|
1,413 |
|
2,896 |
| ||
|
|
|
|
|
|
|
| ||
Total liability derivatives |
|
|
|
$ |
2,953 |
|
$ |
16,434 |
|
(1) Includes forward fixed price purchase and sale contracts as recognized in the Partnerships consolidated balance sheets at June 30, 2011 and December 31, 2010.
(2) Fair value of forward fixed price contracts and prepaid expenses and other current assets.
(3) Obligations on forward fixed price contracts and other derivatives and accrued expenses and other current liabilities.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
The following table presents the amount of gains and losses from derivatives involved in fair value hedging relationships recognized in the Partnerships consolidated statements of operations for the three and six months ended June 30, 2011 and 2010 (in thousands):
|
|
|
|
Amount of Gain (Loss) Recognized in |
| ||||||||||
|
|
|
|
Income on Derivatives |
| ||||||||||
|
|
Location of Gain (Loss) |
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
Derivatives in Fair Value |
|
Recognized in |
|
June 30, |
|
June 30, |
| ||||||||
Hedging Relationships |
|
Income on Derivative |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product contracts |
|
Cost of sales |
|
$ |
21,367 |
|
$ |
42,230 |
|
$ |
(93,442 |
) |
$ |
42,203 |
|
|
|
|
|
Amount of Gain (Loss) Recognized in |
| ||||||||||
|
|
|
|
Income on Hedged Items |
| ||||||||||
|
|
Location of Gain (Loss) |
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
Hedged Items in Fair Value |
|
Recognized in |
|
June 30, |
|
June 30, |
| ||||||||
Hedged Relationships |
|
Income on Hedged Items |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Inventories and forward fixed price contracts |
|
Cost of sales |
|
$ |
(21,351 |
) |
$ |
(42,332 |
) |
$ |
93,710 |
|
$ |
(42,305 |
) |
The Partnerships derivative financial instruments do not contain credit risk related to other contingent features that could cause accelerated payments when these financial instruments are in net liability positions.
The table below presents the composition and fair value of forward fixed price purchase and sale contracts on the Partnerships consolidated balance sheet being hedged by the following derivative instruments (in thousands):
|
|
June 30, |
|
December 31, |
| ||
Futures contracts |
|
$ |
430 |
|
$ |
(6,480 |
) |
Swaps and other, net |
|
(265 |
) |
(735 |
) | ||
Total |
|
$ |
165 |
|
$ |
(7,215 |
) |
The total balances of $165,000 and ($7.2) million reflect the fair value of the forward fixed price contract asset/(liability) net of the corresponding asset/(liability) in the accompanying consolidated balance sheets at June 30, 2011 and December 31, 2010, respectively.
The Partnership formally documents all relationships between hedging instruments and hedged items after its risk management objectives and strategy for undertaking the hedge are determined. The Partnership calculates hedge effectiveness on a quarterly basis. This process includes specific identification of the hedging instrument and the hedged transaction, the nature of the risk being hedged and how the hedging 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 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.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
The Partnership has a daily margin requirement with its broker based on the prior days market results on open futures contracts. The brokerage margin balance was $36.1 million and $15.5 million at June 30, 2011 and December 31, 2010, respectively.
The Partnership is exposed to credit loss in the event of nonperformance by counterparties of forward purchase and sale commitments, futures contracts, options and swap agreements, but the Partnership has no current reason to expect any material nonperformance by any of these counterparties. Futures contracts, the primary derivative instrument utilized by the Partnership, are traded on regulated exchanges, greatly reducing potential credit risks. The Partnership utilizes primarily one clearing broker, a major financial institution, for all New York Mercantile Exchange (NYMEX) derivative transactions and the right of offset exists. Accordingly, the fair value of all derivative instruments is presented on a net basis in the consolidated balance sheets. Exposure on forward purchase and sale commitments and swap and certain option agreements is limited to the amount of the recorded fair value as of the balance sheet dates.
The Partnership generally enters into master netting arrangements to mitigate counterparty credit risk with respect to its derivatives. Master netting arrangements are standardized contracts that govern all specified transactions with the same counterparty and allow the Partnership to terminate all contracts upon occurrence of certain events, such as a 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.
Cash Flow Hedges
The Partnership links all hedges that are designated as cash flow hedges to forecasted transactions. To the extent such hedges are effective, the changes in the fair value of the derivative instrument are reported as a component of other comprehensive income and reclassified into interest expense in the same period during which the hedged transaction affects earnings.
The Partnership executed two zero premium interest rate collars with major financial institutions. Each collar is designated and accounted for as a cash flow hedge. The first collar, which became effective on May 14, 2007 and expired on May 14, 2011, was used to hedge the variability in interest payments due to changes in the three-month LIBOR rate with respect to $100.0 million of three-month LIBOR-based borrowings on the revolving credit facility. Under the first collar, the Partnership capped its exposure at a maximum three-month LIBOR rate of 5.75% and established a minimum floor rate of 3.75%. For the period from February 14, 2011 through May 14, 2011, the three-month LIBOR rate of 0.31% was lower than the floor rate. As a result, the Partnership remitted to the respective financial institution the difference between the floor rate and the current rate which amounted to approximately $850,000.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
On September 29, 2008, the Partnership executed its second zero premium interest rate collar. The second collar, which became effective on October 2, 2008 and expires on October 2, 2013, is used to hedge the variability in cash flows in monthly interest payments made on the Partnerships $100.0 million one-month LIBOR-based borrowings on the working capital revolving credit facility (and subsequent refinancings thereof) due to changes in the one-month LIBOR rate. Under the second collar, the Partnership capped its exposure at a maximum one-month LIBOR rate of 5.50% and established a minimum floor rate of 2.70%. As of June 30, 2011, the one-month LIBOR rate of 0.19% was lower than the floor rate. As a result, the Partnership will remit to the respective financial institution the difference between the floor rate and the current rate which amounted to approximately $202,000 and, at June 30, 2011, such amount was recorded in accrued expenses and other current liabilities in the accompanying consolidated balance sheet. The fair values of the second collar, excluding accrued interest, were liabilities of approximately $4.5 million and $4.8 million as of June 30, 2011 and December 31, 2010, respectively, and were recorded in both other long-term liabilities and accumulated other comprehensive income in the accompanying consolidated balance sheets. Hedge effectiveness was assessed at inception and is assessed quarterly, prospectively and retrospectively, using the regression analysis. The changes in the fair value of the second collar are expected to be highly effective in offsetting the changes in interest rate payments attributable to fluctuations in the one-month LIBOR rate above and below the collars strike rates.
In October 2009, the Partnership executed a forward starting swap with a major financial institution. The swap, which became effective on May 16, 2011 and expire on May 16, 2016, is used to hedge the variability in interest payments due to changes in the one-month LIBOR swap curve with respect to $100.0 million of one-month LIBOR-based borrowings on the revolving credit facility at a fixed rate of 3.93%. The fair values of the swap were liabilities of approximately $9.6 million and $7.3 million as of June 30, 2011 and December 31, 2010, respectively, and were recorded in other long-term liabilities in the accompanying consolidated balance sheets. Hedge effectiveness was assessed at inception and will be assessed quarterly, prospectively and retrospectively, using regression analysis. The changes in the fair value of the swap are expected to be highly effective in offsetting the changes in interest rate payments attributable to fluctuations in the one-month LIBOR swap curve.
On April 8, 2011, the Partnership executed an interest rate cap with a major financial institution. The rate cap, which became effective on April 13, 2011 and expires on April 13, 2016, is used to hedge the variability in interest payments due to changes in the one-month LIBOR rate above 5.5% with respect to $100.0 million of one-month LIBOR-based borrowings on the working capital revolving credit facility. The fair value of the rate cap was an asset of approximately $940,000 as of June 30, 2011 and was recorded in both other assets and accumulated other comprehensive income in the accompanying balance sheet. Hedge effectiveness was assessed at inception and will be assessed quarterly, prospectively and retrospectively, by (i) comparing the critical terms of the rate cap and the hedged forecasted transactions, (ii) evaluating the counterpartys ability to honor its obligations under the rate cap agreement; and (iii) ensuring the interest payment cash flows remain probable of occurring. The changes in the fair value of the rate cap are expected to be highly effective in offsetting the changes in interest rate payments attributable to fluctuations in the one-month LIBOR rate above the rate caps strike rate.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
The following table presents the fair value of the Partnerships derivative instruments and their location in the Partnerships consolidated balance sheets at June 30, 2011 and December 31, 2010 (in thousands):
|
|
|
|
June 30, |
|
December 31, |
| ||
Derivatives Designated as |
|
Balance Sheet |
|
2011 |
|
2010 |
| ||
Hedging Instruments |
|
Location |
|
Fair Value |
|
Fair Value |
| ||
|
|
|
|
|
|
|
| ||
Asset derivatives |
|
|
|
|
|
|
| ||
Interest rate cap |
|
Other assets |
|
$ |
940 |
|
$ |
|
|
|
|
|
|
|
|
|
| ||
Liability derivatives |
|
|
|
|
|
|
| ||
Interest rate collars |
|
Other long-term liabilities |
|
$ |
4,535 |
|
$ |
6,042 |
|
Forward starting swap |
|
Other long-term liabilities |
|
9,562 |
|
7,296 |
| ||
Total liability derivatives |
|
|
|
$ |
14,097 |
|
$ |
13,338 |
|
The following table presents the amount of gains and losses from derivatives involved in cash flow hedging relationships recognized in the Partnerships consolidated statements of operations and partners equity for the three and six months ended June 30, 2011 and 2010 (in thousands):
|
|
|
|
Recognized in Income |
|
|
|
Recognized in Income |
| ||||||||||||||||
|
|
|
|
on Derivatives |
|
|
|
on Derivatives |
| ||||||||||||||||
|
|
Amount of Gain (Loss) |
|
(Ineffectiveness Portion |
|
Amount of Gain (Loss) |
|
(Ineffectiveness Portion |
| ||||||||||||||||
|
|
Recognized in Other |
|
and Amount Excluded |
|
Recognized in Other |
|
and Amount Excluded |
| ||||||||||||||||
|
|
Comprehensive Income |
|
from Effectiveness |
|
Comprehensive Income |
|
from Effectiveness |
| ||||||||||||||||
|
|
on Derivatives |
|
Testing) |
|
on Derivatives |
|
Testing) |
| ||||||||||||||||
Derivatives in |
|
Three Months Ended |
|
Three Months Ended |
|
Six Months Ended |
|
Six Months Ended |
| ||||||||||||||||
Cash Flow |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
| ||||||||
Hedging Relationship |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest rate collar |
|
$ |
43 |
|
$ |
(161 |
) |
$ |
|
|
$ |
|
|
$ |
1,507 |
|
$ |
(529 |
) |
$ |
|
|
$ |
|
|
Forward starting swap |
|
(2,521 |
) |
(4,718 |
) |
|
|
|
|
(2,267 |
) |
(6,582 |
) |
|
|
|
| ||||||||
Interest rate cap |
|
940 |
|
|
|
|
|
|
|
940 |
|
|
|
|
|
|
| ||||||||
Total |
|
$ |
(1,538 |
) |
$ |
(4,879 |
) |
$ |
|
|
$ |
|
|
$ |
180 |
|
$ |
(7,111 |
) |
$ |
|
|
$ |
|
|
Ineffectiveness related to the interest rate collars and forward starting swap is recognized as interest expense and was immaterial for the three and six months ended June 30, 2011 and 2010. The effective portion related to the interest rate collars that was originally reported in other comprehensive income and reclassified to earnings was $1.0 million and $1.5 million for the three months ended June 30, 2011 and 2010, respectively, and $2.5 million and $3.0 million for the six months ended June 30, 2011 and 2010, respectively. The effective portion related to the interest rate cap that was originally reported in other comprehensive income reclassified into earnings was zero for the three and six months ended June 30, 2011.
Derivatives Not Involved in a Hedging Relationship
While the Partnership seeks to maintain a position that is substantially balanced within its product purchase activities, it may experience net unbalanced positions for short periods of time as a result of variances in daily sales and transportation and delivery schedules as well as logistical issues inherent in the business, such as weather conditions. In connection with managing these positions and maintaining a constant presence in the marketplace, both necessary for its business, the Partnership engages in a controlled trading program for up to an aggregate of 250,000 barrels of refined petroleum and renewable fuels products at any one point in time.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
The following table presents the amount of gains and losses from derivatives not involved in a hedging relationship recognized in the Partnerships consolidated statements of operations for the three and six months ended June 30, 2011 and 2010 (in thousands):
|
|
|
|
Amount of Gain (Loss) |
|
Amount of Gain (Loss) |
| ||||||||
|
|
Location of |
|
Recognized in Income |
|
Recognized in Income |
| ||||||||
|
|
Gain (Loss) |
|
on Derivatives |
|
on Derivatives |
| ||||||||
|
|
Recognized in |
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
Derivatives Not Designated as |
|
Income on |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
| ||||
Hedging Instruments |
|
Derivatives |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product contracts |
|
Cost of sales |
|
$ |
872 |
|
$ |
1,652 |
|
$ |
2,328 |
|
$ |
1,131 |
|
Note 6. Debt
On January 26, 2011, the Partnership requested an increase in the working capital revolving credit facility in an amount equal to $100.0 million, and on February 11, 2011, certain lenders under the Partnerships Amended and Restated Credit Agreement dated May 14, 2010, as amended (the Credit Agreement) committed to the $100.0 million increase which increased the total available commitments under the Credit Agreement to $1.25 billion. The Credit Agreement will mature on May 14, 2014.
There are two facilities under the Credit Agreement:
· a working capital revolving credit facility to be used for working capital purposes and letters of credit in the principal amount equal to the lesser of the Partnerships borrowing base and $900.0 million; and
· a $350.0 million revolving credit facility to be used for acquisitions and general corporate purposes.
In addition, the Credit Agreement has an accordion feature whereby the Partnership may request on the same terms and conditions of its then existing Credit Agreement, provided no Event of Default (as defined in the Credit Agreement) then exists, an increase to the revolving credit facility, the working capital revolving credit facility, or both, by up to another $100.0 million, for a total credit facility of up to $1.35 billion. Any such request for an increase by the Partnership must be in a minimum amount of $5.0 million, and the revolving credit facility may not be increased by more than $50.0 million. The Partnership cannot provide assurance, however, that its lending group will agree to fund any request by the Partnership for additional amounts in excess of the total available commitments of $1.25 billion.
Availability under the 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 Partnerships borrowings under the working capital revolving credit facility cannot exceed the 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 general economic conditions. These and other events could require the Partnership to seek waivers or amendments of covenants or alternative sources of financing or to reduce expenditures. The Partnership can provide no assurance that such waivers, amendments or alternative financing could be obtained or, if obtained, would be on terms acceptable to the Partnership.
During the period from January 1, 2010 through May 13, 2010, borrowings under the working capital revolving credit facility bore interest at (1) the Eurodollar rate plus 1.75% to 2.25%, (2) the cost of funds rate plus 1.75% to 2.25%, or (3) the base rate plus 0.75% to 1.25%, each depending on the pricing level provided in the previous credit agreement, which in turn depended upon the Combined Interest Coverage Ratio (as defined in the previous credit agreement). Borrowings under the revolving credit facility bore interest at (1) the Eurodollar rate plus 2.25% to 2.75%, (2) the cost of funds rate plus 1.75% to 2.25%, or (3) the base rate plus 0.75% to 1.25%, each depending on the pricing
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Debt (continued)
level provided in the previous credit agreement, which in turn depended upon the Combined Interest Coverage Ratio under the previous credit agreement.
Commencing May 14, 2010, borrowings under the working capital revolving credit facility bear interest at (1) the Eurodollar rate plus 2.50% to 3.00%, (2) the cost of funds rate plus 2.50% to 3.00%, or (3) the base rate plus 1.50% to 2.00%, each depending on the pricing level provided in the Credit Agreement, which in turn depends upon the Utilization Amount (as defined in the Credit Agreement).
During the period from May 14, 2010 through September 7, 2010, borrowings under the revolving credit facility bore interest at (1) the Eurodollar rate plus 3.00% to 3.25%, (2) the cost of funds rate plus 3.00% to 3.25%, or (3) the base rate plus 2.00% to 2.25%, each depending on the pricing level provided in the Credit Agreement, which in turn depended upon the Combined Senior Secured Leverage Ratio (as defined in the Credit Agreement). Commencing September 8, 2010, borrowings under the revolving credit facility bear interest at (1) the Eurodollar rate plus 3.00% to 3.875%, (2) the cost of funds rate plus 3.00% to 3.875%, or (3) the base rate plus 2.00% to 2.875%, each depending on the pricing level provided in the Credit Agreement, which in turn depends upon the Combined Total Leverage Ratio (as defined in the Credit Agreement).
The average interest rates for the Credit Agreement were 4.0% and 4.1% for the three months ended June 30, 2011 and 2010, respectively, and 4.1% and 3.6% for the six months ended June 30, 2011 and 2010, respectively.
The Partnership currently has a zero premium interest rate collar, a forward starting swap and an interest rate cap, all of which are used to hedge the variability in interest payments under the Credit Agreement due to changes in LIBOR rates. See Note 5 for additional information on these cash flow hedges.
The Partnership incurs a letter of credit fee of 2.50% 3.00% per annum for each letter of credit issued. In addition, the Partnership incurs a commitment fee on the unused portion of each facility under the Credit Agreement equal to 0.50% per annum.
The Partnership classifies a portion of its working capital revolving credit facility as a long-term liability because the Partnership has a multi-year, long-term commitment from its bank group. The long-term portion of the working capital revolving credit facility was $498.8 million and $293.5 million at June 30, 2011 and December 31, 2010, respectively, representing the amounts expected to be outstanding during the year. In addition, the Partnership classifies a portion of its working capital revolving credit facility as a current liability because it repays amounts outstanding and reborrows funds based on its working capital requirements. The current portion of the working capital revolving credit facility was approximately $102.7 million and $193.2 million at June 30, 2011 and December 31, 2010, respectively, representing the amounts the Partnership expects to pay down during the course of the year.
As of June 30, 2011, the Partnership had total borrowings outstanding under the Credit Agreement of $806.5 million, including $205.0 million outstanding on the revolving credit facility. In addition, the Partnership had outstanding letters of credit of $183.2 million. Subject to borrowing base limitations, the total remaining availability for borrowings and letters of credit at June 30, 2011 and December 31, 2010 was $260.3 million and $252.6 million, respectively.
The Credit Agreement is secured by substantially all of the assets of the Partnership and each of the Companies and is guaranteed by the General Partner. The Credit Agreement imposes certain requirements including, for example, a prohibition against distributions if any potential default or Event of Default (as defined in the Credit Agreement) would occur as a result thereof, and limitations on the 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.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Debt (continued)
The Credit Agreement imposes financial covenants that require the Partnership to maintain certain minimum working capital amounts, capital expenditure limits, a minimum EBITDA, a minimum combined interest coverage ratio, a maximum senior secured leverage ratio and a maximum total leverage ratio. The Partnership was in compliance with the foregoing covenants at June 30, 2011. The Credit Agreement also contains a representation whereby there can be no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect (as defined in the Credit Agreement). In addition, the Credit Agreement limits distributions by the Partnership to its unitholders to the amount of the Partnerships Available Cash (as defined in its partnership agreement).
On July 19, 2011, the Partnership entered into a Second Amendment to the Credit Agreement which amended the Credit Agreement and modified the following financial covenants as described below:
(i) The minimum Combined EBITDA (as defined in the Credit Amendment) as at the end of each fiscal quarter, other than the fiscal quarters ending September 30, 2011 and December 31, 2011 is required to not be less than $75 million for the four consecutive fiscal quarters most recently ended and not less than $70 million for the four consecutive fiscal quarters ending September 30, 2011 and December 31, 2011.
(ii) The Combined Interest Coverage Ratio (as defined in the Credit Agreement) as at the end of any fiscal quarter is required to not be less than the ratio set forth below:
Fiscal Quarter Ending |
|
Combined Interest |
|
June 30, 2011 |
|
2.00:1.00 |
|
September 30, 2011 and December 31, 2011 |
|
1.65:1.00 |
|
March 31, 2012 |
|
1.75:1.00 |
|
June 30, 2012 and each fiscal quarter ending thereafter |
|
2.00:1.00 |
|
(iii) The Combined Senior Secured Leverage Ratio (as defined in the Credit Agreement) as at the end of any fiscal quarter is required to not be greater than the ratio set forth below:
Fiscal Quarter Ending |
|
Combined Senior |
|
June 30, 2011 |
|
2.50:1.00 |
|
September 30, 2011 and December 31, 2011 |
|
3.00:1.00 |
|
March 31, 2012 and each fiscal quarter ending thereafter |
|
2.75:1.00 |
|
The lending group under the Credit Agreement is comprised of the following institutions: Bank of America, N.A.; JPMorgan Chase Bank, N.A.; Wells Fargo Bank, N.A.; Societe Generale; Standard Chartered Bank; RBS Citizens, National Association; BNP Paribas; Cooperative Centrale Raiffeisen-Boerenleenbank B.A., Rabobank Nederland New York Branch; Sovereign Bank; Credit Agricole Corporate and Investment Bank; Keybank National Association; Toronto Dominion (New York); RB International Finance (USA) LLC (formerly known as RZB Finance LLC); Royal Bank of Canada; Raymond James Bank, FSB; Barclays Bank plc; Webster Bank National Association; Natixis, New York Branch; DZ Bank AG Deutsche Zentral-Genossenschaftsbank Frankfurt Am Main; Branch Banking & Trust Company; and Sumitomo Mitsui Banking Corporation.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7. Related Party Transactions
The Partnership is a party to a Second Amended and Restated Terminal Storage Rental and Throughput Agreement, as amended, with Global Petroleum Corp. (GPC), an affiliate of the Partnership, which extends through July 31, 2014 with annual renewal options thereafter. The agreement is accounted for as an operating lease. The expenses under this agreement totaled approximately $2.2 million and $2.1 million for the three months ended June 30, 2011 and 2010, respectively, and approximately $4.4 million and $4.3 million for the six months ended June 30, 2011 and 2010, respectively.
Pursuant to an Amended and Restated Services Agreement with GPC, GPC provides certain terminal operating management services to the Partnership and uses certain administrative, accounting and information processing services of the Partnership. The expenses from these services totaled approximately $24,000 and $21,900 for the three months ended June 30, 2011 and 2010, respectively, and approximately $48,000 and $43,700 and for the six months ended June 30, 2011 and 2010, respectively. These charges were recorded in selling, general and administrative expenses in the accompanying consolidated statements of operations. The agreement is for an indefinite term, and either party may terminate its receipt of some or all of the services thereunder upon 180 days notice at any time. As of June 30, 2011, no such notice of termination was given by either party.
Pursuant to the Partnerships Amended and Restated Services Agreement with Alliance Energy LLC (Alliance), the Partnership also provides certain administrative, accounting and information processing services, and the use of certain facilities, to Alliance, an affiliate of the Partnership that is wholly owned by AE Holdings Corp., which is approximately 95% owned by members of the Slifka family. The income from these services was approximately $47,000 and $49,000 for the three months ended June 30, 2011 and 2010, respectively, and $94,000 and $98,000 for the six months ended June 30, 2011 and 2010, respectively. These fees were recorded as an offset to selling, general and administrative expenses in the accompanying consolidated statements of operations. The agreement is for an indefinite term, and Alliance may terminate its receipt of some or all of the services thereunder upon 180 days notice at any time. As of June 30, 2011, no such notice of termination was given by Alliance.
The Partnership sells refined petroleum products and renewable fuels to Alliance at prevailing market prices at the time of delivery. Sales to Alliance were approximately $44.5 million and $6.2 million for the three months ended June 30, 2011 and 2010, respectively, and $59.9 million and $13.5 million for the six months ended June 30, 2011 and 2010, respectively. Sales for the three and six months ended June 30, 2011 included sales of Mobil-branded fuel to Alliance pursuant to the Mobil franchise agreement entered into by Global Companies LLC and Alliance, effective March 1, 2011.
In addition, Global Companies LLC and GMG, wholly owned subsidiaries of the Partnership, entered into management agreements with Alliance in connection with the Partnerships September 2010 acquisition of retail gas stations from ExxonMobil (see Note 10). The management fee and overhead reimbursement were approximately $0.7 million and $0.4 million, respectively, for the three months ended June 30, 2011 and $1.3 million and $0.9 million, respectively, for the six months ended June 30, 2011.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7. 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 June 30, 2011 and 2010, including payroll, payroll taxes and bonus accruals, were $9.1 million and $9.4 million, respectively, and $23.8 million and $19.8 million for the six months ended June 30, 2011 and 2010, respectively. The Partnership also reimburses the General Partner for its contributions under the General 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):
|
|
June 30, |
|
December 31, |
| ||
|
|
2011 |
|
2010 |
| ||
Receivables from Alliance |
|
$ |
255 |
|
$ |
296 |
|
Receivables from GPC |
|
304 |
|
224 |
| ||
Receivables from the General Partner (1) |
|
748 |
|
710 |
| ||
Total |
|
$ |
1,307 |
|
$ |
1,230 |
|
(1) Receivables from the General Partner reflect the Partnerships prepayment of payroll taxes and payroll accruals to the General Partner.
Note 8. Cash Distributions
The Partnership intends to consider regular cash distributions to unitholders on a quarterly basis, although there is no assurance as to the future cash distributions since they are dependent upon future earnings, capital requirements, financial condition and other factors. The Credit Agreement prohibits the Partnership from making cash distributions if any potential default or Event of Default, as defined in the Credit Agreement, occurs or would result from the cash distribution.
Within 45 days after the end of each quarter, the Partnership will distribute all of its Available Cash (as defined in its partnership agreement) to unitholders of record on the applicable record date. The amount of Available Cash is all cash on hand on the date of determination of Available Cash for the quarter; less the amount of cash reserves established by the General Partner to provide for the proper conduct of the 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 the General Partner for any one or more of the next four quarters.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8. Cash Distributions (continued)
The Partnership will make distributions of Available Cash from distributable cash flow for any quarter in the following manner: 98.94% to the common unitholders, pro rata, and 1.06% to the General Partner, until the Partnership distributes for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter; and thereafter, cash in excess of the minimum quarterly distribution is distributed to the unitholders and the General Partner based on the percentages as provided below.
As holder of the IDRs, the General Partner is entitled to incentive distributions if the amount that the Partnership distributes with respect to any quarter exceeds specified target levels shown below:
|
|
Total Quarterly Distribution |
|
Marginal Percentage Interest in |
| ||
|
|
Target Amount |
|
Unitholders |
|
General Partner |
|
Minimum Quarterly Distribution |
|
$0.4625 |
|
98.94% |
|
1.06% |
|
First Target Distribution |
|
$0.4625 |
|
98.94% |
|
1.06% |
|
Second Target Distribution |
|
above $0.4625 up to $0.5375 |
|
85.94% |
|
14.06% |
|
Third Target Distribution |
|
above $0.5375 up to $0.6625 |
|
75.94% |
|
24.06% |
|
Thereafter |
|
above $0.6625 |
|
50.94% |
|
49.06% |
|
The Partnership paid the following cash distribution during 2011 (in thousands, except per unit data):
Cash |
|
Per Unit |
|
Common |
|
Subordinated |
|
General |
|
Incentive |
|
Total Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/14/11 (1)(2) |
|
$ 0.50 |
|
$ 6,647 |
|
$2,821 |
|
$115 |
|
$ 108 |
|
$ 9,691 |
|
05/13/11 (2) |
|
$ 0.50 |
|
$10,790 |
|
|
|
$116 |
|
$ 122 |
|
$ 11,028 |
|
(1) On February 18, 2011, based upon meeting certain distribution and performance tests provided in the Partnerships partnership agreement, all 5,642,424 subordinated units converted to common units. Prior to the conversion and the February 2011 offering, the Partnership made this distribution in the following manner: firstly, 98.80% to the common unitholders, pro rata, and 1.20% to the General Partner, until the Partnership distributed for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter; secondly, 98.80% to the common unitholders, pro rata, and 1.20% to the General Partner, until the Partnership distributed 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, 98.80% to the subordinated unitholders, pro rata, and 1.20% to the General Partner, until the Partnership distributed for each subordinated unit an amount equal to the minimum quarterly distribution for that quarter.
(2) This distribution of $0.50 per unit resulted in the Partnership exceeding its first target level distribution for the fourth quarter of 2010 and first quarter of 2011. As a result, the General Partner, as the holder of the IDRs, received an incentive distribution.
In addition, on July 21, 2011, the board of directors of the General Partner declared a quarterly cash distribution of $0.50 per unit ($2.00 per unit on an annualized basis) for the period from April 1, 2011 through June 30, 2011. On August 12, 2011, the Partnership will pay this cash distribution to its common unitholders of record as of the close of business August 3, 2011. This distribution will result in the Partnership exceeding its first target level distribution for the quarter ended June 30, 2011.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Segment Reporting
The Partnership engages in the wholesale and commercial distribution of refined petroleum products and renewable fuels and small amounts of natural gas. The Partnerships primary business is organized within two reporting segments, Wholesale and Commercial, based on the way the chief operating decision maker (CODM) 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, 2010.
In the Wholesale segment, the Partnership sells gasoline (including blend stocks such ethanol and naphtha), home heating oil, diesel, kerosene and residual oil to unbranded and Mobil-branded 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.
The Commercial segment includes (1) sales and deliveries of unbranded gasoline, home heating oil, diesel, kerosene, residual oil, renewable fuels and small amounts of natural gas to end user customers in the public sector and to large commercial and industrial end users (in the case of commercial and industrial end user customers, the Partnership sells products either through a competitive bidding process or through contracts of various terms), (2) sales of custom blended distillates and residual oil delivered by barges or from a terminal dock through bunkering activity, and (3) sales of Mobil-branded gasoline to end users. Commercial segment end user customers include Mobil-branded gasoline customers at the Partnerships directly operated gas stations, federal and state agencies, municipalities, large industrial companies, many autonomous authorities such as transportation authorities and water resource authorities, colleges and universities and a group of small utilities. Unlike the Wholesale segment, in the Commercial segment, the Partnership generally arranges the delivery of the product to the 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 CODM manages the business, it is not reasonably possible for the Partnership to allocate the components of operating costs and expenses between the reportable segments. There were no intersegment sales for any of the periods presented below.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Segment Reporting (continued)
Summarized financial information for the Partnerships reportable segments is presented in the table below (in thousands):
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
June 30, |
|
June 30, |
| ||||||||
Wholesale Segment: |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
Sales |
|
|
|
|
|
|
|
|
| ||||
Gasoline (1) |
|
$ |
2,338,965 |
|
$ |
987,806 |
|
$ |
4,236,261 |
|
$ |
1,862,493 |
|
Distillates |
|
806,372 |
|
442,595 |
|
2,176,434 |
|
1,401,852 |
| ||||
Residual oil |
|
7,461 |
|
8,268 |
|
23,685 |
|
20,397 |
| ||||
Total |
|
$ |
3,152,798 |
|
$ |
1,438,669 |
|
$ |
6,436,380 |
|
$ |
3,284,742 |
|
Net product margin (2) |
|
|
|
|
|
|
|
|
| ||||
Gasoline |
|
$ |
27,982 |
|
$ |
23,210 |
|
$ |
49,344 |
|
$ |
31,921 |
|
Distillates |
|
5,241 |
|
6,460 |
|
26,183 |
|
40,480 |
| ||||
Residual oil |
|
582 |
|
2,434 |
|
3,511 |
|
5,290 |
| ||||
Total |
|
$ |
33,805 |
|
$ |
32,104 |
|
$ |
79,038 |
|
$ |
77,691 |
|
Commercial Segment: |
|
|
|
|
|
|
|
|
| ||||
Sales (1) |
|
$ |
244,047 |
|
$ |
96,032 |
|
$ |
497,818 |
|
$ |
214,704 |
|
Net product margin (2) |
|
$ |
8,839 |
|
$ |
2,804 |
|
$ |
18,374 |
|
$ |
7,722 |
|
All Other (3) |
|
|
|
|
|
|
|
|
| ||||
Sales (1) |
|
$ |
15,303 |
|
$ |
|
|
$ |
29,022 |
|
$ |
|
|
Net product margin (2) |
|
$ |
8,016 |
|
$ |
|
|
$ |
15,568 |
|
$ |
|
|
Combined sales and net product margin: |
|
|
|
|
|
|
|
|
| ||||
Sales |
|
$ |
3,412,148 |
|
$ |
1,534,701 |
|
$ |
6,963,220 |
|
$ |
3,499,446 |
|
Net product margin (2) |
|
$ |
50,660 |
|
$ |
34,908 |
|
$ |
112,980 |
|
$ |
85,413 |
|
Depreciation allocated to cost of sales |
|
6,089 |
|
2,947 |
|
12,159 |
|
5,684 |
| ||||
Combined gross profit |
|
$ |
44,571 |
|
$ |
31,961 |
|
$ |
100,821 |
|
$ |
79,729 |
|
(1) On September 30, 2010, the Partnership completed its acquisition of retail gas stations and supply rights from ExxonMobil (See Note 10). As these assets were not in place prior to September 2010, the above results are not directly comparable for periods prior to September 2010.
(2) 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.
(3) Results from operating segments below the quantitative thresholds are attributable to two operating segments of the Partnership, which consist primarily of convenience stores sales at the Partnerships directly operated stores and rental income from the Partnerships gas station dealers. These segments do not meet the quantitative thresholds for determining reportable segments and cannot be aggregated to other reportable segments.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. 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 |
|
Six Months Ended |
| ||||||||
|
|
June 30, |
|
June 30, |
| ||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
Combined gross profit |
|
$ |
44,571 |
|
$ |
31,961 |
|
$ |
100,821 |
|
$ |
79,729 |
|
Operating costs and expenses not allocated to operating segments: |
|
|
|
|
|
|
|
|
| ||||
Selling, general and administrative expenses |
|
18,809 |
|
13,891 |
|
39,919 |
|
30,469 |
| ||||
Operating expenses |
|
17,755 |
|
9,803 |
|
35,559 |
|
18,462 |
| ||||
Amortization expenses |
|
1,204 |
|
734 |
|
2,367 |
|
1,425 |
| ||||
Total operating costs and expenses |
|
37,768 |
|