UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2012 |
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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 |
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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 x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
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Accelerated filer x |
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Non-accelerated filer o |
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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 x
The issuer had 27,430,563 common units outstanding as of November 5, 2012.
GLOBAL PARTNERS LP
(In thousands, except unit data)
(Unaudited)
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September 30, |
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December 31, |
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2012 |
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2011 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
1,073 |
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$ |
4,328 |
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Accounts receivable, net |
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680,438 |
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621,670 |
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Accounts receivableaffiliates |
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1,277 |
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1,776 |
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Inventories |
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593,727 |
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664,144 |
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Brokerage margin deposits |
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30,272 |
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43,935 |
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Fair value of forward fixed price contracts |
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30,138 |
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15,450 |
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Prepaid expenses and other current assets |
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62,031 |
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61,561 |
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Total current assets |
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1,398,956 |
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1,412,864 |
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Property and equipment, net |
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700,913 |
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408,850 |
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Goodwill |
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29,123 |
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Intangible assets, net |
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64,623 |
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36,710 |
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Other assets |
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13,681 |
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10,427 |
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Total assets |
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$ |
2,207,296 |
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$ |
1,868,851 |
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Liabilities and partners equity |
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Current liabilities: |
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Accounts payable |
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$ |
704,459 |
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$ |
575,776 |
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Working capital revolving credit facilitycurrent portion |
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149,081 |
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62,805 |
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Environmental liabilitiescurrent portion |
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4,373 |
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2,936 |
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Trustee taxes payable |
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78,977 |
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76,523 |
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Accrued expenses and other current liabilities |
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59,967 |
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41,307 |
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Obligations on forward fixed price contracts |
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945 |
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11,707 |
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Total current liabilities |
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997,802 |
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771,054 |
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Working capital revolving credit facilityless current portion |
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278,019 |
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526,095 |
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Revolving credit facility |
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422,000 |
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205,000 |
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Environmental liabilitiesless current portion |
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46,422 |
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27,303 |
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Other long-term liabilities |
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33,438 |
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24,110 |
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Total liabilities |
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1,777,681 |
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1,553,562 |
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Partners equity |
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Common unitholders (27,430,563 units issued and 27,310,648 outstanding at September 30, 2012 and 21,580,563 units issued and 21,561,931 outstanding at December 31, 2011) |
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448,799 |
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336,103 |
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General partner interest (0.83% and 1.06% interest with 230,303 equivalent units outstanding at September 30, 2012 and December 31, 2011, respectively) |
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(474 |
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(319 |
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Accumulated other comprehensive loss |
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(18,710 |
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(20,495 |
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Total partners equity |
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429,615 |
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315,289 |
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Total liabilities and partners equity |
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$ |
2,207,296 |
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$ |
1,868,851 |
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The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL PARTNERS LP
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per unit data)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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2012 |
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2011 |
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2012 |
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2011 |
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Sales |
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$ |
4,617,194 |
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$ |
3,765,765 |
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$ |
12,508,738 |
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$ |
10,728,985 |
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Cost of sales |
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4,534,574 |
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3,716,486 |
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12,280,124 |
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10,578,885 |
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Gross profit |
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82,620 |
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49,279 |
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228,614 |
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150,100 |
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Costs and operating expenses: |
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Selling, general and administrative expenses |
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24,105 |
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17,166 |
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70,608 |
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57,085 |
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Operating expenses |
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40,196 |
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19,373 |
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100,692 |
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54,932 |
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Restructuring charges |
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1,719 |
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1,719 |
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Amortization expense |
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1,511 |
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1,216 |
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5,373 |
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3,583 |
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Total costs and operating expenses |
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65,812 |
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39,474 |
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176,673 |
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117,319 |
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Operating income |
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16,808 |
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9,805 |
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51,941 |
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32,781 |
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Interest expense |
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(9,237 |
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(7,947 |
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(27,705 |
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(23,478 |
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Income before income tax expense |
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7,571 |
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1,858 |
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24,236 |
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9,303 |
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Income tax expense |
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(678 |
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(228 |
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Net income |
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6,893 |
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1,858 |
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24,008 |
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9,303 |
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Less: |
General partners interest in net income, including incentive distribution rights |
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(316 |
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(142 |
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(733 |
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(455 |
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Limited partners interest in net income |
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$ |
6,577 |
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$ |
1,716 |
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$ |
23,275 |
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$ |
8,848 |
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Basic net income per limited partner unit |
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$ |
0.24 |
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$ |
0.08 |
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$ |
0.89 |
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$ |
0.42 |
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Diluted net income per limited partner unit |
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$ |
0.24 |
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$ |
0.08 |
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$ |
0.89 |
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$ |
0.41 |
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Basic weighted average limited partner units outstanding |
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27,311 |
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21,567 |
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26,085 |
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21,188 |
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Diluted weighted average limited partner units outstanding |
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27,485 |
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21,752 |
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26,258 |
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21,388 |
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The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL PARTNERS LP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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2012 |
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2011 |
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2012 |
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2011 |
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Net income |
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$ |
6,893 |
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$ |
1,858 |
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$ |
24,008 |
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$ |
9,303 |
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Other comprehensive income (loss): |
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Change in fair value of cash flow hedges |
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515 |
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(5,193 |
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1,204 |
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(5,013 |
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Change in pension liability |
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373 |
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(720 |
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581 |
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(795 |
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Total other comprehensive income (loss) |
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888 |
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(5,913 |
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1,785 |
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(5,808 |
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Total comprehensive income (loss) |
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$ |
7,781 |
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$ |
(4,055 |
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$ |
25,793 |
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$ |
3,495 |
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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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Nine Months Ended |
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2012 |
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2011 |
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Cash flows from operating activities |
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Net income |
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$ |
24,008 |
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$ |
9,303 |
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Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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32,663 |
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22,725 |
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Amortization of deferred financing fees |
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4,106 |
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3,450 |
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Bad debt expense |
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270 |
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1,770 |
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Stock-based compensation expense |
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(20 |
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333 |
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Curtailment gain |
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(469 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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(40,237 |
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112,965 |
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Accounts receivable affiliate |
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499 |
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(46 |
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Inventories |
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81,839 |
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(11,987 |
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Broker margin deposits |
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13,663 |
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(22,861 |
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Prepaid expenses, all other current assets and other assets |
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264 |
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(28,107 |
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Accounts payable |
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91,708 |
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(80,769 |
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Trustee taxes payable |
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(7,515 |
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(4,044 |
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Change in fair value of forward fixed price contracts |
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(25,450 |
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(14,226 |
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Accrued expenses, all other current liabilities and other long-term liabilities |
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14,371 |
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4,715 |
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Net cash provided by (used in) operating activities |
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189,700 |
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(6,779 |
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Cash flows from investing activities |
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Acquisition of Alliance (cash component of the purchase price) |
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(181,898 |
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Capital expenditures |
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(30,907 |
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(7,471 |
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Proceeds from sale of property and equipment |
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6,610 |
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955 |
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Net cash used in investing activities |
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(206,195 |
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(6,516 |
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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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(Payments on) borrowings from working capital revolving credit facility |
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(161,800 |
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65,300 |
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Borrowings from (payments on) revolving credit facility |
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217,000 |
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(80,000 |
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Repurchase of common units |
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(2,152 |
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(658 |
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Repurchased units withheld for tax obligations |
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(96 |
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(675 |
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Distributions to partners |
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(39,712 |
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(31,787 |
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Net cash provided by financing activities |
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13,240 |
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21,806 |
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(Decrease) increase in cash and cash equivalents |
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(3,255 |
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8,511 |
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Cash and cash equivalents at beginning of period |
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4,328 |
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2,361 |
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Cash and cash equivalents at end of period |
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$ |
1,073 |
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$ |
10,872 |
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Supplemental information |
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Cash paid during the period for interest |
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$ |
27,720 |
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$ |
23,905 |
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Non-cash conversion of subordinated unitholders |
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$ |
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$ |
1,623 |
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Non-cash investing activities |
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Effect of acquisition of Alliance: |
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Fair value of tangible assets acquired |
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$ |
(333,212 |
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Fair value of liabilities assumed |
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83,209 |
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Fair value of acquired intangible assets |
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(33,285 |
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Consideration paid in excess of fair value (goodwill) |
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(29,123 |
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Fair value of common units issued |
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130,513 |
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Net cash paid in connection with the acquisition of Alliance |
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$ |
(181,898 |
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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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Partner |
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Comprehensive |
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Partners |
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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, 2011 |
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$ |
336,103 |
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$ |
(319 |
) |
$ |
(20,495 |
) |
$ |
315,289 |
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Issuance of common units in connection with the acquisition of Alliance |
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130,513 |
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130,513 |
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Net income |
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23,275 |
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733 |
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24,008 |
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Other comprehensive income |
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1,785 |
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1,785 |
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Stock-based compensation |
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(20 |
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(20 |
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Distributions to partners |
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(38,907 |
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(888 |
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(39,795 |
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Phantom unit dividends |
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83 |
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83 |
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Repurchase of common units |
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(2,152 |
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(2,152 |
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Repurchased units withheld for tax obligations |
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(96 |
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(96 |
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Balance at September 30, 2012 |
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$ |
448,799 |
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$ |
(474 |
) |
$ |
(18,710 |
) |
$ |
429,615 |
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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 distribution of refined petroleum products, renewable fuels, crude oil and natural gas and also provides ancillary services to companies. The Partnership also receives revenue from retail sales of gasoline, convenience store sales and gas station rental income.
On March 1, 2012, the Partnership acquired from AE Holdings Corp. (AE Holdings) 100% of the outstanding membership interests in Alliance Energy LLC (Alliance) (see Note 2). Prior to the closing of the acquisition, Alliance was wholly owned by AE Holdings, which is approximately 95% owned by members of the Slifka family. No member of the Slifka family owned a controlling interest in AE Holdings, nor currently owns a controlling interest in Global GP LLC, the Partnerships general partner (the General Partner). Three independent directors of the General Partners board of directors serve on a conflicts committee. The conflicts committee unanimously approved the Alliance acquisition and received advice from its independent counsel and independent financial adviser.
As of September 30, 2012, the Partnership had the following subsidiaries: Global Companies LLC (Global Companies), Glen Hes Corp., Global Montello Group Corp. (GMG), Alliance Retail LLC, Chelsea Sandwich LLC, Global Energy Marketing LLC (Global Energy), Alliance and Bursaw Oil LLC (Bursaw) (the subsidiaries, collectively, the Companies). Portside LLC, a former subsidiary, merged into Bursaw in July 2012. The Companies (other than Glen Hes Corp.) are wholly owned by Global Operating LLC, a wholly owned subsidiary of the Partnership. In addition, GLP Finance Corp. (GLP Finance) is a wholly owned subsidiary of the Partnership.
The General Partner, which holds a 0.83% general partner interest in the Partnership, is owned by affiliates of the Slifka family and manages the Partnerships operations and activities and employs its officers and all of its personnel, except for its gasoline station and convenience store employees and certain union personnel, who are employed by GMG. As of September 30, 2012, affiliates of the General Partner, including its directors and executive officers, own 11,488,804 common units, representing a 42% limited partner interest.
Basis of Presentation
The financial results of Alliance for the seven months ended September 30, 2012 are included in the accompanying statements of income for the nine months ended September 30, 2012. The accompanying consolidated financial statements as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011 reflect the accounts of the Partnership. All intercompany balances and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial condition and operating results for the interim periods. The interim financial information, which has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), should be read in conjunction with the consolidated financial statements for the year ended December 31, 2011 and notes thereto contained in the 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.
The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2012. The consolidated balance sheet at December 31, 2011 has been derived from the audited consolidated financial statements included in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2011.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization and Basis of Presentation (continued)
Due to the nature of the Partnerships business and its customers reliance, in part, on consumer travel and spending patterns, the Partnership may experience more demand for gasoline and gasoline blendstocks during the late spring and summer months than during the fall and winter. Travel and recreational activities are typically higher in these months in the geographic areas in which the Partnership operates, increasing the demand for gasoline and gasoline blendstocks that the Partnership distributes. Therefore, the Partnerships volumes in gasoline and gasoline blendstocks are typically higher in the second and third quarters of the calendar year. In addition, 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, heating oil and residual oil sales are generally higher during the first and fourth quarters of the calendar year. These factors may result in significant fluctuations in the Partnerships quarterly operating results.
Concentration of Risk
The following table presents the Partnerships product sales as a percentage of total sales for the periods presented:
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Three Months Ended |
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Nine Months Ended | ||||
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2012 |
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2011 |
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2012 |
|
2011 |
Gasoline sales: gasoline and gasoline blendstocks such as ethanol and naphtha |
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76% |
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76% |
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70% |
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68% |
Distillates (home heating oil, diesel and kerosene), residual oil, crude oil and natural gas sales |
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24% |
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24% |
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30% |
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32% |
Total |
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100% |
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100% |
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100% |
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100% |
The Partnership had one significant customer, ExxonMobil Oil Corporation (ExxonMobil), which accounted for approximately 16% and 18% of total sales for the three months ended September 30, 2012 and 2011, respectively, and approximately 16% and 20% of total sales for the nine months ended September 30, 2012 and 2011, respectively.
Note 2. Business Combination
On March 1, 2012, the Partnership acquired from AE Holdings 100% of the outstanding membership interests in Alliance, a gasoline distributor and operator of gasoline stations and convenience stores. The aggregate purchase price of the acquisition was approximately $312.4 million, consisting of both cash and non-cash components. Alliance was an affiliate of the Partnership as Alliance was owned by AE Holdings which is approximately 95% owned by members of the Slifka family. Both the Partnership and Alliance shared certain common directors.
The acquisition was accounted for using the purchase method of accounting in accordance with the Financial Accounting Standards Boards (FASB) guidance regarding business combinations. The Partnerships financial statements include the results of operations of Alliance subsequent to the acquisition date.
The purchase price includes an initial cash payment of $184.5 million which was funded by the Partnership through additional borrowings under its revolving credit facility. The consideration also includes the issuance of 5,850,000 common units representing limited partner interests in the Partnership which had a fair value of $22.31 per unit on March 1, 2012, resulting in equity consideration of $130.5 million. Pursuant to the Contribution Agreement, there was a $1.9 million adjustment as a result of the timing of the transaction (March 1), the sellers 31 days of actual unit ownership in the 91 days of the quarter and the net receipt by seller ($1.0 million) of a pro-rated portion of the quarterly cash distribution of $0.50 per unit paid on the newly issued 5,850,000 common units. There were also $0.7 million in miscellaneous adjustments based on certain cash and non-cash changes in the Alliance operations from
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Business Combination (continued)
October 1, 2011 (when the acquisition was initially agreed to by the parties) to February 29, 2012 (collectively with the $1.9 million adjustment, the Cash Adjustment). The Cash Adjustment was paid by Alliance to the Partnership on May 16, 2012. The net cash paid after consideration of the Cash Adjustment was $181.9 million.
The following is a summary of the purchase price as of the date of acquisition (in thousands, except units):
Number of common units issued |
|
5,850,000 |
|
|
| ||
Price per common unit on March 1, 2012, date of acquisition |
|
$ |
22.31 |
|
|
| |
Total fair value of common units issued |
|
|
|
$ |
130,513 |
| |
Cash consideration |
|
|
|
181,898 |
| ||
Total purchase price |
|
|
|
$ |
312,411 |
| |
The purchase price allocation is considered preliminary, and additional adjustments may be recorded during the allocation period in accordance with the FASBs guidance regarding business combinations. The purchase price allocation will be finalized as the Partnership receives additional information relevant to the acquisition, including a final valuation of the assets purchased and further information with respect to the fair value of the environmental liabilities assumed.
The following table presents the preliminary allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):
Assets purchased: |
|
|
| |
Accounts receivable |
|
$ |
18,801 |
|
Inventory |
|
11,421 |
| |
Prepaid expenses |
|
3,235 |
| |
Property and equipment |
|
294,894 |
| |
Intangibles |
|
33,285 |
| |
Other non-current assets |
|
4,861 |
| |
Total identifiable assets purchased |
|
366,497 |
| |
Liabilities assumed: |
|
|
| |
Accounts payable |
|
(36,975 |
) | |
Assumption of environmental liabilities |
|
(22,000 |
) | |
Trustee taxes payable |
|
(9,969 |
) | |
Accrued expenses |
|
(2,211 |
) | |
Long-term deferred taxes |
|
(6,425 |
) | |
Other non-current liabilities |
|
(5,629 |
) | |
Total liabilities assumed |
|
(83,209 |
) | |
Net identifiable assets acquired |
|
283,288 |
| |
Goodwill |
|
29,123 |
| |
Net assets acquired |
|
$ |
312,411 |
|
During the quarter ended September 30, 2012, the Partnership recorded certain changes to the preliminary purchase accounting, primarily related to recording the deferred taxes on the acquisition and, to a lesser extent, changes related to the values assigned to property and equipment and intangibles. The impact of these changes increased goodwill from $19.6 million at June 30, 2012 to $29.1 million at September 30, 2012.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Business Combination (continued)
The following represents the changes in goodwill from the period ended June 30, 2012 to the current date.
Goodwill June 30, 2012 |
|
$ |
19,659 |
|
Decrease in fair value of property and equipment |
|
1,324 |
| |
Decrease in fair value of intangibles |
|
1,715 |
| |
Long-term deferred taxes |
|
6,425 |
| |
Goodwill September 30, 2012 |
|
$ |
29,123 |
|
The deferred taxes principally consist of deferred tax assets associated with the environmental obligations and deferred tax liabilities related to the property and equipment.
Management is in the process of evaluating the purchase price accounting. The liability for environmental matters has been estimated by the Partnership with the assistance from a third party consultant. Based on a preliminary analysis received to date, the estimated provision for environmental matters related to Alliance is $22.0 million. This provision represents the estimated contingency related to such environmental matters (see Note 11 for additional information). Upon completion of this analysis, including a review of the legal and environmental requirements related to the remediation costs associated with future removal or replacement of underground gas storage tanks at the Alliance gas station locations, changes may result to the estimated provision for environmental matters.
The Partnership engaged a third-party valuation firm to assist in the valuation of Alliances property and equipment, and the preliminary estimate of fair value is $294.9 million. Depreciation expense amounted to $2.5 million and $6.8 million for the three and nine months ended September 30, 2012, respectively.
The fair value of $33.3 million assigned to the intangibles was determined based on a preliminary valuation received from a third party. The Partnership utilized accounting guidance related to intangible assets which lists the pertinent factors to be considered when estimating the useful life of an intangible asset. These factors include, in part, a review of the expected use by the Partnership of the assets acquired, the expected useful life of another asset (or group of assets) related to the acquired assets and legal, regulatory or other contractual provisions that may limit the useful life of an acquired asset. The Partnership has amortized these intangible assets on a straight-line basis over an estimated useful life of ten years as this approximates the economic use of these assets. Amortization expense amounted to $0.5 million and $1.9 million for the three and nine months ended September 30, 2012, respectively.
The fair values of the remaining Alliance assets and liabilities noted above approximate their carrying values at March 1, 2012. It is possible that once the Partnership receives the completed valuations on the environmental matters, property and equipment and intangible assets, the final purchase price accounting may be different than what is presented above.
The preliminary purchase price for the acquisition was allocated to assets acquired and liabilities assumed based on their estimated fair values with the exception of environmental liabilities which were recorded on an undiscounted basis. The Partnership then allocated the purchase price in excess of net tangible assets acquired to identifiable intangible assets, based upon a valuation from an independent third party. Any excess purchase price over the fair value of the net tangible and intangible assets acquired was allocated to goodwill.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Business Combination (continued)
The $29.1 million of goodwill is expected to be assigned to the Gasoline Distribution and Station Operations segment upon completion of the external valuation. The goodwill recognized is attributed to the enhancement of the Partnerships year-round income stream and building on the vertical integration between the Partnerships supply, teminaling and wholesale business and its portfolio of gas station locations across the northeast. The goodwill is not expected to be deductible for income tax purposes.
The estimated remaining amortization expense for intangible assets acquired in connection with the acquisition for each of the five succeeding years and thereafter is as follows (in thousands):
2012 (10/1/12 12/31/12) |
|
$ |
832 |
|
2013 |
|
3,329 |
| |
2014 |
|
3,329 |
| |
2015 |
|
3,329 |
| |
2016 |
|
3,329 |
| |
Thereafter |
|
17,195 |
| |
Total |
|
$ |
31,343 |
|
In connection with the acquisition, the Partnership accrued acquisition related costs of $5.2 million. Of this amount, $1.1 million was included in selling, general and administrative expenses for the year ended December 31, 2011 and $0 and $4.0 million were included in selling, general and administrative expenses for the three and nine months ended September 30, 2012, respectively. The Partnership paid acquisition costs of $0.2 million and $3.8 million for the three and nine months ended September 30, 2012, respectively. At September 30, 2012, $0.2 million of these costs remain accrued and unpaid, and the Partnership expects these remaining costs to be paid by December 31. 2012.
Alliance operates a network of company owned and operated gasoline stations and convenience stores and is a distributor of gasoline to leased and independently-owned stations. Alliance owns and/or operates stations and offers its services in Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, New Jersey and Pennsylvania. The acquisition of Alliance has enabled the Partnership to expand its gasoline distribution business and continue to increase its presence across the northeast United States. The Alliance business is integrated into the Partnerships Gasoline Distribution and Station Operations reporting segment (see Note 9).
Supplemental Pro-Forma Information The following unaudited pro-forma information presents the consolidated results of operations of the Partnership as if the Alliance acquisition occurred at the beginning of each period presented, with pro-forma adjustments to give effect to intercompany sales and certain other adjustments (in thousands):
|
|
Three Months |
|
Nine Months Ended |
| |||||
|
|
2011 |
|
2012 |
|
2011 |
| |||
Sales |
|
$ |
4,180,141 |
|
$ |
12,742,962 |
|
$ |
11,940,888 |
|
Net income |
|
$ |
7,294 |
|
$ |
18,264 |
|
$ |
17,326 |
|
Net income per limited partner unit, basic |
|
$ |
0.26 |
|
$ |
0.64 |
|
$ |
0.62 |
|
Net income per limited partner unit, diluted |
|
$ |
0.26 |
|
$ |
0.64 |
|
$ |
0.61 |
|
The pro-forma net income of the Partnership for the nine months ended September 30, 2012 does not reflect the impact of a $4.7 million Alliance receivable that the Partnership deemed to have a fair value of $0 at the acquisition date. Alliances revenues and net income included in the Partnerships consolidated operating results from March 1, 2012, the acquisition date, through the period ended September 30, 2012 were $1.3 billion and $13.7 million, respectively.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Net 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 unitholders, or limited partners interest, and to the General Partners general partner interest.
At September 30, 2012 and December 31, 2011, common units outstanding as reported in the accompanying consolidated financial statements excluded 119,915 and 18,632 common units, respectively, held on behalf of the Partnership pursuant to its repurchase program. These units are not deemed outstanding for purposes of calculating net income per limited partner unit (basic and diluted).
The following table provides a reconciliation of net income and the assumed allocation of net income to the limited partners interest for purposes of computing net income per limited partner unit for the three and nine months ended September 30, 2012 and 2011 (in thousands, except per unit data):
|
|
Three Months Ended September 30, 2012 |
|
Three Months Ended September 30, 2011 |
| |||||||||||||||||||||||
Numerator: |
|
Total |
|
Limited |
|
General |
|
IDRs |
|
Total |
|
Limited |
|
General |
|
IDRs |
| |||||||||||
Net income (1)(2) |
|
$ |
|
6,893 |
|
$ |
6,577 |
|
$ |
316 |
|
$ |
|
|
$ |
1,858 |
|
$ |
1,716 |
|
$ |
142 |
|
$ |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Declared distribution |
|
15,019 |
|
14,607 |
|
122 |
|
290 |
|
11,028 |
|
10,790 |
|
116 |
|
122 |
| |||||||||||
Assumed allocation of undistributed net income |
(8,126 |
) |
(8,030 |
) |
(96 |
) |
|
|
(9,170 |
) |
(9,074 |
) |
(96 |
) |
|
| ||||||||||||
Assumed allocation of net income |
$ |
|
6,893 |
|
$ |
6,577 |
|
$ |
26 |
|
$ |
290 |
|
$ |
1,858 |
|
$ |
1,716 |
|
$ |
20 |
|
$ |
122 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Basic weighted average limited partner units outstanding |
|
|
27,311 |
|
|
|
|
|
|
|
21,567 |
|
|
|
|
| ||||||||||||
Dilutive effect of phantom units |
|
|
174 |
|
|
|
|
|
|
|
185 |
|
|
|
|
| ||||||||||||
Diluted weighted average limited partner units outstanding |
|
|
27,485 |
|
|
|
|
|
|
|
21,752 |
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Basic net income per limited partner unit |
|
|
$ |
0.24 |
|
|
|
|
|
|
|
$ |
0.08 |
|
|
|
|
| ||||||||||
Diluted net income per limited partner unit |
|
|
$ |
0.24 |
|
|
|
|
|
|
|
|
$ |
0.08 |
|
|
|
|
| |||||||||
(1) Calculation includes the effect of the March 1, 2012 issuance of 5,850,000 common units in connection with the acquisition of Alliance (see Note 2). As a result, the general partner interest was reduced to 0.83% for the three months ended September 30, 2012.
(2) Calculation includes the effect of the November 2010 and February 2011 public offerings. As a result, the general partner interest was reduced to 1.06% for the three months ended September 30, 2011.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Net Income Per Limited Partner Unit (continued)
|
|
Nine Months Ended September 30, 2012 |
|
Nine Months Ended September 30, 2011 |
| ||||||||||||||||||||||
Numerator: |
|
Total |
|
Limited |
|
General |
|
IDRs |
|
Total |
|
Limited |
|
General |
|
IDRs |
| ||||||||||
Net income (1)(2) |
|
$ |
24,008 |
|
$ |
23,275 |
|
$ |
733 |
|
$ |
|
|
$ |
9,303 |
|
$ |
8,848 |
|
$ |
455 |
|
$ |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Declared distribution |
|
43,786 |
|
42,724 |
|
358 |
|
704 |
|
33,084 |
|
32,370 |
|
348 |
|
366 |
| ||||||||||
Adjustment to distribution in connection with the Alliance acquisition (3) |
(1,929 |
) |
(1,929 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Adjusted declared distribution |
41,857 |
|
40,795 |
|
358 |
|
704 |
|
33,084 |
|
32,370 |
|
348 |
|
366 |
| |||||||||||
Assumed allocation of undistributed net income |
(17,849 |
) |
(17,520 |
) |
(329 |
) |
|
|
(23,781 |
) |
(23,522 |
) |
(259 |
) |
|
| |||||||||||
Assumed allocation of net income |
$ |
24,008 |
|
$ |
23,275 |
|
$ |
29 |
|
$ |
704 |
|
$ |
9,303 |
|
$ |
8,848 |
|
$ |
89 |
|
$ |
366 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Basic weighted average limited partner units outstanding |
|
|
26,085 |
|
|
|
|
|
|
|
21,188 |
|
|
|
|
| |||||||||||
Dilutive effect of phantom units |
|
|
173 |
|
|
|
|
|
|
|
200 |
|
|
|
|
| |||||||||||
Diluted weighted average limited partner units outstanding |
|
|
26,258 |
|
|
|
|
|
|
|
21,388 |
|
|
|
|
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Basic net income per limited partner unit |
|
|
$ |
0.89 |
|
|
|
|
|
|
|
$ |
0.42 |
|
|
|
|
| |||||||||
Diluted net income per limited partner unit |
|
|
$ |
0.89 |
|
|
|
|
|
|
|
|
$ |
0.41 |
|
|
|
|
| ||||||||
(1) Calculation includes the effect of the March 1, 2012 issuance of 5,850,000 common units in connection with the acquisition of Alliance (see Note 2). As a result, the general partner interest was 0.87%, based on a weighted average, for the nine months ended September 30, 2012.
(2) Calculation includes the effect of the November 2010 and February 2011 public offerings. As a result, the general partner interest was 1.10%, based on a weighted average, for the nine months ended September 30, 2011.
(3) In connection with the acquisition of Alliance on March 1, 2012 and the issuance of 5,850,000 common units, the Contribution Agreement provided that any declared per unit distribution for the first quarter of 2012 reflect the sellers actual period of ownership during that quarter. The payment by the seller of $1.9 million reflects the timing of the transaction (March 1), the sellers 31 days of actual unit ownership in the 91 days of the quarter and the net receipt by seller ($1.0 million) of a pro-rated portion of the quarterly cash distribution of $0.50 per unit paid on the newly issued 5,850,000 common units.
On April 20, 2012, the board of directors of the General Partner declared a quarterly cash distribution of $0.50 per unit for the period from January 1, 2012 through March 31, 2012. On July 19, 2012, the board of directors of the General Partner declared a quarterly cash distribution of $0.5250 per unit for the period from April 1, 2012 through June 30, 2012. On October 25, 2012, the board of directors of the General Partner declared a quarterly cash distribution of $0.5325 per unit for the period from July 1, 2012 through September 30, 2012. 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 4. Inventories
Except for its convenience store inventory, the Partnership hedges substantially all of its inventory through futures contracts and swap agreements. Hedges are executed when inventory is purchased and are identified with that specific inventory. Changes in the fair value of these contracts, as well as the offsetting gain or loss on the hedged inventory item, are recognized in earnings as an increase or decrease in cost of sales. All hedged inventory is valued using the lower of cost, as determined by specific identification, or market. Prior to sale, hedges are removed from specific barrels of inventory, and the then unhedged inventory is sold and accounted for on a first-in, first-out basis. In addition, the Partnership has convenience store inventory which is carried at the lower of historical cost or market.
Inventories consisted of the following (in thousands):
|
|
September 30, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
Distillates: home heating oil, diesel and kerosene |
|
$ |
253,835 |
|
$ |
393,137 |
|
Gasoline |
|
127,510 |
|
154,303 |
| ||
Gasoline blendstocks |
|
106,574 |
|
57,970 |
| ||
Residual oil and crude oil |
|
99,330 |
|
56,121 |
| ||
Total |
|
587,249 |
|
661,531 |
| ||
Convenience store inventory |
|
6,478 |
|
2,613 |
| ||
Total |
|
$ |
593,727 |
|
$ |
664,144 |
|
In addition to its own inventory, the Partnership has exchange agreements for petroleum products with unrelated third-party suppliers, whereby it may draw inventory from these other suppliers and suppliers may draw inventory from the Partnership. Positive exchange balances are accounted for as accounts receivable and amounted to $128.2 million and $65.3 million at September 30, 2012 and December 31, 2011, respectively. Negative exchange balances are accounted for as accounts payable and amounted to $113.8 million and $58.2 million at September 30, 2012 and December 31, 2011, respectively. Exchange transactions are valued using current inventory levels.
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 September 30, 2012:
|
|
|
Units (1) |
|
Unit of Measure |
| |
|
|
|
|
|
| ||
Product Contracts |
|
|
|
|
| ||
Long |
|
23,468 |
|
Thousands of barrels |
| ||
Short |
|
(28,943 |
) |
Thousands of barrels |
| ||
|
|
|
|
|
| ||
Natural Gas Contracts |
|
|
|
|
| ||
Long |
|
12,321 |
|
Thousands of decatherms |
| ||
Short |
|
(12,321 |
) |
Thousands of decatherms |
| ||
|
|
|
|
|
| ||
Interest Rate Collar |
|
$ |
100.0 |
|
Millions of U.S. dollars |
| |
|
|
|
|
|
| ||
Interest Rate Swap |
|
$ |
100.0 |
|
Millions of U.S. dollars |
| |
|
|
|
|
|
| ||
Interest Rate Cap |
|
$ |
100.0 |
|
Millions of U.S. dollars |
| |
|
|
|
|
|
| ||
Foreign Currency Derivatives |
|
|
|
|
| ||
Open Forward Exchange Contracts (2) |
|
$ |
18.3 |
|
Millions of Canadian dollars |
| |
|
|
$ |
18.6 |
|
Millions of U.S. dollars |
| |
(1) |
|
Number of open positions and gross notional amounts do not quantify risk or represent assets or liabilities of the Partnership, but are used in the calculation of daily cash settlements under the contracts. |
(2) |
|
All-in forward rate Canadian dollars (CAD) $0.9836 to USD $1.00. |
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 related to the receipt or delivery of refined petroleum products, renewable fuels and crude oil in future periods. The contracts are entered into in the normal course of business to reduce risk of loss of inventory on hand, which could result through fluctuations in market prices. Changes in the fair value of these contracts, as well as the offsetting gain or loss on the hedged inventory item, are recognized in earnings as an increase or decrease in cost of sales. Ineffectiveness related to these hedging activities was immaterial for the three and nine months ended September 30, 2012 and 2011.
The Partnership also uses futures contracts and swap agreements to hedge exposure under forward fixed price purchase and sale commitments. These agreements are intended to hedge the impact of commodity price changes on the Partnerships inventories and forward fixed price commitments as well as to hedge the cost component of virtually all of the Partnerships forward fixed price purchase and sale commitments. Changes in the fair value of these contracts and agreements, as well as offsetting gains or losses on the forward fixed price purchase and sale commitments, are recognized in earnings as an increase or decrease in cost of sales. Gains and losses on net product margin from forward fixed price purchase and sale commitments are reflected in earnings as an increase or decrease in cost of sales as these contracts mature. The change in the fair value of the futures contracts is settled on a daily basis. Ineffectiveness related to these hedging activities was immaterial for the three and nine months ended September 30, 2012 and 2011.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
The following table presents the gross fair values of the Partnerships derivative instruments and firm commitments and their location in the Partnerships consolidated balance sheets at September 30, 2012 and December 31, 2011 (in thousands):
|
|
|
|
September 30, |
|
December 31, |
| ||
|
|
Balance Sheet |
|
2012 |
|
2011 |
| ||
Asset Derivatives |
|
Location (Net) |
|
Fair Value |
|
Fair Value |
| ||
Derivatives designated as hedging instruments and firm commitments |
|
|
|
|
|
|
| ||
Product contracts (1) |
|
(2) |
|
$ |
29,255 |
|
$ |
3,607 |
|
|
|
|
|
|
|
|
| ||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
| ||
Product and natural gas contracts |
|
(3) |
|
1,172 |
|
12,163 |
| ||
Foreign currency derivatives |
|
(4) |
|
121 |
|
|
| ||
Total |
|
|
|
1,293 |
|
12,163 |
| ||
|
|
|
|
|
|
|
| ||
Total asset derivatives |
|
|
|
$ |
30,548 |
|
$ |
15,770 |
|
Liability Derivatives |
|
|
|
|
|
|
| ||
Derivatives designated as hedging instruments and firm commitments |
|
|
|
|
|
|
| ||
Product contracts (1) |
|
(5) |
|
$ |
93 |
|
$ |
|
|
|
|
|
|
|
|
|
| ||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
| ||
Product and natural gas contracts |
|
(5) |
|
1,163 |
|
11,936 |
| ||
Total liability derivatives |
|
|
|
$ |
1,256 |
|
$ |
11,936 |
|
(1) Includes forward fixed price purchase and sale contracts as recognized in the Partnerships consolidated balance sheets at September 30, 2012 and December 31, 2011
(2) Fair value of forward fixed price contracts and prepaid expenses and other current assets at September 30, 2012 and fair value of forward fixed price contracts at December 31, 2011
(3) Fair value of forward fixed price contracts and prepaid expenses and other current assets at September 30, 2012 and December 31, 2011
(4) Prepaid expenses and other current assets at September 30, 2012
(5) Obligations on forward fixed price contracts and accrued expenses and other current liabilities at September 30, 2012 and December 31, 2011
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 income for the three and nine months ended September 30, 2012 and 2011 (in thousands):
|
|
|
|
Amount of Gain (Loss) Recognized in |
| ||||||||||
Derivatives in Fair Value |
|
Location of Gain (Loss) |
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
Hedging Relationships |
|
Income on Derivative |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product contracts |
|
Cost of sales |
|
$ |
(100,666 |
) |
$ |
30,711 |
|
$ |
(110,114 |
) |
$ |
(62,732 |
) |
|
|
|
|
Amount of Gain (Loss) Recognized in |
| ||||||||||
Hedged Items in Fair Value |
|
Location of Gain (Loss) |
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
Hedged Relationships |
|
Income on Hedged Items |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Inventories and forward fixed price contracts |
|
Cost of sales |
|
$ |
100,765 |
|
$ |
(30,681 |
) |
$ |
110,368 |
|
$ |
63,030 |
|
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 net composition and fair value of forward fixed price purchase and sale contracts on the Partnerships consolidated balance sheets being hedged by the following derivative instruments (in thousands):
|
|
September 30, |
|
December 31, |
| ||
Futures contracts |
|
$ |
29,242 |
|
$ |
3,607 |
|
Swaps and other, net |
|
(49 |
) |
136 |
| ||
Total |
|
$ |
29,193 |
|
$ |
3,743 |
|
The net total balances of $29.2 million and $3.7 million reflect the fair value of the forward fixed price contract asset/(liability) net of the corresponding asset/(liability) in the accompanying consolidated balance sheets at September 30, 2012 and December 31, 2011, respectively.
The Partnership formally documents all relationships between hedging instruments and hedged items after its risk management objectives and strategy for undertaking the hedge are determined. The Partnership calculates hedge effectiveness on a quarterly basis. This process includes specific identification of the hedging instrument and the hedged transaction, the nature of the risk being hedged and how the hedging 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 forward sale of product for physical delivery to third-party users. Through these transactions, which establish an immediate margin, the Partnership seeks to maintain a position that is substantially balanced between firm forward purchase and sales commitments. Natural gas is generally purchased and sold at fixed prices and quantities. Current price quotes from actively traded markets are used in all cases to determine the contracts fair value. Changes in the fair value of these contracts are recognized in earnings as an increase or decrease in cost of sales.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
The Partnership has a daily margin requirement with its brokers based on the prior days market results on open futures contracts. The brokerage margin balance was $30.3 million and $43.9 million at September 30, 2012 and December 31, 2011, respectively.
The Partnership is exposed to credit loss in the event of nonperformance by counterparties of forward purchase and sale commitments, futures contracts, options and swap agreements, but the Partnership has no current reason to expect any material nonperformance by any of these counterparties. Futures contracts, the primary derivative instrument utilized by the Partnership, are traded on regulated exchanges, greatly reducing potential credit risks. The Partnership utilizes primarily two clearing brokers, both major financial institutions, for all New York Mercantile Exchange (NYMEX) and Chicago Mercantile Exchange (CME) derivative transactions and the right of offset exists. Accordingly, the fair value of derivative instruments is presented on a net basis in the consolidated balance sheets. Exposure on forward purchase and sale commitments and swap and certain option agreements is limited to the amount of the recorded fair value as of the balance sheet dates.
The Partnership generally enters into master netting arrangements to mitigate counterparty credit risk with respect to its derivatives. Master netting arrangements are standardized contracts that govern all specified transactions with the same counterparty and allow the Partnership to terminate all contracts upon occurrence of certain events, such as a 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 or interest income in the same period during which the hedged transaction affects earnings.
On September 29, 2008, the Partnership executed a zero premium interest rate collar with a major financial institution. The collar is designated and accounted for as a cash flow hedge. The collar, which became effective on October 2, 2008 and expires on October 2, 2013, is used to hedge the variability in cash flows in monthly interest payments made on the 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 collar, the Partnership capped its exposure at a maximum one-month LIBOR rate of 5.50% and established a minimum floor rate of 2.70%. As of September 30, 2012, the one-month LIBOR rate of 0.23% 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 $185,000 and, at September 30, 2012, such amount was recorded in accrued expenses and other current liabilities in the accompanying consolidated balance sheet. The fair values of the collar, excluding accrued interest, were liabilities of approximately $2.5 million and $3.8 million as of September 30, 2012 and December 31, 2011, respectively, and were recorded in both other long-term liabilities and accumulated other comprehensive income in the accompanying consolidated balance sheets. Hedge effectiveness was assessed at inception and is assessed quarterly, prospectively and retrospectively, using regression analysis. The changes in the fair value of the collar are expected to be highly effective in offsetting the changes in interest rate payments attributable to fluctuations in the one-month LIBOR rate above and below the collars strike rates.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
In October 2009, the Partnership executed a forward starting interest rate swap with a major financial institution. The swap, which became effective on May 16, 2011 and expires on May 16, 2016, is used to hedge the variability in interest payments due to changes in the one-month LIBOR swap curve with respect to $100.0 million of one-month LIBOR-based borrowings on the revolving credit facility at a fixed rate of 3.93%. The fair values of the swap were liabilities of approximately $12.3 million and $12.4 million as of September 30, 2012 and December 31, 2011, respectively, and were recorded in other long-term liabilities and accumulated other comprehensive income in the accompanying consolidated balance sheets. Hedge effectiveness was assessed at inception and is assessed quarterly, prospectively and retrospectively, using regression analysis. The changes in the fair value of the swap are expected to be highly effective in offsetting the changes in interest rate payments attributable to fluctuations in the one-month LIBOR swap curve.
On April 8, 2011, the Partnership executed an interest rate cap with a major financial institution. The rate cap, which became effective on April 13, 2011 and expires on April 13, 2016, is used to hedge the variability in interest payments due to changes in the one-month LIBOR rate above 5.5% with respect to $100.0 million of one-month LIBOR-based borrowings on the working capital revolving credit facility. The fair values of the rate cap were assets of approximately $35,000 and $306,000 as of September 30, 2012 and December 31, 2011, respectively, and were recorded in both other assets and accumulated other comprehensive income in the accompanying balance sheets. Hedge effectiveness was assessed at inception and is assessed quarterly, prospectively and retrospectively, by (i) comparing the critical terms of the rate cap and the hedged forecasted transactions, (ii) evaluating the 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.
The following table presents the fair value of the Partnerships derivative instruments involved in cash flow hedging relationships and their location in the Partnerships consolidated balance sheets at September 30, 2012 and December 31, 2011 (in thousands):
|
|
|
|
September 30, |
|
December 31, |
| ||
Derivatives Designated as |
|
Balance Sheet |
|
2012 |
|
2011 |
| ||
Hedging Instruments |
|
Location |
|
Fair Value |
|
Fair Value |
| ||
|
|
|
|
|
|
|
| ||
Asset derivatives |
|
|
|
|
|
|
| ||
Interest rate cap |
|
Other assets |
|
$ |
35 |
|
$ |
306 |
|
|
|
|
|
|
|
|
| ||
Liability derivatives |
|
|
|
|
|
|
| ||
Interest rate collar |
|
Other long-term liabilities |
|
$ |
2,475 |
|
$ |
3,817 |
|
Interest rate swap |
|
Other long-term liabilities |
|
12,313 |
|
12,446 |
| ||
Total liability derivatives |
|
|
|
$ |
14,788 |
|
$ |
16,263 |
|
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 cash flow hedging relationships recognized in the Partnerships consolidated statements of income and partners equity for the three and nine months ended September 30, 2012 and 2011 (in thousands):
|
|
Amount of Gain (Loss) |
|
Recognized in Income |
|
Amount of Gain (Loss) |
|
Recognized in Income |
| ||||||||||||||||
Derivatives in |
|
Three Months Ended |
|
Three Months Ended |
|
Nine Months Ended |
|
Nine Months Ended |
| ||||||||||||||||
Hedging Relationship |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest rate collar |
|
$ |
481 |
|
$ |
66 |
|
$ |
|
|
$ |
|
|
$ |
1,341 |
|
$ |
1,573 |
|
$ |
|
|
$ |
|
|
Interest rate swap |
|
78 |
|
(3,075 |
) |
|
|
|
|
133 |
|
(5,343 |
) |
|
|
|
| ||||||||
Interest rate cap |
|
(44 |
) |
(2,184 |
) |
|
|
|
|
(270 |
) |
(1,243 |
) |
|
|
|
| ||||||||
Total |
|
$ |
515 |
|
$ |
(5,193 |
) |
$ |
|
|
$ |
|
|
$ |
1,204 |
|
$ |
(5,013 |
) |
$ |
|
|
$ |
|
|
Ineffectiveness related to the interest rate collar and the interest rate swap is recognized as interest expense and was immaterial for the three and nine months ended September 30, 2012 and 2011. The effective portion related to the interest rate collar that was originally reported in other comprehensive income and reclassified to earnings was $0.6 million and $0.6 million for the three months ended September 30, 2012 and 2011, respectively, and $1.9 million and $3.1 million for the nine months ended September 30, 2012 and 2011, respectively. None of the effective portion related to the interest rate cap that was originally reported in other comprehensive income was reclassified into earnings for the three and nine months ended September 30, 2012 and 2011.
Derivatives Not Designated as Hedging Instruments
While the Partnership seeks to maintain a position that is substantially balanced within its product purchase activities, it may experience net unbalanced positions for short periods of time as a result of variances in daily sales and transportation and delivery schedules as well as logistical issues inherent in the business, such as weather conditions. In connection with managing these positions and maintaining a constant presence in the marketplace, both necessary for its business, the Partnership engages in a controlled trading program for up to an aggregate of 250,000 barrels of products at any one point in time.
In addition, because a portion of the Partnerships crude business is conducted in CAD, the Partnership may use foreign currency derivatives to minimize the risks of unfavorable exchange rates. These instruments include foreign currency exchange contracts and forwards. In conjunction with entering into the commodity derivative, the Partnership may enter into a foreign currency derivative to hedge the resulting foreign currency risk. These foreign currency derivatives are generally short-term in nature and not designated for hedge accounting.
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 income for the three and nine months ended September 30, 2012 and 2011 (in thousands):
|
|
Location of |
|
Amount of Gain (Loss) |
|
Amount of Gain (Loss) |
| ||||||||
Derivatives Not Designated as |
|
Recognized in |
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
Hedging Instruments |
|
Derivatives |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product contracts |
|
Cost of sales |
|
$ |
11,062 |
|
$ |
6,789 |
|
$ |
15,666 |
|
$ |
9,116 |
|
Foreign currency derivatives |
|
Cost of sales |
|
160 |
|
|
|
121 |
|
|
| ||||
Total |
|
|
|
$ |
11,222 |
|
$ |
6,789 |
|
$ |
15,787 |
|
$ |
9,116 |
|
Note 6. Debt
On January 31, 2012, and in connection with the acquisition of Alliance, the Partnership entered into a Fourth Amendment to Amended and Restated Credit Agreement dated May 14, 2010, as amended (the Credit Agreement) which increased the total available commitments under the Credit Agreement to $1.4 billion. The Credit Agreement will mature on May 14, 2014.
As of September 30, 2012, there were two facilities under the Credit Agreement:
· a working capital revolving credit facility to be used for working capital purposes and letters of credit in the principal amount equal to the lesser of the Partnerships borrowing base and $900.0 million; and
· a $500.0 million revolving credit facility to be used for acquisitions and general corporate purposes.
In addition, the Credit Agreement has an accordion feature whereby the Partnership may request on the same terms and conditions of its then existing Credit Agreement, provided no Event of Default (as defined in the Credit Agreement) then exists, an increase to the working capital revolving credit facility by up to another $100.0 million, for a total credit facility of up to $1.5 billion. Any such request for an increase by the Partnership must be in a minimum amount of $5.0 million. The Partnership cannot provide assurance, however, that its lending group will agree to fund any request by the Partnership for additional amounts in excess of the total available commitments of $1.4 billion.
In addition, a swing line has been added to the Credit Agreement pursuant to which Bank of America, N.A., as the swing line lender, may make swing line loans in an aggregate amount equal to the lesser of (a) $35.0 million and (b) the Aggregate WC Commitments (as defined in the Credit Agreement). Swing line loans will bear interest at the Base Rate (as defined in the Credit Agreement). The swing line is a sub-portion of the working capital revolving credit facility and is not an addition to the total available commitments of $1.4 billion.
Availability under the 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 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.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Debt (continued)
Borrowings under the working capital revolving credit facility bear interest at (1) the Eurodollar rate plus 2.50% to 3.00%, (2) the cost of funds rate plus 2.50% to 3.00%, or (3) the base rate plus 1.50% to 2.00%, each depending on the pricing level provided in the Credit Agreement, which in turn depends upon the Utilization Amount (as defined in the Credit Agreement).
Borrowings under the revolving credit facility bear interest at (1) the Eurodollar rate plus 3.00% to 3.875%, (2) the cost of funds rate plus 3.00% to 3.875%, or (3) the base rate plus 2.00% to 2.875%, each depending on the pricing level provided in the Credit Agreement, which in turn depends upon the Combined Total Leverage Ratio (as defined in the Credit Agreement).
The average interest rates for the Credit Agreement were 4.1% and 4.0% for the three months ended September 30, 2012 and 2011, respectively, and 4.1% and 4.0% for the nine months ended September 30, 2012 and 2011, respectively.
The Partnership currently has a zero premium interest rate collar, an interest rate swap and an interest rate cap, all of which are used to hedge the variability in interest payments under the Credit Agreement due to changes in LIBOR rates. See Note 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 $278.0 million and $526.1 million at September 30, 2012 and December 31, 2011, respectively, representing the amounts expected to be outstanding during entire 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 $149.1 million and $62.8 million at September 30, 2012 and December 31, 2011, respectively, representing the amounts the Partnership expects to pay down during the course of the year.
As of September 30, 2012, the Partnership had total borrowings outstanding under the Credit Agreement of $849.1 million, including $422.0 million outstanding on the revolving credit facility. In addition, the Partnership had outstanding letters of credit of $368.2 million. Subject to borrowing base limitations, the total remaining availability for borrowings and letters of credit at September 30, 2012 and December 31, 2011 was $182.7 million and $215.9 million, respectively.
The Credit Agreement is secured by substantially all of the assets of the Partnership and each of the Companies and is guaranteed by the General Partner. The Credit Agreement imposes certain requirements including, for example, a prohibition against distributions if any potential default or Event of Default (as defined in the Credit Agreement) would occur as a result thereof, and limitations on the 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. On September 7, 2012, the Partnership entered into a Fifth Amendment to Amended and Restated Credit Agreement (the Fifth Amendment), which amended the Credit Agreement. Pursuant to the Fifth Amendment, the ceiling for capital expenditures for the year ending December 31, 2012 was raised from $40.0 million to $55.0 million. The ceiling for capital expenditures for any year ending December 31, 2013 and thereafter is $40.0 million. The Fifth Amendment was effective September 7, 2012. The Partnership was in compliance with the foregoing covenants at September 30, 2012. The Credit Agreement also contains a representation whereby there can be no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect (as defined in the Credit Agreement). In addition, the Credit Agreement limits distributions by the Partnership to its unitholders to the amount of the Partnerships Available Cash (as defined in its partnership agreement).
On October 3, 2012, the Partnership entered into a Sixth Amendment to Amended and Restated Credit Agreement (the Sixth Amendment), which increased the working capital revolving credit facility by $100.0 million, bringing the total available commitments under the Credit Agreement to $1.5 billion effective October 3, 2012. Also pursuant to the Sixth Amendment, provided there exists no Default (as defined in the Credit Agreement), from and after October 4, 2012 the Partnership may request an additional increase to the working capital revolving credit facility by up to an additional $100.0 million, for a total credit facility of up to $1.6 billion.
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 that is 100% owned by members of the Slifka family. The agreement, which extends through July 31, 2014 with annual renewal options thereafter, is accounted for as an operating lease. The expenses under this agreement totaled approximately $2.2 million for each of the three months ended September 30, 2012 and 2011, and $6.7 million and $6.5 million for the nine months ended September 30, 2012 and 2011, respectively.
Pursuant to an Amended and Restated Services Agreement with GPC, GPC provides certain terminal operating management services to the Partnership and uses certain administrative, accounting and information processing services of the Partnership. The expenses from these services totaled approximately $24,000 for each of the three months ended September 30, 2012 and 2011, and $72,000 for each of the nine months ended September 30, 2012 and 2011. These charges were recorded in selling, general and administrative expenses in the accompanying consolidated statements of income. On March 9, 2012, in connection with the Partnerships acquisition of Alliance (see Note 2), the agreement was amended to include the services provided by GPC to Alliance. The agreement is for an indefinite term, and either party may terminate its receipt of some or all of the services thereunder upon 180 days notice at any time. As of September 30, 2012, no such notice of termination was given by either party.
Prior to the acquisition of Alliance on March 1, 2012, the Partnership was a party to an Amended and Restated Services Agreement with Alliance. Pursuant to the agreement, the Partnership provided certain administrative, accounting and information processing services, and the use of certain facilities, to Alliance. The income from these services was approximately $47,000 for the three months ended September 30, 2011 and $31,000 and $140,000 for the nine months ended September 30, 2012 and 2011, respectively. These fees were recorded as an offset to selling, general and administrative expenses in the accompanying consolidated statements of income. On March 9, 2012, in connection with the acquisition of Alliance, the agreement was terminated without penalty. There were no settlement gains or losses recognized as a result of the termination of this agreement.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7. Related Party Transactions (continued)
In addition, on March 9, 2012, following the closing of the acquisition of Alliance, Global Companies and AE Holdings entered into a shared services agreement pursuant to which Global Companies provides AE Holdings with certain tax, accounting, treasury and legal support services for which AE Holdings pays Global Companies $15,000 per year. The shared services agreement is for an indefinite term and AE Holdings may terminate its receipt of some or all of the services upon 180 days notice.
Prior to the acquisition of Alliance, the Partnership sold refined petroleum products and renewable fuels to Alliance at prevailing market prices at the time of delivery. Sales to Alliance were approximately $66.3 million for the three months ended September 30, 2011 and $40.6 million and $126.2 million for the nine months ended September 30, 2012 and 2011, respectively. Sales to Alliance included sales of Mobil-branded fuel to Alliance pursuant to the Mobil franchise agreement entered into by Global Companies and Alliance, effective March 1, 2011.
In addition, Global Companies and GMG entered into management agreements with Alliance in connection with the Partnerships September 2010 acquisition of retail gas stations from ExxonMobil. The management fee and overhead reimbursement were approximately $0.4 million and $0.3 million, respectively, for the nine months ended September 30, 2012. The management fee and overhead reimbursement were approximately $0.7 million and $0.4 million, respectively, for the three months ended September 30, 2011 and $2.0 million and $1.2 million, respectively, for the nine months ended September 30, 2011. On March 9, 2012, in connection with the acquisition of Alliance, the management agreements were terminated without penalty.
The General Partner employs all of the Partnerships employees, except for its gasoline station and convenience store employees and certain union personnel, who are employed by GMG. The Partnership reimburses the General Partner for expenses incurred in connection with these employees. The expenses for the three months ended September 30, 2012 and 2011, including payroll, payroll taxes and bonus accruals, were $10.5 million and $11.0 million, respectively, and $30.6 million and $34.8 million, for the nine months ended September 30, 2012 and 2011, 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 (prior to the Partnerships acquisition of Alliance), receivables incurred in connection with the services agreements between Alliance and the Partnership (prior to the Partnerships acquisition of Alliance) and GPC and the Partnership, as the case may be, and receivables from the General Partner (in thousands):
|
|
September 30, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
Receivables from Alliance (BFA) (1) |
|
$ |
|
|
$ |
738 |
|
Receivables from Alliance |
|
|
|
205 |
| ||
Receivables from GPC |
|
276 |
|
302 |
| ||
Receivables from the General Partner (2) |
|
1,001 |
|
531 |
| ||
Total |
|
$ |
1,277 |
|
$ |
1,776 |
|
(1) As of December 31, 2011, receivables from Alliance reflected the Partnerships billings for branded fuel to Alliance, as a sub-jobber, pursuant to the Partnerships brand fee agreement. On March 1, 2012, the Partnership acquired Alliance (see Note 2).
(2) Receivables from the General Partner reflect the Partnerships prepayment of payroll taxes and payroll accruals to the General Partner.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8. Cash Distributions
The Partnership intends to consider regular cash distributions to unitholders on a quarterly basis, although there is no assurance as to the future cash distributions since they are dependent upon future earnings, capital requirements, financial condition and other factors. The Credit Agreement prohibits the Partnership from making cash distributions if any potential default or Event of Default, as defined in the Credit Agreement, occurs or would result from the cash distribution.
Within 45 days after the end of each quarter, the Partnership will distribute all of its Available Cash (as defined in its partnership agreement) to unitholders of record on the applicable record date. The amount of Available Cash is all cash on hand on the date of determination of Available Cash for the quarter; less the amount of cash reserves established by the General Partner to provide for the proper conduct of the 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.
The Partnership will make distributions of Available Cash from distributable cash flow for any quarter in the following manner: 99.17% to the common unitholders, pro rata, and 0.83% to the General Partner, until the Partnership distributes for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter; and thereafter, cash in excess of the minimum quarterly distribution is distributed to the unitholders and the General Partner based on the percentages as provided below.
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 |
|
99.17% |
|
0.83% |
|
First Target Distribution |
|
$0.4625 |
|
99.17% |
|
0.83% |
|
Second Target Distribution |
|
above $0.4625 up to $0.5375 |
|
86.17% |
|
13.83% |
|
Third Target Distribution |
|
above $0.5375 up to $0.6625 |
|
76.17% |
|
23.83% |
|
Thereafter |
|
above $0.6625 |
|
51.17% |
|
48.83% |
|
The Partnership paid the following cash distribution during 2012 (in thousands, except per unit data):
Cash |
|
Per Unit |
|
Common |
|
General |
|
Incentive |
|
Total Cash |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
02/14/11 (1)(2) |
|
$ |
0.50 |
|
$ |
10,790 |
|
$ |
116 |
|
$ |
122 |
|
$ |
11,028 |
|
05/14/12 (2)(3) |
|
$ |
0.50 |
|
$ |
13,716 |
|
$ |
115 |
|
$ |
155 |
|
$ |
13,986 |
|
8/14/12 (4) |
|
$ |
0.525 |
|
$ |
14,401 |
|
$ |
121 |
|
$ |
259 |
|
$ |
14,781 |
|
(1) Prior to the Partnerships issuance of 5,850,000 common units in connection with its acquisition of Alliance (see Note 2), the limited partner interest was 98.94% and the general partner interest was 1.06%.
(2) This distribution of $0.50 per unit resulted in the Partnership exceeding its first target level distribution for the fourth quarter of 2011 and first quarter of 2012. As a result, the General Partner, as the holder of the IDRs, received an incentive distribution.
(3) In connection with the acquisition of Alliance on March 1, 2012 and the issuance to the seller of 5,850,000 common units, the Contribution Agreement provided that any declared per unit distribution for the first quarter of 2012 reflect the sellers actual period of ownership during that quarter. The payment by the seller of $1.9 million reflects the timing of the transaction (March 1), the sellers 31 days of actual unit ownership in the 91 days of the quarter and the net receipt by seller ($1.0 million) of a pro-rated portion of the quarterly cash distribution of $0.50 per unit paid on the newly issued 5,850,000 common units. See Note 3 for additional information.
(4) This distribution of $0.5250 per unit resulted in the Partnership exceeding its first target level distribution for the second quarter of 2012. As a result, the General Partner, as the holder of the IDRs, received an incentive distribution.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8. Cash Distributions (continued)
In addition, on October 25, 2012, the board of directors of the General Partner declared a quarterly cash distribution of $0.5325 per unit ($2.13 per unit on an annualized basis) for the period from July 1, 2012 through September 30, 2012. On November 14, 2012, the Partnership will pay this cash distribution to its common unitholders of record as of the close of business November 5, 2012. This distribution will result in the Partnership exceeding its first target level distribution for the quarter ended September 30, 2012.
Note 9. Segment Reporting
For several reasons, including the size of the Alliance acquisition (see Note 2), the Partnerships strategic focus on gasoline distribution and station operations which increased in significance with the Alliance acquisition, changes to the Partnerships organizational structure of this operating segment under one divisional president, and how the chief operating decision maker (CODM) reviews results and makes decisions, the Partnership determined it has three operating segments. Commencing with the quarter ended March 31, 2012, the Partnerships three operating segments, which are also the Partnerships reporting segments, are: (i) Wholesale, (ii) Gasoline Distribution and Station Operations and (iii) Commercial. Each of these operating segments generates revenues and incurs expenses and is evaluated for operating performance on a regular basis. For the three and nine months ended September 30, 2012, the Commercial operating segment did not meet the quantitative metrics for disclosure as a reportable segment on a stand-alone basis as defined in accounting guidance related to segment reporting. However, the Partnership has elected to present segment disclosures for the Commercial operating segment as management believes such disclosures are meaningful to the user of the Partnerships financial information.
The Partnership engages in the distribution of refined petroleum products, renewable fuels, crude oil and natural gas. The Partnerships primary businesses are organized within three reporting segments, (i) Wholesale, (ii) Gasoline Distribution and Station Operations and (iii) Commercial, based on the way the CODM manages the business and on the similarity of customers and expected long-term financial performance of each segment.
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, 2011.
In the Wholesale reporting segment, the Partnership sells unbranded gasoline (including gasoline blendstocks such as ethanol and naphtha) and diesel to unbranded gasoline customers and other resellers of transportation fuels and home heating oil, diesel, kerosene and residual oil to home heating oil retailers and wholesale distributors. The Partnership also sells crude oil to refiners in the Wholesale segment. Generally, customers use their own vehicles or contract carriers to take delivery of the gasoline and distillate products at bulk terminals and inland storage facilities that the Partnership owns or controls or with which it has throughput or exchange arrangements. Crude oil is aggregated by truck or pipeline in the mid-continent, transported on land by train and shipped to refineries on the East Coast in barges. Additionally, ethanol is shipped primarily by rail and by barge.
In the Gasoline Distribution and Station Operations reporting segment, the Partnership sells branded and unbranded gasoline to gasoline stations and other sub-jobbers. This segment also includes gasoline, convenience store, car wash and other ancillary sales at the Partnerships directly operated stores, as well as rental income from dealer leased gas stations.
The Commercial segment includes (1) sales and deliveries of unbranded gasoline, home heating oil, diesel, kerosene, residual oil, renewable fuels and natural gas to end user customers in the public sector and to large commercial and industrial end users (in the case of commercial and industrial end user customers, the Partnership sells products primarily either through a competitive bidding process or through contracts of various terms), and (2) sales of custom blended distillates and residual oil delivered by barges or from a terminal dock through bunkering activity. Commercial segment end user customers include federal and state agencies, municipalities, large industrial companies, many autonomous authorities such as transportation authorities and water resource authorities, colleges and universities
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Segment Reporting (continued)
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 among the reportable segments. There were no intersegment sales for any of the periods presented below.
Summarized financial information for the Partnerships reportable segments is presented in the table below (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
| |||||||||||||
|
|
2012 |
|
2011 (1) |
|
2012 |
|
2011 (1) |
| ||||
Wholesale Segment: |
|
|
|
|
|
|
|
|
| ||||
Sales |
|
|
|
|
|
|
|
|
| ||||
Gasoline and gasoline blendstocks |
|
$ |
2,570,580 |
|
$ |
2,430,154 |
|
$ |
6,465,950 |
|
$ |
6,161,727 |
|
Other oils and related products (2) |
|
936,991 |
|
714,134 |
|
3,202,108 |
|
2,914,253 |
| ||||
Total |
|
$ |
3,507,571 |
|
$ |
3,144,288 |
|
$ |
9,668,058 |
|
$ |
9,075,980 |
|
Net product margin |
|
|
|
|
|
|
|
|
| ||||
Gasoline and gasoline blendstocks |
|
$ |
8,925 |
|
$ |
13,989 |
|
$ |
34,382 |
|
$ |
46,235 |
|
Other oils and related products (2) |
|
25,994 |
|
11,398 |
|
68,449 |
|
41,092 |
| ||||
Total |
|
$ |
34,919 |
|
$ |
25,387 |
|
$ |
102,831 |
|
$ |
87,327 |
|
Gasoline Distribution and Station Operations Segment: |
|
|
|
|
|
|
|
|
| ||||
Sales |
|
|
|
|
|
|
|
|
| ||||
Gasoline |
|
$ |
907,579 |
|
$ |
400,586 |
|
$ |
2,181,164 |
|
$ |
1,053,469 |
|
Station operations (3) |
|
36,760 |
|
15,747 |
|
91,806 |
|
44,769 |
| ||||
Total |
|
$ |
944,339 |
|