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 March 31, 2013 |
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OR |
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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 ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
Accelerated filer x |
Non-accelerated filer o |
Smaller reporting company o |
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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 ý
The issuer had 27,430,563 common units outstanding as of May 6, 2013.
GLOBAL PARTNERS LP
(In thousands, except unit data)
(Unaudited)
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March 31, |
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December 31, |
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2013 |
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2012 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
12,938 |
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$ |
5,977 |
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Accounts receivable, net |
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842,875 |
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696,762 |
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Accounts receivableaffiliates |
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1,355 |
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1,307 |
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Inventories |
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432,578 |
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634,667 |
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Brokerage margin deposits |
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28,429 |
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54,726 |
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Fair value of forward fixed price contracts |
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18,339 |
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48,062 |
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Prepaid expenses and other current assets |
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51,269 |
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65,432 |
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Total current assets |
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1,387,783 |
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1,506,933 |
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Property and equipment, net |
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784,724 |
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712,322 |
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Goodwill |
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107,581 |
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32,326 |
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Intangible assets, net |
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134,608 |
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60,822 |
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Other assets |
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18,951 |
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17,349 |
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Total assets |
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$ |
2,433,647 |
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$ |
2,329,752 |
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Liabilities and partners equity |
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Current liabilities: |
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Accounts payable |
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$ |
947,555 |
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$ |
759,698 |
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Working capital revolving credit facilitycurrent portion |
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83,746 |
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Term loan |
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115,000 |
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Environmental liabilitiescurrent portion |
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4,337 |
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4,341 |
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Trustee taxes payable |
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78,995 |
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91,494 |
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Accrued expenses and other current liabilities |
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54,798 |
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71,442 |
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Obligations on forward fixed price contracts |
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4,080 |
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34,474 |
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Total current liabilities |
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1,204,765 |
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1,045,195 |
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Working capital revolving credit facilityless current portion |
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201,500 |
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340,754 |
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Revolving credit facility |
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399,700 |
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422,000 |
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Senior notes |
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67,953 |
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Environmental liabilitiesless current portion |
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38,895 |
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39,831 |
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Other long-term liabilities |
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43,973 |
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45,511 |
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Total liabilities |
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1,956,786 |
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1,893,291 |
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Partners equity |
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Global Partners LP equity: |
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Common unitholders (27,430,563 units issued and 27,393,786 outstanding at March 31, 2013 and 27,430,563 units issued and 27,310,648 outstanding at December 31, 2012) |
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455,093 |
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456,538 |
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General partner interest (0.83% interest with 230,303 equivalent units outstanding at March 31, 2013 and December 31, 2012) |
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(311 |
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(407 |
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Accumulated other comprehensive loss |
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(17,431 |
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(19,670 |
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Total Global Partners LP equity |
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437,351 |
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436,461 |
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Noncontrolling interest |
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39,510 |
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Total partners equity |
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476,861 |
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436,461 |
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Total liabilities and partners equity |
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$ |
2,433,647 |
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$ |
2,329,752 |
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The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL PARTNERS LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
(Unaudited)
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Three Months Ended |
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2013 |
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2012 |
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Sales |
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$ |
5,589,190 |
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$ |
3,975,481 |
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Cost of sales |
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5,493,338 |
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3,920,162 |
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Gross profit |
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95,852 |
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55,319 |
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Costs and operating expenses: |
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Selling, general and administrative expenses |
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26,760 |
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22,467 |
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Operating expenses |
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43,340 |
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23,358 |
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Amortization expense |
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4,376 |
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1,574 |
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Total costs and operating expenses |
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74,476 |
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47,399 |
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Operating income |
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21,376 |
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7,920 |
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Interest expense |
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(8,916 |
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(9,320 |
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Income (loss) before income tax benefit |
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12,460 |
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(1,400 |
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Income tax benefit |
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1,875 |
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Net income (loss) |
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14,335 |
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(1,400 |
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Net loss attributable to noncontrolling interest |
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490 |
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Net income (loss) attributable to Global Partners LP |
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14,825 |
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(1,400 |
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Less: General partners interest in net income (loss), including incentive distribution rights |
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(806 |
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(108 |
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Limited partners interest in net income (loss) |
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$ |
14,019 |
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$ |
(1,508 |
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Basic net income (loss) per limited partner unit |
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$ |
0.51 |
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$ |
(0.06 |
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Diluted net income (loss) per limited partner unit |
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$ |
0.51 |
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(0.06 |
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Basic weighted average limited partner units outstanding |
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27,323 |
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23,555 |
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Diluted weighted average limited partner units outstanding |
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27,420 |
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23,727 |
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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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2013 |
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2012 |
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Net income (loss) |
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$ |
14,335 |
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$ |
(1,400 |
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Other comprehensive income: |
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Change in fair value of cash flow hedges |
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1,473 |
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731 |
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Change in pension liability |
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766 |
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298 |
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Total other comprehensive income |
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2,239 |
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1,029 |
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Comprehensive income (loss) |
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16,574 |
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(371 |
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Comprehensive loss attributable to noncontrolling interest |
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490 |
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Comprehensive income (loss) attributable to Global Partners LP |
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$ |
17,064 |
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$ |
(371 |
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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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Three Months Ended |
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2013 |
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2012 |
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Cash flows from operating activities |
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Net income (loss) |
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$ |
14,335 |
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$ |
(1,400 |
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Adjustments to reconcile net income (loss) to net provided by (cash used) in operating activities: |
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Depreciation and amortization |
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16,691 |
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9,216 |
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Amortization of deferred financing fees |
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1,571 |
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1,314 |
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Amortization of senior notes discount |
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53 |
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Bad debt expense |
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1,479 |
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90 |
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Stock-based compensation expense |
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104 |
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(72 |
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Changes in operating assets and liabilities, exclusive of business combinations: |
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Accounts receivable |
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(145,293 |
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97,863 |
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Accounts receivable affiliate |
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(48 |
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969 |
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Inventories |
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202,606 |
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3,705 |
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Broker margin deposits |
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26,297 |
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6,960 |
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Prepaid expenses, all other current assets and other assets |
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11,154 |
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(1,447 |
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Accounts payable |
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185,103 |
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(149,113 |
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Trustee taxes payable |
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(12,499 |
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7,115 |
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Change in fair value of forward fixed price contracts |
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(671 |
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(9,965 |
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Accrued expenses, all other current liabilities and other long-term liabilities |
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(18,104 |
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(6,998 |
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Net cash provided by (used in) operating activities |
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282,778 |
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(41,763 |
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Cash flows from investing activities |
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Acquisitions |
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(185,281 |
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(184,505 |
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Capital expenditures |
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(12,258 |
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(5,184 |
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Proceeds from sale of property and equipment |
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400 |
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Net cash used in investing activities |
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(197,139 |
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(189,689 |
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Cash flows from financing activities |
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(Payments on) borrowings from working capital revolving credit facility |
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(223,000 |
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53,700 |
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(Payments on) borrowings from revolving credit facility |
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(22,300 |
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192,000 |
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Borrowings from term loan |
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115,000 |
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Proceeds from senior notes, net of discount |
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67,900 |
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Repurchased units withheld for tax obligations |
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(96 |
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Distributions to partners |
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(16,278 |
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(11,018 |
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Net cash (used in) provided by financing activities |
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(78,678 |
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234,586 |
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Increase in cash and cash equivalents |
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6,961 |
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3,134 |
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Cash and cash equivalents at beginning of period |
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5,977 |
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4,328 |
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Cash and cash equivalents at end of period |
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$ |
12,938 |
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$ |
7,462 |
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Supplemental information |
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Cash paid during the period for interest |
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$ |
8,176 |
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$ |
9,242 |
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Non-cash investing activities (see Note 17) |
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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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Noncontrolling |
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Partners |
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Unitholders |
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Interest |
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Loss |
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Interest |
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Equity |
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Balance at December 31, 2012 |
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$ |
456,538 |
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$ |
(407 |
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$ |
(19,670 |
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$ |
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$ |
436,461 |
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Net income (loss) |
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14,019 |
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806 |
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(490 |
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14,335 |
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Acquisition of noncontrolling interest |
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40,000 |
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40,000 |
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Other comprehensive income |
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2,239 |
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2,239 |
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Stock-based compensation |
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104 |
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104 |
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Distributions to partners |
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(15,636 |
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(710 |
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(16,346 |
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Phantom unit dividends |
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68 |
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68 |
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Balance at March 31, 2013 |
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$ |
455,093 |
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$ |
(311 |
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$ |
(17,431 |
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$ |
39,510 |
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$ |
476,861 |
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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 Delaware master limited partnership formed in March 2005. As of March 31, 2013, the Partnership had the following wholly owned subsidiaries: Global Companies LLC, Glen Hes Corp., Global Montello Group Corp. (GMG), Chelsea Sandwich LLC, Global Energy Marketing LLC, Alliance Energy LLC, Bursaw Oil LLC, GLP Finance Corp., Global Energy Marketing II LLC, Global CNG LLC and Cascade Kelly Holdings LLC. Global GP LLC, the Partnerships general partner (the General Partner) manages the Partnerships operations and activities and employs its officers and substantially all of its personnel, except for its gasoline station and convenience store employees and certain union personnel who are employed by GMG.
The Partnership is a midstream logistics and marketing company that engages in the purchasing, selling and logistics of transporting domestic and Canadian crude oil and other products via rail, establishing a virtual pipeline from the mid-continent region of the United States and Canada to refiners and other customers on the East and West Coasts. The Partnership owns and controls terminals in North Dakota and Oregon that extend its origin-to-destination capabilities. The Partnership also owns, controls or has access to one of the largest terminal networks of refined petroleum products and renewable fuels in Massachusetts, Maine, Connecticut, Vermont, New Hampshire, Rhode Island, New York, New Jersey and Pennsylvania (collectively, the Northeast). The Partnership is one of the largest distributors of gasoline (including gasoline blendstocks such as ethanol and naphtha), distillates (such as home heating oil, diesel and kerosene), residual oil and renewable fuels to wholesalers, retailers and commercial customers in the New England states and New York. The Partnership is a major multi-brand gasoline distributor and has a portfolio of approximately 1,000 owned, leased and/or supplied gasoline stations primarily in the Northeast. The Partnership is also a distributor of natural gas. In addition, the Partnership provides ancillary services to companies and receives revenue from these ancillary services and from retail sales of gasoline, convenience store sales and gasoline 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 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.
On February 1, 2013, the Partnership acquired a 60% membership interest in Basin Transload LLC (Basin Transload), and on February 15, 2013, the Partnership acquired 100% of the membership interests in Cascade Kelly Holdings LLC (Cascade Kelly). See Note 2.
The General Partner, which holds a 0.83% general partner interest in the Partnership, is owned by affiliates of the Slifka family. As of March 31, 2013, affiliates of the General Partner, including its directors and executive officers, owned 11,546,993 common units, representing a 42.1% limited partner interest.
Basis of Presentation
The financial results of Basin Transload for the two months ended March 31, 2013 and of Cascade Kelly for the one and one-half months ended March 31, 2013 are included in the accompanying statements of operations for the three months ended March 31, 2013. The Partnership consolidated the March 31, 2013 balance sheet of Basin Transload because the Partnership controls the entity. The accompanying consolidated financial statements as of March 31, 2013 and December 31, 2012 and for the three months ended March 31, 2013 and 2012 reflect the accounts of the Partnership. All intercompany balances and transactions have been eliminated.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization and Basis of Presentation (continued)
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial condition and operating results for the interim periods. The interim financial information, which has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), should be read in conjunction with the consolidated financial statements for the year ended December 31, 2012 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 months ended March 31, 2013 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2013. The consolidated balance sheet at December 31, 2012 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, 2012.
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. 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.
Noncontrolling Interest
These financial statements reflect the application of ASC 810, Consolidations (ASC 810) which establishes accounting and reporting standards that require: (i) the ownership interest in subsidiaries held by parties other than the parent to be clearly identified and presented in the consolidated balance sheet within shareholders equity, but separate from the parents equity; (ii) the amount of consolidated net income attributable to the parent and the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations and (iii) changes in a parents ownership interest while the parent retains its controlling financial interest in its subsidiary to be accounted for consistently.
The Partnership acquired a 60% interest in Basin Transload on February 1, 2013. After evaluating ASC 810, the Partnership concluded it is appropriate to consolidate the balance sheet and statement of operations of Basin Transload based on an evaluation of the outstanding voting interests. Amounts pertaining to the noncontrolling ownership interest held by third parties in the financial position and operating results of the Partnership are reported as noncontrolling interest in the accompanying consolidated balance sheet and statement of operations.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization and Basis of Presentation (continued)
Concentration of Risk
The following table presents the Partnerships product sales as a percentage of total sales for the periods presented:
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Three Months Ended |
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2013 |
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2012 |
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Gasoline sales: gasoline and gasoline blendstocks such as ethanol and naphtha |
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53% |
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59% |
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Distillates (home heating oil, diesel and kerosene), residual oil, crude oil and natural gas sales |
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47% |
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41% |
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Total |
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100% |
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100% |
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The Partnership had two significant customers, ExxonMobil Corporation (ExxonMobil) and Phillips 66 (Phillips 66), which accounted for approximately 13% and 14%, respectively, of total sales for the three months ended March 31, 2013. The Partnership had one significant customer, ExxonMobil, which accounted for approximately 16% of total sales for the three months ended March 31, 2012.
Note 2. Business Combinations
2013 Acquisitions
Acquisition of Basin Transload LLC
On February 1, 2013, the Partnership acquired a 60% membership interest in Basin Transload, which operates two transloading facilities in Columbus and Beulah, North Dakota for crude oil and other products, with a combined rail loading capacity of 160,000 barrels per day. The purchase price, including expenditures related to certain capital expansion projects, was approximately $91.1 million which the Partnership financed with borrowings under its credit facility.
The acquisition was accounted for using the purchase method of accounting in accordance with the Financial Accounting Standards Boards (FASB) guidance regarding business combinations. The Partnerships financial statements include the results of operations of its membership interest in Basin Transload subsequent to the acquisition date.
The purchase price allocation is considered preliminary, and additional adjustments may be recorded during the allocation period in accordance with the FASBs guidance regarding business combinations. The purchase price allocation will be finalized as the Partnership receives additional information relevant to the acquisition, including a final valuation of the assets purchased, including tangible and intangible assets, and liabilities assumed.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Business Combinations (continued)
The following table presents the preliminary allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):
Assets purchased: |
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Accounts receivable |
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$ |
2,003 |
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Prepaid expenses |
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68 |
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Property and equipment |
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28,016 |
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Intangibles |
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78,163 |
| |
Total identifiable assets purchased |
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108,250 |
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Liabilities assumed: |
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Accounts payable |
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(1,326 |
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Total liabilities assumed |
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(1,326 |
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Net identifiable assets acquired |
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106,924 |
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Noncontrolling interest |
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(40,000 |
) | |
Goodwill |
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24,178 |
| |
Net assets acquired |
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$ |
91,102 |
|
Management is currently in the process of evaluating the purchase price accounting. The Partnership has engaged a third-party valuation firm to assist in the valuation of the Partnerships interest in Basin Transloads property and equipment. This valuation is in the early stages, and the fair value estimated for property and equipment in the table above of $28.0 million was developed by management based on their estimates, assumptions and acquisition history. The fair value of $78.2 million assigned to the intangibles, primarily customer relationships, was estimated by management based on their estimates, assumptions and acquisition history and will be supported by a third-party valuation firm.
The fair value of the noncontrolling interest has been primarily developed by management based on the fair value of the acquired business as a whole, reduced by the consideration paid by management to obtain control. This fair value of the business was estimated based on the fair value of Basin Transloads net assets and applying a reasonable control premium.
The fair values of the remaining Basin Transload assets and liabilities noted above approximate their carrying values at February 1, 2013. It is possible that once the Partnership receives the completed valuations on the property and equipment and intangible assets, the final purchase price accounting may be different than what is presented above.
The preliminary purchase price for the acquisition was allocated to assets acquired and liabilities assumed based on their estimated fair values. The Partnership then allocated the purchase price in excess of net tangible assets acquired to identifiable intangible assets, based upon on their estimates and assumptions. Any excess purchase price over the fair value of the net tangible and intangible assets acquired was allocated to goodwill.
The Partnership utilized accounting guidance related to intangible assets which lists the pertinent factors to be considered when estimating the useful life of an intangible asset. These factors include, in part, a review of the expected use by the Partnership of the assets acquired, the expected useful life of another asset (or group of assets) related to the acquired assets and legal, regulatory or other contractual provisions that may limit the useful life of an acquired asset. The Partnership amortizes these intangible assets over their estimated useful lives which is consistent with the estimated undiscounted future cash flows of these assets.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Business Combinations (continued)
As part of the purchase price allocation, identifiable intangible assets include customer relationships that are being amortized over five years. For the three months ended March 31, 2013, amortization expense amounted to $2.6 million. The estimated remaining amortization expense for intangible assets acquired in connection with the acquisition for each of the five succeeding years and thereafter is as follows (in thousands):
2013 (2/1/13 12/31/13) |
|
$ |
14,300 |
|
2014 |
|
15,600 |
| |
2015 |
|
15,600 |
| |
2016 |
|
15,600 |
| |
2017 |
|
15,600 |
| |
Thereafter |
|
1,463 |
| |
Total |
|
$ |
78,163 |
|
The $24.2 million of goodwill was assigned to the Wholesale reporting unit. The goodwill recognized is attributed to the unique origin of the acquired locations through which the Partnerships customers can efficiently supply cost-competitive crude oil to destinations on the East and West Coasts. The goodwill is deductible for income tax purposes.
Acquisition of Cascade Kelly Holdings LLC
On February 15, 2013, the Partnership acquired 100% of the membership interests in Cascade Kelly, which owns a West Coast crude oil and ethanol facility near Portland, Oregon. The total cash purchase price was approximately $94.2 million which the Partnership funded with borrowings under its credit facility and with proceeds from the issuance of the Partnerships unsecured 8.00% senior notes due 2018 (see Note 6). The transaction includes a rail transloading facility serviced by the Burlington Northern Santa Fe Railway, 200,000 barrels of storage capacity, a deepwater marine terminal with access to a 1,200-foot leased dock and the largest ethanol plant on the West Coast. Situated along the Columbia River in Clatskanie, Oregon, the site is located on land leased under a long-term agreement from the Port of St. Helens.
The acquisition was accounted for using the purchase method of accounting in accordance with the FASBs guidance regarding business combinations. The Partnerships financial statements include the results of operations of Cascade Kelly subsequent to the acquisition date.
The purchase price allocation is considered preliminary, and additional adjustments may be recorded during the allocation period in accordance with the 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, including tangible and intangible assets, and liabilities assumed.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Business Combinations (continued)
The following table presents the preliminary allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):
Assets purchased: |
|
|
| |
Accounts receivable |
|
$ |
296 |
|
Inventory |
|
517 |
| |
Prepaid expenses |
|
96 |
| |
Property and equipment |
|
45,100 |
| |
Total identifiable assets purchased |
|
46,009 |
| |
Liabilities assumed: |
|
|
| |
Accounts payable |
|
(1,428 |
) | |
Other current liabilities |
|
(1,479 |
) | |
Total liabilities assumed |
|
(2,907 |
) | |
Net identifiable assets acquired |
|
43,102 |
| |
Goodwill |
|
51,077 |
| |
Net assets acquired |
|
$ |
94,179 |
|
Management is currently in the process of evaluating the purchase price accounting. The Partnership has engaged a third-party valuation firm to assist in the valuation of Cascade Kellys property and equipment and possible intangible assets. This valuation is in the early stages, and the fair value estimated for property and equipment in the table above of $45.1 million was developed by management based on their estimates, assumptions and acquisition history.
The fair values of the remaining Cascade Kelly assets and liabilities noted above approximate their carrying values at February 15, 2013. It is possible that once the Partnership receives the completed valuations on the property and equipment, the final purchase price accounting may be different than what is presented above.
The preliminary purchase price for the acquisition was allocated to assets acquired and liabilities assumed based on their estimated fair values. The Partnership then allocated the purchase price in excess of net tangible assets acquired to identifiable intangible assets, if any, based upon on their estimates and assumptions. Any excess purchase price over the fair value of the net tangible and intangible assets acquired was allocated to goodwill.
The $51.7 million of goodwill was assigned to the Wholesale reporting unit. The goodwill recognized is primarily attributed to the crude oil facility and, to a lesser extent, the ethanol plant, which will strategically enhance the Partnerships network of origin and destination assets and extend the Partnerships virtual pipeline to the West Coast. The goodwill is deductible for income tax purposes.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Business Combinations (continued)
2012 Acquisition
Alliance Energy LLCOn March 1, 2012, pursuant to a Contribution Agreement between the Partnership and AE Holdings (the Contribution Agreement), 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 FASBs 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 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 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 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 (see Note 11). 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 and assigned to the Gasoline Distribution and Station Operations reporting unit.
Goodwill The following represents the changes in goodwill from the year ended December 31, 2012 to the current date (in thousands):
|
|
Goodwill at |
|
|
|
Goodwill at |
| |||
|
|
December 31, |
|
2013 |
|
March 31, |
| |||
|
|
2012 |
|
Additions |
|
2013 |
| |||
Acquisition of Alliance (1) |
|
$ |
31,151 |
|
$ |
|
|
$ |
31,151 |
|
Acquisition of gasoline stations from Mutual Oil (1) |
|
1,175 |
|
|
|
1,175 |
| |||
Acquisition of 60% interest in Basin Transload (2) |
|
|
|
24,178 |
|
24,178 |
| |||
Acquisition of Cascade Kelly (2) |
|
|
|
51,077 |
|
51,077 |
| |||
Total |
|
$ |
32,326 |
|
$ |
75,255 |
|
$ |
107,581 |
|
(1) Goodwill allocated to the Gasoline Distribution and Station Operations reporting unit
(2) Goodwill allocated to the Wholesale reporting unit
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Business Combinations (continued)
Supplemental Pro-Forma Information Revenues and net income included in the Partnerships consolidated operating results for Basin Transload from February 1, 2013, the acquisition date, and for Cascade Kelly from February 15, 2013, the acquisition date, through the period ended March 31, 2013 were immaterial. Accordingly, the supplemental pro-forma information for the three months ended March 31, 2013 is consistent with the amounts reported in the accompanying statement of operations for the three months ended March 31, 2013.
The following unaudited pro-forma information for 2012 presents the consolidated results of operations of the Partnership as if the acquisitions of Basin Transload, Cascade Kelly and Alliance occurred at the beginning of the period presented, with pro-forma adjustments to give effect to intercompany sales and certain other adjustments (in thousands, except per unit data):
|
|
Three Months |
| |
|
|
2012 |
| |
Sales |
|
$ |
4,214,795 |
|
Net loss |
|
$ |
(16,973 |
) |
Net loss per limited partner unit, basic and diluted |
|
$ |
(0.62 |
) |
Note 3. Net Income (Loss) 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 March 31, 2013 and December 31, 2012, common units outstanding as reported in the accompanying consolidated financial statements excluded 36,777 and 119,915 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).
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Net Income (Loss) Per Limited Partner Unit (continued)
The following table provides a reconciliation of net income (loss) and the assumed allocation of net income to the limited partners interest for purposes of computing net income (loss) per limited partner unit for the three months ended March 31, 2013 and 2012 (in thousands, except per unit data):
|
|
Three Months Ended March 31, 2013 |
|
|
Three Months Ended March 31, 2012 |
| ||||||||||||||||||||
Numerator: |
|
Total |
|
Limited |
|
General |
|
IDRs |
|
|
Total |
|
Limited |
|
General |
|
IDRs |
| ||||||||
Net income (loss) attributable to Global Partners LP (1) |
|
$ |
14,825 |
|
$ |
14,019 |
|
$ |
806 |
|
$ |
|
|
|
$ |
(1,400 |
) |
$ |
(1,508 |
) |
$ |
108 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Declared distribution |
|
$ |
16,796 |
|
$ |
15,979 |
|
$ |
134 |
|
$ |
683 |
|
|
$ |
13,986 |
|
$ |
13,716 |
|
$ |
115 |
|
$ |
155 |
|
Adjustment to distribution in connection with the Alliance acquisition (2) |
|
|
|
|
|
|
|
|
|
|
(1,929 |
) |
(1,929 |
) |
|
|
|
| ||||||||
Adjusted declared distribution |
|
16,796 |
|
15,979 |
|
134 |
|
683 |
|
|
12,057 |
|
11,787 |
|
115 |
|
155 |
| ||||||||
Assumed allocation of undistributed net income |
|
(1,971 |
) |
(1,960 |
) |
(11 |
) |
|
|
|
(13,457 |
) |
(13,295 |
) |
(162 |
) |
|
| ||||||||
Assumed allocation of net income (loss) |
|
$ |
14,825 |
|
$ |
14,019 |
|
$ |
123 |
|
$ |
683 |
|
|
$ |
(1,400 |
) |
$ |
(1,508 |
) |
$ |
(47 |
) |
$ |
155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic weighted average limited partner units outstanding |
|
|
27,323 |
|
|
|
|
|
|
|
|
23,555 |
|
|
|
|
| |||||||||
Dilutive effect of phantom units |
|
|
|
97 |
|
|
|
|
|
|
|
|
172 |
|
|
|
|
| ||||||||
Diluted weighted average limited partner units outstanding |
|
|
27,420 |
|
|
|
|
|
|
|
|
23,727 |
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic net income (loss) per limited partner unit |
|
|
|
$ |
0.51 |
|
|
|
|
|
|
|
|
$ |
(0.06 |
) |
|
|
|
| ||||||
Diluted net income (loss) per limited partner unit |
|
|
|
$ |
0.51 |
|
|
|
|
|
|
|
|
$ |
(0.06 |
) |
|
|
|
|
(1) Calculation includes the effect of the March 1, 2012 issuance of 5,850,000 common units in connection with the acquisition of Alliance. As a result, the general partner interest was 0.83% for the three months ended March 31, 2013 and, based on a weighted average, 0.97% for the three months ended March 31, 2012.
(2) 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 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 issued 5,850,000 common units.
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, primarily through futures contracts. These futures contracts are entered into when inventory is purchased and are designated as fair value hedges against the inventory on a specific barrel basis. 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. Inventory from Cascade Kelly was nominal at March 31, 2013 and is carried at the lower of cost or market.
Inventories consisted of the following (in thousands):
|
|
March 31, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
Distillates: home heating oil, diesel and kerosene |
|
$ |
107,272 |
|
$ |
235,029 |
|
Gasoline |
|
102,928 |
|
144,269 |
| ||
Gasoline blendstocks |
|
71,424 |
|
139,316 |
| ||
Residual oil and crude oil |
|
143,868 |
|
109,423 |
| ||
Propane and other |
|
855 |
|
|
| ||
Convenience store inventory |
|
6,231 |
|
6,630 |
| ||
Total |
|
$ |
432,578 |
|
$ |
634,667 |
|
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 $159.3 million and $120.9 million at March 31, 2013 and December 31, 2012, respectively. Negative exchange balances are accounted for as accounts payable and amounted to $173.5 million and $139.5 million at March 31, 2013 and December 31, 2012, 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. The Partnership principally uses derivative instruments to hedge the commodity risk associated with its inventory and product purchases and sales and to hedge variable interest rates associated with the Partnerships credit facilities.
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 March 31, 2013:
|
|
Units (1) |
|
Unit of Measure |
| |
|
|
|
|
|
| |
Futures Contracts |
|
|
|
|
| |
Long |
|
14,085 |
|
Thousands of barrels |
| |
Short |
|
(17,646 |
) |
Thousands of barrels |
| |
|
|
|
|
|
| |
Natural Gas Contracts |
|
|
|
|
| |
Long |
|
7,068 |
|
Thousands of decatherms |
| |
Short |
|
(7,068 |
) |
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) |
|
$ |
30.5 |
|
Millions of Canadian dollars |
|
|
|
$ |
29.9 |
|
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) $1.0181 to USD $1.00.
Fair Value Hedges
The Partnership enters into futures contracts in the normal course of business to reduce the risk of loss of inventory value, which could result from fluctuations in market prices. These futures contracts are designated as fair value hedges against the inventory with specific futures contracts matched to specific barrels of inventory. As a result of the Partnerships hedge designation on these transactions, the futures contracts are recorded on the Partnerships consolidated balance sheet and marked to market through the use of independent markets based on the prevailing market prices of such instruments at the date of valuation. Likewise, the underlying inventory being hedged is also marked to market. Changes in the fair value of the futures contracts, as well as the change in the fair value of the hedged inventory, are recognized in the consolidated statement of income through cost of sales. These futures contracts are settled on a daily basis by the Partnership through brokerage margin accounts.
The Partnerships futures contracts are settled daily; therefore, there was no corresponding asset or liability on the Partnerships consolidated balance sheet related to these contracts at March 31, 2013 and December 31, 2012. These contracts remain open until their contract end date. The daily settlement of these futures contracts is accomplished through the use of brokerage margin deposit accounts.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
The following table presents the hedge ineffectiveness from derivatives involved in fair value hedging relationships recognized in the Partnerships consolidated statements of operations for the three months ended March 31, 2013 and 2012 (in thousands):
|
|
|
|
Amount of Gain (Loss) |
| ||||
|
|
|
|
Recognized in Income on |
| ||||
|
|
|
|
Derivatives |
| ||||
|
|
Location of Gain (Loss) |
|
Three Months Ended |
| ||||
Derivatives in Fair Value |
|
Recognized in |
|
March 31, |
| ||||
Hedging Relationships |
|
Income on Derivatives |
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
|
| ||
Futures contracts |
|
Cost of sales |
|
$ |
(10,384 |
) |
$ |
(89,878 |
) |
|
|
|
|
Amount of Gain (Loss) |
| ||||
|
|
|
|
Recognized in Income on |
| ||||
|
|
|
|
Hedged Items |
| ||||
|
|
Location of Gain (Loss) |
|
Three Months Ended |
| ||||
Hedged Items in Fair Value |
|
Recognized in Income |
|
March 31, |
| ||||
Hedge Relationships |
|
on Hedged Item |
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
|
| ||
Inventories |
|
Cost of sales |
|
$ |
10,396 |
|
$ |
89,957 |
|
Cash Flow Hedges
The Partnership utilizes various interest rate derivative instruments to hedge variable interest rate on its debt. These derivative instruments are designated as cash flow hedges of the underlying debt. 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 (loss) and reclassified into interest expense or interest income in the same period during which the hedged transaction affects earnings.
In September 2008, the Partnership executed a zero premium interest rate collar with a major financial institution. 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 $100.0 million of one-month LIBOR-based borrowings on the credit facility (and subsequent refinancings thereof) due to changes in the one-month LIBOR rate.
In October 2009, the Partnership executed an interest rate swap with a major financial institution. The swap, which became effective on May 16, 2011 and expires on May 16, 2016, is used to hedge the variability in interest payments due to changes in the one-month LIBOR swap curve with respect to $100.0 million of one-month LIBOR-based borrowings on the credit facility at a fixed rate of 3.93%.
In April 2011, the Partnership executed an interest rate cap with a major financial institution. The rate cap, which became effective on April 13, 2011 and expires on April 13, 2016, is used to hedge the variability in interest payments due to changes in the one-month LIBOR rate above 5.5% with respect to $100.0 million of one-month LIBOR-based borrowings on the credit facility.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
The following table presents the fair value of the Partnerships derivative instruments involved in cash flow hedging relationships and their location in the Partnerships consolidated balance sheets at March 31, 2013 and December 31, 2012 (in thousands):
|
|
|
|
March 31, |
|
December 31, |
| ||
Derivatives Designated as |
|
Balance Sheet |
|
2013 |
|
2012 |
| ||
Hedging Instruments |
|
Location |
|
Fair Value |
|
Fair Value |
| ||
|
|
|
|
|
|
|
| ||
Asset derivatives |
|
|
|
|
|
|
| ||
Interest rate cap |
|
Other assets |
|
$ |
30 |
|
$ |
35 |
|
|
|
|
|
|
|
|
| ||
Liability derivatives |
|
|
|
|
|
|
| ||
Interest rate collar |
|
Other long-term liabilities |
|
$ |
1,253 |
|
$ |
1,868 |
|
Interest rate swap |
|
Other long-term liabilities |
|
10,671 |
|
11,534 |
| ||
Total liability derivatives |
|
|
|
$ |
11,924 |
|
$ |
13,402 |
|
The following table presents the amount of gains and losses from derivatives involved in cash flow hedging relationships recognized in the Partnerships consolidated statements of operations and partners equity for the three months ended March 31, 2013 and 2012 (in thousands):
|
|
|
|
|
|
Recognized in Income |
| ||||||
|
|
Amount of Gain (Loss) |
|
on Derivatives |
| ||||||||
|
|
Recognized in Other |
|
(Ineffectiveness Portion |
| ||||||||
|
|
Comprehensive Income |
|
and Amount Excluded |
| ||||||||
|
|
on Derivatives |
|
from Effectiveness Testing) |
| ||||||||
|
|
Three Months Ended |
|
Three Months Ended |
| ||||||||
Derivatives in Cash Flow |
|
March 31, |
|
March 31, |
|
March 31, |
|
March 31, |
| ||||
Hedging Relationship |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Interest rate collars |
|
$ |
615 |
|
$ |
315 |
|
$ |
|
|
$ |
|
|
Interest rate swap |
|
863 |
|
439 |
|
|
|
|
| ||||
Interest rate cap |
|
(5 |
) |
(23 |
) |
|
|
|
| ||||
Total |
|
$ |
1,473 |
|
$ |
731 |
|
$ |
|
|
$ |
|
|
Ineffectiveness related to the interest rate collar and the interest rate swap is recognized as interest expense and was immaterial for the three months ended March 30, 2013 and 2012. 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 for each of the three months ended March 31, 2013 and 2012. 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 months ended March 31, 2013 and 2012.
Other Derivative Activity
The Partnership uses futures contracts, and occasionally swap agreements, to hedge its commodity exposure under forward fixed price purchase and sale commitments on its products. These derivatives are not designated by the Partnership as either fair value hedges or cash flow hedges. Rather, the forward fixed price purchase and sales commitments, which meet the definition of a derivative, are reflected in the Partnerships consolidated balance sheet. The related futures contracts (and swaps, if applicable) are also reflected in the Partnerships consolidated balance sheet, thereby creating an economic hedge. Changes in the fair value of the futures contracts (and swaps, if applicable), as well as offsetting gains or losses due to the change in the fair value of forward fixed price purchase and sale commitments, are recognized in the consolidated statement of operations through cost of sales. These futures contracts are settled on a daily basis by the Partnership through brokerage margin accounts.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
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 other logistical issues inherent in the business, such as weather conditions. In connection with managing these positions, maintaining a constant presence in the marketplace and managing the futures market outlook for future anticipated inventories, which are 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. Any derivatives not involved in a direct hedging activity are marked to market and recognized in the consolidated statement of income through cost of sales.
The Partnership also markets and sells natural gas by entering into forward purchase commitments for natural gas when it enters into arrangements for the forward sale commitment of product for physical delivery to third-party users. The Partnership reflects the fair value of forward fixed purchase and sales commitments in its consolidated balance sheet. Changes in the fair value of the forward fixed price purchase and sale commitments are recognized in the consolidated statement of operations through cost of sales.
During the three months ended March 31, 2013, the Partnership entered into forward currency contracts to hedge certain foreign denominated (Canadian) product purchases. These forward contracts are not designated and are reflected in the consolidated balance sheet. Changes in the fair values of these forward currency contracts are reflected in cost of sales.
Similar to the futures contracts used by the Partnership to hedge its inventory, the Partnerships futures contracts are settled daily and, accordingly, there was no corresponding asset or liability in the Partnerships consolidated balance sheets related to these contracts at March 31, 2013 and December 31, 2012. These contracts remain open until their contract end date. The daily settlement of these futures contracts is accomplished through the use of brokerage margin deposit accounts.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
The following table summarizes the derivatives not designated by the Partnership as either fair value hedges or cash flow hedges and their respective fair values and location in the Partnerships consolidated balance sheets at March 31, 2013 and December 31, 2012 (in thousands):
|
|
|
|
|
|
March 31, |
|
December 31, |
| ||
|
|
|
|
Balance Sheet |
|
2013 |
|
2012 |
| ||
Summary of Other Derivatives |
|
Item Pertains to |
|
Location |
|
Fair Value |
|
Fair Value |
| ||
|
|
|
|
|
|
|
|
|
| ||
Asset Derivatives |
|
|
|
|
|
|
|
|
| ||
Forward purchase commitments |
|
Gasoline and Gasoline Blendstocks |
|
(1) |
|
$ |
12,435 |
|
$ |
131 |
|
|
|
Crude Oil |
|
(1) |
|
4,654 |
|
15,127 |
| ||
|
|
Residual Oil |
|
(1) |
|
|
|
285 |
| ||
Total forward purchase commitments |
|
|
|
|
|
17,089 |
|
15,543 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Forward sales commitments |
|
Gasoline and Gasoline Blendstocks |
|
(1) |
|
|
|
30,928 |
| ||
|
|
Distillates |
|
(1) |
|
|
|
|
| ||
|
|
Natural Gas |
|
(1) |
|
1,250 |
|
1,591 |
| ||
Total forward sales commitments |
|
|
|
|
|
1,250 |
|
32,519 |
| ||
Total forward fixed price contracts |
|
|
|
|
|
18,339 |
|
48,062 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Foreign currency forward contract |
|
Foreign Denominated Sales |
|
(2) |
|
|
|
145 |
| ||
Total asset derivatives |
|
|
|
|
|
$ |
18,339 |
|
$ |
48,207 |
|
|
|
|
|
|
|
|
|
|
| ||
Liability Derivatives |
|
|
|
|
|
|
|
|
| ||
Forward purchase commitments |
|
Gasoline and Gasoline Blendstocks |
|
(3) |
|
$ |
|
|
$ |
27,604 |
|
|
|
Residual Oil |
|
(3) |
|
288 |
|
|
| ||
|
|
Distillates |
|
(3) |
|
85 |
|
2,171 |
| ||
|
|
Natural Gas |
|
(3) |
|
1,239 |
|
1,576 |
| ||
Total forward purchase commitments |
|
|
|
|
|
1,612 |
|
31,351 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Forward sales commitments |
|
Gasoline and Gasoline Blendstocks |
|
(3) |
|
552 |
|
173 |
| ||
|
|
Distillates |
|
(3) |
|
1,916 |
|
2,950 |
| ||
Total forward sales commitments |
|
|
|
|
|
2,468 |
|
3,123 |
| ||
Total obligations on forward fixed price contracts |
|
|
|
|
|
4,080 |
|
34,474 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Foreign currency forward contract |
|
Foreign Denominated Sales |
|
(4) |
|
175 |
|
|
| ||
|
|
|
|
|
|
$ |
4,255 |
|
$ |
34,474 |
|
(1) Fair value of forward fixed price contracts
(2) Prepaid expenses and other current assets
(3) Obligations on forward fixed price contracts
(4) Accrued expenses and other current liabilities
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
The following table presents the amount of gains and losses from derivatives not involved in a hedging relationship recognized in the Partnerships consolidated statements of operations for the three months ended March 31, 2013 and 2012 (in thousands):
|
|
|
|
Amount of Gain (Loss) |
| ||||
|
|
|
|
Recognized in Income |
| ||||
|
|
|
|
on Derivatives |
| ||||
|
|
Location of Gain (Loss) |
|
Three Months Ended |
| ||||
Derivatives Not Designated as |
|
Recognized in |
|
March 31, |
|
March 31, |
| ||
Hedging Instruments |
|
Income on Derivatives |
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
|
| ||
Product contracts |
|
Cost of sales |
|
$ |
666 |
|
$ |
1,732 |
|
Foreign currency contracts |
|
Cost of sales |
|
(321 |
) |
|
| ||
Total |
|
|
|
$ |
345 |
|
$ |
1,732 |
|
Credit Risk
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 Partnership is exposed to credit loss in the event of nonperformance by counterparties of forward purchase and sale commitments, futures contracts 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 agreements is limited to the amount of the recorded fair value as of the balance sheet dates.
Note 6. Debt
Credit Agreement
The Partnership entered into an Amended and Restated Credit Agreement dated May 14, 2010, as amended (the Credit Agreement). Total available commitments under the Credit Agreement are $1.615 billion. The Credit Agreement will mature on May 14, 2015.
As of March 31, 2013, there were three facilities under the Credit Agreement:
· a working capital revolving credit facility to be used for working capital purposes and letters of credit in the principal amount equal to the lesser of the Partnerships borrowing base and $1.0 billion;
· a $500.0 million revolving credit facility to be used for acquisitions and general corporate purposes; and
· a $115.0 million term loan that will mature on January 31, 2014.
In addition, the Credit Agreement has an accordion feature whereby the Partnership may request on the same terms and conditions of its then existing Credit Agreement, provided no Event of Default (as defined in the Credit Agreement) then exists, an increase to the working capital revolving credit facility, the revolving credit facility or both by up to another $250.0 million, in the aggregate, for a total credit facility of up to $1.865 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 $1.615 billion.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Debt (continued)
In addition, the Credit Agreement includes a swing line pursuant to which Bank of America, N.A., as the swing line lender, may make swing line loans in 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 $1.615 billion.
Pursuant to the Credit Agreement, and in connection with any agreement by and between a Loan Party and a Lender (as such terms are defined in the Credit Agreement) or affiliate thereof (an AR Buyer), a Loan Party may sell certain of its accounts receivables to an AR Buyer (the Receivables Sales Agreement). Also pursuant to the Credit Agreement, the Loan Parties are permitted to sell or transfer any account receivable to an AR Buyer only to the extent that (i) no Default or Event of Default (as such terms are defined in the Credit Agreement) has occurred and is continuing or would exist after giving effect to any such sale or transfer; (ii) such accounts receivable are sold for cash; (iii) the cash purchase price to be paid to the selling Loan Party for each account receivable is not less than the amount of credit such Loan Party would have been able to get for such account receivable had such account receivable been included in the Borrowing Base (as defined in the Credit Agreement) or, to the extent such account receivable is not otherwise eligible to be included in the Borrowing Base, then the cash purchase price to be paid is not less than 85% of the face amount of such account receivable; (iv) such account receivable is sold pursuant to a Receivables Sales Agreement; (v) the Loan Parties have complied with the notice requirement set forth in the Credit Agreement; (vi) neither the AR Buyer nor the Administrative Agent has delivered any notice of a termination event; (vii) the aggregate amount of the accounts receivable sold to one or more AR Buyers which has not yet been collected will not exceed $75.0 million at any time; and (viii) the cash proceeds received from the applicable Loan Party in connection with such sale will be used to immediately repay any outstanding WC Loans (as defined in the Credit Agreement).
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.
Commencing November 16, 2012, borrowings under the working capital revolving credit facility bear interest at (1) the Eurodollar rate plus 2.00% to 2.50%, (2) the cost of funds rate plus 2.00% to 2.50%, or (3) the base rate plus 1.00% to 1.50%, each depending on the Utilization Amount (as defined in the Credit Agreement). From January 1, 2012 through November 15, 2012, borrowings under the working capital revolving credit facility bore 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 depended upon the Utilization Amount (as defined in the Credit Agreement).
Commencing November 16, 2012, borrowings under the revolving credit facility bear interest at (1) the Eurodollar rate plus 2.50% to 3.50%, (2) the cost of funds rate plus 2.50% to 3.50%, or (3) the base rate plus 1.50% to 2.50%, each depending on the Combined Total Leverage Ratio (as defined in the Credit Agreement). From January 1, 2012 through November 15, 2012, borrowings under the revolving credit facility bore 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 depended upon the Combined Total Leverage Ratio (as defined in the Credit Agreement).
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Debt (continued)
Borrowings under the term loan bear interest at either the Eurodollar rate or the cost of funds rate, in each case plus 3.50%, or the base rate plus 2.50%.
The average interest rate for the Credit Agreement was 4.0% for each of the three months ended March 31, 2013 and 2012.
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 2.00% 2.50% per annum for each letter of credit issued. In addition, the Partnership incurs a commitment fee on the unused portion of each facility under the Credit Agreement, ranging from 0.375% to 0.50% per annum.
The Partnership classifies a portion of its working capital revolving credit facility as a long-term liability 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 $201.5 million and $340.8 million at March 31, 2013 and December 31, 2012, 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 $0 million and $83.7 million at March 31, 2013 and December 31, 2012, respectively, representing the amounts the Partnership expects to pay down during the course of the year.
As of March 31, 2013, the Partnership had total borrowings outstanding under the Credit Agreement of $716.2 million, including $399.7 million outstanding on the revolving credit facility and $115.0 million outstanding on the term loan which was used to acquire a 60% membership interest in Basin Transload and a portion of all of the outstanding membership interests in Cascade Kelly. In addition, the Partnership had outstanding letters of credit of $343.8 million. Subject to borrowing base limitations, the total remaining availability for borrowings and letters of credit at March 31, 2013 and December 31, 2012 was $555.0 million and $218.9 million, respectively.
The Credit Agreement is secured by substantially all of the assets of the Partnership and the Partnerships wholly owned subsidiaries 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.
The Credit Agreement imposes financial covenants that require the Partnership to maintain certain minimum working capital amounts, capital expenditure limits, a minimum combined interest coverage ratio, a maximum senior secured leverage ratio and a maximum total leverage ratio. Effective March 29, 2013, the Credit Agreement was amended to revise the definition of Combined Working Capital to be consistent with the intention of the parties at the time of the effectiveness of the Ninth Amendment to Amended and Restated Credit Agreement by providing that the aggregate amount of all term loans outstanding under the Credit Agreement are not deemed Combined Current Liabilities under the Credit Agreement. The Partnership was in compliance with the foregoing covenants at March 31, 2013. 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).
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Debt (continued)
Senior Notes
On February 14, 2013, the Partnership entered into a Note Purchase Agreement (the Purchase Agreement) with FS Energy and Power Fund (FS Energy), with respect to the issue and sale by the Partnership to FS Energy of an aggregate principal amount of $70.0 million unsecured 8.00% Senior Notes due 2018 (the Notes). The Notes were issued in a private placement exempt from registration under the Securities Act of 1933, as amended (the Securities Act) and have not been registered under the Securities Act or any state securities laws, and may not be offered or sold except pursuant to an exemption from the registration requirements of the Securities Act and applicable state laws.
Closing of the offering occurred on February 14, 2013. The Notes were sold to FS Energy at 97% of their face amount, resulting in net proceeds to the Partnership of approximately $67.9 million. Additionally, the Partnership separately paid fees and offering expenses. The discount of $2.1 million at issuance will be accreted as additional interest over the expected term on the Notes. On February 15, 2013, the Partnership used the net proceeds from the offering, after paying fees and offering expenses, together with a portion of the $115.0 million term loan to finance its acquisition of all of the outstanding membership interests in Cascade Kelly and to pay related transaction costs.
The Notes were issued pursuant to an indenture dated as of February 14, 2013 (the Indenture) among the Partnership, our subsidiary guarantors and FS Energy. The Notes will mature on February 14, 2018. Interest on the Notes will accrue from February 14, 2013 and be paid semi-annually on February 14 and August 14 of each year, beginning on August 14, 2013.
The Partnership may redeem all or some of the Notes at any time or from time to time pursuant to the terms of the Indenture. The Notes are also subject to optional or mandatory exchange for HY Bonds (as such term is defined in the Indenture) at the time and on the terms specified in the Indenture. The holders of the Notes may require the Partnership to repurchase the Notes following certain asset sales or a Change of Control (as defined in the Indenture) at the prices and on the terms specified in the Indenture.
The Notes are guaranteed on a senior, unsecured basis by certain of the Partnerships wholly owned subsidiaries. The Indenture contains covenants that are no more restrictive to the Partnership in the aggregate than the terms, conditions, covenants and defaults contained in its Credit Agreement and will limit the Partnerships ability to, among other things, incur additional indebtedness, make distributions to equity owners, make certain investments, restrict distributions by its subsidiaries, create liens, enter into sale-leaseback transactions, sell assets or merge with other entities.
Deferred Financing Fees
The Partnership incurs bank fees related to its Credit Agreement. These deferred financing fees are amortized over the life of the Credit Agreement. The Partnership capitalized deferred financing fees of $5.1 million and $1.1 million for the three months ended March 31, 2013 and 2012, respectively. Amortization expense of approximately $1.6 million and $1.3 million for the three months ended March 31, 2013 and 2012, respectively, are included in selling, general and administrative expenses in the accompanying consolidated statements of operations. Unamortized fees are included in other current assets and other long-term assets.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7. Related Party Transactions
The Partnership is a party to a Second Amended and Restated Terminal Storage Rental and Throughput Agreement, as amended, with Global Petroleum Corp. (GPC), an affiliate of the Partnership that is 100% owned by members of the Slifka family. The agreement, which extends through July 31, 2015 with annual renewal options thereafter, is accounted for as an operating lease. The expenses under this agreement totaled approximately $2.3 million and $2.2 million for the three months ended March 31, 2013 and 2012, 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 month periods ended March 31, 2013 and 2012. These charges were recorded in selling, general and administrative expenses in the accompanying consolidated statements of operations. 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 March 31, 2013, 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 $31,000 for the three months ended March 31, 2012. These fees were recorded as an offset to selling, general and administrative expenses in the accompanying consolidated statements of operations. 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.
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. As of March 31, 2013, no such notice of termination was given by AE Holdings.
Prior to the acquisition of Alliance on March 1, 2012, 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 $40.6 million for the three months ended March 31, 2012.
In addition, Global Companies and GMG entered into management agreements with Alliance in connection with the Partnerships September 2010 acquisition of retail gasoline stations from ExxonMobil. The management fee and overhead reimbursement were approximately $433,000 and $250,000, respectively, for the three months ended March 31, 2012. 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. These expenses, including payroll, payroll taxes and bonus accruals, were $13.8 million and $9.7 million for the three months ended March 31, 2013 and 2012, 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.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7. Related Party Transactions (continued)
The table below presents trade receivables with GPC and the Partnership and receivables from the General Partner (in thousands):
|
|
March 31, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
Receivables from GPC |
|
$ |
285 |
|
$ |
275 |
|
Receivables from the General Partner (1) |
|
1,070 |
|
1,032 |
| ||
Total |
|
$ |
1,355 |
|
$ |
1,307 |
|
(1) Receivables from the General Partner reflect the Partnerships prepayment of payroll taxes and payroll accruals to the General Partner.
Note 8. Cash Distributions
The Partnership intends to consider regular cash distributions to unitholders on a quarterly basis, although there is no assurance as to the future cash distributions since they are dependent upon future earnings, capital requirements, financial condition and other factors. The Credit Agreement prohibits the Partnership from making cash distributions if any potential default or Event of Default, as defined in the Credit Agreement, occurs or would result from the cash distribution.
Within 45 days after the end of each quarter, the Partnership will distribute all of its Available Cash (as defined in its partnership agreement) to unitholders of record on the applicable record date. The amount of Available Cash is all cash on hand on the date of determination of Available Cash for the quarter; less the amount of cash reserves established by the General Partner to provide for the proper conduct of the Partnerships business, to comply with applicable law, any of the Partnerships debt instruments, or other agreements or to provide funds for distributions to unitholders and the General Partner for any one or more of the next four quarters.
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% |
|
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8. Cash Distributions (continued)
The Partnership paid the following cash distribution during 2013 (in thousands, except per unit data):
Cash |
|
|
Per Unit |
|
Common |
|
General |
|
Incentive |
|
Total Cash |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
02/14/13 (1) |
|
$ |
0.57 |
|
$ |
15,636 |
|
$ |
131 |
|
$ |
579 |
|
$ |
16,346 |
| |
(1) This distribution of $0.57 per unit resulted in the Partnership exceeding its second target level distribution for the fourth quarter of 2012. As a result, the General Partner, as the holder of the IDRs, received an incentive distribution.
In addition, on April 24, 2013, the board of directors of the General Partner declared a quarterly cash distribution of $0.5825 per unit ($2.33 per unit on an annualized basis) for the period from January 1, 2013 through March 31, 2013. On May 15, 2013, the Partnership will pay this cash distribution to its common unitholders of record as of the close of business May 6, 2013. This distribution will result in the Partnership exceeding its second target level distribution for the quarter ended March 31, 2013.
Note 9. Segment Reporting
The Partnership engages in the distribution of refined petroleum products, renewable fuels, crude oil and natural gas. The Partnerships operating segments are based upon the revenue sources for which discrete financial information is reviewed by the chief operating decision maker (the CODM) and include Wholesale, Gasoline Distribution and Station Operations and Commercial. Each of these operating segments generates revenues and incurs expenses and is evaluated for operating performance on a regular basis.
These operating segments are also the Partnerships reporting segments based on the way the CODM manages the business and on the similarity of customers and expected long-term financial performance of each segment. For the three months ended March 31, 2013 and 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 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, 2012.
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. The Partnership sells home heating oil, diesel, kerosene and residual oil to home heating oil retailers and wholesale distributors. The Partnership also sells and transports crude oil to refiners. 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 and West Coast in barges. Additionally, ethanol is shipped primarily by rail and by barge. The results of Basin Transload and Cascade Kelly, both acquired in February 2013 (see Note 2), are included in the Wholesale segment.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Segment Reporting (continued)
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 or commission agent leased gasoline stations.
The Commercial segment includes sales and deliveries to end user customers in the public sector and to large commercial and industrial end users of unbranded gasoline, home heating oil, diesel, kerosene, residual oil, renewable fuels and natural gas. 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. The Commercial segment also includes sales of custom blended fuels delivered by barges or from a terminal dock to ships 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 and a group of small utilities. In the Commercial segment, the Partnership generally arranges the delivery of the product to the customers designated location. The Partnership typically hires 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 years presented below.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Segment Reporting (continued)
Summarized financial information for the Partnerships reportable segments is presented in the table below (in thousands):
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
Wholesale Segment: |
|
|
|
|
| ||
Sales |
|
|
|
|
| ||
Gasoline and gasoline blendstocks |
|
$ |
2,201,469 |
|
$ |
1,851,985 |
|
Other oils and related products (1) |
|
2,316,519 |
|
1,428,323 |
| ||
Total |
|
$ |
4,517,988 |
|
$ |
3,280,308 |
|
Net product margin |
|
|
|
|
| ||
Gasoline and gasoline blendstocks |
|
$ |
9,613 |
|
$ |
18,739 |
|
Other oils and related products (1) |
|
41,567 |
|
14,453 |
| ||
Total |
|
$ |
51,180 |
|
$ |
33,192 |
|
Gasoline Distribution and Station Operations Segment: |
|
|
|
|
| ||
Sales |
|
|
|
|
| ||
Gasoline |
|
$ |
745,590 |
|
$ |
466,477 |
|
Station operations (2) |
|
31,608 |
|
19,641 |
| ||
Total |
|
$ |
777,198 |
|
$ |
486,118 |
|
Net product margin |
|
|
|
|
| ||
Gasoline |
|
$ |
28,193 |
|
$ |
12,203 |
|
Station operations (2) |
|
17,836 |
|
10,960 |
| ||
Total |
|
$ |
46,029 |
|
$ |
23,163 |
|
Commercial Segment: |
|
|
|
|
| ||
Sales |
|
$ |
294,004 |
|
$ |
209,055 |
|
Net product margin |
|
$ |
10,425 |
|
$ |
6,200 |
|
Combined sales and net product margin: |
|
|
|
|
| ||
Sales |
|
$ |
5,589,190 |
|
$ |
3,975,481 |
|
Net product margin (3) |
|
$ |
107,634 |
|
$ |
62,555 |
|
Depreciation allocated to cost of sales |
|
11,782 |
|
7,236 |
| ||
Combined gross profit |
|
$ |
95,852 |
|
$ |
55,319 |
|
(1) Other oils and related products primarily consist of distillates, residual oil and crude oil and include the February 2013 acquisitions of Basin Transload and Cascade Kelly (see Note 2).
(2) Station operations primarily consist of convenience store sales at the Partnerships directly operated stores and rental income from dealer leased or commission agent leased gasoline stations.
(3) Net product margin is a non-GAAP financial measure used by management and external users of the Partnerships consolidated financial statements to assess the Partnerships business. The table above includes a reconciliation of net product margin on a combined basis to gross profit, a directly comparable GAAP measure.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Segment Reporting (continued)
A reconciliation of the totals reported for the reportable segments to the applicable line items in the consolidated financial statements is as follows (in thousands):
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
Combined gross profit |
|
$ |
95,852 |
|
$ |
55,319 |
|
Operating costs and expenses not allocated to operating segments: |
|
|
|
|
| ||
Selling, general and administrative expenses |
|
26,760 |
|
22,467 |
| ||
Operating expenses |
|
43,340 |
|
23,358 |
| ||
Amortization expense |
|
4,376 |
|
1,574 |
| ||
Total operating costs and expenses |
|
74,476 |
|
47,399 |
| ||
Operating income |
|
21,376 |
|
7,920 |
| ||
Interest expense |
|
(8,916 |
) |
(9,320 |
) | ||
Income tax benefit |
|
1,875 |
|
|
| ||
Net income (loss) |
|
14,335 |
|
(1,400 |
) | ||
Net loss attributable to noncontrolling interest |
|
490 |
|
|
| ||
Net income (loss) attributable to Global Partners LP |
|
$ |
14,825 |
|
$ |
(1,400 |
) |
There were no foreign sales for the three months ended March 31, 2013 and 2012. The Partnership has no foreign assets.
Segment Assets
In connection with its acquisition of Cascade Kelly in February 2013, the Partnership acquired assets of approximately $97.1 million, of which approximately $45.1 million of property and equipment has primarily been allocated to the Wholesale segment as of the acquisition date. As of March 31, 2013, these assets had a net book value of approximately $44.5 million.
In connection with its acquisition of a 60% membership interest in Basin Transload in February 2013, the Partnership acquired assets of approximately $132.4 million, of which approximately $28.0 million of property and equipment has primarily been allocated to the Wholesale segment as of the acquisition date. As of March 31, 2013, these assets had a net book value of approximately $27.2 million.
In connection with its acquisitions of retail gasoline stations from Alliance in March 2012 and ExxonMobil in September 2010, the Partnership acquired assets of approximately $627.6 million, of which approximately $465.8 million of property and equipment has been allocated to the Gasoline Distribution and Station Operations segment as of the respective acquisition date. As of March 31, 2013, these assets had a collective net book value of approximately $504.1 million.
Due to the commingled nature and uses of the remainder of the Partnerships assets, it is not reasonably possible for the Partnership to allocate these assets among its reportable segments.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10. Property and Equipment
Property and equipment consisted of the following (in thousands):
|
|
March 31 |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
Buildings and improvements |
|
$ |
567,754 |
|
$ |
498,984 |
|
Land |
|
289,466 |
|
289,903 |
| ||
Fixtures and equipment |
|
17,597 |
|
14,554 |
| ||
Construction in process |
|
30,959 |
|
17,809 |
| ||
Capitalized internal use software |
|
5,941 |
|
5,847 |
| ||
Total property and equipment |
|
911,717 |
|
827,097 |
| ||
Less accumulated depreciation |
|
(126,993 |
) |
(114,775 |
) | ||
Total |
|
$ |
784,724 |
|
$ |
712,322 |
|
The net increase of approximately $84.6 million in total property and equipment at March 31, 2013 was primarily due to the Partnerships acquisitions of its membership interest in Basin Transload and Cascade Kelly (see Note 2).
Note 11. Environmental Liabilities and Asset Retirement Obligations
Environmental Liabilities
The Partnership currently owns or leases properties where refined petroleum products, renewable fuels and crude oil are being or may have been handled. These properties and the refined petroleum products, renewable fuels and crude oil handled thereon may be subject to federal and state environmental laws and regulations. Under such laws and regulations, the Partnership could be required to remove or remediate containerized hazardous liquids or associated generated wastes (including wastes disposed of or abandoned by prior owners or operators), to clean up contaminated property arising from the release of liquids or wastes into the environment, including contaminated groundwater, or to implement best management practices to prevent future contamination.
The Partnership maintains insurance of various types with varying levels of coverage that it considers adequate under the circumstances to cover its operations and properties. The insurance policies are subject to deductibles that the Partnership considers reasonable and not excessive. In addition, the Partnership has entered into indemnification agreements with various sellers in conjunction with several of its acquisitions. Allocation of environmental liability is an issue negotiated in connection with each of the Partnerships acquisition transactions. In each case, the Partnership makes an assessment of potential environmental liability exposure based on available information. Based on that assessment and relevant economic and risk factors, the Partnership determines whether to, and the extent to which it will, assume liability for existing environmental conditions.
In connection with the December 2012 acquisition of six New England gasoline stations from Mutual Oil, the Partnership assumed certain environmental liabilities, including certain ongoing remediation efforts. As a result, the Partnership recorded, on an undiscounted basis, a total environmental liability of approximately $0.6 million.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11. Environmental Liabilities and Asset Retirement Obligations (continued)
In connection with the March 2012 acquisition of Alliance, the Partnership assumed Alliances environmental liabilities, including ongoing environmental remediation at certain of the retail stations owned by Alliance and future remediation activities required by applicable federal, state or local law or regulation. Remedial action plans are in place, as may be applicable with the state agencies regulating such ongoing remediation. Based on reports from environmental engineers, the Partnerships estimated cost of the ongoing environmental remediation for which Alliance was responsible and future remediation activities required by applicable federal, state or local law or regulation is estimated to be approximately $16.1 million to be expended over an extended period of time. Certain environmental remediation obligations at the retail stations acquired by Alliance from ExxonMobil in 2011 are being funded by a third party who assumed the liability in connection with the Alliance/ExxonMobil transaction in 2011 and, therefore, cost estimates for such obligations at these stations are not included in this estimate. As a result, the Partnership recorded, on an undiscounted basis, total environmental liabilities of approximately $16.1 million.
In connection with the September 2010 acquisition of retail gasoline stations from ExxonMobil, the Partnership assumed certain environmental liabilities, including ongoing environmental remediation at and monitoring activities at certain of the acquired sites and future remediation activities required by applicable federal, state or local law or regulation. Remedial action plans are in place with the applicable state regulatory agencies for the majority of these locations, including plans for soil and groundwater treatment systems at certain sites. Based on consultations with environmental engineers, the Partnerships estimated cost of the remediation is expected to be approximately $30.0 million to be expended over an extended period of time. As a result, the Partnership recorded, on an undiscounted basis, total environmental liabilities of approximately $30.0 million.
In connection with the June 2010 acquisition of three refined petroleum products terminals in Newburgh, New York, the Partnership assumed certain environmental liabilities, including certain ongoing remediation efforts. As a result, the Partnership recorded, on an undiscounted basis, a total environmental liability of approximately $1.5 million.
In connection with the November 2007 acquisition of ExxonMobils Glenwood Landing and Inwood, New York terminals, the Partnership assumed certain environmental liabilities, including the remediation obligations under remedial action plans submitted by ExxonMobil to and approved by the New York Department of Environmental Conservation (NYDEC) with respect to both terminals. As a result, the Partnership recorded, on an undiscounted basis, total environmental liabilities of approximately $1.2 million.
In connection with the May 2007 acquisition of ExxonMobils Albany and Newburgh, New York and Burlington, Vermont terminals, the Partnership assumed certain environmental liabilities, including the remediation obligations under a proposed remedial action plan submitted by ExxonMobil to NYDEC with respect to the Albany, New York terminal. As a result, the Partnership recorded, on an undiscounted basis, total environmental liabilities of approximately $8.0 million. In June 2008, the Partnership submitted a remedial action work plan to NYDEC, implementing NYDECs conditional approval of the remedial action plan submitted by ExxonMobil. The Partnership responded to NYDECs requests for additional information and conducted pilot tests for the remediation outlined in the work plan. Based on the results of such pilot tests, the Partnership changed its estimate and reduced the environmental liability by $2.8 million during the fourth quarter ended December 31, 2008. In July 2009, NYDEC approved the remedial action work plan, and the Partnership signed a Stipulation Agreement with NYDEC to govern implementation of the approved plan. The remedial action work has been implemented pursuant to the approved work plan, and the
post-remediation stage of operation, monitoring and maintenance has commenced and is ongoing. As a result, the Partnership changed its estimate and reduced the environmental liability by $1.7 million during the second quarter ended June 30, 2011.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11. Environmental Liabilities and Asset Retirement Obligations (continued)
The following table presents a summary roll forward of the Partnerships environmental liabilities at March 31, 2013 (in thousands):
|
|
Balance at |
|
|
|
|
|
|
|
Balance at |
| |||||
|
|
December 31, |
|
Payments in |
|
Dispositions |
|
Other |
|
March 31 |
| |||||
Environmental Liability Related to: |
|
2012 |
|
2013 |
|
2013 |
|
Adjustments |
|
2013 |
| |||||
ExxonMobil Gasoline Stations |
|
$ |
26,610 |
|
$ |
(468 |
) |
$ |
(100 |
) |
$ |
245 |
|
$ |
26,287 |
|
Alliance Gasoline Stations |
|
14,984 |
|
(160 |
) |
(453 |
) |
|
|
14,371 |
| |||||
Mutual Oil |
|
625 |
|
|
|
|
|
|
|
625 |
| |||||
Newburgh |
|
1,500 |
|
|
|
|
|
|
|
1,500 |
| |||||
Glenwood Landing and Inwood |
|
347 |
|
(4) |
|
|
|
|
|
343 |
| |||||
Albany |
|
106 |
|
|
|
|
|
|
|
106 |
| |||||
Total environmental liabilities |
|
$ |