UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2013 |
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OR |
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
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Commission file number 001-32593
Global Partners LP
(Exact name of registrant as specified in its charter)
Delaware |
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74-3140887 |
(State or other jurisdiction of incorporation |
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(I.R.S. Employer Identification No.) |
P.O. Box 9161
800 South Street
Waltham, Massachusetts 02454-9161
(Address of principal executive offices, including zip code)
(781) 894-8800
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes 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 November 5, 2013.
GLOBAL PARTNERS LP
(In thousands, except unit data)
(Unaudited)
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September 30, |
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December 31, |
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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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$ |
15,068 |
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$ |
5,977 |
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Accounts receivable, net |
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781,800 |
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696,762 |
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Accounts receivableaffiliates |
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1,496 |
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1,307 |
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Inventories |
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402,221 |
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634,667 |
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Brokerage margin deposits |
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40,694 |
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54,726 |
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Fair value of forward fixed price contracts |
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37,001 |
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48,062 |
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Prepaid expenses and other current assets |
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41,591 |
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65,432 |
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Total current assets |
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1,319,871 |
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1,506,933 |
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Property and equipment, net |
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838,424 |
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712,322 |
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Intangible assets, net |
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129,755 |
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60,822 |
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Goodwill |
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58,890 |
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32,326 |
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Other assets |
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17,701 |
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17,349 |
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Total assets |
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$ |
2,364,641 |
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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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$ |
769,693 |
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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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4,271 |
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4,341 |
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Trustee taxes payable |
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75,891 |
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91,494 |
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Accrued expenses and other current liabilities |
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46,403 |
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71,442 |
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Obligations on forward fixed price contracts |
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38,885 |
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34,474 |
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Total current liabilities |
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1,050,143 |
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1,045,195 |
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Working capital revolving credit facilityless current portion |
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300,300 |
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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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68,163 |
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Environmental liabilitiesless current portion |
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37,651 |
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39,831 |
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Other long-term liabilities |
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44,454 |
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45,511 |
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Total liabilities |
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1,900,411 |
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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 27,268,247 outstanding at September 30, 2013 and 27,430,563 units issued and 27,310,648 outstanding at December 31, 2012) |
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427,929 |
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456,538 |
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General partner interest (0.83% interest with 230,303 equivalent units outstanding at September 30, 2013 and December 31, 2012) |
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(335 |
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(407 |
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Accumulated other comprehensive loss |
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(13,877 |
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(19,670 |
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Total Global Partners LP equity |
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413,717 |
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436,461 |
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Noncontrolling interest |
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50,513 |
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Total partners equity |
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464,230 |
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436,461 |
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Total liabilities and partners equity |
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$ |
2,364,641 |
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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 INCOME
(In thousands, except per unit data)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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2013 |
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2012 |
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2013 |
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2012 |
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Sales |
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$ |
4,433,426 |
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$ |
4,617,194 |
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$ |
14,794,372 |
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$ |
12,508,738 |
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Cost of sales |
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4,337,146 |
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4,534,574 |
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14,504,383 |
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12,280,124 |
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Gross profit |
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96,280 |
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82,620 |
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289,989 |
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228,614 |
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Costs and operating expenses: |
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Selling, general and administrative expenses |
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29,086 |
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24,105 |
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82,923 |
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70,608 |
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Operating expenses |
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46,713 |
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40,196 |
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137,420 |
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100,692 |
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Amortization expense |
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6,676 |
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1,511 |
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16,729 |
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5,373 |
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Total costs and operating expenses |
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82,475 |
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65,812 |
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237,072 |
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176,673 |
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Operating income |
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13,805 |
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16,808 |
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52,917 |
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51,941 |
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Interest expense |
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(9,111 |
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(9,237 |
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(27,051 |
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(27,705 |
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Income before income tax expense |
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4,694 |
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7,571 |
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25,866 |
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24,236 |
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Income tax expense |
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(2,727 |
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(678 |
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(852 |
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(228 |
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Net income |
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1,967 |
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6,893 |
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25,014 |
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24,008 |
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Net loss attributable to noncontrolling interest |
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1,440 |
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1,912 |
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Net income attributable to Global Partners LP |
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3,407 |
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6,893 |
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26,926 |
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24,008 |
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Less: |
General partners interest in net income, including incentive distribution rights |
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(856 |
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(316 |
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(2,458 |
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(733 |
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Limited partners interest in net income |
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$ |
2,551 |
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$ |
6,577 |
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$ |
24,468 |
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$ |
23,275 |
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Basic net income per limited partner unit |
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$ |
0.09 |
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$ |
0.24 |
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$ |
0.89 |
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$ |
0.89 |
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Diluted net income per limited partner unit |
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$ |
0.09 |
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$ |
0.24 |
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$ |
0.89 |
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$ |
0.89 |
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Basic weighted average limited partner units outstanding |
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27,333 |
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27,311 |
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27,350 |
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26,085 |
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Diluted weighted average limited partner units outstanding |
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27,333 |
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27,485 |
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27,350 |
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26,258 |
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The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL PARTNERS LP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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2013 |
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2012 |
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2013 |
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2012 |
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Net income |
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$ |
1,967 |
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$ |
6,893 |
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$ |
25,014 |
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$ |
24,008 |
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Other comprehensive income: |
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Change in fair value of cash flow hedges |
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(945 |
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515 |
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2,577 |
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1,204 |
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Change in pension liability |
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1,191 |
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373 |
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3,216 |
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581 |
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Total other comprehensive income |
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246 |
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888 |
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5,793 |
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1,785 |
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Comprehensive income |
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2,213 |
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7,781 |
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30,807 |
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25,793 |
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Comprehensive loss attributable to noncontrolling interest |
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1,440 |
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1,912 |
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Comprehensive income attributable to Global Partners LP |
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$ |
3,653 |
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$ |
7,781 |
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$ |
32,719 |
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$ |
25,793 |
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The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Nine Months Ended |
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2013 |
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2012 |
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Cash flows from operating activities |
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Net income |
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$ |
25,014 |
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$ |
24,008 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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58,942 |
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32,663 |
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Amortization of deferred financing fees |
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5,062 |
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4,106 |
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Amortization of senior notes discount |
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263 |
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Bad debt expense |
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1,659 |
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270 |
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Stock-based compensation expense |
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955 |
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(20 |
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Gain on disposition of property and equipment |
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(1,444 |
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(162 |
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Curtailment gain |
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(469 |
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Changes in operating assets and liabilities, exclusive of business combinations: |
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Accounts receivable |
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(84,398 |
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(40,237 |
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Accounts receivable affiliate |
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(189 |
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499 |
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Inventories |
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232,577 |
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81,839 |
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Broker margin deposits |
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14,032 |
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13,663 |
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Prepaid expenses, all other current assets and other assets |
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18,589 |
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264 |
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Accounts payable |
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7,241 |
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91,708 |
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Trustee taxes payable |
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(15,603 |
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(7,515 |
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Change in fair value of forward fixed price contracts |
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15,472 |
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(25,450 |
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Accrued expenses, all other current liabilities and other long-term liabilities |
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(24,060 |
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14,533 |
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Net cash provided by operating activities |
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254,112 |
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189,700 |
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Cash flows from investing activities |
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Acquisitions |
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(185,262 |
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(181,898 |
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Capital expenditures |
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(46,935 |
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(30,907 |
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Proceeds from sale of property and equipment |
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5,769 |
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6,610 |
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Net cash used in investing activities |
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(226,428 |
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(206,195 |
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Cash flows from financing activities |
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Payments on working capital revolving credit facility |
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(124,200 |
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(161,800 |
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(Payments on) borrowings from revolving credit facility |
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(22,300 |
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217,000 |
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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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Repurchase of common units |
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(4,331 |
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(2,152 |
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Repurchased units withheld for tax obligations |
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(2,086 |
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(96 |
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Noncontrolling interest capital contribution |
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1,425 |
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Distributions to partners |
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(50,001 |
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(39,712 |
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Net cash (used in) provided by financing activities |
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(18,593 |
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13,240 |
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Increase (decrease) in cash and cash equivalents |
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9,091 |
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(3,255 |
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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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$ |
15,068 |
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$ |
1,073 |
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Supplemental information |
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Cash paid during the period for interest |
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$ |
26,002 |
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$ |
27,720 |
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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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24,468 |
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2,458 |
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(1,912 |
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25,014 |
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Acquisition of noncontrolling interest, at fair value |
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51,000 |
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51,000 |
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Noncontrolling interest capital contribution |
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1,425 |
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1,425 |
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Other comprehensive income |
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5,793 |
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5,793 |
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Stock-based compensation |
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955 |
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955 |
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Distributions to partners |
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(47,731 |
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(2,386 |
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(50,117 |
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Repurchase of common units |
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(4,331 |
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(4,331 |
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Repurchased units withheld for tax obligation |
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(2,086 |
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(2,086 |
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Phantom unit dividends |
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116 |
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116 |
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Balance at September 30, 2013 |
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$ |
427,929 |
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$ |
(335 |
) |
$ |
(13,877 |
) |
$ |
50,513 |
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$ |
464,230 |
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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 September 30, 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. 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 also 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 the East and West Coasts for distribution to refiners and other customers. The Partnership owns, controls or has access to one of the largest terminal networks of refined petroleum products and renewable fuels in Massachusetts, Maine, Connecticut, Vermont, New Hampshire, Rhode Island, New York, New Jersey and Pennsylvania (collectively, the Northeast). The Partnership also owns and controls terminals in North Dakota and Oregon that extend its origin-to-destination capabilities. The Partnership is a major multi-brand gasoline distributor and, as of September 30, 2013, had a portfolio of approximately 900 owned, leased and/or supplied gasoline stations primarily in the Northeast. The Partnership receives revenue from retail sales of gasoline, convenience store sales and gasoline station rental income. The Partnership is also a distributor of natural gas and propane. In addition, the Partnership provides ancillary services to companies and receives revenue from these ancillary services.
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 September 30, 2013, affiliates of the General Partner, including its directors and executive officers, owned 11,548,902 common units, representing a 42.1% limited partner interest.
Basis of Presentation
The financial results of Basin Transload for the eight months ended September 30, 2013 and of Cascade Kelly for the seven and one-half months ended September 30, 2013 are included in the accompanying statements of income for the nine months ended September 30, 2013. The Partnership consolidated the September 30, 2013 balance sheet of Basin Transload because the Partnership controls the entity. The accompanying consolidated financial statements as of September 30, 2013 and December 31, 2012 and for the three and nine months ended September 30, 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 and nine months ended September 30, 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 a noncontrolling interest in the accompanying consolidated balance sheet and statement of income.
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:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
Gasoline sales: gasoline and gasoline blendstocks such as ethanol and naphtha |
|
65% |
|
76% |
|
59% |
|
70% |
|
Distillates (home heating oil, diesel and kerosene), residual oil, crude oil, natural gas and propane sales |
|
35% |
|
24% |
|
41% |
|
30% |
|
Total |
|
100% |
|
100% |
|
100% |
|
100% |
|
The Partnership had two significant customers, ExxonMobil Corporation (ExxonMobil) and Phillips 66 (Phillips 66), which accounted for approximately 18% and 11%, respectively, of total sales for the three months ended September 30, 2013, and approximately 15% and 14% respectively, of total sales for the nine months ended September 30, 2013. The Partnership had one significant customer, ExxonMobil, which accounted for approximately 16% and 16% of total sales for the three and nine months ended September 30, 2012, respectively.
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: |
|
|
| |
Accounts receivable |
|
$ |
2,003 |
|
Prepaid expenses |
|
68 |
| |
Property and equipment |
|
29,112 |
| |
Intangibles |
|
85,662 |
| |
Total identifiable assets purchased |
|
116,845 |
| |
Liabilities assumed: |
|
|
| |
Accounts payable |
|
(1,326 |
) | |
Total liabilities assumed |
|
(1,326 |
) | |
Net identifiable assets acquired |
|
115,519 |
| |
Noncontrolling interest |
|
(51,000 |
) | |
Goodwill |
|
26,564 |
| |
Net assets acquired |
|
$ |
91,083 |
|
Management is in the process of finalizing the purchase price accounting. The Partnership engaged a third-party valuation firm to assist in the valuation of the Partnerships interest in Basin Transloads property and equipment, intangible assets and noncontrolling interest. During the quarter ended September 30, 2013, the Partnership recorded certain changes to the preliminary purchase accounting, primarily related to the values assigned to property and equipment, intangibles and the noncontrolling interest based on a preliminary valuation received from a third-party valuation firm. The impact of these changes increased goodwill from $24.1 million at June 30, 2013 to $26.5 million at September 30, 2013.
The Partnerships third party valuation firm primarily used the replacement cost methodology to value property and equipment, adjusted for depreciation associated with the age and estimated condition of the assets. The income approach was used to value the intangible assets, which consist principally of customer relationships.
The fair value of the noncontrolling interest was developed by a third-party valuation firm 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. The Partnership is completing its review of the preliminary values received from the third-party valuation firm with a particular emphasis on assessing the appropriate number of years of cash flows used to value the intangible assets given the nature of the industry. It is possible that once the Partnership receives the completed valuations on the property and equipment, intangible assets and noncontrolling interest, 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.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Business Combinations (continued)
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.
As part of the purchase price allocation, identifiable intangible assets include customer relationships that are being amortized over five years. Amortization expense amounted to $4.9 million and $11.4 million for the three and nine months ended September 30, 2013, respectively. 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 (10/1/13 12/31/13) |
|
$ |
4,275 |
|
2014 |
|
17,100 |
| |
2015 |
|
17,100 |
| |
2016 |
|
17,100 |
| |
2017 |
|
17,100 |
| |
Thereafter |
|
1,425 |
| |
Total |
|
$ |
74,100 |
|
The $26.5 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 |
|
131 |
| |
Prepaid expenses |
|
96 |
| |
Property and equipment |
|
96,591 |
| |
Total identifiable assets purchased |
|
97,114 |
| |
Liabilities assumed: |
|
|
| |
Accounts payable |
|
(1,428 |
) | |
Other current liabilities |
|
(1,507 |
) | |
Total liabilities assumed |
|
(2,935 |
) | |
Net identifiable assets acquired |
|
$ |
94,179 |
|
Management is in the process of finalizing the purchase price accounting. The Partnership engaged a third-party valuation firm to assist in the valuation of Cascade Kellys property and equipment, and the preliminary estimate of fair value is $96.6 million. During the quarter ended September 30, 2013, the Partnership recorded certain changes to the preliminary purchase accounting, primarily related to the values assigned to property and equipment based on a preliminary valuation received from a third-party valuation firm. The impact of these changes decreased goodwill from $51.1 million at June 30, 2013 to $0 at September 30, 2013.
During the preliminary stage of evaluating the purchase price accounting, the estimated fair value of property and equipment developed by management and used in the determination of the acquisition price was based on managements acquisition history and on the crude oil facility. In the third quarter, the Partnerships third-party valuation firm completed inspections of the crude oil and ethanol fixed assets and prepared a preliminary valuation which began with quantifying the replacement cost of the acquired assets. The level of physical depreciation and other forms of depreciation was then quantified and deducted from the replacement cost to arrive at the fair value of the assets. The impact of the valuation was to increase property and equipment by $51.5 million. Management attributed the increase to the completion of the valuation by the third-party valuation firm, which concluded that the fair value of the ethanol assets is more favorable than originally anticipated. The Partnership continues to review the assumptions used in valuing the crude oil and ethanol fixed assets, with a particular focus on the adjustments made between replacement cost and fair value.
The Partnership expects to make the capital improvements necessary to place the ethanol plant into service; therefore, as of September 30, 2013, the fair value of the ethanol plant is included in construction in process. After the plant has been successfully placed into service, depreciation will commence.
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 fair values of the remaining Cascade Kelly assets and liabilities noted above approximate their carrying values at February 15, 2013.
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.
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 cash consideration of $181.9 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.
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 table presents a summary roll forward of the Partnerships goodwill at September 30, 2013 (in thousands):
|
|
Goodwill at |
|
|
|
Goodwill at |
| |||
|
|
December 31, |
|
2013 |
|
September 30, |
| |||
|
|
2012 |
|
Additions |
|
2013 |
| |||
Acquisition of Alliance (1) |
|
$ |
31,151 |
|
$ |
|
|
$ |
31,151 |
|
Acquisition of gasoline stations from Mutual Oil Company (1) |
|
1,175 |
|
|
|
1,175 |
| |||
Acquisition of 60% interest in Basin Transload (2) |
|
|
|
26,564 |
|
26,564 |
| |||
Total |
|
$ |
32,326 |
|
$ |
26,564 |
|
$ |
58,890 |
|
(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 January 1, 2013 to February 1, 2013, the acquisition date, and for Cascade Kelly from January 1, 2013 to February 15, 2013, the acquisition date, were immaterial. Accordingly, the supplemental pro-forma information for the nine months ended September 30, 2013 is consistent with the amounts reported in the accompanying statement of income for the nine months ended September 30, 2013.
The following unaudited pro-forma information 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):
|
|
Nine Months Ended |
| |
|
|
September 30, 2012 |
| |
|
|
|
| |
Sales |
|
$ |
12,758,170 |
|
Net loss |
|
$ |
(4,194 |
) |
Net loss per limited partner unit, basic and diluted |
|
$ |
(0.17 |
) |
The Partnerships 60% interest in Basin Transloads sales and net loss included in the Partnerships consolidated operating results from February 1, 2013, the acquisition date, through the period ended September 30, 2013 were $6.4 million and $2.9 million, respectively. Cascade Kellys sales and net loss included in the Partnerships consolidated operating results from February 15, 2013, the acquisition date, through the period ended September 30, 2013 were $7.7 million and $1.3 million, respectively.
Note 3. Net Income Per Limited Partner Unit
Under the Partnerships partnership agreement, for any quarterly period, the incentive distribution rights (IDRs) participate in net income only to the extent of the amount of cash distributions actually declared, thereby excluding the IDRs from participating in the Partnerships undistributed net income or losses. Accordingly, the Partnerships undistributed net income is assumed to be allocated to the common unitholders, or limited partners interest, and to the General Partners general partner interest.
At September 30, 2013 and December 31, 2012, common units outstanding as reported in the accompanying consolidated financial statements excluded 162,316 and 119,915 common units, respectively, held on behalf of the Partnership pursuant to its repurchase program (see Note 12). These units are not deemed outstanding for purposes of calculating net income per limited partner unit (basic and diluted).
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Net Income Per Limited Partner Unit (continued)
The following table provides a reconciliation of net income and the assumed allocation of net income to the limited partners interest for purposes of computing net income per limited partner unit for the three and nine months ended September 30, 2013 and 2012 (in thousands, except per unit data):
|
|
Three Months Ended September 30, 2013 |
|
|
Three Months Ended September 30, 2012 |
| ||||||||||||||||||||
Numerator: |
|
Total |
|
Limited |
|
General |
|
IDRs |
|
|
Total |
|
Limited |
|
General |
|
IDRs |
| ||||||||
Net income attributable to Global Partners LP |
|
$ |
3,407 |
|
$ |
2,551 |
|
$ |
856 |
|
$ |
|
|
|
$ |
6,893 |
|
$ |
6,577 |
|
$ |
316 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Declared distribution |
|
$ |
17,425 |
|
$ |
16,459 |
|
$ |
138 |
|
$ |
828 |
|
|
$ |
15,019 |
|
$ |
14,607 |
|
$ |
122 |
|
$ |
290 |
|
Assumed allocation of undistributed net income |
|
(14,018 |
) |
(13,908 |
) |
(110 |
) |
|
|
|
(8,126 |
) |
(8,030 |
) |
(96 |
) |
|
| ||||||||
Assumed allocation of net income |
|
$ |
3,407 |
|
$ |
2,551 |
|
$ |
28 |
|
$ |
828 |
|
|
$ |
6,893 |
|
$ |
6,577 |
|
$ |
26 |
|
$ |
290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic weighted average limited partner units outstanding |
|
|
|
27,333 |
|
|
|
|
|
|
|
|
27,311 |
|
|
|
|
| ||||||||
Dilutive effect of phantom units |
|
|
|
|
|
|
|
|
|
|
|
|
174 |
|
|
|
|
| ||||||||
Diluted weighted average limited partner units outstanding |
|
|
|
27,333 |
|
|
|
|
|
|
|
|
27,485 |
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic net income per limited partner unit |
|
|
|
$ |
0.09 |
|
|
|
|
|
|
|
|
$ |
0.24 |
|
|
|
|
| ||||||
Diluted net income per limited partner unit (1) |
|
|
|
$ |
0.09 |
|
|
|
|
|
|
|
|
$ |
0.24 |
|
|
|
|
|
(1) Basic units were used to calculate diluted net income per limited partner unit for the three months ended September 30, 2013 as using the effects of the phantom units would have an anti-dilutive effect on income per limited partner unit.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Net Income Per Limited Partner Unit (continued)
|
|
Nine Months Ended September 30, 2013 |
|
|
Nine Months Ended September 30, 2012 |
| ||||||||||||||||||||
Numerator: |
|
Total |
|
Limited |
|
General |
|
IDRs |
|
|
Total |
|
Limited |
|
General |
|
IDRs |
| ||||||||
Net income attributable to Global Partners LP (1) |
|
$ |
26,926 |
|
$ |
24,468 |
|
$ |
2,458 |
|
$ |
|
|
|
$ |
24,008 |
|
$ |
23,275 |
|
$ |
733 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Declared distribution |
|
$ |
51,196 |
|
$ |
48,554 |
|
$ |
407 |
|
$ |
2,235 |
|
|
$ |
43,786 |
|
$ |
42,724 |
|
$ |
358 |
|
$ |
704 |
|
Adjustment to distribution in connection with the Alliance acquisition (2) |
|
|
|
|
|
|
|
|
|
|
(1,929 |
) |
(1,929 |
) |
|
|
|
| ||||||||
Adjusted declared distribution |
|
51,196 |
|
48,554 |
|
407 |
|
2,235 |
|
|
41,857 |
|
40,795 |
|
358 |
|
704 |
| ||||||||
Assumed allocation of undistributed net income |
|
(24,270 |
) |
(24,086 |
) |
(184 |
) |
|
|
|
(17,849 |
) |
(17,520 |
) |
(329 |
) |
|
| ||||||||
Assumed allocation of net income |
|
$ |
26,926 |
|
$ |
24,468 |
|
$ |
223 |
|
$ |
2,235 |
|
|
$ |
24,008 |
|
$ |
23,275 |
|
$ |
29 |
|
$ |
704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic weighted average limited partner units outstanding |
|
|
|
27,350 |
|
|
|
|
|
|
|
|
26,085 |
|
|
|
|
| ||||||||
Dilutive effect of phantom units |
|
|
|
|
|
|
|
|
|
|
|
|
173 |
|
|
|
|
| ||||||||
Diluted weighted average limited partner units outstanding |
|
|
|
27,350 |
|
|
|
|
|
|
|
|
26,258 |
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic net income per limited partner unit |
|
|
|
$ |
0.89 |
|
|
|
|
|
|
|
|
$ |
0.89 |
|
|
|
|
| ||||||
Diluted net income per limited partner unit (3) |
|
|
|
$ |
0.89 |
|
|
|
|
|
|
|
|
$ |
0.89 |
|
|
|
|
|
(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 nine months ended September 30, 2013 and, based on a weighted average, 0.87% for the nine months ended September 30, 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.
(3) Basic units were used to calculate diluted net income per limited partner unit for the nine months ended September 30, 2013 as using the effects of the phantom units would have an anti-dilutive effect on income per limited partner unit.
On April 24, 2013, the board of directors of the General Partner declared a quarterly cash distribution of $0.5825 per unit for the period from January 1, 2013 through March 31, 2013. On July 23, 2013, the board of directors of the General Partner declared a quarterly cash distribution of $0.5875 per unit for the period from April 1, 2013 through June 30, 2013. On October 23, 2013, the board of directors of the General Partner declared a quarterly cash distribution of $0.60 per unit for the period from July 1, 2013 through September 30, 2013. These declared cash distributions result in incentive distributions to the General Partner, as the holder of the IDRs, and enable the Partnership to exceed its second target level distribution with respect to such IDRs. See Note 8, Cash Distributions for further information.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4. Inventories
Except for its convenience store inventory, the Partnership hedges substantially all of its inventory, 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 September 30, 2013 and is carried at the lower of cost or market.
Inventories consisted of the following (in thousands):
|
|
September 30, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
Distillates: home heating oil, diesel and kerosene |
|
$ |
165,561 |
|
$ |
235,029 |
|
Gasoline |
|
82,061 |
|
144,269 |
| ||
Gasoline blendstocks |
|
47,538 |
|
139,316 |
| ||
Crude oil |
|
60,837 |
|
80,273 |
| ||
Residual oil |
|
36,649 |
|
29,150 |
| ||
Propane and other |
|
2,411 |
|
|
| ||
Convenience store inventory |
|
7,164 |
|
6,630 |
| ||
Total |
|
$ |
402,221 |
|
$ |
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 $203.8 million and $120.9 million at September 30, 2013 and December 31, 2012, respectively. Negative exchange balances are accounted for as accounts payable and amounted to $195.0 million and $139.5 million at September 30, 2013 and December 31, 2012, respectively. Exchange transactions are valued using current carrying costs.
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 September 30, 2013:
|
|
Units (1) |
|
|
Unit of Measure |
|
|
|
|
|
|
|
|
|
|
Futures Contracts |
|
|
|
|
|
|
|
Long |
|
19,639 |
|
|
Thousands of barrels |
|
|
Short |
|
(23,968 |
) |
|
Thousands of barrels |
|
|
|
|
|
|
|
|
|
|
Natural Gas Contracts |
|
|
|
|
|
|
|
Long |
|
7,481 |
|
|
Thousands of decatherms |
|
|
Short |
|
(7,481 |
) |
|
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) |
$ |
23.8 |
|
|
Millions of Canadian dollars |
|
|
|
$ |
23.1 |
|
|
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) $1.0311 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 September 30, 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 income for the three and nine months ended September 30, 2013 and 2012 (in thousands):
|
|
|
|
Amount of Gain (Loss) Recognized in |
| ||||||||||
|
|
|
|
Income on Derivatives |
| ||||||||||
|
|
Location of Gain (Loss) |
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
Derivatives in Fair Value |
|
Recognized in |
|
September 30, |
|
September 30, |
| ||||||||
Hedging Relationships |
|
Income on Derivative |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Futures contracts |
|
Cost of sales |
|
$ |
(4,348 |
) |
$ |
(100,666 |
) |
$ |
15,753 |
|
$ |
(110,114 |
) |
|
|
Amount of Gain (Loss) Recognized in |
| ||||||||||||
|
|
Income on Hedged Items |
| ||||||||||||
|
|
Location of Gain (Loss) |
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
Hedged Items in Fair Value |
|
Recognized in |
|
September 30, |
|
September 30, |
| ||||||||
Hedged Relationships |
|
Income on Hedged Items |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Inventories |
|
Cost of sales |
|
$ |
4,545 |
|
$ |
100,765 |
|
$ |
(15,033 |
) |
$ |
110,368 |
|
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 expired on October 2, 2013, was 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.
In September 2013, the Partnership executed a forward interest rate swap with a major financial institution. The swap, which became effective on October 2, 2013 and expires on October 2, 2018, is used to hedge the variability in cash flows in monthly 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 1.819%. This swap will essentially replace the interest rate collar which expired on October 2, 2013.
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 September 30, 2013 and December 31, 2012 (in thousands):
|
|
|
|
September 30, |
|
December 31, |
| ||
Derivatives Designated as |
|
|
|
2013 |
|
2012 |
| ||
Hedging Instruments |
|
Balance Sheet Location |
|
Fair Value |
|
Fair Value |
| ||
|
|
|
|
|
|
|
| ||
Asset derivatives |
|
|
|
|
|
|
| ||
Interest rate cap |
|
Other assets |
|
$ |
49 |
|
$ |
35 |
|
|
|
|
|
|
|
|
| ||
Liability derivatives |
|
|
|
|
|
|
| ||
Interest rate collar |
|
Other long-term liabilities |
|
$ |
6 |
|
$ |
1,868 |
|
Interest rate swap |
|
Other long-term liabilities |
|
10,833 |
|
11,534 |
| ||
Total liability derivatives |
|
|
|
$ |
10,839 |
|
$ |
13,402 |
|
The following table presents the amount of net gains and losses from derivatives involved in cash flow hedging relationships recognized in the Partnerships consolidated statements of income and partners equity for the three and nine months ended September 30, 2013 and 2012 (in thousands):
|
|
|
|
Recognized in Income |
|
|
|
Recognized in Income |
| ||||||||||||||||
|
|
|
|
on Derivatives |
|
|
|
on Derivatives |
| ||||||||||||||||
|
|
Amount of Gain (Loss) |
|
(Ineffectiveness Portion |
|
Amount of Gain (Loss) |
|
(Ineffectiveness Portion |
| ||||||||||||||||
|
|
Recognized in Other |
|
and Amount Excluded |
|
Recognized in Other |
|
and Amount Excluded |
| ||||||||||||||||
|
|
Comprehensive Income |
|
from Effectiveness |
|
Comprehensive Income |
|
from Effectiveness |
| ||||||||||||||||
|
|
on Derivatives |
|
Testing) |
|
on Derivatives |
|
Testing) |
| ||||||||||||||||
Derivatives in |
|
Three Months Ended |
|
Three Months Ended |
|
Nine Months Ended |
|
Nine Months Ended |
| ||||||||||||||||
Cash Flow |
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
| ||||||||||||||||
Hedging Relationship |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest rate collar |
|
$ |
635 |
|
$ |
481 |
|
$ |
|
|
$ |
|
|
$ |
1,861 |
|
$ |
1,341 |
|
$ |
|
|
$ |
|
|
Interest rate swap |
|
(1,538 |
) |
78 |
|
|
|
|
|
701 |
|
133 |
|
|
|
|
| ||||||||
Interest rate cap |
|
(42 |
) |
(44 |
) |
|
|
|
|
15 |
|
(270 |
) |
|
|
|
| ||||||||
Total |
|
$ |
(945 |
) |
$ |
515 |
|
$ |
|
|
$ |
|
|
$ |
2,577 |
|
$ |
1,204 |
|
$ |
|
|
$ |
|
|
Ineffectiveness related to the interest rate collar and the interest rate swap is recognized as interest expense and was immaterial for the three and nine months ended September 30, 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 September 30, 2013 and 2012, and $1.9 million for each of the nine months ended September 30, 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 and nine months ended September 30, 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 income 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 income through cost of sales.
During the three and nine months ended September 30, 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 September 30, 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 September 30, 2013 and December 31, 2012 (in thousands):
|
|
|
|
|
|
September 30, |
|
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) |
|
$ |
10,328 |
|
$ |
131 |
|
|
|
Crude Oil |
|
(1) |
|
957 |
|
15,127 |
| ||
|
|
Residual Oil |
|
(1) |
|
|
|
285 |
| ||
Total forward purchase commitments |
|
|
|
|
|
11,285 |
|
15,543 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Forward sales commitments |
|
Gasoline and Gasoline Blendstocks |
|
(1) |
|
13,649 |
|
30,928 |
| ||
|
|
Distillates |
|
(1) |
|
3,938 |
|
|
| ||
|
|
Crude Oil |
|
(1) |
|
5,874 |
|
|
| ||
|
|
Natural Gas |
|
(1) |
|
2,255 |
|
1,591 |
| ||
Total forward sales commitments |
|
|
|
|
|
25,716 |
|
32,519 |
| ||
Total forward fixed price contracts |
|
|
|
|
|
37,001 |
|
48,062 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Foreign currency forward contract |
|
Foreign Denominated Sales |
|
(2) |
|
|
|
145 |
| ||
Total asset derivatives |
|
|
|
|
|
$ |
37,001 |
|
$ |
48,207 |
|
|
|
|
|
|
|
|
|
|
| ||
Liability Derivatives |
|
|
|
|
|
|
|
|
| ||
Forward purchase commitments |
|
Gasoline and Gasoline Blendstocks |
|
(3) |
|
$ |
12,226 |
|
$ |
27,604 |
|
|
|
Residual Oil |
|
(3) |
|
268 |
|
|
| ||
|
|
Distillates |
|
(3) |
|
3,888 |
|
2,171 |
| ||
|
|
Crude Oil |
|
(3) |
|
5,243 |
|
|
| ||
|
|
Natural Gas |
|
(3) |
|
2,233 |
|
1,576 |
| ||
|
|
Propane |
|
(3) |
|
768 |
|
|
| ||
Total forward purchase commitments |
|
|
|
|
|
24,626 |
|
31,351 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Forward sales commitments |
|
Gasoline and Gasoline Blendstocks |
|
(3) |
|
12,675 |
|
173 |
| ||
|
|
Distillates |
|
(3) |
|
1,529 |
|
2,950 |
| ||
|
|
Crude Oil |
|
(3) |
|
55 |
|
|
| ||
Total forward sales commitments |
|
|
|
|
|
14,259 |
|
3,123 |
| ||
Total obligations on forward fixed |
|
|
|
|
|
38,885 |
|
34,474 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Foreign currency forward contract |
|
Foreign Denominated Sales |
|
(4) |
|
58 |
|
|
| ||
Total liability derivatives |
|
|
|
|
|
$ |
38,943 |
|
$ |
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 income for the three and nine months ended September 30, 2013 and 2012 (in thousands):
|
|
|
|
Amount of Gain (Loss) |
|
Amount of Gain (Loss) |
| ||||||||
|
|
Location of |
|
Recognized in Income |
|
Recognized in Income |
| ||||||||
|
|
Gain (Loss) |
|
on Derivatives |
|
on Derivatives |
| ||||||||
|
|
Recognized in |
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
Derivatives Not Designated as |
|
Income on |
|
September 30, |
|
September 30, |
| ||||||||
Hedging Instruments |
|
Derivatives |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product contracts |
|
Cost of sales |
|
$ |
4,576 |
|
$ |
11,062 |
|
$ |
8,223 |
|
$ |
15,666 |
|
Foreign currency contracts |
|
Cost of sales |
|
(437 |
) |
160 |
|
(203 |
) |
121 |
| ||||
Total |
|
|
|
$ |
4,139 |
|
$ |
11,222 |
|
$ |
8,020 |
|
$ |
15,787 |
|
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 three clearing brokers, all 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 September 30, 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). To date, the level of receivables sold has not been significant, and the Partnership has accounted for such transfers as sales pursuant to ASC 860, Transfers and Servicing. Due to the short-term nature of the receivables sold to date, no servicing obligation has been recorded because it would have been de minimus.
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 rates for the Credit Agreement were 4.3% and 4.1% for the three months ended September 30, 2013 and 2012, respectively, and 4.3% and 4.1% for the nine months ended September 30, 2013 and 2012, respectively.
As of September 30, 2013, the Partnership had a zero premium interest rate collar, an interest rate swap and an interest rate cap, all of which were used to hedge the variability in interest payments under the Credit Agreement due to changes in LIBOR rates. Subsequent to September 30, 2013, the interest rate collar expired and was replaced with a forward starting interest swap agreement. 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 $300.3 million and $340.8 million at September 30, 2013 and December 31, 2012, respectively, representing the amounts expected to be outstanding during the entire 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 and $83.7 million at September 30, 2013 and December 31, 2012, respectively, representing the amounts the Partnership expects to pay down during the course of the year.
As of September 30, 2013, the Partnership had total borrowings outstanding under the Credit Agreement of $815.0 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 $278.4 million. Subject to borrowing base limitations, the total remaining availability for borrowings and letters of credit was $521.6 million and $218.9 million at September 30, 2013 and December 31, 2012, 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. On September 20, 2013, the Partnership entered into a Twelfth Amendment to Amended and Restated Credit Agreement which amended the Credit Agreement to modify a certain financial covenant. The Partnership was in compliance with the foregoing covenants at September 30, 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).