UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended March 31, 2015 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
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Commission file number 001-32593
Global Partners LP
(Exact name of registrant as specified in its charter)
Delaware |
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74-3140887 |
(State or other jurisdiction of incorporation |
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(I.R.S. Employer Identification No.) |
P.O. Box 9161
800 South Street
Waltham, Massachusetts 02454-9161
(Address of principal executive offices, including zip code)
(781) 894-8800
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.
Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
Accelerated filer x |
Non-accelerated filer o |
Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No ý
The issuer had 30,995,563 common units outstanding as of May 5, 2015.
GLOBAL PARTNERS LP
(In thousands, except unit data)
(Unaudited)
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March 31, |
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December 31, |
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2015 |
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2014 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
6,345 |
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$ |
5,238 |
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Accounts receivable, net |
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410,881 |
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457,730 |
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Accounts receivableaffiliates |
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3,845 |
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3,903 |
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Inventories |
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371,627 |
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336,813 |
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Brokerage margin deposits |
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33,737 |
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17,198 |
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Derivative assets |
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57,470 |
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83,826 |
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Prepaid expenses and other current assets |
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74,123 |
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56,515 |
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Total current assets |
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958,028 |
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961,223 |
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Property and equipment, net |
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1,174,083 |
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825,051 |
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Intangible assets, net |
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80,049 |
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48,902 |
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Goodwill |
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301,987 |
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154,078 |
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Other assets |
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54,637 |
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50,723 |
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Total assets |
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$ |
2,568,784 |
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$ |
2,039,977 |
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Liabilities and partners equity |
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Current liabilities: |
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Accounts payable |
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$ |
307,520 |
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$ |
456,619 |
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Working capital revolving credit facilitycurrent portion |
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125,400 |
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Line of credit |
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700 |
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Environmental liabilitiescurrent portion |
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3,085 |
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3,101 |
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Trustee taxes payable |
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90,183 |
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105,744 |
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Accrued expenses and other current liabilities |
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60,918 |
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82,820 |
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Derivative liabilities |
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48,272 |
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58,507 |
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Total current liabilities |
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635,378 |
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707,491 |
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Working capital revolving credit facilityless current portion |
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150,000 |
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100,000 |
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Revolving credit facility |
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517,400 |
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133,800 |
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Senior notes |
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368,316 |
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368,136 |
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Environmental liabilitiesless current portion |
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72,186 |
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34,462 |
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Deferred tax liability |
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120,708 |
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14,078 |
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Other long-term liabilities |
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61,811 |
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45,854 |
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Total liabilities |
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1,925,799 |
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1,403,821 |
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Partners equity |
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Global Partners LP equity: |
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Common unitholders (30,995,563 units issued and 30,542,344 outstanding at March 31, 2015 and 30,995,563 units issued and 30,604,961 outstanding at December 31, 2014) |
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605,533 |
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599,406 |
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General partner interest (0.74% interest with 230,303 equivalent units outstanding at March 31, 2015 and December 31, 2014) |
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1,222 |
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788 |
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Accumulated other comprehensive loss |
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(12,978 |
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(13,252 |
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Total Global Partners LP equity |
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593,777 |
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586,942 |
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Noncontrolling interest |
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49,208 |
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49,214 |
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Total partners equity |
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642,985 |
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636,156 |
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Total liabilities and partners equity |
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$ |
2,568,784 |
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$ |
2,039,977 |
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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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2015 |
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2014 |
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Sales |
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$ |
2,979,116 |
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$ |
5,116,928 |
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Cost of sales |
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2,810,558 |
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4,957,904 |
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Gross profit |
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168,558 |
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159,024 |
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Costs and operating expenses: |
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Selling, general and administrative expenses |
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48,786 |
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37,298 |
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Operating expenses |
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68,656 |
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47,952 |
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Amortization expense |
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5,341 |
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4,528 |
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Loss on asset sales |
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437 |
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663 |
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Total costs and operating expenses |
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123,220 |
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90,441 |
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Operating income |
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45,338 |
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68,583 |
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Interest expense |
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(13,963 |
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(11,107 |
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Income before income tax expense |
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31,375 |
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57,476 |
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Income tax expense |
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(966 |
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(322 |
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Net income |
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30,409 |
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57,154 |
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Net loss (income) attributable to noncontrolling interest |
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6 |
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(144 |
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Net income attributable to Global Partners LP |
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30,415 |
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57,010 |
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Less: |
General partners interest in net income, |
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2,179 |
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1,508 |
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Limited partners interest in net income |
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$ |
28,236 |
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$ |
55,502 |
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Basic net income per limited partner unit |
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$ |
0.92 |
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$ |
2.04 |
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Diluted net income per limited partner unit |
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$ |
0.92 |
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$ |
2.03 |
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Basic weighted average limited partner units outstanding |
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30,599 |
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27,261 |
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Diluted weighted average limited partner units outstanding |
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30,712 |
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27,296 |
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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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2015 |
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2014 |
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Net income |
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$ |
30,409 |
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$ |
57,154 |
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Other comprehensive income: |
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Change in fair value of cash flow hedges |
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183 |
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659 |
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Change in pension liability |
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91 |
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(609 |
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Total other comprehensive income |
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274 |
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50 |
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Comprehensive income |
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30,683 |
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57,204 |
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Comprehensive loss (income) attributable to noncontrolling interest |
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6 |
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(144 |
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Comprehensive income attributable to Global Partners LP |
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$ |
30,689 |
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$ |
57,060 |
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The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Three Months Ended |
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2015 |
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2014 |
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Cash flows from operating activities |
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Net income |
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$ |
30,409 |
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$ |
57,154 |
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Adjustments to reconcile net income to net cash (used in) provided by in operating activities: |
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Depreciation and amortization |
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28,472 |
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19,706 |
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Amortization of deferred financing fees |
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1,459 |
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1,283 |
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Amortization of senior notes discount |
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179 |
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105 |
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Bad debt expense |
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35 |
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250 |
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Unit-based compensation expense |
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945 |
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851 |
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Loss on asset sales |
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437 |
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663 |
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Changes in operating assets and liabilities, excluding assets acquired: |
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Accounts receivable |
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52,186 |
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41,898 |
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Accounts receivable affiliate |
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58 |
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(234 |
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Inventories |
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(15,614 |
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112,328 |
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Broker margin deposits |
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(16,539 |
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6,599 |
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Prepaid expenses, all other current assets and other assets |
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10,157 |
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(11,416 |
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Accounts payable |
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(170,646 |
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(182,076 |
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Trustee taxes payable |
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(21,099 |
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701 |
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Change in derivatives |
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16,121 |
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17,252 |
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Accrued expenses, all other current liabilities and other long-term liabilities |
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(30,475 |
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(11,918 |
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Net cash (used in) provided by operating activities |
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(113,915 |
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53,146 |
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Cash flows from investing activities |
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Acquisitions, net of cash acquired = |
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(405,478 |
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Capital expenditures |
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(14,045 |
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(13,075 |
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Proceeds from sale of property and equipment |
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1,044 |
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1,746 |
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Net cash used in investing activities |
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(418,479 |
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(11,329 |
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Cash flows from financing activities |
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Borrowings from (payments on) working capital revolving credit facility |
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175,400 |
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(20,200 |
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Borrowings from revolving credit facility |
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383,600 |
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Payments on line of credit |
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(700 |
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Repurchase of common units |
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(2,442 |
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Noncontrolling interest capital contribution |
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1,880 |
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2,400 |
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Distribution to noncontrolling interest |
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(1,880 |
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(2,400 |
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Distributions to partners |
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(22,357 |
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(17,770 |
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Net cash provided by (used in) financing activities |
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533,501 |
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(37,970 |
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Increase in cash and cash equivalents |
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1,107 |
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3,847 |
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Cash and cash equivalents at beginning of period |
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5,238 |
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9,217 |
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Cash and cash equivalents at end of period |
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$ |
6,345 |
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$ |
13,064 |
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Supplemental information |
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Cash paid during the period for interest |
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$ |
18,860 |
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$ |
9,587 |
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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, 2014 |
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$ |
599,406 |
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$ |
788 |
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$ |
(13,252 |
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$ |
49,214 |
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$ |
636,156 |
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Net income (loss) |
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28,236 |
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2,179 |
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(6 |
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30,409 |
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Noncontrolling interest capital contribution |
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1,880 |
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1,880 |
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Distribution to noncontrolling interest |
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(1,880 |
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(1,880 |
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Other comprehensive income |
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274 |
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274 |
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Unit-based compensation |
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945 |
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945 |
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Distributions to partners |
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(20,612 |
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(1,745 |
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(22,357 |
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Repurchase of common units |
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(2,442 |
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(2,442 |
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Balance at March 31, 2015 |
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$ |
605,533 |
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$ |
1,222 |
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$ |
(12,978 |
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$ |
49,208 |
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$ |
642,985 |
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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 midstream logistics and marketing master limited partnership formed in March 2005 engaged in the purchasing, selling and logistics of transporting petroleum and related products, including domestic and Canadian crude oil, gasoline and gasoline blendstocks (such as ethanol and naphtha), distillates (such as home heating oil, diesel and kerosene), residual oil, renewable fuels, natural gas and propane. The Partnership also receives revenue from convenience store sales and gasoline station rental income. 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 owns transload and storage terminals in North Dakota and Oregon that extend its origin-to-destination capabilities from the mid-continent region of the United States and Canada to the East and West Coasts. The Partnership is one of the largest distributors of gasoline, distillates, residual oil and renewable fuels to wholesalers, retailers and commercial customers in the New England states and New York. As of March 31, 2015, the Partnership had a portfolio of 1,447 owned, leased and/or supplied gasoline stations, including 287 convenience stores, primarily in the Northeast, Maryland and Virginia.
On January 7, 2015, the Partnership acquired, through one of its wholly owned subsidiaries, Global Montello Group Corp. (GMG), 100% of the equity interests in Warren Equities, Inc. (Warren) from The Warren Alpert Foundation. On January 14, 2015, through the Partnerships wholly owned subsidiary, Global Companies LLC (Global Companies), the Partnership acquired the Revere terminal (the Revere Terminal) located in Boston Harbor in Revere, Massachusetts from Global Petroleum Corp. (GPC). See Note 2.
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 most of its gasoline station and convenience store employees and certain union personnel who are employed by GMG or Drake Petroleum Company, Inc. (Drake Petroleum).
The General Partner, which holds a 0.74% general partner interest in the Partnership, is owned by affiliates of the Slifka family. As of March 31, 2015, affiliates of the General Partner, including its directors and executive officers and their affiliates, owned 7,293,722 common units, representing a 23.5% limited partner interest.
Ownership by affiliates of the General Partner decreased by approximately 4,446,575 common units (from 37.9% to 23.5%) primarily as a result of the liquidation and dissolution of AE Holdings Corp. (AE Holdings). Immediately prior to such liquidation and dissolution, the directors and executive officers of the General Partner were deemed to beneficially own the entire 5,850,000 common units that were then owned by AE Holdings. Upon the liquidation and dissolution of AE Holdings, the 5,850,000 common units were distributed to the stockholders of AE Holdings. An aggregate 1,956,234 common units were sold by the stockholders of AE Holdings to cover their respective tax liabilities resulting from their receipt of the common units. Approximately 2,306,960 common units of the original 5,850,000 common units are held by the directors and executive officers of the General Partner, and the remaining 1,586,806 common units are held by unaffiliated members of the Slifka family.
Basis of Presentation
The financial results of Warren and the Revere Terminal for the three months ended March 31, 2015 are included in the accompanying statements of income for the three months ended March 31, 2015. The accompanying consolidated financial statements as of March 31, 2015 and December 31, 2014 and for the three months ended March 31, 2015 and 2014 reflect the accounts of the Partnership. Upon consolidation, 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, 2014 and notes thereto contained in the Partnerships Annual Report on Form 10-K. The significant accounting policies described in Note 2, Summary of Significant Accounting Policies, of such Annual Report on Form 10-K are the same used in preparing the accompanying consolidated financial statements.
The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2015. The consolidated balance sheet at December 31, 2014 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, 2014.
Due to the nature of the Partnerships business and its 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 fluctuations in the Partnerships quarterly operating results.
Reclassification
Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation.
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, LLC (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 sheets and statements 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 sales, logistics revenue and rental income as a percentage of the consolidated sales for the periods presented:
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Three Months Ended |
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2015 |
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2014 |
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Gasoline sales: gasoline and gasoline blendstocks such as ethanol and naphtha |
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50% |
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54% |
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Crude oil sales and logistics revenue |
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9% |
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12% |
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Distillates (home heating oil, diesel and kerosene), residual oil, natural gas and propane sales |
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38% |
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33% |
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Convenience store sales, rental income and sundry sales |
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3% |
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1% |
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Total |
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100% |
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100% |
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None of the Partnerships customers were significant for the three months ended March 31, 2015. The Partnership had one significant customer, ExxonMobil Corporation (ExxonMobil) that accounted for approximately 14% of total sales for the three months ended March 31, 2014.
Note 2. Business Combinations
Acquisition of Warren Equities, Inc.
On January 7, 2015, the Partnership acquired, through GMG, 100% of the equity interests in Warren, one of the largest independent marketers of petroleum products in the Northeast, from The Warren Alpert Foundation. The acquisition included 147 company-owned Xtra Mart convenience stores and related fuel operations, 53 commission agent locations and fuel supply rights for approximately 320 dealers. The acquired properties are located in the Northeast, Maryland and Virginia. The purchase price, inclusive of post-closing adjustments, was approximately $381.8 million, including working capital. The acquisition was funded with borrowings under the Partnerships credit facility and with proceeds from its December 2014 public offering of 3,565,000 common units.
The acquisition was accounted for using the purchase method of accounting in accordance with the Financial Accounting Standards Boards (FASB) guidance regarding business combinations. The Partnerships financial statements include the results of operations of Warren subsequent to the acquisition date.
The purchase price allocation is considered preliminary, and additional adjustments may be recorded during the allocation period in accordance with the FASBs guidance regarding business combinations. The purchase price allocation will be finalized as the Partnership receives additional information relevant to the acquisition, including a final valuation of the assets purchased, including tangible and intangible assets, and liabilities assumed.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Business Combinations (continued)
The following table presents the preliminary allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):
Assets purchased: |
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Accounts receivable |
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$ |
5,372 |
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Inventory |
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19,199 |
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Prepaid expenses |
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12,552 |
| |
Property and equipment |
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331,291 |
| |
Intangibles |
|
36,490 |
| |
Other non-current assets |
|
20,586 |
| |
Total identifiable assets purchased |
|
425,490 |
| |
Liabilities assumed: |
|
|
| |
Accounts payable |
|
(21,511 |
) | |
Assumption of environmental liabilities |
|
(36,080 |
) | |
Taxes payable |
|
(5,538 |
) | |
Accrued expenses |
|
(11,595 |
) | |
Long-term deferred taxes |
|
(105,855 |
) | |
Other non-current liabilities |
|
(10,992 |
) | |
Total liabilities assumed |
|
(191,571 |
) | |
Net identifiable assets acquired |
|
233,919 |
| |
Goodwill |
|
147,909 |
| |
Net assets acquired |
|
$ |
381,828 |
|
Management is currently in the process of evaluating the purchase price accounting. The Partnership has engaged a third-party valuation firm to assist in the valuation of Warrens property and equipment, intangibles and leasehold interests. This valuation continues to be in progress and, during the quarter ended March 31, 2015, the Partnership received preliminary fair values of these assets. The estimated fair values of property and equipment of $331.3 million and intangibles assets, primarily supply contracts, of $36.5 million were developed by management based on their estimates, assumptions and acquisition history including preliminary reports from a third-party valuation firm. The estimated fair values of the property and equipment, intangibles and leasehold interests will be supported by valuations performed by a third party.
The fair value of $36.1 million assigned to the assumption of environmental liabilities was estimated by management based on their estimates, assumptions and acquisition history, including preliminary reports from third-party environmental engineers (see Note 11). The fair value of this liability will be supported by a third-party environmental specialist.
The long-term deferred taxes of $105.9 million are primarily related to temporary differences associated with the fair value allocations of property and equipment and intangible assets, which are not deductible for tax purposes, net of acquired environmental liabilities and other deductible accrued liabilities.
The fair values of the remaining Warren assets and liabilities noted above approximate their carrying values at January 7, 2015. It is possible that once the Partnership receives the completed valuations on the property and equipment and intangible assets, the final purchase price accounting may be different than what is presented above.
The preliminary purchase price for the acquisition was allocated to assets acquired and liabilities assumed based on their estimated fair values. The Partnership then allocated the purchase price in excess of net tangible assets acquired to identifiable intangible assets, based upon on their estimates and assumptions. Any excess purchase price over the fair value of the net tangible and intangible assets acquired was allocated to goodwill.
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 supply contracts that are being amortized over ten years. The supply contracts are subject to renewals, and assumptions related to the renewals have been included in the determination of the value of the supply contracts at the date of acquisition. The supply contracts had a weighted average term of approximately 5 years prior to their next renewal. As the purchase price accounting is preliminary, the final assumptions related to the likelihood of renewals remains in process. For the three months ended March 31, 2015, amortization expense amounted to $0.8 million. The estimated remaining amortization expense for intangible assets acquired in connection with the acquisition for each of the five succeeding years and thereafter is as follows (in thousands):
2015 (1/7/15 12/31/15) |
|
$ |
2,685 |
|
2016 |
|
3,580 |
| |
2017 |
|
3,580 |
| |
2018 |
|
3,580 |
| |
2019 |
|
3,580 |
| |
Thereafter |
|
17,960 |
| |
Total |
|
$ |
34,965 |
|
The $147.9 million of goodwill was assigned to the Gasoline Distribution and Station Operations (GDSO) reporting unit. The goodwill recognized is attributable primarily to expected synergies and growth opportunities for the Partnership. The goodwill is not deductible for income tax purposes. The Partnership is responsible for federal tax obligations for the interim period, June 1, 2014 to January 6, 2015 (Warrens fiscal year end was May 31). Any tax obligations will be funded by the selling shareholders. Any tax refund will be remitted to the selling shareholders.
In connection with the acquisition of Warren, the Partnership incurred acquisition costs totaling approximately $6.1 million, of which $4.4 million was recorded for the three months ended March 31, 2015 and included in selling, general and administrative expenses in the accompanying consolidated statement of income. The remaining acquisition costs were incurred in 2014. Additionally, subsequent to the acquisition date, the Partnership recorded a restructuring charge of approximately $2.3 million, which is included in selling, general and administrative expenses in the accompanying consolidated statement of income for the three months ended March 31, 2015. This charge, which is principally for redundant and/or eliminated positions as a result of the acquisition, was not part of the purchase price allocation. Approximately $0.5 million of the restructuring charge was paid during the three months ended March 31, 2015, and the remaining balance of $1.8 million is expected to be paid in full by December 31, 2015.
The acquisition of Warren complements the Partnerships existing retail presence in the Northeast and expands its footprint into the adjacent Mid-Atlantic region. The acquisition added approximately 500 million gallons of fuel sold annually through the Partnerships network and increased the number of its total gasoline stations that it owns, leases or supplies to more than 1,500 as of the acquisition closing date. The Warren operations have been integrated into the Partnerships GDSO reporting segment.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Business Combinations (continued)
Acquisition of Revere Terminal
On January 14, 2015, through the Partnerships wholly owned subsidiary, Global Companies, the Partnership acquired the Revere Terminal located in Boston Harbor in Revere, Massachusetts from GPC, a privately held affiliate of the Partnership, for a purchase price of $23.65 million. The acquisition includes contingent consideration which would be payable under specific circumstances involving a subsequent sale of the property, and the purchase price may be adjusted in connection with any value assigned to the contingent consideration as the purchase price accounting is finalized. The Partnership financed the transaction with available capacity under its revolving credit facility. In connection with the Revere Terminal transaction, the pre-existing terminal storage rental and throughput agreement between the Partnership and GPC has terminated.
The acquisition was accounted for using the purchase method of accounting in accordance with the FASBs guidance regarding business combinations. As the acquisition transitioned the Revere Terminal from a formerly leased facility to an owned facility, the transaction did not have a material impact on the Partnerships consolidated financial statements.
At March 31, 2015, the Partnerships preliminary purchase accounting includes estimated fair values of $28.3 million associated with the property and equipment acquired and $4.6 million of assumed liabilities. The purchase price allocation will be finalized as the Partnership receives additional information relevant to the acquisition.
Goodwill
The following table presents the changes in goodwill (in thousands):
|
|
Goodwill Allocated to |
|
|
| |||||
|
|
Wholesale |
|
GDSO |
|
|
| |||
|
|
Reporting |
|
Reporting |
|
|
| |||
|
|
Unit |
|
Unit |
|
Total |
| |||
Balance at December 31, 2014 |
|
$ |
121,752 |
|
$ |
32,326 |
|
$ |
154,078 |
|
Acquisition of Warren |
|
|
|
147,909 |
|
147,909 |
| |||
Balance at March 31, 2015 |
|
$ |
121,752 |
|
$ |
180,235 |
|
$ |
301,987 |
|
Supplemental Pro Forma Information
Revenues and net income included in the Partnerships consolidated operating results for Warren from January 1, 2015 through January 7, 2015, the acquisition date, were immaterial. Accordingly, the supplemental pro forma information for the three months ended March 31, 2015 is consistent with the amounts reported in the accompanying statement of income for the three months ended March 31, 2015.
The following unaudited pro forma information for 2014 presents the consolidated results of operations of the Partnership as if the acquisition of Warren occurred at the beginning of the period presented, with pro forma adjustments to give effect to intercompany sales and certain other adjustments (in thousands, except per unit data):
|
|
Three Months |
| |
|
|
Ended |
| |
|
|
March 31, 2014 |
| |
Sales |
|
$ |
5,496,851 |
|
Net income attributable to Global Partners LP |
|
$ |
51,637 |
|
Net income per limited partner unit, basic and diluted |
|
$ |
1.84 |
|
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Business Combinations (continued)
Warrens revenues and net loss included in the Partnerships consolidated operating results from January 7, 2015, the acquisition date, through the period ended March 31, 2015 were $247.7 million and $(1.0 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.
Common units outstanding as reported in the accompanying consolidated financial statements at March 31, 2015 and December 31, 2014 excluded 453,219 and 390,602 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).
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 months ended March 31, 2015 and 2014 (in thousands, except per unit data):
|
|
Three Months March 31, 2015 |
|
|
Three Months Ended March 31, 2014 |
| ||||||||||||||||||||
Numerator: |
|
Total |
|
Limited |
|
General |
|
IDRs |
|
|
Total |
|
Limited |
|
General |
|
IDRs |
| ||||||||
Net income attributable to Global Partners LP (1) |
|
$ |
30,415 |
|
$ |
28,236 |
|
$ |
2,179 |
|
$ |
|
|
|
$ |
57,010 |
|
$ |
55,502 |
|
$ |
1,508 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Declared distribution |
|
$ |
23,260 |
|
$ |
21,076 |
|
$ |
157 |
|
$ |
2,027 |
|
|
$ |
18,323 |
|
$ |
17,145 |
|
$ |
143 |
|
$ |
1,035 |
|
Assumed allocation of undistributed net income |
|
7,155 |
|
7,160 |
|
(5 |
) |
|
|
|
38,687 |
|
38,357 |
|
330 |
|
|
| ||||||||
Assumed allocation of net income |
|
$ |
30,415 |
|
$ |
28,236 |
|
$ |
152 |
|
$ |
2,027 |
|
|
$ |
57,010 |
|
$ |
55,502 |
|
$ |
473 |
|
$ |
1,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic weighted average limited partner units outstanding |
|
|
|
30,599 |
|
|
|
|
|
|
|
|
27,261 |
|
|
|
|
| ||||||||
Dilutive effect of phantom units |
|
|
|
113 |
|
|
|
|
|
|
|
|
35 |
|
|
|
|
| ||||||||
Diluted weighted average limited partner units outstanding |
|
|
|
30,712 |
|
|
|
|
|
|
|
|
27,296 |
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic net income per limited partner unit |
|
|
|
$ |
0.92 |
|
|
|
|
|
|
|
|
$ |
2.04 |
|
|
|
|
| ||||||
Diluted net income per limited partner unit |
|
|
|
$ |
0.92 |
|
|
|
|
|
|
|
|
$ |
2.03 |
|
|
|
|
|
(1) As a result of the December 10, 2014 issuance of 3,565,000 common units in connection with the Partnerships public offering, the general partner interest was reduced to 0.74% for the three months ended March 31, 2015 from 0.83% for the three months ended March 31, 2014.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Net Income Per Limited Partner Unit (continued)
During 2015, the board of directors of the General Partner declared the following quarterly cash distribution:
Cash Distribution |
|
Per Unit Cash |
|
Distribution Declared for the |
|
Declaration Date |
|
Distribution Declared |
|
Quarterly Period Ended |
|
April 22, 2015 |
|
$0.68 (1) |
|
March 31, 2015 |
|
(1) This declared cash distribution resulted in an incentive distribution to the General Partner, as the holder of the IDRs, and enable the Partnership to exceed its third target level distribution with respect to such IDRs.
See Note 8, Cash Distributions for further information.
Note 4. Inventories
The Partnership hedges substantially all of its petroleum and ethanol inventory using a variety of instruments, primarily exchange-traded futures contracts. These futures contracts are entered into when inventory is purchased and are either designated as fair value hedges against the inventory on a specific barrel basis for inventories qualifying for fair value hedge accounting or not designated and maintained as economic hedges against certain inventory of the Partnership on a specific barrel basis. Changes in fair value of these futures contracts, as well as the offsetting change in fair value on the hedged inventory, is recognized in earnings as an increase or decrease in cost of sales. All hedged inventory designated in a fair value hedge relationship is valued using the lower of cost, as determined by specific identification, or market, as determined at the product level. All petroleum and ethanol inventory not designated in a fair value hedging relationship is carried at the lower of historical cost, on a first-in, first-out basis, or market.
Convenience store inventory and Renewable Identification Numbers (RINs) inventory are carried at the lower of historical cost, on a first-in, first-out basis, or market.
Inventories consisted of the following (in thousands):
|
|
March 31, |
|
December 31, |
| ||
|
|
2015 |
|
2014 |
| ||
Distillates: home heating oil, diesel and kerosene |
|
$ |
103,057 |
|
$ |
163,679 |
|
Gasoline |
|
96,846 |
|
82,080 |
| ||
Gasoline blendstocks |
|
47,651 |
|
33,760 |
| ||
Crude oil |
|
86,385 |
|
20,769 |
| ||
Residual oil |
|
13,172 |
|
20,602 |
| ||
Propane and other |
|
2,037 |
|
5,123 |
| ||
Renewable identification numbers (RINs) |
|
1,213 |
|
2,057 |
| ||
Convenience store inventory |
|
21,266 |
|
8,743 |
| ||
Total |
|
$ |
371,627 |
|
$ |
336,813 |
|
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 $9.6 million and $3.9 million at March 31, 2015 and December 31, 2014, respectively. Negative exchange balances are accounted for as accounts payable and amounted to $12.1 million and $16.5 million at March 31, 2015 and December 31, 2014, respectively. Exchange transactions are valued using current carrying costs and have no income statement impact.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments
The Partnership principally uses derivative instruments, which include regulated exchange-traded futures and options contracts (collectively, exchange-traded derivatives) and physical and financial forwards and over-the counter (OTC) swaps (collectively, OTC derivatives), to reduce its exposure to unfavorable changes in commodity market prices and interest rates. The Partnership uses these exchange-traded and OTC derivatives to hedge commodity price risk associated with its inventory and undelivered forward commodity purchases and sales (physical forward contracts) and uses interest rate swap instruments to reduce its exposure to fluctuations in interest rates associated with the Partnerships credit facilities. The Partnership accounts for derivative transactions in accordance with ASC 815, Derivatives and Hedging, and recognizes derivatives instruments as either assets or liabilities in the consolidated balance sheet and measures those instruments at fair value. The changes in fair value of the derivative transactions are presented currently in earnings, unless specific hedge accounting criteria are met.
The fair value of exchange-traded derivative transactions reflects amounts that would be received from or paid to the Partnerships brokers upon liquidation of these contracts. The fair value of these exchange-traded derivative transactions are presented on a net basis, offset by the cash balances on deposit with the Partnerships brokers, presented as brokerage margin deposits in the consolidated balance sheets. The fair value of OTC derivative transactions reflects amounts that would be received from or paid to a third party upon liquidation of these contracts under current market conditions. The fair value of these OTC derivative transactions is presented on a gross basis as derivative assets or derivative liabilities in the consolidated balance sheets, unless a legal right of offset exists. The presentation of the change in fair value of the Partnerships exchange-traded derivatives and OTC derivative transactions depends on the intended use of the derivative and the resulting designation.
The following table summarizes the notional values related to the Partnerships derivative instruments outstanding at March 31, 2015:
|
|
Units (1) |
|
|
Unit of Measure |
|
|
|
|
|
|
|
|
|
|
Exchange-Traded Derivatives |
|
|
|
|
|
|
|
Long |
|
46,736 |
|
|
Thousands of barrels |
|
|
Short |
|
(50,292 |
) |
|
Thousands of barrels |
|
|
|
|
|
|
|
|
|
|
OTC Derivatives (Petroleum/Ethanol) |
|
|
|
|
|
|
|
Long |
|
13,318 |
|
|
Thousands of barrels |
|
|
Short |
|
(10,167 |
) |
|
Thousands of barrels |
|
|
|
|
|
|
|
|
|
|
OTC Derivatives (Natural Gas) |
|
|
|
|
|
|
|
Long |
|
10,607 |
|
|
Thousands of decatherms |
|
|
Short |
|
(10,661 |
) |
|
Thousands of decatherms |
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps |
$ |
200.0 |
|
|
Millions of U.S. dollars |
|
|
Interest Rate Cap |
$ |
100.0 |
|
|
Millions of U.S. dollars |
|
|
|
|
|
|
|
|
|
|
Foreign Currency Derivatives |
|
|
|
|
|
|
|
Open Forward Exchange Contracts (2) |
$ |
6.0 |
|
|
Millions of Canadian dollars |
|
|
|
$ |
4.7 |
|
|
Millions of U.S. dollars |
|
|
(1) Number of open positions and gross notional values do not measure the Partnerships risk of loss, quantify risk or represent assets or liabilities of the Partnership, but rather indicate the relative size of the derivative instruments and are used in the calculation of the amounts to be exchanged between counterparties upon settlements.
(2) All-in forward rate Canadian dollars (CAD) $1.2662 to USD $1.00.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
Derivatives Accounted for as Hedges
The Partnership utilizes fair value hedges and cash flow hedges to hedge commodity price risk and interest rate risk.
Fair Value Hedges
Derivatives designated as fair value hedges are used to hedge price risk in commodity inventories and principally include exchange-traded futures contracts that are entered into in the ordinary course of business. For a derivative instrument designated as a fair value hedge, the gain or loss is recognized in earnings in the period of change together with the offsetting change in fair value on the hedged item of the risk being hedged. Gains and losses related to fair value hedges 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 fair value hedges include exchange-traded futures contracts that are hedges against inventory with specific futures contracts matched to specific barrels. The change in fair value of these futures contracts and the change in fair value of the underlying inventory generally provide an offset to each other in the consolidated statement of income.
The following table presents the gains and losses from the Partnerships derivative instruments involved in fair value hedging relationships recognized in the consolidated statements of income for the three months ended March 31, 2015 and 2014 (in thousands):
|
|
Statement of Gain (Loss) |
|
Three Months Ended |
| ||||
|
|
Recognized in Income on |
|
March 31, |
| ||||
|
|
Derivatives |
|
2015 |
|
2014 |
| ||
Derivatives in fair value hedging relationship |
|
|
|
|
|
|
| ||
Exchange-traded futures contracts for petroleum commodity products |
|
Cost of sales |
|
$ |
26,176 |
|
$ |
16,373 |
|
|
|
|
|
|
|
|
| ||
Hedged items in fair value hedge relationship |
|
|
|
|
|
|
| ||
Physical inventory |
|
Cost of sales |
|
$ |
(23,621 |
) |
$ |
(16,209 |
) |
Cash Flow Hedges
Derivatives designated as cash flow hedges are used to hedge interest rate risk from fluctuations in interest rates and may include various interest rate derivative instruments entered into with major financial institutions. For a derivative instrument being designated as a cash flow hedges, the effective portion of the derivative gain or loss is initially reported as a component of other comprehensive income (loss) and subsequently reclassified into the consolidated statement of income through interest expense in the same period that the hedged exposure affects earnings. The ineffective portion is recognized in the consolidated statement of income immediately.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
The Partnerships cash flow hedges currently include interest rate swaps and an interest rate cap that are hedges of variability in forecasted interest payments due to changes in the interest rate on LIBOR-based borrowings, a summary of which includes the following designations:
· 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 an 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%.
In the aggregate, these hedging instruments have historically been effective in hedging the variability in interest payments due to changes in the one-month LIBOR swap curve or rate with respect to $300.0 million of one-month LIBOR-based borrowings on the credit facility.
In June 2014 and as a result of the issuance of the Partnerships $375.0 million aggregate principal amount of its 6.25% senior notes due 2022 (see Note 6), the Partnership determined that maintaining an excess of $300.0 million in principal of outstanding floating-rate debt was no longer probable. Therefore, the Partnership elected to de-designate its interest rate cap and discontinued the related hedge accounting for this instrument. Accordingly, at March 31, 2015, the Partnership had in place two interest rate swap agreements which are hedging $200.0 million of variable rate debt, both of which continue to be accounted for as cash flow hedges. The interest rate cap is not currently in a hedging relationship. Accordingly, all changes in fair value of this instrument subsequent to the date of de-designation are recorded in the consolidated statement of income through interest expense.
The following table presents the amount of gains and losses from the Partnerships derivative instruments designated in cash flow hedging relationships recognized in the consolidated statements of income and partners equity for the three months ended March 31, 2015 and 2014 (in thousands):
|
|
Amount of Gain (Loss) |
|
Location of Gain (Loss) |
|
|
| ||||||||
|
|
Recognized in Other |
|
Reclassified from |
|
Amount of Gain (Loss) |
| ||||||||
|
|
Comprehensive Income on |
|
Accumulated Other |
|
Reclassified from Other |
| ||||||||
|
|
Derivatives |
|
Comprehensive Income into |
|
Comprehensive Income into |
| ||||||||
|
|
(Effective Portion) |
|
Income (Effective Portion) |
|
Income (Effective Portion) |
| ||||||||
Derivatives Designated |
|
Three Months Ended |
|
|
|
Three Months Ended |
| ||||||||
in Cash Flow Hedging |
|
March 31, |
|
|
|
March 31, |
| ||||||||
Relationship |
|
2015 |
|
2014 |
|
|
|
2015 |
|
2014 |
| ||||
Interest rate swaps |
|
$ |
47 |
|
$ |
677 |
|
Interest expense |
|
$ |
|
|
$ |
|
|
Interest rate cap (1) |
|
|
|
(18 |
) |
Interest expense |
|
|
|
|
| ||||
Total |
|
$ |
47 |
|
$ |
659 |
|
|
|
$ |
|
|
$ |
|
|
(1) The interest rate cap was de-designated as a cash flow hedge in June 2014. Prepaid interest rate caplet amounts recognized in accumulated other comprehensive income up until the date of de-designation have been frozen in partners equity as of the de-designation date and are being amortized to income through the tenor of the interest rate cap instrument. The change in the fair value of the interest rate cap following de-designation is reflected in earnings and was immaterial for the three months ended March 31, 2015. As of March 31, 2015, the remaining unamortized prepaid interest rate caplets were $0.9 million and will be amortized over the remaining life for the interest rate cap which expires in April 2016.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
The amount of gain (loss) recognized in income as ineffectiveness for derivatives designated in cash flow hedging relationships was $0 for the three months ended March 31, 2015 and 2014.
Derivatives NOT Accounted for as Hedges
The Partnership utilizes petroleum and ethanol commodity contracts, natural gas commodity contracts and foreign currency derivatives to hedge price and currency risk in certain commodity inventories and physical forward contracts.
Petroleum and Ethanol Commodity Contracts
The Partnership uses exchange-traded derivative contracts to hedge price risk in certain commodity inventories which do not qualify for fair value hedge accounting or are not designated by the Partnership as fair value hedges. Additionally, the Partnership uses exchange-traded derivative contracts, and occasionally financial forward and OTC swap agreements, to hedge commodity exposure associated with its physical forward contracts which are not designated by the Partnership as cash flow hedges. These physical forward contracts, to the extent they meet the definition of a derivative, are considered OTC physical forwards and are reflected as derivative assets or derivative liabilities in the consolidated balance sheet. The related exchange-traded derivative contracts (and financial forward and OTC swaps, if applicable) are also reflected as brokerage margin deposits (and derivative assets or derivative liabilities, if applicable) in the consolidated balance sheet, thereby creating an economic hedge. Changes in fair value of these derivative instruments 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.
While the Partnership seeks to maintain a position that is substantially balanced within its commodity product purchase and sale activities, it may experience net unbalanced positions for short periods of time as a result of variances in daily purchases and 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, the Partnership is aided by maintaining a constant presence in the marketplace. The Partnership also engages in a controlled trading program for up to an aggregate of 250,000 barrels of commodity products at any one point in time. Changes in fair value of these derivative instruments are recognized in the consolidated statement of income through cost of sales.
Natural Gas Commodity Contracts
The Partnership uses physical forward purchase contracts to hedge price risk associated with the marketing and selling of natural gas to third-party users. These physical forward purchase commitments for natural gas are typically executed when the Partnership enters into physical forward sale commitments of product for physical delivery. These physical forward contracts, to the extent they meet the definition of a derivative, are reflected as derivative assets and derivative liabilities in the consolidated balance sheet. Changes in fair value of the forward fixed price purchase and sale commitments are recognized in the consolidated statement of income through cost of sales.
Foreign Currency Contracts
The Partnership uses forward foreign currency contracts to hedge certain foreign denominated (Canadian) commodity product purchases. These forward foreign currency contracts are not designated by the Partnership as hedges and are reflected as prepaid expenses and other current assets or accrued expenses and other current liabilities in the consolidated balance sheets. Changes in fair values of these forward foreign currency contracts are reflected in cost of sales.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
The following table presents the gains and losses from the Partnerships derivative instruments not involved in hedging relationships recognized in the consolidated statements of income for the three months ended March 31, 2015 and 2014 (in thousands):
|
|
Statement of Gain (Loss) |
|
Three Months Ended |
| ||||
|
|
Recognized in Income on |
|
March 31, |
| ||||
|
|
Derivatives |
|
2015 |
|
2014 |
| ||
Derivatives NOT designated as hedging instruments |
|
|
|
|
|
|
| ||
Commodity contracts |
|
Cost of sales |
|
$ |
3,651 |
|
$ |
15,543 |
|
Forward foreign currency contracts |
|
Cost of sales |
|
18 |
|
(57 |
) | ||
Total |
|
|
|
$ |
3,669 |
|
$ |
15,486 |
|
Margin Deposits
All of Partnerships exchange-traded derivative contracts (designated and not designated) are transacted through clearing brokers. The Partnership deposits initial margin with the clearing brokers, along with variation margin, which is paid or received on a daily basis, based upon the changes in fair value of open futures contracts and settlement of closed futures contracts. Cash balances on deposit with clearing brokers and open equity are presented on a net basis within brokerage margin deposits in the consolidated balance sheets.
Commodity Contracts and Other Derivative Activity
The Partnerships commodity contract derivatives and other derivative activity include: (i) exchange-traded derivative contracts that are hedges against inventory and either do not quality for hedge accounting or are not designated in a hedge accounting relationship, (ii) exchange-traded derivative contracts used to economically hedge physical forward contracts, (iii) financial forward and swap agreements used to economically hedge physical forward contracts, and (iv) the derivative instruments under the Partnerships controlled trading program. The Partnership does not take the normal purchase and sale exemption available under ASC 815.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
The following table presents the fair value of each classification of the Partnerships derivative instruments and its location in the consolidated balance sheets at March 31, 2015 and December 31, 2014 (in thousands):
|
|
|
|
March 31, 2015 |
| |||||||
|
|
|
|
Derivatives |
|
Derivatives Not |
|
|
| |||
|
|
|
|
Designated as |
|
Designated as |
|
|
| |||
|
|
|
|
Hedging |
|
Hedging |
|
|
| |||
|
|
Balance Sheet Location |
|
Instruments |
|
Instruments |
|
Total |
| |||
Asset Derivatives |
|
|
|
|
|
|
|
|
| |||
Exchange-traded derivative contracts |
|
Broker margin deposits |
|
$ |
17,895 |
|
$ |
60,354 |
|
$ |
78,249 |
|
Forward derivative contracts (1) |
|
Derivative assets |
|
|
|
57,470 |
|
57,470 |
| |||
Forward foreign currency contracts |
|
Other Assets |
|
|
|
27 |
|
27 |
| |||
Interest rate cap contract |
|
Other assets |
|
|
|
17 |
|
17 |
| |||
Total asset derivatives |
|
|
|
$ |
17,895 |
|
$ |
117,868 |
|
$ |
135,763 |
|
|
|
|
|
|
|
|
|
|
| |||
Liability Derivatives |
|
|
|
|
|
|
|
|
| |||
Forward derivative contracts (1) |
|
Derivative liabilities |
|
$ |
|
|
$ |
48,272 |
|
$ |
48,272 |
|
Interest rate swap contracts |
|
Other long-term liabilities |
|
|
|
6,649 |
|
6,649 |
| |||
Total liability derivatives |
|
|
|
$ |
|
|
$ |
54,921 |
|
$ |
54,921 |
|
|
|
|
|
December 31, 2014 |
| |||||||
|
|
|
|
Derivatives |
|
Derivatives Not |
|
|
| |||
|
|
|
|
Designated as |
|
Designated as |
|
|
| |||
|
|
|
|
Hedging |
|
Hedging |
|
|
| |||
|
|
Balance Sheet Location |
|
Instruments |
|
Instruments |
|
Total |
| |||
Asset Derivatives |
|
|
|
|
|
|
|
|
| |||
Exchange-traded derivative contracts |
|
Broker margin deposits |
|
$ |
30,600 |
|
$ |
90,890 |
|
$ |
121,490 |
|
Forward derivative contracts (1) |
|
Derivative assets |
|
|
|
83,826 |
|
83,826 |
| |||
Forward foreign currency contracts |
|
Other Assets |
|
|
|
9 |
|
9 |
| |||
Interest rate cap contract |
|
Other assets |
|
|
|
17 |
|
17 |
| |||
Total asset derivatives |
|
|
|
$ |
30,600 |
|
$ |
174,742 |
|
$ |
205,342 |
|
|
|
|
|
|
|
|
|
|
| |||
Liability Derivatives |
|
|
|
|
|
|
|
|
| |||
Forward derivative contracts (1) |
|
Derivative liabilities |
|
$ |
|
|
$ |
58,507 |
|
$ |
58,507 |
|
Interest rate swap contracts |
|
Other long-term liabilities |
|
|
|
6,696 |
|
6,696 |
| |||
Total liability derivatives |
|
|
|
$ |
|
|
$ |
65,203 |
|
$ |
65,203 |
|
(1) Forward derivative contracts include the Partnerships petroleum and ethanol physical and financial forwards and OTC swaps.
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.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Derivative Financial Instruments (continued)
The Partnership is exposed to credit loss in the event of nonperformance by counterparties to the Partnerships exchange-traded and OTC derivative contracts, but the Partnership has no current reason to expect any material nonperformance by any of these counterparties. Exchange-traded derivative 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), Chicago Mercantile Exchange (CME) and IntercontinentalExchange (ICE) derivative transactions and the right of offset exists with these financial institutions under master netting agreements. Accordingly, the fair value of the Partnerships exchange-traded derivative instruments is presented on a net basis in the consolidated balance sheets. Exposure on OTC derivatives is limited to the amount of the recorded fair value as of the balance sheet dates.
Note 6. Debt
Credit Agreement
As of March 31, 2015, certain subsidiaries of the Partnership, as borrowers, and the Partnership and certain of its subsidiaries, as guarantors, had a $1.775 billion senior secured credit facility (the Credit Agreement). The Credit Agreement will mature on April 30, 2018.
As of March 31, 2015, there were two facilities under the Credit Agreement:
· a working capital revolving credit facility to be used for working capital purposes and letters of credit in the principal amount equal to the lesser of the Partnerships borrowing base and $1.0 billion; and
· a $775.0 million revolving credit facility to be used for acquisitions, joint ventures, capital expenditures, letters of credit and general corporate purposes.
In addition, the Credit Agreement has an accordion feature whereby the Partnership may request on the same terms and conditions of its then existing credit agreement, provided no Event of Default (as defined in the Credit Agreement) then exists, an increase to the working capital revolving credit facility, the revolving credit facility, or both, by up to another $300.0 million, in the aggregate, for a total credit facility of up to $2.075 billion. 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 $1.775 billion.
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 U.S. Dollars in an aggregate amount equal to the lesser of (a) $50.0 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 $1.775 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 Loan Parties are permitted to sell or transfer any account receivable to an AR Buyer only pursuant to the provisions provided 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 minimis.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Debt (continued)
Availability under the working capital revolving credit facility is subject to a borrowing base which is redetermined from time to time based on specific advance rates on eligible current assets. Under the Credit Agreement, borrowings under the working capital revolving credit facility cannot exceed the then current borrowing base. Availability under the 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.
Borrowings under the working capital revolving credit facility bear interest at (1) the Eurocurrency 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). Borrowings under the revolving credit facility bear interest at (1) the Eurocurrency rate plus 2.25% to 3.25%, (2) the cost of funds rate plus 2.25% to 3.25%, or (3) the base rate plus 1.25% to 2.25%, each depending on the Combined Total Leverage Ratio (as defined in the Credit Agreement).
The average interest rates for the Credit Agreement were 3.4% and 3.6% for the three months ended March 31, 2015 and 2014, respectively.
As of March 31, 2015, the Partnership had two interest rate swaps, both of which were used to hedge the variability in interest payments under the Credit Agreement due to changes in LIBOR rates. See Note 5 for additional information on these cash flow hedges. Additionally, the Partnership has an interest rate cap that is hedging variable interest. The cap is not designated for accounting purposes.
The Credit Agreement provides for a letter of credit fee equal to the then applicable working capital rate or then applicable revolver rate (each such rate as defined in the Credit Agreement) 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 representing the amounts expected to be outstanding during the entire year, and 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 $150.0 million and $100.0 million at March 31, 2015 and December 31, 2014, respectively. 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 Partnerships current portion of the working capital revolving credit facility represents the amount the Partnership expects to pay down during the course of the year. At March 31, 2015 and December 31, 2014, the current portion of the working capital revolving credit facility was $125.4 million and $0, respectively. The increase in total borrowings under the working capital revolving credit facility from December 31, 2014 reflects, in part, higher levels of stored inventory, and the Partnership expects to pay down a portion of its borrowings during the course of the year and has classified the amount as current at March 31, 2015.
As of March 31, 2015, the Partnership had total borrowings outstanding under the Credit Agreement of $792.8 million, including $517.4 million outstanding on the revolving credit facility. In addition, the Partnership had outstanding letters of credit of $59.8 million. Subject to borrowing base limitations, the total remaining availability for borrowings and letters of credit was $0.9 billion and $1.4 billion at March 31, 2015 and December 31, 2014, 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 Partnership and its subsidiaries with the exception of Basin Transload.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Debt (continued)
The Credit Agreement imposes certain requirements on the borrowers 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 certain 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, a minimum combined interest coverage ratio, a maximum senior secured leverage ratio and a maximum total leverage ratio. The Partnership was in compliance with the foregoing covenants at March 31, 2015. 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 Available Cash (as defined in the Partnerships partnership agreement).
6.25% Senior Notes
On June 19, 2014, the Partnership and GLP Finance (the Issuers) entered into a Purchase Agreement (the Purchase Agreement) with the Initial Purchasers (as defined therein) (the Initial Purchasers) pursuant to which the Issuers agreed to sell $375.0 million aggregate principal amount of the Issuers 6.25% senior notes due 2022 (the 6.25% Notes) to the Initial Purchasers in a private placement exempt from the registration requirements under the Securities Act of 1933, as amended (the Securities Act). The 6.25% Notes were resold by the Initial Purchasers to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to persons outside the United States pursuant to Regulation S under the Securities Act.
The Purchase Agreement contained customary representations and warranties of the parties and indemnification and contribution provisions under which the Issuers and the subsidiary guarantors, on one hand, and the Initial Purchasers, on the other, agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. In addition, the Purchase Agreement required the execution of a registration rights agreement, described below, relating to the 6.25% Notes. Closing of the offering occurred on June 24, 2014.
Indenture
In connection with the private placement of the 6.25% Notes on June 24, 2014, the Issuers and the subsidiary guarantors and Deutsche Bank Trust Company Americas, as trustee, entered into an indenture (the Indenture).
The 6.25% Notes mature on July 15, 2022 with interest accruing at a rate of 6.25% per annum and payable semi-annually in arrears on January 15 and July 15 of each year, commencing January 15, 2015. The 6.25% Notes are guaranteed on a joint and several senior unsecured basis by each of the Issuers and the subsidiary guarantors to the extent set forth in the Indenture. Upon a continuing event of default, the trustee or the holders of at least 25% in principal amount of the 6.25% Notes may declare the 6.25% Notes immediately due and payable, except that an event of default resulting from entry into a bankruptcy, insolvency or reorganization with respect to the Partnership, any restricted subsidiary of the Partnership that is a significant subsidiary or any group of its restricted subsidiaries that, taken together, would constitute a significant subsidiary of the Partnership, will automatically cause the 6.25% Notes to become due and payable.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Debt (continued)
The Issuers have the option to redeem up to 35% of the 6.25% Notes prior to July 15, 2017 at a redemption price (expressed as a percentage of principal amount) of 106.25% plus accrued and unpaid interest, if any. The Issuers have the option to redeem the 6.25% Notes, in whole or in part, at any time on or after July 15, 2017, at the redemption prices of 104.688% for the twelve-month period beginning on July 15, 2017, 103.125% for the twelve-month period beginning July 15, 2018, 101.563% for the twelve-month period beginning July 15, 2019, and 100.0% beginning on July 15, 2020 and at any time thereafter, together with any accrued and unpaid interest to the date of redemption. In addition, before July 15, 2017, the Issuers may redeem all or any part of the 6.25% Notes at a redemption price equal to the sum of the principal amount thereof, plus a make whole premium at the redemption date, plus accrued and unpaid interest, if any, to the redemption date. The holders of the notes may require the Issuers to repurchase the 6.25% Notes following certain asset sales or a Change of Control (as defined in the Indenture) at the prices and on the terms specified in the Indenture.
The Indenture contains covenants that will limit the Partnerships ability to, among other things, incur additional indebtedness and issue preferred securities, make certain dividends and distributions, make certain investments and other restricted payments, restrict distributions by its subsidiaries, create liens, enter into sale-leaseback transactions, sell assets or merge with other entities. Events of default under the Indenture include (i) a default in payment of principal of, or interest or premium, if any, on, the 6.25% Notes, (ii) breach of the Partnerships covenants under the Indenture, (iii) certain events of bankruptcy and insolvency, (iv) any payment default or acceleration of indebtedness of the Partnership or certain subsidiaries if the total amount of such indebtedness unpaid or accelerated exceeds $15.0 million and (v) failure to pay within 60 days uninsured final judgments exceeding $15.0 million.
Registration Rights Agreement
On June 24, 2014, the Issuers and the subsidiary guarantors entered into a registration rights agreement (the Registration Rights Agreement) with the Initial Purchasers in connection with the Issuers private placement of the 6.25% Notes. Under the Registration Rights Agreement, the Issuers and the subsidiary guarantors agreed to file and use commercially reasonable efforts to cause to become effective a registration statement relating to an offer to exchange the 6.25% Notes for an issue of SEC-registered notes with terms identical to the 6.25% Notes (except that the exchange notes are not subject to restrictions on transfer or to any increase in annual interest rate for failure to comply with the Registration Rights Agreement) that are registered under the Securities Act so as to permit the exchange offer to be consummated by the 360th day after June 24, 2014. The exchange offer was completed on April 21, 2015, and 100% of the 6.25% Notes have been exchanged for SEC registered notes.
Line of Credit
On December 9, 2013, Basin Transload entered into a line of credit facility which allows for borrowings by Basin Transload of up to $10.0 million on a revolving basis. The facility matures on December 9, 2015 and had an outstanding balance of $0 and $0.7 million at March 31, 2015 and December 31, 2014, respectively. The facility is secured by substantially all of the assets of Basin Transload and is not guaranteed by the Partnership or any of its wholly owned subsidiaries.
Deferred Financing Fees
The Partnership incurs bank fees related to its Credit Agreement and other financing arrangements. These deferred financing fees are amortized over the life of the Credit Agreement or other financing arrangements. The Partnership did not capitalize additional financing fees for the three months ended March 31, 2015 and 2014. Amortization expense of approximately $1.5 million and $1.3 million for the three months ended March 31, 2015 and 2014, respectively, are included in interest expense in the accompanying consolidated statements of income. Unamortized fees are included in other current assets and other long-term assets.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7. Related Party Transactions
The Partnership was a party to an exclusive Second Amended and Restated Terminal Storage Rental and Throughput Agreement, as amended (the Terminal Storage Rental and Throughput Agreement), with GPC, an affiliate of the Partnership that is 100% owned by members of the Slifka family, with respect to the Revere Terminal in Revere, Massachusetts. On January 14, 2015, the Partnership acquired the Revere Terminal from GPC, and the Terminal Storage Rental and Throughput Agreement has terminated (see Note 2). Prior to the acquisition, the agreement was accounted for as an operating lease. The expenses under this agreement totaled $0.8 million and $2.3 million for the three months ended March 31, 2015 and 2014, respectively.
The Partnership was a party to an Amended and Restated Services Agreement with GPC, whereby GPC provided certain terminal operating management services to the Partnership and used certain administrative, accounting and information processing services of the Partnership. The expenses from these services totaled approximately $8,000 and $24,000 for the three months ended March 31, 2015 and 2014, respectively. These charges were recorded in selling, general and administrative expenses in the accompanying consolidated statements of income.
On March 11, 2015, the Partnership entered into the following amendments and restatements to its shared services agreements: (i) Global Companies entered into an Amended and Restated Services Agreement with AE Holdings Corp. (the AE Holdings Amended and Restated Services Agreement), and (ii) certain of the Partnerships subsidiaries entered into a Second Amended and Restated Services Agreement with GPC (the GPC Second Amended and Restated Services Agreement, and together with the AE Holdings Amended and Restated Services Agreement, the Amended and Restated Services Agreements).
Under the AE Holdings Amended and Restated Services Agreement, the Partnership continues to provide AE Holdings with certain tax, accounting, treasury and legal support services for which AE Holdings pays the Partnership an aggregate of $15,000 per year in equal monthly installments. Under the GPC Second Amended and Restated Services Agreement, GPC no longer provides the Partnership with terminal, environmental and operational support services, but the Partnership continues to provide GPC with certain tax, accounting, treasury, legal, information technology, human resources and financial operations support services for which GPC pays the Partnership a monthly services fee at an agreed amount subject to the approval by the Conflicts Committee of the board of directors of the General Partner. The Amended and Restated Services Agreements are each for an indefinite term and any party may terminate some or all of the services upon ninety (90) days advanced written notice. As of March 31, 2015, no such notice of termination was given by any party.
The General Partner employs substantially all of the Partnerships employees, except for most of its gasoline station and convenience store employees and certain union personnel, who are employed by GMG or Drake Petroleum. The Partnership reimburses the General Partner for expenses incurred in connection with these employees. These expenses, including payroll, payroll taxes and bonus accruals, were $29.4 million and $19.0 million for the three months ended March 31, 2015 and 2014, respectively. The Partnership also reimburses the General Partner for its contributions under the General Partners 401(k) Savings and Profit Sharing Plan and the General Partners qualified and non-qualified pension plans.
The table below presents trade receivables with GPC and the Partnership and receivables from the General Partner (in thousands):
|
|
March 31, |
|
December 31, |
| ||
|
|
2015 |
|
2014 |
| ||
Receivables from GPC |
|
$ |
|
|
$ |
108 |
|
Receivables from the General Partner (1) |
|
3,845 |
|
3,795 |
| ||
Total |
|
$ |
3,845 |
|
$ |
3,903 |
|
(1) Receivables from the General Partner reflect the Partnerships prepayment of payroll taxes and payroll accruals to the General Partner.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8. Cash Distributions
The Partnership intends to consider regular cash distributions to unitholders on a quarterly basis, although there is no assurance as to the future cash distributions since they are dependent upon future earnings, capital requirements, financial condition and other factors. The Credit Agreement prohibits the Partnership from making cash distributions if any potential default or Event of Default, as defined in the Credit Agreement, occurs or would result from the cash distribution.
Within 45 days after the end of each quarter, the Partnership will distribute all of its Available Cash (as defined in its partnership agreement) to unitholders of record on the applicable record date. The amount of Available Cash is all cash on hand on the date of determination of Available Cash for the quarter; less the amount of cash reserves established by the General Partner to provide for the proper conduct of the Partnerships business, to comply with applicable law, any of the Partnerships debt instruments, or other agreements or to provide funds for distributions to unitholders and the General Partner for any one or more of the next four quarters.
The Partnership will make distributions of Available Cash from distributable cash flow for any quarter in the following manner: 99.26% to the common unitholders, pro rata, and 0.74% to the General Partner, until the Partnership distributes for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter; and thereafter, cash in excess of the minimum quarterly distribution is distributed to the unitholders and the General Partner based on the percentages as provided below.
As holder of the IDRs, the General Partner is entitled to incentive distributions if the amount that the Partnership distributes with respect to any quarter exceeds specified target levels shown below:
|
|
Total Quarterly Distribution |
|
Marginal Percentage Interest in |
| ||
|
|
Target Amount |
|
Unitholders |
|
General Partner |
|
First Target Distribution |
|
up to $0.4625 |
|
99.26% |
|
0.74% |
|
Second Target Distribution |
|
above $0.4625 up to $0.5375 |
|
86.26% |
|
13.74% |
|
Third Target Distribution |
|
above $0.5375 up to $0.6625 |
|
76.26% |
|
23.74% |
|
Thereafter |
|
above $0.6625 |
|
51.26% |
|
48.74% |
|
The Partnership paid the following cash distribution during 2015 (in thousands, except per unit data):
Cash |
|
|
Per Unit |
|
Common |
|
General |
|
Incentive |
|
Total Cash |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
02/13/15 (1) |
|
$ |
0.6650 |
|
$ |
20,612 |
|
$ |
154 |
|
$ |
1,591 |
|
$ |
22,357 |
| |
(1) This distribution of $0.6650 per unit resulted in the Partnership exceeding its third target level distribution for the fourth quarter of 2014. As a result, the General Partner, as the holder of the IDRs, received an incentive distribution.
In addition, on April 22, 2015, the board of directors of the General Partner declared a quarterly cash distribution of $0.68 per unit ($2.72 per unit on an annualized basis) on all of its outstanding common units for the period from January 1, 2015 through March 31, 2015 to the Partnerships unitholders of record as of the close of business on May 6, 2015. This distribution will result in the Partnership exceeding its third target level distribution for the quarter ended March 31, 2015.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Segment Reporting
The Partnership engages in the purchasing, selling and logistics of transporting petroleum and related products, including domestic and Canadian crude oil, gasoline and gasoline blendstocks (such as ethanol and naphtha), distillates (such as home heating oil, diesel and kerosene), residual oil, renewable fuels, natural gas and propane. The Partnership also receives revenue from convenience store sales and gasoline station rental income. The Partnerships operating segments are based upon the revenue sources for which discrete financial information is reviewed by the chief operating decision maker (the CODM) and include Wholesale, GDSO and Commercial. Each of these operating segments generates revenues and incurs expenses and is evaluated for operating performance on a regular basis.
These operating segments are also the Partnerships reporting segments based on the way the CODM manages the business and on the similarity of customers and expected long-term financial performance of each segment. For the three months ended March 31, 2015 and 2014, the Commercial operating segment did not meet the quantitative metrics for disclosure as a reportable segment on a stand-alone basis as defined in accounting guidance related to segment reporting. However, the Partnership has elected to present segment disclosures for the Commercial operating segment as management believes such disclosures are meaningful to the user of the Partnerships financial information. The accounting policies of the segments are the same as those described in Note 2, Summary of Significant Accounting Policies, in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2014.
In the Wholesale reporting segment, the Partnership sells branded and unbranded gasoline and gasoline blendstocks and diesel to branded and unbranded gasoline customers and other resellers of transportation fuels. The Partnership aggregates crude oil by truck or pipeline in the mid-continent region of the United States and Canada, transports it by train and ships it by barge to refiners on the East and West Coasts. The Partnership sells home heating oil, diesel, kerosene, residual oil and propane to home heating oil and propane retailers and wholesale distributors. Generally, customers use their own vehicles or contract carriers to take delivery of the gasoline and distillate products at bulk terminals and inland storage facilities that the Partnership owns or controls or with which it has throughput or exchange arrangements. Additionally, ethanol is shipped primarily by rail and by barge.
In the GDSO reporting segment, gasoline distribution includes sales of branded and unbranded gasoline to gasoline station operators and sub-jobbers. Station operations include convenience stores, rental income from gasoline stations leased to dealers or commissioned agents and sundry (car wash sales, lottery and ATM commissions). The results of Warren, acquired in January 2015 (see Note 2), are included in the GDSO segment.
In the Commercial segment, the Partnership includes sales and deliveries to end user customers in the public sector and to large commercial and industrial end users of unbranded gasoline, home heating oil, diesel, kerosene, residual oil, bunker fuel and natural gas. In the case of public sector commercial and industrial end user customers, the Partnership sells products primarily either through a competitive bidding process or through contracts of various terms. The Partnership generally arranges for the delivery of the product to the customers designated location, and the Partnership responds to publicly-issued requests for product proposals and quotes. The Commercial segment also includes sales of custom blended fuels delivered by barges or from a terminal dock to ships through bunkering activity.
The Partnership evaluates segment performance based on product margins before allocations of corporate and indirect operating costs, depreciation, amortization (including non-cash charges) and interest. Based on the way the CODM manages the business, it is not reasonably possible for the Partnership to allocate the components of operating costs and expenses among the reportable segments.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Segment Reporting (continued)
Summarized financial information for the Partnerships reportable segments is presented in the table below (in thousands):
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2015 |
|
2014 |
| ||
Wholesale Segment: |
|
|
|
|
| ||
Sales |
|
|
|
|
| ||
Gasoline and gasoline blendstocks |
|
$ |
776,143 |
|
$ |
1,994,556 |
|
Crude oil (1) |
|
252,110 |
|
591,229 |
| ||
Other oils and related products (2) |
|
943,693 |
|
1,412,771 |
| ||
Total |
|
$ |
1,971,946 |
|
$ |
3,998,556 |
|
Product margin |
|
|
|
|
| ||
Gasoline and gasoline blendstocks |
|
$ |
29,829 |
|
$ |
49,663 |
|
Crude oil (1) |
|
15,257 |
|
23,490 |
| ||
Other oils and related products (2) |
|
35,007 |
|
34,616 |
| ||
Total |
|
$ |
80,093 |
|
$ |
107,769 |
|
Gasoline Distribution and Station Operations Segment (3): |
|
|
|
|
| ||
Sales |
|
|
|
|
| ||
Gasoline |
|
$ |
697,334 |
|
$ |
768,904 |
|
Station operations (4) |
|
83,075 |
|
33,972 |
| ||
Total |
|
$ |
780,409 |
|
$ |
802,876 |
|
Product margin |
|
|
|
|
| ||
Gasoline |
|
$ |
61,699 |
|
$ |
33,280 |
|
Station operations (4)(5) |
|
36,723 |
|
19,797 |
| ||
Total |
|
$ |
98,422 |
|
$ |
53,077 |
|
Commercial Segment: |
|
|
|
|
| ||
Sales |
|
$ |
226,761 |
|
$ |
315,496 |
|
Product margin |
|
$ |
11,558 |
|
$ |
12,329 |
|
Combined sales and product margin: |
|
|
|
|
| ||
Sales |
|
$ |
2,979,116 |
|
$ |
5,116,928 |
|
Product margin (6) |
|
$ |
190,073 |
|
$ |
173,175 |
|
Depreciation allocated to cost of sales |
|
(21,515 |
) |
(14,151 |
) | ||
Combined gross profit |
|
$ |
168,558 |
|
$ |
159,024 |
|
(1) Crude oil consists of the Partnerships crude oil sales and revenue from its logistics activities.
(2) Other oils and related products primarily consist of distillates, residual oil and propane.
(3) For the three months ended March 31, 2015, the GDSO segment includes the January 2015 acquisition of Warren (see Note 2). As the Warren assets were not in place prior to January 2015, the above results are not directly comparable to the prior period.
(4) Station operations primarily consist of convenience stores sales at the Partnerships directly operated stores and rental income from gasoline stations leased to dealers or commissioned agents.
(5) For the three months ended March 31, 2014, station operations includes the reclass of loss on asset sales from product margin to operating expenses to conform to the Partnerships current presentation.
(6) Product margin is a non-GAAP financial measure used by management and external users of our consolidated financial statements to assess our business. The table above includes a reconciliation of product margin on a combined basis to gross profit, a directly comparable GAAP measure.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Segment Reporting (continued)
A reconciliation of the totals reported for the reportable segments to the applicable line items in the consolidated financial statements is as follows (in thousands):
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2015 |
|
2014 |
| ||
Combined gross profit |
|
$ |
168,558 |
|
$ |
159,024 |
|
Operating costs and expenses not allocated to operating segments: |
|
|
|
|
| ||
Selling, general and administrative expenses |
|
48,786 |
|
37,298 |
| ||
Operating expenses |
|
68,656 |
|
47,952 |
| ||
Amortization expense |
|
5,341 |
|
4,528 |
| ||
Loss on asset sales |
|
437 |
|
663 |
| ||
Total operating costs and expenses |
|
123,220 |
|
90,441 |
| ||
Operating income |
|
45,338 |
|
68,583 |
| ||
Interest expense |
|
(13,963 |
) |
(11,107 |
) | ||
Income tax expense |
|
(966 |
) |
(322 |
) | ||
Net income |
|
30,409 |
|
57,154 |
| ||
Net (income) loss attributable to noncontrolling interest |
|
6 |
|
(144 |
) | ||
Net income attributable to Global Partners LP |
|
$ |
30,415 |
|
$ |
57,010 |
|
The Partnerships foreign assets and foreign sales were immaterial as of and for the three months ended March 31, 2015 and 2014.
Segment Assets
The Partnership acquired retail gasoline stations from Warren in January 2015, Alliance in March 2012 and ExxonMobil in September 2010 which have been allocated to the GDSO segment. The Partnership acquired the Revere Terminal in January 2015 and transloading facilities and other assets from Basin Transload and Cascade Kelly Holdings LLC (Cascade Kelly) in February 2013 which have been allocated to the Wholesale segment.
Due to the commingled nature and uses of the remainder of the Partnerships assets, it is not reasonably possible for the Partnership to allocate these assets among its reportable segments.
The table below presents total assets by reportable segment at March 31, 2015 and December 31, 2014 (in thousands):
|
|
Wholesale |
|
Commercial |
|
GDSO |
|
Unallocated |
|
Total |
| |||||
March 31, 2015 |
|
$ |
773,803 |
|
$ |
|
|
$ |
1,184,978 |
|
$ |
610,003 |
|
$ |
2,568,784 |
|
December 31, 2014 |
|
$ |
811,535 |
|
$ |
|
|
$ |
622,860 |
|
$ |
605,582 |
|
$ |
2,039,977 |
|
The increase in total GDSO and total consolidated assets at March 31, 2015 compared to December 31, 2014 is due to the January 2015 acquisitions of Warren and the Revere Terminal (Note 2).
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10. Property and Equipment
Property and equipment consisted of the following (in thousands):
|
|
March 31, |
|
December 31, |
| ||
|
|
2015 |
|
2014 |
| ||
Buildings and improvements |
|
$ |
930,169 |
|
$ |
667,172 |
|
Land |
|
384,078 |
|
288,929 |
| ||
Fixtures and equipment |
|
32,985 |
|
26,577 |
| ||
Construction in process |
|
72,213 |
|
66,119 |
| ||
Capitalized internal use software |
|
7,530 |
|
7,530 |
| ||
Total property and equipment |
|
1,426,975 |
|
1,056,327 |
| ||
Less accumulated depreciation |
|
(252,892 |
) |
(231,276 |
) | ||
Total |
|
$ |
1,174,083 |
|
$ |
825,051 |
|
At March 31, 2015 and December 31, 2014, construction in process included $30.5 million related to the Partnerships ethanol plant acquired from Cascade Kelly. Due to the nature of certain assets acquired from Cascade Kelly which are currently idle, the Partnership intends to make the capital improvements necessary to place the ethanol plant into service and expects the plant to be operational in 2016; therefore, as of March 31, 2015 and December 31, 2014, the recorded value of the ethanol plant is included in construction in process. After the plant has been successfully placed into service, depreciation will commence.
As part of continuing operations, the Partnership may periodically divest certain gasoline stations. The gain (loss) on the sale, representing cash proceeds less net book value of assets at disposition, is recorded in loss on asset sales in the accompanying consolidated statements of income and amounted to $0.4 million and $0.7 million for the three months ended March 31, 2015 and 2014, respectively.
The Partnership evaluates its assets for impairment on a quarterly basis. No impairments were required for the three months ended March 31, 2015 and 2014.
Note 11. Environmental Liabilities, Asset Retirement Obligations and Renewable Identification Numbers (RINs)
Environmental Liabilities
The Partnership owns or leases properties where refined petroleum products, renewable fuels and crude oil are being or may have been handled. These properties and the refined petroleum products, renewable fuels and crude oil handled thereon may be subject to federal and state environmental laws and regulations. Under such laws and regulations, the Partnership could be required to remove or remediate containerized hazardous liquids or associated generated wastes (including wastes disposed of or abandoned by prior owners or operators), to clean up contaminated property arising from the release of liquids or wastes into the environment, including contaminated groundwater, or to implement best management practices to prevent future contamination.
The Partnership maintains insurance of various types with varying levels of coverage that it considers adequate under the circumstances to cover its operations and properties. The insurance policies are subject to deductibles that the Partnership considers reasonable and not excessive. In addition, the Partnership has entered into indemnification agreements with various sellers in conjunction with several of its acquisitions. Allocation of environmental liability is an issue negotiated in connection with each of the Partnerships acquisition transactions. In each case, the Partnership makes an assessment of potential environmental liability exposure based on available information. Based on that assessment and relevant economic and risk factors, the Partnership determines whether to, and the extent to which it will, assume liability for existing environmental conditions.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11. Environmental Liabilities, Asset Retirement Obligations and Renewable Identification Numbers (RINs) (continued)
In connection with the January 2015 acquisition of the Revere Terminal (see Note 2), the Partnership assumed certain environmental liabilities, including certain ongoing environmental remediation efforts. As a result, the Partnership recorded, on an undiscounted basis, a total environmental liability of approximately $2.9 million.
In connection with the January 2015 acquisition of Warren (see Note 2), the Partnership assumed certain environmental liabilities, including certain ongoing environmental remediation efforts at certain of the retail gasoline stations owned by Warren and future remediation activities required by applicable federal, state or local law or regulation. As a result, the Partnership recorded, on an undiscounted basis, a total environmental liability of approximately $36.1 million.
Both the $2.9 million and $36.1 million recorded for the Revere Terminal and for Warren, respectively, were based on preliminary purchase accounting. These amounts may change as the purchase price accounting is finalized.
In connection with the December 2012 acquisition of six New England retail gasoline stations from Mutual Oil, the Partnership assumed certain environmental liabilities, including certain ongoing remediation efforts. As a result, the Partnership initially recorded, on an undiscounted basis, a total environmental liability of approximately $0.6 million.
In connection with the March 2012 acquisition of Alliance, the Partnership assumed Alliances environmental liabilities, including ongoing environmental remediation at certain of the retail gasoline stations owned by Alliance and future remediation activities required by applicable federal, state or local law or regulation. Remedial action plans are in place, as may be applicable with the state agencies regulating such ongoing remediation. Based on reports from environmental engineers, the Partnerships estimated cost of the ongoing environmental remediation for which Alliance was responsible and future remediation activities required by applicable federal, state or local law or regulation is estimated to be approximately $16.1 million to be expended over an extended period of time. Certain environmental remediation obligations at the retail stations acquired by Alliance from ExxonMobil in 2011 are being funded by a third party who assumed the liability in connection with the Alliance/ExxonMobil transaction in 2011 and, therefore, cost estimates for such obligations at these stations are not included in this estimate. As a result, the Partnership initially recorded, on an undiscounted basis, total environmental liabilities of approximately $16.1 million.
In connection with the September 2010 acquisition of retail gasoline stations from ExxonMobil, the Partnership assumed certain environmental liabilities, including ongoing environmental remediation at and monitoring activities at certain of the acquired sites and future remediation activities required by applicable federal, state or local law or regulation. Remedial action plans are in place with the applicable state regulatory agencies for the majority of these locations, including plans for soil and groundwater treatment systems at certain sites. Based on consultations with environmental engineers, the Partnerships estimated cost of the remediation is expected to be approximately $30.0 million to be expended over an extended period of time. As a result, the Partnership initially recorded, on an undiscounted basis, total environmental liabilities of approximately $30.0 million.
In addition to the above-mentioned environmental liabilities related to the Partnerships retail gasoline stations, the Partnership retains environmental obligations associated with certain gasoline stations that the Partnership has sold.
In connection with the June 2010 acquisition of three refined petroleum products terminals in Newburgh, New York, the Partnership assumed certain environmental liabilities, including certain ongoing remediation efforts. As a result, the Partnership initially recorded, on an undiscounted basis, a total environmental liability of approximately $1.5 million.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11. Environmental Liabilities, Asset Retirement Obligations and Renewable Identification Numbers (RINs) (continued)
In connection with the November 2007 acquisition of ExxonMobils Glenwood Landing and Inwood, New York terminals, the Partnership assumed certain environmental liabilities, including the remediation obligations under remedial action plans submitted by ExxonMobil to and approved by the New York Department of Environmental Conservation (NYDEC) with respect to both terminals. As a result, the Partnership initially recorded, on an undiscounted basis, total environmental liabilities of approximately $1.2 million.
The following table presents a summary roll forward of the Partnerships environmental liabilities at March 31, 2015 (in thousands):
|
|
Balance at |
|
|
|
|
|
|
|
|
|
Balance at |
| ||||||
|
|
December 31, |
|
Additions in |
|
Payments in |
|
Dispositions |
|
Other |
|
March 31, |
| ||||||
Environmental Liability Related to: |
|
2014 |
|
2015 |
|
2015 |
|
2015 |
|
Adjustments |
|
2015 |
| ||||||
Retail Gasoline Stations |
|
$ |
35,792 |
|
$ |
36,080 |
|
$ |
(1,017 |
) |
$ |
(67 |
) |
$ |
(172 |
) |
$ |
70,616 |
|
Terminals |
|
1,771 |
|
2,900 |
|
(16 |
) |
|
|
|
|
4,655 |
| ||||||
Total environmental liabilities |
|
$ |
37,563 |
|
$ |
38,980 |
|
$ |
(1,033 |
) |
$ |
(67 |
) |
$ |
(172 |
) |
$ |
75,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Current portion |
|
$ |
3,101 |
|
|
|
|
|
|
|
|
|
$ |
3,085 |
| ||||
Long-term portion |
|
34,462 |
|
|
|
|
|
|
|
|
|
72,186 |
| ||||||
Total environmental liabilities |
|
$ |
37,563 |
|
|
|
|
|
|
|
|
|
$ |
75,271 |
|
The Partnerships estimates used in these environmental liabilities are based on all known facts at the time and its assessment of the ultimate remedial action outcomes. Among the many uncertainties that impact the Partnerships estimates are the necessary regulatory approvals for, and potential modification of, its remediation plans, the amount of data available upon initial assessment of the impact of soil or water contamination, changes in costs associated with environmental remediation services and equipment, relief of obligations through divestures of sites and the possibility of existing legal claims giving rise to additional claims. Dispositions generally represent relief of legal obligations through the sale of the related property with no retained obligation. Other adjustments generally represent changes in estimates for existing obligations or obligations associated with new sites. Therefore, although the Partnership believes that these environmental liabilities are adequate, no assurances can be made that any costs incurred in excess of these environmental liabilities or outside of indemnifications or not otherwise covered by insurance would not have a material adverse effect on the Partnerships financial condition, results of operations or cash flows.
Asset Retirement Obligations
The Partnership is required to account for the legal obligations associated with the long-lived assets that result from the acquisition, construction, development or operation of long-lived assets. Such asset retirement obligations specifically pertain to the treatment of underground gasoline storage tanks (USTs) that exist in those U.S. states which statutorily require removal of the USTs at a certain point in time. Specifically, the Partnerships retirement obligations consist of the estimated costs of removal and disposals of USTs in specific states.
The fair value of a liability for an asset retirement obligation is recognized in the year in which it is incurred. The associated asset retirement costs are capitalized as part of the carrying cost of the asset. The Partnership had approximately $5.7 million and $3.8 million in total asset retirement obligations at March 31, 2015 and December 31, 2014, respectively, which are included in other long-term liabilities in the accompanying balance sheets. Approximately $1.8 million of this obligation at March 31, 2015 was assumed in the acquisition of Warren and is based on preliminary purchase accounting. This amount may change as the purchase price accounting is finalized.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11. Environmental Liabilities, Asset Retirement Obligations and Renewable Identification Numbers (RINs) (continued)
Renewable Identification Numbers (RINs)
A Renewable Identification Number (RIN) is a serial number assigned to a batch of renewable fuel for the purpose of tracking its production, use, and trading as required by the Environmental Protection Agencys (the EPA) Renewable Fuel Standard that originated with the Energy Policy Act of 2005 and modified by the Energy Independence and Security Act of 2007. To evidence that the required volume of renewable fuel is blended with gasoline and diesel motor vehicle fuels, obligated parties must retire sufficient RINs to cover their Renewable Volume Obligation (RVO). The Partnerships EPA obligations relative to renewable fuel reporting are largely limited to the foreign gasoline that the Partnership may choose to import and a small amount of blending operations at certain facilities. As a wholesaler of transportation fuels through its terminals, the Partnership separates RINs from renewable fuel through blending with gasoline and can use those separated RINs to settle its RVO. While the annual compliance period for the RVO is a calendar year and the settlement of the RVO typically occurs by March 31 of the following year, the settlement of the RVO can occur, under certain EPA deferral actions, more than one year after the close of the compliance period.
The Partnerships Wholesale segments operating results are sensitive to the timing associated with its RIN position relative to its RVO at a point in time, and the Partnership may recognize a mark-to-market liability for a shortfall in RINs at the end of each reporting period. To the extent that the Partnership does not have a sufficient number of RINs to satisfy the RVO as of the balance sheet date, the Partnership charges cost of sales for such deficiency based on the market price of the RINs as of the balance sheet date and records a liability representing the Partnerships obligation to purchase RINs. The Partnerships RVO deficiency was $0.3 million and $0.3 million at March 31, 2015 and December 31, 2014, respectively.
The Partnership may enter into RIN forward purchase and sales commitments. Total losses from firm non-cancellable commitments were immaterial at March 31, 2015 and December 31, 2014.