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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q


 

(Mark One)

 

ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

 

 

 

 

For the quarterly period ended September 30, 2014

 

 

 

 

 

 

 

OR

 

 

 

 

 

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

 

 

 

 

For the transition period from              to              

 

 

Commission file number 001-32593

 

Global Partners LP

(Exact name of registrant as specified in its charter)

 

Delaware

 

74-3140887

(State or other jurisdiction of incorporation
or organization)

 

(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
(Registrant’s 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

 

 

(Do not check if a smaller reporting company)

 

 

`Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o No ý

 

 

The issuer had 27,430,563 common units outstanding as of November 4, 2014.

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

PART I.         FINANCIAL INFORMATION

 

 

 

Item 1.       Financial Statements

1

 

 

Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013

1

 

 

Consolidated Statements of Income for the three and nine months ended September 30, 2014 and 2013

2

 

 

Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2014 and 2013

3

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013

4

 

 

Consolidated Statement of Partners’ Equity for the nine months ended September 30, 2014

5

 

 

Notes to Consolidated Financial Statements

6

 

 

Item 2.       Management’s Discussion and Analysis of Financial Condition and Results of Operations

42

 

 

Item 3.       Quantitative and Qualitative Disclosures about Market Risk

67

 

 

Item 4.       Controls and Procedures

70

 

 

PART II.  OTHER INFORMATION

72

 

 

Item 1.       Legal Proceedings

72

 

 

Item 1A.    Risk Factors

73

 

 

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

73

 

 

Item 6.       Exhibits

74

 

 

SIGNATURES

75

 

 

INDEX TO EXHIBITS

76

 



Table of Contents

 

Item 1.   Financial Statements

 

GLOBAL PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(In thousands, except unit data)

(Unaudited)

 

 

 

September 30,

 

December 31,

 

 

 

2014

 

2013

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

5,545

 

$

9,217

 

Accounts receivable, net

 

529,147

 

686,392

 

Accounts receivable—affiliates

 

3,411

 

1,404

 

Inventories

 

455,709

 

572,806

 

Brokerage margin deposits

 

10,792

 

21,792

 

Fair value of forward fixed price contracts

 

57,121

 

46,007

 

Prepaid expenses and other current assets

 

53,989

 

36,693

 

Total current assets

 

1,115,714

 

1,374,311

 

Property and equipment, net

 

823,583

 

803,636

 

Intangible assets, net

 

54,195

 

67,769

 

Goodwill

 

154,078

 

154,078

 

Other assets

 

30,124

 

28,128

 

Total assets

 

$

2,177,694

 

$

2,427,922

 

Liabilities and partners’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

545,749

 

$

781,119

 

Working capital revolving credit facility—current portion

 

113,000

 

 

Line of credit

 

700

 

3,700

 

Environmental liabilities—current portion

 

3,320

 

3,377

 

Trustee taxes payable

 

82,133

 

80,216

 

Accrued expenses and other current liabilities

 

63,484

 

65,963

 

Obligations on forward fixed price contracts

 

55,754

 

38,197

 

Total current liabilities

 

864,140

 

972,572

 

Working capital revolving credit facility—less current portion

 

92,000

 

327,000

 

Revolving credit facility

 

272,600

 

434,700

 

Senior notes

 

368,012

 

148,268

 

Environmental liabilities—less current portion

 

36,533

 

37,762

 

Other long-term liabilities

 

47,253

 

44,440

 

Total liabilities

 

1,680,538

 

1,964,742

 

Partners’ equity

 

 

 

 

 

Global Partners LP equity:

 

 

 

 

 

Common unitholders (27,430,563 units issued and 27,151,438 outstanding at September 30, 2014 and 27,430,563 units issued and 27,260,747 outstanding at December 31, 2013)

 

456,494

 

426,785

 

General partner interest (0.83% interest with 230,303 equivalent units outstanding at September 30, 2014 and December 31, 2013)

 

391

 

(238

)

Accumulated other comprehensive loss

 

(9,371

)

(11,310

)

Total Global Partners LP equity

 

447,514

 

415,237

 

Noncontrolling interest

 

49,642

 

47,943

 

Total partners’ equity

 

497,156

 

463,180

 

Total liabilities and partners’ equity

 

$

2,177,694

 

$

2,427,922

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

1



Table of Contents

 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per unit data)

(Unaudited)

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

4,050,458

 

$

4,433,426

 

$

13,737,006

 

$

14,794,372

 

Cost of sales

 

3,895,023

 

4,315,333

 

13,335,922

 

14,523,410

 

Gross profit

 

155,435

 

118,093

 

401,084

 

270,962

 

 

 

 

 

 

 

 

 

 

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

41,408

 

27,889

 

110,379

 

79,232

 

Operating expenses

 

53,315

 

46,713

 

152,296

 

137,420

 

Amortization expense

 

4,522

 

4,773

 

13,574

 

13,321

 

Total costs and operating expenses

 

99,245

 

79,375

 

276,249

 

229,973

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

56,190

 

38,718

 

124,835

 

40,989

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(12,324

)

(10,855

)

(35,677

)

(32,113

)

 

 

 

 

 

 

 

 

 

 

Income before income tax expense

 

43,866

 

27,863

 

89,158

 

8,876

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

(244

)

(2,727

)

(660

)

(852

)

 

 

 

 

 

 

 

 

 

 

Net income

 

43,622

 

25,136

 

88,498

 

8,024

 

 

 

 

 

 

 

 

 

 

 

Net (income) loss attributable to noncontrolling interest

 

(1,114

)

679

 

(1,699

)

549

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Global Partners LP

 

42,508

 

25,815

 

86,799

 

8,573

 

 

 

 

 

 

 

 

 

 

 

Less: General partner’s interest in net income, including incentive distribution rights

 

1,623

 

1,042

 

4,164

 

2,306

 

 

 

 

 

 

 

 

 

 

 

Limited partners’ interest in net income

 

$

40,885

 

$

24,773

 

$

82,635

 

$

6,267

 

 

 

 

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

$

1.50

 

$

0.91

 

$

3.03

 

$

0.23

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per limited partner unit

 

$

1.50

 

$

0.91

 

$

3.03

 

$

0.23

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

27,183

 

27,333

 

27,229

 

27,350

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

27,307

 

27,333

 

27,312

 

27,593

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2



Table of Contents

 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

43,622

 

$

25,136

 

$

88,498

 

$

8,024

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Change in fair value of cash flow hedges

 

1,929

 

(945

)

2,800

 

2,577

 

Change in pension liability

 

(595

)

1,191

 

(861

)

3,216

 

Total other comprehensive income

 

1,334

 

246

 

1,939

 

5,793

 

Comprehensive income

 

44,956

 

25,382

 

90,437

 

13,817

 

Comprehensive (income) loss attributable to noncontrolling interest

 

(1,114

)

679

 

(1,699

)

549

 

Comprehensive income attributable to Global Partners LP

 

$

43,842

 

$

26,061

 

$

88,738

 

$

14,366

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3



Table of Contents

 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended
September 30,

 

 

 

2014

 

2013

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

88,498

 

$

8,024

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

62,753

 

55,534

 

Amortization of deferred financing fees

 

4,187

 

5,062

 

Amortization of senior notes discount

 

435

 

263

 

Bad debt expense

 

996

 

3,030

 

Stock-based compensation expense

 

2,585

 

955

 

Write-off of financing fees

 

1,626

 

 

Disposition of property and equipment and other

 

1,060

 

(1,444

)

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

156,249

 

70,202

 

Accounts receivable – affiliate

 

(2,007

)

(189

)

Inventories

 

117,097

 

237,386

 

Broker margin deposits

 

11,000

 

14,032

 

Prepaid expenses, all other current assets and other assets

 

(24,454

)

18,589

 

Accounts payable

 

(235,370

)

(147,359

)

Trustee taxes payable

 

1,917

 

(15,603

)

Change in fair value of forward fixed price contracts

 

6,443

 

15,472

 

Accrued expenses, all other current liabilities and other long-term liabilities

 

986

 

(9,842

)

Net cash provided by operating activities

 

194,001

 

254,112

 

Cash flows from investing activities

 

 

 

 

 

Acquisitions

 

 

(185,262

)

Capital expenditures

 

(73,591

)

(46,935

)

Proceeds from sale of property and equipment

 

3,405

 

5,769

 

Net cash used in investing activities

 

(70,186

)

(226,428

)

Cash flows from financing activities

 

 

 

 

 

Payments on working capital revolving credit facility

 

(125,000

)

(124,200

)

Payments on revolving credit facility

 

(162,100

)

(22,300

)

Proceeds from issuance of term loan

 

 

115,000

 

Proceeds from senior notes, net of discount

 

258,903

 

67,900

 

Repayment of senior notes

 

(40,244

)

 

Repurchase of common units

 

(4,423

)

 

Repurchased units withheld for tax obligations

 

 

(4,331

)

Noncontrolling interest capital contribution

 

8,400

 

(2,086

)

Distribution to noncontrolling interest

 

(8,400

)

1,425

 

Distributions to partners

 

(54,623

)

(50,001

)

Net cash used in financing activities

 

(127,487

)

(18,593

)

 

 

 

 

 

 

(Decrease) increase in cash and cash equivalents

 

(3,672

)

9,091

 

Cash and cash equivalents at beginning of period

 

9,217

 

5,977

 

Cash and cash equivalents at end of period

 

$

5,545

 

$

15,068

 

 

 

 

 

 

 

Supplemental information

 

 

 

 

 

Cash paid during the period for interest

 

$

26,947

 

$

26,002

 

Non-cash exchange of 6.25% senior notes due 2022

 

$

110,000

 

$

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4



Table of Contents

 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY

(In thousands)

(Restated) (Unaudited)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

General

 

Other

 

 

 

Total

 

 

 

Common

 

Partner

 

Comprehensive

 

Noncontrolling

 

Partners’

 

 

 

Unitholders

 

Interest

 

Loss

 

Interest

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

 

$

426,785

 

$

(238

)

$

(11,310

)

$

47,943

 

$

463,180

 

Net income

 

82,635

 

4,164

 

 

1,699

 

88,498

 

Noncontrolling interest capital contribution

 

 

 

 

8,400

 

8,400

 

Distribution to noncontrolling interest

 

 

 

 

(8,400

)

(8,400

)

Other comprehensive income

 

 

 

1,939

 

 

1,939

 

Stock-based compensation

 

2,585

 

 

 

 

2,585

 

Distributions to partners

 

(51,434

)

(3,535

)

 

 

(54,969

)

Dividends on repurchased units

 

346

 

 

 

 

346

 

Repurchase of common units

 

(4,423

)

 

 

 

(4,423

)

Balance at September 30, 2014

 

$

456,494

 

$

391

 

$

(9,371

)

$

49,642

 

$

497,156

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5


 


Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1.                     Organization and Basis of Presentation

 

Organization

 

Global Partners LP (the “Partnership”) is a publicly traded Delaware master limited partnership formed in March 2005.  As of September 30, 2014, the Partnership had the following wholly owned subsidiaries:  Global Companies LLC, Glen Hes Corp., Global Montello Group Corp. (“GMG”), Chelsea Sandwich LLC, Global Energy Marketing LLC, Alliance Energy LLC (“Alliance”), Bursaw Oil LLC, GLP Finance Corp. (“GLP Finance”), Global Energy Marketing II LLC, Global CNG LLC, Cascade Kelly Holdings LLC and Global Partners Energy Canada ULC.  Global GP LLC, the Partnership’s general partner (the “General Partner”) manages the Partnership’s operations and activities and employs its officers and substantially all of its personnel, except for certain of its gasoline station and convenience store employees and certain union personnel who are employed by GMG.

 

The Partnership is a midstream logistics and marketing company.  The Partnership is one of the largest distributors of gasoline (including gasoline blendstocks such as ethanol and naphtha), distillates (such as home heating oil, diesel and kerosene), residual oil and renewable fuels to wholesalers, retailers and commercial customers in the New England states and New York.  The Partnership also engages in the purchasing, selling and logistics of transporting domestic and Canadian crude oil and other products via rail, establishing a “virtual pipeline” from the mid-continent region of the United States and Canada to the East and West Coasts for distribution to refiners and other customers.  The Partnership owns, controls or has access to one of the largest terminal networks of refined petroleum products and renewable fuels in Massachusetts, Maine, Connecticut, Vermont, New Hampshire, Rhode Island, New York, New Jersey and Pennsylvania (collectively, the “Northeast”). The Partnership also owns and controls transload terminals in North Dakota and Oregon that extend its origin-to-destination capabilities. The Partnership is a major multi-brand gasoline distributor and, as of September 30, 2014, had a portfolio of approximately 900 owned, leased and/or supplied gasoline stations primarily in the Northeast.  The Partnership receives revenue from retail sales of gasoline, convenience store sales and gasoline station rental income.  The Partnership is also a distributor of natural gas and propane.

 

On February 1, 2013, the Partnership acquired a 60% membership interest in Basin Transload, LLC (“Basin Transload”), and on February 15, 2013, the Partnership acquired 100% of the membership interests in Cascade Kelly Holdings LLC (“Cascade Kelly”).  See Note 2.

 

The General Partner, which holds a 0.83% general partner interest in the Partnership, is owned by affiliates of the Slifka family.  As of September 30, 2014, affiliates of the General Partner, including its directors and executive officers and their affiliates, owned 11,618,554 common units, representing a 42.4% limited partner interest.

 

Basis of Presentation

 

The financial results of Basin Transload for the eight months ended September 30, 2013 and of Cascade Kelly for the seven and one-half months ended September 30, 2013 are included in the accompanying statements of income for the nine months ended September 30, 2013.  The Partnership consolidates the balance sheet and statement of operations of Basin Transload because the Partnership controls the entity.  The accompanying consolidated financial statements as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013 reflect the accounts of the Partnership.  Upon consolidation, all intercompany balances and transactions have been eliminated.

 

6



Table of Contents

 

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, 2013 and notes thereto contained in the Partnership’s Annual Report on Form 10-K.  The significant accounting policies described in Note 2, “Summary of Significant Accounting Policies,” of such Annual Report on Form 10-K are the same used in preparing the accompanying consolidated financial statements.

 

The results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2014.  The consolidated balance sheet at December 31, 2013 has been derived from the audited consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2013.

 

Due to the nature of the Partnership’s 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 Partnership’s 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 Partnership’s refined petroleum products, specifically home heating oil and residual oil for space heating purposes, is generally greater during the winter months, heating oil and residual oil sales are generally higher during the first and fourth quarters of the calendar year. These factors may result in significant fluctuations in the Partnership’s quarterly operating results.

 

Noncontrolling Interest

 

These financial statements reflect the application of ASC 810, “Consolidations” (“ASC 810”) which establishes accounting and reporting standards that require: (i) the ownership interest in subsidiaries held by parties other than the parent to be clearly identified and presented in the consolidated balance sheet within shareholder’s equity, but separate from the parent’s 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 income and (iii) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary to be accounted for consistently.

 

The Partnership acquired a 60% interest in Basin Transload on February 1, 2013.  After evaluating ASC 810, the Partnership concluded it is appropriate to consolidate the balance sheet and statement of income of Basin Transload based on an evaluation of the outstanding voting interests.  Amounts pertaining to the noncontrolling ownership interest held by third parties in the financial position and operating results of the Partnership are reported as a noncontrolling interest in the accompanying consolidated balance sheet and statement of income.

 

7



Table of Contents

 

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 Partnership’s product sales and logistics revenue as a percentage of total sales for the periods presented:

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2014

 

 

2013

 

2014

 

2013

 

Gasoline sales: gasoline and gasoline blendstocks such as ethanol and naphtha

 

65%

 

65%

 

62%

 

59%

 

Crude oil sales and logistics revenue

 

15%

 

18%

 

14%

 

19%

 

Distillates (home heating oil, diesel and kerosene), residual oil, natural gas and propane sales

 

20%

 

17%

 

24%

 

22%

 

Total

 

100%

 

100%

 

100%

 

100%

 

 

The Partnership had one significant customer, ExxonMobil Corporation (“ExxonMobil”), that accounted for approximately 19% and 17% of total sales for the three and nine months ended September 30, 2014, respectively.  The Partnership had two significant customers, ExxonMobil and Phillips 66, which accounted for approximately 18% and 11%, respectively, of total sales for the three months ended September 30, 2013 and approximately 15% and 14%, respectively, of total sales for the nine months ended September 30, 2013.

 

Note 2.                     Business Combinations

 

Acquisition of Basin Transload, LLC

 

On February 1, 2013, the Partnership acquired a 60% membership interest in Basin Transload, which operates two transloading facilities in Columbus and Beulah, North Dakota for crude oil and other products, with a combined rail loading capacity of 160,000 barrels per day.  The purchase price, including expenditures related to certain capital expansion projects, was approximately $91.1 million which the Partnership financed with borrowings under its credit facility.

 

The acquisition was accounted for using the purchase method of accounting in accordance with the Financial Accounting Standards Board’s (“FASB”) guidance regarding business combinations.  The Partnership’s financial statements include the results of operations of its membership interest in Basin Transload subsequent to the acquisition date.

 

The 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 a valuation from the Partnership’s third-party valuation firm.  Any excess purchase price over the fair value of the net tangible and intangible assets acquired was allocated to goodwill and assigned to the Wholesale reporting unit.

 

8



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 2.                     Business Combinations (continued)

 

As part of the purchase price allocation, identifiable intangible assets include customer relationships that are being amortized, based on the economic use of the asset, over two years which is consistent with the contractual period of the existing customers.  Amortization expense amounted to $2.8 million and $3.0 million for the three months ended September 30, 2014 and 2013, respectively, and $8.3 million and $8.0 million for the nine months ended September 30, 2014 and 2013, respectively.  The following table presents the estimated remaining amortization expense for intangible assets acquired in connection with the acquisition (in thousands):

 

2014 (10/1/14-12/31/14)

 

$

2,755

 

2015

 

2,869

 

Total

 

$

5,624

 

 

Acquisition of Cascade Kelly Holdings LLC

 

On February 15, 2013, the Partnership acquired 100% of the membership interests in Cascade Kelly, which owns a West Coast crude oil and ethanol facility in Clatskanie, Oregon.  The total cash purchase price was approximately $94.2 million which the Partnership funded with borrowings under its credit facility and with proceeds from the issuance of the Partnership’s unsecured 8.0% senior notes due 2018 (see Note 6).  Cascade Kelly’s assets include a rail transloading facility serviced by the Burlington Northern Santa Fe Railway, 200,000 barrels of storage capacity, a deepwater marine terminal with access to a 1,200-foot leased dock and the largest ethanol plant on the West Coast.  Situated along the Columbia River in Clatskanie, Oregon, the site is located on land leased under a long-term agreement from the Port of St. Helens.

 

The acquisition was accounted for using the purchase method of accounting in accordance with the FASB’s guidance regarding business combinations.  The Partnership’s financial statements include the results of operations of Cascade Kelly subsequent to the acquisition date.

 

The purchase price for the acquisition was allocated to assets acquired and liabilities assumed based on their estimated fair values.  The Partnership then allocated the purchase price in excess of net tangible assets acquired to identifiable intangible assets, if any, based upon on a valuation from the Partnership’s third-party valuation firm.  No intangible assets were identified.  Any excess purchase price over the fair value of the net tangible assets acquired was allocated to goodwill and assigned to the Wholesale reporting unit.

 

Supplemental Pro Forma Information

 

Revenues and net income included in the Partnership’s consolidated operating results for Basin Transload from January 1, 2013 to February 1, 2013, the acquisition date, and for Cascade Kelly from January 1, 2013 to February 15, 2013, the acquisition date, were immaterial.  Accordingly, the supplemental pro forma information for the nine months ended September 30, 2013 is consistent with the amounts reported in the accompanying statement of income for the nine months ended September 30, 2013.

 

Note 3.                     Net Income Per Limited Partner Unit

 

Under the Partnership’s 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 Partnership’s undistributed net income or losses.  Accordingly, the Partnership’s undistributed net income is assumed to be allocated to the common unitholders, or limited partners’ interest, and to the General Partner’s general partner interest.

 

9



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 3.                     Net Income Per Limited Partner Unit (continued)

 

Common units outstanding as reported in the accompanying consolidated financial statements at September 30, 2014 and December 31, 2013 excluded 279,125 and 169,816 common units, respectively, held on behalf of the Partnership pursuant to its repurchase program.  These units are not deemed outstanding for purposes of calculating net income per limited partner unit (basic and diluted).

 

The following table provides a reconciliation of net income and the assumed allocation of net income to the limited partners’ interest for purposes of computing net income per limited partner unit for the three and nine months ended September 30, 2014 and 2013 (in thousands, except per unit data):

 

 

 

Three Months Ended September 30, 2014

 

 

Three Months Ended September 30, 2013

 

Numerator:

 

Total

 

Limited
Partner
Interest

 

General
Partner
Interest

 

IDRs

 

 

Total

 

Limited
Partner
Interest

 

General
Partner
Interest

 

IDRs

 

Net income attributable to Global Partners LP

 

$

42,508

 

$

40,885

 

$

1,623

 

$

 

 

$

25,815

 

$

24,773

 

$

1,042

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Declared distribution

 

$

19,319

 

$

17,899

 

$

150

 

$

1,270

 

 

$

17,425

 

$

16,459

 

$

138

 

$

828

 

Assumed allocation of undistributed net income

 

23,189

 

22,986

 

203

 

 

 

8,390

 

8,314

 

76

 

 

Assumed allocation of net income

 

$

42,508

 

$

40,885

 

$

353

 

$

1,270

 

 

$

25,815

 

$

24,773

 

$

214

 

$

828

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

 

 

27,183

 

 

 

 

 

 

 

 

27,333

 

 

 

 

 

Dilutive effect of phantom units

 

 

 

124

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

 

 

27,307

 

 

 

 

 

 

 

 

27,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

 

 

$

1.50

 

 

 

 

 

 

 

 

$

0.91

 

 

 

 

 

Diluted net income per limited partner unit (1)

 

 

 

$

1.50

 

 

 

 

 

 

 

 

$

0.91

 

 

 

 

 

 

(1)   Basic units were used to calculate diluted net income per limited partner unit for the three months ended September 30, 2013, as using the effects of phantom units would have an anti-dilutive effect on income per limited partner unit.

 

10



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 3.                     Net Income Per Limited Partner Unit (continued)

 

 

 

Nine Months Ended September 30, 2014

 

 

Nine Months Ended September 30, 2013

 

Numerator: 

 

Total

 

Limited
Partner
Interest

 

General
Partner
Interest

 

IDRs

 

 

Total

 

Limited
Partner
Interest

 

General
Partner
Interest

 

IDRs

 

Net income attributable to Global Partners LP

 

$

86,799

 

$

82,635

 

$

4,164

 

$

 

 

$

8,573

 

$

6,267

 

$

2,306

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Declared distribution

 

$

56,414

 

$

52,531

 

$

439

 

$

3,444

 

 

$

51,196

 

$

48,554

 

$

407

 

$

2,235

 

Assumed allocation of undistributed net income

 

30,385

 

30,104

 

281

 

 

 

(42,623

)

(42,287

)

(336

)

 

Assumed allocation of net income

 

$

86,799

 

$

82,635

 

$

720

 

$

3,444

 

 

$

8,573

 

$

6,267

 

$

71

 

$

2,235

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

 

27,229

 

 

 

 

 

 

 

27,350

 

 

 

 

 

Dilutive effect of phantom units

 

 

83

 

 

 

 

 

 

 

243

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

 

27,312

 

 

 

 

 

 

 

27,593

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

 

$

3.03

 

 

 

 

 

 

 

$

0.23

 

 

 

 

 

Diluted net income per limited partner unit

 

 

$

3.03

 

 

 

 

 

 

 

$

0.23

 

 

 

 

 

 

On April 23, 2014, the board of directors of the General Partner declared a quarterly cash distribution of $0.6250 per unit for the period from January 1, 2014 through March 31, 2014. On July 23, 2014, the board of directors of the General Partner declared a quarterly cash distribution of $0.6375 per unit for the period from April 1, 2014 through June 30, 2014. On October 22, 2014, the board of directors of the General Partner declared a quarterly cash distribution of $0.6525 per unit for the period from July 1, 2014 through September 30, 2014. These declared cash distributions result in incentive distributions to the General Partner, as the holder of the IDRs, and enable the Partnership to exceed its second target level distribution with respect to such IDRs. See Note 8, “Cash Distributions” for further information.

 

11



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 4.                     Inventories

 

Except for its convenience store inventory and its Renewable Identification Numbers (“RINs”) inventory, the Partnership hedges substantially all of its inventory using a variety of instruments, primarily 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 the fair value of these futures contracts, as well as the offsetting gain or loss on the designated hedged inventory item, are recognized in earnings as an increase or decrease in cost of sales. All hedged inventory not 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. Prior to sale, hedges are removed from specific barrels of inventory, and the then unhedged inventory is sold and accounted for on a first-in, first-out basis. Convenience store inventory and RIN inventory are carried at the lower of historical cost or market.

 

Inventories consisted of the following (in thousands):

 

 

 

September 30,

 

December 31,

 

 

 

2014

 

2013

 

Distillates: home heating oil, diesel and kerosene

 

$

208,578

 

$

272,760

 

Gasoline

 

98,260

 

96,539

 

Gasoline blendstocks

 

64,104

 

54,076

 

Renewable identification numbers (RINs)

 

2,012

 

3,186

 

Crude oil

 

29,884

 

87,022

 

Residual oil

 

40,059

 

48,793

 

Propane and other

 

4,250

 

3,443

 

Convenience store inventory

 

8,562

 

6,987

 

Total

 

$

455,709

 

$

572,806

 

 

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 $11.7 million and $48.2 million at September 30, 2014 and December 31, 2013, respectively. Negative exchange balances are accounted for as accounts payable and amounted to $24.2 million and $46.7 million at September 30, 2014 and December 31, 2013, respectively. Exchange transactions are valued using current carrying costs and have no income statement impact.

 

Note 5.                     Derivative Financial Instruments

 

Accounting and reporting guidance for derivative instruments and hedging activities requires that an entity recognize derivatives as either assets or liabilities on the balance sheet and measure the instruments at fair value. Changes in the fair value of the derivative are to be recognized currently in earnings, unless specific hedge accounting criteria are met. The Partnership principally uses derivative instruments to hedge the commodity risk associated with its inventory and product purchases and sales and to hedge variable interest rates associated with the Partnership’s credit facilities.

 

12



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 5.                     Derivative Financial Instruments (continued)

 

The following table presents the volume of activity related to the Partnership’s derivative financial instruments at September 30, 2014:

 

 

 

Units (1)

 

Unit of Measure

 

Futures Contracts

 

 

 

 

 

Long

 

23,796

 

Thousands of barrels

 

Short

 

(27,842

)

Thousands of barrels

 

 

 

 

 

 

 

Natural Gas Contracts

 

 

 

 

 

Long

 

9,539

 

Thousands of decatherms

 

Short

 

(9,539

)

Thousands of decatherms

 

 

 

 

 

 

 

Interest Rate Swaps

 

$

200.0

 

Millions of U.S. dollars

 

Interest Rate Cap

 

$

100.0

 

Millions of U.S. dollars

 

 

(1)   Number of open positions and gross notional amounts do not quantify risk or represent assets or liabilities of the Partnership, but are used in the calculation of daily cash settlements under the contracts.

 

Fair Value Hedges

 

The Partnership enters into futures contracts in the normal course of business to reduce the risk of loss of inventory value, which could result from fluctuations in market prices. These futures contracts are designated as fair value hedges against the inventory with specific futures contracts matched to specific barrels of inventory. As a result of the Partnership’s hedge designation on these transactions, the futures contracts are recorded on the Partnership’s consolidated balance sheet and marked to market through the use of independent markets based on the prevailing market prices of such instruments at the date of valuation. Likewise, the underlying inventory being hedged is also marked to market. Changes in the fair value of the futures contracts, as well as the change in the fair value of the hedged inventory, are recognized in the consolidated statement of income through cost of sales. These futures contracts are settled on a daily basis by the Partnership through brokerage margin accounts.

 

The Partnership’s futures contracts are settled daily; therefore, there was no corresponding asset or liability on the Partnership’s consolidated balance sheet related to these contracts at September 30, 2014 and December 31, 2013. These contracts remain open until their contract end date. The daily settlement of these futures contracts is accomplished through the use of brokerage margin deposit accounts.

 

13



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 5.                     Derivative Financial Instruments (continued)

 

The following table presents the hedge ineffectiveness from derivatives involved in fair value hedging relationships recognized in the Partnership’s consolidated statements of income for the three and nine months ended September 30, 2014 and 2013 (in thousands):

 

 

 

 

 

Amount of Gain (Loss) Recognized in

 

 

 

 

 

Income on Derivatives

 

 

 

Location of Gain (Loss)

 

Three Months Ended

 

Nine Months Ended

 

Derivatives in Fair Value

 

Recognized in

 

September 30,

 

September 30,

 

Hedging Relationships

 

Income on Derivative

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Futures contracts

 

Cost of sales

 

$

29,470

 

$

(4,348

)

$

52,050

 

$

15,753

 

 

 

 

 

 

 

Amount of Gain (Loss) Recognized in

 

 

 

 

 

Income on Hedged Items

 

 

 

Location of Gain (Loss)

 

Three Months Ended

 

Nine Months Ended

 

Hedged Items in Fair Value

 

Recognized in

 

September 30,

 

September 30,

 

Hedged Relationships

 

Income on Hedged Items

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventories

 

Cost of sales

 

$

(30,890

)

$

4,545

 

$

(52,386

)

$

(15,033

)

 

Cash Flow Hedges

 

The Partnership utilizes various interest rate derivative instruments to hedge variable interest rates on its debt. These derivative instruments are designated as cash flow hedges of the underlying debt. To the extent such hedges are effective, the changes in the fair value of the derivative instrument are reported as a component of other comprehensive income (loss) and reclassified into interest expense or interest income in the same period during which the hedged transaction affects earnings.

 

In 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 historically have hedged 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.

 

14



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 5.                     Derivative Financial Instruments (continued)

 

In June 2014 and as a result of the issuance of the Partnership’s $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 is 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 September 30, 2014, 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 the fair value of this instrument are recorded in earnings.

 

The following table presents the fair value of the Partnership’s derivative instruments involved in cash flow hedging relationships and their location in the Partnership’s consolidated balance sheets at September 30, 2014 and December 31, 2013 (in thousands):

 

 

 

 

 

September 30,

 

December 31,

 

Derivatives Designated as

 

 

 

2014

 

2013

 

Hedging Instruments

 

Balance Sheet Location

 

Fair Value

 

Fair Value

 

 

 

 

 

 

 

 

 

Asset derivatives

 

 

 

 

 

 

 

Interest rate cap (1)

 

Other assets

 

$

N/A

 

$

 25

 

 

 

 

 

 

 

 

 

Liability derivatives

 

 

 

 

 

 

 

Interest rate swaps

 

Other long-term liabilities

 

$

 6,927

 

$

 9,462

 

 

(1)   The interest rate cap agreement was de-designated as a cash flow hedge in June 2014.

 

The following table presents the amount of net gains and losses from derivatives involved in cash flow hedging relationships recognized in the Partnership’s consolidated statements of income and partners’ equity for the three and nine months ended September 30, 2014 and 2013 (in thousands):

 

 

 

 

 

 

 

Recognized in Income

 

 

 

 

 

Recognized in Income

 

 

 

 

 

 

 

on Derivatives

 

 

 

 

 

on Derivatives

 

 

 

Amount of Gain (Loss)

 

(Ineffectiveness Portion

 

Amount of Gain (Loss)

 

(Ineffectiveness Portion

 

 

 

Recognized in Other

 

and Amount Excluded

 

Recognized in Other

 

and Amount Excluded

 

 

 

Comprehensive Income

 

from Effectiveness

 

Comprehensive Income

 

from Effectiveness

 

 

 

on Derivatives

 

Testing)

 

on Derivatives

 

Testing)

 

Derivatives in

 

Three Months Ended

 

Three Months Ended

 

Nine Months Ended

 

Nine Months Ended

 

Cash Flow

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

Hedging Relationship

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate collar

 

$

 

$

635

 

$

 

$

 

$

 

$

1,861

 

$

 

$

 

Interest rate swaps

 

1,824

 

(1,538

)

 

 

2,535

 

701

 

 

 

Interest rate cap (1)

 

105

 

(42

)

 

 

265

 

15

 

 

 

Total

 

$

1,929

 

$

(945

)

$

 

$

 

$

2,800

 

$

2,577

 

$

 

$

 

 

(1)   The interest rate cap agreement was de-designated as a cash flow hedge in June 2014.

 

Ineffectiveness related to the interest rate swaps, collar and cap is recognized as interest expense and was immaterial for the three and nine months ended September 30, 2014 and 2013. In June 2014, the Partnership elected to de-designate its interest rate cap and discontinued hedge accounting. Except for the amortization of the prepaid interest rate caplets associated with the interest rate cap, totaling $96,000 and $273,000 for the three and nine months ended September 30, 2014, respectively, there were no amounts reclassified into earnings for the three and nine months ended September 30, 2014 and 2013 under these instruments. 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 September 30, 2014.

 

As of September 30, 2014, the remaining unamortized prepaid interest rate caplets were $1.1 million and will be amortized over the remaining life of the interest rate cap which expires in April 2016.

 

15



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 5.                     Derivative Financial Instruments (continued)

 

Other Derivative Activity

 

The Partnership uses futures contracts, and occasionally swap agreements, to hedge its commodity exposure under forward fixed price purchase and sale commitments on its products and certain inventory of the Partnership. These derivatives are not designated by the Partnership as either fair value hedges or cash flow hedges. Rather, the forward fixed price purchase and sales commitments, which meet the definition of a derivative, are reflected in the Partnership’s consolidated balance sheet. The related futures contracts (and swaps, if applicable) are also reflected in the Partnership’s consolidated balance sheet, thereby creating an economic hedge. Changes in the fair value of the futures contracts (and swaps, if applicable), as well as offsetting gains or losses due to the change in the fair value of forward fixed price purchase and sale commitments, are recognized in the consolidated statement of income through cost of sales. These futures contracts are settled on a daily basis by the Partnership through brokerage margin accounts.

 

While the Partnership seeks to maintain a position that is substantially balanced within its product purchase activities, it may experience net unbalanced positions for short periods of time as a result of variances in daily sales and transportation and delivery schedules as well as other logistical issues inherent in the business, such as weather conditions. In connection with managing these positions, maintaining a constant presence in the marketplace and managing the futures market outlook for future anticipated inventories, which are necessary for its business, the Partnership engages in a controlled trading program for up to an aggregate of 250,000 barrels of products at any one point in time. Any derivatives not involved in a direct hedging activity are marked to market and recognized in the consolidated statement of income through cost of sales.

 

The Partnership also markets and sells natural gas by entering into forward purchase commitments for natural gas when it enters into arrangements for the forward sale commitment of product for physical delivery to third-party users. The Partnership reflects the fair value of forward fixed purchase and sales commitments in its consolidated balance sheet. Changes in the fair value of the forward fixed price purchase and sale commitments are recognized in the consolidated statement of income through cost of sales.

 

During the three and nine months ended September 30, 2014 and 2013, the Partnership entered into forward currency contracts to hedge certain foreign denominated (Canadian) product purchases. These forward contracts are not designated and are reflected in the consolidated balance sheets. Changes in the fair values of these forward currency contracts are reflected in cost of sales.

 

Similar to the futures contracts used by the Partnership to hedge its inventory, the Partnership uses future contracts to economically hedge forward purchase and sale contracts for which the Partnership does not take the normal purchase and sale exemption. Additionally, these futures contracts are settled daily and, accordingly, there was no corresponding asset or liability in the Partnership’s consolidated balance sheets related to these contracts at September 30, 2014 and December 31, 2013. These contracts remain open until their contract end date. The daily settlement of these futures contracts is accomplished through the use of brokerage margin deposit accounts.

 

16



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 5.                     Derivative Financial Instruments (continued)

 

The following table summarizes the derivatives not designated by the Partnership as either fair value hedges or cash flow hedges and their respective fair values and location in the Partnership’s consolidated balance sheets at September 30, 2014 and December 31, 2013 (in thousands):

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

 

 

 

Balance Sheet

 

2014

 

2013

 

Summary of Other Derivatives

 

Item Pertains to

 

Location

 

Fair Value

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

Asset Derivatives

 

 

 

 

 

 

 

 

 

Forward purchase commitments

 

Gasoline and Gasoline Blendstocks

 

(1)

 

$

 1,035

 

$

 14,119

 

 

 

Distillates

 

(1)

 

2,219

 

2,232

 

 

 

Crude Oil

 

(1)

 

3,546

 

13,693

 

 

 

Propane

 

(1)

 

35

 

 

 

 

Residual Oil

 

(1)

 

20

 

34

 

Total forward purchase commitments

 

 

 

 

 

6,855

 

30,078

 

 

 

 

 

 

 

 

 

 

 

Forward sales commitments

 

Gasoline and Gasoline Blendstocks

 

(1)

 

16,537

 

1,486

 

 

 

Distillates

 

(1)

 

17,063

 

797

 

 

 

Residual Oil

 

(1)

 

1,573

 

655

 

 

 

Crude Oil

 

(1)

 

9,919

 

383

 

 

 

Natural Gas

 

(1)

 

4,736

 

12,608

 

 

 

Propane

 

(1)

 

438

 

 

Total forward sales commitments

 

 

 

 

 

50,266

 

15,929

 

Total fair value of forward fixed price contracts

 

 

 

 

 

$

 57,121

 

$

 46,007

 

 

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

 

 

 

 

 

 

 

 

Forward purchase commitments

 

Gasoline and Gasoline Blendstocks

 

(2)

 

$

 9,019

 

$

 3,625

 

 

 

Distillates

 

(2)

 

9,627

 

1,396

 

 

 

Residual Oil

 

(2)

 

 

990

 

 

 

Crude Oil

 

(2)

 

16,003

 

2,122

 

 

 

Natural Gas

 

(2)

 

4,737

 

12,485

 

 

 

Propane

 

(2)

 

331

 

 

Total forward purchase commitments

 

 

 

 

 

39,717

 

20,618

 

 

 

 

 

 

 

 

 

 

 

Forward sales commitments

 

Gasoline and Gasoline Blendstocks

 

(2)

 

77

 

10,709

 

 

 

Distillates

 

(2)

 

109

 

3,809

 

 

 

Crude Oil

 

(2)

 

15,842

 

3,061

 

 

 

Propane

 

(2)

 

9

 

 

Total forward sales commitments

 

 

 

 

 

16,037

 

17,579

 

Total obligations on forward fixed price contracts and other derivatives

 

 

 

 

 

55,754

 

38,197

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contract

 

Foreign Denominated Sales

 

(3)

 

 

16

 

Total liability derivatives

 

 

 

 

 

$

 55,754

 

$

 38,213

 

 

(1)          Fair value of forward fixed price contracts

(2)          Obligations on forward fixed price contracts

(3)          Accrued expenses and other current liabilities

 

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Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 5.                     Derivative Financial Instruments (continued)

 

The following table presents the amount of gains and losses from derivatives not involved in a fair value hedging relationship or in a hedging relationship recognized in the Partnership’s consolidated statements of income for the three and nine months ended September 30, 2014 and 2013 (in thousands):

 

 

 

 

 

Amount of Gain (Loss)

 

Amount of Gain (Loss)

 

 

 

Location of

 

Recognized in Income

 

Recognized in Income

 

 

 

Gain (Loss)

 

on Derivatives

 

on Derivatives

 

 

 

Recognized in

 

Three Months Ended

 

Nine Months Ended

 

Derivatives Not Designated as

 

Income on

 

September 30,

 

September 30,

 

Hedging Instruments

 

Derivatives

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Product contracts

 

Cost of sales

 

$

10,708

 

$

4,576

 

$

14,196

 

$

8,223

 

Foreign currency contracts

 

Cost of sales

 

171

 

(437

)

17

 

(203

)

Total

 

 

 

$

10,879

 

$

4,139

 

$

14,213

 

$

8,020

 

 

The interest rate cap agreement was de-designated as a cash flow hedge in June 2014.  The amount of gain (loss) recognized in income was immaterial for the three and nine months ended September 30, 2014.

 

Credit Risk

 

The Partnership’s derivative financial instruments do not contain credit risk related to other contingent features that could cause accelerated payments when these financial instruments are in net liability positions.

 

The Partnership is exposed to credit loss in the event of nonperformance by counterparties of forward purchase and sale commitments, futures contracts and swap agreements, but the Partnership has no current reason to expect any material nonperformance by any of these counterparties.  Futures contracts, the primary derivative instrument utilized by the Partnership, are traded on regulated exchanges, greatly reducing potential credit risks.  The Partnership utilizes primarily three clearing brokers, all major financial institutions, for all New York Mercantile Exchange (“NYMEX”) and Chicago Mercantile Exchange (“CME”) derivative transactions and the right of offset exists.  Accordingly, the fair value of derivative instruments is presented on a net basis in the consolidated balance sheets.  Exposure on forward purchase and sale commitments and swap agreements is limited to the amount of the recorded fair value as of the balance sheet dates.

 

Note 6.                     Debt

 

Credit Agreement

 

As of September 30, 2014, certain subsidiaries of the Partnership, as borrowers, and the Partnership and certain of its subsidiaries, as guarantors, had a $1.625 billion senior secured credit facility (the “Credit Agreement”).  The Credit Agreement will mature on April 30, 2018.

 

As of September 30, 2014, 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 Partnership’s borrowing base and $1.0 billion; and

 

·              a $625.0 million revolving credit facility to be used for acquisitions, joint ventures, capital expenditures, letters of credit and general corporate purposes.

 

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Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 6.                     Debt (continued)

 

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 $1.925 billion.  Any such request for an increase by the Partnership must be in a minimum amount of $25.0 million.  The Partnership cannot provide assurance, however, that its lending group will agree to fund any request by the Partnership for additional amounts in excess of the total available commitments of $1.625 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 $1.625 billion.

 

Pursuant to the Credit Agreement, and in connection with any agreement by and between a Loan Party and a Lender (as such terms are defined in the Credit Agreement) or affiliate thereof (an “AR Buyer”), a Loan Party may sell certain of its accounts receivables to an AR Buyer (the “Receivables Sales Agreement”).  Also pursuant to the Credit Agreement, the Loan Parties are permitted to sell or transfer any account receivable to an AR Buyer only to the extent that (i) no Default or Event of Default (as such terms are defined in the Credit Agreement) has occurred and is continuing or would exist after giving effect to any such sale or transfer; (ii) such accounts receivable are sold for cash; (iii) the cash purchase price to be paid to the selling Loan Party for each account receivable is not less than the amount of credit such Loan Party would have been able to get for such account receivable had such account receivable been included in the Borrowing Base (as defined in the Credit Agreement) or, to the extent such account receivable is not otherwise eligible to be included in the Borrowing Base, then the cash purchase price to be paid is not less than 85% of the face amount of such account receivable; (iv) such account receivable is sold pursuant to a Receivables Sales Agreement; (v) the Loan Parties have complied with the notice requirement set forth in the Credit Agreement; (vi) neither the AR Buyer nor the Administrative Agent has delivered any notice of a termination event; (vii) the aggregate amount of the accounts receivable sold to one or more AR Buyers which has not yet been collected will not exceed $75.0 million at any time; and (viii) the cash proceeds received from the applicable Loan Party in connection with such sale will be used to immediately repay any outstanding WC Loans (as defined in the Credit Agreement).  To date, the level of receivables sold has not been significant, and the Partnership has accounted for such transfers as sales pursuant to ASC 860, “Transfers and Servicing.”  Due to the short-term nature of the receivables sold to date, no servicing obligation has been recorded because it would have been de minimus.

 

Borrowings under the Credit Agreement are available in U.S. Dollars and Canadian Dollars. The aggregate amount of loans made under the Credit Agreement denominated in Canadian Dollars cannot exceed $200.0 million.

 

Availability under the working capital revolving credit facility is subject to a borrowing base which is redetermined from time to time and based on specific advance rates on eligible current assets.  Under the Credit Agreement, 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 Partnership’s 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.

 

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Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 6.                     Debt (continued)

 

Commencing December 16, 2013, 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).  From January 1, 2013 through December 15, 2013, borrowings under the working capital revolving credit facility bore interest at (1) the Eurodollar rate plus 2.00% to 2.50%, (2) the cost of funds rate plus 2.00% to 2.50%, or (3) the base rate plus 1.00% to 1.50%, each depending on the Utilization Amount (as defined in the prior credit agreement).

 

Commencing December 16, 2013, 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).  From January 1, 2013 through December 15, 2013, borrowings under the revolving credit facility bore interest at (1) the Eurodollar rate plus 2.50% to 3.50%, (2) the cost of funds rate plus 2.50% to 3.50%, or (3) the base rate plus 1.50% to 2.50%, each depending on the Combined Total Leverage Ratio (as defined in the prior credit agreement).

 

The average interest rates for the Credit Agreement were 3.8% and 4.3% for the three months ended September 30, 2014 and 2013, respectively, and 3.6% and 4.3% for the nine months ended September 30, 2014 and 2013, respectively.

 

As of September 30, 2014, 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.

 

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 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 $92.0 million and $327.0 million at September 30, 2014 and December 31, 2013, respectively, representing the amounts expected to be outstanding during the entire year.  In addition, the Partnership classifies a portion of its working capital revolving credit facility as a current liability because it repays amounts outstanding and reborrows funds based on its working capital requirements.  At September 30, 2014 and December 31, 2013, the current portion of the working capital revolving credit facility was $113.0 million and $0, respectively, representing the amount the Partnership expects to pay down during the course of the year.  Due to unexpected excess cash received during the nine months ended September 30, 2014, the Partnership paid down a portion of the working capital revolving credit facility that was previously classified as long term at December 31, 2013.  The Partnership does not expect to reduce its outstanding borrowings on the revolving credit facility component of the Credit Agreement over the next twelve months.

 

As of September 30, 2014, the Partnership had total borrowings outstanding under the Credit Agreement of $477.6 million, including $272.6 million outstanding on the revolving credit facility.  In addition, the Partnership had outstanding letters of credit of $200.6 million.  Subject to borrowing base limitations, the total remaining availability for borrowings and letters of credit was $946.8 million and $479.9 million at September 30, 2014 and December 31, 2013, respectively.

 

The Credit Agreement is secured by substantially all of the assets of the Partnership and the Partnership’s wholly-owned subsidiaries and is guaranteed by the Partnership and its subsidiaries, Bursaw Oil LLC and Global Partners Energy Canada ULC.  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

 

20



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 6.                     Debt (continued)

 

Agreement) would occur as a result thereof, and certain limitations on the Partnership’s 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 Partnership’s 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 September 30, 2014.  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 Partnership’s partnership agreement).

 

On October 6, 2014, in connection with the execution of the Stock Purchase Agreement dated October 3, 2014, by and among Warren Equities, Inc., (“Warren”), as the Company, The Warren Alpert Foundation, as the Seller, and GMG, as Buyer, and solely with respect to Section 10.20 and the other provisions in Article 10 related thereto, the Partnership, as Buyer Guarantor (the “Stock Purchase Agreement”), the Partnership and certain of its subsidiaries entered into the First Amendment to the Second Amended and Restated Credit Agreement (the “First Amendment”), which eliminates the lender consent requirement for Permitted Acquisitions (as defined in the Credit Agreement) without regard to previously delineated dollar basket thresholds.

 

On October 20, 2014, in connection with the proposed acquisition of Warren (the “Warren Acquisition”), the Partnership and certain of its subsidiaries entered into the Second Amendment to the Second Amended and Restated Credit Agreement (the “Second Amendment”).  Pursuant to the Second Amendment, upon the closing of the Warren Acquisition, Warren is required to be joined as a Borrower under the Credit Agreement and subsidiaries of Warren are required to be joined as guarantors under the Credit Agreement.  The Second Amendment also provides for an increase in the Aggregate Revolver Commitment (as defined in the Credit Agreement) in the amount of either $75.0 million or $150.0 million, at the option of the Borrowers (as defined in the Credit Agreement), which option will terminate at the earliest to occur of (x) the date that the Warren Acquisition is consummated, (y) the date that the Borrowers notify Bank of America, N.A., as Administrative Agent that the Warren Acquisition will not be consummated and (z) February 15, 2015.  If the option has not been exercised or terminated by January 15, 2015, the Borrowers will pay a ticking fee of 50 basis points (calculated based on the $150.0 million commitment increase, regardless of whether the Borrowers exercise the option to increase commitments by $150.0 million, $75.0 million, or not at all) for the period from January 15, 2015 until the earlier to occur of (x) the consummation of the Warren Acquisition, (y) the date the Aggregate Revolver Commitment is increased upon exercise of the Borrowers’ option and (z) termination of the Borrowers’ option.  Additionally, the Second Amendment revises the definition of “Combined EBITDA” for purposes of calculating the Combined Interest Coverage Ratio, the Combined Total Leverage Ratio and the Combined Senior Secured Leverage Ratio (as such terms are defined in the Credit Agreement), such that for any period in which the Warren Acquisition has occurred, Combined EBITDA will be adjusted to give effect to the Warren Acquisition.  Additionally, the Second Amendment eliminates the $400.0 million limit on Senior Unsecured Indebtedness and Subordinated Debt (as such terms are defined in the Credit Agreement).

 

In addition, the Second Amendment revises the definition of “Subsidiary” to exclude joint ventures in which the Partnership and its subsidiaries own more than 50% but less than 100% of the equity in such entity.  The assets held by such joint ventures are no longer required to be pledged as collateral to secure the obligations of the Partnership and its subsidiaries under the Credit Agreement.  The Second Amendment also increases the permitted investments basket for obligations due to the Partnership and its subsidiaries from $5.0 million to $50.0 million.

 

21



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 6.                     Debt (continued)

 

8.0% Senior Notes

 

On February 14, 2013, the Partnership entered into a note purchase agreement with FS Energy and Power Fund (“FS Energy”), with respect to the issue and sale by the Partnership to FS Energy of an aggregate principal amount of $70.0 million unsecured 8.0% Senior Notes due 2018 (the “8.0% Notes”).  The 8.0% Notes were issued in a private placement exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) and were not registered under the Securities Act or any state securities laws.  Interest on the 8.0% Notes accrued from February 14, 2013 and was paid semi-annually on February 14 and August 14 of each year, beginning on August 14, 2013.

 

Closing of the offering occurred on February 14, 2013.  The 8.0% Notes were sold to FS Energy at 97% of their face amount, resulting in net proceeds to the Partnership of approximately $67.9 million.  Additionally, the Partnership separately paid fees and offering expenses.  The discount of $2.1 million at issuance was accreted as additional interest.  On February 15, 2013, the Partnership used the net proceeds from the offering, after paying fees and offering expenses, to finance a portion of its acquisition of all of the outstanding membership interests in Cascade Kelly and to pay related transaction costs.

 

7.75% Senior Notes

 

On December 23, 2013, the Partnership entered into a note purchase agreement with FS Energy and Power Fund, KARBO, L.P., Kayne Anderson Capital Income Partners (QP), L.P., Kayne Anderson Income Partners, L.P., Kayne Anderson Infrastructure Income Fund, L.P., Kayne Anderson Non-Traditional Investments,  L.P., KANTI (QP), L.P. and Kayne Energy Credit Opportunities, L.P. as purchasers (the “Purchasers”), with respect to the issue and sale by the Partnership to the Purchasers of an aggregate principal amount of $80.0 million unsecured 7.75% Senior Notes due 2018 (the “7.75% Notes”).  The 7.75% Notes were issued in a private placement exempt from registration under the Securities Act and were not registered under the Securities Act or any state securities laws.  Interest was paid on the 7.75% Notes semi-annually on December 23 and June 23 of each year, beginning on June 23, 2014.

 

Closing of the offering occurred on December 23, 2013. The 7.75% Notes were sold to the Purchasers at their face amount, resulting in proceeds to the Partnership of $80.0 million.  Additionally, the Partnership separately paid fees and offering expenses.  The Partnership used a portion of the net proceeds from the offering to pay outstanding indebtedness and for general partnership purposes.

 

Exchange Rights Agreements

 

On June 19, 2014, the Partnership and GLP Finance (the “Issuers”) entered into a letter agreement (the “Exchange Rights Agreements”) with each of FS Energy and certain funds managed by Kayne Anderson Capital Advisors, L.P. pursuant to which the parties agreed to modifications to or waivers of certain of the provisions of the indentures governing the 8.0% Senior Notes and the 7.75% Senior Notes (collectively, the “Existing HY Notes”) for purposes of effecting the repayment of the Existing HY Notes with a portion of the proceeds of the Issuers’ private placement of the 6.25% Notes (defined below) and the subsequent issuance of a portion of the 6.25% Notes to the holders of the Existing HY Notes.

 

6.25% Senior Notes

 

On June 19, 2014, 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.  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.

 

22



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 6.                     Debt (continued)

 

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.  The Partnership used the net proceeds from the offering to repay a portion of the borrowings outstanding under its revolving credit facility and to repurchase or exchange all of its $150.0 million of the Existing HY Notes in accordance with the Exchange Rights Agreements, as follows:  the principal amount of $70.0 million of the 8.0% Senior Notes and the principal amount of $80.0 million of the 7.75% Senior Notes, including premium payments but excluding accrued and unpaid interest.  Specifically, the Partnership paid $40.2 million to the holders of the Existing HY Notes and exchanged the remaining $110.0 million of the Existing HY Notes for $116.0 million of the 6.25% Notes.  The additional $6.0 million provided to the holders of the Existing HY Notes as a make-whole provision was treated as a discount to the 6.25% Notes included in senior notes in the accompanying balance sheet at September 30, 2014.

 

The Partnership accounted for the exchange of $110.0 million of the Existing HY Notes to the 6.25% Notes as a modification of debt rather than an extinguishment of debt in accordance with ASC 70-50, “Modification and Extinguishments,” as the cash flow effect on a present value basis was less than 10% which is not deemed a substantial modification of terms.  As a result of the $40.0 million extinguishment of the remaining principal debt, the Partnership incurred expenses of $1.6 million associated with the write-off of a portion of the original issue discount and deferred financing fees.  These expenses are included in interest expense in the accompanying statement of income for the nine months ended September 30, 2014.

 

Additionally, as a result of the modification, the pro rata portion of the unamortized original issue discount and deferred financing fees associated with the Existing HY Notes remaining will be amortized over the term of the 6.25% Notes.

 

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.

 

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,

 

23



Table of Contents

 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 6.                     Debt (continued)

 

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 Partnership’s 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 Partnership’s 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 have 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 will not be 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.  Under specified circumstances, the Issuers and the subsidiary guarantors have also agreed to use commercially reasonable efforts to cause to become effective a shelf registration statement relating to resales of the 6.25% Notes.  If the exchange offer is not completed on or before the 360th day after June 24, 2014, the annual interest rate borne by the 6.25% Notes will be increased by 1.0% per annum until the exchange offer is completed or the shelf registration statement is declared effective (or automatically becomes effective).

 

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, 2014 and had an outstanding balance of $0.7 million and $3.7 million at September 30, 2014 and December 31, 2013, 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.  The Partnership is currently in the process of renewing the line of credit facility for an additional year.

 

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 capitalized additional financing fees of $0 and $5.8 million for the three and nine months ended September 30, 2014, respectively, associated with the issuance of the Partnership’s $375.0 million aggregate principal amount of its 6.25% senior notes due 2022.  Amortization expenses of approximately $1.6 million and $1.7 million for the three months ended September 30, 2014 and 2013, respectively, and $4.2 million and $5.1 million for the nine months ended September 30, 2014 and 2013, 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.

 

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GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 7.                     Related Party Transactions

 

The Partnership is a party to a Second Amended and Restated Terminal Storage Rental and Throughput Agreement, as amended, with Global Petroleum Corp. (“GPC”), an affiliate of the Partnership that is 100% owned by members of the Slifka family.  The agreement, which extends through July 31, 2015 with annual renewal options thereafter, is accounted for as an operating lease.  After July 31, 2015, the agreement continues for successive one year terms unless either party gives notice to terminate at least 90 days prior to the expiration of the then current term.  The expenses under this agreement totaled approximately $2.3 million for each of the three months ended September 30, 2014 and 2013, and $6.9 million and $6.8 million for the nine months ended September 30, 2014 and 2013, respectively.

 

Pursuant to an Amended and Restated Services Agreement with GPC, GPC provides certain terminal operating management services to the Partnership and uses certain administrative, accounting and information processing services of the Partnership.  The expenses from these services totaled approximately $24,000 for each of the three months ended September 30, 2014 and 2013 and $72,000 for each of the nine months ended September 30, 2014 and 2013.  These charges were recorded in selling, general and administrative expenses in the accompanying consolidated statements of income.  On March 9, 2012, in connection with the Partnership’s acquisition of Alliance, the agreement was amended to include the services provided by GPC to Alliance.  The agreement is for an indefinite term, and either party may terminate its receipt of some or all of the services thereunder upon 180 days’ notice at any time.  As of September 30, 2014, no such notice of termination was given by either party.

 

In addition, on March 9, 2012, following the closing of the acquisition of Alliance, Global Companies and AE Holdings Corp. (“AE Holdings”) entered into a shared services agreement pursuant to which Global Companies provides AE Holdings with certain tax, accounting, treasury and legal support services for which AE Holdings pays Global Companies $15,000 per year.  The shared services agreement is for an indefinite term and AE Holdings may terminate its receipt of some or all of the services upon 180 days’ notice.  As of September 30, 2014, no such notice of termination was given by AE Holdings.

 

The General Partner employs all of the Partnership’s employees, except for certain of its gasoline station and convenience store employees and certain union personnel, who are employed by GMG.  The Partnership reimburses the General Partner for expenses incurred in connection with these employees.  These expenses, including payroll, payroll taxes and bonus accruals, were $21.0 million and $13.9 million for the three months ended September 30, 2014 and 2013, respectively, and $57.3 million and $45.0 million for the nine months ended September 30, 2014 and 2013, respectively.  The Partnership also reimburses the General Partner for its contributions under the General Partner’s 401(k) Savings and Profit Sharing Plan and the General Partner’s 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):

 

 

 

September 30,

 

December 31,

 

 

 

2014

 

2013

 

Receivables from GPC

 

$

61

 

$

436

 

Receivables from the General Partner (1)

 

3,350

 

968

 

Total

 

$

3,411

 

$

1,404

 

 


(1)         Receivables from the General Partner reflect the Partnership’s prepayment of payroll taxes and payroll accruals to the General Partner.

 

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Table of Contents

 

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 Partnership’s business, to comply with applicable law, any of the Partnership’s debt instruments, or other agreements or to provide funds for distributions to unitholders and the General Partner for any one or more of the next four quarters.

 

The Partnership will make distributions of Available Cash from distributable cash flow for any quarter in the following manner: 99.17% to the common unitholders, pro rata, and 0.83% to the General Partner, until the Partnership distributes for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter; and thereafter, cash in excess of the minimum quarterly distribution is distributed to the unitholders and the General Partner based on the percentages as provided below.

 

As holder of the IDRs, the General Partner is entitled to incentive distributions if the amount that the Partnership distributes with respect to any quarter exceeds specified target levels shown below:

 

 

 

Total Quarterly Distribution

 

Marginal Percentage Interest in
Distributions

 

 

 

Target Amount

 

Unitholders

 

General Partner

 

Minimum Quarterly Distribution

 

$0.4625

 

99.17%

 

0.83%

 

 

First Target Distribution

 

$0.4625

 

99.17%

 

0.83%

 

 

Second Target Distribution

 

above $0.4625 up to $0.5375

 

86.17%

 

13.83%

 

 

Third Target Distribution

 

above $0.5375 up to $0.6625

 

76.17%

 

23.83%

 

 

Thereafter

 

above $0.6625

 

51.17%

 

48.83%

 

 

 

The Partnership paid the following cash distributions during 2014 (in thousands, except per unit data):

 

Cash
Distribution
Payment Date

 

Per Unit
Cash
Distribution

 

Common
Units

 

General
Partner

 

Incentive
Distribution

 

Total Cash
Distribution