UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

Commission file number 001-32593

Global Partners LP

(Exact name of registrant as specified in its charter)

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 ☒ No ☐

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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ◻

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

The issuer had 33,995,563 common units outstanding as of May 4, 2017.

TABLE OF CONTENTS

Item 1.Financial Statements

GLOBAL PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(In thousands, except unit data)

(Unaudited)

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

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit data)

(Unaudited)

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

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

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

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

6

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

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY

(In thousands)

(Unaudited)

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

Note 1.    Organization and Basis of Presentation

Organization

Global Partners LP (the “Partnership”) is a midstream logistics and marketing master limited partnership formed in March 2005 engaged in the purchasing, selling, storing and logistics of transporting petroleum and related products, including gasoline and gasoline blendstocks (such as ethanol), distillates (such as home heating oil, diesel and kerosene), residual oil, renewable fuels, crude oil and propane.  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 is one of the largest distributors of gasoline, distillates, residual oil and renewable fuels to wholesalers, retailers and commercial customers in the New England states and New York.  The Partnership is also one of the largest independent owners, suppliers and operators of gasoline stations and convenience stores with locations throughout the New England states and New York.  As of March 31, 2017, the Partnership had a portfolio of 1,445 owned, leased and/or supplied gasoline stations, including 243 directly operated convenience stores, in the Northeast, Maryland and Virginia.  The Partnership also receives revenue from convenience store sales and gasoline station rental income.  In addition, the Partnership owns transload and storage terminals in North Dakota and Oregon that extend its origin-to-destination capabilities from the mid-continent region of the United States and Canada.

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 most of its gasoline station and convenience store employees who are employed by Global Montello Group Corp. (“GMG”), a wholly owned subsidiary of the Partnership.

The General Partner, which holds a 0.67% general partner interest in the Partnership, is owned by affiliates of the Slifka family.  As of March 31, 2017, affiliates of the General Partner, including its directors and executive officers and their affiliates, owned 7,433,829 common units, representing a 21.9% limited partner interest.

Recent Transactions

Amended and Restated Credit Agreement—  On April 25, 2017, the Partnership and certain of its subsidiaries entered into a third amended and restated credit agreement with aggregate commitments of $1.3 billion and a maturity date of April 30, 2020.  See Note 7 for additional information.

Potential Sale of Terminal Assets—On February 2, 2017, the Partnership began soliciting proposals for the potential sale of six refined petroleum products terminals located in New England, New York and Pennsylvania.  The assets consist of product terminals that represent 1.1 million barrels of aggregate storage capacity.  These assets did not meet the criteria to be presented as held for sale as of March 31, 2017.

Sale of Natural Gas and Electricity Brokerage Businesses—On February 1, 2017, the Partnership completed the sale of its natural gas marketing and electricity brokerage businesses for a purchase price of approximately $17.3 million, subject to customary closing adjustments.  Proceeds from the sale amounted to approximately $16.3 million, and the Partnership realized a gain on the sale of $14.2 million.  The sale of the natural gas marketing and electricity brokerage businesses reflects the Partnership’s ongoing program to monetize non-strategic assets not fundamental to its growth strategy.  Prior to the sale, the results of natural gas marketing and electricity brokerage businesses were included in the Commercial segment.  See Note 6.

Basis of Presentation

The accompanying consolidated financial statements as of March 31, 2017 and December 31, 2016 and for the three months ended March 31, 2017 and 2016 reflect the accounts of the Partnership.  Upon consolidation, all intercompany balances and transactions have been eliminated.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial condition and operating results for the interim periods.  The interim financial information, which has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), should be read in conjunction with the consolidated financial statements for the year ended December 31, 2016 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 months ended March 31, 2017 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2017.  The consolidated balance sheet at December 31, 2016 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, 2016.

Noncontrolling Interest

The Partnership acquired a 60% interest in Basin Transload, LLC (“Basin Transload”) on February 1, 2013.  After evaluating Accounting Standards Codification (“ASC”) Topic 810, “Consolidations,” the Partnership concluded it is appropriate to consolidate the balance sheet and statements of operations of Basin Transload based on an evaluation of the outstanding voting interests.  Amounts pertaining to the noncontrolling ownership interest held by third parties in the financial position and operating results of the Partnership are reported as a noncontrolling interest in the accompanying consolidated balance sheets and statements of operations.

Concentration of Risk

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 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.  Therefore, the Partnership’s volumes in gasoline 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 volumes are generally higher during the first and fourth quarters of the calendar year.  These factors may result in fluctuations in the Partnership’s quarterly operating results.

The following table presents the Partnership’s product sales and other revenues as a percentage of the consolidated sales for the periods presented:

The following table presents the Partnership’s product margin by segment as a percentage of the consolidated product margin for the periods presented:

See Note 15, “Segment Reporting,” for additional information on the Partnership’s operating segments.

None of the Partnership’s customers accounted for greater than 10% of total sales for the three months ended March 31, 2017 and 2016.

Note 2.    Net Income (Loss) 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 or losses is assumed to be allocated to the common unitholders, or limited partners’ interest, and to the General Partner’s general partner interest.

Common units outstanding as reported in the accompanying consolidated financial statements at March 31, 2017 and December 31, 2016 excluded 441,235 and 451,894 common units, respectively, held on behalf of the Partnership pursuant to its repurchase program (see Note 12).  These units are not deemed outstanding for purposes of calculating net income (loss) per limited partner unit (basic and diluted).

The following table provides a reconciliation of net income (loss) and the assumed allocation of net income (loss) to the limited partners’ interest for purposes of computing net income (loss) per limited partner unit for the three months ended March 31, 2017 and 2016 (in thousands, except per unit data):

The board of directors of the General Partner declared the following quarterly cash distribution:

See Note 13, “Partners’ Equity and Cash Distributions” for further information.

Note 3.    Inventories

The Partnership hedges substantially all of its petroleum and ethanol inventory using a variety of instruments, primarily exchange-traded futures contracts.  These futures contracts are entered into when inventory is purchased and are either designated as fair value hedges against the inventory on a specific barrel basis for inventories qualifying for fair value hedge accounting or not designated and maintained as economic hedges against certain inventory of the Partnership on a specific barrel basis.  Changes in fair value of these futures contracts, as well as the offsetting change in fair value on the hedged inventory, is recognized in earnings as an increase or decrease in cost of sales.  All hedged inventory designated in a fair value hedge relationship is valued using the lower of cost, as determined by specific identification, or net realizable value, as determined at the product level.  All petroleum and ethanol inventory not designated in a fair value hedging relationship is carried at the lower of historical cost, on a first-in, first-out basis, or net realizable value.

Convenience store inventory and Renewable Identification Numbers (“RINs”) inventory are carried at the lower of historical cost or net realizable value. 

Inventories consisted of the following (in thousands):

In addition to its own inventory, the Partnership has exchange agreements for petroleum products and ethanol 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 $3.5 million and $4.0 million at March 31, 2017 and December 31, 2016, respectively.  Negative exchange balances are accounted for as accounts payable and amounted to $7.4 million and $13.4 million at March 31, 2017 and December 31, 2016, respectively.  Exchange transactions are valued using current carrying costs. 

Note 4.    Goodwill

The following table presents changes in goodwill, all of which has been allocated to the Gasoline Distribution and Station Operations (“GDSO”) segment (in thousands):

Note 5.    Property and Equipment

Property and equipment consisted of the following (in thousands):

Property and equipment includes assets held for sale of $11.9 million and $17.5 million at March 31, 2017 and December 31, 2016, respectively (see Note 5).  See Note 21 for assets held for sale recognized subsequent to March 31, 2017.

At March 31, 2017, the Partnership had a $61.5 million remaining net book value of long-lived assets at its West Coast facility, including $30.5 million related to the Partnership’s ethanol plant acquired in 2013.  In 2016, the Partnership shifted the facility from crude oil to ethanol transloading and began transloading ethanol.  The Partnership would need to take certain measures to prepare the facility for ethanol production in order to place the plant into service.  Therefore, the $30.5 million related to the ethanol plant was included in property and equipment and classified as idle plant assets at March 31, 2017 and December 31, 2016.

If the Partnership is unable to generate cash flows to support the recoverability of the plant and facility assets, this may become an indicator of potential impairment of the West Coast facility.  Associated with the fair value appraisals determined by third-party valuation specialists in support of the Partnership’s 2016 step two goodwill impairment test, the Partnership received an estimated fair value for the West Coast facility significantly in excess of the $61.5 million remaining net book value.  The estimated fair value obtained was based on market comparable transactions for sale of ethanol plant assets, both active and idle, at the time of sale.  While the fair value analysis was not prepared or obtained to support the recoverability of the West Coast facility or idle plant assets, the Partnership does not believe that changes in assumptions would impact the estimated fair value such that it might result in a fair value estimate of the West Coast facility that would be less than the $61.5 million net book value at March 31, 2017.  The Partnership will continue to monitor the market for ethanol, the continued business development of this facility for either ethanol or crude oil transloading, and the related impact this may have on the facility’s operating cash flows and whether this would constitute an impairment indicator.

Note 6.    Sales and Disposition of Assets

The following table provides the Partnership’s (gain) loss on sale and dispositions of assets for the three months ended March 31, 2017 and 2016 (in thousands):

Sale of Natural Gas and Electricity Brokerage Businesses

On February 1, 2017, the Partnership completed the sale of its natural gas marketing and electricity brokerage businesses for a purchase price of approximately $17.3 million, subject to customary closing adjustments.  Proceeds from the sale amounted to approximately $16.3 million, and the Partnership realized a gain on the sale of $14.2 million.  See Note 1.

Periodic Divestiture of Gasoline Stations

As part of the routine course of operations in the GDSO segment, the Partnership may periodically divest certain gasoline stations.  The gain or loss on the sale, representing cash proceeds less net book value of assets and recognized liabilities at disposition, net of settlement and dispositions costs, is recorded in net (gain) loss on sale and disposition of

assets in the accompanying consolidated statements of operations and amounted to a $0.2 million gain and a $0.6 million loss for the three months ended March 31, 2017 and 2016 respectively.

Strategic Asset Divestiture Program

The Partnership identified certain non-strategic GDSO sites that are part of its Strategic Asset Divestiture Program (the “Divestiture Program”). 

Real Estate Firm Coordinated Sale—The Partnership has retained a real estate firm to coordinate the sale of approximately 75 non-strategic GDSO sites as of March 31, 2017.  Since the Divesture Program was implemented, the Partnership completed the sale of 45 of these sites, of which 16 sites were sold during the three month ended March 31, 2017.  The gain or loss on the sale, representing cash proceeds less net book value of assets and recognized liabilities at disposition, net of settlement and dispositions costs, is recorded in net (gain) loss on sale and disposition of assets in the accompanying consolidated statement of operations and amounted to a $0.4 million loss for the three months ended March 31, 2017, including the derecognition of $2.0 million of GDSO goodwill.  As of March 31, 2017, the criteria to be presented as held for sale was met for 22 of the remaining sites.  Through April 2017, such criteria was met for one additional site (see Note 21).

Loss on Assets Held for Sale

In conjunction with the periodic divestiture of gasoline stations and the sale of sites within the Divestiture Program, the Partnership may classify certain gasoline station assets as held for sale.

The Partnership classified 15 sites and 17 sites as held for sale at March 31, 2017 and December 31, 2016, respectively, which are periodic divestiture gasoline station sites.  The Partnership recorded impairment charges related to these assets held for sale in the amount of $0.2 million and $5.5 million for the three months ended March 31, 2017 and 2016, respectively, which are included in net (gain) loss on sale and disposition of assets in the accompanying consolidated statements of operations. 

Additionally, the Partnership classified 22 sites associated with the real estate firm coordinated sale discussed above as held for sale at March 31, 2017.  The Partnership recorded impairment charges related to these assets held for sale in the amount of $1.9 and million and $0 for the three months ended March 31, 2017 and 2016, respectively, which are included in net (gain) loss on sale and disposition of assets in the accompanying consolidated statements of operations.

Assets held for sale of $11.9 million and $17.5 million at March 31, 2017 and December 31, 2016, respectively, are included in property and equipment in the accompanying balance sheets.  Assets held for sale are expected to be sold within the next 12 months.

Other

The Partnership recognizes gains and losses on the sale and disposition of other assets, including vehicles, fixtures and equipment, and the gain or loss on such other assets are included in other in the aforementioned table.

Note 7.    Debt and Financing Obligations

Credit Agreement

As of March 31, 2017, certain subsidiaries of the Partnership, as borrowers, and the Partnership and certain of its subsidiaries, as guarantors, had a $1.475 billion senior secured credit facility (the “Credit Agreement”) that was to

mature on April 30, 2018.  On April 25, 2017, the Partnership and certain of its subsidiaries entered into a third amended and restated credit agreement with aggregate commitments of $1.3 billion and a maturity date of April 30, 2020 (see “–Third Amended and Restated Credit Agreement” below). 

As of March 31, 2017, the two facilities under the Credit Agreement included:

In addition, the Credit Agreement had an accordion feature whereby the Partnership could request on the same terms and conditions of its then-existing credit agreement, provided no Event of Default (as defined in the Credit Agreement) existed, an increase to the working capital revolving credit facility, the revolving credit facility, or both, by up to another $300.0 million.

In addition, the Credit Agreement included a swing line pursuant to which Bank of America, N.A., as the swing line lender, could 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 bore interest at the Base Rate (as defined in the Credit Agreement).  The swing line was a sub-portion of the working capital revolving credit facility and was not an addition to the then total available commitments of $1.475 billion.

The average interest rates for the Credit Agreement were 3.4% and 3.8% for the three months ended March 31, 2017 and 2016, respectively.  The decline in the average interest rates is due to the May 2016 expiration of an interest rate swap. 

The Partnership classifies a portion of its working capital revolving credit facility as a current liability and a portion as a long-term liability.  The portion classified as a long-term liability represents the amounts expected to be outstanding during the entire year based on an analysis of historical daily borrowings under the working capital revolving credit facility, the seasonality of borrowings, forecasted future working capital requirements and forward product curves, and because the Partnership has a multi-year, long-term commitment from its bank group.  Accordingly, at March 31, 2017, the Partnership estimated working capital revolving credit facility borrowings will equal or exceed $150.0 million over the next twelve months and, therefore, classified $176.9 million as the current portion at March 31, 2017, representing the amount the Partnership expects to pay down over the next twelve months.  The long-term portion of the working capital revolving credit facility was $150.0 million at each of March 31, 2017 and December 31, 2016, and the current portion was $176.9 million and $274.6 million at March 31, 2017 and December 31, 2016, respectively.  The decrease in total borrowings under the working capital revolving credit facility of $97.7 million from December 31, 2016 was primarily due to decreases in accounts receivable and inventories, in part due to seasonality relating to the heating season, reduced inventory volume and a decline in prices.    

As of March 31, 2017, the Partnership had total borrowings outstanding under the Credit Agreement of $527.6 million, including $200.7 million outstanding on the revolving credit facility.  In addition, the Partnership had outstanding letters of credit of $39.1 million.  Subject to borrowing base limitations, the total remaining availability for borrowings and letters of credit was $908.3 million and $764.8 million at March 31, 2017 and December 31, 2016, respectively.

The Credit Agreement was secured by substantially all of the assets of the Partnership and the Partnership’s wholly owned subsidiaries and was guaranteed by the Partnership and its subsidiaries with the exception of Basin Transload.

The Credit Agreement imposed financial covenants that required the Partnership to maintain certain minimum working capital amounts, a minimum combined interest coverage ratio, a maximum senior secured leverage ratio and a maximum total leverage ratio.  The Partnership was in compliance with the foregoing covenants at March 31, 2017.  The Credit Agreement also contained 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 limited distributions by the Partnership to its unitholders to the amount of Available Cash (as defined in the Partnership’s partnership agreement).

Third Amended and Restated Credit Agreement

On April 25, 2017, the Partnership, its operating company, its operating subsidiaries and GLP Finance Corp. entered into a Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”), with Aggregate Commitments (as defined in the Amended Credit Agreement) available in the amount of $1.3 billion.  The Amended Credit Agreement will mature on April 30, 2020.

There are two facilities under the Amended Credit Agreement: