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EX-32.2 - EX-32.2 - GLOBAL PARTNERS LPglp-20180331ex3220daa2c.htm
EX-32.1 - EX-32.1 - GLOBAL PARTNERS LPglp-20180331ex3211d71a3.htm
EX-31.2 - EX-31.2 - GLOBAL PARTNERS LPglp-20180331ex312ccc12e.htm
EX-31.1 - EX-31.1 - GLOBAL PARTNERS LPglp-20180331ex311fa4b9f.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

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

 

 

For the quarterly period ended March 31, 2018

 

 

OR

 

 

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 ☒ 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.

 

 

 

 

 

Large accelerated filer  ☐

 

 

Accelerated filer  ☒

Non-accelerated filer  ☐

(Do not check if a smaller reporting company)

 

Smaller reporting company  ☐

 

 

 

Emerging growth company  ☐

 

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 7, 2018.

 

 

 

 


 

TABLE OF CONTENTS

 

PART I.     FINANCIAL INFORMATION

 

 

 

 

 

Item 1.     Financial Statements (unaudited) 

 

3

 

 

 

Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017 

 

3

 

 

 

Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017 

 

4

 

 

 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017 

 

5

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017

 

6

 

 

 

Consolidated Statement of Partners’ Equity for the three months ended March 31, 2018 

 

7

 

 

 

Notes to Consolidated Financial Statements 

 

8

 

 

 

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

 

47

 

 

 

Item 3.     Quantitative and Qualitative Disclosures About Market Risk 

 

70

 

 

 

Item 4.     Controls and Procedures 

 

72

 

 

 

PART II.     OTHER INFORMATION 

 

73

 

 

 

Item 1.     Legal Proceedings 

 

73

 

 

 

Item 1A.   Risk Factors 

 

73

 

 

 

Item 6.     Exhibits 

 

73

 

 

 

SIGNATURES 

 

75

 

 

 

 

 

 

 

 


 

Item 1.Financial Statements

 

GLOBAL PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(In thousands, except unit data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

    

2018

    

2017

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,693

 

$

14,858

 

Accounts receivable, net

 

 

417,657

 

 

417,263

 

Accounts receivable—affiliates

 

 

3,691

 

 

3,773

 

Inventories

 

 

392,950

 

 

350,743

 

Brokerage margin deposits

 

 

14,291

 

 

9,681

 

Derivative assets

 

 

9,823

 

 

3,840

 

Prepaid expenses and other current assets

 

 

86,075

 

 

77,977

 

Total current assets

 

 

936,180

 

 

878,135

 

Property and equipment, net

 

 

1,019,513

 

 

1,036,667

 

Intangible assets, net

 

 

53,968

 

 

56,545

 

Goodwill

 

 

312,258

 

 

312,401

 

Other assets

 

 

33,265

 

 

36,421

 

Total assets

 

$

2,355,184

 

$

2,320,169

 

Liabilities and partners’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

271,798

 

$

313,412

 

Working capital revolving credit facility—current portion

 

 

251,700

 

 

126,700

 

Environmental liabilities—current portion

 

 

5,006

 

 

5,009

 

Trustee taxes payable

 

 

37,960

 

 

110,321

 

Accrued expenses and other current liabilities

 

 

83,678

 

 

99,507

 

Derivative liabilities

 

 

12,498

 

 

13,708

 

Total current liabilities

 

 

662,640

 

 

668,657

 

Working capital revolving credit facility—less current portion

 

 

100,000

 

 

100,000

 

Revolving credit facility

 

 

196,000

 

 

196,000

 

Senior notes

 

 

662,444

 

 

661,774

 

Environmental liabilities—less current portion

 

 

51,514

 

 

52,968

 

Financing obligations

 

 

150,283

 

 

150,334

 

Deferred tax liabilities

 

 

38,948

 

 

40,105

 

Other long-term liabilities

 

 

54,961

 

 

56,013

 

Total liabilities

 

 

1,916,790

 

 

1,925,851

 

Partners’ equity

 

 

 

 

 

 

 

Global Partners LP equity:

 

 

 

 

 

 

 

Common unitholders 33,995,563 units issued and 33,652,198 outstanding at March 31, 2018 and 33,995,563 units issued and 33,645,092 outstanding at December 31, 2017)

 

 

443,694

 

 

399,399

 

General partner interest (0.67% interest with 230,303 equivalent units outstanding at March 31, 2018 and December 31, 2017)

 

 

(2,688)

 

 

(2,978)

 

Accumulated other comprehensive loss

 

 

(5,610)

 

 

(5,468)

 

Total Global Partners LP equity

 

 

435,396

 

 

390,953

 

Noncontrolling interest

 

 

2,998

 

 

3,365

 

Total partners’ equity

 

 

438,394

 

 

394,318

 

Total liabilities and partners’ equity

 

$

2,355,184

 

$

2,320,169

 

 

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

3


 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

    

 

 

March 31,

 

 

    

2018

      

2017

    

Sales

 

$

2,802,891

 

$

2,270,784

 

Cost of sales

 

 

2,658,561

 

 

2,130,757

 

Gross profit

 

 

144,330

 

 

140,027

 

Costs and operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

39,366

 

 

36,787

 

Operating expenses

 

 

74,049

 

 

67,213

 

Gain on trustee taxes

 

 

(52,627)

 

 

 —

 

Amortization expense

 

 

2,468

 

 

2,261

 

Net loss (gain) on sale and disposition of assets

 

 

1,867

 

 

(11,862)

 

Total costs and operating expenses

 

 

65,123

 

 

94,399

 

Operating income

 

 

79,207

 

 

45,628

 

Interest expense

 

 

(21,445)

 

 

(23,287)

 

Income before income tax benefit

 

 

57,762

 

 

22,341

 

Income tax benefit

 

 

913

 

 

164

 

Net income

 

 

58,675

 

 

22,505

 

Net loss attributable to noncontrolling interest

 

 

367

 

 

441

 

Net income attributable to Global Partners LP

 

 

59,042

 

 

22,946

 

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

 

 

396

 

 

154

 

Limited partners’ interest in net income

 

$

58,646

 

$

22,792

 

Basic net income per limited partner unit

 

$

1.74

 

$

0.68

 

Diluted net income  per limited partner unit

 

$

1.73

 

$

0.68

 

Basic weighted average limited partner units outstanding

 

 

33,652

 

 

33,554

 

Diluted weighted average limited partner units outstanding

 

 

33,802

 

 

33,610

 

 

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

4


 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

    

2017

    

Net income

 

$

58,675

 

$

22,505

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

Change in fair value of cash flow hedges

 

 

209

 

 

398

 

Change in pension liability

 

 

(351)

 

 

319

 

Total other comprehensive (loss) income

 

 

(142)

 

 

717

 

Comprehensive income

 

 

58,533

 

 

23,222

 

Comprehensive loss attributable to noncontrolling interest

 

 

367

 

 

441

 

Comprehensive income attributable to Global Partners LP

 

$

58,900

 

$

23,663

 

 

 

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

 

5


 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

6

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

    

2018

    

2017

    

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

 

$

58,675

 

$

22,505

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

26,482

 

 

26,364

 

Amortization of deferred financing fees

 

 

1,343

 

 

1,535

 

Amortization of leasehold interests

 

 

109

 

 

310

 

Amortization of senior notes discount

 

 

370

 

 

356

 

Bad debt expense

 

 

312

 

 

752

 

Unit-based compensation expense

 

 

1,237

 

 

(117)

 

Gain on trustee taxes

 

 

(52,627)

 

 

 —

 

Net loss (gain) on sale and disposition of assets

 

 

1,867

 

 

(11,862)

 

Changes in operating assets and liabilities, excluding net assets acquired:

 

 

 

 

 

 

 

Accounts receivable

 

 

(706)

 

 

108,294

 

Accounts receivable-affiliate

 

 

82

 

 

186

 

Inventories

 

 

(42,287)

 

 

87,379

 

Broker margin deposits

 

 

(4,610)

 

 

8,767

 

Prepaid expenses, all other current assets and other assets

 

 

(5,970)

 

 

(16,017)

 

Accounts payable

 

 

(41,614)

 

 

(88,137)

 

Trustee taxes payable

 

 

(19,734)

 

 

(2,211)

 

Change in derivatives

 

 

(7,193)

 

 

(5,256)

 

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

 

 

(19,450)

 

 

(15,283)

 

Net cash (used in) provided by operating activities

 

 

(103,714)

 

 

117,565

 

Cash flows from investing activities

 

 

 

 

 

 

 

Capital expenditures

 

 

(9,557)

 

 

(8,378)

 

Proceeds from sale of property and equipment

 

 

800

 

 

24,249

 

Net cash (used in) provided by investing activities

 

 

(8,757)

 

 

15,871

 

Cash flows from financing activities

 

 

 

 

 

 

 

Net borrowings from (payments on) working capital revolving credit facility

 

 

125,000

 

 

(97,700)

 

Net payments on revolving credit facility

 

 

 —

 

 

(16,000)

 

Distributions to partners

 

 

(15,694)

 

 

(15,638)

 

Net cash provided by (used in) financing activities

 

 

109,306

 

 

(129,338)

 

Cash and cash equivalents

 

 

 

 

 

 

 

(Decrease ) increase in cash and cash equivalents

 

 

(3,165)

 

 

4,098

 

Cash and cash equivalents at beginning of period

 

 

14,858

 

 

10,028

 

Cash and cash equivalents at end of period

 

$

11,693

 

$

14,126

 

Supplemental information

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

16,344

 

$

17,265

 

 

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

6


 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

    

 

 

    

General

    

Other

    

 

 

    

Total

 

 

 

Common

 

Partner

 

Comprehensive

 

Noncontrolling

 

Partners’

 

 

 

Unitholders

 

Interest

 

Loss

 

Interest

 

Equity

 

Balance at December 31, 2017

 

$

399,399

 

$

(2,978)

 

$

(5,468)

 

$

3,365

 

$

394,318

 

Net income

 

 

58,646

 

 

396

 

 

 —

 

 

(367)

 

 

58,675

 

Distributions to partners

 

 

(15,723)

 

 

(106)

 

 

 —

 

 

 —

 

 

(15,829)

 

Unit-based compensation

 

 

1,237

 

 

 —

 

 

 —

 

 

 —

 

 

1,237

 

Other comprehensive income

 

 

 —

 

 

 —

 

 

(142)

 

 

 —

 

 

(142)

 

Dividends on repurchased units

 

 

135

 

 

 —

 

 

 —

 

 

 —

 

 

135

 

Balance at March 31, 2018

 

$

443,694

 

$

(2,688)

 

$

(5,610)

 

$

2,998

 

$

438,394

 

 

 

 

 

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

 

 

 

7


 

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 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, 2018, the Partnership had a portfolio of 1,445 owned, leased and/or supplied gasoline stations, including 260 directly operated convenience stores, in the Northeast, Maryland and Virginia.  The Partnership also receives revenue from convenience store sales, rental income and sundries.  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, 2018, affiliates of the General Partner, including its directors and executive officers and their affiliates, owned 7,377,738 common units, representing a 21.7% limited partner interest.

 

Basis of Presentation

 

The accompanying consolidated financial statements as of March 31, 2018 and December 31, 2017 and for the three months ended March 31, 2018 and 2017 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, 2017 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, except as described below for trustee taxes and in Note 2 herein for the adoption of Accounting Standard Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” including modifications to that standard thereafter, and now codified as Accounting Standards Codification 606 (“ASC 606”) which the Partnership adopted on January 1, 2018 (see Note 22, New Accounting Standards—“Accounting Standards or Updates Recently Adopted” for additional information).

 

8


 

Table of Contents 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2018.  The consolidated balance sheet at December 31, 2017 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, 2017.

 

Trustee Taxes

 

The Partnership collects trustee taxes, which consist of various pass through taxes collected on behalf of taxing authorities, and remits such taxes directly to those taxing authorities.  Examples of trustee taxes include, among other things, motor fuel excise tax and sales and use tax.  As such, it is the Partnership’s policy to exclude trustee taxes from revenues and cost of sales and account for them as current liabilities.

 

Volumetric Ethanol Excise Tax Credit—In the first quarter of 2018, the Partnership recognized a one-time income item of approximately $52.6 million as a result of the extinguishment of a contingent liability related to the Volumetric Ethanol Excise Tax Credit, which tax credit program expired in 2011.  Based upon the significant passage of time from that 2011 expiration date, including underlying statutes of limitation, as of January 31, 2018 the Partnership determined that the liability was no longer required.  The liability had historically been included in trustee taxes in the accompanying balance sheets.  The recognition of this one-time income item, which is included in gain on trustee taxes in the accompanying statements of operations for the three months ended March 31, 2018, did not impact cash flows from operations for the three months ended March 31, 2018 and will not impact cash flows from operations for the year ending December 31, 2018.

 

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.

 

9


 

Table of Contents 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

    

2018

    

2017

    

Gasoline sales: gasoline and gasoline blendstocks (such as ethanol)

 

63

%  

59

%  

Crude oil sales and crude oil logistics revenue

 

 1

%  

 5

%  

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

 

33

%  

33

%  

Convenience store sales, rental income and sundries

 

 3

%  

 3

%  

Total

 

100

%  

100

%  

 

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

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

    

2018

    

2017

    

Wholesale segment

 

28

%  

32

%

Gasoline Distribution and Station Operations segment

 

69

%  

65

%

Commercial segment

 

 3

%  

 3

%

Total

 

100

%  

100

%

 

See Note 16, “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, 2018 and 2017.

.

Note 2.    Adoption of ASC 606, Revenue from Contract Customers

 

On January 1, 2018, the Partnership adopted ASC 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.  Results for reporting periods beginning after January 1, 2018 are presented under ASC 606 while prior period amounts are not adjusted and continue to be reported in accordance with the Partnership’s historic accounting under ASC 605, “Revenue Recognition,” (“ASC 605”).  See below for the Partnership’s updated revenue recognition policy and the required disclosures under ASC 606.

 

Update to Revenue Recognition Policy

 

The Partnership’s sales relate primarily to the sale of refined petroleum products, renewable fuels, crude oil and propane and are recognized along with the related receivable upon delivery, net of applicable provisions for discounts and allowances.  The Partnership may also provide for shipping costs at the time of sale, which are included in cost of sales.

 

Contracts with customers typically contain pricing provisions that are tied to a market index, with certain adjustments based on quality and freight due to location differences and prevailing supply and demand conditions, among other factors.  As a result, the price of the products fluctuates to remain competitive with other available product supplies.  The revenue associated with such arrangements is recognized upon delivery.

 

In addition, the Partnership generates revenue from its logistics activities when it stores, transloads and ships products owned by others.  Revenue from logistics services is recognized as services are provided.

 

10


 

Table of Contents 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Partnership has certain logistics agreements that require counterparties to throughput a minimum volume over an agreed-upon period.  These agreements may include make-up rights if the minimum volume is not met.  The Partnership recognizes revenue associated with make-up rights at the earlier of when the make-up volume is shipped, the make-up right expires or when it is determined that the likelihood that the shipper will utilize the make-up right is remote.

 

The Partnership also recognizes convenience store sales of gasoline, grocery and other merchandise and commissions on lottery at the time of the sale to the customer.  Gasoline station rental income is recognized on a straight-line basis over the term of the lease.

 

Product revenue is not recognized on exchange agreements, which are entered into primarily to acquire various refined petroleum products, renewable fuels and crude oil of a desired quality or to reduce transportation costs by taking delivery of products closer to the Partnership’s end markets.  The Partnership recognizes net exchange differentials due from exchange partners in sales upon delivery of product to an exchange partner.  The Partnership recognizes net exchange differentials due to exchange partners in cost of sales upon receipt of product from an exchange partner.

 

The amounts recorded for bad debts are generally based upon a specific analysis of aged accounts while also factoring in any new business conditions that might impact the historical analysis, such as market conditions and bankruptcies of particular customers.  Bad debt provisions are included in selling, general and administrative expenses.

 

Required Disclosures Under ASC 606

 

Disaggregation of Revenue

 

The following table provides the disaggregation of revenue from contracts with customers and other sales by segment for the three months ended March 31, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from contracts with customers:

 

Wholesale

 

GDSO

 

Commercial

 

Total

 

Refined petroleum products, renewable fuels, crude oil and propane

 

$

467,010

 

$

892,299

 

$

170,174

 

$

1,529,483

 

Station operations

 

 

 —

 

 

70,205

 

 

 —

 

 

70,205

 

Total revenue from contracts with customers

 

 

467,010

 

 

962,504

 

 

170,174

 

 

1,599,688

 

Other sales:

 

 

 

 

 

 

 

 

 

Revenue originating as physical forward contracts and exchanges

 

 

1,086,317

 

 

 —

 

 

98,981

 

 

1,185,298

 

Revenue from leases

 

 

505

 

 

17,400

 

 

 —

 

 

17,905

 

Total other sales

 

 

1,086,822

 

 

17,400

 

 

98,981

 

 

1,203,203

 

Total sales

 

$

1,553,832

 

$

979,904

 

$

269,155

 

$

2,802,891

 

 

Nature of Goods and Services

 

Revenue from Contracts with Customers (ASC 606):

 

·

Refined petroleum products, renewable fuels, crude oil and propane sales—Under the Partnership’s Wholesale, Gasoline Distribution and Station Operations (“GDSO”) and Commercial segments, revenue is recognized at the point control that the product is transferred to the customer and collectability is reasonably assured. 

 

·

Station operations—Revenue from convenience store sales of grocery and other merchandise and sundries (such as car wash sales, lottery and ATM commissions) is recognized at the time of the sale to the customer.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Other Revenue:

 

·

Revenue Originating as Physical Forward Contracts and Exchanges—The Partnership’s commodity contracts and other derivative activity include:  (i) exchange-traded derivative contracts that are hedges against inventory and either do not qualify for hedge accounting or are not designated in a hedge accounting relationship, (ii) exchange-traded derivative contracts used to economically hedge physical forward contracts, (iii) financial forward and over-the-counter swap agreements used to economically hedge physical forward contracts and (iv) the derivative instruments under the Partnership’s controlled trading program.  The Partnership does not take the normal purchase and sale exemption available under ASC 815, “Derivatives and Hedging,” for its physical forward contracts.  This income is recognized under ASC 815 and ASC 845, “Nonmonetary Transactions.”

 

·

Revenue from Leases—The Partnership has rental income from gasoline stations and cobranding arrangements and lease income from space leased to several unrelated third parties at several of the Partnership’s terminals.  This income is recognized under ASC 840, “Leases.”

 

Transaction Price Allocated to Remaining Performance Obligations

 

The Partnership has elected certain of the optional exemptions from the disclosure requirement for remaining performance obligations for specific situations in which an entity need not estimate variable consideration to recognize revenue.  Accordingly, the Partnership applies the practical expedient in paragraph ASC 606-10-50-14 to its contracts with customers where revenue is tied to a market-index and does not disclose information about variable consideration from remaining performance obligations for which the Partnership recognizes revenue.

 

The fixed component of estimated revenues expected to be recognized in the future related to performance obligations tied to a market index that are unsatisfied (or partially unsatisfied) at the end of the reporting period are not significant.

 

Contract Balances

 

A receivable, which is included in accounts receivable, net in the accompanying consolidated balance sheets, is recognized in the period the Partnership provides services when its right to consideration is unconditional.  In contrast, a contract asset will be recognized when the Partnership has fulfilled a contract obligation, but must perform other obligations before being entitled to payment. 

 

The nature of the receivables related to revenue from contracts with customers and other revenue, as well as contract assets, are the same, given they are related to the same customers and have the same risk profile and securitization, and the Partnership believes the disaggregation of them would not be meaningful.

 

A contract liability is recognized when the Partnership has an obligation to transfer goods or services to a customer for which the Partnership has received consideration (or the amount is due) from the customer.  The Partnership had no contract liabilities at March 31, 2018 and December 31, 2017.  Payment terms on invoiced amounts are typically 2 to 30 days.

 

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2018 and December 31, 2017 excluded 343,365 and 350,471 common units, respectively, held on behalf of the Partnership pursuant to its repurchase program (see Note 13).  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 periods presented (in thousands, except per unit data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2018

 

 

Three Months Ended March 31, 2017

 

 

 

 

 

  

Limited

  

General

  

 

 

 

 

 

 

  

Limited

  

General

  

 

 

 

 

 

 

 

 

Partner

 

Partner

 

 

 

 

 

 

 

 

Partner

 

Partner

 

 

 

 

Numerator:

 

Total

 

Interest

 

Interest

 

IDRs

 

 

Total

 

Interest

 

Interest

 

IDRs

 

Net income attributable to Global Partners LP

 

$

59,042

 

$

58,646

 

$

396

 

$

 —

 

 

$

22,946

 

$

22,792

 

$

154

 

$

 —

 

Declared distribution

 

$

15,829

 

$

15,723

 

$

106

 

$

 —

 

 

$

15,829

 

$

15,723

 

$

106

 

$

 —

 

Assumed allocation of undistributed net income

 

 

43,213

 

 

42,923

 

 

290

 

 

 —

 

 

 

7,117

 

 

7,069

 

 

48

 

 

 —

 

Assumed allocation of net income

 

$

59,042

 

$

58,646

 

$

396

 

$

 —

 

 

$

22,946

 

$

22,792

 

$

154

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

 

 

 

 

33,652

 

 

 

 

 

 

 

 

 

 

 

 

33,554

 

 

 

 

 

 

 

Dilutive effect of phantom units

 

 

 

 

 

150

 

 

 

 

 

 

 

 

 

 

 

 

56

 

 

 

 

 

 

 

Diluted weighted average limited partner units outstanding

 

 

 

 

 

33,802

 

 

 

 

 

 

 

 

 

 

 

 

33,610

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

 

 

 

$

1.74

 

 

 

 

 

 

 

 

 

 

 

$

0.68

 

 

 

 

 

 

 

Diluted net income per limited partner unit

 

 

 

 

$

1.73

 

 

 

 

 

 

 

 

 

 

 

$

0.68

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

    

Per Unit Cash

 

 

Distribution Declared for the

 

Cash Distribution Declaration Date

  

Distribution Declared

 

 

Quarterly Period Ended

 

April 27, 2018

 

$

0.4625

 

 

March 31, 2018

 

 

See Note 14, “Partners’ Equity and Cash Distributions” for further information.

 

Note 4.    Inventories

 

The Partnership hedges substantially all of its petroleum and ethanol inventory using a variety of instruments, primarily exchange-traded futures contracts.  These futures contracts are entered into when inventory is purchased and are either designated as fair value hedges against the inventory on a specific barrel basis for inventories qualifying for fair value hedge accounting or not designated and maintained as economic hedges against certain inventory of the Partnership on a specific barrel basis.  Changes in fair value of these futures contracts, as well as the offsetting change in fair value on the hedged inventory, are 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.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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):

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

    

2018

    

2017

 

Distillates: home heating oil, diesel and kerosene

 

$

146,273

 

$

183,059

 

Gasoline

 

 

125,426

 

 

81,504

 

Gasoline blendstocks

 

 

63,735

 

 

26,789

 

Crude oil

 

 

15,326

 

 

10,809

 

Residual oil

 

 

23,268

 

 

28,442

 

Propane and other

 

 

475

 

 

1,659

 

Renewable identification numbers (RINs)

 

 

396

 

 

380

 

Convenience store inventory

 

 

18,051

 

 

18,101

 

Total

 

$

392,950

 

$

350,743

 

 

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 $8.1 million and $9.5 million at March 31, 2018 and December 31, 2017, respectively.  Negative exchange balances are accounted for as accounts payable and amounted to $12.9 million and $8.4 million at March 31, 2018 and December 31, 2017, respectively.  Exchange transactions are valued using current carrying costs.

 

Note 5.    Goodwill

 

The following table presents changes in goodwill, all of which has been allocated to the GDSO segment (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill Allocated to

 

 

 

 

 

    

Wholesale

    

GDSO

 

 

 

 

 

Reporting

 

Reporting

 

 

 

 

 

Unit

 

Unit

 

Total

 

Balance at December 31, 2017

 

 

 —

 

 

312,401

 

$

312,401

 

Disposals (1)

 

 

 —

 

 

(143)

 

 

(143)

 

Balance at March 31, 2018

 

$

 —

 

$

312,258

 

$

312,258

 


(1)

Disposals represent derecognition of goodwill associated with the sale and disposition of certain assets.  See Note 7.

 

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 6.    Property and Equipment

 

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

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31,

 

 

    

2018

    

2017

 

Buildings and improvements

 

$

1,015,197

 

$

1,015,386

 

Land

 

 

408,632

 

 

409,146

 

Fixtures and equipment

 

 

43,107

 

 

42,959

 

Idle plant assets

 

 

30,500

 

 

30,500

 

Construction in process

 

 

22,673

 

 

22,403

 

Capitalized internal use software

 

 

30,626

 

 

30,626

 

Total property and equipment

 

 

1,550,735

 

 

1,551,020

 

Less accumulated depreciation

 

 

531,222

 

 

514,353

 

Total

 

$

1,019,513

 

$

1,036,667

 

 

Property and equipment includes assets held for sale of $12.3 million and $12.4 million at March 31, 2018 and December 31, 2017, respectively. 

 

At March 31, 2018, the Partnership had a $55.7 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, 2018 and December 31, 2017.

 

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.  The Partnership believes these assets are recoverable but continues 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 7.    Sales and Disposition of Assets

 

The following table provides the Partnership’s (gain) loss on sale and dispositions of assets for the periods presented (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

    

2018

    

2017

 

Sale of natural gas brokerage and electricity businesses

 

$

 —

 

$

(14,172)

 

Periodic divestiture of gasoline stations

 

 

 —

 

 

(180)

 

Strategic asset divestiture program -Real estate firm coordinated sale

 

 

(24)

 

 

423

 

Loss on assets held for sale

 

 

1,526

 

 

2,051

 

Other

 

 

365

 

 

16

 

Total

 

$

1,867

 

$

(11,862)

 

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 for the three months ended March 31, 2017. 

 

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 loss (gain) on sale and disposition of assets in the accompanying consolidated statements of operations and amounted to $0 and a $0.2 million gain for the three months ended March 31, 2018 and 2017, 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 continuing sale of non-strategic GDSO sites.  Two sites were sold during the three months ended March 31, 2018.  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 loss (gain) on sale and disposition of assets in the accompanying consolidated statements of operations.  The Partnership recognized an immaterial gain on the sale for the three months ended March 31, 2018, including the derecognition of GDSO goodwill in the amount of $0.1 million.  The Partnership recognized a $0.4 million loss for the three months ended March 31, 2017, including the derecognition of GDSO goodwill in the amount of $2.0 million.  As of March 31, 2018, the criteria to be presented as held for sale was met for 17 sites. 

 

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 8 sites as held for sale at both March 31, 2018 and December 31, 2017, which are periodic divestiture gasoline station sites.  The Partnership recorded impairment charges related to these assets held for sale in the amount of $0.8 million for the three months ended March 31, 2018, which are included in net loss (gain) on sale and disposition of assets in the accompanying consolidated statements of operations.  The Partnership recorded impairment charges related to assets held for sale at March 31, 2017 of $0.2 million for the three months ended March 31, 2017.

 

Additionally, the Partnership classified 17 sites and 18 sites at March 31, 2018 and December 31, 2017, respectively, associated with the real estate firm coordinated sale discussed above.  The Partnership recorded impairment charges related to these assets held for sale in the amount of $0.7 million for the three months ended March 31, 2018, which are included in net loss (gain) on sale and disposition of assets in the accompanying consolidated statements of operations.  The Partnership recorded impairment charges related to assets held for sale at March 31, 2017 of $1.9 million for the three months ended March 31, 2017.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Assets held for sale of $12.3 million and $12.4 million at March 31, 2018 and December 31, 2017, 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 8.    Debt and Financing Obligations

 

Credit Agreement

 

Certain subsidiaries of the Partnership, as borrowers, and the Partnership and certain of its subsidiaries, as guarantors, have a $1.3 billion senior secured credit facility (the “Credit Agreement”). The Credit Agreement matures on April 30, 2020.

 

There are 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 $850.0 million; and

 

·

a $450.0 million revolving credit facility to be used for acquisitions, joint ventures, capital expenditures, letters of credit and general corporate purposes.

 

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.  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.

 

The average interest rates for the Credit Agreement were 3.9% and 3.4% for the three months ended March 31, 2018 and 2017, respectively.  The increase for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was due to increases in market interest rates.

 

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, 2018, the Partnership estimated working capital revolving credit facility borrowings will equal or exceed $100.0 million over the next twelve months and, therefore, classified $251.7 million as the current portion at March 31, 2018, 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 $100.0 million and $100 million at March 31, 2018 and December 31, 2017, respectively, and the current portion was $251.7 million and $126.7 million at March 31, 2018 and December 31, 2017, respectively.  The increase in total borrowings under the working capital revolving credit facility of $125.0 million from December 31, 2017 was primarily due to carrying higher levels of gasoline and gasoline blendstocks inventory volume and to an increase in prices. 

 

As of March 31, 2018, the Partnership had total borrowings outstanding under the Credit Agreement of $547.7 million, including $196.0 million outstanding on the revolving credit facility.  In addition, the Partnership had

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

outstanding letters of credit of $66.8 million.  Subject to borrowing base limitations, the total remaining availability for borrowings and letters of credit was $685.5 million and $810.3 million at March 31, 2018 and December 31, 2017, respectively.

 

The Credit Agreement imposes financial covenants that require the Partnership to maintain certain minimum working capital amounts, a minimum combined interest coverage ratio, a maximum senior secured leverage ratio and a maximum total leverage ratio.  The Partnership was in compliance with the foregoing covenants at March 31, 2018.  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).

 

Please read Note 6 of Notes to Consolidated Financial Statements in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017 for additional information on the Credit Agreement.

 

Senior Notes

 

The Partnership had 6.25% senior notes due 2022 and 7.00% senior notes due 2023 outstanding at March 31, 2018.   Please read Note 6 of Notes to Consolidated Financial Statements in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017 for additional information on these senior notes.

 

Financing Obligations

 

Capitol Acquisition

 

On June 1, 2015, the Partnership acquired retail gasoline stations and dealer supply contracts from Capitol Petroleum Group (“Capitol”).  In connection with the acquisition, the Partnership assumed a financing obligation of $89.6 million associated with two sale-leaseback transactions by Capitol for 53 leased sites that did not meet the criteria for sale accounting.  During the terms of these leases, which expire in May 2028 and September 2029, in lieu of recognizing lease expense for the lease rental payments, the Partnership incurs interest expense associated with the financing obligation.  Interest expense of approximately $2.3 million and $2.4 million was recorded for the three months ended March 31, 2018 and 2017, respectively, and is included in interest expense in the accompanying statements of operations.  The financing obligation will amortize through expiration of the leases based upon the lease rental payments which were $2.4 million for each of the three months ended March 31, 2018 and 2017.  The financing obligation balance outstanding at March 31, 2018 was $87.8 million associated with the Capitol acquisition.  

 

Sale-Leaseback Transaction

 

On June 29, 2016, the Partnership sold to a premier institutional real estate investor (the “Buyer”) real property assets, including the buildings, improvements and appurtenances thereto, at 30 gasoline stations and convenience stores located in Connecticut, Maine, Massachusetts, New Hampshire and Rhode Island (the “Sale-Leaseback Sites”) for a purchase price of approximately $63.5 million.  In connection with the sale, the Partnership entered into a Master Unitary Lease Agreement with the Buyer to lease back the real property assets sold with respect to the Sale-Leaseback Sites (such Master Lease Agreement, together with the Sale-Leaseback Sites, the “Sale-Leaseback Transaction”). 

 

As a result of not meeting the criteria for sale accounting for these sites, the Sale-Leaseback Transaction is accounted for as a financing arrangement.  As such, the property and equipment sold and leased back by the Partnership has not been derecognized and continues to be depreciated.  The Partnership recognized a corresponding financing obligation of $62.5 million equal to the $63.5 million cash proceeds received for the sale of these sites, net of $1.0 million financing fees.  During the term of the lease, which expires in June 2031, in lieu of recognizing lease

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

expense for the lease rental payments, the Partnership incurs interest expense associated with the financing obligation.  Lease rental payments are recognized as both interest expense and a reduction of the principal balance associated with the financing obligation.  Interest expense and lease rental payments were $1.1 million for each of the three months ended March 31, 2018 and 2017.  The financing obligation balance outstanding at March 31, 2018 was $62.5 million associated with the Sale-Leaseback Transaction.

 

Deferred Financing Fees

 

The Partnership incurs bank fees related to its Credit Agreement and other financing arrangements.  These deferred financing fees are capitalized and amortized over the life of the Credit Agreement or other financing arrangements.  The Partnership had unamortized deferred financing fees of $14.6 million and $15.9 million at March 31, 2018 and December 31, 2017, respectively. 

 

Unamortized fees related to the Credit Agreement are included in other current assets and other long-term assets and amounted to $8.6 million and $9.6 million at March 31, 2018 and December 31, 2017, respectively.  Unamortized fees related to the senior notes are presented as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, and amounted to $5.1 million and $5.4 million at March 31, 2018 and December 31, 2017, respectively.  Unamortized fees related to the Sale-Leaseback Transaction are presented as a direct deduction from the carrying amount of the financing obligation and amounted to $0.9 million at both March 31, 2018 and December 31, 2017.

 

Amortization expense of approximately $1.3 million and $1.5 million for the three months ended March 31, 2018 and 2017, respectively, is included in interest expense in the accompanying consolidated statements of operations.

 

Note 9.    Derivative Financial Instruments

 

The Partnership principally uses derivative instruments, which include regulated exchange-traded futures and options contracts (collectively, “exchange-traded derivatives”) and physical and financial forwards and over-the-counter (“OTC”) swaps (collectively, “OTC derivatives”), to reduce its exposure to unfavorable changes in commodity market prices and interest rates.  The Partnership uses these exchange-traded and OTC derivatives to hedge commodity price risk associated with its inventory and undelivered forward commodity purchases and sales (“physical forward contracts”) and uses interest rate swap instruments to reduce its exposure to fluctuations in interest rates ass