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EX-32.2 - EX-32.2 - GLOBAL PARTNERS LPglp-20180930ex32242f36f.htm
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EX-31.2 - EX-31.2 - GLOBAL PARTNERS LPglp-20180930ex31262505f.htm
EX-31.1 - EX-31.1 - GLOBAL PARTNERS LPglp-20180930ex311b7b2b6.htm
EX-10.2 - EX-10.2 - GLOBAL PARTNERS LPglp-20180930ex102ab2199.htm
EX-10.1 - EX-10.1 - GLOBAL PARTNERS LPglp-20180930ex1011528fd.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 September 30, 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 every Interactive Data File required to be submitted 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 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  ☐

 

 

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 November 6, 2018.

 

 

 

 


 

TABLE OF CONTENTS

 

PART I.     FINANCIAL INFORMATION

 

 

 

 

 

Item 1.     Financial Statements (unaudited) 

 

3

 

 

 

Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017 

 

3

 

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017 

 

4

 

 

 

Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2018 and 2017 

 

5

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017

 

6

 

 

 

Consolidated Statement of Partners’ Equity for the nine months ended September 30, 2018 

 

7

 

 

 

Notes to Consolidated Financial Statements 

 

8

 

 

 

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

 

58

 

 

 

Item 3.     Quantitative and Qualitative Disclosures About Market Risk 

 

83

 

 

 

Item 4.     Controls and Procedures 

 

85

 

 

 

PART II.     OTHER INFORMATION 

 

86

 

 

 

Item 1.     Legal Proceedings 

 

86

 

 

 

Item 1A.   Risk Factors 

 

86

 

 

 

Item 6.     Exhibits 

 

86

 

 

 

SIGNATURES 

 

88

 

 

 

 

 

 

 

 


 

Item 1.Financial Statements

 

GLOBAL PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(In thousands, except unit data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2018

    

2017

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,451

 

$

14,858

 

Accounts receivable, net

 

 

407,537

 

 

417,263

 

Accounts receivable—affiliates

 

 

5,310

 

 

3,773

 

Inventories

 

 

481,457

 

 

350,743

 

Brokerage margin deposits

 

 

15,226

 

 

9,681

 

Derivative assets

 

 

7,281

 

 

3,840

 

Prepaid expenses and other current assets

 

 

89,599

 

 

77,977

 

Total current assets

 

 

1,018,861

 

 

878,135

 

Property and equipment, net

 

 

1,109,892

 

 

1,036,667

 

Intangible assets, net

 

 

62,221

 

 

56,545

 

Goodwill

 

 

352,550

 

 

312,401

 

Other assets

 

 

31,806

 

 

36,421

 

Total assets

 

$

2,575,330

 

$

2,320,169

 

Liabilities and partners’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

336,530

 

$

313,412

 

Working capital revolving credit facility—current portion

 

 

307,700

 

 

126,700

 

Environmental liabilities—current portion

 

 

5,001

 

 

5,009

 

Trustee taxes payable

 

 

37,734

 

 

110,321

 

Accrued expenses and other current liabilities

 

 

97,377

 

 

99,507

 

Derivative liabilities

 

 

13,944

 

 

13,708

 

Total current liabilities

 

 

798,286

 

 

668,657

 

Working capital revolving credit facility—less current portion

 

 

100,000

 

 

100,000

 

Revolving credit facility

 

 

244,200

 

 

196,000

 

Senior notes

 

 

663,775

 

 

661,774

 

Environmental liabilities—less current portion

 

 

60,320

 

 

52,968

 

Financing obligations

 

 

150,132

 

 

150,334

 

Deferred tax liabilities

 

 

38,563

 

 

40,105

 

Other long-term liabilities

 

 

53,572

 

 

56,013

 

Total liabilities

 

 

2,108,848

 

 

1,925,851

 

Partners’ equity

 

 

 

 

 

 

 

Global Partners LP equity:

 

 

 

 

 

 

 

Series A preferred limited partners (2,760,000 and 0 units issued and outstanding at September 30, 2018 and December 31, 2017, respectively)

 

 

67,375

 

 

 —

 

Common limited partners (33,995,563 units issued and 33,744,168 outstanding at September 30, 2018 and 33,995,563 units issued and 33,645,092 outstanding at December 31, 2017)

 

 

404,533

 

 

399,399

 

General partner interest (0.67% interest with 230,303 equivalent units outstanding at September 30, 2018 and December 31, 2017)

 

 

(2,887)

 

 

(2,978)

 

Accumulated other comprehensive loss

 

 

(4,762)

 

 

(5,468)

 

Total Global Partners LP equity

 

 

464,259

 

 

390,953

 

Noncontrolling interest

 

 

2,223

 

 

3,365

 

Total partners’ equity

 

 

466,482

 

 

394,318

 

Total liabilities and partners’ equity

 

$

2,575,330

 

$

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

    

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2018

      

2017

    

2018

   

2017

 

Sales

 

$

3,468,835

 

$

2,159,746

 

$

9,398,301

 

$

6,520,060

 

Cost of sales

 

 

3,333,861

 

 

2,009,652

 

 

8,969,736

 

 

6,094,577

 

Gross profit

 

 

134,974

 

 

150,094

 

 

428,565

 

 

425,483

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

42,127

 

 

40,134

 

 

121,447

 

 

111,600

 

Operating expenses

 

 

83,776

 

 

70,338

 

 

234,043

 

 

208,720

 

Gain on trustee taxes

 

 

 —

 

 

 —

 

 

(52,627)

 

 

 —

 

Lease exit and termination gain

 

 

(3,506)

 

 

 —

 

 

(3,506)

 

 

 —

 

Amortization expense

 

 

3,079

 

 

2,260

 

 

7,984

 

 

6,781

 

Net loss (gain) on sale and disposition of assets

 

 

940

 

 

2,190

 

 

5,840

 

 

(7,291)

 

Goodwill and long-lived asset impairment

 

 

414

 

 

809

 

 

414

 

 

809

 

Total costs and operating expenses

 

 

126,830

 

 

115,731

 

 

313,595

 

 

320,619

 

Operating income

 

 

8,144

 

 

34,363

 

 

114,970

 

 

104,864

 

Interest expense

 

 

(22,579)

 

 

(20,626)

 

 

(65,637)

 

 

(65,836)

 

(Loss) income before income tax (expense) benefit

 

 

(14,435)

 

 

13,737

 

 

49,333

 

 

39,028

 

Income tax (expense) benefit

 

 

(29)

 

 

723

 

 

900

 

 

(72)

 

Net (loss) income

 

 

(14,464)

 

 

14,460

 

 

50,233

 

 

38,956

 

Net loss attributable to noncontrolling interest

 

 

384

 

 

418

 

 

1,142

 

 

1,242

 

Net (loss) income attributable to Global Partners LP

 

 

(14,080)

 

 

14,878

 

 

51,375

 

 

40,198

 

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

 

 

(27)

 

 

100

 

 

479

 

 

270

 

Less:  Series A preferred limited partner interest in net income

 

 

1,009

 

 

 —

 

 

1,009

 

 

 —

 

Net (loss) income attributable to common limited partners

 

$

(15,062)

 

$

 14,778

 

$

49,887

 

$

39,928

 

Basic net (loss) income per common limited partner unit

 

$

(0.44)

 

$

0.44

 

$

1.48

 

$

1.19

 

Diluted net (loss) income per common limited partner unit

 

$

(0.44)

 

$

0.44

 

$

1.47

 

$

1.18

 

Basic weighted average common limited partner units outstanding

 

 

34,114

 

 

33,644

 

 

33,680

 

 

33,570

 

Diluted weighted average common limited partner units outstanding

 

 

34,114

 

 

33,945

 

 

33,894

 

 

33,839

 

 

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

4


 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2018

    

2017

    

2018

 

2017

 

Net (loss) income

 

$

(14,464)

 

$

14,460

 

$

50,233

 

$

38,956

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of cash flow hedges

 

 

(67)

 

 

167

 

 

156

 

 

764

 

Change in pension liability

 

 

568

 

 

(105)

 

 

550

 

 

464

 

Total other comprehensive income

 

 

501

 

 

62

 

 

706

 

 

1,228

 

Comprehensive (loss) income

 

 

(13,963)

 

 

14,522

 

 

50,939

 

 

40,184

 

Comprehensive loss attributable to noncontrolling interest

 

 

384

 

 

418

 

 

1,142

 

 

1,242

 

Comprehensive (loss) income attributable to Global Partners LP

 

$

(13,579)

 

$

14,940

 

$

52,081

 

$

41,426

 

 

 

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

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

    

2018

    

2017

    

Cash flows from operating activities

 

 

 

 

 

 

 

Net (loss) income

 

$

50,233

 

$

38,956

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

79,410

 

 

79,423

 

Amortization of deferred financing fees

 

 

4,029

 

 

4,295

 

Amortization of leasehold interests

 

 

254

 

 

562

 

Amortization of senior notes discount

 

 

1,121

 

 

1,079

 

Bad debt expense

 

 

425

 

 

622

 

Unit-based compensation expense

 

 

3,513

 

 

1,415

 

Write-off of financing fees

 

 

 —

 

 

573

 

Gain on trustee taxes

 

 

(52,627)

 

 

 —

 

Net loss (gain) on sale and disposition of assets

 

 

5,840

 

 

(7,291)

 

Goodwill and long-lived asset impairment

 

 

414

 

 

809

 

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

 

 

 

 

 

 

 

Accounts receivable

 

 

9,301

 

 

89,799

 

Accounts receivable-affiliate

 

 

(1,537)

 

 

(2,504)

 

Inventories

 

 

(124,537)

 

 

240,462

 

Broker margin deposits

 

 

(5,545)

 

 

15,199

 

Prepaid expenses, all other current assets and other assets

 

 

(6,775)

 

 

(19,400)

 

Accounts payable

 

 

23,118

 

 

(78,538)

 

Trustee taxes payable

 

 

(19,960)

 

 

(3,309)

 

Change in derivatives

 

 

(3,205)

 

 

(1,764)

 

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

 

 

(9,374)

 

 

2,053

 

Net cash (used in) provided by operating activities

 

 

(45,902)

 

 

362,441

 

Cash flows from investing activities

 

 

 

 

 

 

 

Acquisitions

 

 

(171,824)

 

 

 —

 

Capital expenditures

 

 

(43,461)

 

 

(31,646)

 

Seller note issuances

 

 

(3,062)

 

 

 —

 

Proceeds from sale of property and equipment

 

 

14,930

 

 

29,804

 

Net cash used in investing activities

 

 

(203,417)

 

 

(1,842)

 

Cash flows from financing activities

 

 

 

 

 

 

 

Net proceeds from issuance of Series A preferred units

 

 

66,366

 

 

 —

 

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

 

 

181,000

 

 

(285,400)

 

Net borrowings from (payments on) revolving credit facility

 

 

48,200

 

 

(26,700)

 

LTIP units withheld for tax obligations

 

 

(806)

 

 

(516)

 

Noncontrolling interest capital contribution

 

 

 —

 

 

279

 

Distribution to noncontrolling interest

 

 

 —

 

 

(465)

 

Distributions to partners

 

 

(47,848)

 

 

(46,970)

 

Net cash provided by (used in) financing activities

 

 

246,912

 

 

(359,772)

 

Cash and cash equivalents

 

 

 

 

 

 

 

Decrease (increase) in cash and cash equivalents

 

 

(2,407)

 

 

827

 

Cash and cash equivalents at beginning of period

 

 

14,858

 

 

10,028

 

Cash and cash equivalents at end of period

 

$

12,451

 

$

10,855

 

Supplemental information

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

37,583

 

$

36,892

 

 

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

6


 

GLOBAL PARTNERS LP

CONSOLIDATED STATEMENT OF PARTNERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners' Equity

 

 

 

 

 

 

 

 

 

Series A

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Preferred

 

Common

 

General

 

Other

 

 

 

 

Total

 

 

 

Limited

 

Limited

 

Partner

 

Comprehensive

 

Noncontrolling

 

Partners’

 

 

 

Partners

    

Partners

 

Interest

 

Loss

 

Interest

 

Equity

 

Balance at December 31, 2017

 

$

 —

 

$

399,399

 

$

(2,978)

 

$

(5,468)

 

$

3,365

 

$

394,318

 

Issuance of Series A preferred units

 

 

66,366

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

66,366

 

Net income (loss)

 

 

1,009

 

 

49,887

 

 

479

 

 

 —

 

 

(1,142)

 

 

50,233

 

Distributions to partners

 

 

 —

 

 

(47,595)

 

 

(388)

 

 

 —

 

 

 —

 

 

(47,983)

 

Unit-based compensation

 

 

 —

 

 

3,513

 

 

 —

 

 

 —

 

 

 —

 

 

3,513

 

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

706

 

 

 —

 

 

706

 

LTIP units withheld for tax obligations

 

 

 —

 

 

(806)

 

 

 —

 

 

 —

 

 

 —

 

 

(806)

 

Dividends on repurchased units

 

 

 —

 

 

135

 

 

 —

 

 

 —

 

 

 —

 

 

135

 

Balance at September 30, 2018

 

$

67,375

 

$

404,533

 

$

(2,887)

 

$

(4,762)

 

$

2,223

 

$

466,482

 

 

 

 

 

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, gathering, blending, 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 September 30, 2018, the Partnership had a portfolio of 1,589 owned, leased and/or supplied gasoline stations, including 301 directly operated convenience stores, primarily 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 September 30, 2018, affiliates of the General Partner, including its directors and executive officers and their affiliates, owned 7,347,370 common units, representing a 21.6% limited partner interest.

 

Recent Transactions

 

Series A Preferred Unit Offering—On August 7, 2018, the Partnership issued 2,760,000 9.75% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units, liquidation preference of $25.00 per unit (the “Series A Preferred Units”), for $25.00 per Series A Preferred Unit in an offering registered under the Securities Act of 1933.  See Note 14.

 

Acquisition from Cheshire Oil Company, LLC—On July 24, 2018, the Partnership acquired the assets of company-operated gasoline stations and convenience stores from New Hampshire-based Cheshire Oil Company, LLC (“Cheshire”).  See Note 17. 

 

Acquisition from Champlain Oil Company, Inc.—On July 17, 2018, the Partnership acquired retail fuel and convenience store assets from Vermont-based Champlain Oil Company, Inc. (“Champlain).  See Note 17. 

 

Basis of Presentation

 

The financial results of Cheshire and Champlain since the respective acquisition date are included in the accompanying statements of operations for the three and nine months ended September 30, 2018.  The accompanying consolidated financial statements as of September 30, 2018 and December 31, 2017 and for the three and nine months

8


 

Table of Contents 

GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

ended September 30, 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).

 

The results of operations for the three and nine months ended September 30, 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 consolidated balance sheets.  The recognition of this one-time income item, which is included in gain on trustee taxes in the accompanying consolidated statements of operations for the nine months ended September 30, 2018, did not impact cash flows from operations for the nine months ended September 30, 2018 and will not impact cash flows from operations for the year ending December 31, 2018.

 

Lease Exit and Termination Gain

 

In December 2016, the Partnership voluntarily terminated early a sublease with a counterparty for 1,610 railcars and, as result, recognized a lease exit and termination expense of $80.7 million for the year ended December 31, 2016.  Contemporaneously with the sublease termination, the Partnership entered into to a fleet management services agreement with the counterparty, pursuant to which the Partnership was obligated to provide future railcar storage, freight, cleaning, insurance and other services on behalf of the counterparty associated with all 1,610 railcars.  In January 2017, the counterparty paid the Partnership $19.1 million to cover the incremental costs associated with the Partnership’s obligations.  The Partnership accrued the incremental costs associated with its obligations at present value based on the estimated timing of when the costs would be incurred in the future.  Please read “Summary of Significant Accounting

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GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Policies—Leases— Early Termination of Railcar Sublease,” in Note 2 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2017 for additional information.

 

During the quarter ended September 30, 2018, the Partnership was released from certain of its obligations to provide future railcar storage, freight, insurance and other services for 500 railcars under the fleet management services agreement.  The release resulted in a $3.5 million reduction of the remaining accrued incremental costs, which benefit is included in lease exit and termination gain in the accompanying statements of operations for the three and nine months ended September 30, 2018.  The remaining accrued incremental costs were $6.6 million at September 30, 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.

 

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

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2018

    

2017

    

2018

 

2017

 

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

 

82

%  

71

%  

75

%  

65

%  

Crude oil sales and crude oil logistics revenue

 

 —

%  

 5

%  

 1

%  

 6

%  

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

 

14

%  

20

%  

21

%  

25

%  

Convenience store sales, rental income and sundries

 

 4

%  

 4

%  

 3

%  

 4

%  

Total

 

100

%  

100

%  

100

%  

100

%  

 

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GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2018

    

2017

    

2018

 

2017

 

Wholesale segment

 

 2

%  

21

%

18

%  

24

%  

Gasoline Distribution and Station Operations segment

 

95

%  

76

%

79

%  

73

%  

Commercial segment

 

 3

%  

 3

%

 3

%  

 3

%  

Total

 

100

%  

100

%

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 and nine months ended September 30, 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 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.

 

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

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GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 periods presented (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

Revenue from contracts with customers:

 

Wholesale

 

GDSO

 

Commercial

 

Total

 

Refined petroleum products, renewable fuels, crude oil and propane

 

$

331,012

 

$

1,110,529

 

$

212,368

 

$

1,653,909

 

Station operations

 

 

 —

 

 

106,366

 

 

 —

 

 

106,366

 

Total revenue from contracts with customers

 

 

331,012

 

 

1,216,895

 

 

212,368

 

 

1,760,275

 

Other sales:

 

 

 

 

 

 

 

 

 

Revenue originating as physical forward contracts and exchanges

 

 

1,558,138

 

 

 —

 

 

131,804

 

 

1,689,942

 

Revenue from leases

 

 

503

 

 

18,115

 

 

 —

 

 

18,618

 

Total other sales

 

 

1,558,641

 

 

18,115

 

 

131,804

 

 

1,708,560

 

Total sales

 

$

1,889,653

 

$

1,235,010

 

$

344,172

 

$

3,468,835

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

Revenue from contracts with customers:

 

Wholesale

 

GDSO

 

Commercial

 

Total

 

Refined petroleum products, renewable fuels, crude oil and propane

 

$

1,091,627

 

$

3,088,906

 

$

574,588

 

$

4,755,121

 

Station operations

 

 

 —

 

 

259,373

 

 

 —

 

 

259,373

 

Total revenue from contracts with customers

 

 

1,091,627

 

 

3,348,279

 

 

574,588

 

 

5,014,494

 

Other sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue originating as physical forward contracts and exchanges

 

 

3,968,816

 

 

 —

 

 

360,401

 

 

4,329,217

 

Revenue from leases

 

 

1,508

 

 

53,082

 

 

 —

 

 

54,590

 

Total other sales

 

 

3,970,324

 

 

53,082

 

 

360,401

 

 

4,383,807

 

Total sales

 

$

5,061,951

 

$

3,401,361

 

$

934,989

 

$

9,398,301

 

 

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 where control of the product is transferred to the customer and collectability is reasonably assured. 

 

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GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

·

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

 

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 September 30, 2018 and December 31, 2017.  Payment terms on invoiced amounts are typically 2 to 30 days.

 

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GLOBAL PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 3.    Net (Loss) Income Per Common 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 and to the General Partner’s general partner interest.

 

Common units outstanding as reported in the accompanying consolidated financial statements at September 30, 2018 and December 31, 2017 excludes 251,395 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 common limited partner unit (basic and diluted).  For the nine months ended September 30, 2018, the Series A Preferred Units are not potentially dilutive securities based on the nature of the conversion feature.  See Note 14 for additional information related to the Series A Preferred Units.

 

The following table provides a reconciliation of net (loss) income and the assumed allocation of net (loss) income to the common limited partners (after deducting amounts allocated to Series A preferred unitholders) for purposes of computing net (loss) income per common limited partner unit for the periods presented (in thousands, except per unit data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

Three Months Ended September 30, 2017

 

 

 

 

 

  

Common

  

General

  

 

 

 

 

 

 

  

Common

  

General

  

 

 

 

 

 

 

 

 

Limited

 

Partner

 

 

 

 

 

 

 

 

Limited

 

Partner

 

 

 

 

Numerator:

 

Total

 

Partners

 

Interest

 

IDRs

 

 

Total

 

Partners

 

Interest

 

IDRs

 

Net (loss) income attributable to Global Partners LP

 

$

(14,080)

 

$

(14,053)

 

$

(27)

 

$

 —

 

 

$

14,878

 

$

14,778

 

$

100

 

$

 —

 

Declared distribution

 

$

16,325

 

$

16,149

 

$

109

 

$

67

 

 

$

15,829

 

$

15,723

 

$

106

 

$

 —

 

Assumed allocation of undistributed net loss

 

 

(30,405)

 

 

(30,202)

 

 

(203)

 

 

 —

 

 

 

(951)

 

 

(945)

 

 

(6)

 

 

 —

 

Assumed allocation of net (loss) income

 

$

(14,080)

 

$

(14,053)

 

$

(94)

 

$

67

 

 

$

14,878

 

$

14,778

 

$

100

 

$

 —

 

Less net income attributable to Series A preferred limited partners

 

 

 

 

 

1,009

 

 

 

 

 

 

 

 

 

 

 

 

 —

 

 

 

 

 

 

 

Net (loss) income attributable to common limited partners