UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark One) |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2013 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
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Commission file number 001-32593
Global Partners LP
(Exact name of registrant as specified in its charter)
Delaware |
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74-3140887 |
(State or other jurisdiction of incorporation |
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(I.R.S. Employer Identification No.) |
P.O. Box 9161
800 South Street
Waltham, Massachusetts 02454-9161
(Address of principal executive offices, including zip code)
(781) 894-8800
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
Accelerated filer x |
Non-accelerated filer o |
Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
Yes o No ý |
The issuer had 27,430,563 common units outstanding as of November 5, 2013.
To reflect the corrections described below, Global Partners LP (the Partnership) is amending its Quarterly Report on Form 10-Q and restating its unaudited consolidated financial statements for each of the quarters ended March 31, 2013, June 30, 2013 and September 30, 2013 (the Restated 2013 Quarters) and related disclosures. This Amendment No. 1 on Form 10-Q/A amends the Quarterly Report on Form 10-Q of the Partnership for the fiscal quarter ended September 30, 2013, as filed with the Securities and Exchange Commission on November 7, 2013, and restates its unaudited consolidated financial statements as of and for the three and nine months ended September 30, 2013 and the notes thereto and related disclosure. As a result, the unaudited consolidated financial statements included in the originally filed Form 10-Q for the quarter ended September 30, 2013 should not be relied upon.
The Partnership is restating its unaudited consolidated financial statements primarily to reflect a correction in its accounting for Renewable Identification Numbers (RINs). A RIN is a serial number assigned to a batch of biofuel for the purpose of tracking its production, use, and trading as required by the Environmental Protection Agencys (EPA) Renewable Fuel Standard that originated with the Energy Policy Act of 2005. To evidence that the required volume of renewable fuel is blended with gasoline, obligated parties must retire sufficient RINs to cover their Renewable Volume Obligation (RVO). The Partnerships EPA obligations relative to renewable fuel reporting are largely limited to the foreign gasoline that the Partnership may choose to import. As a wholesaler of transportation fuels through its terminals, the Partnership separates RINs from renewable fuel through blending with gasoline and can use those separated RINs to settle its RVO. While the annual compliance period for a RVO is a calendar year, the settlement of the RVO can occur, upon certain deferral elections, more than one year after the close of the compliance period.
In connection with the year ended December 31, 2013 financial statement close process, certain misstatements were identified related to the Partnerships accounting for the RVO, RIN inventory and the mark to market loss related to RIN forward commitments. The Partnership has corrected its accounting for RINs, which included the recognition of a mark-to-market liability associated with the RVO deficiency at period end. The Partnership is restating its consolidated balance sheet at September 30, 2013 and the results of operations for the three and nine months ended September 30, 2013 to reflect in the proper period the impact of these accounting corrections.
Additionally, the Partnership determined that at September 30, 2013, certain accrued liabilities related to the procurement of petroleum products were no longer warranted. The Partnership is restating its consolidated balance sheet at September 30, 2013 and results of operations for the three and nine months then ended to reflect the correction of the timing of the relief of these accrued liabilities at that date.
The Partnership has also corrected other items that individually and in the aggregate are immaterial to the Partnerships operating results. The more significant of these items include a correction to the Partnerships business combination accounting related to a 2013 acquisition and an income statement classification error related to the Partnerships presentation of amortization of deferred financing fees.
The unaudited consolidated financial statements and the notes thereto included herein have been restated to reflect these corrections, and disclosures of these corrections have been made to the discussion under Part I, Item 2., Managements Discussion and Analysis of Financial Condition and Results of Operations.
The Partnership is refiling the Form 10-Q in its entirety in this Amendment No. 1, except as stated above and for the disclosure included in Part I, Item 4., Controls and Procedures. The Partnership has included new certifications of its officers pursuant to Sections 302 and 906 of the Sarbanes Oxley Act with this Form 10-Q/A.
GLOBAL PARTNERS LP
(In thousands, except unit data)
(Unaudited)
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September 30, |
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December 31, |
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2013 |
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2012 |
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(Restated) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
15,068 |
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$ |
5,977 |
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Accounts receivable, net |
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625,829 |
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696,762 |
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Accounts receivableaffiliates |
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1,496 |
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1,307 |
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Inventories |
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397,412 |
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634,667 |
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Brokerage margin deposits |
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40,694 |
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54,726 |
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Fair value of forward fixed price contracts |
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37,001 |
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48,062 |
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Prepaid expenses and other current assets |
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41,591 |
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65,432 |
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Total current assets |
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1,159,091 |
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1,506,933 |
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Property and equipment, net |
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838,424 |
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712,322 |
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Intangible assets, net |
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73,663 |
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60,822 |
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Goodwill |
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118,390 |
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32,326 |
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Other assets |
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17,701 |
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17,349 |
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Total assets |
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$ |
2,207,269 |
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$ |
2,329,752 |
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Liabilities and partners equity |
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Current liabilities: |
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Accounts payable |
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$ |
615,093 |
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$ |
759,698 |
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Working capital revolving credit facilitycurrent portion |
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83,746 |
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Term loan |
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115,000 |
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Environmental liabilitiescurrent portion |
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4,271 |
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4,341 |
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Trustee taxes payable |
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75,891 |
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91,494 |
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Accrued expenses and other current liabilities |
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60,621 |
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71,442 |
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Obligations on forward fixed price contracts |
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38,885 |
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34,474 |
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Total current liabilities |
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909,761 |
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1,045,195 |
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Working capital revolving credit facilityless current portion |
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300,300 |
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340,754 |
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Revolving credit facility |
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399,700 |
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422,000 |
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Senior notes |
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68,163 |
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Environmental liabilitiesless current portion |
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37,651 |
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39,831 |
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Other long-term liabilities |
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44,454 |
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45,511 |
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Total liabilities |
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1,760,029 |
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1,893,291 |
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Partners equity |
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Global Partners LP equity: |
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Common unitholders (27,430,563 units issued and 27,268,247 outstanding at September 30, 2013 and 27,430,563 units issued and 27,310,648 outstanding at December 31, 2012) |
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409,728 |
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456,538 |
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General partner interest (0.83% interest with 230,303 equivalent units outstanding at September 30, 2013 and December 31, 2012) |
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(487 |
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(407 |
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Accumulated other comprehensive loss |
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(13,877 |
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(19,670 |
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Total Global Partners LP equity |
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395,364 |
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436,461 |
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Noncontrolling interest |
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51,876 |
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Total partners equity |
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447,240 |
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436,461 |
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Total liabilities and partners equity |
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$ |
2,207,269 |
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$ |
2,329,752 |
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The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL PARTNERS LP
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per unit data)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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2013 |
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2012 |
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2013 |
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2012 |
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(Restated) |
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(Restated) |
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Sales |
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$ |
4,433,426 |
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$ |
4,617,194 |
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$ |
14,794,372 |
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$ |
12,508,738 |
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Cost of sales |
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4,315,333 |
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4,534,574 |
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14,523,410 |
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12,280,124 |
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Gross profit |
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118,093 |
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82,620 |
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270,962 |
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228,614 |
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Costs and operating expenses: |
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Selling, general and administrative expenses |
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27,889 |
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22,709 |
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79,232 |
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66,502 |
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Operating expenses |
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46,713 |
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40,196 |
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137,420 |
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100,692 |
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Amortization expense |
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4,773 |
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1,511 |
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13,321 |
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5,373 |
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Total costs and operating expenses |
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79,375 |
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64,416 |
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229,973 |
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172,567 |
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Operating income |
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38,718 |
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18,204 |
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40,989 |
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56,047 |
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Interest expense |
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(10,855 |
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(10,633 |
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(32,113 |
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(31,811 |
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Income before income tax expense |
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27,863 |
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7,571 |
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8,876 |
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24,236 |
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Income tax expense |
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(2,727 |
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(678 |
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(852 |
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(228 |
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Net income |
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25,136 |
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6,893 |
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8,024 |
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24,008 |
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Net loss attributable to noncontrolling interest |
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679 |
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549 |
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Net income attributable to Global Partners LP |
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25,815 |
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6,893 |
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8,573 |
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24,008 |
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Less: General partners interest in net income, including incentive distribution rights |
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(1,042 |
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(316 |
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(2,306 |
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(733 |
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Limited partners interest in net income |
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$ |
24,773 |
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$ |
6,577 |
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$ |
6,267 |
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$ |
23,275 |
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Basic net income per limited partner unit |
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$ |
0.91 |
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$ |
0.24 |
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$ |
0.23 |
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$ |
0.89 |
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Diluted net income per limited partner unit |
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$ |
0.91 |
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$ |
0.24 |
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$ |
0.23 |
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$ |
0.89 |
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Basic weighted average limited partner units outstanding |
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27,333 |
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27,311 |
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27,350 |
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26,085 |
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Diluted weighted average limited partner units outstanding |
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27,333 |
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27,485 |
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27,593 |
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26,258 |
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The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL PARTNERS LP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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2013 |
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2012 |
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2013 |
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2012 |
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(Restated) |
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(Restated) |
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Net income |
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$ |
25,136 |
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$ |
6,893 |
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$ |
8,024 |
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$ |
24,008 |
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Other comprehensive income: |
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Change in fair value of cash flow hedges |
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(945 |
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515 |
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2,577 |
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1,204 |
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Change in pension liability |
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1,191 |
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373 |
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3,216 |
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581 |
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Total other comprehensive income |
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246 |
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888 |
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5,793 |
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1,785 |
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Comprehensive income |
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25,382 |
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7,781 |
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13,817 |
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25,793 |
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Comprehensive loss attributable to noncontrolling interest |
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679 |
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549 |
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Comprehensive income attributable to Global Partners LP |
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$ |
26,061 |
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$ |
7,781 |
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$ |
14,366 |
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$ |
25,793 |
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The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Nine Months Ended |
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2013 |
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2012 |
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(Restated) |
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Cash flows from operating activities |
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Net income |
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$ |
8,024 |
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$ |
24,008 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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55,534 |
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32,663 |
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Amortization of deferred financing fees |
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5,062 |
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4,106 |
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Amortization of senior notes discount |
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263 |
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Bad debt expense |
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3,030 |
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270 |
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Stock-based compensation expense |
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955 |
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(20 |
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Gain on disposition of property and equipment |
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(1,444 |
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(162 |
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Curtailment gain |
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(469 |
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Changes in operating assets and liabilities, exclusive of business combinations: |
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Accounts receivable |
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70,202 |
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(40,237 |
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Accounts receivable affiliate |
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(189 |
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499 |
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Inventories |
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237,386 |
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81,839 |
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Broker margin deposits |
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14,032 |
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13,663 |
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Prepaid expenses, all other current assets and other assets |
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18,589 |
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264 |
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Accounts payable |
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(147,359 |
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91,708 |
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Trustee taxes payable |
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(15,603 |
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(7,515 |
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Change in fair value of forward fixed price contracts |
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15,472 |
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(25,450 |
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Accrued expenses, all other current liabilities and other long-term liabilities |
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(9,842 |
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14,533 |
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Net cash provided by operating activities |
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254,112 |
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189,700 |
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Cash flows from investing activities |
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Acquisitions |
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(185,262 |
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(181,898 |
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Capital expenditures |
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(46,935 |
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(30,907 |
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Proceeds from sale of property and equipment |
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5,769 |
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6,610 |
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Net cash used in investing activities |
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(226,428 |
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(206,195 |
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Cash flows from financing activities |
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Payments on working capital revolving credit facility |
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(124,200 |
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(161,800 |
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(Payments on) borrowings from revolving credit facility |
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(22,300 |
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217,000 |
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Borrowings from term loan |
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115,000 |
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Proceeds from senior notes, net of discount |
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67,900 |
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Repurchase of common units |
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(4,331 |
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(2,152 |
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Repurchased units withheld for tax obligations |
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(2,086 |
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(96 |
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Noncontrolling interest capital contribution |
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1,425 |
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Distributions to partners |
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(50,001 |
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(39,712 |
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Net cash (used in) provided by financing activities |
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(18,593 |
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13,240 |
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Increase (decrease) in cash and cash equivalents |
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9,091 |
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(3,255 |
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Cash and cash equivalents at beginning of period |
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5,977 |
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4,328 |
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Cash and cash equivalents at end of period |
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$ |
15,068 |
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$ |
1,073 |
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Supplemental information |
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Cash paid during the period for interest |
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$ |
26,002 |
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$ |
27,720 |
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Non-cash investing activities (see Note 18) |
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The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL PARTNERS LP
CONSOLIDATED STATEMENTS OF PARTNERS EQUITY
(In thousands)
(Restated) (Unaudited)
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Accumulated |
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General |
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Other |
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Total |
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Common |
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Partner |
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Comprehensive |
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Noncontrolling |
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Partners |
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Unitholders |
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Interest |
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Loss |
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Interest |
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Equity |
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Balance at December 31, 2012 |
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$ |
456,538 |
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$ |
(407 |
) |
$ |
(19,670 |
) |
$ |
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$ |
436,461 |
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Net income (loss) |
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6,267 |
|
2,306 |
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(549 |
) |
8,024 |
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Acquisition of noncontrolling interest, at fair value |
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51,000 |
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51,000 |
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Noncontrolling interest capital contribution |
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1,425 |
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1,425 |
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Other comprehensive income |
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5,793 |
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5,793 |
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Stock-based compensation |
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955 |
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955 |
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Distributions to partners |
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(47,731 |
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(2,386 |
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(50,117 |
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Repurchase of common units |
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(4,331 |
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(4,331 |
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Repurchased units withheld for tax obligation |
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(2,086 |
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(2,086 |
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Phantom unit dividends |
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116 |
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116 |
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Balance at September 30, 2013 |
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$ |
409,728 |
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$ |
(487 |
) |
$ |
(13,877 |
) |
$ |
51,876 |
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$ |
447,240 |
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The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization and Basis of Presentation
Organization
Global Partners LP (the Partnership) is a publicly traded Delaware master limited partnership formed in March 2005. As of September 30, 2013, the Partnership had the following wholly owned subsidiaries: Global Companies LLC, Glen Hes Corp., Global Montello Group Corp. (GMG), Chelsea Sandwich LLC, Global Energy Marketing LLC, Alliance Energy LLC, Bursaw Oil LLC, GLP Finance Corp., Global Energy Marketing II LLC, Global CNG LLC and Cascade Kelly Holdings LLC. Global GP LLC, the Partnerships general partner (the General Partner) manages the Partnerships operations and activities and employs its officers and substantially all of its personnel, except for its gasoline station and convenience store employees and certain union personnel who are employed by GMG.
The Partnership is a midstream logistics and marketing company. The Partnership is one of the largest distributors of gasoline (including gasoline blendstocks such as ethanol and naphtha), distillates (such as home heating oil, diesel and kerosene), residual oil and renewable fuels to wholesalers, retailers and commercial customers in the New England states and New York. The Partnership also engages in the purchasing, selling and logistics of transporting domestic and Canadian crude oil and other products via rail, establishing a virtual pipeline from the mid-continent region of the United States and Canada to the East and West Coasts for distribution to refiners and other customers. The Partnership owns, controls or has access to one of the largest terminal networks of refined petroleum products and renewable fuels in Massachusetts, Maine, Connecticut, Vermont, New Hampshire, Rhode Island, New York, New Jersey and Pennsylvania (collectively, the Northeast). The Partnership also owns and controls terminals in North Dakota and Oregon that extend its origin-to-destination capabilities. The Partnership is a major multi-brand gasoline distributor and, as of September 30, 2013, had a portfolio of approximately 900 owned, leased and/or supplied gasoline stations primarily in the Northeast. The Partnership receives revenue from retail sales of gasoline, convenience store sales and gasoline station rental income. The Partnership is also a distributor of natural gas and propane. In addition, the Partnership provides ancillary services to companies and receives revenue from these ancillary services.
On March 1, 2012, the Partnership acquired from AE Holdings Corp. (AE Holdings) 100% of the outstanding membership interests in Alliance Energy LLC (Alliance) (see Note 3). Prior to the closing of the acquisition, Alliance was wholly owned by AE Holdings, which is approximately 95% owned by members of the Slifka family. No member of the Slifka family owned a controlling interest in AE Holdings, nor currently owns a controlling interest in the General Partner. Three independent directors of the General Partners board of directors serve on a conflicts committee. The conflicts committee unanimously approved the Alliance acquisition and received advice from its independent counsel and independent financial adviser.
On February 1, 2013, the Partnership acquired a 60% membership interest in Basin Transload LLC (Basin Transload), and on February 15, 2013, the Partnership acquired 100% of the membership interests in Cascade Kelly Holdings LLC (Cascade Kelly). See Note 3.
The General Partner, which holds a 0.83% general partner interest in the Partnership, is owned by affiliates of the Slifka family. As of September 30, 2013, affiliates of the General Partner, including its directors and executive officers, owned 11,548,902 common units, representing a 42.1% limited partner interest.
Basis of Presentation
The financial results of Basin Transload for the eight months ended September 30, 2013 and of Cascade Kelly for the seven and one-half months ended September 30, 2013 are included in the accompanying statements of income for the nine months ended September 30, 2013. The Partnership consolidated the September 30, 2013 balance sheet of Basin Transload because the Partnership controls the entity. The accompanying consolidated financial statements as of September 30, 2013 and December 31, 2012 and for the three and nine months ended September 30, 2013 and 2012 reflect the accounts of the Partnership. All intercompany balances and transactions have been eliminated.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization and Basis of Presentation (continued)
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial condition and operating results for the interim periods. The interim financial information, which has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), should be read in conjunction with the consolidated financial statements for the year ended December 31, 2012 and notes thereto contained in the Partnerships Annual Report on Form 10-K. The significant accounting policies described in Note 2, Summary of Significant Accounting Policies, of such Annual Report on Form 10-K are the same used in preparing the accompanying consolidated financial statements.
The results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2013. The consolidated balance sheet at December 31, 2012 has been derived from the audited consolidated financial statements included in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2012.
Due to the nature of the Partnerships business and its customers reliance, in part, on consumer travel and spending patterns, the Partnership may experience more demand for gasoline and gasoline blendstocks during the late spring and summer months than during the fall and winter. Travel and recreational activities are typically higher in these months in the geographic areas in which the Partnership operates, increasing the demand for gasoline and gasoline blendstocks that the Partnership distributes. Therefore, the Partnerships volumes in gasoline and gasoline blendstocks are typically higher in the second and third quarters of the calendar year. As demand for some of the Partnerships refined petroleum products, specifically home heating oil and residual oil for space heating purposes, is generally greater during the winter months, heating oil and residual oil sales are generally higher during the first and fourth quarters of the calendar year. These factors may result in significant fluctuations in the Partnerships quarterly operating results.
Noncontrolling Interest
These financial statements reflect the application of ASC 810, Consolidations (ASC 810) which establishes accounting and reporting standards that require: (i) the ownership interest in subsidiaries held by parties other than the parent to be clearly identified and presented in the consolidated balance sheet within shareholders equity, but separate from the parents equity; (ii) the amount of consolidated net income attributable to the parent and the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations and (iii) changes in a parents ownership interest while the parent retains its controlling financial interest in its subsidiary to be accounted for consistently.
The Partnership acquired a 60% interest in Basin Transload on February 1, 2013. After evaluating ASC 810, the Partnership concluded it is appropriate to consolidate the balance sheet and statement of operations of Basin Transload based on an evaluation of the outstanding voting interests. Amounts pertaining to the noncontrolling ownership interest held by third parties in the financial position and operating results of the Partnership are reported as a noncontrolling interest in the accompanying consolidated balance sheet and statement of income.
Reclassification
Amortization expense of deferred financing fees has been reclassified from selling, general and administrative expenses to interest expense.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization and Basis of Presentation (continued)
Concentration of Risk
The following table presents the Partnerships product sales as a percentage of total sales for the periods presented:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
Gasoline sales: gasoline and gasoline blendstocks such as ethanol and naphtha |
|
65% |
|
76% |
|
59% |
|
70% |
|
Distillates (home heating oil, diesel and kerosene), residual oil, crude oil, natural gas and propane sales |
|
35% |
|
24% |
|
41% |
|
30% |
|
Total |
|
100% |
|
100% |
|
100% |
|
100% |
|
The Partnership had two significant customers, ExxonMobil Corporation (ExxonMobil) and Phillips 66 (Phillips 66), which accounted for approximately 18% and 11%, respectively, of total sales for the three months ended September 30, 2013, and approximately 15% and 14% respectively, of total sales for the nine months ended September 30, 2013. The Partnership had one significant customer, ExxonMobil, which accounted for approximately 16% and 16% of total sales for the three and nine months ended September 30, 2012, respectively.
Note 2. Restatement
The Partnership is restating its unaudited consolidated financial statements primarily to reflect a correction in its accounting for Renewable Identification Numbers (RINs). A RIN is a serial number assigned to a batch of biofuel for the purpose of tracking its production, use, and trading as required by the Environmental Protection Agencys (EPA) Renewable Fuel Standard that originated with the Energy Policy Act of 2005. To evidence that the required volume of renewable fuel is blended with gasoline, obligated parties must retire sufficient RINs to cover their Renewable Volume Obligation (RVO). The Partnerships EPA obligations relative to renewable fuel reporting are largely limited to the foreign gasoline that the Partnership may choose to import. As a wholesaler of transportation fuels through its terminals, the Partnership separates RINs from renewable fuel through blending with gasoline and can use those separated RINs to settle its RVO. While the annual compliance period for a RVO is a calendar year, the settlement of the RVO can occur, under certain deferral elections, more than one year after the close of the compliance period.
In connection with the year ended December 31, 2013 financial statement close process, certain misstatements were identified related to the Partnerships accounting for the RVO, RIN inventory and the mark to market loss related to RIN forward commitments. The Partnership has corrected its accounting for RINs, which included the recognition of a mark-to-market liability associated with the RVO deficiency at period end (the RVO Deficiency). At September 30, 2013, the Partnerships RVO Deficiency was $22.6 million, the mark to market loss related to RIN forward commitments was $6.6 million and the reduction in previously reported RIN inventory was $4.8 million. The Partnership is restating its consolidated balance sheet at September 30, 2013 and the results of operations for the three and nine months ended September 30, 2013 to reflect in the proper period the impact of these accounting corrections. The impact of these corrections was to increase net income by $15.0 million for the three months ended September 30, 2013, and to decrease net income by 29.9 million for the nine months ended September 30, 2013.
Additionally, the Partnership determined that at September 30, 2013, certain accrued liabilities related to the procurement of petroleum products were no longer warranted. The Partnership is restating its consolidated balance sheet at September 30, 2013 and results of operations for the three and nine months then ended to reflect the correction of the timing of the relief of these accrued liabilities at that date. The impact of these corrections was $5.4 million and $10.8 million of additional income for the three and nine months ended September 30, 2013.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Restatement (continued)
The Partnership has also corrected other items that individually and in the aggregate are immaterial to the Partnerships operating results. The more significant of these items include a correction to the Partnerships business combination accounting related to a 2013 acquisition and an income statement classification error related to the Partnerships presentation of amortization of deferred financing fees.
As a result, the Partnership has restated its unaudited consolidated financial statements to reflect these corrections as of and for the three and nine months ended September 30, 2013. These corrections had no impact on the Partnerships previously reported net cash provided by operating activities, net cash provided by investing activities or net cash used in financing activities.
The following is a summary of the adjustments to the Partnerships previously issued unaudited consolidated balance sheet as of September 30, 2013 (in thousands):
|
|
Previously |
|
Adjustments |
|
Restated |
| ||||
Assets |
|
|
|
|
|
|
|
| |||
Accounts receivable, net |
|
$ |
781,800 |
|
$ |
(155,971 |
) (d)(e) |
|
$ |
625,829 |
|
Inventories |
|
$ |
402,221 |
|
$ |
(4,809 |
) (a) |
|
$ |
397,412 |
|
Total current assets |
|
$ |
1,319,871 |
|
$ |
(160,780 |
) (a)(d)(e) |
|
$ |
1,159,091 |
|
Intangible assets, net |
|
$ |
129,755 |
|
$ |
(56,092 |
) (c) |
|
$ |
73,663 |
|
Goodwill |
|
$ |
58,890 |
|
$ |
59,500 |
(c) |
|
$ |
118,390 |
|
Total assets |
|
$ |
2,364,641 |
|
$ |
(157,372 |
) (a)(c)(d)(e) |
|
$ |
2,207,269 |
|
|
|
|
|
|
|
|
|
| |||
Liabilities and partners equity |
|
|
|
|
|
|
|
| |||
Accounts payable |
|
$ |
769,693 |
|
$ |
(154,600 |
) (d) |
|
$ |
615,093 |
|
Accrued expenses and other current liabilities |
|
$ |
46,403 |
|
$ |
14,218 |
(b)(f)(g) |
|
$ |
60,621 |
|
Total current liabilities |
|
$ |
1,050,143 |
|
$ |
(140,382 |
) (b)(d)(f)(g) |
|
$ |
909,761 |
|
Total liabilities |
|
$ |
1,900,411 |
|
$ |
(140,382 |
) (b)(d)(f)(g) |
|
$ |
1,760,029 |
|
|
|
|
|
|
|
|
|
| |||
Partners equity |
|
|
|
|
|
|
|
| |||
Common unitholders |
|
$ |
427,929 |
|
$ |
(18,201 |
) |
|
$ |
409,728 |
|
General partner interest |
|
$ |
(335 |
) |
$ |
(152 |
) (j) |
|
$ |
(487 |
) |
Total Global Partners LP equity |
|
$ |
413,717 |
|
$ |
(18,353 |
) |
|
$ |
395,364 |
|
Noncontrolling interest |
|
$ |
50,513 |
|
$ |
1,363 |
(i) |
|
$ |
51,876 |
|
Total partners equity |
|
$ |
464,230 |
|
$ |
(16,990 |
) |
|
$ |
447,240 |
|
Total liabilities and partners equity |
|
$ |
2,364,641 |
|
$ |
(157,372 |
) |
|
$ |
2,207,269 |
|
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Restatement (continued)
The following is a summary of the adjustments to the Partnerships previously issued unaudited consolidated statement of income for the three and nine months ended September 30, 2013, the most significant of which relates to an aggregate of RIN adjustments totaling $15.0 million (income) and $29.9 million (expense) for the three and nine months ended September 30, 2013 (see footnotes (a)(f)(g)) (in thousands, except per unit data):
|
|
Three Months Ended September 30, 2013 |
| ||||||||||||
|
|
Previously |
|
Adjustments |
|
Restated |
| ||||||||
Cost of sales |
|
$ |
4,337,146 |
|
$ |
(21,813 |
) (a)(b)(f)(g)(h) |
|
$ |
4,315,333 |
| ||||
Gross profit |
|
$ |
96,280 |
|
$ |
21,813 |
(a)(b)(f)(g)(h) |
|
$ |
118,093 |
| ||||
Selling, general and administrative expenses |
|
$ |
29,086 |
|
$ |
(1,197 |
) (e) |
|
$ |
27,889 |
| ||||
Amortization |
|
$ |
6,676 |
|
$ |
(1,903 |
) (c) |
|
$ |
4,773 |
| ||||
Total operating expenses |
|
$ |
82,475 |
|
$ |
(3,100 |
) (c)(e) |
|
$ |
79,375 |
| ||||
Operating income |
|
$ |
13,805 |
|
$ |
24,913 |
(a)(b)(c)(e)(f)(g)(h) |
|
$ |
38,718 |
| ||||
Interest expense |
|
$ |
(9,111 |
) |
$ |
(1,744 |
) (e) |
|
$ |
(10,855 |
) | ||||
Income before income taxes |
|
$ |
4,694 |
|
$ |
23,169 |
(a)(b)(c)(e)(f)(g)(h) |
|
$ |
27,863 |
| ||||
Net income |
|
$ |
1,967 |
|
$ |
23,169 |
(a)(b)(c)(e)(f)(g)(h) |
|
$ |
25,136 |
| ||||
Net loss attributable to noncontrolling interest |
|
$ |
1,440 |
|
$ |
(761 |
) (i) |
|
$ |
679 |
| ||||
Net income attributable to Global Partners LP |
|
$ |
3,407 |
|
$ |
22,408 |
|
|
$ |
25,815 |
| ||||
General partners interest in net income, including incentive distribution rights |
|
$ |
(856 |
) |
$ |
(186 |
) (j) |
|
$ |
(1,042 |
) | ||||
Limited partners interest in net income |
|
$ |
2,551 |
|
$ |
22,222 |
|
|
$ |
24,773 |
| ||||
Basic net income per limited partner unit |
|
$ |
0.09 |
|
$ |
0.82 |
|
|
$ |
0.91 |
| ||||
Diluted net income per limited partner unit |
|
$ |
0.09 |
|
$ |
0.82 |
|
|
$ |
0.91 |
| ||||
|
|
|
| ||||||||||||
|
|
Nine Months Ended September 30, 2013 |
| ||||||||||||
|
|
Previously |
|
Adjustments |
|
Restated |
| ||||||||
Cost of sales |
|
$ |
14,504,383 |
|
$ |
19,027 |
(a)(b)(f)(g)(h) |
|
$ |
14,523,410 |
| ||||
Gross profit |
|
$ |
289,989 |
|
$ |
(19,027 |
) (a)(b)(f)(g)(h) |
|
$ |
270,962 |
| ||||
Selling, general and administrative expenses |
|
$ |
82,923 |
|
$ |
(3,691 |
) (e) |
|
$ |
79,232 |
| ||||
Amortization |
|
$ |
16,729 |
|
$ |
(3,408 |
) (c) |
|
$ |
13,321 |
| ||||
Total operating expenses |
|
$ |
237,072 |
|
$ |
(7,099 |
) (c)(e) |
|
$ |
229,973 |
| ||||
Operating income |
|
$ |
52,917 |
|
$ |
(11,928 |
) (a)(b)(c)(e)(f)(g)(h) |
|
$ |
40,989 |
| ||||
Interest expense |
|
$ |
(27,051 |
) |
$ |
(5,062 |
) (e) |
|
$ |
(32,113 |
) | ||||
Income before income taxes |
|
$ |
25,866 |
|
$ |
(16,990 |
) (a)(b)(c)(e)(f)(g)(h) |
|
$ |
8,876 |
| ||||
Net income |
|
$ |
25,014 |
|
$ |
(16,990 |
) (a)(b)(c)(e)(f)(g)(h) |
|
$ |
8,024 |
| ||||
Net loss attributable to noncontrolling interest |
|
$ |
1,912 |
|
$ |
(1,363 |
) (i) |
|
$ |
549 |
| ||||
Net income attributable to Global Partners LP |
|
$ |
26,926 |
|
$ |
(18,353 |
) |
|
$ |
8,573 |
| ||||
General partners interest in net income, including incentive distribution rights |
|
$ |
(2,458 |
) |
$ |
152 |
(j) |
|
$ |
(2,306 |
) | ||||
Limited partners interest in net income |
|
$ |
24,468 |
|
$ |
(18,201 |
) |
|
$ |
6,267 |
| ||||
Basic net income per limited partner unit |
|
$ |
0.89 |
|
$ |
(0.66 |
) |
|
$ |
0.23 |
| ||||
Diluted net income per limited partner unit |
|
$ |
0.89 |
|
$ |
(0.66 |
) |
|
$ |
0.23 |
| ||||
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Restatement (continued)
The following is a summary of the adjustments to the Partnerships previously issued unaudited consolidated statement of comprehensive income for the three and nine months ended September 30, 2013, the most significant of which relates to an aggregate of RIN adjustments totaling $15.0 million (income) and $29.9 million (expense) for the three and nine months ended September 30, 2013 (see footnote (a)(f)(g)) (in thousands):
|
|
Three Months Ended September 30, 2013 |
| |||||||
|
|
Previously |
|
Adjustments |
|
Restated |
| |||
Net income |
|
$ |
1,967 |
|
$ |
23,169 |
|
$ |
25,136 |
|
Comprehensive income |
|
$ |
2,213 |
|
$ |
23,169 |
|
$ |
25,382 |
|
Comprehensive loss attributable to noncontrolling interest |
|
$ |
1,440 |
|
$ |
(761) |
|
$ |
679 |
|
Comprehensive income (loss) attributable to Global Partners LP |
|
$ |
3,653 |
|
$ |
22,408 |
|
$ |
26,061 |
|
|
|
Nine Months Ended September 30, 2013 |
| ||||||
|
|
Previously |
|
Adjustments |
|
Restated |
| ||
Net income |
|
$ |
25,014 |
|
$ (16,990) |
|
$ |
8,024 |
|
Comprehensive income |
|
$ |
30,807 |
|
$ (16,990) |
|
$ |
13,817 |
|
Comprehensive loss attributable to noncontrolling interest |
|
$ |
1,912 |
|
$ (1,363) |
|
$ |
549 |
|
Comprehensive income attributable to Global Partners LP |
|
$ |
32,719 |
|
$ (18,353) |
|
$ |
14,366 |
|
The following is a summary of the adjustments to the Partnerships previously issued unaudited consolidated statement of cash flows for the nine months ended September 30, 2013, the most significant of which relates to an aggregate of RIN adjustments totaling $29.9 million (expense) for the nine months ended September 30, 2013 (see footnote (a)(f)(g)) (in thousands):
|
|
Previously |
|
Adjustments |
|
Restated |
| |||
Net income |
|
$ |
25,014 |
|
$ |
(16,990) |
|
$ |
8,024 |
|
Depreciation and amortization |
|
$ |
58,942 |
|
$ |
(3,408) |
|
$ |
55,534 |
|
Bad debt expense |
|
$ |
1,659 |
|
$ |
1,371 |
|
$ |
3,030 |
|
Accounts receivable |
|
$ |
(84,398 |
) |
$ |
154,600 |
|
$ |
70,202 |
|
Inventories |
|
$ |
232,577 |
|
$ |
4,809 |
|
$ |
237,386 |
|
Accounts payable |
|
$ |
7,241 |
|
$ |
(154,600) |
|
$ |
(147,359 |
) |
Accrued expenses, all other current liabilities and other long-term liabilities |
|
$ |
(24,060 |
) |
$ |
14,218 |
|
$ |
(9,842 |
) |
Net cash provided by operating activities |
|
254,112 |
|
|
|
254,112 |
|
|
(a) To reduce previously reported inventory for the nine months ended September 30, 2013 by approximately $4.8 million (expense). The impact of adjusting previously reported RIN inventory in prior quarters resulted in a $9.0 million increase in net income for the three months ended September 30, 2013.
(b) To reduce accrued liabilities related to the procurement of petroleum products by approximately $5.4 million (income) and $10.8 million (income) for the three and nine months ended September 30, 2013 for accruals determined to no longer be warranted at the end of the reporting period.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Restatement (continued)
(c) To correct the valuation of customer relationships and related amortization expense on such assets acquired in connection with the February 1, 2013 acquisition of a 60% membership interest in Basin Transload LLC. Specifically, the reduction in the value of customer relationships reflects the reversal of a customer relationship that was determined to not meet the criteria of a capitalizable intangible asset and, separately, a reduction in the cash flow period for another customer relationship that should have been considered at the date of acquisition. The difference in the amortization expense for the three and nine months ended September 30, 2013 of $1.9 million and $3.4 million, respectively, reflects the reduction in the value of customer relationships acquired of $52.0 million and the reduction in the economic useful life of the remaining assets from five to two years.
(d) To reduce accounts receivable by $154.6 million and accounts payable by $154.6 million which reflect the netting of positive and negative product exchange balances with the same counterparty which has a right of offset.
(e) Other adjustments to operating expenses include an increase to the allowance for doubtful accounts of $547,000 and $1.4 million for the three and nine months ended September 30,2013, respectively and an income statement reclassification of amortization of deferred financing fees from selling, general and administrative expenses to interest expense of $1.7 million and $5.1 million for the three and nine months ended September 30, 2013, respectively.
(f) To record the change in the RVO Deficiency of approximately $13.5 million (expense) and $22.6 million (expense) at the end of the reporting period for the three and nine months ended September 30, 2013, respectively.
(g) To record the change in the liability related to the losses on RIN forward commitments of $19.5 million (income) and $2.6 million (expense) for the three and nine months ended September 30, 2013.
(h) Other adjustments to costs of sales include a $1.3 million (income) and $0.0 million fair value of oil related forward fixed price contracts for the three and nine months ended September 30, 2013.
(i) Represents impact of all adjustments to the net loss attributable to the non-controlling interest of $761,000 (expense) and $1.4 million (expense), respectively.
(j) Represents impact of all adjustments to the General Partners interest in net income of $186,000 (income) and $152,000 (expense), respectively.
2013 Acquisitions
Acquisition of Basin Transload LLC
On February 1, 2013, the Partnership acquired a 60% membership interest in Basin Transload, which operates two transloading facilities in Columbus and Beulah, North Dakota for crude oil and other products, with a combined rail loading capacity of 160,000 barrels per day. The purchase price, including expenditures related to certain capital expansion projects, was approximately $91.1 million which the Partnership financed with borrowings under its credit facility.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Business Combinations
The acquisition was accounted for using the purchase method of accounting in accordance with the Financial Accounting Standards Boards (FASB) guidance regarding business combinations. The Partnerships financial statements include the results of operations of its membership interest in Basin Transload subsequent to the acquisition date.
The purchase price allocation is considered preliminary, and additional adjustments may be recorded during the allocation period in accordance with the FASBs guidance regarding business combinations. The purchase price allocation will be finalized as the Partnership receives additional information relevant to the acquisition, including a final valuation of the assets purchased, including tangible and intangible assets, and liabilities assumed.
The following table presents the preliminary allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):
Assets purchased: |
|
|
| |
Accounts receivable |
|
$ |
2,003 |
|
Prepaid expenses |
|
68 |
| |
Property and equipment |
|
29,112 |
| |
Intangibles |
|
26,162 |
| |
Total identifiable assets purchased |
|
57,345 |
| |
Liabilities assumed: |
|
|
| |
Accounts payable |
|
(1,326 |
) | |
Total liabilities assumed |
|
(1,326 |
) | |
Net identifiable assets acquired |
|
56,019 |
| |
Noncontrolling interest |
|
(51,000 |
) | |
Goodwill |
|
86,064 |
| |
Net assets acquired |
|
$ |
91,083 |
|
The Partnership engaged a third-party valuation firm to assist in the valuation of the Partnerships interest in Basin Transloads property and equipment, intangible assets and noncontrolling interest. During the quarter ended September 30, 2013, the Partnership recorded certain changes to the preliminary purchase accounting, primarily related to the values assigned to property and equipment, intangibles and the noncontrolling interest based on a preliminary valuation received from a third-party valuation firm. The impact of these changes increased goodwill from $76.1 million at June 30, 2013 to $86.1 million at September 30, 2013.
The Partnerships third party valuation firm primarily used the replacement cost methodology to value property and equipment, adjusted for depreciation associated with the age and estimated condition of the assets. The income approach was used to value the intangible assets, which consist principally of customer relationships.
The fair value of the noncontrolling interest was developed by a third-party valuation firm based on the fair value of the acquired business as a whole, reduced by the consideration paid by management to obtain control. This fair value of the business was estimated based on the fair value of Basin Transloads net assets and applying a reasonable control premium.
The fair values of the remaining Basin Transload assets and liabilities noted above approximate their carrying values at February 1, 2013. The Partnership is completing its review of the preliminary values received from the third-party valuation firm with a particular emphasis on assessing the appropriate number of years of cash flows used to value the intangible assets given the nature of the industry. It is possible that once the Partnership receives the completed valuations on the property and equipment, intangible assets and noncontrolling interest, the final purchase price accounting may be different than what is presented above.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Business Combinations (continued)
The preliminary purchase price for the acquisition was allocated to assets acquired and liabilities assumed based on their estimated fair values. The Partnership then allocated the purchase price in excess of net tangible assets acquired to identifiable intangible assets, based upon on their estimates and assumptions. Any excess purchase price over the fair value of the net tangible and intangible assets acquired was allocated to goodwill.
The Partnership utilized accounting guidance related to intangible assets which lists the pertinent factors to be considered when estimating the useful life of an intangible asset. These factors include, in part, a review of the expected use by the Partnership of the assets acquired, the expected useful life of another asset (or group of assets) related to the acquired assets and legal, regulatory or other contractual provisions that may limit the useful life of an acquired asset. The Partnership amortizes these intangible assets over their estimated useful lives which is consistent with the estimated undiscounted future cash flows of these assets.
As part of the purchase price allocation, identifiable intangible assets include customer relationships that are being amortized over two years. Amortization expense amounted to $3.0 million and $8.0 million for the three and nine months ended September 30, 2013, respectively. The following table presents the estimated remaining amortization expense for intangible assets acquired in connection with the acquisition (in thousands):
2013 (10/1/13 12/31/13) |
|
$ |
2,978 |
2014 |
|
12,111 | |
2015 |
|
2,969 | |
Total |
|
$ |
18,058 |
The $86.1 million of goodwill was assigned to the Wholesale reporting unit. The goodwill recognized is attributed to the unique origin of the acquired locations through which the Partnerships customers can efficiently supply cost-competitive crude oil to destinations on the East and West Coasts. The goodwill is deductible for income tax purposes.
Acquisition of Cascade Kelly Holdings LLC
On February 15, 2013, the Partnership acquired 100% of the membership interests in Cascade Kelly, which owns a West Coast crude oil and ethanol facility near Portland, Oregon. The total cash purchase price was approximately $94.2 million which the Partnership funded with borrowings under its credit facility and with proceeds from the issuance of the Partnerships unsecured 8.00% senior notes due 2018 (see Note 7). The transaction includes a rail transloading facility serviced by the Burlington Northern Santa Fe Railway, 200,000 barrels of storage capacity, a deepwater marine terminal with access to a 1,200-foot leased dock and the largest ethanol plant on the West Coast. Situated along the Columbia River in Clatskanie, Oregon, the site is located on land leased under a long-term agreement from the Port of St. Helens.
The acquisition was accounted for using the purchase method of accounting in accordance with the FASBs guidance regarding business combinations. The Partnerships financial statements include the results of operations of Cascade Kelly subsequent to the acquisition date.
The purchase price allocation is considered preliminary, and additional adjustments may be recorded during the allocation period in accordance with the FASBs guidance regarding business combinations. The purchase price allocation will be finalized as the Partnership receives additional information relevant to the acquisition, including a final valuation of the assets purchased, including tangible and intangible assets, and liabilities assumed.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Business Combinations (continued)
The following table presents the preliminary allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):
Assets purchased: |
|
|
| |
Accounts receivable |
|
$ |
296 |
|
Inventory |
|
131 |
| |
Prepaid expenses |
|
96 |
| |
Property and equipment |
|
96,591 |
| |
Total identifiable assets purchased |
|
97,114 |
| |
Liabilities assumed: |
|
|
| |
Accounts payable |
|
(1,428 |
) | |
Other current liabilities |
|
(1,507 |
) | |
Total liabilities assumed |
|
(2,935 |
) | |
Net identifiable assets acquired |
|
$ |
94,179 |
|
Management is in the process of finalizing the purchase price accounting. The Partnership engaged a third-party valuation firm to assist in the valuation of Cascade Kellys property and equipment, and the preliminary estimate of fair value is $96.6 million. During the quarter ended September 30, 2013, the Partnership recorded certain changes to the preliminary purchase accounting, primarily related to the values assigned to property and equipment based on a preliminary valuation received from a third-party valuation firm. The impact of these changes decreased goodwill from $51.1 million at June 30, 2013 to $0 at September 30, 2013.
During the preliminary stage of evaluating the purchase price accounting, the estimated fair value of property and equipment developed by management and used in the determination of the acquisition price was based on managements acquisition history and on the crude oil facility. In the third quarter, the Partnerships third-party valuation firm completed inspections of the crude oil and ethanol fixed assets and prepared a preliminary valuation which began with quantifying the replacement cost of the acquired assets. The level of physical depreciation and other forms of depreciation was then quantified and deducted from the replacement cost to arrive at the fair value of the assets. The impact of the valuation was to increase property and equipment by $51.5 million. Management attributed the increase to the completion of the valuation by the third-party valuation firm, which concluded that the fair value of the ethanol assets is more favorable than originally anticipated. The Partnership continues to review the assumptions used in valuing the crude oil and ethanol fixed assets, with a particular focus on the adjustments made between replacement cost and fair value.
The Partnership expects to make the capital improvements necessary to place the ethanol plant into service; therefore, as of September 30, 2013, the fair value of the ethanol plant is included in construction in process. After the plant has been successfully placed into service, depreciation will commence.
It is possible that once the Partnership receives the completed valuations on the property and equipment, the final purchase price accounting may be different than what is presented above.
The fair values of the remaining Cascade Kelly assets and liabilities noted above approximate their carrying values at February 15, 2013.
The preliminary purchase price for the acquisition was allocated to assets acquired and liabilities assumed based on their estimated fair values. The Partnership then allocated the purchase price in excess of net tangible assets acquired to identifiable intangible assets, if any, based upon on their estimates and assumptions.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Business Combinations (continued)
2012 Acquisition
Alliance Energy LLCOn March 1, 2012, pursuant to a Contribution Agreement between the Partnership and AE Holdings (the Contribution Agreement), the Partnership acquired from AE Holdings 100% of the outstanding membership interests in Alliance, a gasoline distributor and operator of gasoline stations and convenience stores. The aggregate purchase price of the acquisition was approximately $312.4 million, consisting of both cash and non-cash components. Alliance was an affiliate of the Partnership as Alliance was owned by AE Holdings which is approximately 95% owned by members of the Slifka family. Both the Partnership and Alliance shared certain common directors.
The acquisition was accounted for using the purchase method of accounting in accordance with the FASBs guidance regarding business combinations. The Partnerships financial statements include the results of operations of Alliance subsequent to the acquisition date.
The purchase price includes cash consideration of $181.9 million which was funded by the Partnership through additional borrowings under its revolving credit facility. The consideration also includes the issuance of 5,850,000 common units representing limited partner interests in the Partnership which had a fair value of $22.31 per unit on March 1, 2012, resulting in equity consideration of $130.5 million.
The purchase price for the acquisition was allocated to assets acquired and liabilities assumed based on their estimated fair values with the exception of environmental liabilities which were recorded on an undiscounted basis (see Note 12). The Partnership then allocated the purchase price in excess of net tangible assets acquired to identifiable intangible assets, based upon a valuation from an independent third party. Any excess purchase price over the fair value of the net tangible and intangible assets acquired was allocated to goodwill and assigned to the Gasoline Distribution and Station Operations reporting unit.
Goodwill The following table presents a summary roll forward of the Partnerships goodwill at September 30, 2013 (in thousands):
|
|
Goodwill at |
|
|
|
Goodwill at |
| |||
|
|
December 31, |
|
2013 |
|
September 30, |
| |||
|
|
2012 |
|
Additions |
|
2013 |
| |||
Acquisition of Alliance (1) |
|
$ |
31,151 |
|
$ |
|
|
$ |
31,151 |
|
Acquisition of gasoline stations from Mutual Oil Company (1) |
|
1,175 |
|
|
|
1,175 |
| |||
Acquisition of 60% interest in Basin Transload (2) |
|
|
|
86,064 |
|
86,064 |
| |||
Total |
|
$ |
32,326 |
|
$ |
86,064 |
|
$ |
118,390 |
|
(1) Goodwill allocated to the Gasoline Distribution and Station Operations reporting unit
(2) Goodwill allocated to the Wholesale reporting unit
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Business Combinations (continued)
Supplemental Pro-Forma Information Revenues and net income included in the Partnerships consolidated operating results for Basin Transload from January 1, 2013 to February 1, 2013, the acquisition date, and for Cascade Kelly from January 1, 2013 to February 15, 2013, the acquisition date, were immaterial. Accordingly, the supplemental pro-forma information for the nine months ended September 30, 2013 is consistent with the amounts reported in the accompanying statement of income for the nine months ended September 30, 2013.
The following unaudited pro-forma information presents the consolidated results of operations of the Partnership as if the acquisitions of Basin Transload, Cascade Kelly and Alliance occurred at the beginning of the period presented, with pro-forma adjustments to give effect to intercompany sales and certain other adjustments (in thousands, except per unit data):
|
|
Nine Months Ended |
| |
|
|
September 30, 2012 |
| |
|
|
|
| |
Sales |
|
$ |
12,758,170 |
|
Net loss |
|
$ |
(4,194 |
) |
Net loss per limited partner unit, basic and diluted |
|
$ |
(0.17 |
) |
The Partnerships 60% interest in Basin Transloads sales and net loss included in the Partnerships consolidated operating results from February 1, 2013, the acquisition date, through the period ended September 30, 2013 were $6.4 million and $2.9 million, respectively. Cascade Kellys sales and net loss included in the Partnerships consolidated operating results from February 15, 2013, the acquisition date, through the period ended September 30, 2013 were $7.7 million and $1.3 million, respectively.
Note 4. Net Income Per Limited Partner Unit
Under the Partnerships partnership agreement, for any quarterly period, the incentive distribution rights (IDRs) participate in net income only to the extent of the amount of cash distributions actually declared, thereby excluding the IDRs from participating in the Partnerships undistributed net income or losses. Accordingly, the Partnerships undistributed net income is assumed to be allocated to the common unitholders, or limited partners interest, and to the General Partners general partner interest.
At September 30, 2013 and December 31, 2012, common units outstanding as reported in the accompanying consolidated financial statements excluded 162,316 and 119,915 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).
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4. Net Income Per Limited Partner Unit (continued)
The following table provides a reconciliation of net income and the assumed allocation of net income to the limited partners interest for purposes of computing net income per limited partner unit for the three and nine months ended September 30, 2013 and 2012 (in thousands, except per unit data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
Three Months Ended September 30, 2013 |
|
|
Three Months Ended September 30, 2012 |
| |||||||||||||||||||||
Numerator: |
|
Total |
|
Limited |
|
General |
|
IDRs |
|
|
Total |
|
Limited |
|
General |
|
IDRs |
| |||||||||
Net income attributable to Global Partners LP |
|
$ |
25,815 |
|
$ |
24,773 |
|
$ |
1,042 |
|
$ |
|
|
|
$ |
6,893 |
|
$ |
6,577 |
|
$ |
316 |
|
$ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Declared distribution |
|
$ |
17,425 |
|
$ |
16,459 |
|
$ |
138 |
|
$ |
828 |
|
|
$ |
15,019 |
|
$ |
14,607 |
|
$ |
122 |
|
$ |
290 |
| |
Assumed allocation of undistributed net income |
|
8,390 |
|
8,314 |
|
76 |
|
|
|
|
(8,126 |
) |
(8,030 |
) |
(96 |
) |
|
| |||||||||
Assumed allocation of net income |
|
$ |
25,815 |
|
$ |
24,773 |
|
$ |
214 |
|
$ |
828 |
|
|
$ |
6,893 |
|
$ |
6,577 |
|
$ |
26 |
|
$ |
290 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Basic weighted average limited partner units outstanding |
|
|
|
27,333 |
|
|
|
|
|
|
|
|
27,311 |
|
|
|
|
| |||||||||
Dilutive effect of phantom units |
|
|
|
|
|
|
|
|
|
|
|
|
|
174 |
|
|
|
|
| ||||||||
Diluted weighted average limited partner units outstanding |
|
|
|
27,333 |
|
|
|
|
|
|
|
|
27,485 |
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Basic net income per limited partner unit |
|
|
|
$ |
0.91 |
|
|
|
|
|
|
|
|
$ |
0.24 |
|
|
|
|
| |||||||
Diluted net income per limited partner unit (1) |
|
|
|
$ |
0.91 |
|
|
|
|
|
|
|
|
$ |
0.24 |
|
|
|
|
| |||||||
(1) Basic units were used to calculate diluted net income per limited partner unit for the three months ended September 30, 2013 as using the effects of the phantom units would have an anti-dilutive effect on income per limited partner unit.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4. Net Income Per Limited Partner Unit (continued)
|
|
Nine Months Ended September 30, 2013 |
|
|
Nine Months Ended September 30, 2012 |
| ||||||||||||||||||||
Numerator: |
|
Total |
|
Limited |
|
General |
|
IDRs |
|
|
Total |
|
Limited |
|
General |
|
IDRs |
| ||||||||
Net income attributable to Global Partners LP (1) |
|
$ |
8,573 |
|
$ |
6,267 |
|
$ |
2,306 |
|
$ |
|
|
|
$ |
24,008 |
|
$ |
23,275 |
|
$ |
733 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Declared distribution |
|
$ |
51,196 |
|
$ |
48,554 |
|
$ |
407 |
|
$ |
2,235 |
|
|
$ |
43,786 |
|
$ |
42,724 |
|
$ |
358 |
|
$ |
704 |
|
Adjustment to distribution in connection with the Alliance acquisition (2) |
|
|
|
|
|
|
|
|
|
|
(1,929 |
) |
(1,929 |
) |
|
|
|
| ||||||||
Adjusted declared distribution |
|
51,196 |
|
48,554 |
|
407 |
|
2,235 |
|
|
41,857 |
|
40,795 |
|
358 |
|
704 |
| ||||||||
Assumed allocation of undistributed net income |
|
(42,623 |
) |
(42,287 |
) |
(336 |
) |
|
|
|
(17,849 |
) |
(17,520 |
) |
(329 |
) |
|
| ||||||||
Assumed allocation of net income |
|
$ |
8,573 |
|
$ |
6,267 |
|
$ |
71 |
|
$ |
2,235 |
|
|
$ |
24,008 |
|
$ |
23,275 |
|
$ |
29 |
|
$ |
704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic weighted average limited partner units outstanding |
|
|
|
27,350 |
|
|
|
|
|
|
|
|
26,085 |
|
|
|
|
| ||||||||
Dilutive effect of phantom units |
|
|
|
243 |
|
|
|
|
|
|
|
|
|
173 |
|
|
|
|
| |||||||
Diluted weighted average limited partner units outstanding |
|
|
|
27,593 |
|
|
|
|
|
|
|
|
26,258 |
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic net income per limited partner unit |
|
|
|
$ |
0.23 |
|
|
|
|
|
|
|
|
$ |
0.89 |
|
|
|
|
| ||||||
Diluted net income per limited partner unit |
|
|
|
$ |
0.23 |
|
|
|
|
|
|
|
|
$ |
0.89 |
|
|
|
|
|
(1) Calculation includes the effect of the March 1, 2012 issuance of 5,850,000 common units in connection with the acquisition of Alliance. As a result, the general partner interest was 0.83% for the nine months ended September 30, 2013 and, based on a weighted average, 0.87% for the nine months ended September 30, 2012.
(2) In connection with the acquisition of Alliance on March 1, 2012 and the issuance of 5,850,000 common units, the Contribution Agreement provided that any declared distribution for the first quarter of 2012 reflect the sellers actual period of ownership during that quarter. The payment by the seller of $1.9 million reflects the timing of the transaction (March 1), the sellers 31 days of actual unit ownership in the 91 days of the quarter and the net receipt by seller ($1.0 million) of a pro-rated portion of the quarterly cash distribution of $0.50 per unit paid on the issued 5,850,000 common units.
On April 24, 2013, the board of directors of the General Partner declared a quarterly cash distribution of $0.5825 per unit for the period from January 1, 2013 through March 31, 2013. On July 23, 2013, the board of directors of the General Partner declared a quarterly cash distribution of $0.5875 per unit for the period from April 1, 2013 through June 30, 2013. On October 23, 2013, the board of directors of the General Partner declared a quarterly cash distribution of $0.60 per unit for the period from July 1, 2013 through September 30, 2013. These declared cash distributions result in incentive distributions to the General Partner, as the holder of the IDRs, and enable the Partnership to exceed its second target level distribution with respect to such IDRs. See Note 9, Cash Distributions for further information.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Inventories
Except for its convenience store inventory and its RIN inventory, the Partnership hedges substantially all of its inventory, primarily through futures contracts. These futures contracts are entered into when inventory is purchased and are designated as fair value hedges against the inventory on a specific barrel basis. Changes in the fair value of these contracts, as well as the offsetting gain or loss on the hedged inventory item, are recognized in earnings as an increase or decrease in cost of sales. All hedged inventory is valued using the lower of cost, as determined by specific identification, or market. Prior to sale, hedges are removed from specific barrels of inventory, and the then unhedged inventory is sold and accounted for on a first-in, first-out basis. In addition, the Partnership has convenience store inventory and RIN inventory which are carried at the lower of historical cost or market. Inventory from Cascade Kelly was nominal at September 30, 2013 and is carried at the lower of cost or market.
Inventories consisted of the following (in thousands):
|
|
September 30, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
Distillates: home heating oil, diesel and kerosene |
|
$ |
165,561 |
|
$ |
235,029 |
|
Gasoline |
|
82,061 |
|
144,269 |
| ||
Gasoline blendstocks |
|
36,875 |
|
119,932 |
| ||
Renewable identification numbers (RINs) |
|
5,854 |
|
19,384 |
| ||
Crude oil |
|
60,837 |
|
80,273 |
| ||
Residual oil |
|
36,649 |
|
29,150 |
| ||
Propane and other |
|
2,411 |
|
|
| ||
Convenience store inventory |
|
7,164 |
|
6,630 |
| ||
Total |
|
$ |
397,412 |
|
$ |
634,667 |
|
In addition to its own inventory, the Partnership has exchange agreements for petroleum products with unrelated third-party suppliers, whereby it may draw inventory from these other suppliers and suppliers may draw inventory from the Partnership. Positive exchange balances are accounted for as accounts receivable and amounted to $49.2 million and $120.9 million at September 30, 2013 and December 31, 2012, respectively. Negative exchange balances are accounted for as accounts payable and amounted to $40.4 million and $139.5 million at September 30, 2013 and December 31, 2012, respectively. Exchange transactions are valued using current carrying costs.
Note 6. Derivative Financial Instruments
Accounting and reporting guidance for derivative instruments and hedging activities requires that an entity recognize derivatives as either assets or liabilities on the balance sheet and measure the instruments at fair value. Changes in the fair value of the derivative are to be recognized currently in earnings, unless specific hedge accounting criteria are met. The Partnership principally uses derivative instruments to hedge the commodity risk associated with its inventory and product purchases and sales and to hedge variable interest rates associated with the Partnerships credit facilities.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Derivative Financial Instruments (continued)
The following table presents the volume of activity related to the Partnerships derivative financial instruments at September 30, 2013:
|
|
Units (1) |
|
|
Unit of Measure |
|
|
|
|
|
|
|
|
|
|
Futures Contracts |
|
|
|
|
|
|
|
Long |
|
19,639 |
|
|
Thousands of barrels |
|
|
Short |
|
(23,968 |
) |
|
Thousands of barrels |
|
|
|
|
|
|
|
|
|
|
Natural Gas Contracts |
|
|
|
|
|
|
|
Long |
|
7,481 |
|
|
Thousands of decatherms |
|
|
Short |
|
(7,481 |
) |
|
Thousands of decatherms |
|
|
|
|
|
|
|
|
|
|
Interest Rate Collar |
$ |
100.0 |
|
|
Millions of U.S. dollars |
|
|
Interest Rate Swap |
$ |
100.0 |
|
|
Millions of U.S. dollars |
|
|
Interest Rate Cap |
$ |
100.0 |
|
|
Millions of U.S. dollars |
|
|
|
|
|
|
|
|
|
|
Foreign Currency Derivatives |
|
|
|
|
|
|
|
Open Forward Exchange Contracts (2) |
$ |
23.8 |
|
|
Millions of Canadian dollars |
|
|
|
$ |
23.1 |
|
|
Millions of U.S. dollars |
|
|
(1) Number of open positions and gross notional amounts do not quantify risk or represent assets or liabilities of the Partnership, but are used in the calculation of daily cash settlements under the contracts.
(2) All-in forward rate Canadian dollars (CAD) $1.0311 to USD $1.00.
Fair Value Hedges
The Partnership enters into futures contracts in the normal course of business to reduce the risk of loss of inventory value, which could result from fluctuations in market prices. These futures contracts are designated as fair value hedges against the inventory with specific futures contracts matched to specific barrels of inventory. As a result of the Partnerships hedge designation on these transactions, the futures contracts are recorded on the Partnerships consolidated balance sheet and marked to market through the use of independent markets based on the prevailing market prices of such instruments at the date of valuation. Likewise, the underlying inventory being hedged is also marked to market. Changes in the fair value of the futures contracts, as well as the change in the fair value of the hedged inventory, are recognized in the consolidated statement of income through cost of sales. These futures contracts are settled on a daily basis by the Partnership through brokerage margin accounts.
The Partnerships futures contracts are settled daily; therefore, there was no corresponding asset or liability on the Partnerships consolidated balance sheet related to these contracts at September 30, 2013 and December 31, 2012. These contracts remain open until their contract end date. The daily settlement of these futures contracts is accomplished through the use of brokerage margin deposit accounts.
GLOBAL PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Derivative Financial Instruments (continued)
The following table presents the hedge ineffectiveness from derivatives involved in fair value hedging relationships recognized in the Partnerships consolidated statements of income for the three and nine months ended September 30, 2013 and 2012 (in thousands):
|
|
|
|
Amount of Gain (Loss) Recognized in |
| ||||||||||
|
|
|
|
Income on Derivatives |
| ||||||||||
|
|
Location of Gain (Loss) |
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
Derivatives in Fair Value |
|
Recognized in |
|
September 30, |
|
September 30, |
| ||||||||
Hedging Relationships |
|
Income on Derivative |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Futures contracts |
|
Cost of sales |
|
$ |
(4,348 |
) |
$ |
(100,666 |
) |
$ |
15,753 |
|
$ |
(110,114 |
) |
|
|
|
|
Amount of Gain (Loss) Recognized in |
| ||||||||||
|
|
|
|
Income on Hedged Items |
| ||||||||||
|
|
Location of Gain (Loss) |
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
Hedged Items in Fair Value |
|
Recognized in |
|
September 30, |
|
September 30, |
| ||||||||
Hedged Relationships |
|
Income on Hedged Items |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Inventories |
|
Cost of sales |
|
$ |
4,545 |
|
$ |
100,765 |
|
$ |
(15,033 |
) |
$ |
110,368 |
|
Cash Flow Hedges
The Partnership utilizes various interest rate derivative instruments to hedge variable interest rate on its debt. These derivative instruments are designated as cash flow hedges of the underlying debt. To the extent such hedges are effective, the changes in the fair value of the derivative instrument are reported as a component of other comprehensive income (loss) and reclassified into interest expense or interest income in the same period during which the hedged transaction affects earnings.
In September 2008, the Partnership executed a zero premium interest rate collar with a major financial institution. The collar, which became effective on October 2, 2008 and expired on October 2, 2013, was used to hedge the variability in cash flows in monthly interest payments made on $100.0 million of one-month LIBOR-based borrowings on the credit facility (and subsequent refinancings thereof) due to changes in the one-month LIBOR rate.
In October 2009, the Partnership executed an interest rate swap with a major financial institution. The swap, which became effective on May 16, 2011 and expires on May 16, 2016, is used to hedge the variability in interest payments due to changes in the one-month LIBOR swap curve with respect to $100.0 million of one-month LIBOR-based borrowings on the credit facility at a fixed rate of 3.93%.
In April 2011, the Partnership executed an interest rate cap with a major financial institution. The rate cap, which became effective on April 13, 2011 and expires on April 13, 2016, is used to hedge the variability in interest payments due to changes in the one-month LIBOR rate above 5.5% with