Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-32593
Global Partners LP
(Exact name of registrant as specified in its charter)
Delaware
74-3140887
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
P.O. Box 9161800 South StreetWaltham, Massachusetts 02454-9161(Address of principal executive offices, including zip code)
(781) 894-8800(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Units representing limited partner interests
GLP
New York Stock Exchange
9.75% Series A Fixed-to-Floating Rate Cumulative Redeemable
GLP pr A
Perpetual Preferred Units representing limited partner interests
9.50% Series B Fixed Rate Cumulative Redeemable
GLP pr B
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The issuer had 33,995,563 common units outstanding as of May 4, 2022.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
3
Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021
Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021
4
Consolidated Statements of Comprehensive Income (loss) for the three months ended March 31, 2022 and 2021
5
Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021
6
Consolidated Statements of Partners’ Equity for the three months ended March 31, 2022 and 2021
7
Notes to Consolidated Financial Statements
8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
33
Item 3. Quantitative and Qualitative Disclosures About Market Risk
56
Item 4. Controls and Procedures
57
PART II. OTHER INFORMATION
58
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
SIGNATURES
60
Item 1.Financial Statements
GLOBAL PARTNERS LP
CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data)
(Unaudited)
March 31,
December 31,
2022
2021
Assets
Current assets:
Cash and cash equivalents
$
10,834
10,849
Accounts receivable, net
526,098
411,194
Accounts receivable—affiliates
2,238
1,139
Inventories
511,905
509,517
Brokerage margin deposits
53,563
33,658
Derivative assets
17,828
11,652
Prepaid expenses and other current assets
77,935
87,076
Total current assets
1,200,401
1,065,085
Property and equipment, net
1,202,867
1,099,348
Right of use assets, net
277,157
280,284
Intangible assets, net
33,207
26,014
Goodwill
409,424
328,135
Other assets
30,016
32,299
Total assets
3,153,072
2,831,165
Liabilities and partners’ equity
Current liabilities:
Accounts payable
466,275
353,296
Working capital revolving credit facility—current portion
178,600
204,700
Lease liability—current portion
57,514
62,352
Environmental liabilities—current portion
4,642
Trustee taxes payable
43,881
44,223
Accrued expenses and other current liabilities
105,013
138,733
Derivative liabilities
52,008
31,654
Total current liabilities
907,933
839,600
Working capital revolving credit facility—less current portion
200,000
150,000
Revolving credit facility
228,000
43,400
Senior notes
739,736
739,310
Long-term lease liability—less current portion
228,702
228,203
Environmental liabilities—less current portion
59,913
48,163
Financing obligations
143,837
144,444
Deferred tax liabilities
57,279
56,817
Other long—term liabilities
55,066
53,461
Total liabilities
2,620,466
2,303,398
Partners’ equity
Series A preferred limited partners (2,760,000 units issued and outstanding at March 31, 2022 and December 31, 2021)
67,226
Series B preferred limited partners (3,000,000 units issued and outstanding at March 31, 2022 and December 31, 2021)
72,305
Common limited partners (33,995,563 units issued and 33,953,227 outstanding at March 31, 2022 and 33,995,563 units issued and 33,953,227 outstanding at December 31, 2021)
398,267
392,086
General partner interest (0.67% interest with 230,303 equivalent units outstanding at March 31, 2022 and December 31, 2021)
(1,783)
(1,948)
Accumulated other comprehensive loss
(3,409)
(1,902)
Total partners’ equity
532,606
527,767
Total liabilities and partners’ equity
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
Three Months Ended
Sales
4,500,538
2,553,327
Cost of sales
4,294,300
2,408,295
Gross profit
206,238
145,032
Costs and operating expenses:
Selling, general and administrative expenses
56,281
46,324
Operating expenses
99,233
80,528
Amortization expense
2,499
2,723
Net gain on sale and disposition of assets
(4,911)
(475)
Total costs and operating expenses
153,102
129,100
Operating income
53,136
15,932
Interest expense
(21,474)
(20,359)
Income before income tax (expense) benefit
31,662
(4,427)
Income tax (expense) benefit
(1,177)
130
Net income (loss)
30,485
(4,297)
Less: General partner’s interest in net income (loss), including incentive distribution rights
1,177
739
Less: Preferred limited partner interest in net income
3,463
1,820
Net income (loss) attributable to common limited partners
25,845
(6,856)
Basic net income (loss) per common limited partner unit
0.76
(0.20)
Diluted net income (loss) per common limited partner unit
Basic weighted average common limited partner units outstanding
33,953
33,967
Diluted weighted average common limited partner units outstanding
34,085
34,296
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Other comprehensive (loss) income:
Change in fair value of cash flow hedges
—
2,052
Change in pension liability
(1,507)
46
Total other comprehensive (loss) income
2,098
Comprehensive income (loss)
28,978
(2,199)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization
26,701
24,975
Amortization of deferred financing fees
1,390
1,344
Bad debt expense
51
(68)
Unit-based compensation expense
204
259
Changes in operating assets and liabilities:
Accounts receivable
(114,955)
(86,794)
Accounts receivable-affiliate
(1,099)
(2,110)
2,229
(84,024)
Broker margin deposits
(19,905)
(9,687)
Prepaid expenses, all other current assets and other assets
10,658
33,628
112,979
30,118
(342)
4,332
Change in derivatives
14,178
16,918
Accrued expenses, all other current liabilities and other long-term liabilities
(35,035)
(30,102)
Net cash provided by (used in) operating activities
22,628
(105,983)
Cash flows from investing activities
Acquisitions
(214,894)
(7,071)
Capital expenditures
(17,093)
(16,901)
Seller note issuances
(1,690)
Proceeds from sale of property and equipment
25,187
2,994
Net cash used in investing activities
(206,800)
(22,668)
Cash flows from financing activities
Net proceeds from issuance of Series B preferred units
72,167
Net borrowings from working capital revolving credit facility
23,900
168,000
Net borrowings from (payments on) revolving credit facility
184,600
(88,600)
LTIP units withheld for tax obligations
(6)
(26)
Distributions to limited partners and general partner
(24,337)
(21,006)
Net cash provided by financing activities
184,157
130,535
(Decrease) increase in cash and cash equivalents
(15)
1,884
Cash and cash equivalents at beginning of period
9,714
Cash and cash equivalents at end of period
11,598
Supplemental information
Cash paid during the period for interest
29,524
16,235
CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY
Series A
Series B
Accumulated
Preferred
Common
General
Other
Total
Limited
Partner
Comprehensive
Partners’
Three months ended March 31, 2022
Partners
Interest
Income (Loss)
Equity
Balance at December 31, 2021
Net income
1,682
1,781
(1,682)
(1,781)
(19,887)
(1,012)
(24,362)
Unit-based compensation
Other comprehensive income
Dividends on repurchased units
25
Balance at March 31, 2022
Three months ended March 31, 2021
Balance at December 31, 2020
428,842
(2,169)
1,600
495,499
Issuance of Series B preferred units
138
(18,698)
(642)
(21,022)
16
Balance at March 31, 2021
403,537
(2,072)
3,698
544,694
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation
Organization
Global Partners LP (the “Partnership”) is a master limited partnership formed in March 2005. The Partnership owns, controls or has access to one of the largest terminal networks of refined petroleum products and renewable fuels in Massachusetts, Maine, Connecticut, Vermont, New Hampshire, Rhode Island, New York, New Jersey and Pennsylvania (collectively, the “Northeast”). The Partnership is one of the region’s largest independent owners, suppliers and operators of gasoline stations and convenience stores. As of March 31, 2022, the Partnership had a portfolio of 1,689 owned, leased and/or supplied gasoline stations, including 342 directly operated convenience stores, primarily in the Northeast. The Partnership is also one of the largest distributors of gasoline, distillates, residual oil and renewable fuels to wholesalers, retailers and commercial customers in the New England states and New York. The Partnership engages in the purchasing, selling, gathering, blending, storing and logistics of transporting petroleum and related products, including gasoline and gasoline blendstocks (such as ethanol), distillates (such as home heating oil, diesel and kerosene), residual oil, renewable fuels, crude oil and propane and in the transportation of petroleum products and renewable fuels by rail from the mid-continent region of the United States and Canada.
Global GP LLC, the Partnership’s general partner (the “General Partner”), manages the Partnership’s operations and activities and employs its officers and substantially all of its personnel, except for most of its gasoline station and convenience store employees who are employed by Global Montello Group Corp. (“GMG”), a wholly owned subsidiary of the Partnership.
The General Partner, which holds a 0.67% general partner interest in the Partnership, is owned by affiliates of the Slifka family. As of March 31, 2022, affiliates of the General Partner, including its directors and executive officers and their affiliates, owned 6,173,345 common units, representing a 18.2% limited partner interest.
COVID-19 Pandemic
The COVID-19 pandemic continues to make its presence felt at home, in the workplace, at the Partnership’s retail sites and terminal locations and in the global supply chain. The Partnership remains active in responding to the challenges posed by the COVID-19 pandemic and continues to provide essential products and services while prioritizing the safety of its employees, customers and vendors in the communities where the Partnership operates.
2022 Events
Amendments to the Credit Agreement—On March 9, 2022, the Partnership and certain of its subsidiaries entered into the sixth amendment to third amended and restated credit agreement which, among other things, increased the total aggregate commitment to $1.55 billion. On March 30, 2022, the Partnership and certain of its subsidiaries entered into the seventh amendment to third amended and restated credit agreement which, among other things, refreshed the accordion feature under the credit agreement. See Note 7 for additional information on these amendments.
Acquisitions—On February 1, 2022, the Partnership acquired substantially all of the retail motor fuel assets from Miller Oil Co., Inc. (“Miller Oil”). See Note 2.
On January 25, 2022, the Partnership acquired substantially all of the assets from Connecticut-based Consumers Petroleum of Connecticut, Incorporated (“Consumers Petroleum”). See Note 2.
Basis of Presentation
The financial results of Miller Oil and Consumers Petroleum since the respective acquisition date are included in the accompanying statement of operations for the three months ended March 31, 2022. The accompanying consolidated financial statements as of March 31, 2022 and December 31, 2021 and for the three months ended March 31, 2022 and 2021 reflect the accounts of the Partnership. Upon consolidation, all intercompany balances and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial condition and operating results for the interim periods. The interim financial information, which has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), should be read in conjunction with the consolidated financial statements for the year ended December 31, 2021 and notes thereto contained in the Partnership’s Annual Report on Form 10-K. The significant accounting policies described in Note 2, “Summary of Significant Accounting Policies,” of such Annual Report on Form 10-K are the same used in preparing the accompanying consolidated financial statements.
The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2022. The consolidated balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2021.
Concentration of Risk
Due to the nature of the Partnership’s businesses and its reliance, in part, on consumer travel and spending patterns, the Partnership may experience more demand for gasoline during the late spring and summer months than during the fall and winter months. Travel and recreational activities are typically higher in these months in the geographic areas in which the Partnership operates, increasing the demand for gasoline. Therefore, the Partnership’s volumes in gasoline are typically higher in the second and third quarters of the calendar year. However, the COVID-19 pandemic has had a negative impact on gasoline demand and the extent and duration of that impact remains uncertain. As demand for some of the Partnership’s refined petroleum products, specifically home heating oil and residual oil for space heating purposes, is generally greater during the winter months, heating oil and residual oil volumes are generally higher during the first and fourth quarters of the calendar year. These factors may result in fluctuations in the Partnership’s quarterly operating results.
The following table presents the Partnership’s product sales and other revenues as a percentage of the consolidated sales for the periods presented:
Gasoline sales: gasoline and gasoline blendstocks (such as ethanol)
%
62
Distillates (home heating oil, diesel and kerosene) and residual oil sales
37
Crude oil sales and crude oil logistics revenue
1
Convenience store and prepared food sales, rental income and sundries
100
9
The following table presents the Partnership’s product margin by segment as a percentage of the consolidated product margin for the periods presented:
Wholesale segment
21
18
Gasoline Distribution and Station Operations segment
76
79
Commercial segment
See Note 13, “Segment Reporting,” for additional information on the Partnership’s operating segments.
None of the Partnership’s customers accounted for greater than 10% of total sales for the three months ended March 31, 2022 and 2021.
Note 2. Business Combinations
Acquisition from Miller Oil Co., Inc.—On February 1, 2022, the Partnership acquired substantially all of the retail motor fuel assets from Miller Oil in a cash transaction. The acquisition includes 21 company-operated Miller’s Neighborhood Market convenience stores and 2 fuel sites that are either owned or leased, including lessee dealer and commissioned agent locations, all located in Virginia, and 34 fuel supply only sites, primarily in Virginia. The purchase price was approximately $60.2 million, including inventory. The acquisition was funded with borrowings under the Partnership’s revolving credit facility.
The preliminary fair values of the assets acquired and liabilities assumed as of February 1, 2022, the acquisition date, are set forth in the table below. The excess of the purchase price over the aggregate acquisition date value of identifiable net assets acquired was recorded as goodwill and assigned to the GDSO segment. Substantially all of the goodwill is expected to be deductible for tax purposes. These preliminary acquisition date values were generally determined through established and generally accepted valuation techniques and are subject to change during the measurement period as valuations are finalized. As a result, the acquisition accounting is not complete, and additional information that existed at the acquisition date may become known to the Partnership during the remainder of the measurement period. As of the filing date of this Form 10-Q, the Partnership is still in the process of valuing the assets acquired from Miller Oil, including inventory, property and equipment, right of use assets, intangible assets and liabilities.
10
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:
Inventory
2,317
Property and equipment
37,530
Right of use assets
5,139
Intangibles
5,555
Total identifiable assets purchased
50,541
Liabilities assumed:
(851)
Environmental liabilities
(4,596)
Lease liability
(5,969)
Other non-current liabilities
(406)
Total liabilities assumed
(11,822)
Net identifiable assets acquired
38,719
21,448
Net assets acquired
60,167
The fair values of the remaining assets and liabilities noted above approximate their carrying values at February 1, 2022.
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 dealer supply contracts that are being amortized over three to eight years. Amortization expense related to the intangible assets was immaterial for the three months ended March 31, 2022.
In connection with the acquisition of Miller Oil, the Partnership incurred acquisition costs of approximately $0.4 million for the three months ended March 31, 2022, which are included in selling, general and administrative expenses in the accompanying consolidated statement of operations.
Acquisition from Consumers Petroleum of Connecticut Incorporated—On January 25, 2022, the Partnership acquired substantially all of the assets from Consumers Petroleum in a cash transaction. The acquisition includes 26 company-owned Wheels convenience stores and related fuel operations located in Connecticut and 22 fuel-supply only sites located in Connecticut and New York. The purchase price, subject to post-closing adjustments, was approximately $154.7 million, including inventory. The acquisition was funded with borrowings under the Partnership’s revolving credit facility.
The preliminary fair values of the assets acquired and liabilities assumed as of January 25, 2022, the acquisition date, are set forth in the table below. The excess of the purchase price over the aggregate acquisition date value of identifiable net assets acquired was recorded as goodwill and assigned to the GDSO segment. Substantially all of the goodwill is expected to be deductible for tax purposes. These preliminary acquisition date values were generally determined through established and generally accepted valuation techniques and are subject to change during the measurement period as valuations are finalized. As a result, the acquisition accounting is not complete, and additional
11
information that existed at the acquisition date may become known to the Partnership during the remainder of the measurement period. As of the filing date of this Form 10-Q, the Partnership is still in the process of valuing the assets acquired from Consumers Petroleum, including inventory, property and equipment, right of use assets, intangible assets and liabilities.
2,475
88,288
4,482
4,136
Other non-current assets
182
99,563
(7,256)
(2,372)
(329)
(9,957)
89,606
65,121
154,727
The fair values of the remaining assets and liabilities noted above approximate their carrying values at January 25, 2022.
As part of the purchase price allocation, identifiable intangible assets include dealer supply contracts that are being amortized over four to eight years. Amortization expense related to the intangible assets was immaterial for the three months ended March 31, 2022.
In connection with the acquisition of Consumers Petroleum, the Partnership incurred acquisition costs of approximately $0.9 million for the three months ended March 31, 2022, which are included in selling, general and administrative expenses in the accompanying consolidated statement of operations.
Supplemental Pro Forma Information—Revenues and net income not included in the Partnership’s consolidated operating results for Miller Oil and Consumers Petroleum from January 1, 2022 through the respective acquisition date were immaterial.
12
Note 3. Revenue from Contract Customers
Disaggregation of Revenue
The following table provides the disaggregation of revenue from contracts with customers and other sales by segment for the periods presented (in thousands):
Three Months Ended March 31, 2022
Revenue from contracts with customers:
Wholesale
GDSO
Commercial
Refined petroleum products, renewable fuels and crude oil
1,011,786
1,276,961
222,573
2,511,320
Station operations
96,566
Total revenue from contracts with customers
1,373,527
2,607,886
Other sales:
Revenue originating as physical forward contracts and exchanges
1,765,004
107,409
1,872,413
Revenue from leases
913
19,326
20,239
Total other sales
1,765,917
1,892,652
Total sales
2,777,703
1,392,853
329,982
Three Months Ended March 31, 2021
684,014
756,008
18,784
1,458,806
81,848
837,856
1,540,654
866,904
126,886
993,790
567
18,316
18,883
867,471
1,012,673
1,551,485
856,172
145,670
Contract Balances
A receivable, which is included in accounts receivable, net in the accompanying consolidated balance sheets, is recognized in the period the Partnership provides services when its right to consideration is unconditional. In contrast, a contract asset will be recognized when the Partnership has fulfilled a contract obligation but must perform other obligations before being entitled to payment.
The nature of the receivables related to revenue from contracts with customers and other revenue, as well as contract assets, are the same, given they are related to the same customers and have the same risk profile and securitization. Payment terms on invoiced amounts are typically 2 to 30 days.
A contract liability is recognized when the Partnership has an obligation to transfer goods or services to a customer for which the Partnership has received consideration (or the amount is due) from the customer. The Partnership had no significant contract liabilities at both March 31, 2022 and December 31, 2021.
13
Note 4. Inventories
The Partnership hedges substantially all of its petroleum and ethanol inventory using a variety of instruments, primarily exchange-traded futures contracts. These futures contracts are entered into when inventory is purchased and are either designated as fair value hedges against the inventory on a specific barrel basis for inventories qualifying for fair value hedge accounting or not designated and maintained as economic hedges against certain inventory of the Partnership on a specific barrel basis. Changes in fair value of these futures contracts, as well as the offsetting change in fair value on the hedged inventory, are recognized in earnings as an increase or decrease in cost of sales. All hedged inventory designated in a fair value hedge relationship is valued using the lower of cost, as determined by specific identification, or net realizable value, as determined at the product level. All petroleum and ethanol inventory not designated in a fair value hedging relationship is carried at the lower of historical cost, on a first-in, first-out basis, or net realizable value. Renewable Identification Numbers (“RINs”) inventory is carried at the lower of historical cost, on a first-in, first-out basis, or net realizable value. Convenience store inventory is carried at the lower of historical cost, based on a weighted average cost method, or net realizable value.
Inventories consisted of the following (in thousands):
Distillates: home heating oil, diesel and kerosene
134,882
244,067
Gasoline
202,582
123,824
Gasoline blendstocks
96,331
50,599
Crude oil
3,252
3,678
Residual oil
41,357
60,286
Renewable identification numbers (RINs)
6,462
4,218
Convenience store inventory
27,039
22,845
In addition to its own inventory, the Partnership has exchange agreements for petroleum products and ethanol with unrelated third-party suppliers, whereby it may draw inventory from these other suppliers and suppliers may draw inventory from the Partnership. Positive exchange balances are accounted for as accounts receivable and amounted to $1.0 million and $1.3 million at March 31, 2022 and December 31, 2021, respectively. Negative exchange balances are accounted for as accounts payable and amounted to $32.2 million and $20.6 million at March 31, 2022 and December 31, 2021, respectively. Exchange transactions are valued using current carrying costs.
Note 5. Goodwill
The following table presents changes in goodwill, all of which has been allocated to the Gasoline Distribution and Station Operations (“GDSO”) segment (in thousands):
Acquisition of Miller Oil (1)
Acquisition of Consumers Petroleum (1)
Dispositions (2)
(5,280)
14
Note 6. Property and Equipment
Property and equipment consisted of the following (in thousands):
Buildings and improvements
1,393,464
1,327,002
Land
516,278
457,260
Fixtures and equipment
39,232
38,646
Idle plant assets
30,500
Construction in process
50,591
52,716
Capitalized internal use software
32,740
Total property and equipment
2,062,805
1,938,864
Less accumulated depreciation
859,938
839,516
Property and equipment includes retail gasoline station assets held for sale of $0 and $6.1 million at March 31, 2022 and December 31, 2021, respectively, and terminal assets held for sale of $26.5 million and $26.3 million at March 31, 2022 and December 31, 2021, respectively.
At March 31, 2022, the Partnership had a $39.1 million remaining net book value of long-lived assets at its West Coast facility, including $30.5 million related to the Partnership’s ethanol plant acquired in 2013. The Partnership would need to take certain measures to prepare the facility for ethanol production in order to place the plant into service and commence depreciation. Therefore, the $30.5 million related to the ethanol plant was included in property and equipment and classified as idle plant assets at March 31, 2022 and December 31, 2021.
If the Partnership is unable to generate cash flows to support the recoverability of the plant and facility assets, this may become an indicator of potential impairment of the West Coast facility. The Partnership believes these assets are recoverable but continues to monitor the market for ethanol, the continued business development of this facility for ethanol or other product transloading, and the related impact this may have on the facility’s operating cash flows and whether this would constitute an impairment indicator.
Note 7. Debt and Financing Obligations
Credit Agreement
Certain subsidiaries of the Partnership, as borrowers, and the Partnership and certain of its subsidiaries, as guarantors, have a $1.55 billion senior secured credit facility (the “Credit Agreement”). The Credit Agreement matures on May 6, 2024.
On March 9, 2022, the Partnership and certain of its subsidiaries entered into a sixth amendment to the Credit Agreement (the “Sixth Amendment”) which, among other things, amended certain terms and provisions of the Credit Agreement to provide for $200.0 million of working capital interim commitments which increased the total aggregate commitment from $1.35 billion to $1.55 billion. On March 30, 2022, the Partnership and certain of its subsidiaries entered into a seventh amendment to the Credit Agreement (the “Seventh Amendment”) which, among other things, (i) increased the working capital revolving credit facility by $200.0 million and simultaneous reduced the working capital interim commitments to $0; (ii) refreshed the accordion feature under the Credit Agreement to permit the Partnership to request increases of up to $300.0 million in the total credit facility; and (iii) replaced the Cost of Funds (as defined in the Credit Agreement) pricing option with a Daily secured overnight financing rate (“SOFR”) pricing option. All other material terms of the Credit Agreement remain substantially the same as disclosed in Note 8 of Notes to
15
Consolidated Financial Statements in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2021.
There are two facilities under the Credit Agreement:
In addition, the Credit Agreement has an accordion feature whereby the Partnership may request on the same terms and conditions then applicable to the Credit Agreement, provided no Event of Default (as defined in the Credit Agreement) then exists, an increase to the working capital revolving credit facility, the revolving credit facility, or both, by up to another $300.0 million, in the aggregate, for a total credit facility of up to $1.85 billion. Any such request for an increase must be in a minimum amount of $25.0 million. The Partnership cannot provide assurance, however, that its lending group will agree to fund any request by the Partnership for additional amounts in excess of the total available commitments of $1.55 billion.
In addition, the Credit Agreement includes a swing line pursuant to which Bank of America, N.A., as the swing line lender, may make swing line loans in U.S. dollars in an aggregate amount equal to the lesser of (a) $75.0 million and (b) the Aggregate WC Commitments (as defined in the Credit Agreement). Swing line loans will bear interest at the Base Rate (as defined in the Credit Agreement). The swing line is a sub-portion of the working capital revolving credit facility and is not an addition to the total available commitments of $1.55 billion.
Availability under the working capital revolving credit facility is subject to a borrowing base which is redetermined from time to time and based on specific advance rates on eligible current assets. Availability under the borrowing base may be affected by events beyond the Partnership’s control, such as changes in petroleum product prices, collection cycles, counterparty performance, advance rates and limits and general economic conditions.
Borrowings under the working capital revolving credit facility bear interest at (1) the Daily or Term SOFR plus a 0.10% SOFR adjustment plus 2.00% to 2.50%, or (2) the base rate plus 1.00% to 1.50%, each depending on the Utilization Amount (as defined in the Credit Agreement). Borrowings under the revolving credit facility bear interest at (1) the Daily or Term SOFR plus a 0.10% SOFR adjustment plus 1.75% to 2.75%, or (2) the base rate plus 0.75% to 1.75%, each depending on the Combined Total Leverage Ratio (as defined in the Credit Agreement).
The average interest rates for the Credit Agreement were 2.3% and 2.7% for the three months ended March 31, 2022 and 2021, respectively.
The Partnership classifies a portion of its working capital revolving credit facility as a current liability and a portion as a long-term liability. The portion classified as a long-term liability represents the amounts expected to be outstanding throughout the next twelve months based on an analysis of historical daily borrowings under the working capital revolving credit facility, the seasonality of borrowings, forecasted future working capital requirements and forward product curves, and because the Partnership has a multi-year, long-term commitment from its bank group. Accordingly, at March 31, 2022 the Partnership estimated working capital revolving credit facility borrowings will equal or exceed $200.0 million over the next twelve months.
The table below presents the total borrowings and availability under the Credit Agreement (in millions):
Total available commitments
1,550.0
1,350.0
178.6
204.7
200.0
150.0
228.0
43.4
Total borrowings outstanding
606.6
398.1
Less outstanding letters of credit
209.0
156.0
Total remaining availability for borrowings and letters of credit (1)
734.4
795.9
The Credit Agreement imposes financial covenants that require the Partnership to maintain certain minimum working capital amounts, a minimum combined interest coverage ratio, a maximum senior secured leverage ratio and a maximum total leverage ratio. The Partnership was in compliance with the foregoing covenants at March 31, 2022.
Please read Note 8 of Notes to Consolidated Financial Statements in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2021 for additional information on the Credit Agreement.
Deferred Financing Fees
The Partnership incurs bank fees related to its Credit Agreement and other financing arrangements. These deferred financing fees are capitalized and amortized over the life of the Credit Agreement or other financing arrangements. In connection with the Sixth Amendment and Seventh Amendment, the Partnership capitalized additional financing fees of $1.0 million. The Partnership had unamortized deferred financing fees of $18.4 million and $18.8 million at March 31, 2022 and December 31, 2021, respectively.
Unamortized fees related to the Credit Agreement are included in other current assets and other long-term assets and amounted to $7.5 million at both March 31, 2022 and December 31, 2021. Unamortized fees related to the senior notes are presented as a direct deduction from the carrying amount of that debt liability and amounted to $10.3 million and $10.7 million at March 31, 2022 and December 31, 2021, respectively. Unamortized fees related to the Partnership’s sale-lease transactions are presented as a direct deduction from the carrying amount of the financing obligation and amounted to $0.6 million at both March 31, 2022 and December 31, 2021.
Amortization expense of approximately $1.4 million and $1.3 million for the three months ended March 31, 2022 and 2021, respectively, is included in interest expense in the accompanying consolidated statements of operations.
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Supplemental cash flow information
The following table presents supplemental cash flow information related to the Credit Agreement for the periods presented (in thousands):
Borrowings from working capital revolving credit facility
669,100
533,500
Payments on working capital revolving credit facility
(645,200)
(365,500)
Borrowings from revolving credit facility
384,000
Payments on revolving credit facility
(199,400)
Senior Notes
The Partnership had 7.00% senior notes due 2027 and 6.875% senior notes due 2029 outstanding at March 31, 2022 and December 31, 2021. Please read Note 8 of Notes to Consolidated Financial Statements in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2021 for additional information on these senior notes.
Financing Obligations
The Partnership had financing obligations outstanding at March 31, 2022 and December 31, 2021 associated with historical sale-leaseback transactions that did not meet the criteria for sale accounting. Please read Note 8 of Notes to Consolidated Financial Statements in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2021 for additional information on these financial obligations.
Note 8. Derivative Financial Instruments
The Partnership principally uses derivative instruments, which include regulated exchange-traded futures and options contracts (collectively, “exchange-traded derivatives”) and physical and financial forwards and over-the-counter (“OTC”) swaps (collectively, “OTC derivatives”), to reduce its exposure to unfavorable changes in commodity market prices. The Partnership uses these exchange-traded and OTC derivatives to hedge commodity price risk associated with its inventory and undelivered forward commodity purchases and sales (“physical forward contracts”). The Partnership accounts for derivative transactions in accordance with ASC Topic 815, “Derivatives and Hedging,” and recognizes derivatives instruments as either assets or liabilities in the consolidated balance sheet and measures those instruments at fair value. The changes in fair value of the derivative transactions are presented currently in earnings, unless specific hedge accounting criteria are met.
The following table summarizes the notional values related to the Partnership’s derivative instruments outstanding at March 31, 2022:
Units (1)
Unit of Measure
Exchange-Traded Derivatives
Long
86,098
Thousands of barrels
Short
(89,269)
OTC Derivatives (Petroleum/Ethanol)
3,793
(3,954)
Derivatives Accounted for as Hedges
Fair Value Hedges
The Partnership’s fair value hedges include exchange-traded futures contracts and OTC derivative contracts that are hedges against inventory with specific futures contracts matched to specific barrels. The change in fair value of these futures contracts and the change in fair value of the underlying inventory generally provide an offset to each other in the consolidated statements of operations.
The following table presents the gains and losses from the Partnership’s derivative instruments involved in fair value hedging relationships recognized in the consolidated statements of operations for the periods presented (in thousands):
Statement of Gain (Loss)
Recognized in Income on
Derivatives
Derivatives in fair value hedging relationship
Exchange-traded futures contracts and OTC derivative contracts for petroleum commodity products
(10,804)
(5,494)
Hedged items in fair value hedge relationship
Physical inventory
21,771
3,500
Cash Flow Hedges
In 2020, to hedge the Partnership’s cash flow risk relative to certain trends and the fluctuations in commodity prices observed within the GDSO segment, the Partnership entered into exchange-traded commodity swap contracts and designated them as a cash flow hedge of its fuel purchases designed to reduce its cost of fuel if market prices rise through 2021 or increase its cost of fuel if market prices decrease through 2021. All exchange traded commodity swap contracts expired on December 31, 2021; therefore, the amount of income recognized in other comprehensive income as of March 31, 2022 and expected to be reclassified into earnings within the next 12 months was $0.
The amount of income recognized in other comprehensive income for derivatives designated in cash flow hedging relationships was $0 and $4.6 million for the three months ended March 31, 2022 and 2021, respectively. The amount of income reclassified from other comprehensive income into cost of sales for derivatives designated in cash flow hedging relationships was $0 and $2.5 million for the three months ended March 31, 2022 and 2021, respectively.
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Derivatives Not Accounted for as Hedges
The Partnership utilizes petroleum and ethanol commodity contracts to hedge price and currency risk in certain commodity inventories and physical forward contracts.
The following table presents the gains and losses from the Partnership’s derivative instruments not involved in a hedging relationship recognized in the consolidated statements of operations for the periods presented (in thousands):
Derivatives not designated as
Recognized in
hedging instruments
Income on Derivatives
Commodity contracts
5,748
4,908
Commodity Contracts and Other Derivative Activity
The Partnership’s commodity contracts and other derivative activity include: (i) exchange-traded derivative contracts that are hedges against inventory and either do not qualify for hedge accounting or are not designated in a hedge accounting relationship, (ii) exchange-traded derivative contracts used to economically hedge physical forward contracts, (iii) financial forward and OTC swap agreements used to economically hedge physical forward contracts and (iv) the derivative instruments under the Partnership’s controlled trading program. The Partnership does not take the normal purchase and sale exemption available under ASC 815 for any of its physical forward contracts.
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The following table presents the fair value of each classification of the Partnership’s derivative instruments and its location in the consolidated balance sheets at March 31, 2022 and December 31, 2021 (in thousands):
March 31, 2022
Derivatives Not
Designated as
Hedging
Balance Sheet Location
Instruments
Asset Derivatives:
Exchange-traded derivative contracts
10,369
159,068
169,437
Forward derivative contracts (1)
Total asset derivatives
176,896
187,265
Liability Derivatives:
(263,937)
(52,008)
Total liability derivatives
(315,945)
December 31, 2021
1,476
106,629
108,105
118,281
119,757
(9,201)
(72,993)
(82,194)
(31,654)
(104,647)
(113,848)
Credit Risk
The Partnership’s derivative financial instruments do not contain credit risk related to other contingent features that could cause accelerated payments when these financial instruments are in net liability positions.
The Partnership is exposed to credit loss in the event of nonperformance by counterparties to the Partnership’s exchange-traded and OTC derivative contracts, but the Partnership has no current reason to expect any material nonperformance by any of these counterparties. Exchange-traded derivative contracts, the primary derivative instrument utilized by the Partnership, are traded on regulated exchanges, greatly reducing potential credit risks. The Partnership utilizes major financial institutions as its clearing brokers for all New York Mercantile Exchange (“NYMEX”), Chicago Mercantile Exchange (“CME”) and Intercontinental Exchange (“ICE”) derivative transactions and the right of offset exists with these financial institutions under master netting agreements. Accordingly, the fair value of the Partnership’s exchange-traded derivative instruments is presented on a net basis in the consolidated balance sheets. Exposure on OTC derivatives is limited to the amount of the recorded fair value as of the balance sheet dates.
Please read Note 2 of Notes to Consolidated Financial Statements in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2021 for additional information on derivative financial instruments.
Note 9. Fair Value Measurements
The following tables present, by level within the fair value hierarchy, the Partnership’s financial assets and liabilities that were measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 (in thousands):
Fair Value at March 31, 2022
Cash Collateral
Level 1
Level 2
Netting
Assets:
Exchange-traded/cleared derivative instruments (2)
(94,500)
148,063
Pension plans
20,816
(73,684)
92,207
Liabilities:
Fair Value at December 31, 2021
25,911
7,747
22,703
48,614
68,013
There were no Level 3 derivative contracts at both March 31, 2022 and December 31, 2021. This table excludes cash on hand and assets and liabilities that are measured at historical cost or any basis other than fair value. The carrying amounts of certain of the Partnership’s financial instruments, including cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate fair value due to their short maturities. The carrying value of the credit facility approximates fair value due to the variable rate nature of these financial instruments.
The carrying value of the inventory qualifying for fair value hedge accounting approximates fair value due to adjustments for changes in fair value of the hedged item. The fair values of the derivatives used by the Partnership are disclosed in Note 8.
The determination of the fair values above incorporates factors including not only the credit standing of the counterparties involved, but also the impact of the Partnership’s nonperformance risks on its liabilities.
The Partnership estimates the fair values of its senior notes using a combination of quoted market prices for similar financing arrangements and expected future payments discounted at risk-adjusted rates, which are considered
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Level 2 inputs. The fair values of the senior notes, estimated by observing market trading prices of the respective senior notes, were as follows (in thousands):
Face
Fair
Value
7.00% senior notes due 2027
400,000
399,000
412,000
6.875% senior notes due 2029
350,000
344,750
358,750
Non-Recurring Fair Value Measures
Certain nonfinancial assets and liabilities are measured at fair value on a non-recurring basis and are subject to fair value adjustments in certain circumstances, such as acquired assets and liabilities, losses related to firm non-cancellable purchase commitments or long-lived assets subject to impairment. For assets and liabilities measured on a non-recurring basis during the period, accounting guidance requires quantitative disclosures about the fair value measurements separately for each major category. See Note 2 for acquired assets and liabilities measured on a non-recurring basis.
Note 10. Environmental Liabilities
In connection with the acquisitions of retail gasoline and convenience store assets from Miller Oil and Consumers Petroleum (see Note 2), the Partnership assumed certain environmental liabilities, including certain ongoing environmental remediation efforts. As a result, the Partnership initially recorded, on an undiscounted basis, a total environmental liability of approximately $4.6 million and $7.3 million for Miller Oil and Consumers Petroleum, respectively, as of March 31, 2022.
The following table presents a summary roll forward of the Partnership’s environmental liabilities at March 31, 2022 (in thousands):
Balance at
Additions
Payments
Dispositions
Adjustments
Environmental Liability Related to:
Retail gasoline stations
49,261
11,851
(558)
(319)
798
61,033
Terminals
3,544
(22)
3,522
Total environmental liabilities
52,805
(580)
64,555
Current portion
Long-term portion
The Partnership’s estimates used in these environmental liabilities are based on all known facts at the time and its assessment of the ultimate remedial action outcomes. Among the many uncertainties that impact the Partnership’s estimates are the necessary regulatory approvals for, and potential modification of, its remediation plans, the amount of data available upon initial assessment of the impact of soil or water contamination, changes in costs associated with environmental remediation services and equipment, relief of obligations through divestitures of sites and the possibility of existing legal claims giving rise to additional claims. Dispositions generally represent relief of legal obligations through the sale of the related property with no retained obligation. Other adjustments generally represent changes in estimates for existing obligations or obligations associated with new sites. Therefore, although the Partnership believes that these environmental liabilities are adequate, no assurances can be made that any costs incurred in excess of these environmental liabilities or outside of indemnifications or not otherwise covered by insurance would not have a material adverse effect on the Partnership’s financial condition, results of operations or cash flows.
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Note 11. Related Party Transactions
The Partnership is a party to a services agreement with various entities which own limited partner interests in the Partnership and interests in the General Partner and which are 100% owned by members of the Slifka family (the “Slifka Entities Services Agreement”), pursuant to which the Partnership provides certain tax, accounting, treasury, and legal support services and such Slifka entities pay the Partnership an annual services fee of $20,000, and which Slifka Entities Services Agreement has been approved by the Conflicts Committee of the board of directors of the General Partner. The Slifka Entities Services Agreement is for an indefinite term and any party may terminate some or all of the services upon ninety (90) days’ advance written notice. As of March 31, 2022, no such notice of termination had been given by any party to the Slifka Entities Services Agreement.
The General Partner employs substantially all of the Partnership’s employees, except for most of its gasoline station and convenience store employees, who are employed by GMG. The Partnership reimburses the General Partner for expenses incurred in connection with these employees. These expenses, including bonus, payroll and payroll taxes, were $39.7 million and $31.4 million for the three months ended March 31, 2022 and 2021, respectively. The Partnership also reimburses the General Partner for its contributions under the General Partner’s 401(k) Savings and Profit Sharing Plans and the General Partner’s qualified and non-qualified pension plans.
The table below presents receivables from the General Partner (in thousands):
Receivables from the General Partner (1)
Note 12. Partners’ Equity and Cash Distributions
Partners’ Equity
Common Units and General Partner Interest
At March 31, 2022, there were 33,995,563 common units issued, including 6,173,345 common units held by affiliates of the General Partner, including directors and executive officers, collectively representing a 99.33% limited partner interest in the Partnership, and 230,303 general partner units representing a 0.67% general partner interest in the Partnership. There have been no changes to common units or the general partner interest during the three months ended March 31, 2022.
Series A Preferred Units
At March 31, 2022, there were 2,760,000 9.75% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units issued representing limited partner interests (the “Series A Preferred Units”) for $25.00 per Series A Preferred Unit. There have been no changes to the Series A Preferred Units during the three months ended March 31, 2022.
Series B Preferred Units
At March 31, 2022, there were 3,000,000 9.50% Series B Fixed Rate Cumulative Redeemable Perpetual Preferred Units issued representing limited partners interests (the “Series B Preferred Units”) for $25.00 per Series B Preferred Unit. There have been no changes to the Series B Preferred Units during the three months ended March 31, 2022.
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Cash Distributions
Common Units
The Partnership intends to make cash distributions to common unitholders on a quarterly basis, although there is no assurance as to the future cash distributions since they are dependent upon future earnings, capital requirements, financial condition and other factors. The Credit Agreement prohibits the Partnership from making cash distributions if any potential default or Event of Default, as defined in the Credit Agreement, occurs or would result from the cash distribution. The indentures governing the Partnership’s outstanding senior notes also limit the Partnership’s ability to make distributions to its common unitholders in certain circumstances.
Within 45 days after the end of each quarter, the Partnership will distribute all of its Available Cash (as defined in its partnership agreement) to common unitholders of record on the applicable record date.
The Partnership will make distributions of Available Cash from distributable cash flow for any quarter in the following manner: 99.33% to the common unitholders, pro rata, and 0.67% to the General Partner, until the Partnership distributes for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter; and thereafter, cash in excess of the minimum quarterly distribution is distributed to the common unitholders and the General Partner based on the percentages as provided below.
As holder of the IDRs, the General Partner is entitled to incentive distributions if the amount that the Partnership distributes with respect to any quarter exceeds specified target levels shown below:
Marginal Percentage
Total Quarterly Distribution
Interest in Distributions
Target Amount
Unitholders
General Partner
First Target Distribution
up to $0.4625
99.33
0.67
Second Target Distribution
above $0.4625 up to $0.5375
86.33
13.67
Third Target Distribution
above $0.5375 up to $0.6625
76.33
23.67
Thereafter
above $0.6625
51.33
48.67
The Partnership paid the following cash distribution to common unitholders during 2022 (in thousands, except per unit data):
For the
Per Unit
Cash Distribution
Quarter
Cash
Incentive
Total Cash
Payment Date
Ended
Distribution
Units
2/14/2022 (1)
12/31/21
0.5850
19,887
141
871
20,899
In addition, on April 26, 2022, the board of directors of the General Partner declared a quarterly cash distribution of $0.5950 per unit ($2.38 per unit on an annualized basis) on all of its outstanding common units for the period from January 1, 2022 through March 31, 2022. On May 13, 2022, the Partnership will pay this cash distribution to its common unitholders of record as of the close of business on May 9, 2022.
Preferred Units
Distributions on the Series A Preferred Units are cumulative from August 7, 2018, the original issue date of the Series A Preferred Units, and payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year (each, a “Series A Distribution Payment Date”), commencing on November 15, 2018, to holders of record as of the opening of business on the February 1, May 1, August 1 or November 1 next preceding the Series A Distribution Payment Date, in each case, when, as, and if declared by the General Partner out of legally available funds for such purpose. Distributions on the Series A Preferred Units will be paid out of Available Cash with respect to the quarter immediately preceding the applicable Series A Distribution Payment Date.
Distributions on the Series B Preferred Units are cumulative from March 24, 2021, the original issue date of the Series B Preferred Units, and payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year (each, a “Series B Distribution Payment Date”), commencing on May 15, 2021, to holders of record as of the opening of business on the February 1, May 1, August 1 or November 1 next preceding the Series B Distribution Payment Date, in each case, when, as, and if declared by the General Partner out of legally available funds for such purpose. Distributions on the Series B Preferred Units will be paid out of Available Cash with respect to the quarter immediately preceding the applicable Series B Distribution Payment Date.
The Partnership paid the following cash distributions on the Series A Preferred Units and the Series B Preferred Units during 2022 (in thousands, except per unit data):
Quarterly Period
Covering
2/15/2022
11/15/21 - 2/14/22
0.609375
0.59375
In addition, on April 18, 2022, the board of directors (“the Board”) of the General Partner declared a quarterly cash distribution of $0.609375 per unit ($2.4375 per unit on an annualized basis) on the Series A Preferred Units for the period from February 15, 2022 through May 14, 2022. This distribution will be payable on May 16, 2022 to holders of record as of the opening of business on May 2, 2022.
The Board also declared a quarterly cash distribution of $0.59375 per unit ($2.375 per unit on an annualized basis) on the Series B Preferred Units for the period from February 15, 2022 through May 14, 2022. This distribution will be payable on May 16, 2022 to holders of record as of the opening of business on May 2, 2022.
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Note 13. Segment Reporting
Summarized financial information for the Partnership’s reportable segments is presented in the table below (in thousands):
Wholesale Segment:
Gasoline and gasoline blendstocks
1,420,226
819,398
Other oils and related products (1)
1,356,003
715,169
Crude oil (2)
1,474
Product margin
(2,285)
16,405
53,122
18,615
(3,749)
(4,527)
47,088
30,493
Gasoline Distribution and Station Operations Segment:
Station operations (3)
115,892
100,164
114,886
80,252
58,097
50,157
172,983
130,409
Commercial Segment:
8,141
4,190
Combined sales and Product margin:
Product margin (4)
228,212
165,092
Depreciation allocated to cost of sales
(21,974)
(20,060)
Combined gross profit
Approximately 101 million gallons and 100 million gallons of the GDSO segment’s sales for the three months ended March 31, 2022 and 2021, respectively, were supplied from petroleum products and renewable fuels sourced by the Wholesale segment. The Commercial segment’s sales were predominantly sourced by the Wholesale segment. These intra-segment sales are not reflected as sales in the Wholesale segment as they are eliminated.
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A reconciliation of the totals reported for the reportable segments to the applicable line items in the consolidated financial statements is as follows (in thousands):
Operating costs and expenses not allocated to operating segments:
Total operating costs and expenses
The Partnership’s foreign assets and foreign sales were immaterial as of and for the three months ended March 31, 2022 and 2021.
Segment Assets
The Partnership’s terminal assets are allocated to the Wholesale and Commercial segments, and its retail gasoline stations are allocated to the GDSO segment. Due to the commingled nature and uses of the remainder of the Partnership’s assets, it is not reasonably possible for the Partnership to allocate these assets among its reportable segments.
The table below presents total assets by reportable segment at March 31, 2022 and December 31, 2021 (in thousands):
Unallocated
729,831
1,871,058
552,183
739,523
1,655,475
436,167
Note 14. Net Income Per Common Limited Partner Unit
Under the Partnership’s partnership agreement, for any quarterly period, the incentive distribution rights (“IDRs”) participate in net income only to the extent of the amount of cash distributions actually declared, thereby excluding the IDRs from participating in the Partnership’s undistributed net income or losses. Accordingly, the Partnership’s undistributed net income or losses is assumed to be allocated to the common unitholders and to the General Partner’s general partner interest.
Common units outstanding as reported in the accompanying consolidated financial statements at both March 31, 2022 and December 31, 2021 excludes 42,336 common units held on behalf of the Partnership pursuant to its repurchase program. These units are not deemed outstanding for purposes of calculating net income per common limited partner unit (basic and diluted). For all periods presented below, the Partnership’s preferred units are not potentially dilutive securities based on the nature of the conversion feature.
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The following table provides a reconciliation of net income (loss) and the assumed allocation of net income (loss) to the common limited partners (after deducting amounts allocated to preferred unitholders) for purposes of computing net income (loss) per common limited partner unit for the periods presented (in thousands, except per unit data):
Numerator:
IDRs
29,308
(5,036)
Declared distribution
21,344
20,227
144
973
20,453
19,547
768
Assumed allocation of undistributed net income (loss)
9,141
9,081
(24,750)
(24,583)
(167)
Assumed allocation of net income (loss)
(29)
Denominator:
Basic weighted average common units outstanding
Dilutive effect of phantom units
132
329
Diluted weighted average common units outstanding
The board of directors of the General Partner declared the following quarterly cash distribution on its common units:
Per Unit Cash
Distribution Declared for the
Cash Distribution Declaration Date
Distribution Declared
Quarterly Period Ended
April 26, 2022
0.5950
The board of directors of the General Partner declared the following quarterly cash distributions on the Series A Preferred Units and the Series B Preferred Units:
Quarterly Period Covering
April 18, 2022
0.593750
February 15, 2022 - May 14, 2022
See Note 12, “Partners’ Equity and Cash Distributions” for further information.
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Note 15. Changes in Accumulated Other Comprehensive Loss
The following table presents the changes in accumulated other comprehensive income by component for the periods presented (in thousands):
Pension
Plan
Other comprehensive loss
(1,271)
Amount of (income) loss reclassified from accumulated other comprehensive income (loss)
(236)
Total comprehensive loss
Amounts are presented prior to the income tax effect on other comprehensive income. Given the Partnership’s partnership status for federal income tax purposes, the effective tax rate is immaterial.
Note 16. Legal Proceedings
Although the Partnership may, from time to time, be involved in litigation and claims arising out of its operations in the normal course of business, the Partnership does not believe that it is a party to any litigation that will have a material adverse impact on its financial condition or results of operations. Except as described below and in Note 10 included herein, the Partnership is not aware of any significant legal or governmental proceedings against it or contemplated to be brought against it. The Partnership maintains insurance policies with insurers in amounts and with coverage and deductibles as its general partner believes are reasonable and prudent. However, the Partnership can provide no assurance that this insurance will be adequate to protect it from all material expenses related to potential future claims or that these levels of insurance will be available in the future at economically acceptable prices.
In January 2022, the Partnership was served with a complaint filed in the Middlesex County Superior Court of the Commonwealth of Massachusetts against the Partnership and its wholly owned subsidiaries, Global Companies LLC (“Global Companies”) and Alliance Energy LLC (“Alliance”), alleging, among other things, that a plaintiff truck driver, while (1) loading gasoline and diesel fuel at terminals owned and operated by the Partnership located in Albany, New York and Revere, Massachusetts and (2) unloading gasoline and diesel fuel at gasoline stations owned and/or operated by the Partnership throughout New York, Massachusetts and New Hampshire, contracted aplastic anemia as a result of exposure to benzene-containing products and/or vapors therefrom. The Partnership, Global Companies and Alliance have meritorious defenses to the allegations in the complaint and will vigorously contest the actions taken by the plaintiff.
In October 2020, the Partnership was served with a complaint filed against the Partnership and its wholly owned subsidiary, Global Companies alleging, among other things, wrongful death and loss of consortium. The complaint, filed in the Middlesex County Superior Court of the Commonwealth of Massachusetts, alleges, among other things, that a truck driver (whose estate is a co-plaintiff), while loading gasoline and diesel fuel at terminals owned and operated by the Partnership located in Albany, New York and Burlington, Vermont, was exposed to benzene-containing products and/or vapors therefrom. The Partnership and Global Companies have meritorious defenses to the allegations in the complaint and will vigorously contest the actions taken by the plaintiffs.
On August 2, 2016, the Partnership received a Notice of Violation (“NOV”) from the Environmental Protection Agency’s (“EPA”), alleging that permits for the Partnership’s petroleum product transloading facility in Albany, New
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York (the “Albany Terminal”), issued by the New York State Department of Environmental Conservation (“NYSDEC”) between August 9, 2011 and November 7, 2012, violated the Clean Air Act (the “CAA”) and the federally enforceable New York State Implementation Plan (“SIP”) by increasing throughput of crude oil at the Albany Terminal without complying with the New Source Review (“NSR”) requirements of the SIP. The Partnership denied the allegations and the NYSDEC did not issue any such NOV. The Albany Terminal is a 63-acre licensed, permitted and operational stationary bulk petroleum storage and transfer terminal that currently consists of petroleum product storage tanks, along with truck, rail and marine loading facilities, for the storage, blending and distribution of various petroleum and related products, including gasoline, ethanol, distillates, heating and crude oils. The applicable permits issued by the NYSDEC to the Partnership in 2011 and 2012 specifically authorized the Partnership to increase the throughput of crude oil at the Albany Terminal. According to the allegations in the NOV, the NYSDEC permit actions should have been treated as a major modification under the NSR program, requiring additional emission control measures and compliance with other NSR requirements. The NYSDEC has not alleged that the Partnership’s permits were subject to the NSR program and the NYSDEC never issued an NOV in the matter. The CAA authorizes the EPA to take enforcement action if there are violations of the New York SIP seeking compliance and penalties. The Partnership has denied the NOV allegations and asserts that the permits issued by the NYSDEC comply with the CAA and applicable state air permitting requirements and that no material violation of law occurred. The Partnership disputed the claims alleged in the NOV and first responded to the EPA in September 2016. The Partnership met with the EPA and provided additional information at the agency’s request. On December 16, 2016, the EPA proposed a Settlement Agreement in a letter to the Partnership relating to the allegations in the NOV. On January 17, 2017, the Partnership responded to the EPA indicating that the EPA had failed to explain or provide support for its allegations and that the EPA needed to better explain its positions and the evidence on which it was relying. The EPA did not respond with such evidence, but instead has requested that the Partnership enter into a series of tolling agreements. The Partnership signed the tolling agreements with respect to this matter, as requested by the EPA, and such agreements currently extend through June 30, 2022. To date, the EPA has not taken any further formal action with respect to the NOV.
By letter dated January 25, 2017, the Partnership received a notice of intent to sue (the “2017 NOI”) from Earthjustice related to alleged violations of the CAA; specifically alleging that the Partnership was operating the Albany Terminal without a valid CAA Title V Permit. On February 9, 2017, the Partnership responded to Earthjustice advising that the 2017 NOI was without factual or legal merit and that the Partnership would move to dismiss any action commenced by Earthjustice. No action was taken by either the EPA or the NYSDEC with regard to the Earthjustice allegations. At this time, there has been no further action taken by Earthjustice. Neither the EPA nor the NYSDEC has followed up on the 2017 NOI. The Albany Terminal is currently operating pursuant to its Title V Permit, which has been extended in accordance with the State Administrative Procedures Act. Additionally, the Partnership has submitted a Title V Permit renewal and a request for modifications to its existing Title V Permit. The Partnership believes that it has meritorious defenses against all allegations.
The Partnership received letters from the EPA dated November 2, 2011 and March 29, 2012, containing requirements and testing orders (collectively, the “Requests for Information”) for information under the CAA. The Requests for Information were part of an EPA investigation to determine whether the Partnership has violated sections of the CAA at certain of its terminal locations in New England with respect to residual oil and asphalt. On June 6, 2014, a NOV was received from the EPA, alleging certain violations of its Air Emissions License issued by the Maine Department of Environmental Protection, based upon the test results at the South Portland, Maine terminal. The Partnership met with and provided additional information to the EPA with respect to the alleged violations. On April 7, 2015, the EPA issued a Supplemental Notice of Violation modifying the allegations of violations of the terminal’s Air Emissions License. The Partnership has entered into a consent decree (the “Consent Decree”) with the EPA and the United States Department of Justice (the “Department of Justice”), which was filed in the U.S. District Court for the District of Maine (the “Court”) on March 25, 2019. The Consent Decree was entered by the Court on December 19, 2019. The Partnership believes that compliance with the Consent Decree and implementation of the requirements of the Consent Decree will have no material impact on its operations.
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Note 17. New Accounting Standards
There have been no recently issued accounting standards that are expected to have a material impact on the Partnership’s consolidated financial statements.
Note 18. Subsequent Events
Distribution to Common Unitholders—On April 26, 2022, the board of directors of the General Partner declared a quarterly cash distribution of $0.5950 per unit ($2.38 per unit on an annualized basis) for the period from January 1, 2022 through March 31, 2022. On May 13, 2022, the Partnership will pay this cash distribution to its common unitholders of record as of the close of business on May 9, 2022.
Distribution to Series A Preferred Unitholders—On April 18, 2022, the board of directors of the General Partner declared a quarterly cash distribution of $0.609375 per unit ($2.4375 per unit on an annualized basis) on the Series A Preferred Units, covering the period from February 15, 2022 through May 14, 2022. This distribution will be payable on May 16, 2022 to holders of record as of the opening of business on May 2, 2022.
Distribution to Series B Preferred Unitholders—On April 18, 2022, the board of directors of the General Partner declared a quarterly cash distribution of $0.59375 per unit ($2.375 per unit on an annualized basis) on the Series B Preferred Units, covering the period from February 15, 2022 through May 14, 2022. This distribution will be payable on May 16, 2022 to holders of record as of the opening of business on May 2, 2022.
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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations of Global Partners LP should be read in conjunction with the historical consolidated financial statements of Global Partners LP and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
Forward-Looking Statements
Some of the information contained in this Quarterly Report on Form 10-Q may contain forward-looking statements. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain the words “may,” “believe,” “should,” “could,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “continue,” “will likely result,” or other similar expressions although not all forward-looking statements contain such identifying words. In addition, any statement made by our management concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible actions by us are also forward-looking statements. Forward-looking statements are not guarantees of performance. Although we believe these forward-looking statements are based on reasonable assumptions, statements made regarding future results are subject to a number of assumptions, uncertainties and risks, many of which are beyond our control, which may cause future results to be materially different from the results stated or implied in this document. These risks and uncertainties include, among other things:
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Additional information about risks and uncertainties that could cause actual results to differ materially from forward-looking statements is contained in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2021 and Part II, Item 1A, “Risk Factors,” in this Quarterly Report on Form 10-Q.
We expressly disclaim any obligation or undertaking to update these statements to reflect any change in our expectations or beliefs or any change in events, conditions or circumstances on which any forward-looking statement is based, other than as required by federal and state securities laws. All forward-looking statements included in this Quarterly Report on Form 10-Q and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.
Overview
We are a master limited partnership formed in March 2005. We own, control or have 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”). We are one of the region’s largest independent owners, suppliers and operators of gasoline stations and convenience stores. As of March 31, 2022, we had a portfolio of 1,689 owned, leased and/or supplied gasoline stations, including 342 directly operated convenience stores, primarily in the Northeast. We are also one of the largest distributors of gasoline, distillates, residual oil and renewable fuels to wholesalers, retailers and commercial customers in the New England states and New York. We engage in the purchasing, selling, gathering, blending, storing and logistics of transporting petroleum and related products, including gasoline and gasoline blendstocks (such as ethanol), distillates (such as home heating oil, diesel and kerosene), residual oil, renewable fuels, crude oil and propane and in the transportation of petroleum products and renewable fuels by rail from the mid-continent region of the United States and Canada.
Collectively, we sold approximately $4.4 billion of refined petroleum products, gasoline blendstocks, renewable fuels and crude oil for the three months ended March 31, 2022. In addition, we had other revenues of approximately $0.1 billion for the three months ended March 31, 2022 from convenience store and prepared food sales at our directly operated stores, rental income from dealer leased and commissioned agent leased gasoline stations and from cobranding arrangements, and sundries.
We base our pricing on spot prices, fixed prices or indexed prices and routinely use the New York Mercantile Exchange (“NYMEX”), Chicago Mercantile Exchange (“CME”) and Intercontinental Exchange (“ICE”) or other counterparties to hedge the risk inherent in buying and selling commodities. Through the use of regulated exchanges or derivatives, we seek to maintain a position that is substantially balanced between purchased volumes and sales volumes or future delivery obligations.
Our Perspective on Global and the COVID-19 Pandemic
The COVID-19 pandemic continues to make its presence felt at home, in the office workplace, at our retail sites and terminal locations and in the global supply chain. We remain active in responding to the challenges posed by the COVID-19 pandemic and continue to provide essential products and services while prioritizing the safety of our employees, customers and vendors in the communities where we operate.
The COVID-19 pandemic resulted in an economic downturn, restricted travel to, from and within the states in which we conduct our businesses, and in decreases in the demand for gasoline and convenience store products. Social distancing guidelines and directives limiting food operations at our convenience stores contributed to a reduction in in-store traffic and sales. The demand for diesel fuel was similarly (but not as drastically) impacted. While market conditions have improved, the pandemic continues to impact our operations and financial performance. We remain well positioned to pivot and address directives from federal, state and municipal authorities designed to mitigate the spread of the COVID-19 pandemic and promote the continuing economic recovery. However, uncertainties surrounding the duration of the COVID-19 pandemic and demand at the pump, inside our stores and at our terminals remain.
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Moving Forward – Our Perspective
The extent to which the COVID-19 pandemic may continue to affect our operating results remains uncertain. The COVID-19 pandemic has had, and may continue to have, material adverse consequences for general economic, financial and business conditions, and could materially and adversely affect our business, financial condition and results of operations and those of our customers, suppliers and other counterparties.
Our inventory management is dependent on the use of hedging instruments which are managed based on the structure of the forward pricing curve. Daily market changes may impact periodic results due to the point-in-time valuation of these positions. Volatility in the oil markets resulting from COVID-19 and geopolitical events may impact our results.
Business operations today reflect changes which may remain for an indefinite period of time. In these uncertain times and volatile markets, we believe that we are operationally nimble and that our portfolio of assets may continue to provide us with opportunities.
Amendments to the Credit Agreement—On March 9, 2022, we and certain of our subsidiaries entered into the sixth amendment to third amended and restated credit agreement which, among other things, increased the total aggregate commitment to $1.55 billion. On March 30, 2022, we and certain of our subsidiaries entered into the seventh amendment to third amended and restated credit agreement which, among other things, refreshed the accordion feature under the credit agreement. See “—Liquidity and Capital Resources—Credit Agreement.”
Acquisition from Miller Oil Co., Inc.—On February 1, 2022, we acquired substantially all of the retail motor fuel assets from Miller Oil Co., Inc. (“Miller Oil”) for approximately $60.2 million, including inventory, funded with borrowings under our revolving credit facility. The acquisition includes 21 company-operated Miller’s Neighborhood Market convenience stores and 2 fuel sites that are either owned or leased, including lessee dealer and commissioned agent locations, all located in Virginia, and 34 fuel supply only sites, primarily in Virginia. See Note 2 of Notes to Consolidated Financial Statements.
Acquisition from Consumers Petroleum of Connecticut Incorporated—On January 25, 2022, we acquired substantially all of the assets from Consumers Petroleum of Connecticut, Incorporated (“Consumers Petroleum”) for approximately $154.7 million, including inventory, funded with borrowings under our revolving credit facility. The acquisition includes 26 company-owned Wheels convenience stores and related fuel operations located in Connecticut and 22 fuel-supply only sites located in Connecticut and New York. The purchase price, subject to post-closing adjustments, was approximately $154.7 million, including inventory, funded with borrowings under our revolving credit facility. See Note 2 of Notes to Consolidated Financial Statements.
Operating Segments
We purchase refined petroleum products, gasoline blendstocks, renewable fuels and crude oil primarily from domestic and foreign refiners and ethanol producers, crude oil producers, major and independent oil companies and trading companies. We operate our businesses under three segments: (i) Wholesale, (ii) Gasoline Distribution and Station Operations (“GDSO”) and (iii) Commercial.
In our Wholesale segment, we engage in the logistics of selling, gathering, blending, storing and transporting refined petroleum products, gasoline blendstocks, renewable fuels, crude oil and propane. We transport these products by railcars, barges, trucks and/or pipelines pursuant to spot or long-term contracts. From time to time, we aggregate crude oil by truck or pipeline in the mid-continent region of the United States and Canada, transport it by rail and ship it by barge to refiners. We sell home heating oil, branded and unbranded gasoline and gasoline blendstocks, diesel,
kerosene and residual oil to home heating oil retailers and wholesale distributors. Generally, customers use their own vehicles or contract carriers to take delivery of the gasoline, distillates and propane at bulk terminals and inland storage facilities that we own or control or at which we have throughput or exchange arrangements. Ethanol is shipped primarily by rail and by barge.
In our Wholesale segment, we obtain Renewable Identification Numbers (“RIN”) in connection with our purchase of ethanol which is used for bulk trading purposes or for blending with gasoline through our terminal system. A RIN is a renewable identification number associated with government-mandated renewable fuel standards. 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”). Our U.S. Environmental Protection Agency (“EPA”) obligations relative to renewable fuel reporting are comprised of foreign gasoline and diesel that we may import and blending operations at certain facilities.
Gasoline Distribution and Station Operations
In our GDSO segment, gasoline distribution includes sales of branded and unbranded gasoline to gasoline station operators and sub-jobbers. Station operations include (i) convenience store and prepared food sales, (ii) rental income from gasoline stations leased to dealers, from commissioned agents and from cobranding arrangements and (iii) sundries (such as car wash sales and lottery and ATM commissions).
As of March 31, 2022, we had a portfolio of owned, leased and/or supplied gasoline stations, primarily in the Northeast, that consisted of the following:
Company operated
342
Commissioned agents
293
Lessee dealers
196
Contract dealers
858
1,689
At our company-operated stores, we operate the gasoline stations and convenience stores with our employees, and we set the retail price of gasoline at the station. At commissioned agent locations, we own the gasoline inventory, and we set the retail price of gasoline at the station and pay the commissioned agent a fee related to the gallons sold. We receive rental income from commissioned agent leased gasoline stations for the leasing of the convenience store premises, repair bays and/or other businesses that may be conducted by the commissioned agent. At dealer-leased locations, the dealer purchases gasoline from us, and the dealer sets the retail price of gasoline at the dealer’s station. We also receive rental income from (i) dealer-leased gasoline stations and (ii) cobranding arrangements. We also supply gasoline to locations owned and/or leased by independent contract dealers. Additionally, we have contractual relationships with distributors in certain New England states pursuant to which we source and supply these distributors’ gasoline stations with ExxonMobil-branded gasoline.
In our Commercial segment, we include sales and deliveries to end user customers in the public sector and to large commercial and industrial end users of unbranded gasoline, home heating oil, diesel, kerosene, residual oil and bunker fuel. In the case of public sector commercial and industrial end user customers, we sell products primarily either through a competitive bidding process or through contracts of various terms. We respond to publicly issued requests for product proposals and quotes. We generally arrange for the delivery of the product to the customer’s designated location. Our Commercial segment also includes sales of custom blended fuels delivered by barges or from a terminal dock to ships through bunkering activity.
Seasonality
Due to the nature of our businesses and our reliance, in part, on consumer travel and spending patterns, we may experience more demand for gasoline during the late spring and summer months than during the fall and winter months.
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Travel and recreational activities are typically higher in these months in the geographic areas in which we operate, increasing the demand for gasoline. Therefore, our volumes in gasoline are typically higher in the second and third quarters of the calendar year. However, the COVID-19 pandemic has had a negative impact on gasoline demand and the extent and duration of that impact remains uncertain. As demand for some of our refined petroleum products, specifically home heating oil and residual oil for space heating purposes, is generally greater during the winter months, heating oil and residual oil volumes are generally higher during the first and fourth quarters of the calendar year. These factors may result in fluctuations in our quarterly operating results.
Outlook
This section identifies certain risks and certain economic or industry-wide factors, in addition to those described under “—Our Perspective on Global and the COVID-19 Pandemic,” that may affect our financial performance and results of operations in the future, both in the short-term and in the long-term. Our results of operations and financial condition depend, in part, upon the following:
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Results of Operations
Evaluating Our Results of Operations
Our management uses a variety of financial and operational measurements to analyze our performance. These measurements include: (1) product margin, (2) gross profit, (3) earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA, (4) distributable cash flow, (5) selling, general and administrative expenses (“SG&A”), (6) operating expenses and (7) degree days.
Product Margin
We view product margin as an important performance measure of the core profitability of our operations. We review product margin monthly for consistency and trend analysis. We define product margin as our product sales minus product costs. Product sales primarily include sales of unbranded and branded gasoline, distillates, residual oil, renewable fuels and crude oil, as well as convenience store and prepared food sales, gasoline station rental income and revenue generated from our logistics activities when we engage in the storage, transloading and shipment of products owned by others. Product costs include the cost of acquiring products and all associated costs including shipping and handling costs to bring such products to the point of sale as well as product costs related to convenience store items and costs associated with our logistics activities. We also look at product margin on a per unit basis (product margin divided by volume). Product margin is a non-GAAP financial measure used by management and external users of our consolidated financial statements to assess our business. Product margin should not be considered an alternative to net income, operating income, cash flow from operations, or any other measure of financial performance presented in accordance with GAAP. In addition, our product margin may not be comparable to product margin or a similarly titled measure of other companies.
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Gross Profit
We define gross profit as our product margin minus terminal and gasoline station related depreciation expense allocated to cost of sales.
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are non-GAAP financial measures used as supplemental financial measures by management and may be used by external users of our consolidated financial statements, such as investors, commercial banks and research analysts, to assess:
Adjusted EBITDA is EBITDA further adjusted for gains or losses on the sale and disposition of assets and goodwill and long-lived asset impairment charges. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA and Adjusted EBITDA exclude some, but not all, items that affect net income, and these measures may vary among other companies. Therefore, EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
Distributable Cash Flow
Distributable cash flow is an important non-GAAP financial measure for our limited partners since it serves as an indicator of our success in providing a cash return on their investment. Distributable cash flow as defined by our partnership agreement is net income plus depreciation and amortization minus maintenance capital expenditures, as well as adjustments to eliminate items approved by the audit committee of the board of directors of our general partner that are extraordinary or non-recurring in nature and that would otherwise increase distributable cash flow.
Distributable cash flow as used in our partnership agreement also determines our ability to make cash distributions on our incentive distribution rights. The investment community also uses a distributable cash flow metric similar to the metric used in our partnership agreement with respect to publicly traded partnerships to indicate whether or not such partnerships have generated sufficient earnings on a current or historic level that can sustain distributions on preferred or common units or support an increase in quarterly cash distributions on common units. Our partnership agreement does not permit adjustments for certain non-cash items, such as net losses on the sale and disposition of assets and goodwill and long-lived asset impairment charges.
Distributable cash flow should not be considered as an alternative to net income, operating income, cash flow from operations, or any other measure of financial performance presented in accordance with GAAP. In addition, our distributable cash flow may not be comparable to distributable cash flow or similarly titled measures of other companies.
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Selling, General and Administrative Expenses
Our SG&A expenses include, among other things, marketing costs, corporate overhead, employee salaries and benefits, pension and 401(k) plan expenses, discretionary bonuses, non-interest financing costs, professional fees and information technology expenses. Employee-related expenses including employee salaries, discretionary bonuses and related payroll taxes, benefits, and pension and 401(k) plan expenses are paid by our general partner which, in turn, are reimbursed for these expenses by us.
Operating Expenses
Operating expenses are costs associated with the operation of the terminals, transload facilities and gasoline stations and convenience stores used in our businesses. Lease payments, maintenance and repair, property taxes, utilities, credit card fees, taxes, labor and labor-related expenses comprise the most significant portion of our operating expenses. While the majority of these expenses remains relatively stable, independent of the volumes through our system, they can fluctuate depending on the activities performed during a specific period. In addition, they can be impacted by new directives issued by federal, state and local governments.
Degree Days
A “degree day” is an industry measurement of temperature designed to evaluate energy demand and consumption. Degree days are based on how far the average temperature departs from a human comfort level of 65°F. Each degree of temperature above 65°F is counted as one cooling degree day, and each degree of temperature below 65°F is counted as one heating degree day. Degree days are accumulated each day over the course of a year and can be compared to a monthly or a long-term (multi-year) average, or normal, to see if a month or a year was warmer or cooler than usual. Degree days are officially observed by the National Weather Service and officially archived by the National Climatic Data Center. For purposes of evaluating our results of operations, we use the normal heating degree day amount as reported by the National Weather Service at its Logan International Airport station in Boston, Massachusetts.
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Key Performance Indicators
The following table provides a summary of some of the key performance indicators that may be used to assess our results of operations. These comparisons are not necessarily indicative of future results (gallons and dollars in thousands):
EBITDA (1)
79,837
40,907
Adjusted EBITDA (1)
74,926
40,432
Distributable cash flow (2)(3)
49,877
13,954
Volume (gallons)
976,837
885,437
Other oils and related products (4)
Crude oil (5)
376,486
334,104
Station operations (6)
116,802
81,431
Combined sales and product margin:
Product margin (7)
GDSO portfolio as of March 31, 2022 and 2021:
283
281
206
796
Total GDSO portfolio
1,566
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Weather conditions:
Normal heating degree days
2,870
Actual heating degree days
2,768
2,700
Variance from normal heating degree days
(4)
Variance from prior period actual heating degree days
The following table presents reconciliations of EBITDA and Adjusted EBITDA to the most directly comparable GAAP financial measures on a historical basis for each period presented (in thousands):
Reconciliation of net income (loss) to EBITDA and Adjusted EBITDA:
21,474
20,359
Income tax expense (benefit)
(130)
EBITDA
Adjusted EBITDA
Reconciliation of net cash provided by (used in) operating activities to EBITDA and Adjusted EBITDA:
Net changes in operating assets and liabilities and certain non-cash items
34,558
126,661
The following table presents reconciliations of distributable cash flow to the most directly comparable GAAP financial measures on a historical basis for each period presented (in thousands):
Reconciliation of net income (loss) to distributable cash flow:
Amortization of routine bank refinancing fees
(1,181)
(1,037)
Maintenance capital expenditures
(7,518)
(7,031)
Distributable cash flow (1)(2)
Distributions to preferred unitholders (3)
(3,463)
(1,820)
Distributable cash flow after distributions to preferred unitholders
46,414
12,134
Reconciliation of net cash provided by (used in) operating activities to distributable cash flow:
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Consolidated Sales
Our total sales were $4.5 billion and $2.6 billion for the three months ended March 31, 2022 and 2021, respectively, an increase of $1.9 billion, or 73%, due to increases in prices and volume sold. Our aggregate volume of product sold was 1.5 billion gallons and 1.3 billion gallons for the three months ended March 31, 2022 and 2021, respectively, increasing 168 million gallons including an increase of 91 million gallons in our Wholesale segment due to increased volume in gasoline and gasoline blendstocks and other oils and related products, offset by a decline in volume in crude oil, and increases of 42 million gallons and 35 million gallons in our GDSO and Commercial segments, respectively.
Our gross profit was $206.2 million and $145.0 million for the three months ended March 31, 2022 and 2021, respectively, an increase of $61.2 million, or 42%, primarily in our GDSO segment, due to higher fuel margins (cents per gallon) and increased volume in gasoline distribution and improved margins in station operations due to increased activity at our convenience stores, both partially due to the acquisitions of Miller Oil and Consumers Petroleum (collectively the “Recent Acquisitions”). Our gross profit also benefitted from more favorable market conditions in other oils and related products in our Wholesale segment and improved margins in our Commercial segment. Our gross profit was negatively impacted in gasoline and gasoline blendstocks in our Wholesale segment due to less favorable market conditions.
Results for Wholesale Segment
Gasoline and Gasoline Blendstocks. Sales from wholesale gasoline and gasoline blendstocks were $1.4 billion and $0.8 billion for the three months ended March 31, 2022 and 2021, respectively, an increase of $0.6 billion, or 75%, primarily due to increases in prices and, to a lesser extent, volume sold. Our gasoline and gasoline blendstocks product margin was ($2.3 million) and $16.4 million for the three months ended March 31, 2022 and 2021, respectively, a decrease of $18.7 million, or 114%, primarily due to less favorable market conditions.
Other Oils and Related Products. Sales from other oils and related products (primarily distillates and residual oil) were $1.3 billion and $0.7 billion for the three months ended March 31, 2022 and 2021, respectively, an increase of $0.6 billion, or 86%, primarily due to an increase in prices and to higher distillate volume sold. Our product margin from other oils and related products was $53.1 million and $18.6 million for the three months ended March 31, 2022 and 2021, respectively, an increase of $34.5 million, or 185%, primarily due to more favorable market conditions largely in distillates but also in residual oil.
Crude Oil. Crude oil sales and logistics revenues were $1.5 million and $16.9 million for the three months ended March 31, 2022 and 2021, respectively, a decrease of $15.4 million, or 91%, primarily due to a decrease in volume sold. Our crude oil product margin was ($3.7 million) and ($4.5 million) for the three months ended March 31, 2022 and 2021, respectively, an increase of $0.8 million, or 17%, primarily due to the expiration of a of a pipeline connection agreement in August of 2021.
Results for Gasoline Distribution and Station Operations Segment
Gasoline Distribution. Sales from gasoline distribution were $1.3 billion and $0.8 billion for the three months ended March 31, 2022 and 2021, respectively, an increase of $0.5 billion, or 63%, primarily due to an increase in prices and an increase in volume sold in part due to the Recent Acquisitions. Our product margin from gasoline distribution was $114.9 million and $80.2 million for the three months ended March 31, 2022 and 2021, respectively, an increase of $34.7 million, or 43%, primarily due to higher fuel margins (cents per gallon) and an increase in volume sold in part due to the Recent Acquisitions.
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Station Operations. Our station operations, which include (i) convenience store and prepared food sales at our directly operated stores, (ii) rental income from gasoline stations leased to dealers or from commissioned agents and from cobranding arrangements and (iii) sale of sundries, such as car wash sales and lottery and ATM commissions, collectively generated revenues of $115.9 million and $100.2 million for the three months ended March 31, 2022 and 2021, respectively, an increase of $15.7 million, or 16%. Our product margin from station operations was $58.1 million and $50.2 million for the three months ended March 31, 2022 and 2021, respectively, an increase of $7.9 million, or 16%. The increases in sales and product margin are primarily due to increases in activity at our convenience stores, in part due to the Recent Acquisitions.
Results for Commercial Segment
Our commercial sales were $330.0 million and $145.7 million for the three months ended March 31, 2022 and 2021, respectively, an increase of $184.3 million or 126%, due to increases in prices and volume sold. Our commercial product margin was $8.1 million and $4.2 million for the three months ended March 31, 2022 and 2021, respectively, an increase of $3.9 million, or 93%. The increases in sales and product margins are primarily due to an increase bunkering activity.
SG&A expenses were $56.3 million and $46.3 million for the three months ended March 31, 2022 and 2021, respectively, an increase of $10.0 million, or 21%, including increases of $4.9 million in accrued discretionary incentive compensation, $2.4 million in wages and benefits and $2.7 million in various other SG&A expenses.
Operating expenses were $99.2 million and $80.5 million for the three months ended March 31, 2022 and 2021, respectively, an increase of $18.7 million, or 23%, including an increase of $18.8 million associated with our GDSO operations, including the Recent Acquisitions, in part due to increased credit card fees related to the increases in volume and price, higher salary expense and higher rent expense due in part to greater activity at our stores. Operating expenses associated with our terminal operations decreased $0.1 million.
Amortization Expense
Amortization expense related to intangible assets was $2.5 million and $2.7 million for the three months ended March 31, 2022 and 2021, respectively.
Net Gain on Sale and Disposition of Assets
Net gain on sale and disposition of assets was $4.9 million and $0.5 million for the three months ended March 31, 2022 and 2021, respectively, primarily due to the sale of GDSO sites.
Interest Expense
Interest expense was $21.5 million and $20.4 million for the three months ended March 31, 2022 and 2021, respectively, an increase of $1.1 million, due in part to higher average balances on our credit facilities primarily due to higher prices.
Income Tax (Expense) Benefit
Income tax (expense) benefit was ($1.2 million) and $0.1 million for the three months ended March 31, 2022 and 2021, respectively. The respective income tax (expense) benefit reflects the income tax (expense) benefit from the operating results of GMG, which is a taxable entity for federal and state income tax purposes.
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Liquidity and Capital Resources
Liquidity
Our primary liquidity needs are to fund our working capital requirements, capital expenditures and distributions and to service our indebtedness. Our primary sources of liquidity are cash generated from operations, amounts available under our working capital revolving credit facility and equity and debt offerings. Please read “—Credit Agreement” for more information on our working capital revolving credit facility.
Working capital was $292.5 million and $225.5 million at March 31, 2022 and December 31, 2021, respectively, an increase of $67.0 million. Changes in current assets and current liabilities increasing our working capital primarily include an increase of $115.0 million in accounts receivable due to higher prices and decreases of $33.9 million in accrued expenses and other current liabilities and $26.1 million in the current portion of our working capital revolving credit facility for a total increase in working capital of $175.0 million. The increase in working capital was offset by an increase of $113.0 million in accounts receivable, also primarily due to higher prices.
During 2022, we paid the following cash distribution to our common unitholders and our general partner:
Distribution Paid for the
Cash Distribution Payment Date
Total Paid
February 14, 2022
20.9 million
Fourth quarter 2021
In addition, on April 26, 2022, the board of directors of our general partner declared a quarterly cash distribution of $0.5950 per unit ($2.38 per unit on an annualized basis) on all of our outstanding common units for the period from January 1, 2022 through March 31, 2022 to our common unitholders of record as of the close of business on May 9, 2022. We expect to pay the total cash distribution of approximately $21.3 million on May 13, 2022.
During 2022, we paid the following cash distributions to holders of the Series A Preferred Units and the Series B Preferred Units:
February 15, 2022
1.7 million
1.8 million
November 15, 2021 - February 14, 2022
In addition, on April 18, 2022, the board of directors of our general partner declared a quarterly cash distribution of $0.609375 per unit ($2.4375 per unit on an annualized basis) on the Series A Preferred Units for the period from February 15, 2022 through May 14, 2022 to our Series A preferred unitholders of record as of the opening of business on May 2, 2022. We expect to pay the total cash distribution of approximately $1.7 million on May 16, 2022.
The board of directors of our general partner also declared a quarterly cash distribution of $0.59375 per unit ($2.375 per unit on an annualized basis) on the Series B Preferred Units for the period from February 15, 2022 through May 14, 2022 to our Series B preferred unitholders of record as of the opening of business on May 2, 2022. We expect to pay the total cash distribution of approximately $1.8 million on May 16, 2022.
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Contractual Obligations
We have contractual obligations that are required to be settled in cash. The amounts of our contractual obligations at March 31, 2022 were as follows (in thousands):
Payments Due by Period
Remainder of
Beyond 2022
Credit facility obligations (1)
144,612
484,851
629,463
Senior notes obligations (2)
26,031
1,046,408
1,072,439
Operating lease obligations (3)
57,639
278,519
336,158
Other long-term liabilities (4)
120,123
64,755
184,878
Financing obligations (5)
11,470
113,449
124,919
359,875
1,987,982
2,347,857
Capital Expenditures
Our operations require investments to maintain, expand, upgrade and enhance existing operations and to meet environmental and operational regulations. We categorize our capital requirements as either maintenance capital expenditures or expansion capital expenditures. Maintenance capital expenditures represent capital expenditures to repair or replace partially or fully depreciated assets to maintain the operating capacity of, or revenues generated by, existing assets and extend their useful lives. Maintenance capital expenditures also include expenditures required to maintain equipment reliability, tank and pipeline integrity and safety and to address certain environmental regulations. We anticipate that maintenance capital expenditures will be funded with cash generated by operations. We had approximately $7.5 million and $7.0 million in maintenance capital expenditures for the three months ended March 31, 2022 and 2021, respectively, which are included in capital expenditures in the accompanying consolidated statements of cash flows, of which approximately $7.1 million and $6.6 million for the three months ended March 31, 2022 and 2021, respectively, are related to our investments in our gasoline station business. Repair and maintenance expenses associated with existing assets that are minor in nature and do not extend the useful life of existing assets are charged to operating expenses as incurred.
Expansion capital expenditures include expenditures to acquire assets to grow our businesses or expand our existing facilities, such as projects that increase our operating capacity or revenues by, for example, increasing dock capacity and tankage, diversifying product availability, investing in raze and rebuilds and new-to-industry gasoline stations and convenience stores, increasing storage flexibility at various terminals and by adding terminals to our storage network. We have the ability to fund our expansion capital expenditures through cash from operations or our credit agreement or by issuing debt securities or additional equity. We had approximately $135.4 million and $9.9 million in
expansion capital expenditures, including acquired property and equipment, for the three months ended March 31, 2022 and 2021, respectively, primarily related to investments in our gasoline station business.
For the three months ended March 31, 2022, the $135.4 million in expansion capital expenditures includes approximately $125.8 million in property and equipment associated with the acquisitions of Miller Oil and Consumers Petroleum (see Note 2 of Notes to Consolidated Financial Statements), and $9.6 million in expansion capital expenditures, primarily related to investments in our gasoline stations.
We currently expect maintenance capital expenditures of approximately $45.0 million to $55.0 million and expansion capital expenditures, excluding acquisitions, of approximately $50.0 million to $60.0 million in 2022, relating primarily to investments in our gasoline station business. These current estimates depend, in part, on the timing of completion of projects, availability of equipment and workforce, weather, the scope and duration of the COVID-19 pandemic and unanticipated events or opportunities requiring additional maintenance or investments.
We believe that we will have sufficient cash flow from operations, borrowing capacity under our credit agreement and the ability to issue additional equity and/or debt securities to meet our financial commitments, debt service obligations, contingencies and anticipated capital expenditures. However, we are subject to business and operational risks, including uncertainties related to the extent and duration of the COVID-19 pandemic and geopolitical events, each of which could adversely affect our cash flow. A material decrease in our cash flows would likely have an adverse effect on our borrowing capacity as well as our ability to issue additional equity and/or debt securities.
Cash Flow
The following table summarizes cash flow activity (in thousands):
Operating Activities
Cash flow from operating activities generally reflects our net income, balance sheet changes arising from inventory purchasing patterns, the timing of collections on our accounts receivable, the seasonality of parts of our businesses, fluctuations in product prices, working capital requirements and general market conditions.
Net cash provided by (used in) operating activities was $22.6 million and ($105.9 million) for the three months ended March 31, 2022 and 2021, respectively, for a period-over-period increase in cash flow from operating activities of $128.5 million. The period-over-period change was due primarily to an increase in prices during the three months ended March 31, 2022 as compared the same period in 2021. For example, NYMEX gasoline prices increased 96 cents per gallon during the three months ended March 31, 2022 versus an increase of 54 cents per gallon during the three months ended March 31, 2021.
Except for net income, the primary drivers of the changes in operating activities include the following (in thousands):
Increase in accounts receivable
Decrease (increase) in inventories
Increase in accounts payable
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For the three months ended March 31, 2022, the increases in accounts receivable and accounts payable are largely due to the increase in prices. The decrease in inventories is primarily due to carrying lower levels of inventories during the quarter, offset by the increase in prices.
For the three months ended March 31, 2021, the increases in accounts receivable, inventories and accounts payable are largely due to the increase in prices.
Investing Activities
Net cash used in investing activities was $206.8 million for the three months ended March 31, 2022 and included $214.9 million in acquisitions ($154.7 million for Consumers Petroleum and $60.2 million for Miller Oil), $9.6 million in expansion capital expenditures and $7.5 million in maintenance capital expenditures. Net cash used in investing activities was offset by $25.2 million in proceeds from the sale of property and equipment.
Net cash used in investing activities was $22.7 million for the three months ended March 31, 2021 and included $9.9 million in expansion capital expenditures, $7.0 million in maintenance capital expenditures, $7.1 million in acquisitions primarily related to four company-operated gasoline stations and convenience stores, and $1.7 million in seller note issuances which represent notes we received from buyers in connection with the sale of certain of our gasoline stations. Net cash used in investing activities was offset by $3.0 million in proceeds from the sale of property and equipment.
Please read “—Capital Expenditures” for a discussion of our capital expenditures for the three months ended March 31, 2022 and 2021.
Financing Activities
Net provided by financing activities was $184.2 million for the three months ended March 31, 2022 and included $184.6 million in net borrowings from our revolving credit facility, primarily to fund the Recent Acquisitions offset by payments on our revolving credit facility, and $23.9 million in net borrowing from our working capital revolving credit facility due primarily to the increase in prices, offset by $24.3 million in cash distributions to our limited partners (preferred and common unitholders) and our general partner.
Net cash provided by financing activities was $130.5 million for the three months ended March 31, 2021 and included $168.0 million in net borrowings from our working capital revolving credit facility due primarily to the increase in prices and $72.2 million in net proceeds from the issuance of the Series B Preferred Units, offset by $88.6 million in net payments on our revolving credit facility and $21.0 million in cash distributions to our limited partners (preferred and common unitholders) and our general partner. The proceeds from the issuance of the Series B units were used to pay down the revolving credit facility.
See Note 7 of Notes to Consolidated Financial Statements for supplemental cash flow information related to our working capital revolving credit facility and revolving credit facility.
Certain subsidiaries of ours, as borrowers, and we and certain of our subsidiaries, as guarantors, have a $1.55 billion senior secured credit facility. The credit agreement expires on May 6, 2024.
On March 9, 2022, we and certain of our subsidiaries entered into a sixth amendment to the credit agreement which, among other things, amended certain terms and provisions of the credit agreement to provide for $200.0 million of working capital interim commitments which increased the total aggregate commitment from $1.35 billion to $1.55 billion. On March 30, 2022, we certain of our subsidiaries entered into a seventh amendment to the credit agreement which, among other things, (i) increased the working capital revolving credit facility by $200.0 million and simultaneous reduced the working capital interim commitments to $0; (ii) refreshed the accordion feature under the credit agreement to permit us to request increases of up to $300.0 million in the total credit facility; and (iii) replaced the
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Cost of Funds (as defined in the credit agreement) pricing option with a Daily SOFR pricing option. All other material terms of the credit agreement remain substantially the same as disclosed in Note 8 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2021.
We repay amounts outstanding and reborrow funds based on our working capital requirements and, therefore, classify as a current liability the portion of the working capital revolving credit facility we expect to pay down during the course of the year. The long-term portion of the working capital revolving credit facility is the amount we expect to be outstanding during the entire year.
There are two facilities under the credit agreement:
In addition, the credit agreement has an accordion feature whereby we may request on the same terms and conditions then applicable to the credit agreement, provided no Event of Default (as defined in the credit agreement) then exists, an increase to the working capital revolving credit facility, the revolving credit facility, or both, by up to another $300.0 million, in the aggregate, for a total credit facility of up to $1.85 billion. Any such request for an increase must be in a minimum amount of $25.0 million. We cannot provide assurance, however, that our lending group will agree to fund any request by us for additional amounts in excess of the total available commitments of $1.55 billion.
In addition, the credit agreement includes a swing line pursuant to which Bank of America, N.A., as the swing line lender, may make swing line loans in U.S. dollars in an aggregate amount equal to the lesser of (a) $75.0 million and (b) the Aggregate WC Commitments (as defined in the credit agreement). Swing line loans will bear interest at the Base Rate (as defined in the credit agreement). The swing line is a sub-portion of the working capital revolving credit facility and is not an addition to the total available commitments of $1.55 billion.
Availability under the working capital revolving credit facility is subject to a borrowing base which is redetermined from time to time and based on specific advance rates on eligible current assets. Availability under the borrowing base may be affected by events beyond our control, such as changes in petroleum product prices, collection cycles, counterparty performance, advance rates and limits and general economic conditions.
Borrowings under the working capital revolving credit facility bear interest at (1) the Daily or Term SOFR plus a 0.10% SOFR adjustment plus 2.00% to 2.50%, or (2) the base rate plus 1.00% to 1.50%, each depending on the Utilization Amount (as defined in the credit agreement). Borrowings under the revolving credit facility bear interest at (1) the Daily or Term SOFR plus a 0.10% SOFR adjustment plus 1.75% to 2.75%, or (2) the base rate plus 0.75% to 1.75%, each depending on the Combined Total Leverage Ratio (as defined in the credit agreement).
The average interest rates for the credit agreement were 2.3% and 2.7% for the three months ended March 31, 2022 and 2021, respectively.
As of March 31, 2022, we had total borrowings outstanding under the credit agreement of $606.6 million, including $228.0 million outstanding on the revolving credit facility. In addition, we had outstanding letters of credit of $209.0 million. Subject to borrowing base limitations, the total remaining availability for borrowings and letters of credit was $734.4 million and $795.9 million at March 31, 2022 and December 31, 2021, respectively.
The credit agreement imposes financial covenants that require us to maintain certain minimum working capital amounts, a minimum combined interest coverage ratio, a maximum senior secured leverage ratio and a maximum total leverage ratio. We were in compliance with the foregoing covenants at March 31, 2022.
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Please read Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Credit Agreement” in our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information on the credit agreement.
We had 7.00% senior notes due 2027 and 6.875% senior notes due 2029 outstanding at March 31, 2022 and December 31, 2021. Please read Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Senior Notes” in our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information on these senior notes.
We had financing obligations outstanding at March 31, 2022 and December 31, 2021 associated with historical sale-leaseback transactions that did not meet the criteria for sale accounting. Please read Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The significant accounting policies and estimates that we have adopted and followed in the preparation of our consolidated financial statements are detailed in Note 2 of Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policies,” included in our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes in our policies that had a significant impact on our financial condition and results of operations for the periods covered in this report.
During the three months ended March 31, 2022, there has been no material change to our critical accounting estimates discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2021, with the addition of the following:
Business Combinations
Under the purchase method of accounting, we recognize tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. We record any excess of the purchase price over the fair value of the net tangible and intangible assets acquired as goodwill. The accounting for business combinations requires us to make significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing purchased dealer supply contracts include, in part, the expected use 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. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could experience impairment charges. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be accelerated or slowed.
Recent Accounting Pronouncements
A description and related impact expected from the adoption of certain new accounting pronouncements is provided in Note 17 of Notes to Consolidated Financial Statements included elsewhere in this report.
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Item 3.Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices. The principal market risks to which we are exposed are interest rate risk and commodity risk. We currently utilize various derivative instruments to manage exposure to commodity risk.
Interest Rate Risk
We utilize variable rate debt and are exposed to market risk due to the floating interest rates on our credit agreement. Therefore, from time to time, we utilize interest rate collars, swaps and caps to hedge interest obligations on specific and anticipated debt issuances.
As of March 31, 2022, we had total borrowings outstanding under our credit agreement of $606.6 million. Please read Part I, Item 2. “Management’s Discussion and Analysis—Liquidity and Capital Resources—Credit Agreement,” for information on interest rates related to our borrowings. The impact of a 1% increase in the interest rate on this amount of debt would have resulted in an increase in interest expense, and a corresponding decrease in our results of operations, of approximately $6.1 million annually, assuming, however, that our indebtedness remained constant throughout the year.
Commodity Risk
We hedge our exposure to price fluctuations with respect to refined petroleum products, renewable fuels, crude oil and gasoline blendstocks in storage and expected purchases and sales of these commodities. The derivative instruments utilized consist primarily of exchange-traded futures contracts traded on the NYMEX, CME and ICE and over-the-counter transactions, including swap agreements entered into with established financial institutions and other credit-approved energy companies. Our policy is generally to purchase only products for which we have a market and to structure our sales contracts so that price fluctuations do not materially affect our profit. While our policies are designed to minimize market risk, as well as inherent basis risk, exposure to fluctuations in market conditions remains. Except for the controlled trading program discussed below, we do not acquire and hold futures contracts or other derivative products for the purpose of speculating on price changes that might expose us to indeterminable losses.
While we seek to maintain a position that is substantially balanced within our commodity product purchase and sales activities, we may experience net unbalanced positions for short periods of time as a result of variances in daily purchases and sales and transportation and delivery schedules as well as other logistical issues inherent in our businesses, such as weather conditions. In connection with managing these positions, we are aided by maintaining a constant presence in the marketplace. We also engage in a controlled trading program for up to an aggregate of 250,000 barrels of commodity products at any one point in time. Changes in the fair value of these derivative instruments are recognized in the consolidated statements of operations through cost of sales. In addition, because a portion of our crude oil business may be conducted in Canadian dollars, we may use foreign currency derivatives to minimize the risks of unfavorable exchange rates. These instruments may include foreign currency exchange contracts and forwards. In conjunction with entering into the commodity derivative, we may enter into a foreign currency derivative to hedge the resulting foreign currency risk. These foreign currency derivatives are generally short-term in nature and not designated for hedge accounting.
We utilize exchange-traded futures contracts and other derivative instruments to minimize or hedge the impact of commodity price changes on our inventories and forward fixed price commitments. Any hedge ineffectiveness is reflected in our results of operations. We utilize regulated exchanges, including the NYMEX, CME and ICE, which are exchanges for the respective commodities that each trades, thereby reducing potential delivery and supply risks. Generally, our practice is to close all exchange positions rather than to make or receive physical deliveries.
At March 31, 2022, the fair value of all of our commodity risk derivative instruments and the change in fair value that would be expected from a 10% price increase or decrease are shown in the table below (in thousands):
Fair Value at
Gain (Loss)
Effect of 10%
Price Increase
Price Decrease
Exchange traded derivative contracts
(38,818)
38,818
Forward derivative contracts
(34,180)
958
(958)
(128,680)
(37,860)
37,860
The fair values of the futures contracts are based on quoted market prices obtained from the NYMEX, CME and ICE. The fair value of the swaps and option contracts are estimated based on quoted prices from various sources such as independent reporting services, industry publications and brokers. These quotes are compared to the contract price of the swap, which approximates the gain or loss that would have been realized if the contracts had been closed out at March 31, 2022. For positions where independent quotations are not available, an estimate is provided, or the prevailing market price at which the positions could be liquidated is used. All hedge positions offset physical exposures to the physical market; none of these offsetting physical exposures are included in the above table. Price-risk sensitivities were calculated by assuming an across-the-board 10% increase or decrease in price regardless of term or historical relationships between the contractual price of the instruments and the underlying commodity price. In the event of an actual 10% change in prompt month prices, the fair value of our derivative portfolio would typically change less than that shown in the table due to lower volatility in out-month prices. We have a daily margin requirement to maintain a cash deposit with our brokers based on the prior day’s market results on open futures contracts. The balance of this deposit will fluctuate based on our open market positions and the commodity exchange’s requirements. The brokerage margin balance was $53.6 million at March 31, 2022.
We are exposed to credit loss in the event of nonperformance by counterparties to our exchange-traded derivative contracts, physical forward contracts, and swap agreements. We anticipate some nonperformance by some of these counterparties which, in the aggregate, we do not believe at this time will have a material adverse effect on our financial condition, results of operations or cash available for distribution to our unitholders. Exchange-traded derivative contracts, the primary derivative instrument utilized by us, are traded on regulated exchanges, greatly reducing potential credit risks. We utilize major financial institutions as our clearing brokers for all NYMEX, CME and ICE derivative transactions and the right of offset exists with these financial institutions. Accordingly, the fair value of our exchange-traded derivative instruments is presented on a net basis in the consolidated balance sheet. Exposure on physical forward contracts and swap agreements is limited to the amount of the recorded fair value as of the balance sheet dates.
Item 4.Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our principal executive officer and principal financial officer, management evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were operating and effective as of March 31, 2022.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1.Legal Proceedings
The information required by this item is included in Note 16 of Notes to Consolidated Financial Statements and is incorporated herein by reference.
Item 1A.Risk Factors
In addition to other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, which could materially affect our business, financial condition or future results.
Item 6.Exhibits
2.1**
Purchase and Sale Agreement, dated as of December 9, 2020, by and between Consumers Petroleum of Connecticut, Incorporated, Putling Greens I, LLC, Wheels of CT, Inc., CPCI, LLC and Wiehl Estate, LLC, as collective Seller, and Global Partners LP, as Buyer (incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on January 31, 2022).
3.1
Certificate of Limited Partnership of Global Partners LP (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 filed on May 10, 2005).
3.2
Fifth Amended and Restated Agreement of Limited Partnership of Global Partners LP dated as of March 24, 2021 (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on March 24, 2021).
4.1
Indenture, dated as of July 31, 2019, among the Issuers, the Guarantors and Deutsche Bank Trust Company Americas, as trustee (incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on July 31, 2019).
4.2
Indenture, dated October 7, 2020, among the Issuers, the Guarantors and Regions Bank, as trustee (incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on October 8, 2020).
4.3
First Supplemental Indenture, dated as of October 28, 2020, among the Issuers, the Guarantors and Regions Bank, as trustee (incorporated herein by reference to Exhibit 4.3 to the Registration Statement on Form S-4 filed on December 16, 2020).
4.4
First Supplemental Indenture, dated as of October 28, 2020, among the Issuers, the Guarantors and Regions Bank, as successor to Deutsche Bank Trust Company Americas, as trustee (incorporated herein by reference to Exhibit 4.5 to the Registration Statement on Form S-4 filed on December 16, 2020).
10.1
Sixth Amendment to Third Amended and Restated Credit Agreement, dated March 9, 2022 (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on March 15, 2022).
10.2
Seventh Amendment to Third Amended and Restated Credit Agreement, dated March 30, 2022 (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on April 5, 2022).
31.1*
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer of Global GP LLC, general partner of Global Partners LP.
31.2*
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer of Global GP LLC, general partner of Global Partners LP.
32.1†
Section 1350 Certification of Chief Executive Officer of Global GP LLC, general partner of Global Partners LP.
32.2†
Section 1350 Certification of Chief Financial Officer of Global GP LLC, general partner of Global Partners LP.
101.INS*
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH*
Inline XBRL Taxonomy Extension Schema Document.
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith.
** Schedules and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Partnership undertakes to furnish supplementally copies of any of the omitted schedules and exhibits upon request by the U.S. Securities and Exchange Commission.
† Not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
By:
Global GP LLC,
its general partner
Dated: May 6, 2022
/s/ Eric Slifka
Eric Slifka
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Gregory B. Hanson
Gregory B. Hanson
Chief Financial Officer
(Principal Financial Officer)