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 September 30, 2023
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
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 November 6, 2023.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
3
Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022
Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022
4
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022
5
Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022
6
Consolidated Statements of Partners’ Equity for the three and nine months ended September 30, 2023 and 2022
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
58
Item 4. Controls and Procedures
60
PART II. OTHER INFORMATION
61
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
SIGNATURES
63
Item 1.Financial Statements
GLOBAL PARTNERS LP
CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data)
(Unaudited)
September 30,
December 31,
2023
2022
Assets
Current assets:
Cash and cash equivalents
$
11,298
4,040
Accounts receivable, net
521,479
478,837
Accounts receivable-affiliates
3,979
2,380
Inventories
390,849
566,731
Brokerage margin deposits
25,444
23,431
Derivative assets
8,635
19,848
Prepaid expenses and other current assets
80,733
73,992
Total current assets
1,042,417
1,169,259
Property and equipment, net
1,188,345
1,218,171
Right of use assets, net
261,695
288,142
Intangible assets, net
20,735
26,854
Goodwill
429,215
427,780
Equity method investment
71,017
—
Other assets
37,477
30,679
Total assets
3,050,901
3,160,885
Liabilities and partners’ equity
Current liabilities:
Accounts payable
558,228
530,940
Working capital revolving credit facility-current portion
65,700
153,400
Lease liability-current portion
60,073
64,919
Environmental liabilities-current portion
4,940
4,606
Trustee taxes payable
60,679
42,972
Accrued expenses and other current liabilities
131,280
156,964
Derivative liabilities
35,675
17,680
Total current liabilities
916,575
971,481
Working capital revolving credit facility-less current portion
Revolving credit facility
89,000
99,000
Senior notes
742,294
741,015
Long-term lease liability-less current portion
209,237
231,427
Environmental liabilities-less current portion
61,616
64,029
Financing obligations
139,393
141,784
Deferred tax liabilities
65,516
66,400
Other long-term liabilities
52,795
57,305
Total liabilities
2,276,426
2,372,441
Partners’ equity
Series A preferred limited partners (2,760,000 units issued and outstanding at September 30, 2023 and December 31, 2022)
67,475
67,226
Series B preferred limited partners (3,000,000 units issued and outstanding at September 30, 2023 and December 31, 2022)
72,305
Common limited partners (33,995,563 units issued and 33,965,357 outstanding at September 30, 2023 and 33,995,563 units issued and 33,937,519 outstanding at December 31, 2022)
633,027
648,956
General partner interest (0.67% interest with 230,303 equivalent units outstanding at September 30, 2023 and December 31, 2022)
1,155
406
Accumulated other comprehensive loss
513
(449)
Total partners’ equity
774,475
788,444
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
Nine Months Ended
Sales
4,221,045
4,626,747
12,083,062
14,450,935
Cost of sales
3,992,525
4,298,368
11,389,819
13,634,842
Gross profit
228,520
328,379
693,243
816,093
Costs and operating expenses:
Selling, general and administrative expenses
63,479
65,123
192,431
182,274
Operating expenses
115,944
119,549
334,676
327,307
Amortization expense
2,017
2,118
6,119
6,734
Net (gain) loss on sale and disposition of assets
(897)
292
(2,141)
(81,468)
Total costs and operating expenses
180,543
187,082
531,085
434,847
Operating income
47,977
141,297
162,158
381,246
Other income (expense):
Income from equity method investment
1,180
2,384
Interest expense
(21,089)
(19,047)
(64,963)
(61,577)
Income before income tax expense
28,068
122,250
99,579
319,669
Income tax expense
(1,260)
(10,811)
(2,351)
(14,938)
Net income
26,808
111,439
97,228
304,731
Less: General partner’s interest in net income, including incentive distribution rights
2,560
2,027
6,681
5,370
Less: Preferred limited partner interest in net income
3,712
3,463
10,638
10,389
Net income attributable to common limited partners
20,536
105,949
79,909
288,972
Basic net income per common limited partner unit
0.60
3.12
2.35
8.52
Diluted net income per common limited partner unit
8.48
Basic weighted average common limited partner units outstanding
33,983
33,917
33,985
33,932
Diluted weighted average common limited partner units outstanding
34,063
34,008
34,026
34,058
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Other comprehensive (loss) income:
Change in pension liability
(162)
(1,068)
962
(5,521)
Total other comprehensive (loss) income
Comprehensive income
26,646
110,371
98,190
299,210
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
80,952
78,572
Amortization of deferred financing fees
4,134
4,084
Bad debt expense
642
(303)
Unit-based compensation expense
5,661
1,521
Write-off of financing fees
482
Net gain on sale and disposition of assets
(2,384)
Dividends received from equity method investment
850
Changes in operating assets and liabilities:
Accounts receivable
(43,284)
(18,584)
Accounts receivable-affiliate
(1,599)
(2,331)
175,268
87,356
Broker margin deposits
(2,013)
5,077
Prepaid expenses, all other current assets and other assets
(8,672)
14,226
27,288
196,168
17,707
(5,879)
Change in derivatives
29,208
(17,335)
Accrued expenses, all other current liabilities and other long-term liabilities
(36,302)
11,071
Net cash provided by operating activities
343,025
576,906
Cash flows from investing activities
(69,482)
Acquisitions
(1,500)
(255,268)
Capital expenditures
(54,740)
(65,829)
Seller note issuances
(8,155)
Proceeds from sale of property and equipment, net
12,070
126,395
Net cash used in investing activities
(121,807)
(194,702)
Cash flows from financing activities
Net payments on working capital revolving credit facility
(87,700)
(354,700)
Net (payments on) borrowings from revolving credit facility
(10,000)
55,600
Repurchase of common units
(676)
(2,567)
LTIP units withheld for tax obligations
(469)
(1,559)
Distribution equivalent rights
(149)
Distributions to limited partners and general partner
(114,966)
(74,341)
Net cash used in financing activities
(213,960)
(377,567)
Increase in cash and cash equivalents
7,258
4,637
Cash and cash equivalents at beginning of period
10,849
Cash and cash equivalents at end of period
15,486
Supplemental information
Cash paid during the period for interest
62,832
59,649
CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY
Series A
Series B
Accumulated
Preferred
Common
General
Other
Total
Limited
Partner
Comprehensive
Partners’
Three and nine months ended September 30, 2023
Partners
Interest
Income (Loss)
Equity
Balance at December 31, 2022
1,682
1,781
23,786
1,782
29,031
(1,682)
(1,781)
(53,458)
(1,952)
(58,873)
Unit-based compensation
1,094
Other comprehensive income
452
(406)
Dividends on repurchased units
15
Balance at March 31, 2023
619,518
236
759,288
35,587
2,339
41,389
(22,267)
(1,749)
(27,479)
2,067
672
(411)
Balance at June 30, 2023
634,500
826
675
775,532
1,931
(22,947)
(2,231)
(28,641)
2,500
Other comprehensive loss
(892)
Balance at September 30, 2023
Three and nine months ended September 30, 2022
Balance at December 31, 2021
392,086
(1,948)
(1,902)
527,767
25,845
1,177
30,485
(19,887)
(1,012)
(24,362)
204
(1,507)
(6)
25
Balance at March 31, 2022
398,267
(1,783)
(3,409)
532,606
157,178
2,166
162,807
(20,227)
(1,117)
(24,807)
502
(2,946)
(324)
26
Balance at June 30, 2022
532,855
(734)
(6,355)
665,297
(20,567)
(1,222)
(25,252)
815
(1,553)
(247)
29
Balance at September 30, 2022
617,281
71
(7,423)
749,460
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 September 30, 2023, the Partnership had a portfolio of 1,624 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 September 30, 2023, affiliates of the General Partner, including its directors and executive officers and their affiliates, owned 6,395,995 common units, representing a 18.8% limited partner interest.
2023 Events
Purchase Agreement—On November 8, 2023, the Partnership entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Motiva Enterprises LLC pursuant to which the Partnership will acquire 25 refined product terminals along the Atlantic Coast, in the Southeast and in Texas, as more specifically set forth in the Purchase Agreement (the “Terminal Facilities”), and assets related to the Terminal Facilities, for a purchase price of $305.8 million in cash, subject to certain customary adjustments, taking into account the actual amounts of certain assets and liabilities of the Terminal Facilities as of the closing date. The Terminal Facilities have an aggregate shell capacity of approximately 8.4 million barrels. The acquisition is expected to close by the end of 2023 subject to regulatory approvals and other customary closing conditions. The Partnership expects to finance the transaction with borrowings under its revolving credit facility.
Acquisition of Houston Sites—On June 1, 2023, Spring Partners Retail LLC, a joint venture owned by subsidiaries of the Partnership and Exxon Mobil Corporation, completed its acquisition of 64 Houston-area convenience and fueling facilities from Landmark Industries, LLC and its related entities. See Note 11 for additional information.
Amendments to the Credit Agreement—On February 2, 2023, the Partnership and certain of its subsidiaries entered into the eighth amendment to the third amended and restated credit agreement which, among other things, permits the Partnership to request up to two reallocations per calendar year of the lending commitments among its facilities under the credit agreement. On May 2, 2023, the Partnership and certain of its subsidiaries entered into the ninth amendment to third amended and restated credit agreement and joinder which, among other things, increased the applicable revolver rate by 25 basis points on borrowings under the revolving credit facility and extended the maturity date from May 6, 2024 to May 2, 2026. See Note 7 for additional information on the credit agreement.
2022 Event
Acquisition of Terminals—On December 15, 2022, the Partnership entered into a purchase agreement with Gulf Oil Limited Partnership pursuant to which the Partnership will acquire five refined-products terminals located in New Haven, CT, Thorofare, NJ, Portland, ME, Linden, NJ and Chelsea, MA for approximately $273.0 million in cash, subject to certain customary adjustments. The Partnership expects to finance the transaction with borrowings under its revolving credit facility. The Partnership continues to work through the process of obtaining regulatory approvals and other customary closing conditions.
Basis of Presentation
The accompanying consolidated financial statements as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022 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, 2022 and notes thereto contained in the Partnership’s Annual Report on Form 10-K. Other than the new accounting policy for equity method investments discussed below, the significant accounting policies described in Note 2, “Summary of Significant Accounting Policies,” of such Annual Report on Form 10-K are the same used in preparing the accompanying consolidated financial statements.
The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2023. The consolidated balance sheet at December 31, 2022 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, 2022.
The Partnership applies the equity method of accounting to investments when the Partnership has significant influence, but not a controlling interest in the investee. Under this method, the investment is carried originally at cost, increased by any allocated share of the investee’s net income and contributions made, and decreased by any allocated share of the investee’s net losses and distributions received. The investee’s allocated share of income and losses is based on the rights and priorities outlined in the joint venture agreement discussed in Note 11.
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. As demand for some of the Partnership’s refined petroleum products, specifically home heating oil and residual oil for space heating purposes, is generally greater during the winter months, heating oil and residual oil volumes are generally higher during the first and fourth quarters of the calendar year. These factors may result in fluctuations in the Partnership’s quarterly operating results.
9
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)
73
%
68
Distillates (home heating oil, diesel and kerosene), residual oil and crude oil sales
23
28
Convenience store and prepared food sales, rental income and sundries
100
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
20
Gasoline Distribution and Station Operations segment
82
74
77
72
Commercial segment
See Note 14, “Segment Reporting,” for additional information on the Partnership’s operating segments.
None of the Partnership’s customers accounted for greater than 10% of total sales for the three and nine months ended September 30, 2023 and 2022.
Note 2. Business Combination
Acquisition of Tidewater Convenience, Inc.—On September 20, 2022, the Partnership acquired substantially all of the assets of Tidewater Convenience, Inc. (“Tidewater”) in a cash transaction. The acquisition includes 14 company-operated Tidewater convenience stores and 1 fuel site, all located in Virginia. The purchase price was approximately $40.3 million, including inventory. The acquisition was funded with borrowings under the Partnership’s revolving credit facility.
The final fair values of the assets acquired and liabilities assumed as of September 20, 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 Gasoline Distribution and Station Operations (“GDSO”) segment. Substantially all of the goodwill is expected to be deductible for tax purposes.
10
The following table presents the final 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
1,004
Property and equipment
28,653
Right of use assets
638
Total identifiable assets purchased
30,295
Liabilities assumed:
(908)
Environmental liabilities
(2,154)
Lease liability
(508)
Other non-current liabilities
(3,056)
Total liabilities assumed
(6,626)
Net identifiable assets acquired
23,669
16,651
Net assets acquired
40,320
The fair values of the remaining assets and liabilities noted above approximate their carrying values at September 20, 2022, the acquisition date.
Supplemental Pro Forma Information—Revenues and net income not included in the Partnership’s consolidated operating results for Tidewater from January 1, 2022 through the acquisition date were immaterial.
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 September 30, 2023
Revenue from contracts with customers:
Wholesale
GDSO
Commercial
Petroleum and related product sales
1,027,213
1,460,670
183,421
2,671,304
Station operations
136,133
Total revenue from contracts with customers
1,596,803
2,807,437
Other sales:
Revenue originating as physical forward contracts and exchanges
1,302,160
90,373
1,392,533
Revenue from leases
523
20,552
21,075
Total other sales
1,302,683
1,413,608
Total sales
2,329,896
1,617,355
273,794
11
Three Months Ended September 30, 2022
752,652
1,631,078
199,386
2,583,116
138,978
1,770,056
2,722,094
1,757,406
126,764
1,884,170
508
19,975
20,483
1,757,914
1,904,653
2,510,566
1,790,031
326,150
Nine Months Ended September 30, 2023
2,563,586
3,996,890
507,728
7,068,204
371,416
4,368,306
7,439,620
4,330,766
250,464
4,581,230
1,677
60,535
62,212
4,332,443
4,643,442
6,896,029
4,428,841
758,192
Nine Months Ended September 30, 2022
2,778,837
4,721,475
665,143
8,165,455
360,211
5,081,686
8,525,666
5,509,881
354,398
5,864,279
2,042
58,948
60,990
5,511,923
5,925,269
8,290,760
5,140,634
1,019,541
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 September 30, 2023 and December 31, 2022.
12
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
110,178
205,076
Gasoline
168,669
160,386
Gasoline blendstocks
41,408
51,900
Residual oil
38,138
112,457
Renewable identification numbers (RINs)
2,790
5,098
Crude oil
288
2,248
Convenience store inventory
29,378
29,566
In addition to its own inventory, the Partnership has exchange agreements for petroleum products and ethanol with unrelated third-party suppliers, whereby it may draw inventory from these other suppliers and suppliers may draw inventory from the Partnership. Positive exchange balances are accounted for as accounts receivable and amounted to $3.6 million and $2.3 million at September 30, 2023 and December 31, 2022, respectively. Negative exchange balances are accounted for as accounts payable and amounted to $39.1 million and $24.3 million at September 30, 2023 and December 31, 2022, respectively. Exchange transactions are valued using current carrying costs.
Note 5. Goodwill
The following table presents changes in goodwill, all of which has been allocated to the GDSO segment (in thousands):
Acquisition (1)
1,500
Dispositions (2)
(65)
13
Note 6. Property and Equipment
Property and equipment consisted of the following (in thousands):
Buildings and improvements
1,489,092
1,441,893
Land
518,184
523,631
Fixtures and equipment
44,911
42,136
Idle plant assets
30,500
Construction in process
50,339
56,047
Capitalized internal use software
33,808
33,687
Total property and equipment
2,166,834
2,127,894
Less accumulated depreciation
978,489
909,723
Property and equipment includes retail gasoline station assets held for sale of $3.5 million and $5.3 million at September 30, 2023 and December 31, 2022, respectively.
At September 30, 2023, the Partnership had a $36.4 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 both September 30, 2023 and December 31, 2022.
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 2, 2026.
On February 2, 2023, the Partnership and certain of its subsidiaries entered into the eighth amendment to the third amended and restated credit agreement (the “Eighth Amendment”) which, among other things, permits the Partnership to request up to two reallocations per calendar year of the lending commitments among its facilities under the Credit Agreement (see “Eighth Amendment to the Credit Agreement” below). On May 2, 2023, the Partnership and certain of its subsidiaries entered into the ninth amendment to third amended and restated credit agreement and joinder (the “Ninth Amendment”) which, among other things, increased the applicable revolver rate by 25 basis points on borrowings under the revolving credit facility and extended the maturity date from May 6, 2024 to May 2, 2026. All other material terms of the Credit Agreement remain substantially the same as disclosed in Note 9 of Notes to Consolidated Financial Statements in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2022.
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As of September 30, 2023, there were are two facilities under the Credit Agreement:
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 secured overnight financing rate (“SOFR”) plus a 0.10% SOFR adjustment plus a margin of 2.00% to 2.50% depending on the Utilization Amount (as defined in the Credit Agreement), or (2) the base rate plus a margin of 1.00% to 1.50% depending on the Utilization Amount.
Commencing May 2, 2023, borrowings under the revolving credit facility bear interest at (1) the Daily or Term SOFR plus a 0.10% SOFR adjustment plus a margin of 2.00% to 3.00%, depending on the Combined Total Leverage Ratio (as defined in the Credit Agreement), or (2) the base rate plus a margin of 1.00% to 2.00% depending on the Combined Total Leverage Ratio.
The average interest rates for the Credit Agreement were 7.5% and 4.1% for the three months ended September 30, 2023 and 2022, respectively, and 7.0% and 3.1% for the nine months ended September 30, 2023 and 2022, 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 September 30, 2023 the Partnership estimated working capital revolving credit facility borrowings will equal or exceed $0 over the next twelve months.
The table below presents the total borrowings and availability under the Credit Agreement (in thousands):
Total available commitments
1,550,000
Total borrowings outstanding
154,700
252,400
Less outstanding letters of credit
138,200
181,400
Total remaining availability for borrowings and letters of credit (1)
1,257,100
1,116,200
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 September 30, 2023.
Please read Note 9 of Notes to Consolidated Financial Statements in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2022 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 Ninth Amendment, the Partnership capitalized additional financing fees of $8.4 million. Also in connection with the Ninth Amendment, the Partnership incurred expenses of approximately $0.5 million associated with the write-off of a portion of the related deferred financing fees. These expenses are included in interest expense in the accompanying consolidated statement of operations for the nine months ended September 30, 2023. The Partnership had unamortized deferred financing fees of $18.1 million and $14.4 million at September 30, 2023 and December 31, 2022, respectively.
Unamortized fees related to the Credit Agreement are included in other current assets and other long-term assets and amounted to $9.9 million and $4.8 million at September 30, 2023 and December 31, 2022, respectively. Unamortized fees related to the senior notes are presented as a direct deduction from the carrying amount of that debt liability and amounted to $7.7 million and $9.0 million at September 30, 2023 and December 31, 2022, 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 $0.5 million and $0.6 million at September 30, 2023 and December 31, 2022, respectively.
Amortization expense of approximately $1.4 million and $1.3 million for the three months ended September 30, 2023 and 2022, respectively, and $4.1 million for each of the nine months ended September 30, 2023 and 2022 is included in interest expense in the accompanying consolidated statements of operations.
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
1,856,600
1,641,800
Payments on working capital revolving credit facility
(1,944,300)
(1,996,500)
Borrowings from revolving credit facility
59,500
423,000
Payments on revolving credit facility
(69,500)
(367,400)
Eighth Amendment to the Credit Agreement
On February 2, 2023, the Partnership and certain of its subsidiaries entered into the Eighth Amendment which, among other things, permits the Partnership to request up to two reallocations per calendar year (each, a “Reallocation”) of a portion of the working capital revolving credit facility, the working capital interim facility and/or the revolving
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credit facility to the working capital revolving credit facility, the working capital interim facility and/or the revolving credit facility, as applicable. Each Reallocation shall be in a minimum amount of $50.0 million and, after giving effect to any such Reallocation, the amount of the aggregate commitments shall remain the same.
Pursuant to the terms of the Credit Agreement, the Partnership requested, and the lenders under the Credit Agreement agreed to, a Reallocation of $150.0 million of the working capital revolving credit facility to the revolving credit facility. After giving effect to such Reallocation, the working capital revolving credit facility is $950.0 million, and the revolving credit facility is $600.0 million.
Senior Notes
The Partnership had 7.00% senior notes due 2027 and 6.875% senior notes due 2029 outstanding at September 30, 2023 and December 31, 2022. Please read Note 9 of Notes to Consolidated Financial Statements in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2022 for additional information on these senior notes.
Financing Obligations
The Partnership had financing obligations outstanding at September 30, 2023 and December 31, 2022 associated with historical sale-leaseback transactions that did not meet the criteria for sale accounting. Please read Note 9 of Notes to Consolidated Financial Statements in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2022 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 September 30, 2023:
Units (1)
Unit of Measure
Exchange-Traded Derivatives
Long
37,758
Thousands of barrels
Short
(39,737)
OTC Derivatives (Petroleum/Ethanol)
7,946
(4,556)
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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
(9,831)
11,859
(3,521)
8,514
Hedged items in fair value hedge relationship
Physical inventory
8,822
(5,532)
(3,376)
19,544
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
(2,444)
8,195
(473)
17,269
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 September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023
Derivatives Not
Designated as
Hedging
Balance Sheet Location
Instruments
Asset Derivatives:
Exchange-traded derivative contracts
92,693
Forward derivative contracts (1)
Total asset derivatives
101,328
Liability Derivatives:
(9,830)
(25,696)
(35,526)
(35,675)
Total liability derivatives
(61,371)
(71,201)
December 31, 2022
(11,517)
58,380
46,863
78,228
66,711
(51,974)
(17,680)
(69,654)
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, 2022 for additional information on derivative financial instruments.
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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 September 30, 2023 and December 31, 2022 (in thousands):
Fair Value at September 30, 2023
Cash Collateral
Level 1
Level 2
Netting
Assets:
Exchange-traded/cleared derivative instruments (2)
57,167
(31,723)
Pension plans
19,114
76,281
53,193
Liabilities:
Fair Value at December 31, 2022
(5,111)
28,542
18,257
13,146
61,536
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
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
388,500
379,000
6.875% senior notes due 2029
350,000
323,750
315,875
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
The following table presents a summary roll forward of the Partnership’s environmental liabilities at September 30, 2023 (in thousands):
Balance at
Payments
Dispositions
Adjustments
Environmental Liability Related to:
Retail gasoline stations
66,703
(1,839)
(372)
215
64,707
Terminals
1,932
(104)
21
1,849
Total environmental liabilities
68,635
(1,943)
66,556
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.
Note 11. Equity Method Investment
Spring Partners Retail LLC
On March 1, 2023, the Partnership entered into a Limited Liability Company Agreement, as amended (the “LLC Agreement”) of Spring Partners Retail LLC (“SPR”), a Delaware limited liability company formed as a joint venture with ExxonMobil Corporation for the purpose of engaging in the business of operating retail locations in the
state of Texas and such other states as may be approved by SPR’s board of directors. In accordance with the LLC Agreement, the Partnership invested approximately $69.5 million in cash for a 49.99% ownership interest. ExxonMobil Corporation has the remaining 50.01% ownership interest in SPR. SPR is managed by a two-person board of directors, one of whom is designated by the Partnership. The day-to-day activities of SPR are operated by SPR Operator LLC (“SPR Operator”), a wholly owned subsidiary of the Partnership. SPR Operator provides administrative and support functions, such as operations and management support, accounting, legal and human resources and information technology services and systems to SPR for an annual fixed fee. The Partnership accounts for its investment in SPR as an equity method investment as the Partnership has significant influence, but not a controlling interest in the investee.
On June 1, 2023, SPR acquired a portfolio of 64 Houston-area convenience and fueling facilities from Landmark Industries, LLC and its related entities.
The Partnership recognized income of $1.2 million and $2.4 million in its investment for the three and nine months ended September 30, 2023, respectively, which is included in income from equity method investment in the accompanying consolidated statements of operations. The Partnership received a dividend of approximately $0.9 million from its investment for each of the three and nine months ended September 30, 2023. As of September 30, 2023, the Partnership’s investment balance in the joint venture was $71.0 million, which is included in equity method investment in the accompanying consolidated balance sheet.
Note 12. Related Party Transactions
Services Agreement—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 September 30, 2023, no such notice of termination had been given by any party to the Slifka Entities Services Agreement.
General Partner—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 $36.4 million and $45.8 million for the three months ended September 30, 2023 and 2022, respectively, and $117.9 million and $128.0 million for the nine months ended September 30, 2023 and 2022, 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.
Spring Partners Retail LLC—The Partnership, through its subsidiary, SPR Operator, is party to an operations and maintenance agreement with the Partnership’s joint venture, SPR (see Note 11). Pursuant to this agreement certain employees of the Partnership provide SPR with services including administrative and support functions, such as operations and management support, accounting, legal and human resources and information technology services and systems to SPR for which SPR pays SPR Operator, and therefore the Partnership, an annual fixed fee. In addition, SPR Operator employs substantially all of the employees who primarily or exclusively provide services to the Partnership’s joint venture. SPR reimburses the Partnership for direct expenses incurred in connection with these employees.
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Accounts receivable–affiliates consisted of the following (in thousands):
Receivables from the General Partner (1)
4,352
Receivables from Spring Partners Retail LLC (2)
(373)
Sale of the Revere Terminal—On June 28, 2022, the Partnership completed the sale of its terminal located on Boston Harbor in Revere, Massachusetts (the “Revere Terminal”) to Revere MA Owner LLC (the “Revere Buyer”) for a purchase price of $150.0 million in cash. In connection with closing under the purchase agreement between the Partnership and the Revere Buyer, the Partnership entered into a leaseback agreement, which meets the criteria for sale accounting, with the Revere Buyer pursuant to which the Partnership leases back key infrastructure at the Revere Terminal, including certain tanks, dock access rights, and loading rack infrastructure, to allow the Partnership to continue business operations at the Revere Terminal. The term of the leaseback agreement, including all renewal options exercisable at the Partnership’s election, could extend through September 30, 2039.
Pursuant to the terms of the purchase agreement the Partnership entered into with affiliates of the Slifka family (the “Initial Sellers”), related parties, in 2015 to acquire the Revere Terminal, the Initial Sellers are entitled to an amount equal to fifty percent of the net proceeds (as defined in the 2015 purchase agreement) (the “Initial Sellers Share”) from the sale of the Revere Terminal. At the time of the 2022 closing, the preliminary calculation of the Initial Sellers Share was approximately $44.3 million, which amount is subject to future revisions. To date, there have been no payments of additional net proceeds from the 2022 sale of the Revere Terminal relating to the final calculation of the Initial Sellers Share, as adjusted for such shared expenses and potential operating losses or profits.
In connection with the sale of the Revere Terminal, the Partnership recognized a net gain of approximately $76.7 million for the nine months ended September 30, 2022, which is included in net (gain) loss on sale and disposition of assets in the accompanying consolidated statement of operations. The preliminary payment of approximately $44.3 million to the Initial Sellers is included in the calculation of the $76.7 million net gain recognized.
The final calculation of the Initial Sellers Share, including a sharing of any additional expenses in order to satisfy outstanding obligations under the Partnership’s current government storage contract at the Revere Terminal and potential operating losses or profits relating to the operation of the Revere Terminal during the initial leaseback term, will occur upon the expiration of such storage contract. The Partnership recorded a total of approximately $14.1 million and $4.6 million of such additional expenses due to the Initial Sellers which are included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets as of September 30, 2023 and December 31, 2022, respectively. Approximately $2.8 million and $2.7 million of the total amount was recorded in selling, general and administrative expenses in the accompanying consolidated statements of operations for the three months ended September 30, 2023 and 2022, respectively, and $9.5 million and $2.7 million of the total amount was recorded for the nine months ended September 30, 2023 and 2022, respectively.
Note 13. Partners’ Equity and Cash Distributions
Partners’ Equity
Common Units and General Partner Interest
At September 30, 2023, there were 33,995,563 common units issued, including 6,395,995 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 and nine months ended September 30, 2023.
Series A Preferred Units
At September 30, 2023, there were 2,760,000 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 and nine months ended September 30, 2023.
Series B Preferred Units
At September 30, 2023, 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 and nine months ended September 30, 2023.
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.
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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 distributions to common unitholders during 2023 (in thousands, except per unit data):
For the
Per Unit
Cash Distribution
Quarter
Cash
Incentive
Total Cash
Payment Date
Ended
Distribution
Units
2/14/2023 (1)
12/31/22
1.5725
53,458
569
1,383
55,410
5/15/2023 (2)
03/31/23
0.6550
22,267
162
1,587
24,016
8/14/2023 (2)
06/30/23
0.6750
22,947
169
2,062
25,178
In addition, on October 24, 2023, the board of directors of the General Partner declared a quarterly cash distribution of $0.6850 per unit ($2.74 per unit on an annualized basis) on all of its outstanding common units for the period from July 1, 2023 through September 30, 2023. On November 14, 2023, the Partnership will pay this cash distribution to its common unitholders of record as of the close of business on November 8, 2023.
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. The initial distribution rate for the Series A Preferred Units from and including the date of original issue to, but excluding, August 15, 2023 was 9.75% per annum of the $25.00 liquidation preference per unit. On and after August 15, 2023, distributions on the Series A Preferred Units accumulate for each distribution period at a percentage of the $25.00 liquidation preference equal to (i) an annual floating rate of a substitute or successor base rate that a calculation agent has determined to be the most comparable to the three-month LIBOR plus (ii) a spread of 6.774% per annum. For the successor base rate comparable to the three-month LIBOR, the calculation agent has selected the industry-accepted substitute which is the 3-month CME Term SOFR plus the applicable tenor spread of 0.26161% per annum.
At any time on or after August 15, 2023, the Partnership may redeem, in whole or in part, the Series A Preferred Units at a redemption price in cash of $25.00 per Series A Preferred Unit plus an amount equal to all accumulated and unpaid distributions thereon to, but excluding, the date of redemption, whether or not declared. The Partnership must provide not less than 30 days’ and not more than 60 days’ advance written notice of any such redemption. Any such redemptions would be effected only out of funds legally available for such purposes and would be subject to compliance with the provisions of the Partnership’s outstanding indebtedness.
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.
At any time on or after May 15, 2026, the Partnership may redeem, in whole or in part, the Series B Preferred Units at a redemption price in cash of $25.00 per Series B Preferred Unit plus an amount equal to all accumulated and unpaid distributions thereon to, but excluding, the date of redemption, whether or not declared. The Partnership must provide not less than 30 days’ and not more than 60 days’ advance written notice of any such redemption.
The Partnership paid the following cash distributions on the Series A Preferred Units and the Series B Preferred Units during 2023 (in thousands, except per unit data):
Quarterly Period
Covering
2/15/2023
11/15/22 - 2/14/23
0.609375
0.59375
5/15/2023
2/15/23 - 5/14/23
8/15/2023
5/15/23 - 8/14/23
In addition, on October 16, 2023, the board of directors (“the Board”) of the General Partner declared a quarterly cash distribution of $0.77501 per unit ($3.10 per unit on an annualized basis) on the Series A Preferred Units for the period from August 15, 2023 through November 14, 2023. The applicable distribution rate on the Series A Preferred Units for such period, as calculated by the Partnership’s calculation agent, is approximately 12.40%. This distribution will be payable on November 15, 2023 to holders of record as of the opening of business on November 1, 2023.
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 August 15, 2023 through November 14, 2023. This distribution will be payable on November 15, 2023 to holders of record as of the opening of business on November 1, 2023.
Note 14. 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
1,614,459
1,623,599
4,213,536
5,046,457
Distillates and other oils (1)(2)
715,437
886,967
2,682,493
3,244,303
Product margin
20,390
54,260
79,799
93,009
16,780
25,070
70,226
123,984
37,170
79,330
150,025
216,993
Gasoline Distribution and Station Operations Segment:
Station operations (3)
156,685
158,953
431,951
419,159
132,000
187,994
380,699
432,732
74,530
73,614
208,456
200,719
206,530
261,608
589,155
633,451
Commercial Segment:
8,426
23,310
31,042
Combined sales and Product margin:
Product margin (4)
252,126
351,327
762,490
881,486
Depreciation allocated to cost of sales
(23,606)
(22,948)
(69,247)
(65,393)
Combined gross profit
Approximately 110 million gallons and 111 million gallons of the GDSO segment’s sales for the three months ended September 30, 2023 and 2022, respectively, and 314 million gallons and 318 million gallons of the GDSO segment’s sales for the nine months ended September 30, 2023 and 2022, 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 and nine months ended September 30, 2023 and 2022.
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 September 30, 2023 and December 31, 2022 (in thousands):
Unallocated (1)
538,215
1,922,604
590,082
738,995
1,944,135
477,755
Note 15. 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 September 30, 2023 and December 31, 2022, respectively, excludes 30,206 and 58,044 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.
The following table provides a reconciliation of net income and the assumed allocation of net income to the common limited partners (after deducting amounts allocated to preferred unitholders) for purposes of computing net income per common limited partner unit for the periods presented (in thousands, except per unit data):
Numerator:
IDRs
24,248
109,412
Declared distribution
25,841
23,287
174
22,680
21,247
153
1,280
Assumed allocation of undistributed net income
967
961
88,759
88,165
594
Assumed allocation of net income
180
747
Denominator:
Basic weighted average common units outstanding
Dilutive effect of phantom units
80
91
Diluted weighted average common units outstanding
90,547
299,361
75,035
68,501
505
6,029
65,813
62,041
444
3,328
22,193
22,046
147
238,918
237,320
1,598
652
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The board of directors of the General Partner declared the following quarterly cash distributions on its common units:
Per Common Unit Cash
Distribution Declared for the
Cash Distribution Declaration Date
Distribution Declared
Quarterly Period Ended
April 25, 2023
March 31, 2023
July 25, 2023
June 30, 2023
October 24, 2023
0.6850
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:
Per Unit Cash
Quarterly Period Covering
April 17, 2023
February 15, 2023 - May 14, 2023
July 17, 2023
May 15, 2023 - August 14, 2023
October 16, 2023
0.77501
August 15, 2023 - November 14, 2023
See Note 13, “Partners’ Equity and Cash Distributions” for further information.
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
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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.
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.
The Partnership received a Subpoena Duces Tecum dated May 13, 2022 from the Office of the Attorney General of the State of New York (“NY AG”) requesting information regarding charges paid by retailers, distributors, or consumers for oil and gas products in or within the proximity of the State of New York during the disruption of the market triggered by Russia’s 2022 invasion of Ukraine. The Partnership has been advised that the NY AG’s office sent similar subpoena requests for information to market participants across the petroleum industry. The Partnership made an initial submission of information to the NY AG’s office and continues to cooperate with the NY AG’s office to satisfy its obligations under the subpoena.
The Partnership received a letter from the Office of the Attorney General of the State of Connecticut (“CT AG”) dated June 28, 2022 seeking information from the Partnership related to its sales of motor fuel to retailers within the State of Connecticut from February 3, 2022 through June 28, 2022. The Partnership has been advised that the CT AG’s office sent similar requests for information to market participants across the petroleum industry. The Partnership has complied with the CT AG’s request and submitted information responsive thereto.
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.
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Note 18. Subsequent Events
Distribution to Common Unitholders—On October 24, 2023, the board of directors of the General Partner declared a quarterly cash distribution of $0.6850 per unit ($2.74 per unit on an annualized basis) for the period from July 1, 2023 through September 30, 2023. On November 14, 2023, the Partnership will pay this cash distribution to its common unitholders of record as of the close of business on November 8, 2023.
Distribution to Series A Preferred Unitholders—On October 16, 2023, the board of directors of the General Partner declared a quarterly cash distribution of $0.77501 per unit ($3.10 per unit on an annualized basis) on the Series A Preferred Units, covering the period from August 15, 2023 through November 14, 2023. The applicable distribution rate on the Series A Preferred Units for such period, as calculated by the Partnership’s calculation agent, is approximately 12.40%. This distribution will be payable on November 15, 2023 to holders of record as of the opening of business on November 1, 2023.
Distribution to Series B Preferred Unitholders—On October 16, 2023, 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 August 15, 2023 through November 14, 2023. This distribution will be payable on November 15, 2023 to holders of record as of the opening of business on November 1, 2023.
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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, 2022 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 September 30, 2023, we had a portfolio of 1,624 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 $4.0 billion and $11.7 billion of refined petroleum products, gasoline blendstocks, renewable fuels and crude oil for the three and nine months ended September 30, 2023, respectively. In addition, we had other revenues of approximately $0.2 billion and $0.4 billion for the three and nine months ended September 30, 2023, respectively 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.
Purchase Agreement—On November 8, 2023, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Motiva Enterprises LLC pursuant to which we will acquire 25 refined product terminals along the Atlantic Coast, in the Southeast and in Texas, as more specifically set forth in the Purchase Agreement (the “Terminal Facilities”), and assets related to the Terminal Facilities, for a purchase price of $305.8 million in cash, subject to certain customary adjustments, taking into account the actual amounts of certain assets and liabilities of the Terminal Facilities as of the closing date. The Terminal Facilities have an aggregate shell capacity of approximately 8.4 million barrels. The acquisition is expected to close by the end of 2023 subject to regulatory approvals and other customary closing conditions. We expect to finance the transaction with borrowings under our revolving credit facility.
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Acquisition of Houston Sites—On June 1, 2023, Spring Partners Retail LLC, a joint venture owned by subsidiaries of ours and Exxon Mobil Corporation, completed its acquisition of 64 Houston-area convenience and fueling facilities from Landmark Industries, LLC and its related entities. See Note 11 of Notes to Consolidated Financial Statements for additional information.
Amendments to the Credit Agreement—On February 2, 2023, we and certain of our subsidiaries entered into the eighth amendment to our credit agreement which, among other things, permits us to request up to two reallocations per calendar year of the lending commitments among our facilities under our credit agreement. On May 2, 2023, we and certain of our subsidiaries entered into the ninth amendment to third amended and restated credit agreement and joinder which, among other things, increased the applicable revolver rate by 25 basis points on borrowings under the revolving credit facility and extended the maturity date from May 6, 2024 to May 2, 2026. See “—Liquidity and Capital Resources—Credit Agreement.”
Acquisition of Terminals—On December 15, 2022, we entered into a purchase agreement with Gulf Oil Limited Partnership pursuant to which we will acquire five refined-products terminals located in New Haven, CT, Thorofare, NJ, Portland, ME, Linden, NJ and Chelsea, MA for approximately $273.0 million in cash, subject to certain customary adjustments. We expect to finance the transaction with borrowings under our revolving credit facility. We continue to work through the process of obtaining regulatory approvals and other customary closing conditions.
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. 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).
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As of September 30, 2023, we had a portfolio of owned, leased and/or supplied gasoline stations, primarily in the Northeast, that consisted of the following:
Company operated (1)
342
Commissioned agents
300
Lessee dealers
184
Contract dealers
798
1,624
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. 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. 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 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 and adjusted 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.
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:
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Adjusted EBITDA is EBITDA further adjusted for gains or losses on the sale and disposition of assets, goodwill and long-lived asset impairment charges and our proportionate share of EBITDA related to our joint venture which is accounted for using the equity method. 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 and Adjusted 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 historical 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.
Adjusted distributable cash flow is a non-GAAP financial measure intended to provide management and investors with an enhanced perspective of our financial performance. Adjusted distributable cash flow is distributable cash flow (as defined in our partnership agreement) further adjusted for our proportionate share of distributable cash flow related to our joint venture which is accounted for using the equity method. Adjusted distributable cash flow is not used in our partnership agreement to determine our ability to make cash distributions and may be higher or lower than distributable cash flow as calculated under our partnership agreement.
Distributable cash flow and adjusted distributable cash flow should not be considered as alternatives 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 and adjusted distributable cash flow may not be comparable to distributable cash flow or similarly titled measures of other companies.
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,
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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)
76,664
168,217
245,494
459,818
Adjusted EBITDA (1)
77,732
168,509
244,129
378,350
Distributable cash flow (2)(3)(4)
42,229
128,020
143,357
356,086
Adjusted distributable cash flow (2)
43,262
142,914
Volume (gallons)
829,706
779,175
2,567,873
2,548,607
Distillates and other oils (5)(6)
426,794
430,001
1,223,382
1,228,769
Station operations (7)
108,383
102,092
310,546
314,288
Combined sales and product margin:
Product margin (8)
GDSO portfolio as of September 30, 2023 and 2022:
Company operated (9)
356
293
196
839
Total GDSO portfolio
1,684
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Weather conditions:
Normal heating degree days
96
3,750
Actual heating degree days
56
57
3,150
3,482
Variance from normal heating degree days
(42)
(41)
(16)
(7)
Variance from prior period actual heating degree days
(2)
171
(9)
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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 to EBITDA and adjusted EBITDA:
27,507
26,920
21,089
19,047
64,963
61,577
1,260
10,811
2,351
14,938
EBITDA
Net income from equity method investment (1)
(1,180)
EBITDA related to equity method investment (1)
3,145
3,160
Adjusted EBITDA
Reconciliation of net cash provided by operating activities to EBITDA and adjusted EBITDA:
97,088
191,713
Net changes in operating assets and liabilities and certain non-cash items
(42,773)
(53,354)
(164,845)
(193,603)
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The following table presents reconciliations of distributable cash flow and adjusted 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 to distributable cash flow and adjusted distributable cash flow:
1,423
1,347
Amortization of routine bank refinancing fees
(1,214)
(1,138)
(3,507)
(3,457)
Maintenance capital expenditures
(12,295)
(10,548)
(35,450)
(27,844)
Distributable cash flow (1)(2)(3)
Net income from equity method investment (4)
Distributable cash flow from equity method investment (4)
2,213
1,941
Adjusted distributable cash flow (1)
Distributions to preferred unitholders (5)
(3,712)
(3,463)
(10,638)
(10,389)
Adjusted distributable cash flow after distributions to preferred unitholders
39,550
124,557
132,276
345,697
Reconciliation of net cash provided by operating activities to distributable cash flow and adjusted distributable cash flow:
Consolidated Sales
Our total sales were $4.2 billion and $4.6 billion for the three months ended September 30, 2023 and 2022, respectively, a decrease of $0.4 billion, or 9%, primarily due to a decrease in prices, partially offset by an increase in volume sold. Our aggregate volume of product sold was 1.4 billion gallons and 1.3 billion gallons for the three months ended September 30, 2023 and 2022, respectively, increasing 54 million gallons from the prior-year period (consisting of
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increases of 51 million gallons and 6 million gallons in our Wholesale and Commercial segments, respectively, offset by a decrease of 3 million gallons in our GDSO segment).
Our total sales were $12.1 billion and $14.4 billion for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $2.3 billion, or 16%, primarily due to a decrease in prices, partially offset by an increase in volume sold. Our aggregate volume of product sold was 4.1 billion gallons for each of the nine months ended September 30, 2023 and 2022, increasing 10 million gallons from the nine months ended September 30, 2022 (consisting of an increase of 19 million gallons in our Wholesale segment, offset by decreases of 5 million gallons and 4 million gallons in our GDSO and Commercial segments, respectively).
Our gross profit was $228.5 million and $328.4 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $99.9 million, or 30%. In our GDSO segment, our gasoline product margin declined primarily due to lower fuel margins (cents per gallon) in 2023 compared to significantly higher fuel margins in 2022 due to especially favorable market conditions experienced in 2022. Product margins in both gasoline distribution and station operations in our GDSO segment were negatively impacted by excessive amounts of rain in the Northeast, particularly in July, which influenced consumer travel patterns and decreased demand for our products and services at our gasoline stations and convenience stores. Our Wholesale segment product margins decreased in 2023 due to less favorable market conditions compared to 2022 when market conditions were more favorable, primarily in gasoline and gasoline blendstocks but also in distillates and other oils. In our Commercial segment, our product margin decreased, primarily due to less favorable market conditions in bunkering.
Our gross profit was $693.2 million and $816.1 million for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $122.9 million, or 15%. Our Wholesale segment product margins decreased in 2023 due to less favorable market conditions compared to 2022 when market conditions were more favorable, primarily in distillates and other oils but also in gasoline and gasoline blendstocks. In our GDSO segment, our gasoline distribution product margin decreased due in part to lower fuel margins (cents per gallon), while our station operations product margin increased due to an increase in activity at our convenience stores. Our GDSO product margins benefitted from our September 2022 acquisition of Tidewater Convenience, Inc. (“Tidewater”). In our Commercial segment, our product margin decreased, primarily due to less favorable market conditions in bunkering.
Results for Wholesale Segment
Gasoline and Gasoline Blendstocks. Sales from wholesale gasoline and gasoline blendstocks were $1.6 billion for each of the three months ended September 30, 2023 and 2022, decreasing $9.1 million, or 1%, due to a decrease in prices, partially offset by an increase in volume sold. Our gasoline and gasoline blendstocks product margin was $20.4 million and $54.2 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $33.8 million, or 62%, primarily due to less favorable market conditions in gasoline compared to the same period in 2022 when market conditions were more favorable.
Sales from wholesale gasoline and gasoline blendstocks were $4.2 billion and $5.0 billion for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $0.8 billion, or 16%, primarily due to a decrease in prices. Our gasoline and gasoline blendstocks product margin was $79.8 million and $93.0 million for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $13.2 million, or 14%, primarily due to less favorable market conditions in gasoline in the third quarter of 2023, partially offset by more favorable market conditions in gasoline and gasoline blendstocks in the first quarter of 2023.
Distillates and Other Oils. Sales from distillates and other oils (primarily residual oil and crude oil ) were $0.7 billion and $0.9 billion for the three months ended September 30, 2023 and 2022, respectively, decreasing $171.5 million, or 19%, primarily due to a decrease in distillate prices and a decline in residual oil volume sold, partially offset by an increase in distillate volume sold. Our product margin from distillates and other oils was $16.8 million and $25.1 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $8.3 million, or 33%, primarily due to less favorable market conditions in distillates and residual oil compared to the same period in 2022
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when market conditions were more favorable. The decrease in product margin was offset by an increase in crude oil due to the expiration of a pipeline connection agreement in December of 2022.
Sales from distillates and other oils were $2.7 billion and $3.2 billion for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $0.5 billion, or 16%, primarily due to a decrease in prices and a decline in distillate volume sold, partially offset by an increase in residual oil volume sold. Our product margin from distillates and other oils was $70.2 million and $124.0 million for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $53.8 million, or 43%, primarily due to less favorable market conditions in distillates and residual oil compared to the same period in 2022 when market conditions were more favorable, offset by an increase in crude oil due to the expiration of a pipeline connection agreement in December of 2022. Our sales, volumes sold and product margins related to weather-sensitive products were negatively impacted for the first nine months of 2023 due to warmer weather in the first quarter when temperatures were 16% warmer than normal and 13% warmer than the first quarter of 2022.
Results for Gasoline Distribution and Station Operations Segment
Gasoline Distribution. Sales from gasoline distribution were $1.4 billion and $1.6 billion for the three months ended September 30, 2023 and 2022, respectively, decreasing $170.4 million, or 10%, primarily due to decreases in prices and in volume sold. Our product margin from gasoline distribution was $132.0 million and $188.0 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $56.0 million, or 30%, primarily due to lower fuel margins (cents per gallon) in 2023 compared to significantly higher fuel margins in 2022 due to especially favorable market conditions experienced in 2022. Our sales, volume sold and product margin in gasoline distribution were also negatively impacted for the third quarter of 2023 due to excessive amounts of rain in the Northeast, particularly in July, which influenced consumer travel patterns and decreased demand for gasoline.
Sales from gasoline distribution were $4.0 billion and $4.7 billion for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $0.7 billion, or 15%, primarily due to a decrease in prices and in volume sold. Our product margin from gasoline distribution was $380.7 million and $432.7 million for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $52.0 million, or 12%, in part due to lower fuel margins (cents per gallon), offset by an increase in volume sold due to the acquisition of Tidewater.
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 $156.7 million and $158.9 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $2.2 million, or 1%. Our product margin from station operations was $74.5 million and $73.6 million for the three months ended September 30, 2023 and 2022, respectively, an increase of $0.9 million, or 1%, primarily due to an increase in activity at our convenience stores, in part due to the acquisition of Tidewater. Our sales and product margin from station operations were negatively impacted for the third quarter of 2023 due to excessive amounts of rain in the Northeast, particularly in July, which influenced consumer demand for our products and services at our convenience stores.
Sales from our station operations were $431.9 million and $419.1 million for the nine months ended September 30, 2023 and 2022, respectively, an increase of $12.8 million, or 3%. Our product margin from station operations was $208.4 million and $200.7 million for the nine months ended September 30, 2023 and 2022, respectively, an increase of $7.7 million, or 4%. The increases in sales and product margin are primarily due to an increase in activity at our convenience stores, in part due to the acquisition of Tidewater.
Results for Commercial Segment
Our commercial sales were $273.8 million and $326.1 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $52.3 million or 16%, primarily due to a decrease in prices, partially offset by an increase in volume sold. Our commercial product margin was $8.4 million and $10.4 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $2.0 million, or 19%, primarily due to less favorable market conditions in bunkering.
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Our commercial sales were $0.8 billion and $1.0 billion for the nine months ended September 30, 2023 and 2022, respectively, decreasing $261.3 million or 26%, primarily due to decreases in prices and, to a lesser extent, volume sold. Our commercial product margin was $23.3 million and $31.0 million for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $7.7 million, or 25%, primarily due to less favorable market conditions in bunkering.
SG&A expenses were $63.5 million and $65.1 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $1.6 million, or 2%, including a decrease of $5.7 million in accrued discretionary incentive compensation, offset by increases of $2.4 million in acquisition costs and $1.7 million in wages and benefits.
SG&A expenses were $192.4 million and $182.3 million for the nine months ended September 30, 2023 and 2022, respectively, an increase of $10.1 million, or 6%, including increases of $8.7 million in wages and benefits, $6.8 million of expenses associated with the sale of our Revere Terminal (see Note 12 of Notes to Consolidated Financial Statements), $1.8 million in acquisition costs, $1.3 million in professional fees and $1.2 million in various other SG&A expenses. The increase in SG&A expenses was offset by a decrease of $9.7 million in accrued discretionary incentive compensation.
Operating expenses were $115.9 million and $119.5 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $3.6 million, or 3%, due to a decrease of $4.1 million in our GDSO segment including a decrease in our environmental expenses due to an additional reserve recorded in the third quarter of 2022 and to lower rent expense, offset by an increase in salary expense. Operating expenses associated with our terminal operations increased $0.5 million.
Operating expenses were $334.7 million and $327.3 million for the nine months ended September 30, 2023 and 2022, respectively, an increase of $7.4 million, or 2%, largely due to an increase of $6.3 million associated with our GDSO operations, including the Tidewater acquisition, in part due to higher salary expense and an increase in maintenance and repair expenses, offset by decreases in our environmental reserve and in credit card fees due to lower gasoline prices. Operating expenses associated with our terminal operations increased $1.1 million, partially due to an increase in maintenance and repair expenses.
Amortization Expense
Amortization expense related to intangible assets was $2.0 million and $2.1 million for the three months ended September 30, 2023 and 2022, respectively, and $6.1 million and $6.7 million for the nine months ended September 30, 2023 and 2022, respectively.
Net Gain (Loss) on Sale and Disposition of Assets
Net gain on sale and disposition of assets was $0.9 million and $2.1 million for the three and nine months ended September 30, 2023, respectively, primarily due to the sale of GDSO sites.
Net (loss) on sale and disposition of assets was ($0.3 million) for the three months ended September 30, 2022, primarily due to the sale of GDSO sites. Net gain on sale and disposition of assets was $81.5 million for the nine months ended September 30, 2022, primarily related to the sale of the Revere Terminal (see Note 12 of Notes to Consolidated Financial Statements for more information).
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Income from Equity Method Investment
Income from equity method investment was $1.2 million and $2.4 million for the three and nine months ended September 30, 2023, representing our proportional share of earnings from our Spring Partners Retail LLC joint venture (see Note 11 of Notes to Consolidated Financial Statements).
Interest Expense
Interest expense was $21.1 million and $19.0 million for the three months ended September 30, 2023 and 2022, respectively, an increase of $2.1 million, or 11%, due in part to higher average balances on our credit facilities and higher interest rates.
Interest expenses was $64.9 million and $61.5 million for the nine months ended September 30, 2023 and 2022, respectively, an increase of $3.4 million, or 5%, due in part to higher interest rates and a $0.5 million write-off of deferred financing fees associated with the amendment to our credit agreement in May 2023, offset by lower average balances on our credit facilities,
Income Tax Expense
Income tax expense was $1.3 million and $10.8 million for the three months ended September 30, 2023 and 2022, respectively, and $2.4 million and $14.9 million for the nine months ended September 30, 2023 and 2022, respectively. The respective income tax expense predominantly reflects the income tax expense from the operating results of GMG, which is a taxable entity for federal and state income tax purposes.
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 $125.8 million and $197.8 million at September 30, 2023 and December 31, 2022, respectively, a decrease of $72.0 million. Changes in current assets and current liabilities decreasing our working capital primarily include a decrease of $175.9 million in inventories and an increase of $27.3 million in accounts payable, both in part due to lower prices. The decrease in working capital was offset by decreases of $87.7 million in the current portion of our working capital revolving credit facility and $25.7 million in accrued expenses and current liabilities and an increase of $42.6 million in accounts receivable.
During 2023, we paid the following cash distributions to our common unitholders and our general partner:
Distribution Paid for the
Cash Distribution Payment Date
Total Paid
February 14, 2023 (1)
55.4 million
Fourth quarter 2022
May 15, 2023
24.0 million
First quarter 2023
August 14, 2023
25.2 million
Second quarter 2023
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In addition, on October 24, 2023, the board of directors of our general partner declared a quarterly cash distribution of $0.6850 per unit ($2.74 per unit on an annualized basis) on all of our outstanding common units for the period from July 1, 2023 through September 30, 2023 to our common unitholders of record as of the close of business on November 8, 2023. We expect to pay the total cash distribution of approximately $25.8 million on November 14, 2023.
During 2023, we paid the following cash distributions to holders of the Series A Preferred Units and the Series B Preferred Units:
February 15, 2023
1.7 million
1.8 million
November 15, 2022 - February 14, 2023
August 15, 2023
In addition, on October 16, 2023, the board of directors of our general partner declared a quarterly cash distribution of $0.77501 per unit ($3.10 per unit on an annualized basis) on the Series A Preferred Units for the period from August 15, 2023 through November 14, 2023 to our Series A preferred unitholders of record as of the opening of business on November 1, 2023. The applicable distribution rate on the Series A Preferred Units for such period, as calculated by our calculation agent, is approximately 12.40%. We expect to pay the total cash distribution of approximately $2.1 million on November 15, 2023.
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 August 15, 2023 through November 14, 2023 to our Series B preferred unitholders of record as of the opening of business on November 1, 2023. We expect to pay the total cash distribution of approximately $1.8 million on November 15, 2023.
Contractual Obligations
We have contractual obligations that are required to be settled in cash. The amounts of our contractual obligations at September 30, 2023 were as follows (in thousands):
Payments Due by Period
Remainder of
Beyond 2023
Credit facility obligations (1)
19,128
153,632
172,760
Senior notes obligations (2)
994,346
Operating lease obligations (3)
18,532
304,354
322,886
Other long-term liabilities (4)
3,689
59,633
63,322
Financing obligations (5)
3,923
97,948
101,871
45,272
1,609,913
1,655,185
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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 $35.4 million and $27.8 million in maintenance capital expenditures for the nine months ended September 30, 2023 and 2022, respectively, which are included in capital expenditures in the accompanying consolidated statements of cash flows, of which approximately $32.2 million and $25.0 million for the nine months ended September 30, 2023 and 2022, 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 $19.3 million and $38.0 million in expansion capital expenditures, excluding acquired property and equipment, for the nine months ended September 30, 2023 and 2022, respectively, primarily related to investments in our gasoline station business.
We currently expect maintenance capital expenditures of approximately $50.0 million to $60.0 million and expansion capital expenditures, excluding acquisitions, of approximately $35.0 million to $45.0 million in 2023, 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 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 that 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.
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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 operating activities was $343.0 million and $576.9 million for the nine months ended September 30, 2023 and 2022, respectively, for a period-over-period decrease in cash flow from operating activities of $233.9 million.
Except for net income, the primary drivers of the changes in operating activities include the following (in thousands):
Increase in accounts receivable
Decrease in inventories
Increase in accounts payable
For the nine months ended September 30, 2023, the increases in accounts receivable and accounts payable are in part due to timing of sales and payments, offset by a decrease in prices. The decrease in inventories is primarily due to the decrease in prices.
For the nine months ended September 30, 2022, the increases in accounts receivable and accounts payable are in part due to the increase in prices. The decrease in inventories is primarily due to carrying lower levels of inventories during the period, offset by the increase in prices.
Investing Activities
Net cash used in investing activities was $121.8 million for the nine months ended September 30, 2023 and included $69.5 million in expenditures associated with our equity method investment (see Note 11 of Notes to Consolidated Financial Statements), $35.4 million in maintenance capital expenditures, $19.3 million in expansion capital expenditures, $8.1 million in seller note issuances which represent notes we received from buyers in connection with the sale of certain of our gasoline stations and $1.5 million in an immaterial acquisition. Net cash used in investing activities was offset by $12.0 million in proceeds from the sale of property and equipment.
Net cash used in investing activities was $194.7 million for the nine months ended September 30, 2022 and included $255.2 million in acquisitions ($154.7 million for Consumers Petroleum, $60.1 million for Miller Oil and $40.4 million for Tidewater), $38.0 million in expansion capital expenditures and $27.8 million in maintenance capital expenditures. Net cash used in investing activities was offset by $126.3 million in proceeds from the sale of property and equipment, primarily related to the sale of the Revere Terminal.
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Please read “—Capital Expenditures” for a discussion of our capital expenditures for the nine months ended September 30, 2023 and 2022.
Financing Activities
Net cash used in financing activities was $213.9 million for the nine months ended September 30, 2023 and included $114.9 million in cash distributions to our limited partners (preferred and common unitholders) and our general partner, $87.7 million and $10.0 million in net payments on our working capital revolving credit facility and our revolving credit facility, respectively, $0.7 million in the repurchase of common units pursuant to our repurchase program for future satisfaction of our LTIP obligations, $0.5 million in LTIP units withheld for tax obligations and $0.1 million in distribution equivalent rights.
Net cash used in financing activities was $377.6 million for the nine months ended September 30, 2022 and included $354.7 million in net payments on our working capital revolving credit facility, $74.3 million in cash distributions to our limited partners (preferred and common unitholders) and our general partner, $2.6 million in the repurchase of common units pursuant to our repurchase program for future satisfaction of our LTIP obligations and $1.6 million in LTIP units withheld for tax obligations related to awards that vested in 2022. Net cash used in financing activities was offset by $55.6 million in net borrowings from our revolving credit facility, primarily to fund our acquisitions.
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. 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. The credit agreement expires on May 2, 2026.
On February 2, 2023, we and certain of our subsidiaries entered into the eighth amendment to the third amended and restated credit agreement (the “Eighth Amendment”) which, among other things, permits us to request up to two reallocations per calendar year of the lending commitments among our facilities under our credit agreement (see “Eighth Amendment to the Credit Agreement” below). On May 2, 2023, we and certain of our subsidiaries entered into the ninth amendment to third amended and restated credit agreement and joinder (the “Ninth Amendment”) which, among other things, increased the applicable revolver rate by 25 basis points on borrowings under the revolving credit facility and extended the maturity date from May 6, 2024 to May 2, 2026. All other material terms of the credit agreement remain substantially the same as disclosed in Note 9 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2022.
As of September 30, 2023, there were two facilities under the credit agreement:
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 secured overnight financing rate (“SOFR”) plus a 0.10% SOFR adjustment plus a margin of 2.00% to 2.50% depending on the Utilization Amount (as defined in the credit agreement), or (2) the base rate plus a margin of 1.00% to 1.50% depending on the Utilization Amount.
Commencing May 2, 2023, borrowings under the revolving credit facility bear interest at (1) the Daily or Term SOFR plus a 0.10% SOFR adjustment plus a margin of 2.00% to 3.00%, depending on the Combined Total Leverage Ratio (as defined in the credit agreement), or (2) the base rate plus a margin of 1.00% to 2.00% depending on the Combined Total Leverage Ratio.
The average interest rates for the credit agreement were 7.5% and 4.1% for the three months ended September 30, 2023 and 2022, respectively, and 7.0% and 3.1% for the nine months ended September 30, 2023 and 2022, respectively.
As of September 30, 2023, we had $65.7 million borrowings outstanding on the working capital revolving credit facility and $89.0 million outstanding on the revolving credit facility. In addition, we had outstanding letters of credit of $138.2 million. Subject to borrowing base limitations, the total remaining availability for borrowings and letters of credit was $1.26 billion and $1.12 billion at September 30, 2023 and December 31, 2022, 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 September 30, 2023.
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, 2022 for additional information on the credit agreement.
On February 2, 2023, we and certain of our subsidiaries entered into the Eighth Amendment which, among other things, permits us to request up to two reallocations per calendar year (each, a “Reallocation”) of a portion of the working capital revolving credit facility, the working capital interim facility and/or the revolving credit facility to the working capital revolving credit facility, the working capital interim facility and/or the revolving credit facility, as applicable. Each Reallocation shall be in a minimum amount of $50.0 million and, after giving effect to any such Reallocation, the amount of the aggregate commitments shall remain the same.
Pursuant to the terms of the credit agreement, we requested, and the lenders under the credit agreement agreed to, a Reallocation of $150.0 million of the working capital revolving credit facility to the revolving credit facility. After giving effect to such Reallocation, the working capital revolving credit facility is $950.0 million, and the revolving credit facility is $600.0 million.
We had 7.00% senior notes due 2027 and 6.875% senior notes due 2029 outstanding at September 30, 2023 and December 31, 2022. 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, 2022 for additional information.
We had financing obligations outstanding at September 30, 2023 and December 31, 2022 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, 2022 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, 2022. 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 and nine months ended September 30, 2023, 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, 2022.
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.
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 September 30, 2023, we had total borrowings outstanding under our credit agreement of $154.7 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 $1.5 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 September 30, 2023, 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
(22,446)
22,446
Forward derivative contracts
(27,040)
(15,568)
15,568
30,127
(38,014)
38,014
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 September 30, 2023. 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 $25.4 million at September 30, 2023.
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.
59
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 September 30, 2023.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2023 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, 2022, which could materially affect our business, financial condition or future results.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Maximum Number (or
Total Number of
Approximate Dollar
Units Purchased as
Value) of Units That May
Total Number
Average
Part of Publicly
Yet Be Purchased
Of Units
Price Paid
Announced Plans or
Under the Plans or
Period
Purchased
Per Unit($)
Programs (1)
July 1—July 31, 2023
August 1—August 31, 2023
September 1—September 30, 2023
20,415
32.87
299,187
Item 5.Other Information
During the three months ended September 30, 2023, no director or executive officer of the Partnership adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 6.Exhibits
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).
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.
† Not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section.
62
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: November 9, 2023
/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)