GLOBAL PARTNERS LP The following discussion and analysis of financial condition and results of
operations of
This section generally discusses 2021 and 2020 items and year-to-year
comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year
comparisons between 2020 and 2019 that are not included in this Form 10-K can be
found in "Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in our Annual Report on Form 10-K for the
year ended
Overview
We are a master limited partnership formed in
Collectively, we sold approximately
We base our pricing on spot prices, fixed prices or indexed prices and routinely
use the
Our Perspective on Global and the COVID-19 Pandemic
Overview
The COVID-19 pandemic continues to make its presence felt at home, in the office workplace, at our retail sites and terminal locations and in the global supply chain. We remain active in responding to the challenges posed by the COVID-19 pandemic and continue to provide essential products and services while prioritizing the safety of our employees, customers and vendors in the communities where we operate.
The COVID-19 pandemic resulted in an economic downturn, restricted travel to, from and within the states in which we conduct our businesses, and in decreases in the demand for gasoline and convenience store products. Social distancing guidelines and directives limiting food operations at our convenience stores contributed to a reduction in in-store traffic and sales. The demand for diesel fuel was similarly (but not as drastically) impacted. While market conditions have improved, the pandemic continues to impact our operations and financial performance. We remain well positioned to pivot and address directives from federal, state and municipal authorities designed to mitigate the spread of the COVID-19 pandemic and promote the continuing economic recovery. However, uncertainties surrounding the duration of the COVID-19 pandemic and demand at the pump, inside our stores and at our terminals remain.
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Moving Forward - Our Perspective
The extent to which the COVID-19 pandemic may continue to affect our operating results remains uncertain. The COVID-19 pandemic has had, and may continue to have, material adverse consequences for general economic, financial and business conditions, and could materially and adversely affect our business, financial condition and results of operations and those of our customers, suppliers and other counterparties.
Our inventory management is dependent on the use of hedging instruments which are managed based on the structure of the forward pricing curve. Daily market changes may impact periodic results due to the point-in-time valuation of these positions. Volatility in the oil markets resulting from COVID-19 and geopolitical events may impact our results.
Business operations today reflect changes which may remain for an indefinite period of time. In these uncertain times and volatile markets, we believe that we are operationally nimble and that our portfolio of assets may continue to provide us with opportunities.
Recent Developments
Acquisitions-On
On
Revere Terminal Purchase and Sale Agreement-On
Amended Credit Agreement-On
Series B Preferred Unit Offering-On
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2020 Event
2029 Notes Offering and 2023 Notes Redemption-On
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.
Wholesale
In our Wholesale segment, we engage in the logistics of selling, gathering,
blending, storing and transporting refined petroleum products, gasoline
blendstocks, renewable fuels, crude oil and propane. We transport these products
by railcars, barges, trucks and/or pipelines pursuant to spot or long-term
contracts. From time to time, we aggregate crude oil by truck or pipeline in the
mid-continent region of
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
Gasoline Distribution and Station Operations
In our GDSO segment, gasoline distribution includes sales of branded and unbranded gasoline to gasoline station operators and sub-jobbers. Station operations include (i) convenience store and prepared food sales, (ii) rental income from gasoline stations leased to dealers, from commissioned agents and from cobranding arrangements and (iii) sundries (such as car wash sales and lottery and ATM commissions).
As of
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Northeast, that consisted of the following:
Company operated 295 Commissioned agents 293 Lessee dealers 201 Contract dealers 806 Total 1,595
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
Commercial
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. However, the COVID-19 pandemic has had a negative impact on gasoline demand and the extent and duration of that impact remains uncertain. As demand for some of our refined petroleum products, specifically home heating oil and residual oil for space heating purposes, is generally greater during the winter months, heating oil and residual oil volumes are generally higher during the first and fourth quarters of the calendar year. These factors may result in fluctuations in our quarterly operating results.
Outlook
This section identifies certain risks and certain economic or industry-wide factors, in addition to those described under "-Our Perspective on Global and the COVID-19 Pandemic," that may affect our financial performance and results of operations in the future, both in the short-term and in the long-term. Our results of operations and financial condition depend, in part, upon the following:
Our businesses are influenced by the overall markets for refined petroleum
products, gasoline blendstocks, renewable fuels, crude oil and propane and
increases and/or decreases in the prices of these products may adversely impact
our financial condition, results of operations and cash available for
? distribution to our unitholders and the amount of borrowing available for
working capital under our credit agreement. Results from our purchasing,
storing, terminalling, transporting, selling and blending operations are
influenced by prices for refined petroleum products, gasoline blendstocks,
renewable fuels, crude oil and
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propane, price volatility and the market for such products. Prices in the
overall markets for these products may affect our financial condition, results
of operations and cash available for distribution to our unitholders. Our
margins can be significantly impacted by the forward product pricing curve,
often referred to as the futures market. We typically hedge our exposure to
petroleum product and renewable fuel price moves with futures contracts and, to
a lesser extent, swaps. In markets where future prices are higher than current
prices, referred to as contango, we may use our storage capacity to improve our
margins by storing products we have purchased at lower prices in the current
market for delivery to customers at higher prices in the future. In markets
where future prices are lower than current prices, referred to as backwardation,
inventories can depreciate in value and hedging costs are more expensive. For
this reason, in these backward markets, we attempt to reduce our inventories in
order to minimize these effects. Our inventory management is dependent on the
use of hedging instruments which are managed based on the structure of the
forward pricing curve. Daily market changes may impact periodic results due to
the point-in-time valuation of these positions. Volatility in oil markets may
impact our results. When prices for the products we sell rise, some of our
customers may have insufficient credit to purchase supply from us at their
historical purchase volumes, and their customers, in turn, may adopt
conservation measures which reduce consumption, thereby reducing demand for
product. Furthermore, when prices increase rapidly and dramatically, we may be
unable to promptly pass our additional costs on to our customers, resulting in
lower margins which could adversely affect our results of operations. Higher
prices for the products we sell may (1) diminish our access to trade credit
support and/or cause it to become more expensive and (2) decrease the amount of
borrowings available for working capital under our credit agreement as a result
of total available commitments, borrowing base limitations and advance rates
thereunder. When prices for the products we sell decline, our exposure to risk
of loss in the event of nonperformance by our customers of our forward contracts
may be increased as they and/or their customers may breach their contracts and
purchase the products we sell at the then lower market price from a competitor.
We commit substantial resources to pursuing acquisitions and expending capital
for growth projects, although there is no certainty that we will successfully
complete any acquisitions or growth projects or receive the economic results we
anticipate from completed acquisitions or growth projects. We are continuously
engaged in discussions with potential sellers and lessors of existing (or
suitable for development) terminalling, storage, logistics and/or marketing
assets, including gasoline stations, convenience stores and related businesses,
and also consider organic growth projects. Our growth largely depends on our
ability to make accretive acquisitions and/or accretive development projects.
We may be unable to execute such accretive transactions for a number of
reasons, including the following: (1) we are unable to identify attractive
? transaction candidates or negotiate acceptable terms; (2) we are unable to
obtain financing for such transactions on economically acceptable terms; or
(3) we are outbid by competitors. Many of these transactions involve numerous
regulatory, environmental, commercial and legal uncertainties beyond our
control. Required approvals, permits and licenses may not be obtained, may be
delayed or may be obtained with conditions that materially alter the expected
return associated with the underlying projects. In addition, we may consummate
transactions that we believe will be accretive but that ultimately may not be
accretive. If any of these events were to occur, our future growth and ability
to increase or maintain distributions on our common units could be limited. We
can give no assurance that our transaction efforts will be successful or that
any such efforts will be completed on terms that are favorable to us.
The condition of credit markets may adversely affect our liquidity. In the
past, world financial markets experienced a severe reduction in the
availability of credit. Possible negative impacts in the future could include a
? decrease in the availability of borrowings under our credit agreement,
increased counterparty credit risk on our derivatives contracts and our
contractual counterparties could require us to provide collateral. In addition,
we could experience a tightening of trade credit from our suppliers.
We depend upon marine, pipeline, rail and truck transportation services for a
substantial portion of our logistics activities in transporting the products we
? sell. Implementation of regulations and directives related to these
aforementioned services as well as disruption in any of these transportation
services could have an adverse effect on our financial condition, results of
operations and cash available for distribution
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to our unitholders. Hurricanes, flooding and other severe weather conditions
could cause a disruption in the transportation services we depend upon and could
affect the flow of service. In addition, accidents, labor disputes between
providers and their employees and labor renegotiations, including strikes,
lockouts or a work stoppage, shortage of railcars, trucks and barges, mechanical
difficulties or bottlenecks and disruptions in transportation logistics could
also disrupt our business operations. These events could result in service
disruptions and increased costs which could also adversely affect our financial
condition, results of operations and cash available for distribution to our
unitholders. Other disruptions, such as those due to an act of terrorism or war,
could also adversely affect our businesses.
We have contractual obligations for certain transportation assets such as
railcars, barges and pipelines. A decline in demand for (i) the products we
? sell or (ii) our logistics activities, could result in a decrease in the
utilization of our transportation assets, which could negatively impact our
financial condition, results of operations and cash available for distribution
to our unitholders.
Our gasoline financial results in our GDSO segment can be lower in the first
and fourth quarters of the calendar year due to seasonal fluctuations in
demand. 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 results of operations in gasoline can be lower in the
first and fourth quarters of the calendar year. The COVID-19 pandemic has had a
negative impact on gasoline demand and in-store traffic, and the extent and
duration of that impact remains uncertain.
Our heating oil and residual oil financial results can be lower in the second
and third quarters of the calendar year. Demand for some refined petroleum
? products, specifically home heating oil and residual oil for space heating
purposes, is generally higher during November through March than during April
through October. We obtain a significant portion of these sales during the
winter months.
Warmer weather conditions could adversely affect our results of operations and
financial condition. Weather conditions generally have an impact on the demand
for both home heating oil and residual oil. Because we supply distributors
? whose customers depend on home heating oil and residual oil for space heating
purposes during the winter, warmer-than-normal temperatures during the first
and fourth calendar quarters can decrease the total volume we sell and the
gross profit realized on those sales.
Our gasoline, convenience store and prepared food sales could be significantly
reduced by a reduction in demand due to the impact of COVID-19, higher prices
and new technologies and alternative fuel sources, such as electric, hybrid,
battery powered, hydrogen or other alternative fuel-powered motor vehicles.
Technological advances and alternative fuel sources, such as electric, hybrid,
battery powered, hydrogen or other alternative fuel-powered motor vehicles, may
adversely affect the demand for gasoline. We could face additional competition
from alternative energy sources as a result of future government-mandated
controls or regulations which promote the use of alternative fuel sources. A
? number of new legal incentives and regulatory requirements, and executive
initiatives, including various government subsidies including the extension of
certain tax credits for renewable energy, have made these alternative forms of
energy more competitive. Changing consumer preferences or driving habits could
lead to new forms of fueling destinations or potentially fewer customer visits
to our sites, resulting in a decrease in gasoline sales and/or sales of food,
sundries and other on-site services. In addition, higher prices could reduce
the demand for gasoline and the products and services we offer at our
convenience stores and adversely impact our sales. A reduction in our sales
could have an adverse effect on our financial condition, results of operations
and cash available for distribution to our unitholders.
Energy efficiency, higher prices, new technology and alternative fuels could
reduce demand for our heating oil and residual oil. Increased conservation and
? technological advances have adversely affected the demand for home heating oil
and residual oil. Consumption of residual oil has steadily declined over the
last four decades. We could face additional competition from alternative energy
sources as a result of future
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government-mandated controls or regulations further promoting the use of cleaner
fuels. End users who are dual-fuel users have the ability to switch between
residual oil and natural gas. Other end users may elect to convert to natural
gas. During a period of increasing residual oil prices relative to the prices of
natural gas, dual-fuel customers may switch and other end users may convert to
natural gas. During periods of increasing home heating oil prices relative to
the price of natural gas, residential users of home heating oil may also convert
to natural gas. As described above, such switching or conversion could have an
adverse effect on our financial condition, results of operations and cash
available for distribution to our unitholders.
Changes in government usage mandates and tax credits could adversely affect the
availability and pricing of ethanol and renewable fuels, which could negatively
impact our sales. The
Act of 2005 and the Energy Independence and Security Act of 2007. The RFS
program seeks to promote the incorporation of renewable fuels in the nation's
fuel supply and, to that end, sets annual quotas for the quantity of renewable
fuels (such as ethanol) that must be blended into transportation fuels consumed
in
produced in or imported into
the market price of RINs. We cannot predict the future prices of RINs. RIN
prices are dependent upon a variety of factors, including
related to the amount of RINs required and the total amounts that can be
generated, the availability of RINs for purchase, the price at which RINs can
be purchased, and levels of transportation fuels produced, all of which can
vary significantly from quarter to quarter. If sufficient RINs are unavailable
? for purchase or if we have to pay a significantly higher price for RINs, or if
we are otherwise unable to meet the
operations and cash flows could be adversely affected. Future demand for
ethanol will be largely dependent upon the economic incentives to blend based
upon the relative value of gasoline and ethanol, taking into consideration the
reduction or waiver of the RFS mandate or oxygenate blending requirements could
adversely affect the availability and pricing of ethanol, which in turn could
adversely affect our future gasoline and ethanol sales. In addition, changes in
blending requirements or broadening the definition of what constitutes a
renewable fuel could affect the price of RINs which could impact the magnitude
of the mark-to-market liability recorded for the deficiency, if any, in our RIN
position relative to our RVO at a point in time. Changes proposed by
the renewable volume obligations may increase the cost to consumers for
transportation fuel, which could result in a decline in demand for fuels and
lower revenues for our business.
Governmental action and campaigns to discourage smoking and use of other
products may have a material adverse effect on our revenues and gross profit.
products, and the FDA, states and some municipalities have enacted and are
pursuing enaction of numerous regulations restricting the sale of such
products. These governmental actions, as well as national, state and municipal
campaigns to discourage smoking, tax increases, and imposition of regulations
? restricting the sale of flavored tobacco products, e-cigarettes and vapor
products, have and could result in reduced consumption levels, higher costs
which we may not be able to pass on to our customers, and reduced overall
customer traffic. Also, increasing regulations related to and restricting the
sale of flavored tobacco products, e-cigarettes and vapor products may offset
some of the gains we have experienced from selling these types of products.
These factors could materially affect the sale of this product mix which in
turn could have an adverse effect on our financial condition, results of
operations and cash available for distribution to our unitholders.
New, stricter environmental laws and other industry-related regulations or
environmental litigation could significantly impact our operations and/or
increase our costs, which could adversely affect our results of operations and
financial condition. Our operations are subject to federal, state and municipal
laws and regulations regulating, among other matters, logistics activities,
product quality specifications and other environmental matters. The trend in
? environmental regulation has been towards more restrictions and limitations on
activities that may affect the environment over time. For example, President
Biden signed an executive order calling for new or more stringent emissions
standards for new, modified and existing oil and gas facilities. Our businesses
may be adversely affected by increased costs and liabilities resulting from
such stricter laws and regulations. We try to anticipate future regulatory
requirements that might be
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imposed and plan accordingly to remain in compliance with changing environmental
laws and regulations and to minimize the costs of such compliance. Risks related
to our environmental permits, including the risk of noncompliance, permit
interpretation, permit modification, renewal of permits on less favorable terms,
judicial or administrative challenges to permits by citizens groups or federal,
state or municipal entities or permit revocation are inherent in the operation
of our businesses, as it is with other companies engaged in similar businesses.
We may not be able to renew the permits necessary for our operations, or we may
be forced to accept terms in future permits that limit our operations or result
in additional compliance costs. There can be no assurances as to the timing and
type of such changes in existing laws or the promulgation of new laws or the
amount of any required expenditures associated therewith. Climate change
continues to attract considerable public and scientific attention. In recent
years environmental interest groups have filed suit against companies in the
energy industry related to climate change. Should such suits succeed, we could
face additional compliance costs or litigation risks.
Results of Operations
Evaluating Our Results of Operations
Our management uses a variety of financial and operational measurements to analyze our performance. These measurements include: (1) product margin, (2) gross profit, (3) earnings before interest, taxes, depreciation and amortization ("EBITDA") and Adjusted EBITDA, (4) distributable cash flow, (5) selling, general and administrative expenses ("SG&A"), (6) operating expenses and (7) degree days.
Product Margin
We view product margin as an important performance measure of the core profitability of our operations. We review product margin monthly for consistency and trend analysis. We define product margin as our product sales minus product costs. Product sales primarily include sales of unbranded and branded gasoline, distillates, residual oil, renewable fuels and crude oil, as well as convenience store and prepared food sales, gasoline station rental income and revenue generated from our logistics activities when we engage in the storage, transloading and shipment of products owned by others. Product costs include the cost of acquiring products and all associated costs including shipping and handling costs to bring such products to the point of sale as well as product costs related to convenience store items and costs associated with our logistics activities. We also look at product margin on a per unit basis (product margin divided by volume). Product margin is a non-GAAP financial measure used by management and external users of our consolidated financial statements to assess our business. Product margin should not be considered an alternative to net income, operating income, cash flow from operations, or any other measure of financial performance presented in accordance with GAAP. In addition, our product margin may not be comparable to product margin or a similarly titled measure of other companies.
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:
? our compliance with certain financial covenants included in our debt
agreements;
? our financial performance without regard to financing methods, capital
structure, income taxes or historical cost basis;
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? our ability to generate cash sufficient to pay interest on our indebtedness and
to make distributions to our partners;
our operating performance and return on invested capital as compared to those
of other companies in the wholesale, marketing, storing and distribution of
? refined petroleum products, gasoline blendstocks, renewable fuels, crude oil
and propane, and in the gasoline stations and convenience stores business,
without regard to financing methods and capital structure; and
? the viability of acquisitions and capital expenditure projects and the overall
rates of return of alternative investment opportunities.
Adjusted EBITDA is EBITDA further adjusted for gains or losses on the sale and disposition of assets and goodwill and long-lived asset impairment charges. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA and Adjusted EBITDA exclude some, but not all, items that affect net income, and these measures may vary among other companies. Therefore, EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
Distributable Cash Flow
Distributable cash flow is an important non-GAAP financial measure for our limited partners since it serves as an indicator of our success in providing a cash return on their investment. Distributable cash flow as defined by our partnership agreement is net income plus depreciation and amortization minus maintenance capital expenditures, as well as adjustments to eliminate items approved by the audit committee of the board of directors of our general partner that are extraordinary or non-recurring in nature and that would otherwise increase distributable cash flow.
Distributable cash flow as used in our partnership agreement also determines our ability to make cash distributions on our incentive distribution rights. The investment community also uses a distributable cash flow metric similar to the metric used in our partnership agreement with respect to publicly traded partnerships to indicate whether or not such partnerships have generated sufficient earnings on a current or historic level that can sustain distributions on preferred or common units or support an increase in quarterly cash distributions on common units. Our partnership agreement does not permit adjustments for certain non-cash items, such as net losses on the sale and disposition of assets and goodwill and long-lived asset impairment charges.
Distributable cash flow should not be considered as an alternative to net income, operating income, cash flow from operations, or any other measure of financial performance presented in accordance with GAAP. In addition, our distributable cash flow may not be comparable to distributable cash flow or similarly titled measures of other companies.
Selling, General and Administrative Expenses
Our SG&A expenses include, among other things, marketing costs, corporate overhead, employee salaries and benefits, pension and 401(k) plan expenses, discretionary bonuses, non-interest financing costs, professional fees and information technology expenses. Employee-related expenses including employee salaries, discretionary bonuses and related payroll taxes, benefits, and pension and 401(k) plan expenses are paid by our general partner which, in turn, are reimbursed for these expenses by us.
Operating Expenses
Operating expenses are costs associated with the operation of the terminals, transload facilities and gasoline stations and convenience stores used in our businesses. Lease payments, maintenance and repair, property taxes, utilities, credit card fees, taxes, labor and labor-related expenses comprise the most significant portion of our operating expenses. While the majority of these expenses remains relatively stable, independent of the volumes through our system, they can fluctuate depending on the activities performed during a specific period. In addition, they can be impacted by new directives issued by federal, state and local governments.
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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
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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):
Year Ended December 31,
2021 2020 2019
Net income attributable to Global
Partners LP $ 60,796 $ 102,210 $ 35,867
EBITDA (1)(3)(4) $ 244,459 $ 285,529 $ 234,374
Adjusted EBITDA (1)(3)(4) $ 244,333 $ 287,731 $ 233,666 Distributable cash flow (2)(3)(4)(5)
3,667,211 3,899,035 4,539,335
Sales
Gasoline and gasoline blendstocks$ 5,357,128 $ 3,243,676 $ 5,897,458 Other oils and related products (7) 2,465,232 1,625,600 2,125,776 Crude oil (8) 61,776 84,046 96,419 Total$ 7,884,136 $ 4,953,322 $ 8,119,653 Product margin Gasoline and gasoline blendstocks$ 86,289 $ 101,806 $ 86,661 Other oils and related products (7) 65,429 84,927 53,384 Crude oil (8) (12,845) (672) (13,047) Total$ 138,873 $ 186,061 $ 126,998 Gasoline Distribution and Station Operations Segment: Volume (gallons) 1,546,459 1,360,252 1,622,122 Sales Gasoline$ 4,137,969 $ 2,545,616 $ 3,806,892 Station operations (9) 476,405 431,041 466,761 Total$ 4,614,374 $ 2,976,657 $ 4,273,653 Product margin Gasoline$ 413,756 $ 398,016 $ 374,550 Station operations (9) 233,881 205,926 225,078 Total$ 647,637 $ 603,942 $ 599,628 Commercial Segment: (6) Volume (gallons) 369,956 268,989 358,041 Sales$ 749,767 $ 391,620 $ 688,424 Product margin$ 15,604 $ 12,279 $ 24,061 Combined sales and product margin: Sales$ 13,248,277 $ 8,321,599 $ 13,081,730 Product margin (10)$ 802,114 $ 802,282 $ 750,687 Depreciation allocated to cost of sales (82,851) (81,144) (87,930) Combined gross profit$ 719,263 $ 721,138 $ 662,757 GDSO portfolio as ofDecember 31, 2021 , 2020 and 2019: Company operated 295 277 289 Commissioned agents 293 273 258 Lessee dealers 201 208 216 Contract dealers 806 790 788 Total GDSO portfolio 1,595 1,548 1,551 70 Table of Contents Year Ended December 31, 2021 2020 2019 Weather conditions: Normal heating degree days 5,630 5,630 5,630 Actual heating degree days 4,870 5,029 5,152 Variance from normal heating degree days (13) % (11) % (8) %
Variance from prior period actual heating degree days (3) % (2) % (4) %
EBITDA and Adjusted EBITDA are non-GAAP financial measures which are (1) discussed above under "-Evaluating Our Results of Operations." The table
below presents reconciliations of EBITDA and Adjusted EBITDA to the most
directly comparable GAAP financial measures.
Distributable cash flow is a non-GAAP financial measure which is discussed
above under "-Evaluating Our Results of Operations." As defined by ourpartnership agreement, distributable cash flow is not adjusted for certain (2) non-cash items, such as net losses on the sale and disposition of assets and
goodwill and long-lived asset impairment charges. The table below presents
reconciliations of distributable cash flow to the most directly comparable
GAAP financial measures.
EBITDA, Adjusted EBITDA and distributable cash flow for 2021 include a
$6.6 million expense for compensation and benefits resulting from the passing
of our general counsel in May of 2021 and
officer in August of 2021. The $6.6 million expense relates to contractual
commitments including the acceleration of grants previously awarded as well
as a discretionary award in recognition of service.
EBITDA, Adjusted EBITDA and distributable cash flow includes a loss on early
(4) extinguishment of debt of
(5) Distributable cash flow for 2020 includes a
related to the CARES Act net operating loss carryback provisions.
(6) Segment reporting results for 2020 and 2019 have been reclassified between
our Wholesale and Commercial segments to conform to our current presentation.
(7) Other oils and related products primarily consist of distillates and residual
oil.
(8) Crude oil consists of our crude oil sales and revenue from our logistics
activities.
(9) Station operations consist of convenience store and prepared food sales,
rental income and sundries.
Product margin is a non-GAAP financial measure which is discussed above (10) under "-Evaluating Our Results of Operations." The table above includes a
reconciliation of product margin on a combined basis to gross profit, a
directly comparable GAAP measure.
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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 (in thousands):
Year Ended December 31,
2021 2020 2019
Reconciliation of net income to EBITDA and Adjusted EBITDA: Net income
$ 60,796 $ 101,682 $ 35,178 Net loss attributable to noncontrolling interest - 528 689 Net income attributable to Global Partners LP 60,796 102,210 35,867 Depreciation and amortization 102,241 99,899 107,557 Interest expense 80,086 83,539 89,856 Income tax expense (benefit) 1,336 (119) 1,094 EBITDA (1) 244,459 285,529 234,374 Net (gain) loss on sale and disposition of assets (506) 275 (2,730) Long-lived asset impairment 380 1,927 2,022 Adjusted EBITDA (1)$ 244,333 $ 287,731 $ 233,666 Reconciliation of net cash provided by operating activities to EBITDA and Adjusted EBITDA: Net cash provided by operating activities$ 50,218 $ 312,526 $ 94,402
Net changes in operating assets and liabilities and certain non-cash items
112,819 (110,709) 48,968
Net cash from operating activities and changes in
operating assets and liabilities attributable to
noncontrolling interest - 292 54
Interest expense 80,086 83,539 89,856
Income tax expense (benefit) 1,336 (119) 1,094
EBITDA (1) 244,459 285,529 234,374
Net (gain) loss on sale and disposition of assets (506) 275 (2,730)
Long-lived asset impairment 380 1,927 2,022
Adjusted EBITDA (1) $ 244,333 $ 287,731 $ 233,666
EBITDA and Adjusted EBITDA for 2021 include a $6.6 million expense for
compensation and benefits resulting from the passing of our general counsel
in May of 2021 and $3.1 million expense for compensation resulting from the
retirement of our former chief financial officer in August of 2021. The
(1)
acceleration of grants previously awarded as well as a discretionary award in
recognition of service. EBITDA and Adjusted EBITDA include a loss on early
extinguishment of debt of $7.2 million in 2020 related to the 2023 Notes and
$13.1 million in 2019 related to the 2022 Notes (defined below).
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The following table presents reconciliations of distributable cash flow to the most directly comparable GAAP financial measures on a historical basis (in thousands):
Year Ended December 31,
2021 2020 2019
Reconciliation of net income to distributable cash flow: Net income
$ 60,796 $ 101,682 $ 35,178 Net loss attributable to noncontrolling interest - 528 689 Net income attributable to Global Partners LP 60,796 102,210 35,867 Depreciation and amortization 102,241 99,899 107,557 Amortization of deferred financing fees 5,031 5,241 5,940 Amortization of routine bank refinancing fees (4,064) (3,970) (3,754) Maintenance capital expenditures (43,254) (46,988) (49,897) Distributable cash flow (1)(2)(3) 120,750 156,392 95,713 Distributions to preferred unitholders (4) (12,209) (6,728) (6,728) Distributable cash flow after distributions to preferred unitholders$ 108,541 $ 149,664 $ 88,985 Reconciliation of net cash provided by operating activities to distributable cash flow: Net cash provided by operating activities$ 50,218 $ 312,526 $ 94,402
Net changes in operating assets and liabilities and certain non-cash items
112,819 (110,709) 48,968
Net cash from operating activities and changes in - 292 54
operating assets and liabilities attributable to
noncontrolling interest
Amortization of deferred financing fees 5,031 5,241 5,940
Amortization of routine bank refinancing fees (4,064) (3,970) (3,754)
Maintenance capital expenditures (43,254) (46,988) (49,897)
Distributable cash flow (1)(2)(3) 120,750 156,392 95,713
Distributions to preferred unitholders (4) (12,209) (6,728) (6,728)
Distributable cash flow after distributions to
preferred unitholders $ 108,541 $ 149,664 $ 88,985 Distributable cash flow is a non-GAAP financial measure which is discussed
above under "-Evaluating Our Results of Operations." As defined by our (1) partnership agreement, distributable cash flow is not adjusted for certain
non-cash items, such as net losses on the sale and disposition of assets and
goodwill and long-lived asset impairment charges.
Distributable cash flow for 2021 includes a $6.6 million expense for
compensation and benefits resulting from the passing of our general counsel
in May of 2021 and $3.1 million expense for compensation resulting from the
retirement of our former chief financial officer in August of 2021. The
(2)
acceleration of grants previously awarded as well as a discretionary award in
recognition of service. Distributable cash flow includes a loss on early
extinguishment of debt of $7.2 million in 2020 related to the 2023 Notes and
$13.1 million in 2019 related to the 2022 Notes (defined below).
(3) Distributable cash flow for 2020 includes a 6.3 million income tax benefit
related to the CARES Act net operating loss carryback provisions.
Distributions to preferred unitholders represent the distributions payable tothe Series A preferred unitholders and the Series B preferred unitholders (4) earned during the period. These distributions are cumulative and payable
quarterly in arrears on
each year.
Results of Operations
Consolidated Sales
Our total sales were
Our total sales were
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6.5 billion gallons for 2020 and 2019, respectively, a decrease of 1.0 billion gallons in part due to the impact of the COVID-19 pandemic. The decrease in volume sold includes a decrease of 640 million gallons in our Wholesale segment due to a decline in gasoline and gasoline blendstocks, partially offset by increased volume in other oils and related products and crude oil, and decreases of 262 million gallons in our GDSO segment and 89 million gallons in our Commercial segment.
Gross Profit
Our gross profit was
Our gross profit was
Results for Wholesale Segment
Gasoline and Gasoline Blendstocks. Sales from wholesale gasoline and gasoline
blendstocks were
Sales from wholesale gasoline and gasoline blendstocks were
Other Oils and Related Products. Sales from other oils and related products were
Sales from other oils and related products (primarily distillates and residual
oil) were
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of 2020, there was a significant recovery in the supply/demand imbalance at the
end of the first quarter. The forward product pricing curve flattened which
positively impacted our product margins. Our product margin also benefitted from
more favorable market conditions in the fourth quarter of 2020 compared to the
same period in 2019, largely in distillates. In the first quarter of 2020, the
COVID-19 pandemic and the price war between
Crude Oil. Crude oil sales and logistics revenues were
Crude oil sales and logistics revenues were
Results for Gasoline Distribution and Station Operations Segment
Gasoline Distribution. Sales from gasoline distribution were
Sales from gasoline distribution were
Station Operations. Our station operations, which include (i) convenience stores
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
Revenues from our station operations were
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Results for Commercial Segment
Our commercial sales were
Our commercial sales were
Selling, General and Administrative Expenses
SG&A expenses were
Operating Expenses
Operating expenses were
Amortization Expense
Amortization expense related to our intangible assets was
Net gain (loss) on sale and disposition of assets was
Long-Lived Asset Impairment
In 2021, we recognized an impairment charge primarily relating to certain
developmental assets for raze and rebuilds in the amount of
In 2020, we recognized an impairment charge relating to certain right-of-use
assets in the amount of
Interest Expense
Interest expense was
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Loss on Early Extinguishment of Debt
In 2020 as a result of the redemption of the 2023 Notes, we recorded a
Income Tax (Expense) Benefit
Income tax (expense) benefit was (
On
Net Loss Attributable to Noncontrolling Interest
In
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
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Cash Distributions
Common Units
During 2021, we paid the following cash distributions to our common unitholders and our general partner:
Distribution Paid for the
Cash Distribution Payment Date Total Paid Quarterly Period Ended
February 12, 2021 $ 19.3 million Fourth quarter 2020
May 14, 2021 $ 20.5 million First quarter 2021
August 13, 2021 $ 20.5 million Second quarter 2021
November 12, 2021 $ 20.5 million Third quarter 2021
In addition, on
Series A Preferred Units
During 2021, we paid the following cash distributions to holders of the Series A Preferred Units:
Distribution Paid for the
Cash Distribution Payment Date Total Paid Quarterly Period Covering
February 16, 2021 $ 1.7 million November 15, 2020 - February 14, 2021
May 17, 2021 $ 1.7 million February 15, 2021 - May 14, 2021
August 16, 2021 $ 1.7 million May 15, 2021 - August 14, 2021
November 15, 2021 $ 1.7 million August 15, 2021 - November 14, 2021
In addition, on
Series B Preferred Units
On
In addition, on
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Contractual Obligations
We have contractual obligations that are required to be settled in cash. The
amounts of our contractual obligations at
Payments Due by Period
Contractual Obligations Next 12 Months Beyond 12 Months Total
Credit facility obligations (1)
52,063 1,046,408 1,098,471
Operating lease obligations (3) 79,665 258,445 338,110
Other long-term liabilities (4) 25,271 64,852 90,123
Financing obligations (5) 15,268 113,450 128,718
Total $ 386,595 $ 1,681,652 $ 2,068,247
Includes principal and interest on our working capital revolving credit
facility and our revolving credit facility at December 31, 2021 and assumes a
ratable payment through the expiration date. Our credit agreement has a
contractual maturity of May 6, 2024 and no principal payments are requiredprior to that date. However, we repay amounts outstanding and reborrow funds (1) based on our working capital requirements. Therefore, the current portion of
the working capital revolving credit facility included in the accompanying
consolidated balance sheets is the amount we expect to pay down during the
course of the year, and the long-term portion of the working capital
revolving credit facility is the amount we expect to be outstanding during
the entire year. Please read "-Credit Agreement" for more information on our
working capital revolving credit facility.
Includes principal and interest on our senior notes. No principal payments (2) are required prior to maturity. See "-Liquidity and Capital Resources-Senior
Notes" for additional information.
Includes operating lease obligations related to leases for office space and (3) computer equipment, land, gasoline stations, railcars and barges. See Note 3
of Notes to Consolidated Financial Statements for additional information.
Includes amounts related to our brand fee agreement and amounts related to (4) our pipeline connection agreements, access right agreements and our pension
and deferred compensation obligations.
Includes lease rental payments in connection with (i) the acquisition ofproperty assets and convenience stores. See "-Liquidity and Capital
Resources-Financing Obligations" for additional information .
See Note 3 of Notes to Consolidated Financial Statements with respect to sublease information related to certain lease agreements and Note 11 of Notes to Consolidated Financial Statements with respect to purchase commitments.
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
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
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expansion capital expenditures, including acquisitions, for the years ended
In 2021, the
In 2020, the
We currently expect maintenance capital expenditures of approximately
We believe that we will have sufficient cash flow from operations, borrowing capacity under our credit agreement and the ability to issue additional equity and/or debt securities to meet our financial commitments, debt service obligations, contingencies and anticipated capital expenditures. However, we are subject to business and operational risks, including uncertainties related to the extent and duration of the COVID-19 pandemic and geopolitical events, each of which could adversely affect our cash flow. A material decrease in our cash flows would likely have an adverse effect on our borrowing capacity as well as our ability to issue additional equity and/or debt securities.
Cash Flow
The following table summarizes cash flow activity for the years ended
2021 2020
Net cash provided by operating activities $ 50,218 $ 312,526
Net cash used in investing activities $ (115,050) $ (69,728) Net cash provided by (used in) financing activities
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
Except for net income, the primary drivers of the changes in operating
activities include the following for the years ended
2021 2020
(Increase) decrease in accounts receivable
$ (123,889) $ 65,588
Increase (decrease) in accounts payable
In 2021, the increases in accounts receivable, inventories and accounts payable are largely due to the increase in prices.
In 2020, the decreases in accounts receivable, inventories and accounts payable are largely due to the decrease
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in prices, primarily caused by the COVID-19 pandemic and geopolitical events.
Investing Activities
Net cash used in investing activities was
Net cash used in investing activities was
Please read "-Capital Expenditures" for a discussion of our capital expenditures
for the years ended
Financing Activities
Net provided by financing activities was
Net cash used in financing activities was
See Note 8 of Notes to Consolidated Financial Statement for supplemental cash flow information related to our working capital revolving credit facility and revolving credit facility for 2021 and 2020.
Credit Agreement
Certain subsidiaries of ours, as borrowers, and we and certain of our
subsidiaries, as guarantors, have a
There are two facilities under the credit agreement:
a working capital revolving credit facility to be used for working capital
? purposes and letters of credit in the principal amount equal to the lesser of
our borrowing base and
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? a
purposes.
In addition, the credit agreement has an accordion feature whereby we may
request on the same terms and conditions then applicable to the credit
agreement, provided no Event of Default (as defined in the credit agreement)
then exists, an increase to the working capital revolving credit facility, the
revolving credit facility, or both, by up to another
In addition, the credit agreement includes a swing line pursuant to which
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. Under the credit agreement, borrowings under the working capital revolving credit facility cannot exceed the then current borrowing base. 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. These and other events could require us to seek waivers or amendments of covenants or alternative sources of financing or to reduce expenditures. We can provide no assurance that such waivers, amendments or alternative financing could be obtained or, if obtained, would be on terms acceptable to us.
Borrowings under the working capital revolving credit facility bear interest at (1) the Eurocurrency rate plus 2.00% to 2.50%, (2) the cost of funds rate plus 2.00% to 2.50%, or (3) the base rate plus 1.00% to 1.50%, each depending on the Utilization Amount (as defined in the credit agreement). Borrowings under the revolving credit facility bear interest at (1) the Eurocurrency rate plus 1.75% to 2.75%, (2) the cost of funds rate plus 1.75% to 2.75%, or (3) the base rate plus 0.75% to 1.75%, each depending on the Combined Total Leverage Ratio (as defined in the credit agreement).
The average interest rates for the credit Agreement were 2.4% and 2.9% for the
years ended
On
The credit agreement provides for a letter of credit fee equal to the then applicable working capital rate or then applicable revolver rate (each such rate as defined in the credit agreement) per annum for each letter of credit issued. In addition, we incur a commitment fee on the unused portion of each facility under the credit agreement, ranging from 0.35% to 0.50% per annum.
As of
The credit agreement is secured by substantially all of our assets and the assets of our wholly owned subsidiaries and is guaranteed by us and certain of our subsidiaries.
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The credit agreement also includes certain baskets, including (i) a
In addition, the credit agreement provides the ability for the borrowers to
repay certain junior indebtedness, subject to a
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
Senior Notes
6.875% Senior Notes Due 2029
On
In connection with the private placement of the 2029 Notes, the Issuers and the
subsidiary guarantors and
The 2029 Notes mature on
The Issuers have the option to redeem up to 35% of the 2029 Notes prior to
The 2029 Notes Indenture contains covenants that limit our ability to, among other things, incur additional indebtedness and issue preferred securities, make certain dividends and distributions, make certain investments and other
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restricted payments, restrict distributions by its subsidiaries, create liens,
sell assets or merge with other entities. Events of default under the 2029 Notes
Indenture include (i) a default in payment of principal of, or interest or
premium, if any, on, the 2029 Notes, (ii) breach of our covenants under the 2029
Notes Indenture, (iii) certain events of bankruptcy and insolvency, (iv) any
payment default or acceleration of indebtedness of ours or certain subsidiaries
if the total amount of such indebtedness unpaid or accelerated exceeds
7.00% Senior Notes Due 2027
On
In connection with the private placement of the 2027 Notes on
The 2027 Notes mature on
Prior to
The 2027 Notes Indenture contains covenants that will limit our ability to,
among other things, incur additional indebtedness and issue preferred
securities, make certain dividends and distributions, make certain investments
and other restricted payments, restrict distributions by our subsidiaries,
create liens, sell assets or merge with other entities. Events of default under
the 2027 Notes Indenture include (i) a default in payment of principal of, or
interest or premium, if any, on, the 2027 Notes, (ii) breach of our covenants
under the 2027 Notes Indenture, (iii) certain events of bankruptcy and
insolvency, (iv) any payment default or acceleration of indebtedness of ours or
certain subsidiaries if the total amount of such indebtedness unpaid or
accelerated exceeds
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Financing Obligations
Capitol Acquisition
In connection with the
Interest expense of approximately
Sale-Leaseback Transaction
In connection with a sale in
In connection with this transaction, we recognized a corresponding financing
obligation of
Environmental Matters
Our businesses of purchasing, storing, supplying and distributing refined petroleum products, gasoline blendstocks, renewable fuels, crude oil and propane and other business activities, involves a number of activities that are subject to extensive and stringent environmental laws. For a complete discussion of the environmental laws and regulations affecting our businesses, please read Items 1 and 2, "Business and Properties-Environmental." For additional information regarding our environmental liabilities, see Note 14 of Notes to Consolidated Financial Statements included elsewhere in this report.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with
Certain of these accounting policies require the use of estimates. These estimates are based on our knowledge and understanding of current conditions and actions that we may take in the future. Changes in these estimates will occur as a result of the passage of time and the occurrence of future events. Subsequent changes in these estimates may have a significant impact on our financial condition and results of operations and are recorded in the period in which they become known; therefore, our actual results could differ from these estimates under different assumptions or conditions. We believe our critical accounting estimates that are subjective in nature, require the exercise of judgment and involve
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complex analysis include the valuation of physical forward derivative contracts, valuation of goodwill and environmental liabilities.
Valuation of Physical Forward Derivative Contracts
As described in Note 9 and Note 10 of Notes to Consolidated Financial
Statements, we enter into different commodity contracts that qualify as
derivative instruments. These include physical forward purchase and sale
contracts and are accounted for at fair value. These contracts are considered
Level 2 and Level 3 derivative instruments under the fair value hierarchy as
inputs used to determine fair value are not quoted prices in active markets. As
of
Accounting for the fair value measurement of physical forward derivative instruments is complex given the judgmental nature of the assumptions used as inputs into the valuation models. These include inputs used to value commodity products at locations whereby active market pricing may not be available. These assumptions are forward-looking and could be affected by future economic and market conditions.
We utilize published and quoted prices, broker quotes, and estimates of market prices to estimate the fair value of these contracts; however, actual amounts could vary materially from estimated fair values as a result of changes in market prices. In addition, changes in the methods used to determine the fair value of these contracts could have a material effect on our results of operations. We do not anticipate future changes in the methods used to determine the fair value of these derivative contracts.
Valuation of
We allocate the fair value of the purchase price associated in a business combination to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill and allocated to our reporting units based on the future expected benefit arising from the business combination.
Such valuations require management to make significant estimates and assumptions. Management's estimates of fair value are based upon assumptions believed to be reasonable at the time, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
We have concluded that our operating segments are also our reporting units.
All of our goodwill is allocated to the GDSO segment. During 2021 and 2020, we completed a quantitative assessment for the GDSO reporting unit. Factors included in the assessment included both macro-economic conditions and industry specific conditions, and the fair value of the GDSO reporting unit was estimated using a weighted average of a discounted cash flow approach and a market comparables approach. Based on our assessment, no impairment was identified.
Environmental and Other Liabilities
We record accrued liabilities for all direct costs associated with the estimated resolution of contingencies at the earliest date at which it is deemed probable that a liability has been incurred and the amount of such liability can be
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reasonably estimated. Costs accrued are estimated based upon an analysis of potential results, assuming a combination of litigation and settlement strategies and outcomes.
Estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Loss accruals are adjusted as further information becomes available or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recognized when related contingencies are resolved, generally upon cash receipt.
We are subject to other contingencies, including legal proceedings and claims arising out of our businesses that cover a wide range of matters, including, environmental matters and contract and employment claims. Environmental and other legal proceedings may also include matters with respect to businesses previously owned. Further, due to the lack of adequate information and the potential impact of present regulations and any future regulations, there are certain circumstances in which no range of potential exposure may be reasonably estimated.
Recent Accounting Pronouncements
A description and related impact expected from the adoption of certain new accounting pronouncements is provided in Note 2 of Notes to Consolidated Financial Statements included elsewhere in this report.
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