GLOBAL PARTNERS LP The following discussion and analysis of financial condition and results of
operations of
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:
We may not have sufficient cash from operations to enable us to pay
distributions on the Series A Preferred Units or the Series B Preferred Units ? (each as defined in Note 12 of Notes to Consolidated Financial Statements) or
maintain distributions on our common units at current levels following
establishment of cash reserves and payment of fees and expenses, including
payments to our general partner.
A significant decrease in price or demand for the products we sell or a ? significant decrease in the pricing of and demand for our logistics activities
could have an adverse effect on our financial condition, results of operations
and cash available for distribution to our unitholders.
The COVID-19 pandemic and certain developments in global oil markets have had,
and may from time to time 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 operation and
those of our customers, suppliers and other counterparties.
The impact on the global economy and commodity prices resulting from the
? conflict in
results of operations.
?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 that adversely impact the market for transporting these products by rail or otherwise could adversely affect those activities. In addition, implementation of regulations and directives related to these aforementioned services as well as a disruption in any of these transportation services could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.
?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, which has resulted and could continue to result in a decrease in the utilization of our transportation assets, could negatively impact our financial condition, results of operations and cash available for distribution to our unitholders.
We may not be able to fully implement or capitalize upon planned growth
projects. Even if we consummate acquisitions or expend capital in pursuit of ? growth projects that we believe will be accretive, they may in fact result in
no increase or even a decrease in cash available for distribution to our
unitholders.
?Erosion of the value of major gasoline brands could adversely affect our gasoline sales and customer traffic.
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?Our gasoline 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. In addition to new technologies and alternative fuel sources, 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. Any of these outcomes could negatively affect our financial condition, results of operations and cash available for distribution to our unitholders.
?Physical effects from climate change and impacts to areas prone to sea level rise or other extreme weather events could have the potential to adversely affect our assets and operations.
?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. ?Our petroleum and related products sales, logistics activities, convenience store operations and results of operations have been and could continue to be adversely affected by, among other things, changes in the petroleum products market structure, product differentials and volatility (or lack thereof), implementation of regulations that adversely impact the market for transporting petroleum and related products by rail and other modes of transportation, severe weather conditions, significant changes in prices, labor shortages and interruptions in transportation services and other necessary services and equipment, such as railcars, barges, trucks, loading equipment and qualified drivers. ?Our risk management policies cannot eliminate all commodity risk, basis risk or the impact of unfavorable market conditions, each of which can adversely affect our financial condition, results of operations and cash available for distribution to our unitholders. In addition, noncompliance with our risk management policies could result in significant financial losses.
?Our results of operations are affected by the overall forward market for the products we sell, and pricing volatility may adversely impact our results.
?Our businesses could be affected by a range of issues, such as changes in demand, commodity prices, energy conservation, competition, the global economic climate, movement of products between foreign locales and withinthe United States , changes in refiner demand, weekly and monthly refinery output levels, changes in the rate of inflation or deflation, changes in local, domestic and worldwide inventory levels, changes in health, safety and environmental regulations, including, without limitation, those related to climate change, failure to obtain permits, amend existing permits for expansion and/or to address changes to our assets and underlying operations, or renew existing permits on terms favorable to us, seasonality, supply, weather and logistics disruptions and other factors and uncertainties inherent in the transportation, storage, terminalling and marketing of refined products, gasoline blendstocks, renewable fuels and crude oil. ?Increases and/or decreases in the prices of the products we sell could adversely impact the amount of availability for borrowing working capital under our credit agreement, which credit agreement has borrowing base limitations and advance rates. ?Warmer weather conditions could adversely affect our home heating oil and residual oil sales. Our sales of home heating oil and residual oil continue to be reduced by conversions to natural gas and by utilization of propane and/or natural gas (instead of heating oil) as primary fuel sources.
?We are exposed to trade credit risk and risk associated with our trade credit support in the ordinary course of our businesses.
? The condition of credit markets may adversely affect our liquidity.
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Our credit agreement and the indentures governing our senior notes contain
operating and financial covenants, and our credit agreement contains borrowing ? base requirements. A failure to comply with the operating and financial
covenants in our credit agreement, the indentures and any future financing
agreements could impact our access to bank loans and other sources of financing
as well as our ability to pursue our business activities.
A significant increase in interest rates could adversely affect our results of ? operations and cash available for distribution to our unitholders and our
ability to service our indebtedness.
Our gasoline station and convenience store business could expose us to an ? increase in consumer litigation and result in an unfavorable outcome or
settlement of one or more lawsuits where insurance proceeds are insufficient or
otherwise unavailable.
regulate tobacco and nicotine 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.
?Our results can be adversely affected by unforeseen events, such as adverse weather, natural disasters, terrorism, cyber attacks, pandemics, or other catastrophic events which could have an adverse effect on our financial condition, results of operations and cash available for distributions to our unitholders.
Our businesses could expose us to litigation and result in an unfavorable ? outcome or settlement of one or more lawsuits where insurance proceeds are
insufficient or otherwise unavailable.
?Adverse developments in the areas where we conduct our businesses could have a material adverse effect on such businesses and could reduce our ability to make distributions to our unitholders.
?A serious disruption to our information technology systems could significantly limit our ability to manage and operate our businesses efficiently.
?We are exposed to performance risk in our supply chain.
?Our businesses are subject to federal, state and municipal environmental and non-environmental regulations which could have a material adverse effect on such businesses. ?Our general partner and its affiliates have conflicts of interest and limited fiduciary duties, which could permit them to favor their own interests to the detriment of our unitholders.
?Unitholders have limited voting rights and are not entitled to elect our general partner or its directors or remove our general partner without the consent of the holders of at least 66 2/3% of the outstanding common units (including common units held by our general partner and its affiliates), which could lower the trading price of our units.
?Our tax treatment depends on our status as a partnership for federal income tax purposes.
?Unitholders may be required to pay taxes on their share of our income even if they do not receive any cash distributions from us.
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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 endedDecember 31, 2021 and Part II, Item 1A, "Risk Factors," in this Quarterly Report on Form 10-Q. We expressly disclaim any obligation or undertaking to update these statements to reflect any change in our expectations or beliefs or any change in events, conditions or circumstances on which any forward-looking statement is based, other than as required by federal and state securities laws. All forward-looking statements included in this Quarterly Report on Form 10-Q and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.
Overview
We are a master limited partnership formed inMarch 2005 . We own, control or have access to one of the largest terminal networks of refined petroleum products and renewable fuels inMassachusetts ,Maine ,Connecticut ,Vermont ,New Hampshire ,Rhode Island ,New York ,New Jersey andPennsylvania (collectively, the "Northeast"). We are one of the region's largest independent owners, suppliers and operators of gasoline stations and convenience stores. As ofMarch 31, 2022 , we had a portfolio of 1,689 owned, leased and/or supplied gasoline stations, including 342 directly operated convenience stores, primarily in the Northeast. We are also one of the largest distributors of gasoline, distillates, residual oil and renewable fuels to wholesalers, retailers and commercial customers in theNew England states andNew 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 ofthe United States andCanada . Collectively, we sold approximately$4.4 billion of refined petroleum products, gasoline blendstocks, renewable fuels and crude oil for the three months endedMarch 31, 2022 . In addition, we had other revenues of approximately$0.1 billion for the three months endedMarch 31, 2022 from convenience store and prepared food sales at our directly operated stores, rental income from dealer leased and commissioned agent leased gasoline stations and from cobranding arrangements, and sundries. We base our pricing on spot prices, fixed prices or indexed prices and routinely use theNew York Mercantile Exchange ("NYMEX"),Chicago Mercantile Exchange ("CME") and Intercontinental Exchange ("ICE") or other counterparties to hedge the risk inherent in buying and selling commodities. Through the use of regulated exchanges or derivatives, we seek to maintain a position that is substantially balanced between purchased volumes and sales volumes or future delivery obligations.
Our Perspective on Global and the COVID-19 Pandemic
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.
2022 Events
Amendments to the Credit Agreement-On
Acquisition fromMiller Oil Co., Inc. -OnFebruary 1, 2022 , we acquired substantially all of the retail motor fuel assets fromMiller Oil Co., Inc. ("Miller Oil") for approximately$60.2 million , including inventory, funded with borrowings under our revolving credit facility. The acquisition includes 21 company-operated Miller's Neighborhood Market convenience stores and 2 fuel sites that are either owned or leased, including lessee dealer and commissioned agent locations, all located inVirginia , and 34 fuel supply only sites, primarily inVirginia . See Note 2 of Notes to Consolidated Financial Statements. Acquisition fromConsumers Petroleum of Connecticut Incorporated -OnJanuary 25, 2022 , we acquired substantially all of the assets fromConsumers Petroleum of Connecticut, Incorporated ("Consumers Petroleum") for approximately$154.7 million , including inventory, funded with borrowings under our revolving credit facility. The acquisition includes 26 company-owned Wheels convenience stores and related fuel operations located inConnecticut and 22 fuel-supply only sites located inConnecticut andNew York . The purchase price, subject to post-closing adjustments, was approximately$154.7 million , including inventory, funded with borrowings under our revolving credit facility. See Note 2 of Notes to Consolidated Financial Statements.
Operating Segments
We purchase refined petroleum products, gasoline blendstocks, renewable fuels
and crude oil primarily from domestic and foreign refiners and ethanol
producers, crude oil producers, major and independent oil companies and trading
companies. We operate our businesses under three segments: (i) Wholesale,
(ii) Gasoline Distribution and Station Operations ("GDSO") and (iii) Commercial.
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 ofthe United States andCanada , transport it by rail and ship it by barge to refiners. We sell home heating oil, branded and unbranded gasoline and gasoline blendstocks, diesel, 37
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kerosene and residual oil to home heating oil retailers and wholesale
distributors. Generally, customers use their own vehicles or contract carriers
to take delivery of the gasoline, distillates and propane at bulk terminals and
inland storage facilities that we own or control or at which we have throughput
or exchange arrangements. Ethanol is shipped primarily by rail and by barge.
In our Wholesale segment, we obtain Renewable Identification Numbers ("RIN") in
connection with our purchase of ethanol which is used for bulk trading purposes
or for blending with gasoline through our terminal system. A RIN is a renewable
identification number associated with government-mandated renewable fuel
standards. To evidence that the required volume of renewable fuel is blended
with gasoline, obligated parties must retire sufficient RINs to cover their
Renewable Volume Obligation ("RVO"). Our U.S. Environmental Protection Agency
("EPA ") obligations relative to renewable fuel reporting are comprised of
foreign gasoline and diesel that we may import and blending operations at
certain facilities.
Gasoline Distribution and Station Operations
In our GDSO segment, gasoline distribution includes sales of branded and unbranded gasoline to gasoline station operators and sub-jobbers. Station operations include (i) convenience store and prepared food sales, (ii) rental income from gasoline stations leased to dealers, from commissioned agents and from cobranding arrangements and (iii) sundries (such as car wash sales and lottery and ATM commissions).
As of
Company operated 342 Commissioned agents 293 Lessee dealers 196 Contract dealers 858 Total 1,689 At our company-operated stores, we operate the gasoline stations and convenience stores with our employees, and we set the retail price of gasoline at the station. At commissioned agent locations, we own the gasoline inventory, and we set the retail price of gasoline at the station and pay the commissioned agent a fee related to the gallons sold. We receive rental income from commissioned agent leased gasoline stations for the leasing of the convenience store premises, repair bays and/or other businesses that may be conducted by the commissioned agent. At dealer-leased locations, the dealer purchases gasoline from us, and the dealer sets the retail price of gasoline at the dealer's station. We also receive rental income from (i) dealer-leased gasoline stations and (ii) cobranding arrangements. We also supply gasoline to locations owned and/or leased by independent contract dealers. Additionally, we have contractual relationships with distributors in certainNew England states pursuant to which we source and supply these distributors' gasoline stations with ExxonMobil-branded gasoline.
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.
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Travel and recreational activities are typically higher in these months in the geographic areas in which we operate, increasing the demand for gasoline. Therefore, our volumes in gasoline are typically higher in the second and third quarters of the calendar year. However, the COVID-19 pandemic has had a negative impact on gasoline demand and the extent and duration of that impact remains uncertain. As demand for some of our refined petroleum products, specifically home heating oil and residual oil for space heating purposes, is generally greater during the winter months, heating oil and residual oil volumes are generally higher during the first and fourth quarters of the calendar year. These factors may result in fluctuations in our quarterly operating results.
Outlook
This section identifies certain risks and certain economic or industry-wide factors, in addition to those described under "-Our Perspective on Global and the COVID-19 Pandemic," that may affect our financial performance and results of operations in the future, both in the short-term and in the long-term. Our results of operations and financial condition depend, in part, upon the following:
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 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
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(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 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,
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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 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
pursuant to the Energy Policy 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
assigned to each gallon of renewable fuel produced in or imported into the
cannot predict the future prices of RINs. RIN prices are dependent upon a
variety of factors, including
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
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
oxygenate blending requirements. A 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
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
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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 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.
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Gross Profit
We define gross profit as our product margin minus terminal and gasoline station related depreciation expense allocated to cost of sales.
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are non-GAAP financial measures used as supplemental financial measures by management and may be used by external users of our consolidated financial statements, such as investors, commercial banks and research analysts, to assess:
? 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;
? 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.
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Selling, General and Administrative Expenses
Our SG&A expenses include, among other things, marketing costs, corporate overhead, employee salaries and benefits, pension and 401(k) plan expenses, discretionary bonuses, non-interest financing costs, professional fees and information technology expenses. Employee-related expenses including employee salaries, discretionary bonuses and related payroll taxes, benefits, and pension and 401(k) plan expenses are paid by our general partner which, in turn, are reimbursed for these expenses by us.
Operating Expenses
Operating expenses are costs associated with the operation of the terminals, transload facilities and gasoline stations and convenience stores used in our businesses. Lease payments, maintenance and repair, property taxes, utilities, credit card fees, taxes, labor and labor-related expenses comprise the most significant portion of our operating expenses. While the majority of these expenses remains relatively stable, independent of the volumes through our system, they can fluctuate depending on the activities performed during a specific period. In addition, they can be impacted by new directives issued by federal, state and local governments.
Degree Days
A "degree day" is an industry measurement of temperature designed to evaluate energy demand and consumption. Degree days are based on how far the average temperature departs from a human comfort level of 65°F. Each degree of temperature above 65°F is counted as one cooling degree day, and each degree of temperature below 65°F is counted as one heating degree day. Degree days are accumulated each day over the course of a year and can be compared to a monthly or a long-term (multi-year) average, or normal, to see if a month or a year was warmer or cooler than usual. Degree days are officially observed by theNational Weather Service and officially archived by theNational Climatic Data Center . For purposes of evaluating our results of operations, we use the normal heating degree day amount as reported by theNational Weather Service at itsLogan International Airport station inBoston, Massachusetts . 44 Table of Contents 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): Three Months Ended March 31, 2022 2021 Net income (loss)$ 30,485 $ (4,297) EBITDA (1)$ 79,837 $ 40,907 Adjusted EBITDA (1)$ 74,926 $ 40,432
Distributable cash flow (2)(3)$ 49,877 $
13,954 Wholesale Segment: Volume (gallons) 976,837 885,437 Sales Gasoline and gasoline blendstocks$ 1,420,226 $
819,398
Other oils and related products (4) 1,356,003 715,169 Crude oil (5) 1,474 16,918 Total$ 2,777,703 $ 1,551,485 Product margin
Gasoline and gasoline blendstocks$ (2,285) $
16,405
Other oils and related products (4) 53,122
18,615 Crude oil (5) (3,749) (4,527) Total$ 47,088 $ 30,493 Gasoline Distribution and Station Operations Segment: Volume (gallons) 376,486 334,104 Sales Gasoline$ 1,276,961 $ 756,008 Station operations (6) 115,892 100,164 Total$ 1,392,853 $ 856,172 Product margin Gasoline$ 114,886 $ 80,252 Station operations (6) 58,097 50,157 Total$ 172,983 $ 130,409 Commercial Segment: Volume (gallons) 116,802 81,431 Sales$ 329,982 $ 145,670 Product margin$ 8,141 $ 4,190 Combined sales and product margin: Sales$ 4,500,538 $
2,553,327
Product margin (7)$ 228,212 $
165,092
Depreciation allocated to cost of sales (21,974)
(20,060)
Combined gross profit$ 206,238 $
145,032
GDSO portfolio as ofMarch 31, 2022 and 2021: 2022
2021
Company operated 342 283
Commissioned agents 293 281
Lessee dealers 196 206
Contract dealers 858 796
Total GDSO portfolio 1,689 1,566
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Three Months Ended
March 31,
2022 2021
Weather conditions:
Normal heating degree days 2,870 2,870
Actual heating degree days 2,768
2,700
Variance from normal heating degree days (4) % (6) % Variance from prior period actual heating degree days 3 %
16 %
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 our
partnership 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.
Distributable cash flow includes a net gain on sale and disposition of assets
(3) of
and 2021, respectively.
(4) Other oils and related products primarily consist of distillates and residual
oil.
(5) Crude oil consists of our crude oil sales and revenue from our logistics
activities.
(6) 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 under (7) "-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 for
each period presented (in thousands):
Three Months Ended
March 31,
2022 2021
Reconciliation of net income (loss) to EBITDA and Adjusted
EBITDA:
Net income (loss) $ 30,485 $ (4,297)
Depreciation and amortization 26,701 24,975
Interest expense 21,474 20,359
Income tax expense (benefit) 1,177 (130)
EBITDA 79,837 40,907Net gain on sale and disposition of assets (4,911)
(475)
Adjusted EBITDA$ 74,926
Reconciliation of net cash provided by (used in) operating activities to EBITDA and Adjusted EBITDA: Net cash provided by (used in) operating activities
$ 22,628 $ (105,983) Net changes in operating assets and liabilities and certain non-cash items 34,558 126,661 Interest expense 21,474 20,359 Income tax expense (benefit) 1,177 (130) EBITDA 79,837 40,907
Net gain on sale and disposition of assets (4,911)
(475)
Adjusted EBITDA $ 74,926 $ 40,432 The following table presents reconciliations of distributable cash flow to the
most directly comparable GAAP financial measures on a historical basis for each
period presented (in thousands):
Three Months Ended
March 31,
2022 2021
Reconciliation of net income (loss) to distributable cash
flow:
Net income (loss) $ 30,485 $ (4,297)
Depreciation and amortization 26,701 24,975Amortization of deferred financing fees 1,390
1,344
Amortization of routine bank refinancing fees (1,181)
(1,037)
Maintenance capital expenditures (7,518)
(7,031)
Distributable cash flow (1)(2) 49,877
13,954
Distributions to preferred unitholders (3) (3,463)
(1,820)
Distributable cash flow after distributions to preferred unitholders$ 46,414
Reconciliation of net cash provided by (used in) operating activities to distributable cash flow: Net cash provided by (used in) operating activities
$ 22,628
34,558 126,661
Amortization of deferred financing fees 1,390
1,344
Amortization of routine bank refinancing fees (1,181)
(1,037)
Maintenance capital expenditures (7,518)
(7,031)
Distributable cash flow (1)(2) 49,877
13,954
Distributions to preferred unitholders (3) (3,463)
(1,820)
Distributable cash flow after distributions to preferred unitholders$ 46,414
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 includes a net gain on sale and disposition of assets
(2) of
and 2021, respectively.
Distributions to preferred unitholders represent the distributions payable to
the Series A preferred unitholders and the Series B preferred unitholders (3) earned during the period. These distributions are cumulative and payable
quarterly in arrears on February 15 , May 15 , August 15 and November 15 of
each year.
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Results of Operations
Consolidated Sales
Our total sales were $4.5 billion and $2.6 billion for the three months ended
March 31, 2022 and 2021, respectively, an increase of $1.9 billion , or 73%, due
to increases in prices and volume sold. Our aggregate volume of product sold was
1.5 billion gallons and 1.3 billion gallons for the three months ended March 31,
2022 and 2021, respectively, increasing 168 million gallons including an
increase of 91 million gallons in our Wholesale segment due to increased volume
in gasoline and gasoline blendstocks and other oils and related products, offset
by a decline in volume in crude oil, and increases of 42 million gallons and
35 million gallons in our GDSO and Commercial segments, respectively.
Gross Profit
Our gross profit was$206.2 million and$145.0 million for the three months endedMarch 31, 2022 and 2021, respectively, an increase of$61.2 million , or 42%, primarily in our GDSO segment, due to higher fuel margins (cents per gallon) and increased volume in gasoline distribution and improved margins in station operations due to increased activity at our convenience stores, both partially due to the acquisitions of Miller Oil and Consumers Petroleum (collectively the "Recent Acquisitions"). Our gross profit also benefitted from more favorable market conditions in other oils and related products in our Wholesale segment and improved margins in our Commercial segment. Our gross profit was negatively impacted in gasoline and gasoline blendstocks in our Wholesale segment due to less favorable market conditions.
Results for Wholesale Segment
Gasoline and Gasoline Blendstocks. Sales from wholesale gasoline and gasoline blendstocks were$1.4 billion and$0.8 billion for the three months endedMarch 31, 2022 and 2021, respectively, an increase of$0.6 billion , or 75%, primarily due to increases in prices and, to a lesser extent, volume sold. Our gasoline and gasoline blendstocks product margin was ($2.3 million ) and$16.4 million for the three months endedMarch 31, 2022 and 2021, respectively, a decrease of$18.7 million , or 114%, primarily due to less favorable market conditions. Other Oils and Related Products. Sales from other oils and related products (primarily distillates and residual oil) were$1.3 billion and$0.7 billion for the three months endedMarch 31, 2022 and 2021, respectively, an increase of$0.6 billion , or 86%, primarily due to an increase in prices and to higher distillate volume sold. Our product margin from other oils and related products was$53.1 million and$18.6 million for the three months endedMarch 31, 2022 and 2021, respectively, an increase of$34.5 million , or 185%, primarily due to more favorable market conditions largely in distillates but also in residual oil. Crude Oil. Crude oil sales and logistics revenues were$1.5 million and$16.9 million for the three months endedMarch 31, 2022 and 2021, respectively, a decrease of$15.4 million , or 91%, primarily due to a decrease in volume sold. Our crude oil product margin was ($3.7 million ) and ($4.5 million ) for the three months endedMarch 31, 2022 and 2021, respectively, an increase of$0.8 million , or 17%, primarily due to the expiration of a of a pipeline connection agreement in August of 2021.
Results for Gasoline Distribution and Station Operations Segment
Gasoline Distribution. Sales from gasoline distribution were$1.3 billion and$0.8 billion for the three months endedMarch 31, 2022 and 2021, respectively, an increase of$0.5 billion , or 63%, primarily due to an increase in prices and an increase in volume sold in part due to the Recent Acquisitions. Our product margin from gasoline distribution was$114.9 million and$80.2 million for the three months endedMarch 31, 2022 and 2021, respectively, an increase of$34.7 million , or 43%, primarily due to higher fuel margins (cents per gallon) and an increase in volume sold in part due to the Recent Acquisitions. 48
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Station Operations. Our station operations, which include (i) convenience store and prepared food sales at our directly operated stores, (ii) rental income from gasoline stations leased to dealers or from commissioned agents and from cobranding arrangements and (iii) sale of sundries, such as car wash sales and lottery and ATM commissions, collectively generated revenues of$115.9 million and$100.2 million for the three months endedMarch 31, 2022 and 2021, respectively, an increase of$15.7 million , or 16%. Our product margin from station operations was$58.1 million and$50.2 million for the three months endedMarch 31, 2022 and 2021, respectively, an increase of$7.9 million , or 16%. The increases in sales and product margin are primarily due to increases in activity at our convenience stores, in part due to the Recent Acquisitions.
Results for Commercial Segment
Our commercial sales were$330.0 million and$145.7 million for the three months endedMarch 31, 2022 and 2021, respectively, an increase of$184.3 million or 126%, due to increases in prices and volume sold. Our commercial product margin was$8.1 million and$4.2 million for the three months endedMarch 31, 2022 and 2021, respectively, an increase of$3.9 million , or 93%. The increases in sales and product margins are primarily due to an increase bunkering activity.
Selling, General and Administrative Expenses
SG&A expenses were$56.3 million and$46.3 million for the three months endedMarch 31, 2022 and 2021, respectively, an increase of$10.0 million , or 21%, including increases of$4.9 million in accrued discretionary incentive compensation,$2.4 million in wages and benefits and$2.7 million in various other SG&A expenses. Operating Expenses Operating expenses were$99.2 million and$80.5 million for the three months endedMarch 31, 2022 and 2021, respectively, an increase of$18.7 million , or 23%, including an increase of$18.8 million associated with our GDSO operations, including the Recent Acquisitions, in part due to increased credit card fees related to the increases in volume and price, higher salary expense and higher rent expense due in part to greater activity at our stores. Operating expenses associated with our terminal operations decreased$0.1 million .
Amortization Expense
Amortization expense related to intangible assets was
Net gain on sale and disposition of assets was$4.9 million and$0.5 million for the three months endedMarch 31, 2022 and 2021, respectively, primarily due
to the sale of GDSO sites. Interest Expense Interest expense was$21.5 million and$20.4 million for the three months endedMarch 31, 2022 and 2021, respectively, an increase of$1.1 million , due in part to higher average balances on our credit facilities primarily due to higher prices.
Income Tax (Expense) Benefit
Income tax (expense) benefit was ($1.2 million ) and$0.1 million for the three months endedMarch 31, 2022 and 2021, respectively. The respective income tax (expense) benefit reflects the income tax (expense) benefit from the operating results of GMG, which is a taxable entity for federal and state income tax
purposes.
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Liquidity and Capital Resources
Liquidity
Our primary liquidity needs are to fund our working capital requirements, capital expenditures and distributions and to service our indebtedness. Our primary sources of liquidity are cash generated from operations, amounts available under our working capital revolving credit facility and equity and debt offerings. Please read "-Credit Agreement" for more information on our working capital revolving credit facility.
Working capital was$292.5 million and$225.5 million atMarch 31, 2022 andDecember 31, 2021 , respectively, an increase of$67.0 million . Changes in current assets and current liabilities increasing our working capital primarily include an increase of$115.0 million in accounts receivable due to higher prices and decreases of$33.9 million in accrued expenses and other current liabilities and$26.1 million in the current portion of our working capital revolving credit facility for a total increase in working capital of$175.0 million . The increase in working capital was offset by an increase of$113.0 million in accounts receivable, also primarily due to higher prices.
Cash Distributions
Common Units
During 2022, we paid the following cash distribution to our common unitholders and our general partner:
Distribution Paid for the
Cash Distribution Payment Date Total Paid Quarterly Period Ended
$ 20.9 million Fourth quarter 2021 In addition, onApril 26, 2022 , the board of directors of our general partner declared a quarterly cash distribution of$0.5950 per unit ($2.38 per unit on an annualized basis) on all of our outstanding common units for the period fromJanuary 1, 2022 throughMarch 31, 2022 to our common unitholders of record as of the close of business onMay 9, 2022 . We expect to pay the total cash distribution of approximately$21.3 million onMay 13, 2022 .
Preferred Units
During 2022, we paid the following cash distributions to holders of the Series A Preferred Units and the Series B Preferred Units:
Series A Series B
Preferred Units Preferred Units Distribution Paid for the
Cash Distribution Payment Date Total Paid Total Paid Quarterly Period Covering
February 15, 2022 $ 1.7 million $ 1.8 million In addition, onApril 18, 2022 , the board of directors of our general partner declared a quarterly cash distribution of$0.609375 per unit ($2.4375 per unit on an annualized basis) on the Series A Preferred Units for the period fromFebruary 15, 2022 throughMay 14, 2022 to our Series A preferred unitholders of record as of the opening of business onMay 2, 2022 . We expect to pay the total cash distribution of approximately$1.7 million onMay 16, 2022 . The board of directors of our general partner also declared a quarterly cash distribution of$0.59375 per unit ($2.375 per unit on an annualized basis) on the Series B Preferred Units for the period fromFebruary 15, 2022 throughMay 14, 2022 to our Series B preferred unitholders of record as of the opening of business onMay 2, 2022 . We expect to pay the total cash distribution of approximately$1.8 million onMay 16, 2022 . 50 Table of Contents Contractual Obligations We have contractual obligations that are required to be settled in cash. The amounts of our contractual obligations atMarch 31, 2022 were as follows (in thousands): Payments Due by Period Remainder of Contractual Obligations 2022 Beyond 2022 Total
Credit facility obligations (1)
26,031 1,046,408 1,072,439
Operating lease obligations (3) 57,639 278,519 336,158 Other long-term liabilities (4) 120,123 64,755 184,878 Financing obligations (5)
11,470 113,449 124,919
Total $ 359,875 $ 1,987,982 $ 2,347,857 Includes principal and interest on our working capital revolving credit
facility and our revolving credit facility at
ratable payment through the expiration date. Our credit agreement has a
contractual maturity of
prior 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 Note 8 of Notes to Consolidated Financial
Statements in our Annual Report on Form 10-K for the year ended
2021 for additional information on our senior notes.
(3) Includes operating lease obligations related to leases for office space and
computer equipment, land, gasoline stations, railcars and barges.
Includes amounts related to our brand fee agreement and amounts related to (4) our pipeline connection agreement, 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. These transactions did not meet the (5) criteria for sale accounting and the lease rental payments are classified as
interest expense on the respective financing obligation and the pay-down of
the related financing obligation. See Note 8 of Notes to Consolidated
Financial Statement in our Annual Report on Form 10-K for the year ended
Capital Expenditures
Our operations require investments to maintain, expand, upgrade and enhance existing operations and to meet environmental and operational regulations. We categorize our capital requirements as either maintenance capital expenditures or expansion capital expenditures. Maintenance capital expenditures represent capital expenditures to repair or replace partially or fully depreciated assets to maintain the operating capacity of, or revenues generated by, existing assets and extend their useful lives. Maintenance capital expenditures also include expenditures required to maintain equipment reliability, tank and pipeline integrity and safety and to address certain environmental regulations. We anticipate that maintenance capital expenditures will be funded with cash generated by operations. We had approximately$7.5 million and$7.0 million in maintenance capital expenditures for the three months endedMarch 31, 2022 and 2021, respectively, which are included in capital expenditures in the accompanying consolidated statements of cash flows, of which approximately$7.1 million and$6.6 million for the three months endedMarch 31, 2022 and 2021, respectively, are related to our investments in our gasoline station business. Repair and maintenance expenses associated with existing assets that are minor in nature and do not extend the useful life of existing assets are charged to operating expenses as incurred. Expansion capital expenditures include expenditures to acquire assets to grow our businesses or expand our existing facilities, such as projects that increase our operating capacity or revenues by, for example, increasing dock capacity and tankage, diversifying product availability, investing in raze and rebuilds and new-to-industry gasoline stations and convenience stores, increasing storage flexibility at various terminals and by adding terminals to our storage network. We have the ability to fund our expansion capital expenditures through cash from operations or our credit agreement or by issuing debt securities or additional equity. We had approximately$135.4 million and$9.9 million in 51
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expansion capital expenditures, including acquired property and equipment, for the three months endedMarch 31, 2022 and 2021, respectively, primarily related to investments in our gasoline station business. For the three months endedMarch 31, 2022 , the$135.4 million in expansion capital expenditures includes approximately$125.8 million in property and equipment associated with the acquisitions of Miller Oil and Consumers Petroleum (see Note 2 of Notes to Consolidated Financial Statements), and$9.6 million in expansion capital expenditures, primarily related to investments in our gasoline stations. We currently expect maintenance capital expenditures of approximately$45.0 million to$55.0 million and expansion capital expenditures, excluding acquisitions, of approximately$50.0 million to$60.0 million in 2022, relating primarily to investments in our gasoline station business. These current estimates depend, in part, on the timing of completion of projects, availability of equipment and workforce, weather, the scope and duration of the COVID-19 pandemic and unanticipated events or opportunities requiring additional maintenance or investments. We believe that we will have sufficient cash flow from operations, borrowing capacity under our credit agreement and the ability to issue additional equity and/or debt securities to meet our financial commitments, debt service obligations, contingencies and anticipated capital expenditures. However, we are subject to business and operational risks, including uncertainties related to the extent and duration of the COVID-19 pandemic and geopolitical events, each of which could adversely affect our cash flow. A material decrease in our cash flows would likely have an adverse effect on our borrowing capacity as well as our ability to issue additional equity and/or debt securities.
Cash Flow
The following table summarizes cash flow activity (in thousands):
Three Months Ended
March 31,
2022 2021
Net cash provided by (used in) operating activities
$ (206,800) $
(22,668)
Net cash provided by financing activities$ 184,157 $ 130,535 Operating Activities Cash flow from operating activities generally reflects our net income, balance sheet changes arising from inventory purchasing patterns, the timing of collections on our accounts receivable, the seasonality of parts of our businesses, fluctuations in product prices, working capital requirements and general market conditions. Net cash provided by (used in) operating activities was$22.6 million and ($105.9 million ) for the three months endedMarch 31, 2022 and 2021, respectively, for a period-over-period increase in cash flow from operating activities of$128.5 million . The period-over-period change was due primarily to an increase in prices during the three months endedMarch 31, 2022 as compared the same period in 2021. For example, NYMEX gasoline prices increased96 cents per gallon during the three months endedMarch 31, 2022 versus an increase of54 cents per gallon during the three months endedMarch 31, 2021 .
Except for net income, the primary drivers of the changes in operating activities include the following (in thousands):
Three Months Ended
March 31,
2022 2021
Increase in accounts receivable
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For the three months ended March 31, 2022 , the increases in accounts receivable
and accounts payable are largely due to the increase in prices. The decrease in
inventories is primarily due to carrying lower levels of inventories during the
quarter, offset by the increase in prices.
For the three months ended
Investing Activities
Net cash used in investing activities was$206.8 million for the three months endedMarch 31, 2022 and included$214.9 million in acquisitions ($154.7 million for Consumers Petroleum and$60.2 million for Miller Oil),$9.6 million in expansion capital expenditures and$7.5 million in maintenance capital expenditures. Net cash used in investing activities was offset by$25.2 million in proceeds from the sale of property and equipment. Net cash used in investing activities was$22.7 million for the three months endedMarch 31, 2021 and included$9.9 million in expansion capital expenditures,$7.0 million in maintenance capital expenditures,$7.1 million in acquisitions primarily related to four company-operated gasoline stations and convenience stores, and$1.7 million in seller note issuances which represent notes we received from buyers in connection with the sale of certain of our gasoline stations. Net cash used in investing activities was offset by$3.0 million in proceeds from the sale of property and equipment.
Please read "-Capital Expenditures" for a discussion of our capital expenditures
for the three months ended
Financing Activities
Net provided by financing activities was$184.2 million for the three months endedMarch 31, 2022 and included$184.6 million in net borrowings from our revolving credit facility, primarily to fund the Recent Acquisitions offset by payments on our revolving credit facility, and$23.9 million in net borrowing from our working capital revolving credit facility due primarily to the increase in prices, offset by$24.3 million in cash distributions to our limited partners (preferred and common unitholders) and our general partner. Net cash provided by financing activities was$130.5 million for the three months endedMarch 31, 2021 and included$168.0 million in net borrowings from our working capital revolving credit facility due primarily to the increase in prices and$72.2 million in net proceeds from the issuance of the Series B Preferred Units, offset by$88.6 million in net payments on our revolving credit facility and$21.0 million in cash distributions to our limited partners (preferred and common unitholders) and our general partner. The proceeds from the issuance of the Series B units were used to pay down the revolving credit facility. See Note 7 of Notes to Consolidated Financial Statements for supplemental cash flow information related to our working capital revolving credit facility and revolving credit facility.
Credit Agreement
Certain subsidiaries of ours, as borrowers, and we and certain of our
subsidiaries, as guarantors, have a
OnMarch 9, 2022 , we and certain of our subsidiaries entered into a sixth amendment to the credit agreement which, among other things, amended certain terms and provisions of the credit agreement to provide for$200.0 million of working capital interim commitments which increased the total aggregate commitment from$1.35 billion to$1.55 billion . OnMarch 30, 2022 , we certain of our subsidiaries entered into a seventh amendment to the credit agreement which, among other things, (i) increased the working capital revolving credit facility by$200.0 million and simultaneous reduced the working capital interim commitments to$0 ; (ii) refreshed the accordion feature under the credit agreement to permit us to request increases of up to$300.0 million in the total credit facility; and (iii) replaced the 53
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Cost of Funds (as defined in the credit agreement) pricing option with a Daily SOFR pricing option. All other material terms of the credit agreement remain substantially the same as disclosed in Note 8 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . We repay amounts outstanding and reborrow funds based on our working capital requirements and, therefore, classify as a current liability the portion of the working capital revolving credit facility we expect to pay down during the course of the year. The long-term portion of the working capital revolving credit facility is the amount we expect to be outstanding during the entire year.
There are two facilities under the credit agreement:
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
? 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$300.0 million , in the aggregate, for a total credit facility of up to$1.85 billion . Any such request for an increase must be in a minimum amount of$25.0 million . We cannot provide assurance, however, that our lending group will agree to fund any request by us for additional amounts in excess of the total available commitments of$1.55 billion . In addition, the credit agreement includes a swing line pursuant to whichBank of America, N.A ., as the swing line lender, may make swing line loans inU.S. dollars in an aggregate amount equal to the lesser of (a)$75.0 million and (b) the Aggregate WC Commitments (as defined in the credit agreement). Swing line loans will bear interest at the Base Rate (as defined in the credit agreement). The swing line is a sub-portion of the working capital revolving credit facility and is not an addition to the total available commitments of$1.55 billion . Availability under the working capital revolving credit facility is subject to a borrowing base which is redetermined from time to time and based on specific advance rates on eligible current assets. Availability under the borrowing base may be affected by events beyond our control, such as changes in petroleum product prices, collection cycles, counterparty performance, advance rates and limits and general economic conditions. Borrowings under the working capital revolving credit facility bear interest at (1) the Daily or Term SOFR plus a 0.10% SOFR adjustment plus 2.00% to 2.50%, or (2) the base rate plus 1.00% to 1.50%, each depending on the Utilization Amount (as defined in the credit agreement). Borrowings under the revolving credit facility bear interest at (1) the Daily or Term SOFR plus a 0.10% SOFR adjustment plus 1.75% to 2.75%, or (2) the base rate plus 0.75% to 1.75%, each depending on the Combined Total Leverage Ratio (as defined in the credit agreement).
The average interest rates for the credit agreement were 2.3% and 2.7% for the
three months ended
As of
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 atMarch 31, 2022 . 54 Table of Contents 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 endedDecember 31, 2021 for additional information on the credit agreement. Senior Notes We had 7.00% senior notes due 2027 and 6.875% senior notes due 2029 outstanding atMarch 31, 2022 andDecember 31, 2021 . Please read Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Senior Notes" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 for additional information on these senior notes. Financing Obligations
We had financing obligations outstanding atMarch 31, 2022 andDecember 31, 2021 associated with historical sale-leaseback transactions that did not meet the criteria for sale accounting. Please read Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Financing Obligations" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 for additional information.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The significant accounting policies and estimates that we have adopted and followed in the preparation of our consolidated financial statements are detailed in Note 2 of Notes to Consolidated Financial Statements, "Summary of Significant Accounting Policies," included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . There have been no material changes in our policies that had a significant impact on our financial condition and results of operations for the periods covered in this report. During the three months endedMarch 31, 2022 , there has been no material change to our critical accounting estimates discussed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , with the addition of the following:
Business Combinations
Under the purchase method of accounting, we recognize tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. We record any excess of the purchase price over the fair value of the net tangible and intangible assets acquired as goodwill. The accounting for business combinations requires us to make significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing purchased dealer supply contracts include, in part, the expected use of the assets acquired, the expected useful life of another asset (or group of assets) related to the acquired assets and legal, regulatory or other contractual provisions that may limit the useful life of an acquired asset. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could experience impairment charges. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be accelerated or slowed.
Recent Accounting Pronouncements
A description and related impact expected from the adoption of certain new accounting pronouncements is provided in Note 17 of Notes to Consolidated Financial Statements included elsewhere in this report.
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